Financial reporting and analysis hero motocorp ltd. v1

2016

HERO MOTOCORP

By EPGP Indore Batch

of 2017

[HEROMOTOCORP ANALYSIS] This is document written by EPGP Students as part of their assignment to analyze a annual report of Hero Moto

Corp .The students Samir Singh, Gourav Arora, Abhishek Chaturvedi belong to IIM Indore, EPGP -2017 Batch.

2 | P a g e A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5

Financial Risk and Analysis

Detailed Analysis on Annual Report of 2015

Hero Honda Motor Corps

Submitted By:

Abhishek Chaturvedi (EPGP-001)

Gourav Arora (EPGP-015)

Samir Singh (EPGP -030)


About Hero MotoCorp :

Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two -

wheelers, based in India.

In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing

company in India and also, the 'World No.1' two-wheeler company in terms of unit volume sales in a

calendar year. Hero MotoCorp Ltd. continues to maintain this position till date.

Hero MotoCorp's key strategies are to build a robust product portfolio across categories, explore growth

opportunities globally, continuously improve its operational efficiency, aggressively expand its reach to

customers, continue to invest in brand building activities and ensure customer and shareholder delight.

Market Snapshot of Hero MotoCorp:

Significant Accounting Policies followed by Hero MotoCorp Ltd.

1. Accounting Convention: As per Generally Accepted Accounting Principles to comply with

Accounting Standards specified under Section 133 of Company Act 2013.

Financial statements have been made on accrual basis under the historical cost convention

2. Use of Estimates: Estimates have been taken judiciously.

3. Operating Cycle: 12 Months for classification of its assets and liabilities as current or non currents.

4. Assets and Depreciation/Amortization:

Valuation of Fixed Asset = Cost – Depreciation.


Cost of Acquisition = Freight duties + Taxes + Other Incidental Expenses.

Differences due to exchange of foreign acquisitions are adjusted to the cost of the respective

assets and depreciated over the remaining useful like of such assets.

Depreciation is charged on the pro rata basis at the straight line method rates prescribed in

schedule II to the Companies Act 2013.

Useful Life: 5 Years.

Depreciation for Intangible Assets:

Technical Know-How for FY11-12, 12-13, 13-14 & June 2015 for 42 Months Charge.

Lease shall be depreciated over the time of lease.

5. Preoperative expense pending allocations have to go the fixed assets.

6. Investment:

Long term investments are stated at cost less provision. Premium paid on purchase o debt

securities shall be amortized over the prior of maturity.

7. Inventories:

Raw material and components, stores and spares, loose tools, finished goods and Work In

Progress are valued at a cost or not realizable value whichever is less.

The basis of determining cost for various categories of inventories is as follows:

1. Stores and Spares, Loose Tools, Raw Materials & Components are valued on Weighted

Average Tool.

2. Materials-in-Transit is valued on Actual Cost.

3. Work in Progress & Finished goods: Material cost appropriate share of labor +

manufacturing overheads + excise duty.

8. Employee Benefits:

a. Defined Contribution Plan: PF, ESIC, Super Annuation fund are defined contribution and

are charged to the statement of Profit and Loss of the year in which contribution has

been made.

b. Gratuity Liability and Long Term employee benefits are calculated on the basis of

Actuarial Valuation as per projected unit credit method. Actuarial gain/loss are charged

the same year as they appear. Actuarial Valuation is a type of valuation

which requires economic and demographic assumptions in order to estimate future

liabilities.

9. Employee Share Based payment:

a. In HMCL, Employee stock option scheme have been formulated in accordance with SEBI

(Employee stock option scheme or Employee purchase option scheme guidelines 1999).

b. Scheme provide for grant of options to employees to acquire equity shares in a graded manner

and that are to be exercised in a specific period.


c. Closing Market price on the day prior to the grant of the options under ESOS over the exercise

price is amortized on a straight line period over the vesting period.

10. Foreign currency Transactions:

As HMCL is also doing the business outside the country and has 3 subsidiary firm at Italy,

Netherlands and North America, it has to consider the profit or loss associated with foreign

exchange.

Accounting policy related to foreign currency transactions are as follows:

i. If there is a foreign transaction, the current foreign exchange rate will be charged to the

revenue.

ii. Monetary assets and Liabilities: Assessed on Year End on the rate prevailing at the year end

and resultant gain/ loss is recognized.

iii. In case of Forward contract, the forward discount / premium Profit or Loss is recognized as

income on expense over the life of contract on the exchange difference between the

exchange rate prevailing at the year end and the date of inception.

11. Sales:

i. Sales of goods are recognized on transfer of significant risk and reward of ownership to the

buyer which generally coincides with point of dispatch of finished goods to the customers.

So, HMCL follows the Delivery method of Accounting.

ii. Gross Sales are inclusive of excise duty and freight but are exclusive of Sales Tax.

iii. Sales of Services are recognized on rendering of services as per contractual terms.

iv. Scrap is accounted for on Sales Basis.

12. Warranty Claims:

HMCL takes the following steps to keep provisions of Warranty Claims:

Step 1: Estimated Liability for product warranties is recorded when products are sold.

Step 2: Estimates are based on historical information on the nature, frequency and average cost of

warranty claims.

Step 3: Timing of Outflow may vary as warranty claim arises being from 2-5 years.


13. Lease Rentals:

Lease rentals can have risk and rewards which are added/charged to the profit and loss account.

14. Research and Development:

R& D expensed are expensed out under the respective heads of account in the year in which it has

occurred.

15. Earnings per Share = Profit after Taxes and Interest / No. of Shares.

16. Taxation:

i. Provision of Taxation is ascertained in accordance with provision of Income Tax Act 1961.

ii. Deferred Tax is recognized being the difference between taxable incomes and accounting

income that originates in that period.

17. Provision and Contingent Liabilities;

i. Provision is taken when company has a present liability as a result of past events and company

need to spend in order to meet this obligation.

ii. Provisions are not discounted. Discounting means to identify the present value of the future

value.

18. Derivatives:

Foreign Currency Derivatives are used to hedge risk associated with Foreign Currency Transactions.

All open positions as at the close of the year are valued by making them to the market and

provisions is made to loss if any.


We considered following aspects for analyzing the Balance Sheet .

Aspects considered for reading Company Balance sheet, P&L, Cash flow statements

1 Balance sheet

Gives the information on company's assets and liabilities for the current

and non current cycle of operation

2 Profit & Loss account

It gives the income and expenses of the company during the particular

cycle of operation. Usually it is given quarterly and annually.

3 Cash flow

This will give the information on the fund flow is because of the

investment or operation or finance activities

4

Significant

accounting policies

This will give the method used for the calculating the inventory valuation,

accounting standards used for calcucla5ion.

5

Comments on

Financial

Performance

It gives the company's performance in terms of profits, sales, turnovers,

taxes over the years and their trends

6

Independent auditors

reports

Independent auditors give the qualified report about the performance of

current year and road map for the next year

7

Economic value

added

It gives the net of profit earned due to the operational activities and the

cost of capital employed

8

Corporate

governance

It is to be audited by the auditor for transparency of the company's

transactions.

9 Director's report

Director/Chairman report gives the snapshot of company's performance

highlighting the achievements and future guidance. This is very important

to understand where the company is focussing on to generate cash flows.

10 Secratarial report

Chief administrative officer has become mandatory to give the

undertaking that all the accounting standards are followed according to

ICWA. Sending the agenda of meeting and the notice of meeting is given

by the company secretary.


Economic Value Added:

What is EVA?

Traditional approaches to measuring Shareholder’s Value Creation’ have used parameters such as earnings

capitalization, market capitalization and present value of estimated future cash flows. Extensive equity research has

established that it is not earnings per se, but VALUE that is important. A measure called ‘Economic Value Added’

(EVA) is increasingly being applied to understand and evaluate financial performance

*EVA = Net Operating Profit after Taxes (NOPAT) - Cost of Capital Employed (COCE), where,

NOPAT = Profits after depreciation and taxes but before interest costs. NOPAT thus represents the total pool of

profits available on an ungeared basis to provide a return to lenders and shareholders, and

COCE = Weighted Average Cost of Capital (WACC) x Average Capital Employed

*Cost of debt is taken at the effective rate of interest applicable to an “AAA” rated Company like Hero Corp for a

short term debt, net of taxes.

*Cost of Equity is the return expected by the investors to compensate them for the variability in returns caused by

fluctuating earnings and share prices.

Cost of Equity = Risk free return equivalent to yield on long term Government Bonds

Market risk premium (taken at 4.42%) (x) Beta variant for the Company, (taken at 0.719) where Beta is a relative

measure of risk associated with the Company’s shares as against the market as a whole.

What does EVA show?

EVA is residual income after charging the Company for the cost of capital provided by lenders and share holders.It

represents the value added to the shareholders by generating operating profits in excess of the cost of capital

employed in the business.

When will EVA increase?

EVA will increase if:

a. Operating profits can be made to grow without employing more capital, i.e. greater efficiency.

b. Additional capital’s invested in projects that return more than the cost of obtaining new capital, I.e. profitable

growth. c. Capital is curtailed in activities that do not cover the cost of capital, i.e liquidate unproductive capital

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EVA Analysis in Particular to Hero Motor Corp

A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5

EVA Analysis in Particular to Hero Motor Corp

2 0 1 5


Debt Management Ratio:

It has two components:

1) Total Debt to Total Assets: Ratio of Liability to Assets.

The Company has been debt-free for the past 14 years and incur no borrowing costs.

2) Times Interest Earned: It shows how easily can company make it’s interest payments. It is a ratio of Earning before Interest & Taxes divide

(EBIT) by the Interest. Generally, it should be higher so that companies have more space/capacity to pay the

interest.

Please note that EBIT here is excluded from Depreciation and amortization expenses.

The ratios are being compared with across the Industry standards and as we see from the below table, other two

big market players in the Two Wheeler Automobiles companies are closely maintaining the same Times Interest

Earned ratio.

Company TIE

Hero Motor Corp 96.68

Bajal Auto +35.23

TVS Motors 50.47

As it’s clear from above table that Bajal Auto has received interest than paying for the Debt. And hence the total

interest received is more than the interest paid.

The ratios are being compared with across the Industry standards and as we see from the below table, other two

big market players in the Two Wheeler Automobiles companies are closely maintaining the same Times Interest

Earned ratio.

Profitability Ratio:

Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as

compared to its expenses and other relevant costs incurred during a specific period of time. For most of these

ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative

that the company is doing well.

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Gross Profit Margin: Gross profit margin is a financial metric used to assess

revealing the proportion of money left over from

profit margin serves as the source for paying additiona

Calculated as:

Where: COGS = Cost of Goods Sold

Operating margin: It is a margin

Operating margin is a measurement of what proportion of a company's

variable costs of production such as wages, raw materials, etc. It can be calculated by dividing a

company’s operating income (also known as "

same period. “Operating income” here refers to the

expenses (such as cost of goods sold

minus the value of returned goods, allowances for damaged and missing goods, and discount sales.

Operating margin is expressed as a percentage,

represented in the following way:

A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5

Gross profit margin is a financial metric used to assess a firm's

revealing the proportion of money left over from revenues after accounting for the cost of goods sold

serves as the source for paying additional expenses and future savings.

margin ratio used to measure a company's pricing strategy and operating efficiency.

Operating margin is a measurement of what proportion of a company's revenue is left over after paying for

such as wages, raw materials, etc. It can be calculated by dividing a

(also known as "operating profit") during a given period by its

same period. “Operating income” here refers to the profit that a company retains after removing

cost of goods sold and wages) and depreciation. “Net sales” here refers to the total value of sales


Operating margin is expressed as a percentage, and the formula for calculating operating margin can be

2 0 1 5

a firm's financial health by

cost of goods sold. Gross

l expenses and future savings.

ratio used to measure a company's pricing strategy and operating efficiency.

is left over after paying for

such as wages, raw materials, etc. It can be calculated by dividing a

") during a given period by its net sales during the

that a company retains after removing operating

. “Net sales” here refers to the total value of sales


and the formula for calculating operating margin can be


Operating margin is also often known as “operating profit margin,” “operating income margin,” “return on sales” or

as “net profit margin.” However, “net profit margin” may be misleading in this case because it is more frequently

used to refer to another ratio, net margin.

Profit Before Tax Margin (PBT Margin): This measure combines all of the continuing operations. PBT

exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes

in a company's profits or earnings from year to year.

Net Profit Margin: This measure combines all of the company's profits before tax, including operating, non-

operating, continuing operations and non-continuing operations. PBT exists because tax expense is constantly

changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from

year to year.

Company Gross Profit

Margin

Operating Profit

Margin PBT Margin

Net Profit

Margin

Hero Motor

Corp 10.88 8.64 10.69 8.64

Bajal Auto 17.81 13.01 17.34 13.01

TVS Motors 4.46 3.44 4.45 3.44

Return on Investments (ROI)

Return on equity (ROE): The amount of net income returned as a percentage of shareholders equity. Return

on equity measures a corporation's profitability by revealing how much profit a company generates with the money

shareholders have invested.

ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder's Equity

Return on assets (ROA): is an indicator of how profitable a company is relative to its total assets. ROA gives

an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a

company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as

"return on investment".

The formula for return on assets is: Net Income / Total Assets


Note: Some investors add interest expense back into net income when performing this calculation because they'd

like to use operating returns before cost of borrowing.

Company ROA ROE

Hero Motor

Corp 327.58 36.47

Bajal Auto 369.50 26.31

TVS Motors 34.63 21.14

Directors Speak

Director/Chairman report gives the snapshot of company's performance highlighting the achievements

and future guidance. This is very important to understand where the company is focusing on to generate

cash flows

Directors Speak of Hero

The Indian two-wheeler industry swung wildly during FY 2014-15: there was cheerful growth of 16%

during the first half of the year, but just one per cent growth during the second. Meagre and unseasonal

rains, moderation in the growth of farm support prices, and a decline in rural wages caused distress; all

adversely affected sales.


Directors Speak of Bajaj

Over the last couple of years, there has been little or no growth across many segments of industry and the

annual

Financial results of corporate for 2014-15 (FY2015) show this quite clearly. There has been little

or no uptick of either consumer or industrial demand; and despite soft energy prices from the second

Half of FY2015, companies have struggled with their revenues and profits. Some sectors have suffered

less; others more. But the sense on the street is that it has been a difficult year — quite removed

from what one expects out of 7.5% growth.

Bajaj fared a little better in terms of growth by 7.5%

Market Ratios for Hero

Price/Earnings Ratio

EPS is most often derived from the last four quarters. The price-earnings ratio is also

sometimes known as the price multiple or the earnings multiple.

= (Market Price/Earnings Per Share) =25.00209275

Limitations :

One primary limitation of using P/E ratios emerges when comparing P/E ratios of different

companies. Valuations and growth rates of companies may often vary wildly between


sectors due both to the differing ways companies earn money and to the differing timelines

during which companies earn that money. As such, one should only use P/E as a comparative

tool when considering companies within the same sector, as this kind of comparison is the

only kind that will yield productive insight. Comparing the P/E ratios of a telecommunications

company and an energy company, for example, may lead one to believe that one is clearly

the superior investment, but this is not a reliable assumption.

For Bajaj


For Hero MotoCorp :

As with most ratios, it varies a fair amount by industry. Industries that require more infrastructure capital

(for each dollar of profit) will usually trade at P/B ratios much lower than, for example, consulting firms.

P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are

constantly valued at market values.

A higher P/B ratio implies that investors expect management to create more value from a given set of

assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their

accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm

to generate profits or cash for shareholders.

Dividend Yield:

Dividend Yield = (Dividends per Share/Market Price) -------------------- 2%

The formula for calculating dividend yield may be represented as follows:

When companies pay high dividends to their shareholders, it can indicate a variety of things about the

company, such as that the company might currently be undervalued or that it is attempting to attract

investors. On the other hand, if a company pays little or no dividends, it may indicate that the company is


overvalued or that the company is attempting to grow its capital. Certain companies in particular

industries, when they are well established and steady-earning, often have good dividend yields even

though they are not undervalued. Banks and utilities often fall into this category.

While a company may pay high dividends to its shareholders for a time, this may not always be so.

Companies often trim their dividend payments or stop them altogether during hard economic times or

when the company is experiencing hard times of its own, so one can rarely rely on consistent dividends on

a permanent basis.

Key Liquidity Ratios:

1. Current Ratio / Working Capital Ratio.

It is a measure of company’s liquidity in meeting the short term debt obligation. It is the first check to

know about financial flexibility of a company.

Formula is as follows:

Current Ratio / Working Capital Ratio = Current Assets / Current Liabilities.

Calculating the Current Ratio for HMCL, BAL and TVS for Fy 14-15 we observe that:

Name of the

Company

Current Assets (

Cr )

Current

Liabilities ( Cr )

Current Ratio Remarks

HMCL 5282.13 3883.42 1.36

BAL 9526.27 4476.79 2.12 Highly Liquid

TVS 2029.02 2243.38 0.90

General perception about Current Ratio

1. If the value of Current Ratio lies between 1 and 2, then it is acceptable.

2. If Current Ratio >= 2, then there is possibility that a company is not using its assets in an

appropriate way.


3. If Current Ratio <= 1, then company might be having problem with its operations and hence we

need to refer to Profit and Loss Statement and analyze its profit from Operations.

2. Quick Ratio / Acid Test Ratio

Quick Ratio is company’s ability to meet its short term obligation using its most liquid assets.

What is most liquid assets?

Let us have a look at the assets of HMCL for FY 14-15!

We observe that apart from inventories, every other asset can be converted into Cash in short term and

hence Quick Ratio / Acid Test Ratio is calculated as follows:

Quick Ratio / Acid Test Ratio = (Current Assets – Inventories) / Current Liabilities.

Comparing the values of Quick Ratio for HMCL, BAL and TVS we get as follows:

Name of the

Company

Current Assets -

Inventories ( Cr )

Current

Liabilities ( Cr )

Quick Ratio Remarks

HMCL 4466.64 3883.42 1.15

BAL 8712.12 4476.79 1.94 Quicker than

other two

competitors

TVS 1209.34 2243.38 0.53

3. Cash Ratio

It is company’s agility to deal with immediate requirement on building new assets or making expense. It

can be termed as Super Quick Ratio.


It is calculated as follows:

Cash Ratio = Cash and Cash Equivalents ( As per Profit and Loss Statement ) / Current Liabilities

Observing the Cash Ratio for HMCL, BAL and TVS as on Mar 31,2015

Name of the

Company

Cash and Cash

Equivalents ( Cr )

Current

Liabilities ( Cr )

Quick Ratio Remarks

HMCL 159.25 3883.42 0.04

BAL 586.15 4476.79 0.13 Most Agile

TVS 5.39 2243.38 0.0024

4 Net Working Capital


Net Working Capital = Current Assets – Current Liabilities

Calculating the Net Working Capital for HMCL, BAL and TVS as on Mar 31, 2015

Name of the

Company

Current Assets (

Cr )

Current

Liabilities ( Cr )

Net Working

Capital

Remarks

HMCL 5282.13 3883.42 1398.71

BAL 9526.27 4476.79 5049.46

TVS 2029.02 2243.38 -214.36 Negative Net

Working Capital

Negative Working Capital on any day can bring bad name to the company.


Asset Management Ratio

Asset Management Ratios are a measure to company’s efficiency to generate revenues utilizing its assets.

As a manager, we should always focus to improve the revenues from the company’s core operations.

1. Asset Turnover Ratio

It is calculated as Asset Turnover Ratio = Revenue / Average Total Assets.

Calculating Asset Turn Over Ratio for HMCL, BAL and TVS for FY 14-15

Name of the

Company

Total Revenue (

Cr )

Total Assets ( Cr ) Asset Turnover

Ration

Remarks

HMCL 28078 10521 2.66 Although the total assets of

HMCl are lesser than BAL,

Asset TurnOver ratio is the

best among all of them

BAL 22194 15562 1.426

TVS 10131 4604 2.20

This is the first check on Efficiency of the asset management of the company. The limitation of this ratio is

that it does not let us know about the profit of the company.

2. Fixed Asset Turnover Ratio

It is a refined version of Asset Turnover Ratio.

It is calculate as Fixed Asset Turnover = Revenue / Average Fixed Assets

Calculating Asset Turn Over Ratio for HMCL, BAL and TVS for FY 14-15.

Name of the

Company

Total Revenue (

Cr )

Total Fixed

Assets ( Cr )

Fixed Asset

TurnOver Ration

Remarks

HMCL 28078.04 3625.24 7.745


BAL 22194.43 2172.18 10.21 Highest

TVS 10131.83 1418.99 7.140

The trend in this Ratio is also very important as the increasing trend of Fixed asset turnover ratio is

desirable. If the value is less than last year’s value then the efficiency of a company to utilize its fixed asset

is decreasing.

Calculating it for the FY 13-14 we get.

Name of the

Company

Total Revenue (

Cr )

Total Fixed

Assets ( Cr )

Fixed Asset

TurnOver Ration

Remarks

HMCL 25721.85 3097.36 8.30

BAL 20855.92 2150.10 9.69 Highest

TVS 7996.15 1173.79 6.81

As we can observe that out of HMCL, BAL, TVS, HMCL’s Fixed Asset TurnOver Ratio is increasing.

The decreasing trend of Fixed Asset TurnOver Ratio tells us that a company might be over investing in

Property, Plant and Equipment.

7.745

10.21

7.14

8.3

9.69

6.81

0

2

4

6

8

10

12

HMCL BAL TVS

Fixed Asset TurnOver Ratio

FY 13-14

Fixed Asset TurnOver

Ration FY 14-15


3,Inventory Turnover

It is a very important ratio in terms of Managing Inventory of finished goods as it tells us how fast the

company has been able to see its inventory in terms of Cost of Materials consumed.

It is calculated as: Cost of Goods Consumed / Average Inventory over the year

Calculating the Inventory TurnOver ratio of HMCL, BAL and TVS we get,

FY 14-15

Name of the

Company

Cost of Good

Consumed ( Cr )

Average

Inventory ( Cr )

Inventory

Turnover

No. of Days of Inventory kept

HMCL 19790.40 861.39 22.97 16 Days

BAL 13752.79 814.15 16.89 22 Days

TVS 7162.32 819.68 8.73 42 Days

FY 13-14

Name of the

Company

Cost of Good

Consumed ( Cr )

Average

Inventory ( Cr )

Inventory

Turnover

No. of Days of Inventory kept

HMCL 18222.53 669.55 27.21 14 Days

BAL 12936.47 639.72 20.22 18 Days

TVS 5418.82 548.15 9.88 37 Days

It can be seen that the No. of days of Inventory has increased in all of three major players of the industry

where TVS has kept the highest number of inventory of 40 Days in order to supply well to the market.

4 . Accounts Payable Turnover Ratio:

It is a measure of how fast company pays its vendors for purchase of raw material, etc.

It is calculated in the following way:

Accounts Payable Turnover Ratio = Cost of Goods (Cost of Raw Material Consumed) + Change in Inventory

/ Accounts Payable


Calculating the Accounts Payable Turnover ratio for HMCL, BAL and TVS for FY 13-14 and FY 14-15

respectively, we get

FY 14-15

Name of

the

Company

Cost of Good

Consumed ( Cr )

Change in

Inventory (

Cr )

Accounts

Payable

Accounts

Payable

Turnover

Ratio

No. of Days of

Paying a

Vendor

HMCL 19783.88 29.97 2841.87 6.97 52 Days

BAL 13752.79 57.56 1799.75 7.67 48 Days

TVS 7162.32 92.07 1263.82 5.74 64 Days

FY 13-14

Name of

the

Company

Cost of Good

Consumed ( Cr )

Change in

Inventory ( Cr )

Accounts

Payable

Accounts

Payable

Turnover Ratio

No. of Days of

Paying a Vendor

HMCL 18222.53 -8.36 2290.59 7.95 46 Days

BAL 12936.47 18.90 2111.40 6.135 59 Days

TVS 5418.82 9.65 998.09 5.41 67 Days

5 . Account Receivable Turnover Ratio

It is a measure of how many days of the credit does a company gives it to its Authorized dealers, its first

customers.

Also it can be interpreted as the number of days in which the company collects its money from its

customers.


Account Receivable Turnover Ratio = Cash Received from Sales / Average Trade Receivable

Calculating the account receivable turnover ratio for HMCL, BAL, TVS for FY13-14 and FY 14-15 , we get:


Name of

the

Company

Sales

Revenue

( Cr )

Net Cash

Received

from

Sales

Trade

Receivable

from

Balance

Sheet

Account

Receivable

Turnover

Ratio

No. of

Days in

collecting

the

money

HMCL 28078.04 27608 1389.59 19.87 18 Days

BAL 22194.43 22118.06 716.96 30.84 12 Days

TVS 10130.83 10300.57 503.86 20.44 18 Days

Name of

the

Company

Sales

Revenue

( Cr )

Net Cash

Received

from

Sales

Trade

Receivable

from

Balance

Sheet

Account

Receivable

Turnover

Ratio

No. of

Days in

collecting

the

money

HMCL 25721.85 25462.39 920.58 27.65 13 Days

BAL 20855.92 20584.23 796.21 26.229 14 Days

TVS 10130.83 8013.4 334.12 23.98 15 Days

6. Cash Conversion Cycle or Operating Cycle:

It is a measure of the no. of days in which a company turns its purchases into cash receipts from

customers. CCC represents the no. of days the cash remains tied up with the business.

It is calculated by the following formula;

CCC = Days of Inventory + Days of receiving Sales Outstanding – Days of Paying to the vendors.

Calculating the CCC for HMCL, BAL, and TVS for FY 14-15 and FY 13-14, we get:

FY 14-15

Name of the

Company

Days of

Inventory

Days of receiving

Sales

Outstanding

Days of Paying to

the vendors.

Cash Conversion Cycle

HMCL 15 18 52 -19

BAL 22 12 48 -14

TVS 42 18 64 -4


Where all values in No. of Days.

FY 13-14

Name of the

Company

Days of

Inventory

Days of receiving

Sales

Outstanding

Days of Paying to

the vendors.

Cash Conversion Cycle

HMCL 13 13 46 -20

BAL 18 14 59 -27

TVS 37 15 67 -15

Where all values in No. of Days.

As we observe that Cash Conversion Cycle is negative for all of the three competitors in the Indian Two

Wheeler industry which is possible. It means that the companies have strong market positions and can

dictate purchasing terms to the suppliers.

Financial reporting and analysis hero motocorp ltd. v1

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