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INTRODUCTION

Problem statement

When an analyst, business executive, or student is dealing with a financial issue, or


wishes to understand the financial implications and economic trade-offs involved in decisions
about business investment, operations, or financing, a wide variety of analytical techniques—and
sometimes rules of thumb—is available to generate quantitative answers. Selecting the
appropriate tools from these choices is clearly an important part of the analytical task. Yet,
experience has shown again and again that first developing a proper perspective for the problem
or issue is just as important as the choice of the tools themselves. Therefore, this book not only
presents the key financial tools generally used, but also explains the broader context of how and
where they‘re applied to obtain meaningful answers. To this end, the second chapter provides an
integrated conceptual backdrop both for the financial/economic dimensions of systematic
business management and for understanding the nature of financial statements, data, and
processes underlying financial analysis techniques. All subjects are viewed in the context of
creating shareholder value—a fundamental concept that is revisited in the final chapter on
managing for shareholder value.

While the tools and techniques covered in this book are discussed and demonstrated in
detail, the user must not be tempted to view them as ends in themselves. It‘s simply not enough
to master the techniques alone! Financial/economic analysis is both an analytical and a
judgmental process which helps answer questions that have been carefully framed in a
managerial context. The process is at its best when the analyst‘s efforts are focused primarily on
structuring the issue and its context, and only secondarily on data manipulation. We can‘t stress
enough that the basic purpose of financial analysis is to help those responsible for results to make
sound business decisions within a relevant cash flow framework.

Apart from providing specific numerical answers, ―solutions‖ to financial problems and
issues depend significantly on the points of view of the various parties involved, on the relative
importance of the issue, and on the nature and reliability of the information available. In each
situation, the objective of the analysis must be clearly understood before pencil is put to paper or
computer keys are touched—otherwise, the process becomes wasteful ―number crunching,‖ even
if the workload itself is eased by analytical software.

Management has been defined as ―the art of asking significant questions.‖ The same
applies to financial analysis, which should be targeted toward finding meaningful answers to
these significant questions—whether or not the results are fully quantifiable. In fact, the
qualitative judgments involved in finding answers to financial/economic issues can often count
just as heavily as the quantitative results, and no analytical task is complete until these aspects
have been carefully spelled out and weighed.

Objective:
1. The ratio is computed for each financial statement in the sample.
2. These values are arrayed (listed) in an order from the strongest to the weakest. In interpreting
ratios, the ―strongest‖ or ―best‖ value is not always the largest numerical value, nor is the
―weakest‖ always the lowest numerical value. (For certain ratios, there may be differing opinions
as to what constitutes a strong or a weak value. RMA follows general banking guidelines
consistent with sound credit practice to resolve this problem.)
3. The array of values is divided into four groups of equal size. The description of each ratio
appearing in the Statement Studies provides details regarding the arraying of the values.

Scope of study:
 Strategic management,
 Funding management,
 Asset management,
 Value add management,
 Tax management,
 Growth management,
Scope of the research is not limited only to analyze the financial levels of the financial working
in the Mahindra industry.

Research Methodology:

 Source Of Data:
 Primary data collected by contacting the employees working in Mahindra
outlet showroom.
 Secondary data is collected From Various Surveys in Mahindra journals
and Internet.
 Sampling Plan: Financial ratio analysis of Mahindra Industry.
 Sampling Unit: Balance sheet of Mahindra Industry.

Limitation of study:

 Since Financial sampling is used the findings may not be accurate to the funds
parameters.
 Statistical tools used limits the testing and findings
 Distribution of data collection is not confined to only one outlet.
 Findings are general.
 Due to non-availability of sufficient time and money a detailed study could not be
made.
Company Profile
Industry Scenario

The tractor industry in India has developed over the years to become one of the largest
tractor markets in the world. From just about 50,000 units in early eighties the size of tractor
market in the country has grown up to over 200,000 units. Today industry comprises of 14
players, including 3 MNCs. The opportunities still are huge considering the low farm
mechanization levels in the country, when compared to other developed economies across the
world. Key concern for the industry is its dependence on agricultural income in hands of farmers
and the state of monsoon. The key players are Sonalika, John Deer, Mahindra, New Holland etc.

Mahindra and Mahindra Limited were incorporated on October 2, 1945 as a private


limited company under the Indian Companies Act of 1913 by two brothers, Mr. J.C. Mahindra
and Mr. K.C. Mahindra. It was converted into a public limited company on June 15, 1955.
Mahindra & Mahindra Ltd, one of the largest private sector companies in India, is the flagship
company of the Mahindra Group. The company commenced operations in 1945 to manufacture
General Purpose Utility Vehicles and later on entered into manufacturing of Tractors and Light
Commercial Vehicles (LCVs). Over the years, the company has expanded its operations from
automobiles and tractors to steel, trading and manufacturing of Ash Handling Plants & Traveling
Water Screens. The company is focused to become a world giant in the tractor business. It has
already made its presence felt in countries in Europe, Latin America, Africa and United States of
America.
HISTORY OF THE TRACTOR:-
The word tractor was derived from the combining parts of the word TRACTOR and
MOTOR and was first noted in a patent issued in USA in 1890. A self profiled power unit used
to pull 100 to carry and operate till age cultivation harvesting, machinery to provide power take
of or other , power out let a drive stationary and down implements, machinery as distinguish
from tractor to pro puller steam engine tractors.
Tractor was first used during the 1870's this tractors‘s called tractors engine were large
four wheeled machine driven by steam. They provided enough power to pall as money as 40
plough they were too awkward to be practical. The first tractors in the since of powered traction
vehicles, grew out of the stationary and portable steam engine operated on farms in 19 the
century and used to hour plows by 1890's.

MAHINDRA TRACTOR HISTORY:-

From army vehicles to farm tractors to major automobile manufacturing, Mahindra's


relationship with American industry goes back quite a few years. American GI's who served in
India during World War II recognize our parent company, Mahindra & Mahindra, which in l945
was selected to assemble the famous Willis Jeep.

Following Indian independence in 1947, Mahindra & Mahindra charted a course of


product expansion and globalization. The philosophy led to the company's entrance into the
worldwide tractor.
In 1962, M&M formed a joint venture with International Harvester to make tractors
carrying the name Mahindra name-plate for the Indian market. Armed with engineering, tooling
and manufacturing know-how gained from this relationship, M&M-a major auto maker-
developed its first tractor, the B-275. This successor to International Harvester's incredibly
popular B-414 is still the basis for some current Mahindra models. Today, Mahindra is the third
largest tractor manufacturer in the world with sales of nearly 85,000 units annually in 10
countries. This places them ahead of John Deere & Kubota. In India, Mahindra has been the
number one selling brand since 1983.

Mahindra Tractors is one of India’s most innovative companies

Mahindra & Mahindra‘s Farm Equipment Sector (FES) has featured in the top 10 list of
most innovative Indian companies compiled by the Wall Street Journal as part of its survey to
determine Asia‘s 200 most-admired and innovative companies.

The Asia 200 surveys is the ultimate performance review of Asia‘s leading companies.
The survey takes into account key criteria including long-term vision, innovation in responding
to customer needs, quality of products and services, corporate and financial reputation.

Innovation is the cornerstone of business at Mahindra Tractors which has pioneered


several innovative products and services in the recent past. The Mahindra Shaan is one such
product resulting from this culture of innovation. India‘s first multi-utility tractor, the Shaan
helps in farming activities and facilitates transportation as well. It has been designed keeping in
mind the needs of the young and progressive farmer – increased income and pride of ownership
resulting from style, comfort and modernity.

The Shaan has led innovation in the tractor market and has initiated the transition from a
‗product feature - price‘ led business approach to a ‗value-led innovation‘ business approach.
The product has positively impacted the lives of several customers across the country, facilitating
unique uses, such as mobile flour mills, brick kiln operations, vegetable farming and
transportation of farm produce, water tanker haulage, transportation of goods and people.
In early 2007, Mahindra Tractors launched India‘s first 5% bio-diesel tractor which is
the outcome of the sector‘s relentless focus on R&D and its commitment to a cleaner
environment. The utilization of renewable Biodiesel as a fuel for transportation vehicles is one of
the significant technologies being developed for automotive application. The Bio-Diesel
programmed is one of Mahindra‘s investments in India‘s sustainable economic development.

FES has been the market leader in the Indian tractor Industry for the last 25 years and is
historically known for the superior quality of its products and focus on customer centricity. It is
also the only tractor company in the world to win both the Deming Application Prize and the
Japan Quality Medal, two of the highest quality accolades which can be won by any company.

About The Mahindra Group

The US $6.7 billion Mahindra Group is among the top 10 industrial houses in India.
Mahindra is the market leader in multi-utility vehicles in India. It made a milestone entry into the
passenger car segment with the Logan. Mahindra & Mahindra is the only Indian company among
the top tractor brands in the world.

The Group has a leading presence in key sectors of the Indian economy, including the
financial services, trade, retail and logistics, automotive components, aftermarket, information
technology and infrastructure development.

Mahindra‘s Farm Equipment Sector has recently won the Japan Quality Medal, the only
tractor company worldwide to be bestowed this honor. It also holds the distinction of being the
only tractor company worldwide to win the Deming Prize. The

US based Reputation Institute recently ranked Mahindra among the top 10 Indian
companies in its ‗Global 200: The World‘s Best Corporate Reputations‘ list.

TYPES OF TRACTORS:-
Tractors are classified according to weather wheels or tracks which are used to provide
traction.
1) Two wheel drive tractors:
a) General purpose tractors
b) Standard treads tractors.
2) Track laying Tractor:
These tractors are used to obtain better adhesion or lower ground pressure then
would be possible with an ordinary wheeled tractor.
3) Four Wheel drive tractors:
These are able to work under any conditions since its engine is engaged to both
the front & rear wheel. Those in most general use are of the wheel drive type with
two large wheel driving wheels at the rear & two steering wheels at the front.

The Tractor Industry in India dates back to 1961 when a madras based company
pioneered the manufacture of farm equipment by establishing a tractor plant in collaboration
with a multinational agricultural machinery manufacturer. Today agricultural tractors are
manufactured by about 15 units in the organized sector with a total registered capacity of above 2
lakh.
TRACTOR SPARE PARTS:-
There are so many parts of tractors, they are;-
 Intake manifold winter related parts.
 Oil pump and oil pan.
 Oil fitter and related parts.
 Manifold as export system.
 Crank shaft fly wheel and related parts.
 Dual range and speed transmission gare.
 Powers take of an assembly.
 Clutch control.
 Clutch assembly.
 Radio and related parts.
 Water pumps parts.
 Fuel system
 Injection assembly.
 Air cleaner assembly.
 Throttle controls.
 Fuel Injection pump.
 Injection pump governor.
 Fuel filters assembly.
 8-Speed transmission gearshift leaver and related parts.
 Hydraulic lift cover.
 Hydraulic cylinder.
 Hydraulic shaft.
 Hydraulic system
 Hydraulic linkage and related parts.
 Hydraulic pump assembly.
 Flow control value and related parts.
 Center housing and related parts.
 Differential locks linkage parts.
 Rare and differential related parts.
 Steering gear assembly.
 Electrical system of R.H and L.H.
 Gear right and wringing. Battery and Battery support.
 Storing motor drive and relay assembly.
 Deluxe seal assembly.
 Front wheel assembly.
 Standard rear wheels.
 Break and break controller.
 Front oxlestreeing and related parts.
USES OF TRACTORS:-
Following are the uses of tractor.

1. In the field of agriculture tractor have on important role to play in


Rising productivity.

2. Tractor is used in the field of transportation. The fertilizers can be carried to the field
& the produce to the market with the help of tractors. It is also for the purpose of
transportation goods from one place to another.

3. Through the use of tractor farm practices were revolutionized & agriculture crops
were increased per hectare. Mechanized farming becomes possible through the use of
tractors.
4. In stone crushers before the blasting of rocks drilling machines are used to drill the
rocks with the help of tractors.

5. Not only has animal power been displaced & human effort reduced through the use of
tractors.
ROLE OF TRACTORS IN INDIAN AGRICULTURE:-
India has always been heavily dependent on agriculture for its economic growth. It
follows that mechanized farming would increase agriculture output in the given the huge trucks
of land which cultivated are would assume that tractors are sold in a big way in our country.
Indian agriculture is as old as civilization itself & the Indian farmer has the benefit of a
vast past experience the yield of crops in India are very low when compared to even some of the
south east when compared to even some of the south east Asian countries. Agriculture forms the
backbone of the Indian economy & despite concerted industrialization in the last four decades;
agriculture occupies a place of pride. Being the largest industry in India, it is the source of
livelihood for over 70% of the national income. Its importance in industrial development in the
supply of raw-materials to leading industries like jute, textile, sugar etc, is very high.
Agriculture increase national income & it helps in industrial development, agriculture
helps for the promotion of international trade & the development of agriculture is essential for
economic growth, the significance of agriculture in India arises also from the fact that the
development in agriculture is an essential for the development of the national economics.

Though the experience of Indian farmer the yields crops in India very low when compare
to other countries. For this reasons are quite obviously monocropping & repeated use of land
without rest is one problem is the efficient use of good fertilizers expect domestic fertilizers also
primitive & traditional, besides the wooden plough, hoe, sickle & other old method of practicing
agriculture no any mechanical or other devices are used.
By mechanization of agriculture we mean the replacement of animal & human power by
machinery & pouching done by tractors. Sowing & putting of fertilizers by the drill & reaping &
thrashing by the combined harvester & so on. The tractors will so be used in transporting crops
to markets. By using tractors, crops can be easily taken
COMPANY PROFILE
Mahindra and Mahindra incorporated in 1945, began operations, with assembly of jeeps
imported in semi knocked down (SKD) condition form wills, USA Mahindra and Mahindra
started manufacturing jeep in collaboration with wily overland corporation and American motor
cooperation (now parts of the Chrysler group) in 1954 and LCVs in 1965. Tractor production
started in 1965 in a joint venture company with technical collaboration of international harvester
company Chicago, USA. This company was merged with M and M in 1977. M and M is
originally a principal supplier to the government for defense and other departments. M and M
has restructured its operations. While the focus is an automotive and tractor divisions most of the
other business including IT, Infrastructure and financial services have been hired off into new
ventures.

Mr. Anand Mahindra is a member of the class of 1977 Harvard College, Cambridge,
mustache sets form where he graduated manger cum laude (high honors). In 1981 he secured on
MBA from the Harvard business school in Boston after returning the India he joined Mahindra
urine steel company ltd.

In 1989 he was appointed president and deputy-managing director of MUSCO. In April


1997, he moved over to M and M as the deputy- managing director. In April 1997, he was
appointed as the managing director by the board of M and M. Mr. Mahindra was also the co
promoter and is the chairman of total Mahindra finance ltd. Mr. Mahindra writes frequently on
business and general economic subject is leading business and Business magazines.

Organization analysis:

Mission/Vision
Vision: Indians are second to none in the world. The founders of our nation and of our
company passionately believed this. We will prove them right by believing in ourselves and by
making M&M Ltd. known worldwide for the quality of its product and services.
Mission: We don‘t have a group-wide mission statement. Our core purpose is what
makes all of us want to get up and come to work in the morning‖

Goals and Objectives

 To provide highly technological innovative product


 By 2015 it wants to enter almost all continents of world
 Plan to open 30 outlet pan in India by next 4 year
 to make the production system even more efficient
 To usher prosperity; for its customers, dealers, employees, society and all other
stakeholders.
 To be the market leader in all power segments of tractors

COMPANY PROFILE:
GROUP MAHINDRA
SECTOR AUTOMOBILE
INDUSTRY AUTOMOBILE TRACTOR
CHAIRMEN KESHUB MAHINDRA
AUDITORS DELLOIT HUSKIN AND SELL
FINANCIAL YEAR MARCH
BOOK CLOSYRE JULY
BSE CODE 500520
BSE GROUP ‗A‘
NSE SYMBOL M&M
PAR VALUE 10
LISTING BSE, NSE, KOLKATA, SINGAPORE,
LUXEMBERG
ISINDMAT INE101A01018
NO.OF EMPLOYEE 150000

Values
'We don't have a group-wide mission statement. Our Core Purpose is what makes all of us want
to get up and come to work in the morning.'
Our Core Values are influenced by our past, tempered by our present, and will shape our future.
They are an amalgam of what we have been, what we are and what we want to be.
Good Corporate Citizenship As in the past, we will continue to seek long term success, which is
in alignment with our country's needs. We will do this without compromising ethical business
standards.

Professionalism We have always sought the best people for the job and given them the freedom
and the opportunity to grow. We will continue to do so. We will support innovation and well
reasoned risk taking, but will demand performance.

Customer First We exist and prosper only because of the customer. We will respond to the
changing needs and expectations of our customers speedily, courteously and effectively.

Quality Focus Quality is the key to delivering value for money to our customers. We will make
quality a driving value in our work, in our products and in our interactions with others. We will
do it 'First Time Right'.

Dignity of the Individual We will value individual dignity, uphold the right to express
disagreement and respect the time and efforts of others. Through our actions, we will nurture
fairness, trust and transparency.
These values are the compass that will guide our actions, both personal and corporate.

Background
Mahindra & Mahindra Limited (M&M), the flagship company of the US$ 3 billion
Mahindra Group, was set up in 1945 to make general-purpose utility vehicles for the Indian
market. It soon branched out into manufacturing agricultural tractors and LCV and later
expanded its operations from automobiles and tractors to other sectors. The company has
recently started a new division,
Mahindra Systems and Automotive Technologies (MSAT) in order to focus on developing
components and to offer engineering services.

M&M has two main operating divisions – Automotive division and Farm Equipment
division. The company entered into collaboration with Willys Overland Corporation (now part of
the Daimler Chrysler group) to import and assemble the Willys Jeep for the Indian market.
Thereafter, in 1965 the company started producing LCV. It went on to develop its manufacturing
technology to indigenously produce vehicles within a short time of signing the collaboration
agreement with Willys.Today, the Automotive Division of M&M manufactures and markets
MUV, LCV and three-wheelers.

In 2005, the company entered into a joint venture with Renault of France for the
manufacture of a mid-sized sedan, Logan, a newly developed vehicle that meets all the European
regulations for emissions and safety. The Logan is expected to be launched in the Indian market
in 2007. M&M has also launched a joint venture with International Truck & Engine Corporation,
one of the leading commercial vehicle producers in the USA, for manufacture of trucks and
buses in India. The Farm Equipment division was established in 1963 in the form of a joint
venture with International Harvester Inc., and Voltas Limited, and christened as the International
Tractor Company of India (ITCI). In 1977, ITCI merged with M&M and became its Tractor
Division. After M&M's organisational restructuring in 1994, this

Company Products Established Founder Distribution Production


plants

Automobiles K.C. Europe,


Tractors, Mahindra & Russia
M&M Auto 1945 J.C. Mahindra Asia, Africa, India
Components with USA, South
Ghulam America
Mohammed

division was re-christened the Farm Equipment Sector Division. Today M&M is the largest
manufacturer of tractors in India. It designs, develops, manufactures and markets tractors as well
as implements which are used in conjunction with tractors.

MAHINDRA AND MAHINDRA LTD’S BOARD OF DIRECTOR:-


Board of director's as on 30th may, 2000 Keshub, Mahindra chairman R.K. Pitamber Deepak,
S.Parekh, S.K Batanagar nadir, B.Godrej, M.M. Murugappan, Sanjivkapoor, nominee of unit trust of
Idia Narayanan VaghulLewis , W.K Booth Philip, G.spender alternate director to lewis W.K Booth,
B.R.Gupta-nominee of life insurance corporation of India A.S.Ganguly, R.K. KulkarniSanjiv, A Kerkar-
nominee K.J Davasia Bharat Doshi Alan E Darante, A.K Nanda secretary A.K Nanda.
Mahindra and Mahindra‘s register office is in Gateway building, Apollabunder, Mumbai-
400001, Plant locations in Mahindra and Mahindra ltd. All plants are located in Mahindra, Mumbai
(1965), has facilities level, commander and armada range of vehicles and all tractors and spare parts
manufactured on Nashik Plant.
M and M has tractor manufacturing plants at Mumbai and Nagour in Maharashtra state
where a wide range of tractors are produced. M and M‘s tractors manufacturing unit at Kandiv is
the single urges tractors manufacturing unit in the world it consist of modern machine shops
ascertainable line and engine manufacturing facilities. M and M is one of the top four
manufacturing of tractor's in the world value terms the plant in Nagpur. Maharashtra also
produces a wide area of agricultural implements to soot every sole type and from operation and
O.E components.
The M and M tractors division to date as produce over 500000 tractors over 5000 of
which has been exported to USA, Africa ,Europe, Srilanka, Bangladesh, Vietnam and other
countries. Its marketing network spans the Entire globe with representation in most contents
around the world. M and M has widest range of tractors among Indian companies.
Different tractors models cover disparate market segment form 25 HP to 50 HP tractors
for more than a decade. M and M tractors have been market leaders.
But M and M is not content with being just a market leader research engines at machines
developed a direct in injection tractors engine this gave for Greater fuel efficiency than even
before and provided the advantage of an instant could start recently. M and M has ―Increased
warranty to India‖ on all its models to 2000 hours of usage or 2 years of service form 1000 hours
or 1 year earlier strong emphasis on from continuous product innovation and improvement has
helps to sustain our market leadership in the dynamic Indian tractor market. Strong
manufacturing facilities backed by a strong R&D capability and a dynamic and customer
oriented marketing function. M&M has secured the top position in the "Domestic Tractor
Market".
When India celebrates 50 years of independence and the world moves on to the next century
M&M is eager to export new markets and renew our commitment to the agricultural community.

Mahindra & Mahindra Ltd. is one of the major automotive companies of India. They initially
had collaboration with Willys Overland Corporation to import and assemble jeeps in India. They
are the market leaders in the utility vehicles segment. They are also a major player in the tractor
manufacturing segment as well. They are the only sole Indian company to be a part of the top
five tractor manufacturing companies in the world.

The Indian Tractor Market;


The Indian tractor industry, dominated since time immemorial by a few known brands, is
in the process of a change. A look at the average growth rate recorded by the tractor industry
point towards a general slowdown. The growth rate for the eight month period April- November
1996 has dropped to 13% from 16% recoded during the previous year. Among the 3 Indian
majors, Mahindra & Mahindra Tractor &Farm Equipment (TAFE) & Punjab tractors, only
M&M has recorded a marginal drop in market share. Overall all of them have witnessed
increased sales in terms of volume. As for the others which include the links of Eicher, HMT,
ESCORTS etc., there has been steady erosion in the market share. A begin state policy, which
provides the buyer subsidies & soft loans has seen the tractors become a popular substitute for
the LCV as utility vehicle in rural areas.
Due to the general slowdown in the growth rate of the Economy, the industry expects to
slow down. The growth rate in tractor declined from 18.5% in 1994-95 to 17.3% in 1995-96 &
1996-97 (April-Nov).
But there is one company which has defined this entire ‗slowdown‘ pattern & is growing
at a steady pace. The co. is Punjab Tractors Ltd... The market share of Punjab tractors has
increased from 11% to 14.9% in 1996-97 (April- December). It overtook Eicher in 93-94& Farm
Equipment (TAPE).
The future of the tractor industry will see a shakeout of sorts. The small players will
either have to survive. According to experts, ten years from now, the market will stagnate. If at
all there is a market that will grow, it will be one for replacements. Till then Tractor players will
continue to trudge along slowly maintaining a 5-6 percent growth rate.
Hence the performance of the companies, from the automobile industry that have
featured in this year's top50 reveals that though the industry is in the grip of recession players
with very good fundamentals will always continue to reward the investors.
The Indian tractor industry sold approximately 2.2 lakh tractors between, April
1996&March 1997. On an average the tractor market gas grown by 6% to 7% each year since
1993. When the industry was of around 1.4 lakh tractors in all these years some of the companies
had limited production capacities & the customer had to wait for most popular models. These
problems were more acute in the season & often aggravated by the short supply of premium
models.
However, since October 1996, a distinct change has been observed in the tractor market.
All tractors models, including the so called premium products, are readily available in the show
room. The main reason for this phenomenon is that all tractor manufacturers have been gradually
increasing their production volume in the last few years and presently the total production
capacity of all the tractor manufacturers has reached approximately 2.7 lakh units. This will ease
the supply position of tractors and in times to come the customer will not have any waiting
period for a tractor.
MAHINDRA & MAHINDRA TRACTOR SALES RISE BY 16%:
Mahindra & Mahindra announced that its tractor sales for the month of August 2008
stood at 7,000 units as compared to 6011 units for the same period last year, recording a growth
of16.45%.
Exports: -
They exports during August 2008 were 597 units as against 561 units for the same period
last year, recording a growth of 6.42%. Total sales (domestic and exports) for the month were
7,597 units, as compared to 6,572 units for the same period last year, recording growth of
15.59%.
Cumulatively, during this fiscal, Mahindra & Mahindra tractors sales in the domestic
market were 41,455 units as compared to 37,611 units for the April- August quarter last year,
recording a growth of 10.22%.
Shares of the company declined Rs 5.2, or 0.9%, to settle at Rs 572.85. The total volume of
shares traded was 15,411 at the BSE.

M &M IN INDIA:-
MAHINDRA & MAHINDRA LTD. was established in 1962 at Mumbai. The company
is India's first large scale project based on totally indigenously & totally indigenous design, know
how & technology was promoted by the International Harvester company of U.K.At present the
name of owner of the company is Anand G Mahindra.
The Mahindra Factory is located at Akurli Road. Mumbai & their implement division are
at Nagpur. The factory is among the first to be set up in this Industrial town. Its main marketing
Department is at Worli Road, Mumbai.

GROWTH OF THE ORGANIZATION:-


Mahindra & Mahindra Ltd... Consist of 3 divisions.
1. Mahindra tractor Division.
2. Mahindra Jeep Division.
3. LCV Division FORD-ESCORT- MAHINDRA Collaboration.
Mahindra tractor Division started with annual capacity of 500 tractors & with capacity of
Rs 400 crores. It went into commercial production in the year 1962 with 35 HP ranges of tractor.
At present the annual capacity of Mahindra Tractor division is 8000 tractors & with capacity of
Rs 2000 crores.
The company is managed by seven Boards of Directors with Secretary, Deputy Manager,
and Chairman. The day to day operations are managed by the Managing directors.

Having Mahindra established in the Indian Market. Mahindra Tractor Division made a
determined starts in 1995-96 year to establish itself in the international market over the years, a
large number of Mahindra tractors & implements are operating in many countries like Australia,
Pakistan, Brazil, Srilanka, and Alzeria. It would be very glad that the pure Indian company with
Indian technology export tractors & the implements to other countries or foreign countries.

Most of the Mahindra Tractors are sold Foreign countries are 30 HP range of Model. But
in Indian market 40 HP ranges of tractors is more demand. Mahindra has 728 dealers in the
entire country & it has 30 dealers in Karnataka.

Dynamic growth:-
During the 35 years of its existence, Mahindra tractors division has not only expanded its
tractors manufacturing capacity of tractors per annum but also more product in to manufacturing
range Mahindra has emerged as a major industrial complex in India. The Mahindra is only one
pure Indian company, without any alliance of collaboration with any multinational countries
which manufactured the machine tools. Mahindra name is synonymous with the quality machine
tools in the major industrial concerns in India. Mahindra was not only manufactured tractors but
also manufactured harvesters, combines, forklifts, trucks, agriculture implements and automobile
castings.
High technology, sophisticated tool room equipment and modern R&D facilities, including
computer aided designs and computerized testing machines, blending with decade of experience
of Indian conditions, has resulted in technology relevant to Indian conditions.
The export performance, Mahindra has always been conscious that the quality if its products
lie in it acceptable in the world market, entry in export market means, it has to know what sells
abroad and it has to design its product according to network in India, which will serve as a major
source of competitive advantage.

The Indian tractor market is anxiously awaiting the arrival of global tractor giants like
John Deere, New- Holland, Same, Steyretc and the existing players have also enhanced their
product volumes, models range and quality. In this highly competitive market- driven scenario,
the complete purchase process shall focus around the customer needs. At these crucial juncture,
there shall be used to plan a series of multiple activities to gear up all over business processes to
face the future market where in we envisage that ―the customer will be king‖ and that ―customer
satisfaction‖ shall be the prime consideration for all over systems

Mahindra Tractors, also known as Mahindra & Mahindra Limited - an Indian automobile
company, is one of the largest tractor manufacturers in the world. Mahindra entered the U.S.
tractor market in 1994, and currently has two assembly and distribution centers in the United
States. Mahindra was used at the end of World War II to assemble the Willy‘s Jeep for
American soldiers in India. Mahindra then later entered the world wide tractor market in 1947,
after India‘s independence.

Mahindra actually developed its first tractor through the help of International Harvester
through a joint venture dating back to 1963. Some of the Mahindra tractor models are still based
upon the IH B-414 successor. Mahindra has also done a joint venture with Ford Motor Company
in 1995.

M&M had posted excellent results for the year ended 31st March 2004. Gross sales from
operations at Rs 5,914 crore was up by 31.5%, while profit after tax (PAT) at Rs 348.5 crore was
up by 139%, from that posted in 2002-03.

A total of 41,135 tractors were sold in July-March 2008-2009 as compared to 37,096


units in the same period of last fiscal year. Sale of tractors at 21,247 units and 19,888 units as
compared to 18,342 and 18,754 units in July-March 2007-2008.
M&M Ltd. Tractors record 19% growth in Sales in June 2009
Mumbai Tuesday July 1, 2009.
Mahindra & Mahindra‘s Farm Equipment Sector (FES), a part of the U.S. $6.7 billion
Mahindra Group, significantly consolidated its leadership position in the tractor industry in June
2008.
For the month of June 2008, domestic sales of tractors of Mahindra & Mahindra Ltd.
were 11054 nos., a growth of 16% and exports during the month were 954 nos., a growth of 69%
over the corresponding month last year. Total sales for the month were 12008 nos., a growth of
19% over the corresponding month last year.
M&M is the third largest tractor company in the world. It is also the largest manufacturer
of tractors in India with sustained market leadership of around 25 years. It designs, develops,
manufactures and markets tractors as well as farm implements.
Mahindra & Mahindra grew from being a maker of army vehicles to a major automobile
and tractor manufacturer. It has acquired plants in Chinaand the United Kingdomand has three
assembly plants in the USA. M&M has partnerships with international companies like Renault
SA, France and International Truck and Engine Corporation, USA.

World-class products with high quality, reliability, durability and multiple features.

Not only in India one of the largest tractors, markets, it is also one of the few growing
markets in the world that is expected to saturate only by the year 2005, by when it shall have a
stable demand of around 3.5 lakh units per annum.

In the near future the customer will have a multiple variety of models to choose from, not
only in terms of quality, technology, reliability &overall economics. In this scenario the role of a
dealership for delivering total customer satisfaction through all its thoughts, words and deeds
becomes the single highest priority objective in the times to come.

Distribution Network:-

The company has not only contributed by supplying a large number of tractors to the
Indian farmers but has also ensured proper backup services to help them operate. Mahindra has a
large network of sales, service, first aid centers &space parts dealers spread throughout the
length & a breadth of the country.

Mahindra has 728 dealers in the entire country. It has main dealers in Karnataka. It is
because of these well spread out facilities. That the ensures minimum downing time of the
tractors. The dealership have well equipped workshops having special tools and equipment, field
service motor- cycles to ensure prompt service is rendered at the door steps of the farmer.

The demand of tractors in Indian market is generally as below.

Models Percentage of Demand.


475-DI 40
275-DI 20
B-275-DI 30
OTHERS 10
TOTAL 100

The above table shows in the below diagram.


Percentage of Demand.
100
90
80
70
60
50
40 Percentage of Demand.
30
20
10
0

MAHINDRA USA, INC;-

In 2002, Mahindra USA completed a major expansion of its Tomball (Houston Area),
Texas headquarters. They tripled the size of the parts warehouse and the production assembly
lines. In 2003, a second assembly and distribution center was established in Calhoun, Georgia.

In 2004, a separate, much larger parts warehouse was put into operation outside of
Houston, Texas, to keep up with the huge growth of Mahindra tractor sales in the U.S.A...Final
assembly takes place here in the U.S.A. where we conduct a 51-point pre-delivery inspection,
including dynamometer and road test

COMPARISON WITH COMPLETIVE COMPANIES:


1. Comparison of stock market performance of different brands:-
COMPANY NAME PRICE N/P CASH PROFIT
Eicher 16.5 83.3 1183.4
M&M 91 183.04 236.78
Ford 117.5 180.75 22.2
Escort 245.07 541.33 157.77

The above comparison shows in the following diagram.


1200

1000

800
PRICE
600 N/P
CASH PROFIT
400

200

0
Eicher M&M Ford Escort

COMPARISON OF INSTALLED CAPACITY AND ITS UTILIZATION:-


Installed Capacity
COMPANY Capacity Production Utilization
NAMES 2008 2009 2008 2009 2008 2009
Eicher 18000 18000 16913 15899 94 88
M&M 28000 28000 37786 34886 162 223
Ford 8500 8500 14482 12123 170 142
Escort 23000 23000 18437 13063 66 47

The above comparison shows in the following diagram.


40000

35000

30000
COMPANY
25000

20000 Eicher
Ford
15000
Escort

10000 M&M

5000

0
1 2 3 4 5 6
FIRM PROFILE
Brief History of Dealer
Sri Ganesh Agro Tractors is started in the year 2009 and registered under partnership Act
of 1932. Mr. Sathish Gowda, Mr. Darmegowda are the partners of Sri Ganesh Agro Tractors.

The showroom of M&M tractors is situated in B.M. Road, Opp: Govt. First Grade
College, Channarayapatna-573116. The showroom sports a uniform look and the service station
is situated behind the show room. The service station area however upgraded as per company
specification.
Mr. Sathish Gowda and Mr. Darmegowda are very good dealers in Hassan area. They are
also having a skill of marketing. Mr. Naveen S. Kaggere the manager of the company, who is
looking after all sales and services of the firm. He has very good tractor mechanic in Hassan
area. He is also having a skill of marketing of tractors.
In the beginning the firm initial capital was 62 lakhs and sale of the tractor is 15 per
month. The firm started to deal with Mahindra tractors & implements and spare parts of the
Mahindra tractors in the range 25 hp,30hp,33hp 36hp,40 hp.50 hp ,with regard to 225-DI,265-
DI,365-DI,275-DI,B-275, 475-DI,585-DI respectively. There is a large demand for the
295,275,475,575 tractors as other range of tractors.

INFRASTRUCTURE FACILITIES:-
1. Land and building:
The firm is having its own building. The office covers an area of 13759.60 square feet,
East- west 167'.8"feet, North-south 90+74/2 feet.
2. Power:
The electric power requirement of the firm is of 250 to0350 unit‘s pm. The electric power
consumer by the firm‘s showroom is about 150 units and service attain like water washing of
vehicles etc., take the power consumption of 150 to 200 units.
3. Machinery:
The firm is well equipped machines and tolls are used in services facilities to vehicle the
value of tool is the firm more than Rs. 1, 50,000.
4. Recruited staff of the firm:

 General
 Manager.
 Sales manager.
 Workshop manager.
 Spares manager.
 Accounts staff.
5.Man power:
The firm has sufficient staff. There are 19 members working in the showroom. There are
14 foremen working in the showroom.
1. Advertisement:
Advertisement is the main aims for create demand for the product in the mind of the
customer and improve the competitive strength. The dealer is advertisement its vehicles
through various media such as local news paper and states news papers, magazines etc.
ORGANISATION STRUCTURE:-
ORGANISATION STRUCTURE OF GANESHA AGRO MOTORS

WITH SPECIAL REGARD TO SALES

Structure of Sri Ganesh Agro Tractors with Special Regard to Sales

Proprietor

Manager

Supervisor Sales Executive Office Incharge

Sr. Mechanic Clerk Spare parts


Supervisors

Jr. Mechanic Accountant Helper

Helper
The service station is situated at the back side of the show room so that they can provide
timely repairs, and other service like wash services, wheel alignment, oil change etc to the
customers within time. They also provide after sales services like free services up to one year of
purchase and demonstrations...etc. The place of purchase and place of service are situated at the
same place and it would be economical to the customers as well as the service providers.
DEMAND FOR THE PRODUCT:

Generally the market is a medium to secure certain volume of sales. It is mainly


interested in the demand side of the market. Market consists of individuals and group of people
institution and corporate bodies, their needs, their resources, their buying habits and their
preferences. The success of the marketing is also depends on the ability to forecast the strength
and character of demand as it is the basis for allocation of resources in business.
There are three variable factors that relate to tractors in market demand, that is
demographic variables (population pattern) to ascertain size of demand, effective demand
(purchasing power) to ascertain potential demand life style pattern of the customers.
COMPANY DEMAND:-
Company demand is volume of sales expected under given environmental conditions for
a specific time. It is function of firm strategies marketing effort and specific the amount of sales
turnover which would be realized by a company under different levels of company‘s selling
efforts. It is the market share of a company.
Target given by the company;
YEAR TARGET SALES
2004-05 150 285
2005-06 350 500
2006-07 340 350
2007-08 500 520

The above table showed in below diagram.


600

500

400

300 TARGET
SALES
200

100

0
2004-05 2005-06 2006-07 2007-08

Mahindra tractors are one of the main products of Mahindra and Mahindra ltd., this
company is having collaboration with many foreign companies. But now it is indigenous in
manufacturing Mahindra.
Following points affect the increased demand for Mahindra tractors:-

1. Manufacturing tractors by incorporating the best technology available.


2. Superior quality of raw material used in production.

3. Tractors having good specification when compared to other tractors.

4. Good service given by the agency to customers after sale tractors.


MARKETING MIX:-
Marketing of Mahindra tractors byGanesha agro motors:-
Maruthi motors are one of the leading dealers of M Mahindra tractors. The firm has
commenced marketing of Mahindra tractors since. The firm has to face many difficulties in the
beginning to create primary demand for tractors. Today it is very popular through the salesman
and advertisement. The salesman travels through the several villages in Davangere district.
Modern Marketing refers to all those activities involved identifying the present and
potential requirement of the consumers for goods and services and in securing the distribution of
those goods and services form the centers of production to place where these are wanted and at a
time they are wanted. Therefore modern marketing is failed to be consumer oriented and it
begins before production and also succeeds production.
PRICE LIST OF TRACTORS:-

SI No Model HP Total

1 265DIBP 30 413996

2 265DI NST 30 424301

3 275DI BP 39 454489

4 275DI NST 39 467159

5 295DI TURBO 39 460889

6 475DI BP 42 475153

7 475DI NST 42 492049


8 475DI NST OIB 42 497559

9 575DI BP 45 519819

10 575DI NST 45 544111

11 575DI NST OIB 45 549620

12 555 ARJUN 52 591790

13 595 DI TURBO 52 562943

14 665 ARJUN 60 645547

PRODUCTS

Ranges of tractors are,


 Mahindra -295-DI of 35HP.
 Mahindra- 275-DI of 36 HP.
 Mahindra-475-DI of 40 HP.
 Mahindra -575-DI of 45 HP.

TRACTOR SPARE PARTS:-


There are so many parts of tractors, they are;-
 Intake manifold winter related parts.
 Oil pump and oil pan.
 Oil fitter and related parts.
 Manifold as export system.
 Crank shaft fly wheel and related parts.
 Dual range and speed transmission gare.
 Powers take of an assembly.
 Clutch control.
 Clutch assembly.
 Radio and related parts.
 Water pumps parts.
 Fuel system
 Injection assembly.
 Air cleaner assembly.
 Throttle controls.
 Fuel Injection pump.
 Injection pump governor.
 Fuel filters assembly.
 8-Speed transmission gearshift leaver and related parts.
 Hydraulic lift cover.
 Hydraulic cylinder.
 Hydraulic shaft.
 Hydraulic system
 Hydraulic linkage and related parts.
 Hydraulic pump assembly.
 Flow control value and related parts.
 Center housing and related parts.
 Differential locks linkage parts.
 Rare and differential related parts.
 Steering gear assembly.
 Electrical system of R.H and L.H.
 Gear right and wringing. Battery and Battery support.
 Storing motor drive and relay assembly.
 Deluxe seal assembly.
 Front wheel assembly.
 Standard rear wheels.
 Break and break controller.
 Front oxlestreeing and related parts.

MAHINDRA SARPANCH 265DI: 30 HP

ENGINE:

Type: MDI 1895

Horse Power: 30 HP

No. of Cylinders: 3

Displacement: 1892 CC

Rated RPM: 2300 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner

Cooling System: Water cooled

TRANSMISSION:

Type: Sliding Mesh

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 55 Ltrs.

Engine oil sump: 6 Ltrs.

Cooling System: 7.95 Ltrs.

Transmission case: 23 Ltrs.

Hydraulics: 11.5 Ltrs.


DIMENSION:

Max. Length: 3200 M.M

Max. Height: 2195 M.M

Wheel Base: 1836 M.M

Weight: 1820 K.G. (With full of Fuel, Oil and Water)

MAHINDRA SARPANCH 275DI TU: 39 HP

ENGINE:

Type: MDI 1895 B

Horse Power: 30 HP

No. of Cylinders: 3

Displacement: 1892 CC

Rated RPM: 2600 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner

Cooling System: Water cooled

TRANSMISSION:

Type: Partial Constant Mesh

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 55 Ltrs.


Engine oil sump: 6 Ltrs.

Cooling System: 7.95 Ltrs.

Transmission case: 23 Ltrs.

Hydraulics: 11.5 Ltrs.

DIMENSION:

Max. Length: 3190 M.M

Max. Height: 2195 M.M

Wheel Base: 1838 M.M

Weight: 1820 K.G. (With full of Fuel, Oil and Water)

MAHINDRA SARPANCH 575DI: 45 HP

ENGINE:

Type: MDI 2500

Horse Power: 45 HP

No. of Cylinders: 4

Displacement: 2523 CC

Rated RPM: 2300 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner

Cooling System: Water cooled

TRANSMISSION:

Type: Partial Constant Mesh


No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 55 Ltrs.

Engine oil sump: 7.8 Ltrs.

Cooling System: 7.95 Ltrs.

Transmission case: 23 Ltrs.

Hydraulics: 11.5 Ltrs.

DIMENSION:

Max. Length: 3190 M.M

Max. Height: 2195 M.M

Wheel Base: 1910 M.M

Weight: 1860 K.G. (With full of Fuel, Oil and Water)

MAHINDRA SARPANCH 475DI: 42 HP

ENGINE:

Type: MDI 2385

Horse Power: 42 HP

No. of Cylinders: 4

Displacement: 2523 CC

Rated RPM: 2300 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner


Cooling System: Water cooled

TRANSMISSION:

Type: Partial Constant Mesh

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 55 Ltrs.

Engine oil sump: 7.8 Ltrs.

Cooling System: 7.95 Ltrs.

Transmission case: 23 Ltrs.

Hydraulics: 11.5 Ltrs.

DIMENSION:

Max. Length: 3190 M.M

Max. Height: 2195 M.M

Wheel Base: 1910 M.M

Weight: 1820 K.G. (With full of Fuel, Oil and Water)

MAHINDRA BHOOMIPUTHRA 265 DI

ENGINE:

Type: MDI 1895

Horse Power: 30 HP

No. of Cylinders: 3
Displacement: 1892 CC

Rated RPM: 2300 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner

Cooling System: Water cooled

TRANSMISSION:

Type: Sliding Mesh

Max. Speed- Front: 29.25 KMPH

Max. Speed- Back: 12.2 KMPH

CAPACITY:

Fuel Tank: 45 Ltrs.

HYDRAULICS:

Max. Weight Carried: 1000 KG

Lower Link: External Check Chen with Cat II

Steering: Mechanical

MAHINDRA BHOOMIPUTHRA 275 DI TU

ENGINE:

Type: MDI 1895 B

Horse Power: 39 HP

No. of Cylinders: 3

Displacement: 1892 CC
Rated RPM: 2600 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner

Cooling System: Water cooled

TRANSMISSION:

Type: Sliding Mesh

Max. Speed- Front: 32.00 KMPH

Max. Speed- Back: 11.45 KMPH

CAPACITY:

Fuel Tank: 45 Ltrs.

HYDRAULICS:

Max. Weight Carried: 1000 KG

Lower Link: External Check Chen with Cat II

Steering: Mechanical

MAHINDRA BHOOMIPUTHRA 475 DI

ENGINE:

Type: MDI 2500

Horse Power: 42 HP

No. of Cylinders: 4

Displacement: 2523 CC

Rated RPM: 2300 RPM


Air Cleaner: 3 stage oil bath with Pre-cleaner

Cooling System: Water cooled

TRANSMISSION:

Type: Sliding Mesh

Max. Speed- Front: 30.48 KMPH

Max. Speed- Back: 12.72 KMPH

CAPACITY:

Fuel Tank: 45 Ltrs.

HYDRAULICS:

Max. Weight Carried: 1000 KG

Lower Link: External Check Chen with Cat II

Steering: Mechanical

MAHINDRA BHOOMIPUTHRA 575 DI

ENGINE:

Type: MDI 2500

Horse Power: 45 HP

No. of Cylinders: 4

Displacement: 2523 CC

Rated RPM: 2300 RPM

Air Cleaner: 3 stage oil bath with Pre-cleaner


Cooling System: Water cooled

TRANSMISSION:

Type: Sliding Mesh

Max. Speed- Front: 29.76 KMPH

Max. Speed- Back: 12.42 KMPH

CAPACITY:

Fuel Tank: 45 Ltrs.

HYDRAULICS:

Max. Weight Carried: 1640 KG

Lower Link: External Check Chen with Cat II

Steering: Mechanical

MAHINDRA SARPANCH 595 DI SUPER TURBO: 52 HP

ENGINE:

Type: MDI 3000 TC

Horse Power: 52 HP

No. of Cylinders: 4

Displacement: 2523 CC

Rated RPM: 2100 RPM

Air Cleaner: Dry air cleaner with Pre-cleaner

Cooling System: Water cooled


TRANSMISSION:

Type: Concentrate Mesh

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 55 Ltrs.

Engine oil sump: 9.4 Ltrs.

Cooling System: 7.95 Ltrs.

Transmission case: 25 Ltrs.

Hydraulics: 11.5 Ltrs.

DIMENSION:

Max. Length: 3650 M.M

Max. Height: 2180 M.M

Wheel Base: 1970 M.M

Weight: 2160 K.G. (With full of Fuel, Oil and Water)

MAHINDRA ARJUN 605

ENGINE:

Model: NE 457

Horse Power: 56 HP

No. of Cylinders: 4

Displacement: 3193 CC
Rated RPM: 2100 RPM

Air Cleaner: Dry air cleaner with Clog Indicator

TRANSMISSION:

Type: Full constant mesh with Neutral safety switch

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 65 Ltrs.

Max. Weight carried: 1800 KG

Lower link: CAT II size

DIMENSION:

Max. Length: 3531 M.M

Max. