Académique Documents
Professionnel Documents
Culture Documents
SUBMITTED TO:
FACULTY GUIDE PROJECT GUIDE
BHUBANESWAR JAMSHEDPUR
SUBMITTED BY:
GOPAL KUMAR AGARWAL
KBS, BHUBANESWAR
DECLARATION
I also declare that this project is the result of my effort and has not been
submitted to any other University or Institution for the award of any degree, or personal
favors whatsever. All the details and analysis provided in the report hold true to the best
of my knowledge.
This is to certify that the following student is submitting the project report titled
“ A Ratio Analysis Of Financial Statements & Working Of Capital Management at HV
TRANSMISSIONS Ltd. It is the original and bonafide work submitted in partial fulfillment
of the requirement for the award of PGDM program.
(Project Guide)
KBS, Bhubaneswar
I would fail to do my duty if I didn’t take this opportunity to thank my faculty guide,
Prof. Gopal Pruseth for his timely help and guidance. I would like to thank him whole
heartedly for making me work harder so as to gain a more in depth knowledge of the
subject which I am sure will help me a lot in the long run as well. I would say that this
project wouldn’t have been the same without his support, guidance, encouragement
and constant demand for improvement.
I am extremely grateful to Mr. Amitava Roy (AGM, Finance, HVTL) for granting
permission to carry out the project work in his department. My company guide, Mr.
Amit Kumar Agarwal, Manager is another person who has played a key role in the
development of me as a person, in the completion of this project and in being educated
about the automobile industry in general. Without the knowledge, attention and time
that he has bestowed on me, this project would simply have been impossible. He is truly
an inspiration for me and drove me towards working harder than my expectations which
simply made me more ready for the corporate life. He truly gave me the corporate
exposure I had thought of.
I would also like to thank Mr. Ashok Kumar, Mr. Girish Shivramakrishnan,
Mrs. Sunayana for their immense support and guidance which helped me in
understanding various aspects of the subject. I would also like to thank all the
employees of the finance department for their valuable support, cooperation & help.
Certificate By Guide
Acknowledgement
TOPICS
Introduction
Project Title
Methodology
Company Profile
Tata Group
Tata Motors
HVTL Ltd
Ratio Analysis
Working Capital
Conclusion
Recommendations
To use various activity ratios and liquidity ratios to find out the activity of assets
and liabilities and to find out the liquidity position of the company.
Secondary Source
SAP
Data Presentation
Graphical and tabular representation of the collected data has been done to show the
financial position of the HVTL firm.
I have tried to evaluate the firm’s performance by using the past data of the
firm with the present data, by the time series analysis over the period of 5 to 6 years.
Indian automobile industry has grown leaps and bounds since 1898, a time
when a car had touched the Indian streets for the first time. At present it holds a
promising tenth position in the entire world. The monthly sales of passenger cars in
India exceed 100,000 units . A surge in economic growth rate and purchasing power led
to growth in the Indian automobile industry, which grew at a rate of 17% on an average.
The industry provided employment to a total of 13.1 million people as of 2006-07, which
includes direct and indirect employment. The export sector grew at a rate of 30% per
year during early 21st century.
India was one of the largest manufacturers of tractors in the world in 2005-
06, when it produced 2,93,000 units.
India is :
Although India is the fifth largest automobile manufacturer in the world, penetration
level in the country is very low, especially in the case of passenger cars. This opens a
huge opportunity for the automobile companies to explore the Indian market. Changing
demography also adds to the increasing demand for the vehicles. The Indian automobile
industry has also made a substantial effort in developing the R & D infrastructure. This
has helped in upgrading the technology and at the same time, reduced production cost.
This provides good export opportunities for Indian manufacturers, which are being
duly exploited by Tata motors, Ashok Leyland, Maruti in the African, and South
American markets.
The fast growth of this industry is evident by the spurt in demand for automobiles in
the last few years. This is well supported by the economic reforms that have been put in
place, particularly in the financial sector and in foreign direct investment. During the last
decade, conscious efforts have been made to fine-tune state policy to enable the Indian
automobile industry to realize its potential to the fullest.
Tata Motors
Maruti Udyog Ltd.
General Motors India
Ford India Ltd.
Eicher Motors
Bajaj Auto
Daewoo Motors India
Hero Motors
Hindustan Motors
Hyundai Motor India Ltd.
Royal Enfield Motors
TVS Motors
DC Designs
Swaraj Mazda Ltd
TATA MOTORS was established in the year 1945. It is a part of TATA GROUP.
