130345573 Finance Project Docx

SIKKIM MANIPAL UNIVERSITY

A Project Report on Financial Performance through Working Capital

Management at

TML Drivelines Ltd, Jamshedpur

+ =

SUBMITTED TO :

FACULTY GUIDE PROJECT GUIDE

Prof. Ritesh Kumar Mrs. Sunanya

Sikkim Manipal University Finance, TML Drivelines Ltd

Jamshedpur Jamshedpur

SUBMITTED BY :

Vineeta Agarwal (521023999)

DECLARATION

I hereby declare that project entitled A STUDY ON FINANCIAL

PERFORMANCE THROUGH WORKING CAPITAL

MANAGEMENT conducted at TML DRIVELINES LIMITED prepared

by me during the academic year 2012-2013 under the guidance of my project

mentor Mrs. Sunanya (Finance Manager) and my faculty guide Mr. Ritesh

Kumar.

I also declare that this project is result of my effort and has not been

submitted to any other Institute or University for the award of any degree or

personal favors whatsever. All the analysis and detail provided in the report

hold true to the best of my knowledge.

PLACE : Jamshedpur

DATE : VINEETA AGARWAL

ACKNOWLEDGEMENT

In the course of this project I got an insight into the automobile Industry,

came to know a lot about the basic working of an automobile Company.

Any work is not perfect and complete without the help & guidance from

other people .I hereby deeply express my gratitude to TML DRIVELINES

LIMITED for giving me an opportunity to work as a trainee at their

organization on topic A STUDY ON FINANCIAL PERFORMANCE

THROUGH WORKING CAPITAL MANAGEMENT.

I am extremely grateful to Mr. G.S.Ahuja (Chief Financial Officer, TML

Drivelines Ltd.) for granting permission to carry out the project work in his

department. My project mentor Mrs.Sunayana (Finance Manager, TML

Drivelines Ltd.) who has played a key role in completion of this project.

Without the knowledge, attention and time she has bestowed on me, this

project would have been simply impossible.

I would also like to thank Mr. Surya Mohan Sir for their immense support

and guidance which helped me in understanding various aspects of the

subject. I would also like to thank all the employees of the finance

department for their valuable support, cooperation & help.

I would fail to do my duty if I didnt take this opportunity to thank my faculty

guide Mr.Ritesh Kumar for his timely help and guidance. I would also like to

thanks Mrs.Nidhi Basu for providing their knowledge and assistance with

reference material, guidance and support for completion of the project.

Vineeta Agarwal

INDEX

Introduction

Project Title

Objectives of the project

Scope of the Study

Limitations of the Study

Methodology

Company Profile

The Automobile Industry

Tata Motors

Tata Groups

TML Drivelines Limited

Financial Highlights of the company

Ratio Analysis

Working Capital

Working Capital Management

Findings

Conclusion

Recommendations

Sources & Bibliography

PART- A

INTRODUCTION

PROJECT TITLE

A Project on Financial Performance through Working Capital Management at

TML Drivelines Ltd, Jamshedpur a 100% subsidiary of Tata Motors

OBJECTIVES OF THE PROJECT

To analyze the Financial Statement of TML drivelines Ltd. for the year

2007 -2008 to 2011-2012

To interpret the analysis and the trend of the Financial Result

To use various Activity Ratio and Liquidity Ratio to find out the

activities of Assets and Liabilities and to find out the Liquidity Position

of the Company

Standardize Financial information for Comparison

Evaluate Current Operation

Compare Performance with past performance

Compare Performance against Industry standard and other Firms

Study the Efficiency of Operation

Study the risk of Operations

SCOPE OF THE STUDY

The management of working capital helps us to maintain the working capital

at a satisfactory level by managing the current assets and current liabilities. It

also helps to maintain proper balance between profitability, risk and liquidity

of the business significantly. By managing the working capital, current

liabilities are paid in time. If the firm makes payment to it creditors for raw

material in time, it can have the availability of raw material regularly, which

doesnt cause any obstacles in production process. Adequate working capital increases paying capacity of the business but the excess working capital

causes more inventory, increases the possibility of delay in realization of

debts. On the other hand, absence of adequate working capital leads to

decrease in return on investment. The goodwill of the firm is also adversely

affected due to the inability to pay current liabilities in time. Hence, the

management of working capital helps to manage all the factors affecting the

working capital in the most profitable manner.

LIMITATIONS OF THE STUDY

Every project has its own limitations, so as ours. But we have to work

irrespective of these limitations and find our way, so that we can achieve the

required aim.

Some of the limitations of our project are: -

As our project is based on the data recorded by the company, we face the limitation of extracting that particular data because our access is

limited for the sake of confidential information of the company.

Another limitation is the un-audited MPRM statements, which leads to difference in the information of annual reports and monthly statements.

The grouping of different items in the balance sheet also created hindrances for us, as it is very difficult to identify which item is clubbed

with which head. But thanks to accounts personal who made it easy to

understand these clubbing.

There may be limitations to this study because the study duration (summer

training) is very short and its not possible to observe every aspect of working capital management practices.

METHODOLOGY

Research Type

Exploratory Type: - The Research is concerned with discovering the general

nature of Working Capital and the various Variables related to it.

Data Collection

Primary Sources

Annual Reports published by Company

Respondents of TML Drivelines Ltd.

Secondary Sources

Via Mail, SEC and Company Websites

Published collections of Data

Investments Site on the Web

Official Website of the Company

SAP

Data Presentation

Graphical ad Tabular representation of collected Data has been done to show

the Financial position of the TML Drivelines Firm.

Data Analysis and Interpretation

Here an analysis of the annual reports of the last Six fiscal years (2005-06 to

2010-11) has been done. Various ratios have been calculated to find out the

profitability and leverage of the firm.

Various working capital ratios has been calculated to observe the working

capital changes and comparisons have been made of the last six years. A

thorough study has been made about the Inventory management system of the

company and an effort has been made to find out how well the company

manages its inventories.

I have tried to evaluate the firms performance by using the past data of the

firm with the present data, by the time series analysis over the period of 5 to 6

years.

THE AUTOMOBILE INDUSTRY

Indian automobile industry has grown leaps and bounds since 1898, a time

when a car had touched the Indian streets for the first time. At present it holds

a promising tenth position in the entire world. The monthly sales of passenger

cars in India exceed 100,000 units . A surge in economic growth rate and

purchasing power led to growth in the Indian automobile industry, which

grew at a rate of 17% on an average. The industry provided employment to a

total of 13.1 million people as of 2006-07, which includes direct and indirect

employment. The export sector grew at a rate of 30% per year during early

21st century. India was one of the largest manufacturers of tractors in the

world in 2005-06, when it produced 2,93,000 units.

India is :

1. The second largest Two Wheeler manufacturer.

2. The Largest Tractor Manufacturer.

3. 4th largest Passenger Vehicle market in Asia.

4. 5th largest Commercial Vehicle manufacturer in the world.

5. The largest three wheeler market .

6. India has the fourth largest car market in the world.

THE INDIAN AUTOMOBILE SECTOR

The automotive industry in India is one of the largest in the world and one of

the fastest growing globally. India's passenger car and commercial vehicle

manufacturing industry is the sixth largest in the world, with an annual

production of more than 3.7 million units in 2010. According to recent

reports, India is set to overtake Brazil to become the sixth largest passenger

vehicle producer in the world, growing 16-18 per cent to sell around three

million units in the course of 2011-12. In 2009, India emerged as Asia's

fourth largest exporter of passenger cars, behind Japan, South Korea,

and Thailand. In 2010, India reached as Asia's third largest exporter of

passenger cars, behind Japan and South Korea beating Thailand.

As of 2010, India is home to 40 million passenger vehicles. More than 3.7

million automotive vehicles were produced in India in 2010 (an increase of

33.9%), making the country the second fastest growing automobile market in

the world. According to the Society of Indian Automobile Manufacturers,

annual vehicle sales are projected to increase to 5 million by 2015 and more

than 9 million by 2020.By 2050, the country is expected to top the world in

car volumes with approximately 611 million vehicles on the nation's roads.

The majority of India's car manufacturing industry is based around three

clusters in the south, west and north. The southern cluster near Chennai is the

biggest with 40% of the revenue share. The western hub near Maharashtra is

33% of the market. The northern cluster is primarily Haryana with

32%. Chennai, is also referred to as the "Detroit of India" with the India

operations of Ford, Hyundai, Renault and Nissan headquartered in the city

and BMW having an assembly plant on the outskirts. Chennai accounts for

60% of the country's automotive

exports.Gurgaon and Manesar in Haryana form the northern cluster where the

country's largest car manufacturer, Maruti Suzuki, is

based.The Chakan corridor near Pune, Maharashtra is the western cluster

with companies like General Motors, Volkswagen, Skoda, Mahindra and

Mahindra, Tata Motors, Mercedes Benz, Land Rover, Fiat and Force

Motors having assembly plants in the

area. Aurangabad with Audi, Skoda and Volkswagen also forms part of the

western cluster. Another emerging cluster is in the state of Gujarat with

manufacturing facility of General Motors in Halol and further planned

for Tata Nano at Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants are

also set to come up in Gujarat. Kolkatta with Hindustan

Motors, Noida with Honda and Bangalore with Toyota are some of the other

automotive manufacturing regions around the country.

