hero motocorp

A STUDY ON RATIO ANALYSIS OF HERO MOTOCORP WITH REFRENCE TO SATYOM HERO

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1.1 MOTORCYCLE INDUSTRIES:

The first commercial design for a self-propelled bicycle was a three-wheel

design called the Butler Petrol Cycle, conceived of Edward

Butler in England in 1884. He exhibited his plans for the vehicle at the

Stanley Cycle Show in London in 1884. The vehicle was built by the merry

weather Fire Engine Company in Greenwich, in 1888.

The Butler Petrol Cycle was a three-wheeled vehicle, with the rear wheel

directly driven by a 5/8hp (466W) 600 cc (40 in3; 2¼×5-inch {57×127-mm})

flat twin four stroke engine (with magneto ignition replaced by coil and

battery) equipped with rotary valves and a float-fed carburettor (five years

before Maybach) and Ackermann steering, all of which were state of the

art at the time. Starting was by compressed air. The engine was liquid-

cooled, with a radiator over the rear driving wheel. Speed was controlled

by means of a throttle valve lever. No braking system was fitted; the

vehicle was stopped by raising and lowering the rear driving wheel using

a foot-operated lever; the weight of the machine was then borne by two

small castor wheels. The driver was seated between the front wheels. It

wasn't, however, a success, as Butler failed to find sufficient financial

backing.


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Another early internal combustion, petroleum fuelled motorcycle was

the Daimler Reitwagen. It was designed and built by the German

inventors Gottlieb Daimler and Wilhelm Maybach in Bad Cannstatt,

Germany in 1885. This vehicle was unlike either the safety bicycles or

the boneshaker bicycles of the era in that it had zero degrees of steering

axis angle and no fork offset, and thus did not use the principles of bicycle

and motorcycle dynamics developed nearly 70 years earlier. Instead, it

relied on two outrigger wheels to remain upright while turning. The

inventors called their invention the Reitwagen ("riding car"). It was

designed as an expedient test bed for their new engine, rather than a true

prototype vehicle.

Many authorities who exclude steam powered, electric or diesel two-

wheelers from the definition of a motorcycle, credit the

Daimler Reitwagen as the world's first motorcycle.

If a two-wheeled vehicle with steam propulsion is considered a

motorcycle, then the first was the French Michaux-Perreaux steam

velocipede of 1868. This was followed by the American Roper steam

velocipede of 1869, built by Sylvester H. Roper Roxbury,

Massachusetts. Roper demonstrated his machine at fairs and circuses in

the eastern U.S. in 1867, and built a total of 10 examples.


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1.2 SUMMARY OF EARLY INVENTIONS

Year Vehicle Number

of wheels Inventor

Engine

type Notes

1867–

1868

Michaux-

Perreaux

steam

velocipede

2

Pierre

Michaux

Louis-

Guillaume

Perreaux

Steam One made

1867–

1868

Roper steam

velocipede 2

Sylvester

Roper Steam Ten made

1884 Butler Petrol

Cycle

3 (plus 2

castors) Edward Butler

Petroleum

internal-

combustion

1885 Reitwagen 2 (plus 2

outriggers)

Gottlieb

Daimler

Wilhelm

Maybach

Petroleum

internal-

combustion

One made

1894 Hildebrand &

Wolf Müller 2

Heinrich

Hidebrand

Wilhelm

Hidebrand

Alois Wolf

Müller

Petroleum

internal-

combustion

Modern

configuration

First mass-

produced

motorcycle

First machine to

be called

"motorcycle"


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1.3 GROWTH AND EVOLUTION

First motorcycle companies

Diagram of 1894 Hildebrand & Wolf Müller.

In 1894, Hildebrand & Wolf Müller became the first series production

motorcycle, and the first to be called a motorcycle (German:

Motorrad). Excelsior Motor Company, originally a bicycle manufacturing

company based in Coventry, England, began production of their first

motorcycle model in 1896. The first production motorcycle in the US was

the Orient-Aster, built by Charles Metz in 1898 at his factory in Waltham,

Massachusetts.

In the early period of motorcycle history, many producers

of bicycles adapted their designs to accommodate the new internal

combustion engine. As the engines became more powerful and designs

outgrew the bicycle origins, the number of motorcycle producers

increased. Many of the nineteenth century inventors who worked on early

motorcycles often moved on to other inventions. Daimler and Roper, for

example, both went on to develop automobiles.

At the turn of the century the first major mass-production firms were set

up. In 1898, Triumph Motorcycles in England began producing

motorbikes, and by 1903 it was producing over 500 bikes. Other British

firms were Royal Enfield, Norton and Birmingham Small Arms

Company who began motorbike production in 1899, 1902 and 1910,

respectively. Indian began production in 1901 and Harley Davidson was

http://en.wikipedia.org/wiki/File:1894_Hildebrand_&_Wolfm%C3%BCller_diagram.png


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established two years later. By the outbreak of the First World War, the

largest motorcycle manufacturer in the world was Indian, producing over

20,000 bikes per year.

First World War

Triumph Motorcycles Model H, mass-produced for the war effort and

notable for its reliability

During the First World War, motorbike production was greatly ramped up

for the war effort to supply effective communications with front line troops.

Messengers on horses were replaced with despatch riders on motorcycles

carrying messages, performing reconnaissance personnel and acting as

a military police. American company Harley-Davidson was devoting over

50% of its factory output toward military contract by the end of the war.

The British company Triumph Motorcycles sold more than 30,000 of

its Triumph Type H model to allied forces during the war. With the rear

wheel driven by a belt, the Model H was fitted with a 499 cc (30.5 cu in)

air-cooled four-stroke single-cylinder engine. It was also the first Triumph

without pedals.

The Model H in particular, is regarded by many as having been the first

"modern motorcycle". Introduced in 1915 it had a 550 cc side-valve four-

stroke engine with a three-speed gearbox and belt transmission. It was so

popular with its users that it was nicknamed the "Trusty Triumph."

http://en.wikipedia.org/wiki/File:Triumph_1922_H_1.jpg


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Post war

By 1920, Harley-Davidson was the largest manufacturer with their

motorcycles being sold by dealers in 67 countries. By the late 1920s or

early 1930s, DKW in Germany took over as the largest manufacturer.

NSU Sportmax streamlined motorcycle, 250 cc class winner of the1955

Grand Prix season

After World War II, the Birmingham Small Arms Company became the

largest producer of motorcycles in the world, producing up to 75,000 bikes

per year in the 1950s. The German company NSU held the position of the

largest manufacturer from 1955 until the 1970s.

In the 1950s, streamlining began to play an increasing part in the

development of racing motorcycles and the "dustbin fairing" held out the

possibility of radical changes to motorcycle design. NSU and Moto

Guzzi were in the vanguard of this development, both producing very

radical designs well ahead of their time. NSU produced the most

advanced design, but after the deaths of four NSU riders in the 1954–

1956 seasons, they abandoned further development and quit Grand Prix

motorcycle racing.

Moto Guzzi produced competitive race machines, and by 1957 nearly all

the Grand Prix races were being won by streamlined machines. The

following year, 1958, full enclosure fairings were banned from racing by

the FIM in the light of the safety concerns.

http://en.wikipedia.org/wiki/File:ZweiRadMuseumNSU_NSU-SportMax_1955.JPG


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From the 1960s through the 1990s, small two-stroke motorcycles were

popular worldwide, partly as a result of East German Walter Kaaden's

engine work in the 1950s.

1.4 PROSPECTS

Since the first motorcycle was built, the two wheel transportation device

has had many sources of power, including the first steam powered

machines. It was not until World War II that gas powered motorcycles

became common place. Now the pentagon is developing a new military

hybrid motorcycle that promises to be fast, powerful and silent. By creating

this stealth cycle, the government has inadvertently pushed the envelope

of alternative fuel motorcycles.

The Hybrid Electric

The motorcycle in development by the Defence Advanced Research

Projects Agency will have a hybrid diesel/electric engine. In stealth mode,

the bike will run on battery power and make little sound. When the driver

needs more power for speed, he can switch over to a special diesel fuel

engine. One of the two contractors for the military prototype, BRD, already

has many of the cycle features on its commercially available Redshift. The

Redshift is a fully electric motorcycle with a top speed of 80 mph and a

range of about 2 hours and costs about $15,000.

Air Powered With No Sails

Concept bikes are universally cool but often do not make it to mass

production. Trying to repair a concept vehicle, let alone finding

inexpensive motorcycle parts online, can be quite the task. That is why

the air powered motorcycle designed by Edwin Conan may be relegated


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to the cool but impractical file. The machine, known as the Green Speed

Air Powered Motorcycle, is the epitome of green technology as it is

powered by compressed air. The idea is to have solar panels that can

generate the energy to compress the ambient air and store it in fiberglass

tanks. The top speed is only limited by the pressure capacity of the tank.

Food to fuel

Where an air powered bike may not see the light of day, bio-fueled

motorcycles most certainly will. Biologically created fuels like ethanol and

butanol will either supplement or substitute for fossil fuels. One of the

concerns with bio-fuels is the speed that the combustion energy is

released. Ethanol and butanol give off a lower amount of energy

compared to gasoline. They also require more air intake to run efficiently

and can give off increased amount of nitrous compounds with

concentrations over 20 percent.

Water Power

Hydrogen cells use catalysed anodes to liberate an electron from the

hydrogen atom. This free electron is used to power an electric motor and

the ionized atom reacts with oxygen to form water. Hydrogen cells have

become a hot topic for green car manufacturers. Recently California

committed to doubling its hydrogen refuelling stations. Researchers are

now looking at this technology for motorcycles. In the Journal of Cleaner

Production, scientist Ru-Jen Lina, Kim-Hua Tanb, and Yong Geng touted

this technology as the potential savior for Vietnam’s motorcycle-induced

pollution.


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1.5 RATIO ANALYSIS

Ratio Analysis is a form of Financial Statement Analysis that is used to

obtain a quick indication of a firm's financial performance in several key

areas. The ratios are categorized as Short-term Solvency Ratios, Debt

Management Ratios, Asset Management Ratios, Profitability Ratios, and

Market Value Ratios.

Ratio Analysis as a tool possesses several important features. The data,

which are provided by financial statements, are readily available. The

computation of ratios facilitates the comparison of firms which differ in

size. Ratios can be used to compare a firm's financial performance with

industry averages. In addition, ratios can be used in a form of trend

analysis to identify areas where performance has improved or

deteriorated over time.

Because Ratio Analysis is based upon accounting information, its

effectiveness is limited by the distortions which arise in financial

statements due to such things as Historical Cost Accounting and inflation.

Therefore, Ratio Analysis should only be used as a first step in financial

analysis, to obtain a quick indication of a firm's performance and to identify

areas which need to be investigated further.

