mahindra financialratios

Financial AccountingMBA (IB) 2015-17

Financial Ratios Analysis of Mahindra & Mahindra Limited

Table of Contents

A Schematic Representation of Common Financial Ratios......................Error! Bookmark not defined.

Gross Profit Margin...............................................................................................................................4

Operating Profit Margin........................................................................................................................5

EBIT Margin...........................................................................................................................................6

Net Profit Margin...................................................................................................................................7

Net Income to Total Asset.....................................................................................................................8

Total Asset Turnover Ratio....................................................................................................................9

Earnings per Share...............................................................................................................................10

Dividend per Share..............................................................................................................................11

Current Ratio.......................................................................................................................................12

Quick Ratio..........................................................................................................................................13

Inventory Turnover Ratio.....................................................................................................................14

Debt-equity Ratio................................................................................................................................15

Long Term Debt to Total Capital Ratio.................................................................................................16

Interest Cover......................................................................................................................................17

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Financial Ratios

Profitability

Margin on Sales

Gross Profit Margin

Operati ng Profit Margin

EBIT Margin

Net Profit Margin

Return on Investment

Net Income to Total Asset

Efficiency Total Asset Turn Over

Return per Share

Earning per Share

Dividend per Share

Solvency

Short term

Current Ratio

Quick Ratio

Inventory Turnover

Long term

Debt Equity

Long term Debt to Total Capital

Interest Cover

1. Gross Profit MarginIt is the amount of surplus available after subtracting the COGS (Cost of Goods Sold) from Total Sales Revenue.

GPM= (Gross Profit x 100) / Sales

Gross Profit Margin FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Mahindra & Mahindra Ltd. 8.35 5.26 5.96 6.3 4.36Maruti Suzuki India Ltd. 7.13 3.77 5.5 6.94 8.52

Tata Motors 9.95 10.07 8.99 10.2 9.83Ashok Leyland Ltd. 8.46 7.03 3.97 -0.93 6.1

TVS Motors 3.41 4.05 3.54 4.03 4.11

Mahindra & Mahindra Ltd.

Maruti Suzuki India Ltd.

Tata Motors Ashok Leyland Ltd. TVS Motors-2

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Gross Profit Margin

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: M&M Ltd’s gross profit margin has come down and moved up again in the last 5 fiscal years, but as compared to Tata Motors-it has always been less. M&M Ltd must focus on its pricing and cost structure. The margin decreased is more because of the prevailing market conditions, where automobile sector has taken a hit. Only Maruti Suzuki did reasonably well in these years, sustaining the overall growth. Year 2013-14, was quite good for M&M Ltd as its

gross profit was the highest compared to others.

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2. Operating Profit MarginIt is the reflection of the operation of a company or reflection of performance of the management.

Operation Profit= EBDIT-Depreciation

OPM= (Operating Profit x 100) / Sales

Operating Profit Margin FY10-11 FY11-12 FY12-13 FY13-14 FY14-15


Tata Motors 13.77 13.46 13 14.96 14.93Ashok Leyland Ltd. 10.85 9.78 7.02 1.67 7.56

TVS Motors 5.45 6.18 5.91 5.81 5.84



Tata Motors Ashok Leyland Ltd. TVS Motors02468

1012141618

Operating Profit Margin

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: Based on the data, it is very well inferred that pricing strategy and operating efficiency of M&M Ltd has been reasonable well. It has also reflected that M&M Ltd has forayed into new products being launched every year. M&M Ltd has EARNING relatively higher per rupee sale as compared to most of its competitors. This margin has decreased in the last fiscal.

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3. EBIT MarginAll the non-operating surplus or deficit is adjusted to the operating profit margin, to obtain the earnings before interest and taxes.

EBIT = Revenue – COGS – Operating Expenses

Where, COGS stands for Cost of Operating Goods

Earnings Before Interest and Tax Margin FY10-11 FY11-12 FY12-13 FY13-14 FY14-15



TVS Motors 3.4 4.04 3.53 4.02 4.1



Tata Motors Ashok Leyland Ltd. TVS Motors

-4-202468

10121416

Earnings Before Interest and Tax Margin

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: In the last 5 fiscal years, EBIT for M&M Ltd has been the highest compared to rest all companies. It clocked the highest profitability in the fiscal of 2010, but has reduced since then falling to its lowest in the last fiscal. M&M Ltd has over the years enjoyed a credit free risk loan from investors because of strong EBIT, but specially in the last fiscal this has reduced as compared to some other players.

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4. Net Profit MarginThe profit after tax or net income is the overall surplus available out of the sales. This is also the amount available to the shareholders. This is influenced by three major factors: operating efficiency, financial efficiency and taxation. Net Profit Margin is also used to compare margins of various players in the same industry.