Key Research Highlights

- Passenger car production in India is projected to cross three million units in

2014-15.

- Sales of passenger cars during 2008-09 to 2015-16 are expected to grow at a

CAGR of around 10%.

- Export of passenger cars is anticipated to rise more than the domestic sales

during 2008-09 to

2015-16.

- Motorcycle sales will perform positively in future, exceeding 10 Million

units by 2012-13.

- Value of auto component exports is likely to attain a double digit figure in

2012-13.

- Turnover of the Indian auto component industry is forecasted to surpass

US$ 50 Billion in 2014-15.

Major Manufacturers Of Automobiles in India:-

Tata Motors

Maruti Udyog Ltd.

General Motors India

Ford India Ltd.

Eicher Motors

Bajaj Auto

Daewoo Motors India

Hero Motors

Hindustan Motors

Hyundai Motor India Ltd.

Royal Enfield Motors

TVS Motors

DC Designs

Swaraj Mazda Ltd

PART- B COMPANY PROFILE

ORIGIN OF TATA MOTORS

TATA MOTORS, formely known as TELCO (Tata Engineering & Locomotive

Company) is a multinational corporation headquatered in Mumbai,India. It is a

largest automobile & commercial vehicle manufacturing company. The OICA

ranked it as the world 20th largest automaker, based on figures for 2006.

TATA MOTORS was established in the year 1945. It is a part of TATA

GROUP. It presence indeed cuts across the length and breadth of India. Over 3

million Tata vehicles runs on Indian roads, since the first rolled out in 1954.

Jamsetji Nusserwanji Tata starts a private trading firm, laying the foundation of

the Tata Group. The Tata Group comprises 96 operating companies in seven

business sectors: information systems and communications; engineering;

materials; services; energy; consumer products; and chemicals. The Group was

founded by Jamsetji Tata in the mid 19th century, a period when India had just

set out on the road to gaining independence from British rule. Consequently,

Jamsetji Tata and those who followed him aligned business opportunities with

the objective of nation building. This approach remains enshrined in the Group's

ethos to this day.

The Tata family of companies shares a set of five core values: integrity,

understanding, excellence, unity and responsibility. These values, which have

been part of the Group's beliefs and convictions from its earliest days, continue

to guide and drive the business decisions of Tata companies. The Group and its

enterprises have been steadfast and distinctive in their adherence to business

ethics and their commitment to corporate social responsibility.

TATA GROUP

TML Drivelines Ltd.(SUBSIDIARY OF TATA MOTORS)

TML Drivelines Limited (100% Subsidiary of Tata Motors Limited) is

predominantly in the business of manufacturing Axles & Transmissions for

Medium & Heavy Commercial Vehicles. The Company was earlier known as

HV Axles Limited (HVAL).HV Transmissions Limited (HVTL), (100%

Subsidiary of Tata Motors Limited) was amalgamated with HVAL. HVAL was

then renamed as TML Drivelines Limited w.e.f. 1st April 2011. Both the

companies has been formed a decade ago, by spun off of Axles &

Transmissions Division of Tata Motors and incorporated in March, 2000 to give

specialist focus on development and supplies of Axles and Transmissions for

Tata Motors, while Tata Motors concentrated on Vehicle Design, Integration &

Marketing. The Boards of the two Companies decided to amalgamate HVTL

into HVAL to harness synergies and graduate the two entities as a Total

Driveline Solutions Provider, backed with appropriate skills and expertise. With

the pooling and more efficient utilization of resources, the amalgamated

company, TML Drivelines Limited, has emerged as a stronger Organisation.

Presently TML Drivelines is located in Tata Motors Jamshedpur plant complex, and has immediate plans in place to have foot prints at other customer

locations. The new entity operates with two business verticals, Axles and

Transmissions, with common corporate functions like Finance, HR and ERC.

TML Drivelines operates as a Business To Business (B2B) entity. The

amalgamation has led to the following advantages:- a) Opportunity to emerge as

a Total Driveline Solutions Provider b) Harness synergies in terms of skills and

expertise c) Optimum utilization of resources and leverage economies of scale

d) Integrated R&D base e) Synergy in Supply Chain f) Stronger Financial Base

Axles & Transmissions as aggregates are very critical for Tata Motors, and

TML Drivelines provides Tata Motors with a distinct advantage in terms of

quality, cost and new products which supports their core competence. In fact

Tata Motors enjoys an overall perpetual cost advantage from TML Drivelines to

the tune of ~ 5% to 10% over competitors. TML Drivelines has also ventured

into LCV & Construction Equipment segment apart from providing aggregates

for M&HCV segment. TML Drivelines has set-up its own Design &

Development Centre ERC, where new models of Axles and Transmissions are being

designed jointly with Tata Motors ERC. This will help in speedy up-gradation of products in line with ever changing customer expectations and needs.

TML's core competencies are emphasized through excellence in engineering,

manufacturing standards & ultimate utilization of human potential.

The Strength of TML lies in:-

Strong Manufacturing Base

High Cost Competitiveness in Products offered.

Professional Management

Qualified & skilled manpower

Extensive experience & expertise in Transmissions Manufacturing acquired over the years ( Since year 1954).

Product portfolio capable of serving diverse needs (vehicles of varying power-weight ratios) & flexible to adaptation to vehicles of diverse makes

Initiatives like TPM, KAIZEN, 5S, 6 Sigma, ISO/TS 16949 :2002 (E)

'All resulting in an environment congenial for learning, creativity and

innovation

VISION, MISSION AND CORE VALUES OF TML:

Vision :-

To be a Globally admired Driveline Solutions provided for Commercial

Vehicles

Mission:-

To continuously create value for all Stakeholders and exceed their expectations

through:

Offering & Innovating Cost effective reliable solutions

Process excellence

Sustainable profitable growth

Safe & engagaed Employees

Capable supply chain

Care for community

Core Values :-

Safety First

Integrity

Customer Centric

Innovation

Accountability J. R. D Tata

Respect

Corporate Citizenship

No success or achievement in material terms is worthwhile unless it serves the needs or interests of

the country and its people and is achieved by fair and honest means.

MARKET SHARE OF TML DRIVELINES LTD.

TML Function in a harmonious atmosphere stemming from adopting of the

basic tenets of the Tata Groups philosophy of respect for employees and a high concern for their needs and welfare.

TMLS Culture is driven by ownership, responsibility and accountability at different levels which had led to sure, systematic and continues improvement

and learning. This is distinctly evident form quantum and sustained

improvements. One such example is the significant improvements of product.

The Culture Of TML is characterized by:

A passion for engineering and innovation among the employees-a major transformation of facilities in the past years has taken place with many

firsts in India such as unique high quality-low cost semi automated

assembly line, automated shim selection, conveyorised and automatic

painting, semi automated SqF line, 5-chamber shot blasting to mention

a few.

An increasing seamless work-culture through an approach of defining accountability that ensures empowerment and calls for involvement in

various functions of the organization to deliver objectives.

46 46

54.2 51

40.7

45.3 49.1 47.4

0

10

20

30

40

50

60

2007-2008 2008-2009 2009-2010 2010-2011

%

Market Share (Domestic CV Market)

Axles Transmission

A learning and collaborative culture fostered by soliciting externally sourced expertise which has led to setting up of modern facilities at

significantly low costs.

A team based culture with CFTs to achieve stretch targets on cost, quality and other key objectives. This culture, while fostering high

performance also enables TML to strengthen its Coe competency of

being the lowest cost manufacturer of M&HCV transmissions. In fact

during the recent down turn TML was not only able to maintain the

profit in the third and fourth quarters but also achieved marked

improvements in areas such as variable conversion cost.

MANAGEMENT

Boards of Director TML

Name Position Mr. R Pisharody Chairman

Mr. S B Borwankar Director

Mr. H K Sethna Director

Mr. N S Kulkarni Director

Mr. A A Gajendragadkar Director

Chief Executive Officer

Name Position Mr. A B Lall CEO

Chief Financial Officer

Name Position Mr. G S Ahuja CFO

Company Secretary

Name Position Mr. Vispi S Patel Company Secretary

RELATIONSHIP WITH TATA MOTORS The technical relationship between the Holding company TATA MOTORS

LTD. & subsidiary TML Drivelines LTD. is that of a Job worker. Job

working means performing some operations on the raw materials or

components of one organization by another organization, due to

specialization by the latter organization or outsourcing /not having required

capacity by the former organization. The latter organization is known as the

Job worker of the former one, for which the job worker gets revenue

commonly known as PROCESSING CHARGES.

The job worker gets the required material supply form the supplying

organization on which operations are performed and thereafter the output is

returned to the supplier for use in further production.

The job worker is a system where, the job worker processes the material &

components supplied to them into finished products & has to bear the

expenses of conversion, which is paid to them in the form of PROCESSING

CHARGES.

TML Drivelines supports Tata Motors by taking initiatives to reduce the

direct material cost in conjuction with Suppliers. TML Drivelines also

manages direct material inventory on behalf of Tata Motors.These are

important parameters for TML Drivelines relationship with Tata Motors.

Financial Highlights of the Company TML Drivelines Limited has an authorized share capital of 100,000,000 equity

shares of Rs. 10 each. It has issued, subscribed and paid up capital of

77,000,000equity shares of Rs. 10 each.

From being a loss making company in its initial years, it is now in the pink of

financial health. Production numbers have steadily moved up same to the sales.

All financial results of company have improved over the years as a reflection of

overall performance improvement.

As the amalgamation has taken place from 1st April 2011 and the results of

2011-12 are not available so the analysis has been done on HV Transmissions &

H V Axles results from 2005-06 to 2010-11.

TURNOVER In this encouraging scenario, the financial performance of the company has

also shown an improvement. In view of increase in demand in automobile

sector particularly in the commercial market,the companys net sales increased by 34.9%.

After a steady year on year growth in turnover since inception, the company

has achieved the highest turnover.

144

197 203

160

240

313

128

176 192

143

210

294

0

50

100

150

200

250

300

350

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Rs.

in C

rore

s

Turnover

Axles Transmission

Earnings before Interest, Taxes, Depreciation & Amortization (EBIDTA)

EBIDTA margin has gone up to 59.6% from 50.4% in case of Transmission

and 59.2% from 57.0% in case of Axle business during the last five years.

Increased revenue along with control over costs is the reason for the same.

56.80% 57.00% 56.60% 49.90%

57.70% 59.20%

44.80% 50.40% 51.30%

42.30%

55.20% 59.60%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

%

EBIDTA Margin

Axles Transmission

82

112 115

80

139

185

57

88 99

60

116

175

0

50

100

150

200

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Rs.

in C

rore

s

EBIDTA

Axles Transmission

Profit before Tax

Increase in revenue and reduction in operating costs also resulted in an all

time high profit before and after tax and earnings per Share.

Profit after Tax

69

96 86

41

95

140

46

74 72

26

77

135

0

20

40

60

80

100

120

140

160

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Rs.

in C

rore

s

Profit Before Tax

Axles Transmission

46

58 63

28

64

94

30

45 47

19

53

91

0

20

40

60

80

100

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Rs.

in C

rore

s

Profit After Tax

Axles Transmission

Earnings per Share

12.9 14.1

6.2

14.2

20.9

11.2 11.9

4.9

13.2

22.7

0

5

10

15

20

25

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Earnings Per Share

Axles Transmission

Products of TML Drivelines

RATIO ANALYSIS

Financial ratio analysis is the calculation and comparison of ratios which are

derived from the information in a company's financial statements. The level

and historical trends of these ratios can be used to make inferences about a

company's financial condition, its operations and attractiveness as an

investment.

This is the measure of inter relationship between different sections of the

financial statements which then is compared with the budgeted or forecasted

results, prior year results and or the Industrial results. To be most important

ratios must include a study of underlying data. Ratios should be taken as

guides that are useful in evaluating a companys financial position and operations and making comparisons with results in previous years or with

other companies. The primary purpose of ratios is to point out areas needing

further investigations. Ratios will not carry meaningful business reasoning if

there is no supporting quantitative and financial information.

When it comes to investing, analyzing financial statement information (also

known as quantitative analysis), is one of, if not the most important element

in the fundamental analysis process.

Its a tool which enables the banker or lender to arrive at the following factors :

Liquidity position

Profitability

Solvency

Financial Stability

Quality of the Management

Safety & Security of the loans & advances to be or already been provided

How a Ratio Is Expressed

As Percentage - such as 25% or 50% . For example if net profit is Rs.25,000/- and the sales is Rs.1,00,000/- then the net profit can be said

to be 25% of the sales.

As Proportion - The above figures may be expressed in terms of the relationship between net profit to sales as 1 : 4.

As Pure Number /Times - The same can also be expressed in an alternatively way such as the sale is 4 times of the net profit or profit is

1/4th

of the sales.

The Use Of Financial Ratios

Financial Ratio are used as a relative measure that facilitates the evaluation of efficiency or condition of a particular aspect of a firm's

operations and status.

Ratio Analysis involves methods of calculating and interpreting financial ratios in order to assess a firm's performance and status.

Assessment of the firms past, present and future financial conditions.

Done to find firms financial strengths and weaknesses.

Primary Tools.

Financial Statements.

Comparison of financial ratios to past, industry, sector and all firms

Significance of Using Ratios

The significance of a ratio can only truly be appreciated when:

It is compared with other ratios in the same set of financial statements.

It is compared with the same ratio in previous financial statements (trend analysis).

It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical

performance of the trade or industry, or the ratio which represents the

target set by management as desirable for the business.

Users of Ratio Analysis

The ratio analysis is on of the most powerful tools of financial Analysis. It is

used as a device to analysis and inter-prate the financial health of an enterprise.

Managers These are the persons who among the business. Financial ratios areimportant

to managers for evaluating the results of their decisions.Financial

ratio also helps the managers in decision forecasting andplanning co-

ordination and control of business activities.

Shareholders / Investors Those who are interested in buying and selling the shares of acompany are

naturally interested in the financial ratios. These ratios are helps in knowing the

safety of their investment. This ratios tells that the position of the firm

whether it is good or not.

Creditors The creditors are interested to know whether their loan principal andinterest will

be paid when due suppliers and other creditors are alsointerested to know their

dues in time.

Workers Gen e ra l l y th e work er s a r e en t i t l ed to pay me nt o f bonu s in wh i

chdepends on the size of profit earned. The knowledge also helps themin

conducting negotiations for wages and bonus.

Government T h e r a t i o a n a l y s i s o f a c o m p a n y o r i n d u s t r y i

s u s e f u l t o t h e management in framing the policies and then the

financial ratios areuseful to the government in taking decision relating to taxes.

Researchers The f inan c i a l r a t io s b e ing a mi r ro r o f b us iness cond i t ion o f g r

ea t interest to undertaking in accounting theory as well as business affairs and

practices.

Managerial Uses of Ratio Analysis

The following are the important managerial uses of ratio analysis helps in

financial forecasting : Ratio analysis is very helpful in financial forecasting.

Ratios relating to past sales, profits and financial positions from the basis for

setting future trends.

Helps in Comparison: With the help of ratio analysis, ideal ratios can be composed and they can be used for comparing a firms progress and performance. Inter firm comparison or comparison with industry averages

is made possible by ratio analysis.

Financial Solvency of the Firm: Ratio analysis indicates the trends in financial solvency of the firm. Solvency has two dimensions long term

solvency and short term solvency. Long term solvency refers to the

financial viability of a firm and it is closely related with the existing

financial structure. On the other hand, short term solvency is the liquidity

position of the firm. With the help of ratio analysis conclusion can be

drawn regarding the firms liquidity and long term solvency position.

Evaluation of Operating Efficiency : Ratio analysis throws light on the degree of efficiency in the management and utilization of its assets and

resources. Various activity ratios measure this kind of operational

efficiency and indicate the guidelines for economy in costs, operations

and time.

Communication Value : Different financial ratios communicate the strength and financial standing of the firms to the internal and external

parties. They indicate the over all profitability and capital gearing etc. of

the firm.

Other Uses : Financial ratios are very helpful in the diagnosis of financial health of a firm. They highlight liquidity the, solvency, profitability and

capital gearing etc. of the firm.

Interpretation Of Ratios

The interpretation of ratios is an important factor. Through calculation is also

important but it is only a clerical task whereas interpretation needs skills,

intelligence and foresightedness. The interpretation of the ratios can be done

in the following ways.

Single Absolute Ratio : Generally speaking one cannot draw meaningful conclusions when a single ratio is considered in isolation.

But single ratios may be studied in relation to certain rules of thumb

which are based upon well proven contentions.

Groups of Ratio : Ratios may be interpreted by calculating a group of related ratios. A single ratio supported by related additional ratios

becomes more understandable and meaningful.

Historical Comparisons: One of the easiest and most popular ways of evaluating the performance of the firm is to compare its present ratios

with the past ratios called comparison over time.

Projected Ratios : Ratios can also be calculated for future standard based upon the projected financial statements. Ratio calculation on

actual financial statements can be used for comparison with the

standard ratios to find out variance, if any. Such variance helps in

interpreting and taking corrective action for improvement in future.

Inter firm Comparison: Ratios of one firm can also be compared with the ratios of some other selected firms in the same industry at the same

industry at the same point of time.

Limitations Of Ratio Analysis

Ratio analysis is used by almost all the accounts managers for strategic

planning and decision making. It also very helpful tool to know the effect of

each item of financial statements by creating relationship with other items.

There is big list of benefits of ratio analysis but it has also some limitations.

So, account managers and other parties who use ratio and its analysis should

remember these limitations when they take any decision.

Following are main limitations of ratio analysis:

Limited Use of Single Ratio Sometime, we can not compare our ratios with others. For example, we have

started new business and our financial results are not still normal. At that

time, our profitability ratio will have limited use because there is not any past

data of profitability ratios.

Lack of Adequate Standards We could not make standards of all ratios. For example, we can not tell what

is rule of them of our net profit ratio because there are lots of factors affect it.

In the lack of adequate standards of ratios, we can not give exact comment on

the basis of ratio analysis.

Inherent Limitation of Financial Accounting

Ratio analysis is just like simplification of financial accounting data. But

there are lots of limitations of financial accounting which you can read

at here. All these limitation will be absorbed by ratios. This is the one of the

important limitation of ratio. I can say if base is not good, everything will be

wrong. If there is small portion of poison in milk, its effect will be in

everything what you will make.

Changes of Accounting Procedures If accounting procedures will change, our accounting ratio will be changed.

At that time, we can not compare our current year ratios with our past year

ratios. For example, in past year, we had used LIFO but current year, we are

using FIFO for inventory valuation. Due to this, figures of closing stock will

be different. On this basis, if we have calculated current ratio, it will not be

comparable with past current ratio.

Window Dressing

Because we have shown our financial data through window dressing. Our

ratios will also be affected from it.

Personal Bias

This is reality, I saw many CAs who waste their time to optimize different

ratios by changing the project financial statements figures for making

attractive projects. All these activities are done for getting loan. So, this will

make the drawback of ratio analysis.

Matchless

Different companies uses different accounting policies, so, we cannot

compare their ratios.

Price Level Changes

Inflation effect is ignored in calculation of ratios. So, ratio will not give

perfect answer in changing of price level.

Ratios are not Substitute of Financial Statements

Ratio analysis is important part of financial statements analysis. It can never

become a substitute of financial statements. We just use it with cash flow

analysis, fund flow analysis and other analysis.

Wrong Interpretation

We can interpretate wrongly. For explaining the effect on company's position

with ratios, there is big need of experience. Wrong interpretation will be

helpful for wrong decisions. So, it is limitation of ratio analysis that it does

not explain all the facts, it has to explain. For a new accounts manager, it may

be difficult.

Classification of Ratios

Balance Sheet Ratio

P&L Ratio or Income/Revenue Statement Ratio

Balance Sheet and Profit & Loss Ratio

Financial Ratio

Operating Ratio Composite Ratio

Current Ratio Quick Asset Ratio Proprietary Ratio Debt Equity Ratio

Gross Profit Ratio Operating Ratio Expense Ratio Net profit Ratio Stock Turnover Ratio

Fixed Asset Turnover Ratio, Return on Total Resources Ratio, Return on Own Funds Ratio, Earning per Share Ratio, Debtors Turnover Ratio,

FINANCIAL STATISTICS OF HVTL

2000-01 2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

CAPITAL

ACCOUNTS(Rs.

Crores)

(a) Capital 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0

(b) Reserves& Surplus

17.96 6.19 10.84 28.15 41.49 55.60 77.95 100.6

0

110.6

9

140.0

1

202.8

7

(c) Borrowings 82.50 80.38 63.92 47.85 2.87 0.45 5.13 85.27 91.86 51.67 -

(d) Gross Fixed Assets

154.75 157.87 157.9

1

159.3

2

161.0

9

173.1

8

236.1

7

385.8

1

411.9

0

436.3

5

444.2

7

(e) Depreciation 9.68 18.91 27.77 37.53 47.98 59.41 73.90 95.91 118.8

7

148.7

0

185.7

9

(f) Net Fixed Assets

145.07 138.96 130.1

4

121.7

9

113.1

1

113.7

7

162.2

7

289.9

0

293.0

3

287.6

5

258.4

9

(g) Investments - - - - - 14.89 2.50 - - 11.00 5.00

(h) Net Working Capital

(13.35) (20.99) (21.7

8)

(7.75

)

(14.9

3)

(9.46

)

(14.7

4)

(29.7

5)

(14.2

9)

(29.3

6) 13.02

(i) Misc.Expenditure

8.74 8.59 6.40

REVENUE ACCOUNTS

(Rs. Crores)

(a) Net Revenue 139.16 91.34 88.64 106.6

2

125.3

1

126.7

9

173.8

7

190.9

3

141.8

4

205.2

5

287.9

7

(b) Other Income 0.08 1.06 2.29 0.11 1.29 0.83 1.63 1.05 0.75 4.53 6.41

(c) Manufacturing &other Expenses

139.21 81.50 67.67 60.46 67.02 70.49 87.13 93.50 82.89 95.40 119.8

9

(d)Interest&Depreciation

22.07 22.67 18.61 16.16 13.13 11.60 14.79 26.02 33.87 36.91 39.43

(e) Profit/(Loss) before Taxes

(22.04) (11.77) 4.65 17.33 27.02 30.07 44.96 47.44 19.45 52.64 90.76

(f) Taxes - - - 12.78 19.43 15.46 28.62 25.02 6.38 24.83 44.31

(g) Profit/(Loss)after Taxes

(22.04) (11.77) 4.65 17.33 27.02 30.07 44.96 47.44 19.45 52.64 90.76

(h) Dividend& tax thereon

- - - 6.77 13.68 15.96 22.98 23.40 9.36 23.32 27.89

RATIOS

(a) Profit after tax to sales(%)

(15.84) (12.89) 5.25 16.25 21.56 23.72 25.86 24.85 13.71 25.65 31.52

(b) Earnings per share(Rs.)

- - 1.16 4.33 6.76 7.52 11.24 11.86 4.86 13.16 22.69

(c) Net Worth per share(Rs.)

14.49 11.55 12.71 17.04 20.37 23.90 29.49 35.15 37.67 45.00 60.72

FINANCIAL STATISTICS OF HVAL

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

CAPITAL

ACCOUNTS(Rs. Crores)

(a)Capital 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0

(b)Reserves& Surplus 44.99 44.99 44.99 45.90 73.24 101.5

5

133.7

9

168.9

3

186.2

3

223.8

4

286.6

7

(c)Borrowings 93.83 102.92 68.00 37.87 0.00 11.13 9.68 94.47 70.00 30.00 -

(d)Gross Fixed Assets 164.68 161.97 152.8

3

153.5

3

150.3

6

177.4

8

222.6

4

369.7

7

440.1

9

458.0

7

467.4

2

(e)Depreciation 10.38 20.77 31.05 42.90 54.02 66.42 78.47 101.3

7

131.3

8

170.6

1

216.0

0

(f)Net Fixed Assets(without CWIP)

154.31 141.20 121.7

8

110.6

2 96.34

111.0

6

144.1

7

268.4

0

308.8

2

287.4

6

251.4

2

(g)Investments - - - 33.01 39.92 66.40 32.39 26.09 6.09 52.76 91.89

(h)Net Working Capital

6.05 16.67 8.75 (7.37

)

(1.48

)

(6.78

)

(1.37

)

(17.1

0) 9.42

(11.0

1) 11.12

REVENUE ACCOUNTS

(Rs. Crores)

(a) Revenue 367.81

*

149.42

* 98.93

116.5

3

141.8

6

139.4

5

190.7

1

199.5

7

154.6

2

235.9

3

303.6

9

(b)Other Income 0.06 0.17 0.16 3.90 2.10 4.44 5.96 3.68 5.62 3.61 9.33

(c) Manufacturing &other Expenses

359.20 13.60 70.52 55.29 65.62 62.05 84.56 88.12 80.23 101.4

7

127.6

2

(d)Interest&Depreciation

22.81 22.36 21.15 15.89 13.33 12.48 15.79 28.97 39.09 42.78 45.59

(e) Profit/(Loss) before Taxes

(14.14

)

(10.27

) 4.75 47.96 64.96 69.29 96.32 86.15 40.93 95.29

139.8

0

(f) Taxes - - 4.89 18.26 22.22 23.02 38.43 22.74 13.09 31.44 45.59

(g) Profit/(Loss)after Taxes

(15.21

)

(10.27

)

(0.14

) 29.69 42.74 46.27 57.90 63.41 27.84 63.85 94.21

(h) Dividend& tax thereon

- - - 7.61 15.39 17.96 25.86 26.33 10.53 26.24 31.38

*2000-01 includes full material value and for 2001-02,the same is upto May01. From June01,the company switched over to Job working Scenario

RATIOS

(a)Profit after tax to sales(%)

(0.04) (6.86) 4.79 40.16 45.12 48.15 48.98 42.38 25.54 39.78 44.66

(b)Earnings per share(Rs.) - (2.55) (3.77

) 6.60 9.50 10.28 12.87 14.09 6.19 14.19 20.93

(C)Net Worth per share(Rs.)

19.99 19.99 19.99 20.20 26.28 32.56 39.73 47.54 51.38 59.74 73.70

(d)Fixed Assets turnover (times)(Excl.IR)

2.38 1.05 0.81 1.09 1.49 1.28 1.36 1.15 0.72 1.12 1.16

(e)Current Ratio 1.05 1.46 1.66 0.72 0.95 0.91 0.98 0.74 1.26 0.83 1.16

(f)Return on Capital employed(%)

(7.69) (5.45) 2.71 33.45 52.60 50.22 55.65 34.68 13.43 31.76 44.35

NET SALES Gross sales for a period after cash discounts, returns, and freight expenses

have been deducted.

The sales figures are encouraging

YEAR NET SALES(Rs. In Lakhs)

HVAL HVTL

2005-06 14389.66 12,762.43

2006-07 19667.29 17,550.09

2007-08 20324.31 19,197.82

2008-09 16024.04 14259.23

2009-2010 23873.38 20983.71

2010-2011 31208.46 29437.15

14389.66

19667.29 20324.31

16024.04

23873.38

31208.46

12,762.43

17,550.09 19,197.82

14259.23

20983.71

29437.15

0

5000

10000

15000

20000

25000

30000

35000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Rs.in Lakhs

Net sales (Rs.in Lakhs)

Axles Transmission

Interpretation :

The sales figures are encouraging as there is a positive trend and the rate of

increase is considerably high. However considering the fact that it has only one

customer in the form of Tata Motors Limited the figures infers an increase in

sales of TML. So in order to increase sales in a higher rate TML should

diversify its market. The net sales went up from Rs 14389.66 lakhs in year

2005-06 to Rs.20324.31 lakhs in year 2007-08 of HVAL but decreased to

16024.04 lakhs in the year 2008-09 due to after effects of recession but again

increased to Rs.31208.46 lakhs in 2010-11.Same is with HVTL also it sales

figure decreased in the year 2008-09 due to recession but again increased in

the year 2010-11.

DATA PROCESSING,

ANALYSIS

AND

INTERPRETATION

Working capital is said to be the life blood of a business.

Working capital signifies funds required for day-to-day operation

of the firm. In financial literature, there exist two concepts of

working capital namely: gross and net. Accordingly, gross

concept working capital refers to current assets viz: cash,

marketable securities, inventories of raw materials, work-in process,

finished goods and receivables. According to net

concept, working capital refers to the difference between current

assets and current liabilities. Ordinarily, working capital can be

classified into fixed or permanent and variable or fluctuating parts.

The minimum level of investment in current assets regularly

employed in business is called fixed or permanent working capital

and the extra working capital needed to support the changing

business activities is called variable or fluctuating working capital.

Flow of Working Capital

One of the distinguishing features of the fund employed as working

capital is that it constantly changes its form to drive the business wheel.

It is also known as circulating capital means current assets of a

company, which are changed in the ordinary course of business from form to

another, as for example, from cash to inventories, inventories to

receivables, receivables to cash.

In case of a manufacturing concern, the flow:

(A) In the case of a purely financial enterprise.

DE

Earning Increment

CASH DEBTORS

CASH

(B) In the case of a manufacturing enterprise, the cycle is even wider,

e.g.

Earnings Increment

Figure :- Working Capital Cycle.

Working capital may be explained as follows. In the first instance, the

original funds invested used to meet expenses and wages. Raw materials

are received on credit from the suppliers. Credit received on account of

supply of materials, payment of wages, etc. serves the purpose

additional fund till payment is made. The materials are then processed

into finished goods, we are sold to the customers on credit. Ultimately

credit sales are converted into cash. The cash will arises by means of

these sales transactions flows into the enterprise and is used for various

purposes, including the provision of funds to recommence the cycle.

Working Capital-Various Concepts There are two possible interpretations of working capital

Balance sheet concept

Operating cycle concept

Balance sheet concept There are two interpretations of working capital under the conventional

balance sheet concept

Gross concept

Net concept

According to the gross concept, working capital is used as a synonym

for gross or total current assets. Current assets are considered as working

capital as all of its helps to earn profits, and the management is more

concerned with the total current assets as they constitute the total funds

CASH MATERIAL,

LABOUR&

EXPENSES

SALES DEBTORS FINISHED

GOODS

W.I.P

available for operational purposes. For determining the rate of return on

investments in current assets like fixed assets, the gross working capital

concept is more useful. It takes care of the fact that other things

remaining constant, an increase in fund will increase working capital

and vice versa. But where short-term debts are due to outsiders, it is

advisable to deduct these from the gross current asset values to reveal

the net effective working capital value.

Thus, according to the net concept; working capital is represented by the

excess of current assets over current liabilities, and is the amount normally

available to fianc current operations. It is argued that (a) in the long run,

what matters is the surplus of current assets over current liabilities, (b) it is

this concept which helps creditors and investors to judge the financial

soundness of an enterprise (c) what can always be relied upon to meet the

contingencies, is the excess of current assets over the current liabilities since

this amount is not to be returned; and (d) this definition helps to find out the

correct financial position of companies having the same amount of current

assets. The Institute of Chartered Accountants of India, while suggesting a

vertical form of balance sheet, also endorsed the former view of working

capital when it described 'net current assets' as the difference between current

assets and current liabilities.There is yet another view according to which the

net working capital may be referred I to as the 'qualitative' and the total

current assets

concept as the quantitative' aspect of the idea. Since both the categories,

'gross' and 'net' or 'quantitative', depend on Balance Sheet items for there

contents, these two concepts of working capital are generally known as

the Balance sheet concepts.

Composition of working capital The constituent parts normally making up the figure of working capital, or, as

otherwise called, the 'net current assets, will most frequently be items such as

are given below:

Current assets :- This includes assets which can be converted, in the

ordinary course of business, into cash within one accounting year, such as:

Stocks (including raw materials and spares, work-in-progress and finished goods)

Sundry debtors (net of provisions) Bills receivables

Advances/inter-company loan (short-term)

Temporary investments of surplus funds

Prepayments

Accrued incomes

Cash at bank

Cash in hand. Current assets components have one characteristic in common, that is,

each component swiftly transformed into other asset forms. As for

example, cash is utilized to replenish inventories are diminished when

sales are effected that augment either accounts receivable (in of credit

sales) or cash (in case of cash sales}; collection of accounts receivable

increases the balance and so on. Current assets are, therefore, shortlived.

As stated earlier, their life span not normally exceed one year. But

in practice, some assets that violate this criterion may be classified as

current assets. For example, tobacco companies keep their raw materials

in storage more than a year, but nevertheless report these inventories as

current assets.

Current Liabilities:- This includes liabilities which are to be liquidated, in the course of business, within one accounting year normally out of

current assets or funds for operations, such as:

Trade creditors

Bills payables

Outstanding or accrued expenses

Short-term loans

Taxation

Dividends

Bank overdraft (of temporary nature)

Outstanding liabilities currently payable (e.g. settlement of an

action, amount payable respect of compensation. etc.)

In order to get the true picture regarding the volume of working capital

required to sustain given activity level, adjustments should be made with

respect to items which are not considered normal in terms of the

ordinary course of operations of a firm. For example, in computing

working capital, the following figures should be deducted from the

respective figures of current assets:

i. Obsolete stock items, if any

ii. Debts not expected to be received within a reasonably current period

iii. Investments of long-term nature

iv. Cash earmarked for the purchase of fixed assets or for liquidation

of a long-term liability (e.g. redemption of debentures).

LIQUIDITY RATIOS

This is a tool generally used to express the extent to which a business

can meet its short-term obligations as at when due. When an enterprise

owes short-term debts (bills water electricity etc.) the liquidity is the loop to show the capability.