It presence indeed cuts across the length and breadth of India. Over 3 million Tata
vehicles runs on Indian roads, since the first rolled out in 1954.
HVTL was established on 13th March 2000 as a major subsidiary of Tata Motors
by taking over operations of Tata Motors’ erstwhile Gearbox Division. Our
manufacturing facilities are located in the industrial belt of Jamshedpur in the state of
Jharkhand, 250 kms from Kolkata, India’a leading metro city and is well connected by
road and rail to other major cities / locations.
HVTL has an asset base of Rs. 278.74 crores and its turnover during
2008-09 was Rs. 142.59 crores . The Company is spread over an area of 81,440 sq.
meters.
HVTL’s inherent strength also lies in its excellent in-house Tool room &
Tool Re-Grinding facilities, prompt component development and a modern Heat
Treatment shop.
Across the domestic market – HVTL 46% market share (No. 1 OE supplier).
In Tata Motors, we have 71% market share, TML Pune has 26% & others 3%.
100% TML, Pune M&HCV gear box volumes will be on loaded to HVTL.
VISION
Customers :- To provide best value for mobet to customers through quality, cost
effective & innovative transmissions solutions.
CORE VALUES
Integrity.
Customer Focus.
Corporate Citizenship.
Passion for Engineering.
Innovation.
J. R. D Tata
Name Position
Name Position
Name Position
Company Secretary
Name Position
The company also supplies gearboxes to Vehicle Factory, Jabalpur for fitment on
vehicles for the Indian Army which is a remarkable achievement for it.
The manufacturing operations are being carried out on modern State of the Art
machine tools with close quality monitoring and extensive and rigorous testing
facilities regularly.
The technical relationship between the Holding company TATA MOTORS LTD. &
subsidiary HV TRANSMISSIONS LTD. is that of a Job worker. Job working means
performing some operations on the raw materials or components of one organization
by another organization, due to specialization by the latter organization or outsourcing
/not having required capacity by the former organization. The latter organization is
known as the Job worker of the former one, for which the job worker gets revenue
commonly known as PROCESSING CHARGES.
The job worker gets the required material supply form the supplying organization on
which operations are performed and thereafter the output is returned to the supplier
for use in further production.
The job worker is a system where, the job worker processes the material & components
supplied to them into finished products & has to bear the expenses of conversion, which
is paid to them in the form of PROCESSING CHARGES.
HVTL has an authorized share capital of 5,00,00,000 equity shares of Rs. 10 each. It has
issued, subscribed and paid up capital of 4,00,00,000 equity shares of Rs. 10 each. Of the
above, 340000000 equity shares are held by Tata motors, the holding company.
TURNOVER
Turnover has more than doubled since 2002-03, not only through rise in volumes but
also through change in product mix and higher focus on spare parts. This shows that the
firm is getting good business from its customers and the firm has been able to increase
its customer base. Due to global recession the turnover slightly decreased.
Profit before taxes (PBT) and Profit after taxes (PAT) have increased many fold on
account of increased volumes, higher efficiencies and better fund management. EBIDT
(Earnings before Interest, Depreciation and Taxes) dipped slightly in 2005-06 due to
market corrections in salary structure and higher provisions on account of retirement
benefits. With increased volumes and better productivity it has improved.
PAT, PBT and EBIDT fell sharply due to global recession since the contraction in demand.
HVTL has been paying higher dividend to its shareholders. The dividend per share
increased considerably from Rs. 1.5 per share to Rs. 5 per share. This shows that the
company is concerned for the maximization of the firm’s value which in turn maximizes
shareholders profitability.
Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements. The level and historical
trends of these ratios can be used to make inferences about a company's financial
condition, its operations and attractiveness as an investment.
Liquidity ratios
Activity ratios
Leverage ratios
Profitability ratios
Financial Ratio are used as a relative measure that facilitates the evaluation of
efficiency or condition of a particular aspect of a firm's operations and status.
Primary Tools.
Financial Statements.
TRADE CREDITORS are interested in firm’s ability to meet their claims over a very
short period of time. Their analysis will therefore, confine to the evaluation of the
firm’s liquidity position.
SUPPLIERS OF LONG TERM DEBT, on the other hand ,are concerned with the
firm’s long term solvency and survival. They analyse the firm’s profitability over
time, it’s ability to generate cash to be able to pay interest and repay principal
and the relationship between various sources of funds (capital structure
relationships). Long term creditors do analyse the historical financial statements,
but they place more emphasis on the firm’s projected, or proforma, financial
statements to make analysis about its future solvency and profitability.