The pages below present the most widely used ratios in each of the

categories given above. Please keep in mind that there is not universal

agreement as to how many of these ratios should be calculated. You may

find that different books use slightly different formulas for the computation

of many ratios. Therefore, if you are comparing a ratio that you calculated

with a published ratio or an industry average, make sure that you use the

same formula as used in the calculation of the published ratio.


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1.5.1 CLASSIFICATION OF RATIOS:

Short-term solvency Ratios:

Current Ratio

Quick Ratio

Inventory to working capital ratio

Long-term solvency Ratios:

Debt-Equity Ratio

Proprietary Ratio

Solvency Ratio

Fixed Assets to net worth Ratio

Current assets to net worth ratio

Current Liabilities to net worth ratio

Fixed Assets ratio

Turnover or Activity Ratios:

Stork turnover Ratio

Debtors turnover Ratio

Creditor turnover Ratio

Cash turnover Ratio

Working capital turnover Ratio

Fixed Assets turnover Ratio

Current Assets turnover Ratio

Total Assets Turnover Ratio

Sales to net worth Ratio


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Profitability Ratios:

Gross profit Ratio

Net profit Ratio

Operating Cost Ratio

Operating Profit Ratio

Total Assets Ratio

Return on Equity Ratio.

SHORT TERM SOLVENCY OR LIQUIDITY RATIOS:

There are the ratios, which measures the short-term solvency or

financial position of the firm. These Ratios are calculated to comment

upon the short-term paying capacity of a concern or the firm’s ability to

meet its current obligations.

The different types of solvency Ratios are

Current Ratio

Quick Ratio

Inventory to Working Capital Ratio

1) Current Ratio: The current Ratio is calculated by dividing current

assets by current liabilities. Current Assets includes Cash and other

assets which can be converted into cash within the normal course of the

business (that is normal 12 months) such as bills receivable, securities,

advances, outstanding accrued income, prepaid expenses. All obligations

maturing within a year are included in current liabilities. Thus, current

liabilities include Bills payable, sundry creditors, Provision for Income tax,

unclaimed dividend, proposed dividend and long-term debt maturing in

the current year. Current Ratio measures the firm’s short-term solvency


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position. It indicates the availability of current assets in rupees for

everyone rupee current liability. If the ratio is more than two means that

the firm has more current assets, shows high liquidity position of the firm.

When current liabilities are more than current assets means the liquidity

position of the firm is poor. Standard or ideal current ratio is 2:1. The

Current Assets fixed at two times the Current Liabilities. The idea behind

this fixation is to leave a margin of safety to cover any fall in the value of

Current Assets and also leave sufficient working capital after the payment

of current liabilities. Current Assets twice of current liabilities or more

considered to be satisfactory.

Current Assets

Current Ratio = ----------------------

Current Liabilities

2) Quick Ratio: The Quick or Acid test Ratio is a more defined measure

of the firm’s liquidity. This ratio establishes a relationship between quick

or liquid assets and current liabilities. An asset is liquid, if it can convert

into cash immediately or reasonably soon without loss of value. Cash is

the most liquid asset. The other Assets, which are considered relatively

liquid and included in the quick assets, are book debts and marketable

securities. Stock or inventory and prepaid expenses are considered to be

less liquid. Inventories normally require sometime for realizing into cash.

The quick Ratio is found out by dividing the total of the quick Assets by

the total current liabilities. The Quick or Acid test ratio is sometimes called

“Liquidity Ratio”.

Quick/Liquid Assets

Quick/ Acid Test Ratio = -------------------------

Current Liabilities


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Quick Assets include cash and Book Debts (Debtors and Bills

Receivable) only. Inventories are excluded because it takes time to sell

finished goods and convert raw materials and work in progress into

finished goods. There is also uncertainty as to whether or not the

inventories can be sold.

Since the prepaid expenses cannot be converted into cash the prepaid

expenses are excluded. By conversion a quick ratio of 1:1 considered

satisfactory. It is considered that, if Quick Assets are equal to Current

Liabilities, then the concern can meet its obligations.

3) Inventory to Working Capital Ratio: It is the ratio of inventory to

working capital. Inventory to working capital ratio is usually expressed as

a percentage. It is expressed as

Inventory

Inventory to Working Capital Ratio = --------------------- x 100

Working capital

This ratio indicates the proportion of working capital tied up in inventories

or stocks. It also indicates whether there is overstocking or under stocking.

As per the standard inventory to working capital ratio the inventories

should not absorb more than 75% of working capital. As such a low

inventory to working capital ratio (that is a ratio of less than 75%) indicates

under stocking, and so high liquid position, while a high inventory to

working capital ratio (i.e., a ratio over 75%) indicates overstocking capital

and so, a low liquid position.


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LONG-TERM SOLVENCY RATIOS (LEVERAGE RATIOS):

Long-term solvency Ratio conveys a firm’s ability to meet the

interest/costs and repayment schedule of its long-term obligations. These

ratios are helpful to management in proper administration of capital. It also

helps the creditors to know the capacity of a business concern to pay debt

in future.

The various Ratios are:

Debt-Equity Ratio

Proprietary Ratios

Solvency Ratio

Fixed Assets to Net worth Ratio

Current Assets to Net worth Ratio

Current Liabilities to Net worth Ratio

Fixed Assets Ratio

a) Debt-Equity Ratio: The term Debt signifies total indebtedness of the

company as shown by its short and long-term obligations.

Equity refers to the aggregate ownership interest measured by the total

share capital plus any reserves, which may rightly and legitimately be

appropriate to the shareholders.

The ratio can be calculated in two ways

Total Debt/Net worth

Net worth/Total Debt

Both these methods are in practice but the interpretation of each requires

a great deal of caution. The fundamental objective of it is to measure the

relative interest of owners and creditors in the enterprise. It also measures


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the extent of trading on equity. From the creditors point of view it signifies

the extent to which their interests are covered by net worth of the

enterprise. The creditors, however, prefer a lower debt to equity ratio as it

gives them greater cushion against possible loss in the event of the

liquidation of the enterprise. The owners, on the other hand, prefer a high

debt to equity ratio as this will give them better returns with a smaller

capital contribution.

Ideal Ratio usually recommended is 2:1 As such, if the debt is less than

two times the equity, the logical conclusion is that the financial structure

of the concern is sound. On the other hand, if the debt is more than two

times the equity, the conclusion is the financial structure of the

undertaking is weak.

Debt

Debt Equity Ratio = ---------

Equity

b) Proprietary Ratio: It is a variant of the Debt equity ratio. It is the ratio,

which expresses the relationship between the net worth or equity and total

assets.

Net worth

Proprietary Ratio = ----------------

Total Assets

(i) It is an index of the amount of the proprietors funds invested on the

total assets of a concern

(ii) It is also indicates the proportion between owned capital (i.e.,

proprietors fund) and loaned capital (i.e., Borrowed funds or liabilities).

(iii) It indicates the relative risks of the owners and the creditors of an

enterprise.


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Generally a standard proprietary ratio is 0.5:1. That says the higher the

proprietary ratio the stronger is the financial position of the concern and

lower the proprietary ratio, the weaker is the financial position of the

enterprise.

c) Solvency Ratio: This ratio measures the long term solvency of the

business. It reveals the relationship between total assets and total

external liabilities. External liabilities mean all long term and short

liabilities. It is the difference of 100 and proprietary ratio. It is calculated

as follows:

Total liabilities

Solvency Ratio = ---------------------------

Total Assets

The ratio measures the proportion of total assets provided by creditors

(Long-term as well as short-term) of the firm. That is what part of assets

is being financed from loans. If total assets are more than external

liabilities, the firm is treated as solvent. So, the higher the ratio, greater is

the amount of creditors that is being used to generate profits for the

owners the firm.

d) Fixed Assets Ratio: This ratio is also called the capital employed to

fixed assets. As per sound financial policy acquisition of fixed assets

should be financed form long-term funds only. To test whether this policy

is properly followed or not, this ratio is calculated. It expresses the

relationship between long-term funds or capital employed and fixed assets

of the firm. Expressed as a formula, the ratio is


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Long-term Funds

Fixed Assets Ratio = ----------------------

Fixed Assets

Long-term funds include equity share capital, Preference Share

Capital, all Reserves and surplus and long-term loans Fixed Assets mean

net fixed assets. That is fixed assets after deducting depreciation and

long-term investments including shares of subsidiary companies.

This ratio indicates whether proper adjustment between long-term

sources and long-term uses of capital exists or not Fixed Assets Ratio of

more than one reveals that long-term funds have been employed to

finance current assets on the contrary a ratio of less than one indicates

that a part of fixed assets is financed by short-term funds. Normally a ratio

of 1.5:1 is considered good.

e) Fixed Assets to Net worth Ratio: It is the ratio between Fixed Assets

to Net worth.

Net Fixed Assets

Fixed Assets to Net worth Ratio = -------------------------

Net worth

This ratio indicates the proportion of fixed assets financed by the owner.

In other words it indicates as to what extent the owners have invested

funds on the fixed Assets, which constitute the main structure of the

Business.

The standard or ideal fixed asset to net worth ratio for an under taking is

2/3 or 67%. It should not be more than this.


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f) Current Assets to Net worth Ratio: It is the ratio between current

assets and net worth.

Current Assets

Current Assets to Net worth = -------------------

Net worth

This ratio indicates the proportion of current assets financed by the

owners. There is no standard for this ratio but one can say that if this ratio

is high the financial strength is good and if it is low the financial position

of the concern is weak.

g) Current Liabilities to Net worth Ratio: Current Liabilities to net worth

ratio is the ratio between Current liabilities to Net worth.

Current Liabilities

Current Liabilities to Net worth Ratio =----------------------

Net worth

This ratio indicates the relative contributions of the short-term creditors

and the owners in the capital of an enterprise. The desirable level set for

this ratio is 1/3. So, if the actual ratio is very high, it would mean that the

liability base of the concern will not provide an adequate cover for long-

term creditors. That means, it would be difficult for the concern to obtain

long-term funds.


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ACTIVITY RATIOS, PERFORMANCE RATIOS OR TURNOVER

RATIOS:

Activity ratios refer to ratios, which measures the level of activities,

performance or the operating efficiency of enterprise.

The different types of Turnover Ratios are:

Stock Turnover Ratio

Debtors Turnover Ratio

Creditors Turnover Ratio

Cash Turnover Ratio

Working Capital Turnover Ratio

Fixed Assets Turnover Ratio

Current Assets Turnover Ratio

Total Assets Turnover Ratio

Sales to Net worth Ratio

a) Stock Turnover Ratio: It is the ratio, which indicates the no. Of times

the stock is turned (i.e., sold) during a year. It is the ratio between stock

and the cost of goods sold.

Cost of Goods Sold

Stock Turnover Ratio = ------------------------

Average Stock

It can also be expressed in terms of so many months, weeks or days.

Average stock x months x weeks or days in a year

------------------------------------------------------------

Cost of goods sold


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This ratio indicates the velocity with which goods move out of the

business. In other words, it indicates the member of times the average

stock of finished goods is turned over or sold during a year. It also

indicates whether this is over stocking or lender stocking of finished

goods. It helps the management to know whether the stock of finished

goods held sales are reasonable or unreasonable as compared with

predetermined standard. Again it helps to determine even the liquidity of

a concern as it indicates the rate at which the inventory or stock is

converted into sales and then into cash.

A stock turnover of 8 times a year is considered ideal.

b) Receivable Turnover, Debtors Turnover or Debtors Velocity : It is

the ratio, which indicates the relationship between debtors, and sales, it

indicates the number of times the debt is collected in a year.

Net Annual Credit Sales

Debtors Turnover Ratio = --------------------------------

Average Debtors

This ratio indicates the rate at which the amounts are collected from the

debtors. This also indicates the liquidity of the concern as the rate at which

debts are collected influences the liquidity of the concern.

Debt collection period Ratio: This is the ratio, which indicates the extent

to which Debt has been collected in time. In other words this is the ratio,

which indicates the average time taken by the firm to collect debts. It is

the ratio, which indicates the average collection period or the average

period of credit allowed to debtors. If the actual period of credit allowed is

more than the normal period of credit or the ideal period of credit like

30days the indication is that the credit period is not efficient.


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c) Creditors Turnover Ratio or Creditors Velocity: Creditors Turnover

Ratio is the ratio between creditors and purchases. It is the ratio, which

indicates the number of times the creditors are paid in a year.

Net Annual Credit Purchases

Creditors Turnover Ratio = ---------------------------------------

Average Creditors

This indicates the rate at which payments are made to creditors or the

number of times payments are made to creditors.

Creditor’s Payment Period: This is the ratio, which is used to indicate

the time within which payments are made to the creditors.

No. Of Days in a year

Creditor’s Payment period = ----------------------------

Creditors Turnover

This ratio indicates the average period of credit received from creditors

further a comparison of this ratio with debt collection period ratio will

indicate the time lag between the two period of credit and the time lag

between tow credit periods will indicate the duration for which working

capital is required to be arranged. The Debt payment as calculated is

compared with the standard or ideal payment viz., 30 days and

conclusions are drawn.

d) Cash Turnover Ratio: It is the ratio between Cash and Turnover or

Sales.

Net Annual Sales

Cash Turnover Ratio = ------------------------

Cash


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This ratio indicates the extent to which cash resources are efficiently

utilized by the enterprise. It is also helpful in determining the liquidity of a

concern. The standard or ideal Cash turnover ratio is 10:1.

e) Working Capital Turnover Ratio: It is the Ratio between working

capital and turnover.

Net Sales

Working Capital Turnover Ratio = -------------------

Working Capital

This ratio indicates the efficient or inefficient utilization of the working

capital of an enterprise. There is no standard or ideal working capital

turnover ratio. But one can say that the higher the working capital turnover

ratio the greater is efficiency. It should be noted that a very high working

capital turnover ratio means over trading, and a very low working capital

turnover ratio means under trading. Non-of which is good for a concern.

f) Fixed Assets Turnover Ratio: Fixed Assets turnover ratio is the ratio

between fixed assets and turnover. Fixed assets, here, means net fixed

assets, i.e., fixed assets less depreciation. This ratio indicates as to what

extent the fixed assets of a concern have contributed to sales.

Net Sales

Fixed Assets Turnover Ratio = ---------------

Fixed Assets

The standard or ideal fixed assets turnover ratio is 5 times. So, a fixed

assets turnover ratio of 5 times. So, a fixed assets turnover ratio of 5 times

or more indicates better utilization of fixed assets. It may be noted that a


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very high fixed assets turnover ratio means under trading, which is not

good for the business.

g) Current Assets Turnover Ratio: Current assets turnover ratio is the

ratio between current assets and sales (Net sales).

Net Sales

Current Assets Turnover Ratio = -----------------

Current Assets

This ratio indicates the contribution of current assets to net sales. There

is no standard or ideal current assets turnover ratio. Yet, the inference is

that a high current assets turnover ratio is an indication of a better

utilization of current assets on the other hand; a low current assets

turnover ratio suggests that the current assets have not been utilized

effectively.

h) Total Assets Turnover Ratio: This is the ratio between total assets

and Net sales.

Net Sales

Total Assets turnover Ratio = ------------------

Total Assets

This ratio indicates the efficiency or inefficiency in the use of total

resources or assets of a concern. The standard ratio is that the sales

should be at least two times the value of the assets. A total assets turnover

ratio of 2 times or more indicates that the assets of a concern have been

utilized effectively.


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i) Sales to Net worth ratio: It is also called as owned capital turnover

Ratio. It is the ratio between net annual sales and net worth that is owners’

fund.

Net Annual Sales

Sales to Net worth Ratio = ------------------------

Net worth

This ratio is a good index of the utilization of the owner’s funds. It is also

indicates, whether there is over trading or under trading. Again it indicates

whether there is over capitalization or under capitalization. If the volume

of sales in relation to net worth is reasonable, the indication is the owner’s

funds have been effectively utilized.

PROFITABILITY RATIOS:

They are the ratios, which measure the profitability of a concern in other

words they are ratios, which reveal the total effect of the business

transaction on the profit position of an enterprise and indicated how far

the enterprise has been successful in its aim.

(1) Gross Profit Ratio or Turnover Ratio: It is the ratio, which expresses

the relationship between gross profit and sales.

Gross Profit

Gross Profit Ratio = ----------------------- x 100

Net Sales

This ratio indicates the gross results of trading or the overall margin within

which a business undertaking most limit its operation expenses to earn

sufficient profit. It also indicates whether the average mark up on the

goods has been maintained or not.


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The actual gross profit ratio is compared with the gross profit ratio of the

previous year and those are concern carrying on similar business, If it is

high then it is an indication good results and vice versa.

(2) Net Profit Ratio: Net Profit means final balance of operating and Non-

operating incomes after meeting all expenses, that is both operating and

non-operating. Sales mean total sales, but net sales, i.e., total sales minus

sales returns.

Net Profit

Net Profit = ------------ x 100

Net Sales

This ratio indicates the quantum of profit earned by a concern. A high net

profit ratio indicates that the profitability of the concern is good. A low net

profit ratio indicates that the profitability of the enterprise is poor.

(3) Operating Cost Ratio: Operating Cost refers to all expenses incurred

for operating or running a business. It comprises cost of goods sold plus

operating expenses, such as office and administration expenses and

selling and distribution expenses.

Operating Cost

Operating Cost Ratio = ------------------ x 100

Net Sales

The operating ratio indicates the efficiency of the management in the

conduct of the business. A low operating ratio is indication of the operating

efficiency of the business on the other hand, a high operating ratio is an

indication of the operating inefficiency of the business.


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(4) Operating Profit Ratio: Operating profit is the net profit earned forms

the business for which the concern is started. In other words, it is the

excess of net sales over the operating cost. The operating profit ratio is,

generally expressed as a percentage.

Operating Profit

Operating Profit Ratio = --------------------- x 100

Net Sales

The operating profit ratio also indicates the operating efficiency or

inefficiency of a business. The standard or ideal operating profit ratio is

10%. So, an operating profit ratio of 10% or more is an indication of the

operating efficiency of the business. On the other hand, an operating profit

ratio of less than 10% is an indication of the operating inefficiency of the

business.

(5) Return on Total Resources Ratio: Return on Total Resources is also

called as Total Assets Ratio. Return on total resource ratio is the ratio of

net profit after taxes, i.e., final net profit. Return here, means net profit

after taxes, i.e., final net profit. Total resources or total assets means all

realizable assets, including Intangible assets, it they are realizable.

This ratio is usually, expressed as a percentage.

Net profit

Return on Total Resources Ratio = ----------------- x 100

Total Assets

This Ratio measures the productivity of the total assets or total resources

of a concern. A return of 10% is normally considered as an ideal Ratio. As

such, if the actual ratio is 10% or more, it is an indication of higher

productivity.


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(6) Return on Equity or Net worth or Shareholders fund Ratio: It is the

ratio, which expresses the relationship between Net profit and

shareholders fund.

Net profit

Return on Equity = ------------- x 100

Net worth

(i) This Ratio indicates the productivity of shareholder’s fund.

(ii) It also gives the shareholders and idea of the return of their funds.

(iii) It is also useful for inter-firm and inters industry comparisons.

The standard or ideal net profit to net worth is about 13%.


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2.1 TITLE:

A study on ratio analysis of hero moto corp. with reference to satyom hero.

2.2 STATEMENT OF THE PROBLEM:

The study has been conducted to know the financial performance of the

company during last 3 years.

Changes in the financial performance of the company could be due to

several reasons, changes in profit, changes in operating efficiency,

changes in quality of debtors and many more other reasons. The financial

position of the company cannot be stationary, but it is dynamic owing to

the shift in its financial position with regard to various financial parameters.

Analysis of the financial performance tries to find out the reasons for shift

in position and tires to establish a trend of the direction in which the

business is moving in. Therefore using general terminology, the statement

of the problem could be generalized as a detection of reasons for variation

in the financial position of the company.

2.3 OBJECTIVE OF THE STUDY:

Analysis of the financial performance of the company over the study

period 2011-12, 2012-13 and 2013-14.

To determine the financial requirement of company.

To study the various components of financial ratios of company.

To study the management of financial system during the previous 3

years.


29

To detect certain financial ratios which are likely to reflect the

variability in profit.

To conduct firm comparison over the study period of 2011-12, 2012-

13 and 2013-14.

To draw valid conclusions recommendations based on this study.

2.4 SCOPE OF THE STUDY:

The purpose of the study is to know the short term financial position of the

concern and the efficiency with which the finance is being used.

This project is firm analysis. Financial performance evaluation as

well as proved area and innumerable studies have proved the utility and

usefulness of this analytical technique by analyzing financial performance

employing certain selected financial ratios the company in question

managers, present and potential investors, outside parties as such as

creditors and sectors of the government employees and many more could

get an idea of the performance of the company over the study period (any

other two period).

While doing so the project has dealt upon obtaining an

understanding of general competition in this line of activity also. Therefore

scope of the study extends over parties both insider and outsides of the

firms.

2.5 METHODOLOGY OF THE STUDY:

Research simply means a search for facts, answer to questions and

solution to problems. Research is a systematic and logical study of an

issue or problem or phenomenon through scientific method. It is a

systematic and analysis of controlled observations that may lead to


30

development of generalization principle resulting in prediction and

possibly ultimate control of events.

A research design is arrangements of condition for the collection and

analysis of data in a manner that aims to combine relevance to the

research purpose with economy procedure. There various research

design but descriptive and analytical research design is more suitable for

the study.

This research is by and large a desk research and involved the following

methods.

a) Scanning though standard textbooks to understand the theory behind

financial performance. Decision regarding the study period in this case

was decided to be for a period of 3 years 2010-11, 2011-12 and 2012-

2013.

b) Collection of company’s specific literature i.e., companies profile and

annual reports for this study period.

c) Identification of financial ratios likely to reflect financial performance

adequately in this case it was calculated to be (a) Solvency ratios (b)

Activity ratios (c) Profitability ratios.

d) Calculation of these ratios over the study period and tabulation.

e) Finally forwarding certain recommendations and conclusions.

2.6 DATA ANALYSIS:

PRIMARY DATA

Primary data is the information collected for research purpose at hand.

Primary data was collected through an interview with the help of a


31

structured Questionnaire, which contained queries that were relevant to

the purpose of the study as well as pertinent; industry related questions.

SECONDARY DATA

Secondary data is the information, which already exists. The secondary

data for this research was obtained from the company profile and other

details available on the internet, corporate magazines, corporate

broacher’s journals etc.

Various books and other published matter were also referred to for sorting,

tabulating and analysing the raw data collected.

The secondary data pertaining to the specific problem of study was not

easily available. Therefore more emphasis was given to the primary data.

The merit of secondary data is that it is economical and less time

consuming.

2.7 TOOLS REQUIRED:

The following formulae required to analysis ratios:

2.7.1 Short term solvency or liquidity ratio:

1. Current ratio = Current assets

Current liabilities

2. Quick acid test ratio = quick assets

Current liabilities

3. Inventory to working capital ratio = inventory * 100

Working capital


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2.7.2 Long term solvency (leverage ratios):

1. Debt equity ratio = Debt

Equity

2. Proprietary ratio = Net worth

Total assets

3. Solvency ratio = Total assets

Total liabilities

4. Fixed assets ratio = Long term funds

Fixed assets

5. Fixed assets to net worth ratio = Net fixed assets

Net worth

6. Current assets to net worth ratio = Current assets

Net worth

7. Current liabilities to net worth ratio = Current liabilities

Net worth

2.7.3 Activity ratios, performance ratios or turnover ratios:

1. Stock turnover ratio = Cost of goods sold

Average stock

2. Debtors turnover ratio = net annual credit sales

Average debtors

3. Creditors turnover ratio = Net annual credit purchase

Average creditors


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4. Creditors payment period = No. of days in a year

Creditor’s turnover

5. Stock turnover ratio = Net annual sales

Cash

6. Working capital turnover ratio = Net sales

Working capital

7. Fixed assets turnover ratio = Net sales

Fixed assets

8. Current assets turnover ratio = Net sales

Current assets

9. Total assets turnover ratio = Net sales

Total assets

10. Sales to net worth ratio = Net annual sales

Net worth

2.7.4 Profitability ratios:

1. Gross profit ratio = Gross profit * 100

Net sales

2. Net profit ratio = Net profit * 100

Net sales

3. Operating cost ratio = Operating cost * 100

Net sales


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4. Operating profit ratio = Operating profit * 100

Net sales

5. Return on total resources ratio = Net profit * 100

Total assets

6. Return on equity = Net profit * 100

Net worth

2.8 REFRENCE PERIOD:

The duration of project was 60 days.

2.9 LIMITATIONS OF RATIO ANALYSIS:

Comparison not possible if different firms adopt different accounting

policies.

Ratio analysis becomes less effective due to price level changes.

Ratio may be misleading in the absence of absolute data.

Limited use of a single data.

Lack of proper standards.

False accounting data gives false ratio.

Ratios alone are not adequate for proper conclusions.

Effect of personal ability and bias of the analyst.


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2.10 AN OVERVIEW OF THE CHAPTER SCHEME:

Chapter 1: Introduction:

This chapter provides a background to the topic keeping in mind the

definition, scope, objectives, needs, purpose, etc. under the study of

company’s financial performance.

Chapter 2: Research design:

This chapter provides a bird’s eye view of the study. It contains the

statement of problem, scope of study, objectives of the study and

operational definitions.

Chapter 3: Profile of the company:

This chapter gives detailed information about the company.

Chapter 4: Analysis and Interpretation:

This is where the collected data is represented in the form of tables and

graphs. And an interpretation is derived from the analysis.

Chapter 5: Summary of findings, Conclusions and Suggestions:

This chapter provides a summary on the findings and conclusions derived

from the previous chapters. And provide suggestions.


36

3.1 ABOUT COMPANY:

Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's

largest manufacturer of two - wheelers, based in India. In India, it has a

market share of about 46% share in 2-wheeler category. The 2006 Forbes

200 Most Respected companies list has Hero Honda Motors ranked at

108. On 31 March 2013, the market capitalisation of the company was

INR 308 billion (USD 5.66 billion)

Hero Honda started in 1984 as a joint venture between Hero Cycles of

India and Honda of Japan. In 2010, when Honda decided to move out of

the joint venture, Hero Group bought the shares held by

Honda. Subsequently, in August 2011 the company was renamed Hero

MotoCorp with a new corporate identity.

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 is now world’s largest manufacturer of two-wheelers. The

company has benefited from the demand shift to motorcycles, as it

focuses solely on this product segment (although has a product called

Pleasure in Scooter segment). With fuel efficiency and riding comfort as

the main selling points, HMC has been able to address a wide market and

post robust sales growth even after its separation from the Japanese

major Honda.


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COMPANY HISTORY - HERO MOTO CORP

1956—Formation of Hero Cycles in Ludhiana(majestic auto limited)

1975—Hero Cycles becomes largest bicycle manufacturer in India.

1983—Joint Collaboration Agreement with Honda Motor Co. Ltd.

Japan signed Shareholders Agreement signed

1984—Hero Honda Motors Ltd. incorporated

1985—Hero Honda motorcycle CD 100 launched.

1989—Hero Honda motorcycle Sleek launched.

1991—Hero Honda motorcycle CD 100 SS launched.

1994 – Hero Honda motorcycle Splendor launched.

1997—Hero Honda motorcycle Street launched.

1999 – Hero Honda motorcycle CBZ launched.

2001 – Hero Honda motorcycle Passion and Hero Honda Joy

launched.

2002—Hero Honda motorcycle Dawn and Hero Honda motorcycle

Ambition launched.

2003—Hero Honda motorcycle CD Dawn, Hero Honda motorcycle

Splendor plus, Hero Honda motorcycle Passion Plus and Hero Honda

motorcycle Karizma launched.

2004—Hero Honda motorcycle Ambition 135 and Hero Honda

motorcycle CBZ* launched.

2005—Hero MotoCorp Super Splendor, Hero Honda motorcycle CD

Deluxe, Hero Honda motorcycle Glamour, Hero Honda motorcycle

Achiever and Hero Honda Scooter Pleasure.

2007—New Models of Hero Honda motorcycle Splendor NXG, New

Models of Hero Honda motorcycle CD Deluxe, New Models of Hero


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Honda motorcycle Passion Plus and Hero Honda motorcycle

Hunk launched.

2008—New Models of Hero Honda motorcycles Pleasure, CBZ

Xtreme, Glamour, Glamour Fi and Hero Honda motorcycle Passion

Pro launched.

2009—New Models of Hero Honda motorcycle Karizma:Karizma –

ZMR and limited edition of Hero Honda motorcycle Hunk launched

2010—New Models of Hero Honda motorcycle Splendor Pro

and New Hero Honda motorcycle Hunk and New Hero Honda

Motorcycle Super Splendor launched.

2011—New Models of Hero Honda motorcycles Glamour, Glamour FI,

CBZ Xtreme, Karizma launched. New licensing arrangement signed

between Hero and Honda. In August Hero and Honda parted company,

thus forming Hero MotoCorp and Honda moving out of the Hero Honda

joint venture. In November, Hero launched its first ever Off Road Bike

Named Hero "Impulse".

2012-New Models of Hero Motocorp Maestro the Musculine scooter

and Ignitor the young generation bike are launched.

2013-Hero MotoCorp unveiled line-up of 15 updated products including

Karizma R, ZMR, Xtreme, Pleasure, Splendor Pro, Splendor iSmart,

HF Deluxe ECO, Hero Motocorp SuperSplendor, Passion Pro and

Xpro, Glamour and Glamour FI etc. It also introduced three new

technologies- Engine Immobilizer in new Xtreme

2014- , Integrated Braking System (IBS) in new Pleasure and i3S (Idle

Stop and Start System) in new Splendor iSmart and Launching of

splendour classic.


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VISION

The story began with a simple vision – the vision of a mobile and an

empowered India, powered by its bikes. Hero MotoCorp Ltd., company’s

new identity, reflects its commitment towards providing world class

mobility solutions with renewed focus on expanding company’s footprint

in the global arena.

MISSION

Hero MotoCorp's mission is to become a global enterprise fulfilling its

customers' needs and aspirations for mobility, setting benchmarks in

technology, styling and quality so that it converts its customers into its

brand advocates. The company will provide an engaging environment for

its people to perform to their true potential. It will continue its focus on

value creation and enduring relationships with its partners.

STRATEGY

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.


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MANUFACTURING

Hero MotoCorp two wheelers are manufactured across three globally

benchmarked manufacturing facilities. Two of these are based at Gurgaon

and Dehradun which are located in the state of Haryana in northern India.

The third and the latest manufacturing plant are based at Haridwar, in the

hill state of Uttrakhand.

TECHNOLOGY

In the 1980's the Company pioneered the introduction of fuel-efficient,

environment friendly four-stroke motorcycles in the country. It became the

first company to launch the Fuel Injection (FI) technology in Indian

motorcycles, with the launch of the Glamour FI in June 2006.

Its plants use world class equipment and processes and have become a

benchmark in leanness and productivity.

Hero MotoCorp, in its endeavor to remain a pioneer in technology, will

continue to innovate and develop cutting edge products and processes

DISTRIBUTION

The Company's growth in the two wheeler market in India is the result of

an intrinsic ability to increase reach in new geographies and growth

markets. Hero MotoCorp's extensive sales and service network now

spans over to 5000 customer touch points. These comprise a mix of

authorized dealerships, service & spare parts outlets and dealer-

appointed outlets across the country.


41

SUPPLY CHAIN MANAGEMENT

As the Company prepares to produce a wider range of products, efforts

are being taken to align the supply chain and prime up its supplier base.

During the year, the Company kick-started the process of migrating its

existing brands to the new brand. The exercise is expected to be

completed during 2012-13.

During the year, the Company also commenced the process of working

with its vendors to develop new parts. The Company’s Supply Chain

Management function is built on three planks:

Cost

Quality

Sustainability

Tracking inventory cost effectively and efficiently is known to be a key

source of competitive advantage in the automobile industry. Hence, it

comes as no surprise that cost leadership is the Company’s prime focus

area. Continual pressure on margins forced the Company and its supply

chain partners to find innovative and alternate ways to combat inflation.

Considerable attention was given to managing component inventory in the

system, with double-digit growth in inventory turnover. To align HR

processes with the supply chain, top two HR consulting firms in India are

working with supply chain partners. The exercise is aimed at improving

robustness of people processes and resulting in a direct impact on quality,

cost, productivity, delivery and reliability. The move will enable supply

chain partners move to the next orbit of operational excellence. The

Company initiated more than 30 quality improvement projects with supply

chain partners to provide better quality products to customers.


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BRAND

The new Hero is rising and is poised to shine on the global arena.

Company's new identity "Hero MotoCorp Ltd." is truly reflective of its vision

to strengthen focus on mobility and technology and creating global

footprint. Building and promoting new brand identity will be central to all

its initiatives, utilizing every opportunity and leveraging its strong presence

across sports, entertainment and ground- level activation.

3.2 TERMINATION OF HERO HONDA JOINT VENTURE

In December 2010, the board of directors of the

Hero Honda Group has decided to terminate the joint venture between

Hero Group of India and Honda of Japan in a phased manner. The Hero

Group would buy out the 26% stake of the Honda in JV Hero

Honda. Under the joint venture Hero Group could not export to

international markets (except Sri Lanka) and the termination would mean

that Hero Group can now export. Since the beginning, the Hero Group

relied on their Japanese partner Honda for the technology in their bikes.

So there are concerns that the Hero Group might not be able to sustain

the performance of the Joint Venture alone.

The Japanese auto major will exit the joint

venture through a series of off market transactions by giving the Munjal

family—that held a 26% stake in the company—an additional 26%.

Honda, which also has an independent fully owned two wheeler

subsidiary—Honda Motorcycle and Scooter India (HMSI)—will exit Hero

Honda at a discount and get over $1 billion for its stake. The discount will


43

be between 30% and 50% to the current value of Honda's stake as per

the price of the stock after the market closed on Wednesday.

The rising differences between the two partners

gradually emerged as an irritant. Differences had been brewing for a few

years before the split over a variety of issues, ranging from Honda's

reluctance to fully and freely share technology with Hero (despite a 10-

year technology tie-up that expires in 2014) as well as Indian partner's

uneasiness over high royalty payouts to the Japanese company. Another

major irritant for Honda was the refusal of Hero Honda (mainly managed

by the Munjal family) to merge the company's spare parts business

with Honda's new fully owned subsidiary Honda Motorcycle and Scooter

India (HMSI).

As per the arrangement, it will be a two-leg

deal. In the first part, the Munjal family, led by Brijmohan Lal Munjal group,

will form an overseas-incorporated special purpose vehicle (SPV) to buy

out Honda's entire stake, which will be backed by bridge loans. This SPV

would eventually be thrown open for private equity participation and those

in the fray include Warburg Pincus, Kohlberg Kravis

Roberts (KKR), TPG, Bain Capital, and Carlyle Group.

Honda will continue to provide technology to Hero Honda motorbikes until

2014 for existing as well as future models.


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Hero No. 1 and going strong

When Hero parted ways with Honda three years ago, there were a whole

lot of people who thought it was all over for the Munjals-promoted group.

If the numbers of 2013-14 are anything to go by, these naysayers would

probably have to eat their words. Hero MotoCorp wrapped up with sales

of 6.25 million bikes and scooters, considerably ahead of its former

Japanese partner’s tally of 3.72 million units. Bajaj Auto followed with 3.42

million with TVS Motor just short of the two million-unit mark (1.99 million).

Industry sources say Hero will sit pretty so long as its killer duo, the

Splendor and Passion, continue to catch the eye of the market. “Sure,

they have been around for years but buyers don’t seem to mind,” an

executive from a rival two-wheeler company said. These two brands

account for nearly 60 per cent of Hero MotoCorp’s sales and are going as

strong as ever.


45

EXPANSION

Yet, there is no denying the fact that Honda is already proving to be a

serious adversary. At the time of its split with Hero, it only had one plant

in Haryana which was churning out 1.6 million bikes/scooters annually.

Since then, the company has added Rajasthan, Karnataka and Gujarat to

its expansion plans. In the following weeks, its capacity will reach 4.6

million units and, following the commissioning of the Gujarat facility, this

will be close to six million units.

This remarkable buildup will happen in the next 18 months which means

Honda will quickly bridge the gap with Hero unless the latter manages to

replicate this kind of a feverish pace. By the end of 2015-16, Honda is

targeting 40 per cent of the market and is likely to take the top slot very

soon thereafter.


46

3.3 ORGANISATIONAL CHART OF HERO MOTO CORP.


47

DIRECTORS

Founder Director and Chairman : Dr. Brijmohan Lall Munjal

Managing Director and CEO : Mr. Pawan Munjal .

Board of Directors

Name of the person Nature of the Office

Mr. Sunil Kant Munjal Non-Executive Director

Mr. Suman Kant Munjal Director

Mr. Paul Edgerley Non-Executive Director

Mr. Pradeep Dinodia Director

Gen. (Retd.) V. P. Malik Director

Mr. Analjit Singh Director

Dr. Pritam Singh Director

Mr. M. Damodaran Director

Mr. Ravinath Director

Dr. Anand C.Burman Director

Dr. Brijmohan Lall Munjal

Mr. Munjal is the founder Director and Chairman of

the Company and the $3.2 billion Hero Group. He is the Past President

of Confederation of Indian Industry (CII), Society of Indian Automobile

Manufacturers (SIAM) and was a Member of the Board of the Country's

Central Bank (Reserve Bank of India). In recognition of his contribution

to industry, Mr. Munjal was conferred the Padma Bhushan Award by

the Union Government.


48

3.4 CORPORATE GOVERNANCE

At Hero MotoCorp, it is the firm’s belief that the essence of Corporate

Governance lies in the phrase ''Your Company''. It is ''Your'' Company

because it belongs to you - the shareholders. The Chairman and Directors

are ''Your'' fiduciaries and trustees. Their objective is to take the business

forward in such a way that it maximizes ''Your'' long-term value.

This Company is committed to benchmarking itself with global standards

for providing good Corporate Governance. It has put in place an effective

Corporate Governance System which ensures that the provisions of

Clause 49 of the Listing Agreement are duly complied with.

The Board has also evolved and adopted a Code of Conduct based on

the principles of Good Corporate Governance and best management

practices being followed globally.

3.4.1 GRADING POSITIVES

Market leadership, strong brand equity, professional management, high

operating efficiency and established scale economies. Strong financial

profile characterized by healthy margins, high profitability and cash

generation. Potential upsides to our estimates: (1) HMCL sustains its

current market share, leveraging its brand equity, product performance

and distribution strengths; (2) industry growth exceeds our estimates over

the medium term despite existing concerns on macro-economic scenario;

(3) HMCL betters the margins estimated by us via sustained business

growth and increases in operating efficiency even in the face of

competitive and cost pressures.


49

GRADING SENSITIVITIES

Key sensitivities to our estimates include:

(1) Inflation in input costs not being neutralized by price increases

because of competitive pressures;

(2) High concentration on Executive segment;

(3) Intensifying competition from global players;

(4) Ability to develop in-house technical capability or form alternate

technical tie-ups with external institutions.

3.4.2 AWARDS & RECOGNITIONS

Two-wheeler Manufacturer of the Year award by Bike India

magazine. Adjudged the "Bike Manufacturer of the Year" at the

Economic Times ZigWheels Car and Bike Awards.

CNBC Awaaz - Storyboard special commendation for "Effective

rebranding of a new corporate entity" by CNBC Awaaz Consumer

Awards

"Most Recommended Two-Wheeler Brand of the Year" award by

CNBC Awaaz Consumer Awards

Colloquy Loyalty Awards "Innovation in Loyalty Marketing

International" for Hero Good Life

"Best Activity Generating Short or Long-Term Brand Loyalty" by the

Promotion Marketing Award of Asia Order of Merit for Hero Good

Life

Ranked No 1 brand in the Auto (Two-Wheelers) category in the

Brand Equity "Most Trusted Brand".


50

3.5 TOWARDS SOCIETY

3.5.1 CORPORATE SOCIAL RESPONSIBILITY

HOCKEY

Hockey is India's national sport, and Hero is committed to doing its part to

promote and popularize the sport. In 2010, Hero MotoCorp extended its

support to Hockey by sponsoring the 'Hockey World Cup 2010' that was

held in India. 2 years after this, Hero Motocorp was also the sponsor of

the 'FIH Road to London 2012' tournament.

The company is proud to associate with, and will continue to endorse this

great sport in the future.

GOLF

Hero MotoCorp, took over title sponsorship of the World Challenge. The

Hero World Challenge is an offseason golf tournament hosted by Tiger

Woods, which takes place in December at Sherwood Country Club, a

course designed by Jack Nicklaus, in Thousand Oaks, California. It

features a small number (currently 18) of top-ranked golf pros.

CRICKET

Our association with cricket goes a long way. Hero MotoCorp has in the

past sponsored major cricket tournaments in association with

International Cricket Council (ICC), including the cricket World Cup and

the Champions Trophy. Hero has also been associated with IPL.

SPORTS ACCESSORIES

Wouldn't you love to play your favorite shots of cricket with the bats that

Virender Sehwag prefers? 'Hero' custom cricket bats that Sehwag loves,


51

available in Kashmir and English Willow, nurtured in India, can now be

purchased at select Hero MotoCorp dealerships and distributors across

the country.

Kashmir Willow bats require constant knocking and oiling to strengthen it

for use in a cricket match. Knocking is done to compress the fibres of the

willow blade together which helps the bat bear the impact of the ball.

English Willow nurtured in India is by nature a soft fibrous wood. Its natural

moisture and ability to be pressed in the manufacturing process gives

great ball striking qualities.

3.5.1 PROFILE OF TARGET CUSTOMER

Hero MotoCorp basically targets the every each and segments of the

market. So there are some products like splendor, CD- dawn (rs40000-

50000) they made for lower segment of the market and glamour, passion,

CBZ, karizma (rs above 50000) for the upper segment of the market. And

now they are trying to target the young people of the market.

India’s Hero MotoCorp, the world’s largest producer of motorcycles and

scooters, has announced its intention to expand globally, with plans to sell

vehicles on three continents and nearly double its unit sales within five

years. The company, whose family shareholders bought out its former

partner Honda Motor this year, said it would invest about $1bn to expand

internationally in south-east Asia, Africa, and Central and Latin America.


52

3.5.2 CUSTOMER RELATIONSHIP ACTIVITY

For making a better relationship with customer they always use genuine

parts in their product. And after selling they have the services and

maintenances. Their constant endeavor is to support the company's

mandate of providing highest level of customer satisfaction by taking good

care of customer’s two-wheeler service and maintenance through their

vast network of more than 2100 committed dealers and service outlets

spread across the country.

Apart from that Hero MotoCorp focused on cleanliness and other

aesthetics of the service stations and add such air conditioned waiting

area, internet surfing, coffee shops etc to enhance the in house

experience of the customers at those “customer touch point”. To ensure

that millions of customers in the rural area are not left waiting for adequate

service as it is impossible for the company to introduce service station at

every nook and corner of the country, mobile service stations are regularly

arranged with prior intimation to public about the rout that the mobile

workshop would take when passing through that region so that customers

can come and get their two wheelers serviced. All these activities are

aimed to increase the customer loyalty and thus retaining customers.

Good life: Customer Loyalty Program

Good Life is a Customer Relationship Program introduced a decade ago,

which Endeavour’s to enhance customer satisfaction and initiate

increased levels of member engagement.

The main objective of this Program is to make our customers our Brand

Ambassadors to generate referral sales and boost service visits.


53

The GoodLife Program has enabled the Company build a consolidated

base of 10 million plus loyal customers; in the process, a new distribution

platform has emerged. GoodLife now contributes a huge 14% to the

Company’s overall sales (purely through referrals), in addition to

incremental sales. GoodLife has emerged as the largest Customer

Relationship Program in India, witnessing additions of 0.38 million

members each month. During the year, the Program’s member base shot

up 16%, with new 4.51 million transactions being undertaken.

Besides aiming to increase the number of customers and volume of

transactions, the Program seeks to enhance revenue opportunities for

dealers as well. Different levels of engagement have been in-built into the

Program with the aim of increasing its people engagement initiatives.

Some of these are: transaction-based rewards, exclusive event invites,

personal accidental insurance, service continuity bonus, transaction

benefits on special occasions (birthdays, anniversaries), quarterly

newsletters and interaction through a program website.

The Program began with a member transaction booklet, a replica of the

Passport Booklet, which helps in engaging with customers. However, the

Program has been e-enabled now to improve its geographical reach and

efficiency level. It runs on the backbone of a robust and engaging front-

end and a sound, solid and technical back-end. The Program includes

customized technology, combining a mix of Magnetic Swipe/Bar Code.

Personalized Membership Cards are shared with GoodLife members,

which are easy to carry, transact and earn/redeem rewards. Online

member profiling and real-time customer feedback module (via

questionnaires) are some more salient features of the Program. During

the year, Good Life has been the recipient of several accolades and

awards on national and international platforms. Some of these were:


54

‘Order of Merit’ in PMAA awards 2011 under ‘Best Activity

Generating Short or Long Term Brand Loyalty’ category

Colloquy Award under Innovation in Loyalty Marketing

(International) category

Qualified as ECHO Finalist (5th place) in 2011 DMA International

ECHO™ Awards competition Loyalty Award under Auto Sector.

OPERATION RAMP-UP

With demand for bikes recording a stupendous growth of 15% during the

year under review, the Company’s capacities were severely strained. This

prompted it to augment its capacity at its three plants – up from 5.4 million

units to 6.35 million – during the year. This was made possible through a

number of de-bottlenecking measures. For example, the Company’s

plants were made leaner by outsourcing non-critical processes and

operations.

Besides this, a number of structural changes and alterations were made

in its manufacturing strategy to effectively implement its Sales Plan for

2012-13.

Major replacements were also executed in the paint and assembly shop,

ensuring little or no shutdown along the assembly line. Apart from the

above measures, several innovative technologies were inculcated to

reduce operational costs. Some examples of these are:

A breakthrough technology for gear rolling was implemented

for mass-production

Fine blanking, an alternate process of hobbling, was

introduced for sprocket components


55

Advanced cam grinding was introduced to increase

productivity and control costs

The Company’s oldest plant at Dehradun was in the limelight for two

specific reasons:

Wage negotiations were concluded

Plant won TPM Excellence Award

The Company continues to set new industry benchmarks in the areas of

energy conservation and sustainability. Vapour absorption machines and

heat recovery units were installed during the year to utilize waste heat

from Gas DGs for air-conditioning and pre-heating of hot water

generation. Other green initiatives included projects on waste water

management, LED lighting and solar power. These cost leadership and

green projects yielded considerable savings to the Company within a short

period of time.


56

3.6 PORTFOLIO OF PRODUCTS

Hero MotoCorp offers wide range of two wheeler products that include

motorcycles and scooters, and has set the industry standards across all

the market segments.

BIKE CATRGORIES ACCORDING TO CC.

100CC

125CC

150CC AND ABOVE

SPLENDOR PLUS

SPLENDOR NXG

SPLENDOR PRO

SPLENDOR I SMART

PASSION PRO

PASSION XPRO

MAESTRO

PLEASURE

HF DAWN

HF DELUXE

GLAMOUR

SUPER

SPLENDOR

IGNITOR

GLAMOUR

PGM FI

SPLENDOR

CLASSIC

ACHIEVER

KARIZMA

KARIZMA

ZMR

IMPULSE

HUNK

XTREME


57

4.1. CURRENT RATIO:

It is the relationship between current assets and current liabilities. It is also

known as working capital. This ratio is widely used as a measured short

term financial or liquidity position of a firm.

CURRENT ASSETS

CURRENT LIABILITIES

TABLE 4.1 SHOWING CURRENT RATIO FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Current assets 28078509.33 32453786.28 35313819.63

Current liabilities 9166129.67 9454546.33 17776360.97

Current ratios 3.06 3.43 1.98

ANALYSIS:

In 2011-12 current ratio is 3.06.




58

CHART 4.1 SHOWING CURRENT RATIO FOR LAST 3 YEARS.

INTERPRETATION:

The thumb rule regarding current ratio is 2:1. According to this data it can

be seen that in 2011-12 current ratio was 3.06 and the increase to 3.43 in

2012-13 and falls in 2013-14 to 1.98. So we can interpret that company’s

financial position is good and due to fall in last year ratio, company have

to work little more to increase their current assets.

3.06

3.43

1.98

CURRENT RATIOS

2011-12 2012-13 2013-14


59

4.2. LIQUID / ACID TEST / QUICK RATIO

This ratio is the relationship between quick or liquid assets & current

liabilities. This ratio is a more rigorous test of a firm liquidity position. An

asset is said to be liquid if it can be converted into cash within a short

period.

LIQUID OR QUICK ASSETS

CURRENT LIABILITIES

LIQUID ASSETS = CURRENT ASSETS – (INVENTORIES + PREPAID

EXPENSES)

TABLE 4.2 SHOWING QUICK RATIO FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Quick assets 1722293.33 8170515.65 12138139.59


Quick ratios 0.187 0.864 0.682

ANALYSIS:

In 2011-12 quick ratio is 0.187 times.




60

CHART 4.2 SHOWING QUICK RATIO FOR LAST 3 YEARS.

INTERPRETATION:

1:1 is the ideal quick ratio for any company. In 2011-12 company’s quick

ratio is 0.187 times which increases to 0.864 times in 2012-13 and again

falls down in 2013-14 to 0.682 times which shows that company’s financial

position is not so good. And to overcome this problem company have to

make effort to decrease their current liabilities.

0.187

0.864

0.682

QUICK RATIOS

2011-12 2012-13 2013-14


61

4.3. ABSOLUTE LIQUID / CASH RATIO

It is the relationship between absolute liquid assets & current liabilities. It

is called as cash ratio as these assets immediately realise cash.

ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

TABLE 4.3 SHOWING ABSOLUTE LIQUID RATIO FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Absolute liquid assets 297373.08 1945517.07 2862259.64


Cash ratios 0.034 0.205 0.161

ANALYSIS:

In 2011-12 absolute liquid ratio is 0.034 times.




62

CHART 4.3 SHOWING ABSOLUTE LIQUID RATIO FOR LAST 3

YEARS.

INTERPRETATION:

The desirable absolute liquid ratio of a company is 1:2. According to above

data it shows that in 2011-12 company’s absolute liquidity ratio was 0.034

which rises to 0.205 in 2012-13 and again falls back to 0.161 in 2013-14.

This data shows that company’s financial position is not going good and

company have to plan more strategies to get its financial position back to

track.

0.034

0.025

0.161

ABSOLUTE LIQUID RATIOS

2011-12 2012-13 2013-14


63

4.4. INVENTORY / STOCK TURNOVER RATIO

This ratio indicates the number of times the stock has been turned over

during the period & evaluates the efficiency with which a firm is able to

manage the inventory. The purpose is to ensure only minimum funds are

tied up in inventory.

COST OF GOODS SOLD

AVERAGE INVENTORY

TABLE 4.4 SHOWING INVENTORY TURNOVER RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

Cost of goods sold 36011025.12 36066572.71 57312046.82

Average inventory 26356216 24286270.63 23175680.04

Inventory ratio 1.366 1.485 2.472

ANALYSIS:

In 2011-12 inventory ratio is 1.366 times.




64

CHART 4.4 SHOWING INVENTORY TURNOVER RATIO FOR LAST 3

YEARS.

INTERPRETATION:

It showed that inventory turnover ratio of company is 1.366 in 2011-12

which rises to 1.485 in 2012-13 and increases again to 2.472 in 2013-14

and this shows that company is growing in its sales every year.

1.366

1.485

2.472

INVENTORY RATIO

2011-12 2012-13 2013-14


65

4.5. WORKING CAPITAL TURNOVER RATIO

This ratio indicates the velocity of utilisation of net working capital i.e. the

number of times the working capital is turned over during a year.

NET SALES

NET WORKING CAPITAL

TABLE 4.5 SHOWING WORKING CAPITAL RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

Net sales 45013781.4 48088764 81874352.33

Net working capital 18918379.66 22999239.95 17537458.66

Ratios 2.379 2.090 4.668

ANALYSIS:

In 2011-12 working capital ratio is 2.379 times.




66

CHART 4.5 SHOWING WORKING CAPITAL RATIO FOR LAST 3

YEARS.

INTERPRETATION:

Comparatively in 2013-14 the working capital ratio i.e. 4.668 times is

better than ratios of 2011-12 and 2012-13 which is 2.379 times and 2.09

times respectively. It is recommended that company should perform better

as it performed in year 2013-14.

2.379

2.09

4.668

NET WORKING CAPITAL TURNOVER RATIO

2011-2012 2012-13 2013-14


67

4.6. FIXED ASSETS TURNOVER RATIO

This ratio studies the velocity of utilisation of net fixed assets i.e. the

number of times the fixed assets are turned over during the year.

NET SALES

NET FIXED ASSETS

TABLE 4.6 SHOWING FIXED ASSETS TURNOVER RATIO FOR LAST

3 YEARS.

Particulars 2011-12 2012-13 2013-14

Net sales 45013781.4 48088764 81874352.33

Net fixed assets 6582849.88 6186818.88 6620229.88

Ratios 6.838 7.772 12.367

ANALYSIS:

In 2011-12 fixed asset turnover ratio is 6.838 times.




68

CHART 4.6 SHOWING FIXED ASSETS TURNOVER RATIO FOR LAST

3 YEARS.

INTERPRETATION:

Interpreting from the given data results that company’s fixed assets

turnover ratio is 6.838 times in 2011-12 which increasers to 7.772 times

in 2012-13 and again increases to 12.367 times in 2013-14. This shows

that company is in growing position and should make same effort every

year.

6.838

7.772

12.367

FIXED ASSETS TURNOVER RATIO

2011-12 2012-13 2013-14


69

4.7 CURRNET ASSEST TURNOVER RATIO:

The asset turnover ratio evaluates how efficiently assets are used to

produce net sales. It is a measure of sales volume and profitability. An

increasing trend is favourable and increasing efficient use of assets to

produce sales. The current asset turnover ratio is the ratio between sales

and current assets. The ratio indicates how much net sales are made for

every rupee of investment in current assets.

NET SALES

CURRENT ASSETS

TABLE 4.7 SHOWING CURRENT ASSETS TURNOVER RATIO FOR

LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Net sales 45013781.4 48088764 81874352.33

Current assets 28078509.33 32453786.28 35313819.63

Ratios 1.60 1.48 2.31

ANALYSIS:

In 2011-12 current asset turnover ratio is 1.60 times.




70

CHART 4.7 SHOWING CURRENT ASSETS TURNOVER RATIO FOR

LAST 3 YEARS.

INTERPRETATION:

Interpreting from the given data results that company’s current assets

turnover ratio in 2011-12 was 1.6 times and then slightly fall to 1.48 times

in 2012-13 and then rise back to 2.31 times. Company’s financial position

is normal and to make it better company have to work on its current

assets.

1.6

1.48

2.31

CURRENT ASSETS TURNOVER RATIO

2011-12 2012-13 2013-14


71

4.8 CAPITAL TURNOVER RATIO

This ratio indicates the velocity of utilisation capital i.e. the number of

times the capital is turned over during a year.

NET SALES

CAPITAL EMPLOYED

TABLE 4.8 SHOWING CAPITAL TURNOVER RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

Net sales 45013781.4 48088764 81874352.33

Capital employed 10370021.18 10796533.88 8645964.29

Ratios 4.340 4.454 9.469

ANALYSIS:

In 2011-12 capital turnover ratio is 4.340 times.




72

CHART 4.8 SHOWING CAPITAL TURNOVER RATIO FOR LAST 3

YEARS.

INTERPRETATION:

Comparatively in 2013-14 capital turnover ratio is more than 2012-13 and

2011-12 i.e. 9.469, 4.454 and 4.34 respectively. And it is recommended

that company should work hard as they did last year so that they can

improve their capital turnover ratio.

4.34

4.454

9.469

CAPITAL TURNOVER RATIO

2011-12 2012-13 2013-14


73

4.9 CURRENT ASSETS TO TOTAL ASSETS RATIO:

Current asset to total asset ratio reveals the part of current asset to the

total asset. It helps in determining what part of the total assets is utilized

for fixed capital and for current asset.

CURRENT ASSETS

TOTAL ASSETS

TABLE 4.9 SHOWING CURRENT ASSETS TO TOTAL ASSETS RATIO

FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Current assets 28078509.33 32453786.28 35313819.63

Total assets 37428095.21 41883134.16 45017406.51

Ratios 0.75 0.77 0.78

ANALYSIS:

In 2011-12 current assets to total assets ratio is 0.75 times.




74

CHART 4.9 SHOWING CURRENT ASSETS TO TOTAL ASSETS RATIO

FOR LAST 3 YEARS.

INTERPRETATION:

From the above data we can analyse that in 2011-12 current assets to

total assets turnover ratio is 0.75 times, then rise to 0.77 times in 2012-13

and rise again to 0.78 times in 2013-14. It shows that ratio is increasing

constantly every year and company have to maintain this to increase their

profit.

0.75

0.77

0.78

CURRENT ASSETS TO TOTAL ASSETS RATIO

2011-12 2012-13 2013-14


75

4.10 RATIO OF INVENTORY TO CURRENT ASSETS:

In order to ascertain that there is no overstocking, the ratio of

inventory to current asset should be calculated. Increase in volume

of sales requires increase in size of inventory, but from a sound

financial point of view, inventory should not exceed the amount of

working capital. The desirable ratio is 1:1.

INVENTORY

CURRENT ASSETS

TABLE 4.10 SHOWING RATIO OF INVENTORY TO CURRENT

ASSETS FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Inventory 26356216 24286270.63 23175680.04

Current assets 28078509.33 32453786.28 35313819.63

Ratio 0.938 0.748 0.656

ANALYSIS:

In 2011-12 inventory to current assets ratio is 0.938 times.




76

CHART 4.10 SHOWING RATIO OF INVENTORY TO CURRENT

ASSETS FOR LAST 3 YEARS.

INTERPRETATION:

Rule says, lesser the inventory to current assets ratio is better for

company. The data give above shows that in 2011-12 the ratio was 0.938

times which falls to 0.748 times in 2012-13 and falls again in 0.656 times

in 2013-14. This shows increase in sales of company and company not

left with stock in trade and company should work in same manner to take

growth.

0.938

0.748

0.656

RATIO OF INVENTORY TO CURRENT ASSETS

2011-12 2012-13 2013-14


77

4.11 CASH TO CURRENT ASSETS RATIO:

The proportion of cash to current assets directly indicates the level

of cash maintained by the company. Lower the ratio, greater may

be the profitability of the concern. A downward trend in the ratio over

a period of time indicates a better control of cash whereas an

upward trend reveals a slack control over cash resources.

CASH AND BANK

CURRENT ASSETS

TABLE 4.11 SHOWING CASH TO CURRENT ASSETS RATIO

FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Cash and bank 297313.18 1945517.07 2802259.64

Current assets 28078509.33 32453786.28 35313819.63

Ratio 0.01 0.06 0.08

ANALYSIS:

In 2011-12 cash to current assets ratio is 0.01 times.




78

CHART 4.11 SHOWING CASH TO CURRENT ASSETS RATIO

FOR LAST 3 YEARS.

INTERPRETATION:

Above data shows that in 2011-12 cash to current ratio was 0.01, in 2012-

13 rises to 0.06 and in 2013-14 it rises to 0.08 this shows increase in

liquidity in company. It shows that company don’t have proper control on

cash and company have to make better strategies to get a control on cash

and put it in better place to invest.

0.01

0.060.08

CASH TO CURRENT ASSETS RATIO

2011-12 2012-13 2013-14


79

4.12. GROSS PROFIT RATIO

This ratio measures the relationship of gross profit to net sales and

represent as a percentage.

GROSS PROFIT * 100

NET SALES

TABLE 4.12 SHOWING GORSS PROFIT RATIO FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Gross profit 9002756.28 12022191.29 24562307.71

Net sales 45013781.4 48088764 81874352.33

Ratios 19.99% 25% 30.01%

ANALYSIS:

In 2011-12 gross profit ratio is 19.99%.

In 2012-13 gross profit ratio is 25%.

In 2013-14 gross profit ratio is 30.01%.


80

CHART 4.12 SHOWING GORSS PROFIT RATIO FOR LAST 3 YEARS.

INTERPRETATION:

It shows that gross profit of company’s growing every year around with

same amount. That is 19.99%, 25% and 30.01% in 2011-12, 2012-13 and

2013-14 respectively. And company should work in same manner to gain

more profits.

19.99%

25%

30.01%

GROSS PROFIT RATIO

2011-12 2012-13 2013-14


81

4.13. NET PROFIT RATIO

This ratio establishes a relationship between net profits after taxes and

indicates the efficiency of management in manufacturing, administrative,

selling and other activities of the firm.

NET PROFIT * 100

NET SALES

TABLE 4.13. SHOWING NET PROFIT RATIO FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Net profit 1213590.59 1519019.70 766154.04

Net sales 45013781.4 48088764 81874352.33

Ratios 2.69% 3.15% 0.93%

ANALYSIS:

In 2011-12 net profit ratio is 2.69%.




82

CHART 4.13. SHOWING NET PROFIT RATIO FOR LAST 3 YEARS.

INTERPRETATION:

From the given data it can be conclude that company is not doing well in

profit, because in 2011-12 net profit was 2.69% which rises in 2012-13 to

3.15% but fall huge in 2013-14 i.e. 0.93%. To overcome this fall in profits

company have to cut down their unnecessary expenses.

2.69%

3.15%

0.93%

NET PROFIT RATIO

2011-12 2012-13 2013-14


83

4.14. INTEREST COVERAGE RATIO

This ratio is used to test debt servicing capacity of a firm. This ratio is also

known as coverage ratio or fixed charges cover or times interest earned.

EARNING BEFORE INTEREST AND TAXES

TOTAL FIXED INTEREST CHARGES

TABLE 4.14 SHOWING INTEREST COVERAGE RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

EBIT 4372168.56 3919496.98 3493505.5

Total fixed interest 2755916.48 2392054 2674311.46

Ratios 1.58 1.63 1.30

ANALYSIS:

In 2011-12 interest coverage ratio is 1.58 times.




84

CHART 4.14 SHOWING INTEREST COVERAGE RATIO FOR LAST 3

YEARS.

INTERPRETATION:

Data given above shows that company’s interest coverage ratio is

fluctuating every year. In 2011-12 it was 1.58 times which rises to 1.63

times in 2012-13 and again fall back to 1.3 times in 2013-14. Lesser the

interest payable by company will result more in net earnings of company.

So company should take less loan so that they can increase in their net

earnings.

1.58

1.63

1.3

INTEREST COVERAGE RATIO

2011-12 2012-13 2013-14


85

4.15. OPREATING RATIO:

Operating ratio establishes the relationship between cost of goods sold

and operating expenses with sales of the firm.

OPERATING COST * 100

NET SALES

TABLE 4.15 SHOWING OPERATING RATIO FOR LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

Operating cost 40571280 44087659.02 61189809.03

Net sales 45013781.4 48088764 81874352.33

Ratios 90.1% 91.67% 74.73%

ANALYSIS:

In 2011-12 operating ratio is 90.1%.




86

CHART 4.15 SHOWING OPERATING RATIO FOR LAST 3 YEARS.

INTERPRETATION:

The above data results that in last three years the operating profit of

company in 2011-12 is 90.10% which increases to 91.67% in 2012-13 and

fall back to 74.73% in 2013-14. Lesser the operating ratio is better for

company because its relation is between operating cost and net sales. So

it is better if company will less their operating cost.

90.10%

91.67%

74.73%

OPERATING RATIO

2011-12 2012-13 2013-14


87

4.16. OPERATING PROFIT RATIO:

Operating profit ratio is calculated by dividing the operating net profit by

sales. This ratio helps in determining the ability of the management in the

running business.

OPREATING PROFIT BEFORE INTEREST AND TAX * 100

NET SALES

TABLE 4.16 SHOWING OPERATING PROFIT RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

OPBIT 4442501 4001104.98 20684543.5

Net sales 45013781.4 48088764 81874352.33

Ratios 9.9% 8.33% 25.27%

ANALYSIS:

In 2011-12 operating profit ratio is 9.9%.




88

CHART 4.16 SHOWING OPERATING PROFIT RATIO FOR LAST 3

YEARS.

INTERPRETATION:

From the given data it can be judge that company have a huge operating

profit ratio in 2013-14 i.e. 25.27% compare to 2012-13 and 2011-12 i.e.

8.33% and 9.90% respectively. It recommended that company should cut

down its operating expenses to increase their operating profit ratio.

9.90%

8.33%

25.27%

OPREATING PROFIT RATIO

2011-12 2012-13 2013-14


89

4.17. TOTAL OPREATING EXPENSE RATIO:

Total operating expenses ratio indicates the relationship between all

expenses and the net sales. The lower the ratio, the greater will be the

profitability and vice versa.

TOTAL OPREATING EXPENSE * 100

NET SALES

TABLE 4.17 SHOWING OPREATING EXPENSE RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

Operating expenses 4560255 8021086.31 3877762.21

Net sales 45013781.4 48088764 81874352.33

Ratios 10.13% 16.67% 4.73%

ANALYSIS:

In 2011-12 operating expense ratio is 10.13%.




90

CHART 4.17 SHOWING OPREATING EXPENSE RATIO FOR LAST 3

YEARS.

INTERPRETATION:

Lesser the operating expense ratio is better for company. It shows that

company’s operating ratio in 2011-12 was 10.13%, in 2012-13 it increases

to 16.67% and in 2013-14 it falls deeply to 4.73%. So company should

keep watch on their operating expenses to gain more of profits.

10.13%

16.67%

4.73%

TOTAL OPERATING EXPENSE RATIO

2011-12 2012-13 2013-14


91

4.18. RETURN ON INVESTMENT / CAPITAL EMPLOYED

(ASSETS BASED APPROACH)

Return on investment is the actual return (earning) on total capital

employed.

EARNING BEFORE INTREST AND TAX

CAPITAL EMPLOYED

TABLE 4.18 SHOWING RETURN ON INVESTMENT FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

EBIT 4372168 3919496.98 3493505.5

Capital employed 26261148.34 29921802.83 24930286.54

Ratios 0.166 0.130 0.140

ANALYSIS:

In 2011-12 return on investment is 0.166 times.




92

CHART 4.18 SHOWING RETURN ON INVESTMENT FOR LAST 3

YEARS.

INTERPRETATION:

More the return on investment is better for company. According to above

data it can be seen that in 2011-12 return on investment was 0.166 times,

in 2012-13 it was 0.13 times and in 2013-14 it was 0.14 times. So the

conclusion is that company should increase its earning and lower down

its expenses so they will receive better return on investment.

0.166

0.13

0.14

RETUREN ON INVESTMENT

2011-12 2012-13 2013-14


93

4.19. RETURN ON TOTAL RESOURCES

It indicates the amount of the earnings made on the entire assets of the

organisation.

EARNING AFTER TAX * 100

TOTAL ASSETS

TABLE 4.19 SHOWING RETUEN ON TOTAL RESOURCES RATIO FOR

LAST 3 YEARS.

Particulars 2011-12 2012-13 2013-14

EAT 969751.08 916466 491516.24

Total assets 37428095.21 41883134.16 45017406.51

Ratios 2.6% 2.2% 1.09%

ANALYSIS:

In 2011-12 return on total resources is 2.6%.




94

CHART 4.19 SHOWING RETUEN ON TOTAL RESOURCES RATIO

FOR LAST 3 YEARS.

INTERPRETATION:

Above data shows that company’s return on total resources in 2011-12

was 2.60 which decreases to 2.20% in 2012-13 and decrease again in

2013-14 which comes to 1.09%. Company should focus to decrease its

loan taken so the interest payable will be lesser and results to increase in

return on total assets.

2.60%

2.20%

1.09%

RETURN ON TOTAL RESOURCE

2011-12 2012-13 2013-14


95

4.20 COST OF GOODS SOLD RATIO:

This is the relationship between cost of goods sold and net sales of

company.

COST OF GOODS SOLD * 100

NET SALES

TABLE 4.20 SHOWING COST OF GOODS SOLD RATIO FOR LAST 3

YEARS.

Particulars 2011-12 2012-13 2013-14

COGS 36011025.12 36066572.71 57312046.82

Net sales 45013781.4 48088764 81874352.33

Ratios 80% 74.9% 70%

ANALYSIS:

In 2011-12 COGS ratio is 80%.

In 2012-13 COGS ratio is 74.9%.

In 2013-14 COGS ratio is 70%.


96

CHART 4.20 SHOWING COST OF GOODS SOLD RATIO FOR LAST 3

YEARS.

INTERPRETATION:

Lesser the COGS ratio is better for company. In above data we can see

that the ratio of cost of goods sold ratio is declining every year.

In 2011-12 the ratio was 80%, in 2012-13 it was 74.9% and in 2013-14 it

was 70%. It is recommended that company should perform in same

manner so they will increase their profits.

80%

74.90%

70%

COST OF GOODS SOLD RATIO

2011-12 2012-13 2013-14


97

5.1 SUMMARY OF FINDINGS:

This chapter covers the summary of findings from the balance sheets of

the company for three financial years. Succeeding the analysis, the

following was found using the various data analysis tools.

In 2011-12 current ratio was 3.06 and the increase to 3.43 in 2012-

13 and falls in 2013-14 to 1.98.

In 2011-12 company’s quick ratio is 0.187 times which increases to

0.864 times in 2012-13 and again falls down in 2013-14 to 0.682

times which shows that company’s financial position is not so good.

According to above data it shows that in 2011-12 company’s

absolute liquidity ratio was 0.034 which rises to 0.205 in 2012-13

and again falls back to 0.161 in 2013-14.

It showed that inventory turnover ratio of company is 1.366 in 2011-

12 which rises to 1.485 in 2012-13 and increases again to 2.472 in

2013-14.

Comparatively in 2013-14 the working capital ratio i.e. 4.668 times

is better than ratios of 2011-12 and 2012-13 which is 2.379 times

and 2.09 times respectively.

Interpreting from the given data results that company’s fixed assets

turnover ratio is 6.838 times in 2011-12 which increasers to 7.772

times in 2012-13 and again increases to 12.367 times in 2013-14.

Interpreting from the given data results that company’s current

assets turnover ratio in 2011-12 was 1.6 times and then slightly fall

to 1.48 times in 2012-13 and then rise back to 2.31 times.

Comparatively in 2013-14 capital turnover ratio is more than 2012-

13 and 2011-12 i.e. 9.469, 4.454 and 4.34 respectively.


98

It should be analyse that in 2011-12 current assets to total assets

turnover ratio is 0.75 times, then rise to 0.77 times in 2012-13 and

rise again to 0.78 times in 2013-14.

The data give above shows that in 2011-12 the ratio was 0.938

times which falls to 0.748 times in 2012-13 and falls again in 0.656

times in 2013-14.

In 2011-12 cash to current ratio was 0.01, in 2012-13 rises to 0.06

and in 2013-14 it rises to 0.08 this shows increase in liquidity in

company.

It shows that gross profit of company’s growing every year around

with same amount. That is 19.99%, 25% and 30.01% in 2011-12,

2012-13 and 2013-14 respectively.

In 2011-12 net profit was 2.69% which rises in 2012-13 to 3.15% but

fall huge in 2013-14 i.e. 0.93%.

In 2011-12 it was 1.58 times which rises to 1.63 times in 2012-13

and again fall back to 1.3 times in 2013-14.

The operating profit of company in 2011-12 is 90.10% which

increases to 91.67% in 2012-13 and fall back to 74.73% in 2013-14.

Operating profit ratio in 2013-14 i.e. 25.27% compare to 2012-13

and 2011-12 i.e. 8.33% and 9.90% respectively.

Company’s operating ratio in 2011-12 was 10.13%, in 2012-13 it

increases to 16.67% and in 2013-14 it falls deeply to 4.73%.

In 2011-12 return on investment was 0.166 times, in 2012-13 it was

0.13 times and in 2013-14 it was 0.14 times.

In 2011-12 was 2.60 which decreases to 2.20% in 2012-13 and

decrease again in 2013-14 which comes to 1.09%.


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5.2 SUGGESTIONS:

Company’s working capital ratio is in increasing order and it is

recommended that company should perform better as it performed

in year 2013-14.

Company should increase it sales of and should not left with stock

in trade and company should work in same manner to take growth.

Company have to make better strategies to get a control on cash

and put it in better place to invest.

If company cut down its unnecessary expenses then they can

increase their net profit which is a major impact for company.

Lesser the operating ratio is better for company because its relation

is between operating cost and net sales. So it is better if company

will less their operating cost.

The conclusion is that company should increase its earning and

lower down its expenses so they will receive better return on

investment.

Company should focus to decrease its loan taken so the interest

payable will be lesser and results to increase in return on total

assets.

Company should focus to cut down their cost of goods so they can

increase their profits.


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5.3 CONCLUSIONS:

This study was accomplished to determine the financial performance of

satyom hero using ratio analysis as a base. If properly analyzed and

interpreted, financial statement can provide valuable insight into a firm’s

performance. Analysis of financial performance is of interest to lenders

(short term as well as long term) security analysts and managers.

Financial statement analysis may be done for a variety of purpose which

may range from a simple analysis of short term liquidity position of the firm

to a comprehensive assessment of the strength and weakness of the firm

in various areas. It is helpful in judging corporate excellence credit

worthiness predicting bankruptcy and assessing market risk. Based on

the overall study of the company’s performance and position, the project

study has been concluded as follows:

For any company to survive and compute effectively in today’s world they

must be financially sound and should use that to gain competitive edge.

From the analysis of the financial performance of the company we can

see that the company has been doing fairly well in managing its working

but the profitability position of the organization is not good. In order to

improve its profitability the company should focus more on advancing

loans and money to customers. It should reduce the cost of management.

It should recover its money from the defaulters in a limited time. It has also

been seen that the company’s debt equity ratio is very high which may

make the investment in the company a risky venture.

Also from my research as indicated the Income of satyom hero have been

increasing over the years which shows that the company is in a good

position in the industry, thus I can state that satyom hero has been working

towards a progressive and healthy future towards the achievement of

company’s standards by making an attempt towards up gradation of its


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infrastructure and services to cater its customers’ needs and its should

focus more on getting the profits in the coming years by taking care of

internal as well as external factors.


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BIBLIOGRAPHY:

1. STANDARD TEXT BOOKS:

B.S RAMAN financial management, second edition, united

publishers Bangalore.

REDDY APPANNAIAH NARAYANAN, financial management, third

edition, Himalaya publishing house

M.N ARORA, management accounting, second edition Himalaya

publishing house.

R.K SHARMA AND GUPTA, management accounting, Kalyani

publishers NEW DELHI.

2. WEBSITES:

www.investopedia.com

www.rediffmoney.com

www.heromotocorp.com

www.financialratios.com

3. DATA:

Financial data provided by company i.e. profit and loss statement and

balance sheet of 2011-12, 2012-13 and 2013-14.

hero motocorp

Economy & Finance