Types of Liquidity Ratio Liquidity position is assessed with the following:

1. Current ratio

2. Quick (Acid-test) ratio

Current Ratio

The current ratio is a popular financial ratio used to test a company's liquidity

(also referred to as its current or working capital position) by deriving the

proportion of current assets available to cover current liabilities.

The concept behind this ratio is to ascertain whether a company's short-term

assets (cash, cash equivalents, marketable securities, receivables and

inventory) are readily available to pay off its short-term liabilities (notes

payable, current portion of term debt, payables, accrued expenses and taxes).

In theory, the higher the current ratio, the better.

The current ratio is a measure of the firms short term solvency. It indicates

the availability of current assets in rupees for every one rupee of current

liability. A ratio of greater than one means that the firm has more current

assets than current claims against them.

If the current ratio is greater than one, the business is liquid.

If the current ratio is less than one, the business is illiquid.

Relatively high ratio value means that the business is liquid, but cash is

not working.

YEAR CURRENT ASSETS

(Rs. In lakhs)

CURRENT LIABILITIES

(Rs. In lakhs)

CURRENT RATIO

Axles Transmission Axles Transmission Axles Transmission

2005-06 6705.67 2427.47 7383.98 3373.54 0.91 .72

2006-07 10767.89 3150.06 10905.18 4624.05 0.99 .68

2007-08 4962.15 3272.34 6672.33 6247.15 0.74 .52

2008-09 4583.62 3620.46 3641.77 5049.50 1.26 .72

2009-10 5329.21 3604.72 6429.75 6540.85 1.48 .55

2010-11 8131.28 8049.03 7019.26 6747.42 1.01 1.19

0.91 0.99

0.74

1.26

1.48

1.01

0.72 0.68

0.52

0.72

0.53

1.19

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

No

. of

tim

es

Current Ratio

Axles Transmission

Interpretation :

TML has a current ratio ranging between 0.52 to 1.48. These indicates that

the Current Assets of the firm are less than current Liabilites. This is because

the firm has always maintained a negative net working capital. Its current

liabilities have always been greater than current assets. Current liabilities is

greater than current assets which shows that the company is able to recover

its debtors faster and has a good bargaining facility with its suppliers.

Quick Ratio

This ratio expresses the relative amount of cash and other assets that can

be easily converted to cash that are available to meet current liabilities.

This is a more conservative measure of liquidity as only liquid assets are

considered. It excludes stocks (inventory) from current assts. The ratio

emphasizes more on assets easily converted into cash (or to a reasonable

period without loss of value.

Therefore, stocks are deducted from current assets used in the current

ratio above. (In practice, an analysis of debtors is performed to enable

debtors balances which are doubtful of recovery will be deducted from the current assets for examination purposes this is avoided).

Quick (Acid Test) ratio = Current Assets Stock (inventory) Current Liabilities

As a general rule quick ratio is 1:1 is accepted as ideal.

YEAR CURRENT ASSETS

(Rs. In lakhs)

CURRENT LIABILITIES

(Rs. In lakhs)

QUICK RATIO


2005-06 5846.3 1173.57 7383.98 3373.54 0.79 0.15

2006-07 9295.82 1422.04 10905.18 4624.05 0.85 0.31

2007-08 3642.04 1691.41 6672.33 6247.15 2.15 0.27

2008-09 3345.51 1942.06 3641.77 5049.50 1.72 1.72

2009-10 4381.13 2271.99 6429.75 6540.85 1.93 1.93

2010-11 7327.6 6303.9 7019.26 6747.42 1.16 0.93

0.79 0.85

2.15

1.72 1.93

1.16

0.15 0.31 0.27

1.72 1.93

0.93

0

0.5

1

1.5

2

2.5

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

No. of T

im

es

Quick Ratio

Axles Transmission

Interpretation :

A high ratio is an indication that the firm is liquid and has the ability to meet

its current liabilities in time and on the other hand, a low quick ratio

represents that the firms liquidity position is not good.

As a rule of thumb a ratio of 1:1 is considered as satisfactory. It is generally

considered that if the quick assets are equal to the current liabilities then the

concern is able to meet its short term obligations. However, a firm having a

high quick ratio may not have a satisfactory liquidity position if it has slow

paying debtors and if the firm has a low liquidity position if it has fast

moving inventories.

LEVERAGE RATIOS

This ratios measure the relationship between the funds provided by the

owners (shareholders) of an enterprise and funds provided by creditors

(non-shareholders) of the business enterprise. The funds provided by

the owners (Equity shareholders) are known internally generated and

when funds are contributed by non-shareholders, this source is known as

externally generated funds. Every business uses both sources for

funding but the ratio the leverage which measures the ability of the

business enterprise service (operate) the charges accruing from the use

of outsiders funds (creditors). Borrowing capacity (leverage) ratios

measure the degree of protection of suppliers of longterm funds.

Short-term creditors, like bankers and suppliers of material are

concerned with the enterprises current debt-paying ability. The longterm creditors, like debenture holders and financial intermediaries

considered the enterprises long-term financial strength.

Every business have to assess the financial leverage or capital structure

ratios to ascertain the funds mix provided by the equity owners and

creditors (lenders).

Types of Leverage Ratios Debt Ratio

Debt Equity Ratio

Interest Coverage Ratio

Debt Ratio

The debt ratio compares a company's total debt to its total assets, which is used

to gain a general idea as to the amount of leverage being used by a company. A

low percentage means that the company is less dependent on leverage, i.e.,

money borrowed from and/or owed to others. The lower the percentage, the less

leverage a company is using and the stronger its equity position. In general, the

higher the ratio, the more risk that company is considered to have taken on.

A debt ratio of greater than 1 indicates that a company has more debt than

assets, meanwhile, a debt ratio of less than 1 indicates that a company has more

assets than debt. Used in conjunction with other measures of financial health,

the debt ratio can help investors determine a company's level of risk.

YEAR TOTAL DEBTS (Rs. In

lakhs)

CAPITAL EMPLOYED

(Rs. In lakhs)

DEBT RATIO


2005-06 1113.34 44.61 17510.37 11920.70 0.06 0.00

2006-07 967.71 513.16 21203.27 15002.65 0.04 0.03

2007-08 9446.68 8527.19 33306.58 26015.07 1.11 0.33

2008-09 7000 9186.08 33462.84 27873.74 0.76 0.33

2009-10 3000 5167.29 33156.59 26929.10 0.09 0.19

2010-11 ____ ____ 35939.32 27650.31 ____ ____

0.06 0.04

1.11

0.76

0.09 0 0 0.03

0.33 0.33 0.19

0 0

0.2

0.4

0.6

0.8

1

1.2

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Debt Ratio

Axles Transmission

Interpretation :

This ratio compares the total debt (long term as well as short term) with total

assets. Up to the financial year 2007-08 total debts were a small proportion of

total assets. However in the year 2008-09, total debts have become almost

equal to total assets the reason being the term loan raised in the year 2008-

09.In year 2010-11 there are no Debts.

Debt Equity Ratio

The debt-equity ratio is another leverage ratio that compares a company's

total liabilities to its total shareholders' equity. This is a measurement of how

much suppliers, lenders, creditors and obligors have committed to the

company versus what the shareholders have committed.

To a large degree, the debt equity ratio provides another vantage point on a

company's leverage position, in this case, comparing total liabilities to

shareholders' equity, as opposed to total assets in the debt ratio. Similar to the

debt ratio, a lower the percentage means that a company is using less leverage

and has a stronger equity position.

YEAR TOTAL DEBTS

(Rs. In lakhs)

TOTAL EQUITY (Rs. In

lakhs)

DEBT EQUITY

RATIO


2005-06 1113.34 44.61 14655.41 9560.28 0.08 4.67

2006-07 967.71 513.16 17878.64 11794.82 0.05 0.04

2007-08 9446.68 8527.19 21392.92 14060.29 0.44 0.61

2008-09 7000 9186.08 23122.89 15069.22 0.30 0.61

2009-10 3000 5167.29 26884.03 18001.20 0.11 0.29

2010-11 _____ _____ 33166.7 24287.49 0.00 0.00

0.08 0.05 0.44 0.3 0.11 0

4.67

0.04

0.61 0.61 0.29

0

1

2

3

4

5

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Debt Equity Ratio

Axles Transmission

Interpretation :

The ratio indicates to what extent long term debts have been employed in

relation to shareholders funds. The extent of employment of long term debts

in relation to shareholders funds has increased to 0.61 in 2007-08. The

sudden hike in the ratio is because the company took a term loan in the

financial year 2007-08.As there was no loan in 2010-11Debt Equity Ratio is

0.


This ratio measures the debt servicing capacity of a firm as fixed interest on

long term loan is concerned. It is determined by dividing the operating profits

or earnings before interest and taxes (EBIT) by the fixed interest charges on

loans. Thus, interest 45 coverage = EBIT / Interest From the point of view of

the creditors, the larger the coverage, the greater is the ability of the firm to

handle fixed charge capabilities and the more assured is the payment of

interest to the creditors. However, too high a ratio may imply unused debt

capacity.

The lower the ratio, the more the company is burdened by debt expense.

When a company's interest coverage ratio is 1.5 or lower, its ability to meet

interest expenses may be questionable. An interest coverage ratio below 1

indicates the company is not generating sufficient revenues to satisfy interest

expenses.

Present and prospective loan creditors such as bondholders, are vitally

interested to know how adequate the interest payments on their loans are

covered by the earnings available for such payments.

Owners, managers and directors are also interested in the ability of the

business to service the fixed interest charges on outstanding debt.

YEAR PBIT (Rs. In lakhs) INTEREST (Rs. In

lakhs)

INTEREST COVERAGE

Axles Transmission Axles Transmission Axles Transmissi

on

2005-06 6944.95 4560.02 8.55 6.84 812.27 666.67

2006-07 9681.56 7359.86 49.25 2.26 196.58 3256.57

2007-08 8926.11 7632.56 310.93 386.56 28.70 19.74

2008-09 4930.83 3472.78 838.21 889.68 5.88 3.90

2009-10 13806.75 8403.39 339.15 655.92 40.71 12.81

2010-11 18539.16 13559.11 _______ 50.50 0.00 268.50

812.27

196.58 28.7 5.88 40.71 0

666.67

3256.57

19.74 3.9 12.81 0

500

1000

1500

2000

2500

3000

3500

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


Axles Transmission

Interpretation :

This ratio measures the ability of a firm to service debts. HVTL has a

favorable interest coverage ratio which means that in the year 2006-07.

HVTL had operating profits which were 19 times that of its interest liability.

The interest coverage ratio of HVTL & HVAL has decreased considerably in

2007-08 because fresh debts were raised by the firm in the year 2007-08 the

service of the term loan required huge funds still decreasing in 2010-11 in

HVAL but HVTL ratio has again increased during 2010-11

ACTIVITY RATIOS

The activity ratios are used for the evaluation of enterprise efficiency. It

aids the entrepreneur or the manager to manage and utilize the assets.

Owners equity and creditors fund are invested in various assets to

generate profits and sales. With proper analysis of activity ratios of an

enterprise assets will be better managed. Activity ratios are also known

as turnover ratios because they show the speed with which assets are

converted to sales. Hence, the ratio demonstrate the relationship

between sales and assets. When they are well managed, it reflects a

proper balance between sales and assets utilization.

Types of Activity Ratio

Inventory Turnover Ratio

Fixed Assets Turnover Ratio

Total Assets Turnover Ratio


Inventory Turnover Ratio indicates how fast inventory is sold. A high ratio is

good from the viewpoint of liquidity and vice versa. A low ratio would

signify that inventory does not sell fast and stays on the shelf or in the

warehouse for a long time.

YEAR COST OF GOODS SOLD

(Rs. In lakhs)

AVERAGE INVENTORY

(Rs. In lakhs)

INVENTORY

TURNOVER RATIO


2005-06 14389.66 12762.43 859.37 1253.9 16.74 10.18

2006-07 19667.29 17550.09 1472.07 1728.02 13.36 10.16

2007-08 20324.31 19197.82 1320.11 1508.93 15.40 12.72

2008-09 16024.04 14259.23 1238.11 1678.4 12.94 8.50

2009-10 23953.86 20983.71 948.08 1332.73 25.27 15.74

2010-11 31301.49 29437.15 893.68 1745.13 35.03 16.87

16.74

13.36 15.4

12.94

25.27

35.03

10.18 10.16 12.72

8.5

15.74 16.87

0

5

10

15

20

25

30

35

40

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


Axles Transmission

Interpretation :

The inventory turnover ratio ranges from 13.36 to 35.03 for HVAL and from

8.5 to 16.87 for HVTL . It was highest in the year 2010-11 for HVAL

&HVTL due to inventory control measures taken by the management.

Days Of Inventory Holding :

The number of days inventory is also known as average inventory period and

inventory holding period.

A high number of days inventory indicates that their is a lack of demand for

the product being sold.

A low days inventory ratio (inventory holding period) may indicate that the

company is not keeping enough stock on hand to meet demands.

Years

Days of Inventory Holding

Axles Transmission

2005-2006 21.80 35.85

2006-2007 27.32 35.93

2007-2008 23.70 28.96

2008-2009 28.21 42.94

2009-2010 14.44 23.19

2010-2011 10.42 21.64

Interpretation :

The number of days of inventory holding has been fluctuating since inception

it gradually came down to its lowest in year 2010-11. However, it is seen that

it ranges from 10.42 days of inventory holding to 42.94 days.

Fixed Assets Turnover Ratio

This ratio is a rough measure of the productivity of a company's fixed assets

(property, plant and equipment or PP&E) with respect to generating sales.

For most companies, their investment in fixed assets represents the single

largest component of their total assets. This annual turnover ratio is designed

to reflect a company's efficiency in managing these significant assets. Simply

the higher the yearly turnover rate, the better.

It represents a multiplicity of management decisions on capital expenditures.

21.8

27.32 23.7

28.21

14.44

10.42

35.85 35.93

28.96

42.94

23.19 21.64

0

5

10

15

20

25

30

35

40

45

50

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Days of Inventory Holding

Axles Transmission

YEAR NET FIXED ASSETS

(Rs. In lakhs)

SALES (Rs. In lakhs) FIXED ASSETS

TURNOVER RATIO


2005-06 11548.58 11377.41 14389.66 12762.43 0.80 0.89

2006-07 18101.26 16226.64 19667.29 17550.09 0.92 0.92

2007-08 32408.07 289302.78 20324.31 19197.82 1.59 1.51

2008-09 31911.81 29302.78 16024.04 14259.23 1.99 2.06

2009-10 28981.04 28765.23 23953.86 20983.71 1.21 1.37

2010-11 25638.28 25848.70 31301.49 29437.15 0.82 0.88

0.8 0.92

1.59

1.99

1.21

0.82 0.89 0.92

1.51

2.06

1.37

0.88

0

0.5

1

1.5

2

2.5

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Fixed Assets Turnover ratio

Axles Transmission

Interpretation :

The fixed asset turnover ratio went up gradually from 0.8 in the year 2005-06

to 1.99 in the year 2008-09 for HVAL and 0.89 in the year 2005-06 to 2.06 in

the year 2008-09 for HVTL but due to capitalization in the year 2010-11 it

fell to 0.82 for HVAL and 0.88 for HVTL.


This ratio is also known as the investment turnover ratio. It is based on the

relationship between the cost of goods sold and assets/ investments of a firm

as reflected in its earning power. Depending upon the different concepts of

assets employed, there are many variants of this ratio.

YEAR NET SALES

(Rs. In lakhs)

TOTAL ASSETS (Rs. In

lakhs)

TOTAL ASSETS TURNOVER

RATIO


2005-06 14389.66 12762.43 14261.17 13804.88 1.00 0.92

2006-07 19667.29 17550.09 21701.16 19376.7 0.91 0.91

2007-08 20324.31 19197.82 37370.22 32262.22 0.54 0.60

2008-09 16024.04 14259.23 36495.43 32923.24 1.12 0.43

2009-10 23953.86 20983.71 34310.25 32077.10 0.70 0.65

2010-11 31301.49 29437.15 33769.56 32369.95 0.93 0.10

Interpretation :

As it is a manufacturing industry it has a higher composition of fixed assets

.The trend shows that this ratio has been decreasing from 1.00 to 0.7 but it has

again increased to 0.93.Sales has been decreased in the year 2008-09 due to

Recession.

1 0.91

0.54

1.12

0.7

0.93 0.92 0.91

0.6

0.43

0.65 0.66

0

0.2

0.4

0.6

0.8

1

1.2

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


Axles Transmission

PROFITABILITY RATIOS

These ratios are used to measure the operating efficiency of an

enterprise profitability indices are expressed in the income statement.

The primary financial analysis of profit ratios should include only the

types of income arising from the normal operations of the business.

An enterprise is expected to earn profit to survive and grow over a long

time. Profit making is essential, but management should not place

customers concern, employees welfare consequences of suppliers and

other social needs in the lower rung of the ladder in its quest for profit

maximization.

Profit is the difference between revenues and expresses over the

period could be one year computation. This is the expectation of the

enterprise and will help in evaluating the performance (efficiency) of the

business.

As an objective, the entrepreneur owners (managers) will through this process, want to get the rate of return of their invest. On the other hand,

creditors will evaluate the ability for them to continue business if the

profitability ratio is assuring for interest and principal regular

repayment.

Types of Profitability Ratios

EBIDTA

Net Profit Margin

Return on Equity

Return on Investment

Earnings per share

EBIDTA

A company's cost of sales, or cost of goods sold, represents the expense

related to labour, raw materials and manufacturing overhead involved in its

production process. This expense is deducted from the company's net

sales/revenue, which results in a company's first level of profit, or gross

profit. The gross profit margin is used to analyze how efficiently a company

is using its raw materials, labour and manufacturing-related fixed assets to

generate profits. A higher margin percentage is a favorable profit indicator.

YEAR PBIT (Rs. In

lakhs)

NET SALES (Rs. In lakhs) EBIDTA


2005-06 6944.95 4560.02 14389.66 12762.43 48.26 35.73

2006-07 9681.56 7359.86 19667.29 17550.09 49.23 41.94

2007-08 8926.11 7632.56 20324.31 19197.82 43.92 39.76

2008-09 4930.83 3472.78 16024.04 14259.23 30.77 24.35

2009-10 13806.75 8403.39 23953.86 20983.71 57.64 40.04

2010-11 18539.16 13557.11 31301.49 29437.15 59.23 46.05

Interpretation :

The gross profit margin is consistently high. We can see that in year 2006-07

it went up to 49.23% for HVAL and 41.94% for HVTL then reduced to

30.77% for HVAL and 24.35% in 2008-09 and it again went up in the year

2010-11.

Net Profit Margin

Often referred to simply as a company's profit margin, the so-called bottom

line is the most often mentioned when discussing a company's profitability.

While undeniably an important number, investors can easily see from a

complete profit margin analysis that there are several income and expense

operating elements in an income statement that determine a net profit margin.

It behooves investors to take a comprehensive look at a company's profit

margins on a systematic basis.

48.26 49.23 43.92

30.77

57.64 59.23

35.73

41.94 39.76

24.35

40.04

46.05

0

10

20

30

40

50

60

70

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

EBIDTA

Axles Transmission

32.15

29.44 31.2

17.37

26.65

30.1

23.56 25.62 24.71

13.64

25.08

30.83

0

5

10

15

20

25

30

35

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Net Profit Margin

Axles Transmission

YEAR PAT(Rs. In lakhs) NET SALES (Rs. In lakhs) NET PROFIT MARGIN

(%)


2005-06 4626.85 3007.29 14389.66 12762.43 32.15 23.56

2006-07 5789.62 4495.87 19667.29 17550.09 29.44 25.62

2007-08 6340.76 4744.32 20324.31 19197.82 31.20 24.71

2008-09 2783.76 1944.89 16024.04 14259.23 17.37 13.64

2009-10 6384.84 5264.16 23953.86 20983.71 26.65 25.08

2010-11 9420.66 9075.63 31301.49 29437.15 30.10 30.83

Interpretation :

The net profit margin was high in the year 2005-06 but is decreased in the

year 2008-09. The trend however shows a consistent net margin since 2005-

06.

Return on Equity

This ratio indicates how profitable a company is by comparing its net income

to its average shareholders' equity. The return on equity ratio (ROE)

measures how much the shareholders earned for their investment in the

company. The higher the ratio percentage, the more efficient management is

in utilizing its equity base and the better return is to investors.

Widely used by investors, the ROE ratio is an important measure of a

company's earnings performance. The ROE tells common shareholders how

effectively their money is being employed. Peer company, industry and

overall market comparisons are appropriate; however, it should be recognized

that there are variations in ROEs among some types of businesses.

YEAR PAT (Rs. In lakhs) EQUITY (Rs. In lakhs) RETURN

ON EQUITY


2005-06 4626.85 3007.29 14655.41 9560.28 31.57 31.46

2006-07 5789.62 4495.87 17878.64 11794.82 32.38 38.12

2007-08 6340.76 4744.32 21392.92 14060.29 29.64 33.74

2008-09 2783.76 1944.89 23122.89 15069.22 12.04 12.91

2009-10 6384.84 5264.16 26884.03 18001.20 23.75 29.24

2010-11 9420.66 9075.63 33166.7 24287.49 28.40 37.37

31.57 32.38 29.64

12.04

23.75

28.4 31.46

38.12

33.74

12.91

29.24

37.37

0

5

10

15

20

25

30

35

40

45

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Return on Equity

Axles Transmission

Interpretation:

HV Transmission Limited has done well in terms of return on equity which

shows that in year 2005-06 it was 31.57%& 31.46% but in year 2008-09 in

turn decreasing to 12.04% & 12.91% but it has again risen to 28.4%for

HVAL and 37.37% for HVTL.

Return on Investment

In finance, rate of return (ROR), also known as return on investment (ROI),

rate of profit or sometimes just return, is the ratio of money gained or lost

(whether realized or unrealized) on an investment relative to the amount of

money invested. The amount of money gained or lost may be referred to as

interest, profit/loss, gain/loss, or net income/loss. The money invested may be

referred to as the asset, capital, principal, or the cost basis of the investment.

ROI is usually expressed as a percentage rather than a fraction.

Return on investment is a very popular metric because of its versatility and

simplicity. That is, if an investment does not have a positive ROI, or if there

are other opportunities with a higher ROI, then the investment should be not

be undertaken.

YEAR PBIT (Rs. In

lakhs)

NET ASSETS (Rs. In lakhs) RETURN ON

INVESTMENT


2005-06 6944.95 4560.02 17510.37 11920.7 39.66 38.25

2006-07 9681.56 7359.86 21203.27 15002.65 45.66 49.06

2007-08 8926.11 7632.56 33306.58 26015.07 26.80 29.34

2008-09 4930.83 3472.78 33462.84 27873.74 14.74 12.45

2009-10 13806.75 8403.39 33156.59 26929.10 41.64 31.20

2010-11 18539.16 13557.11 35939.32 27650.31 51.58 49.03

39.66

45.66

26.8

14.74

41.64

51.58

38.25

49.06

29.34

12.45

31.2

49.03

0

10

20

30

40

50

60

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Return On Investment

Axles Transmission

Interpretation:

The return on investment had been quite encouraging where as it has been

inconsistent . It is fluctuating every year. A more sustainable and consistent

figures are something which the management should look forward to achieve.

It ranges from 39.66% for HVAL & 38.25% for HVTL in year 2005-06 to

51.58% for HVAL & 49.03% for HVTL in year 2010-11.

Earnings per Share

The portion of a company's profit allocated to each outstanding share of

common stock. Earnings per share serves as an indicator of a company's

profitability. When calculating, it is more accurate to use a weighted average

number of shares outstanding over the reporting term, because the number of

shares outstanding can change over time. However, data sources sometimes

simplify the calculation by using the number of shares outstanding at the end

of the period.

Earnings per share is generally considered to be the single most important

variable in determining a share's price. It is also a major component used to

calculate the price-to-earnings valuation ratio.

Calculated as:

YEAR EPS

Axles Transmission

2005-06 10.28 7.52

2006-07 12.87 11.24

2007-08 14.09 11.86

2008-09 6.19 4.86

2009-10 14.19 13.16

2010-11 20.93 22.69

Interpretation :

The earnings per share has gone up considerably which is a very good news

for the share holders . From 10.28 & 7.52 in year 2005-06 it has climbed to

20.93& 22.69 in year 2010-11 with a decrease to 6.19 for HVAL &4.86 for

HVTL in the year 2008 09.

10.28

12.87 14.09

6.19

14.19

20.93

7.52

11.24 11.86

4.86

13.16

22.69

0

5

10

15

20

25

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Earnings per Share

Axles Transmission

WORKING CAPITAL

Working capital, also known as net working capital, is a financial metric which

represents operating liquidity available to a business. Along with fixed assets

such as plant and equipment, working capital is considered a part of operating

capital. It is calculated as current assets minus current liabilities. If current

assets are less than current liabilities, an entity has a working capital deficiency,

also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if

its assets cannot readily be converted into cash. Positive working capital is

required to ensure that a firm is able to continue its operations and that it has

sufficient funds to satisfy both maturing short-term debt and upcoming

operational expenses. The management of working capital involves managing

inventories, accounts receivable and payable and cash.

An increase in working capital indicates that the business has either increased

current assets (that is received cash, or other current assets) or has decreased

current liabilities, for example has paid off some short-term creditors.

Gross Working Capital : Total current assets. Net Working Capital : Current assets -Current liabilities. Net operating working capital (NOWC) : Operating CA Operating CL =

(Cash + Inv. + A/R) (Accruals + A/P) Factors To Consider

Accounts receivable management

Inventory management

Diversification of oper

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