Net Profit Margin = Net ProfitRevenue

Where Net Profit = Revenue – COGS – Operating Expenses – Interest & Taxes

Net Profit Margin FY10-11 FY11-12 FY12-13 FY13-14 FY14-15


Tata Motors 7.59 8.15 5.23 6 5.32Ashok Leyland Ltd. 5.64 4.4 3.47 0.29 2.46

TVS Motors 1.94 1.78 2.67 2.22 3.18




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Net Profit Margin

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: According to the graph, it clearly shows that M&M Ltd has maintained almost equal trend as compared to the other four companies. M&M Ltd and all its rivals have been able to extract profit almost equally from its sales in those fiscal years. This indicator is intended to be a measure of the overall success of a business- a high margin indicates that the company is pricing its products correctly and is exercising good cost control. It gives a clear picture while comparing business with other players in the same industry.

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5. Net Income to Total AssetThe rate of profit the company is able to earn after meeting the cost of financing a portion of the total assets. This is the amount available to the shareholders, in relation to the total amount of resources used in the business.

Net income to total asset ratio= (Net Profit x 100) / Average Total Asset

Net Income to Total Asset FY10-11 FY11-12 FY12-13 FY13-14 FY14-15


Tata Motors 222.92 226.01 144.87 139.92 134.02Ashok Leyland Ltd. 151.86 128.56 78.1 4.92 60.28

TVS Motors 98.51 84.62 130.58 136.6 170.29




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Net Income to Total Asset

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: The Net Income to Total Asset for M&M Ltd has always been high for the initial years as compared to its rival companies, but has decreased in the last fiscal and is below compared to all. In fact TVS motors has done pretty well here, where it has achieved the highest.

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6. Total Asset Turnover RatioThe total asset turnover ratio tries to relate sales to total assets used. The ratio assesses the efficiency of the use of total asset i.e. their ability to generate revenue

Total Asset Turnover Ratio= (Sales x 100) / Average Total Asset

Total Asset Turnover FY10-11 FY11-12 FY12-13 FY13-14 FY14-15



TVS Motors 4.2 3.97 4.07 5.17 4.64




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Total Asset Turnover

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: As clearly seen in the graph, the Total Asset Turnover ratio of M&M Ltd has been below the industry average. On the other hand, strangely TVS Motors which is quite a conservative player, has the highest Asset Turnover. The ratio is on the downward slide in the last fiscal. So TVS Motors as such has proven to be quite an efficient player in turning its assets to sales, whereas M&M Ltd is lagging behind is this aspect.

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7. Earnings per ShareThe most commonly used measure of expressing corporate earnings. This is computed by dividing the net income by the number of equity shares outstanding.

EPS= Net Income−Dividents on preferred stocks

Average outstanding shares

Earnings Per Share FY10-11 FY11-12 FY12-13 FY13-14 FY14-15


Tata Motors 28.55 3.91 0.95 1.04 -14.72Ashok Leyland Ltd. 4.75 2.13 1.63 0.11 1.18

TVS Motors 4.1 5.24 2.44 5.51 7.32



Tata Motors Ashok Leyland Ltd. TVS Motors

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140

Earnings Per Share

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: The share price of any company will decide how well the company is doing and hence it becomes a key indicator. It is an important component in deciding the price to earning valuation ratio. It also shows the measure of profitability and it is viewed as the earning power of the respected firms. The EPS of M&M Ltd has been rising continuously but only during the last fiscal it has seen a drastic drop. It has performed better than the rest of the other companies but is far lagging behind the Maruti Suzuki Ltd as the latter has been the undoubtedly the Numero-Uno in the automobile segment.

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8. Dividend per ShareThis is another important per share calculation. It shows the cash income available to the shareholder on each share. This is different from EPS as a certain amount of earning is retained with company as reserve and the other part is distributed as dividend among the shareholders.

Dividend per Share = Dividend

TotalOutstanding Equity shares

Dividends Per Share FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Mahindra & Mahindra Ltd. 11.5 12.5 13 14 12Maruti Suzuki India Ltd. 7.5 7.5 8 12 25

Tata Motors 20 4 2 2 --Ashok Leyland Ltd. 2 1 0.6 -- 0.45

TVS Motors 1.1 1.3 1.2 1.4 1.9




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Dividends Per Share

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: The Company has been distributing its cash to the shareholders on a steady basis until last year, where-in the distribution took a hit. While the industry DPS had been growing, factors are not in much favour of M&M shareholders.

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9. Current RatioCurrent ratio measures the relationship of current assets with current liabilities. This is one of the most important Solvency ratios.

Current Ratio= (Current Assets)

Current Liabilities ¿¿

Current Ratio FY10-11 FY11-12 FY12-13 FY13-14 FY14-15



TVS Motors 1 0.71 0.85 0.87 0.87




0.20.40.60.8

11.21.41.61.8

Current Ratio

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: The current assets for the company had been at par for FY 10-11 and 11-12, which saw a marginal growth in FY 12-13 and FY 13-14 on Year-on-Year basis. But last year shows a dip in currents assets which is in line with most of the companies in the industry.

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10.Quick RatioQuick ratio or acid test ratio is another important solvency ratio. It is computed by taking assets, which are quick to be converted into cash and dividing them by the current liabilities. As a practical simplification, it is usual practice to subtract the inventories from the current assets, to arrive at the quick assets.

Quick Ratio= (Current Asset−Inventory )

Current Liabilities

Quick Ratio FY10-11 FY11-12 FY12-13 FY13-14 FY14-15



TVS Motors 0.51 0.47 0.49 0.52 0.58




0.20.40.60.8

11.21.41.61.8

Quick Ratio

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: Quick Ratio is a step ahead from Current Ratio- taking into account the available cash at disposal which is growing on a marginal basis until FY 13-14, it saw a slight fall in FY 14-15 which is much in line with the way other companies in the industry have been performing.

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11. Inventory Turnover RatioInventory turnover tries to assess the velocity with which inventories are covered to revenue. Inventories represent resources of the firm invested for the purpose of facilitating operations. Excess inventory represents a wasteful use of resources.

Inventory Turnover= (Cost of Goods Sold) / (Average Inventory)

Inventory Turnover Ratio FY10-11 FY11-12 FY12-13 FY13-14 FY14-15



TVS Motors 11.79 11.8 12.76 13.68 10.89




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Inventory Turnover Ratio

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: An important ratio that is directly related to how well the money is utilized in terms of stock turning, which also results in higher profits and reduces the amount of abnormal loss for the company. The stock turnover ratio had been constantly growing except for FY 14-15, where it saw a fall. The industry response had been mixed during the tenure and much derived by their offering.

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12.Debt-equity RatioCreditors have prior claims on the assets of the company and to that extent, the owners’ equity form the extent of margin of safety for the lenders’ claims. If a debt is used successfully the returns to shareholders would also increase.

Total Debt to Equity= (Current + Long term Liabilities) / (Net Worth)

Debt Equity Ratio FY10-11 FY11-12 FY12-13 FY13-14 FY14-15



TVS Motors 1.28 0.62 1.02 0.62 0.83




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Debt Equity Ratio

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: Debt to Equity is a bar for stakeholders to depict how well the company is- in terms of stability. The ratio shows higher stability if it is less than 1. The ratio is in line with what the industry is going through, except for the old players who are more self-sufficient to manage on their equity and cash reserves. In FY 14-15, the company has managed to lower its debt burden in accordance to the equity.

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13. Long Term Debt to Total Capital RatioA measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt.

Long Term Debt to Total Capital= (Long term Liabilities) / (Net Worth)

Long-Term Debt Equity Ratio FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Mahindra & Mahindra Ltd. 0.84 0.96 1 1.09 0.86Maruti Suzuki India Ltd. 0.02 0.01 0.04 0.03 0.01

Tata Motors 0.91 0.85 0.85 0.69 1Ashok Leyland Ltd. 0.88 0.79 0.87 1.01 0.63

TVS Motors 1.13 1.21 0.94 0.51 0.46




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Long-Term Debt Equity Ratio

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: The ratio shows that M&M has efficiently managed to lower down their long-term debt equity ratio in FY 14-15, which had been constantly growing ever since FY 11-12. This shows that company has managed to grow well and keep its debt in control for the past year.

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14. Interest CoverThis ratio measures the relationship of earnings before interest and taxes to be fixed interest commitment. Larger the cover, greater is the safety of the lender’s interest. Alternately, it also shows the risk in case of the firm’s earnings decrease.

Interest Cover= (EBIT) / (Interest Expense)

Interest Cover FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Mahindra & Mahindra Ltd. 5.28 5.82 5.01 5.19 5.5Maruti Suzuki India Ltd. 38 35.82 16.45 21.24 23.85


TVS Motors 3.52 3.57 2.77 4.55 7.21



Tata Motors Ashok Leyland Ltd. TVS Motors-505

1015202530354045

Interest Cover

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15

Analysis: IN FY 14-15, M&M has shown positive signs of better interest coverage ratios which is well in line with the performance of the industry. But in terms of absolute number, there are companies ahead of M&M who have better stability.

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