INVESTORS, who have invested their money in the firm’s shares, are most
concerned about the firm’s earnings. They restore more confidence in those firms
that show steady growth in earnings. As such, they concentrate on the analysis of
the firm’s present and future profitability. They are also interested in the firm’s
financial structure to the extent it influences the firm’s earnings ability and risk.
The following are the important managerial uses of ratio analysis helps in financial
forecasting : Ratio analysis is very helpful in financial forecasting. Ratios relating to past
sales, profits and financial positions from the basis for setting future trends.
Helps in Comparison: With the help of ratio analysis, ideal ratios can be
composed and they can be used for comparing a firm’s progress and
performance. Inter firm comparison or comparison with industry averages is
made possible by ratio analysis.
Financial Solvency of the Firm: Ratio analysis indicates the trends in financial
solvency of the firm. Solvency has two dimensions long term solvency and short
term solvency. Long term solvency refers to the financial viability of a firm and it
is closely related with the existing financial structure. On the other hand, short
term solvency is the liquidity position of the firm. With the help of ratio analysis
conclusion can be drawn regarding the firm’s liquidity and long term solvency
position.
Other Uses : Financial ratios are very helpful in the diagnosis of financial health
of a firm. They highlight liquidity the, solvency, profitability and capital gearing
etc. of the firm.
Projected Ratios : Ratios can also be calculated for future standard based upon
the projected financial statements. Ratio calculation on actual financial
statements can be used for comparison with the standard ratios to find out
variance, if any. Such variance helps in interpreting and taking corrective action
for improvement in future.
Inter firm Comparison: Ratios of one firm can also be compared with the ratios
of some other selected firms in the same industry at the same industry at the
same point of time.
TYPES OF RATIOS
Liquidity Ratios – can current debts be met
The sales figures are encouraging as there is a positive trend and the rate of increase is
considerably high. However considering the fact that it has only one customer in the
form of Tata Motors Limited the figures infers an increase in sales of TML. So in order to
increase sales in a higher rate HVTL should diversify its market. The net sales went up
from Rs 13924.05 lakhs in year 2000-01 to Rs 19197.82 in year 2007-08 but decreased to
14259.23 in the year 2008 – 09.
This measure combines all of the company's profits before tax, including
operating, non-operating, continuing operations and non-continuing operations. PBT
exists because tax expense is constantly changing and taking it out helps to give an
investor a good idea of changes in a company's profits or earnings from year to year.
The main concern of liquidity ratio is to measure the ability of the firms to meet
their short-term maturing obligations. Failure to do this will result in the total failure of
the business, as it would be forced into liquidation.
Common liquidity ratios include the current ratio, the quick ratio and the
operating cash flow ratio.
Current Ratio : The current ratio is a popular financial ratio used to test a
company's liquidity (also referred to as its current or working capital position) by
deriving the proportion of current assets available to cover current liabilities.
Interpretation
1. Relatively high ratio values mean that the business is liquid, but cash is not
working.
Interpretation
1. Relatively high ratio values mean that the business is liquid, but cash is
not working.
LEVERAGE RATIO
The ratios indicate the degree to which the activities of a firm are supported by
creditors’ funds as opposed to owners.
Note: The greater the proportion of equity funds, the greater the degree of financial
strength. Financial leverage will be to the advantage of the ordinary shareholders as
long as the rate of earnings on capital employed is greater than the rate payable on
borrowed funds.
Debt Ratio : The debt ratio compares a company's total debt to its total
assets, which is used to gain a general idea as to the amount of leverage being
used by a company. A low percentage means that the company is less dependent
on leverage, i.e., money borrowed from and/or owed to others. The lower the
percentage, the less leverage a company is using and the stronger its equity
position. In general, the higher the ratio, the more risk that company is
considered to have taken on.
A debt ratio of greater than 1 indicates that a company has more debt
than assets, meanwhile, a debt ratio of less than 1 indicates that a company has
more assets than debt. Used in conjunction with other measures of financial
health, the debt ratio can help investors determine a company's level of risk.
To a large degree, the debt equity ratio provides another vantage point on a
company's leverage position, in this case, comparing total liabilities to
shareholders' equity, as opposed to total assets in the debt ratio. Similar to the
debt ratio, a lower the percentage means that a company is using less leverage
and has a stronger equity position.
Interest Coverage Ratio : This ratio measures the debt servicing capacity
of a firm as fixed interest on long term loan is concerned. It is determined by
dividing the operating profits or earnings before interest and taxes (EBIT) by the
fixed interest charges on loans. Thus, interest 45 coverage = EBIT / Interest From
the point of view of the creditors, the larger the coverage, the greater is the
ability of the firm to handle fixed charge capabilities and the more assured is the
payment of interest to the creditors. However, too high a ratio may imply unused
debt capacity.
Owners, managers and directors are also interested in the ability of the
business to service the fixed interest charges on outstanding debt.
Thus the ratio measures the relationship between PBIT and PBT.
For the last 4 years, the FL ratio has been favorable. This indicates that the firm is
trading on Equity.
ACTIVITY RATIO
Accounting ratios that measure a firm's ability to convert different accounts
within their balance sheets into cash or sales. Companies will typically try to turn
their production into cash or sales as fast as possible because this will generally
lead to higher revenues.
A high number of days inventory indicates that their is a lack of demand for the
product being sold.
A low days inventory ratio (inventory holding period) may indicate that the
company is not keeping enough stock on hand to meet demands.
Total Assets Turnover Ratio : This ratio is also known as the investment
turnover ratio. It is based on the relationship between the cost of goods sold and
assets/ investments of a firm as reflected in its earning power. Depending upon
the different concepts of assets employed, there are many variants of this ratio.
Basically, it is the amount of profit (at the gross, operating, pretax or net
income level) generated by the company as a percent of the sales generated. The
objective of margin analysis is to detect consistency or positive/negative trends in
a company's earnings. Positive profit margin analysis translates into positive
investment quality. To a large degree, it is the quality, and growth, of a company's
earnings that drive its stock price.
Calculated as:
Inventory management
Diversification of operations
Type of business
Prepayment activity
Leverage
Expansion plans
There are four principle of working capital management. They are being depicted
as below :
(iii) Principle of Equity Position: -This principle is considered with planning the
total investment in current assets. As per this principle the amount of WC
investment in each component should be adequately justified by a firms equity
position. Every rupee contributed current assets should contribute to the net
worth of the firm The level of current assets may be measured with the help of
two ratios. They are:
For earning profit and continue production activity, the firm has to invest enough
funds in Current Assets in generating sales. Current Assets are needed because
sometimes sales do not convert into cash instantaneously and it includes an
operating cycle.
Cash Management : Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.
Gross Working Capital = Total Current Assets of the company during the financial
year.
Net Working Capital refers to the difference between Current Assets and
Current Liabilities are those claims of outsiders, which are expected to mature for
payment within an accounting year. It includes creditors or accounts payables, bills
payables and outstanding expenses. Net Working Copulate can be positive or
negative. A positive Net Working Capital will arise when Courtney Assets exceed
Current Liabilities and vice versa.
The net working capital metric is directly related to the current ratio. If you
look at the calculation of the current ratio, you see that you use the same balance
sheet data to calculate net working capital.
CONCLUSION
From the ratio analysis of the firm we come to know about the profitability of the
firm. Leverage ratios indicate the composition of long term debts and its impact on
overall financial position of the firm. Liquidity ratios give idea maintenance of liquid
assets in the company. From the analysis of the working capital and its components
of HVTL, we found that the company follows aggressive policy of managing liquidity .
The company is earning huge profits and is in good financial health.
HVTL despite having a negative net working capital, the company is in sound
financial health. This indicates the managerial efficiency of the company. The
company does not have unnecessary funds tied up in the form cash or any current
assets increasing the liquidity and thus decreasing the profitability of the company.
As there is a tradeoff between profitability and liquidity the firm maintains current
assets up to the level necessary for the smooth functioning of the business.
On the current liabilities side, there are various non cash provisions for
employees of the company. Sundry creditors are managed by keeping a close check
on the deferral period. The profitability ratio shows that the organization is making
good profits and paying dividend worth Rs.5 per share. Which proves HVTL’s
credibility.
Ideally the current ratio of 2:1 is considered satisfactory. But, HVTL has a current
ratio ranging between .71 to .58 this indicates that the current assets of the firm
are less than the current liabilities. This is because the firm has always maintained
a negative net working capital. Its current liabilities have always been greater
than current assets.
HVTL has been able to save Rs. 281 lakhs in the financial year 2008-09 by direct
material cost reduction.
Profit after tax has reduced by 58.27% for the financial year 2008-09 in
comparison to the previous year PAT due to global recession affecting customer’s
demand.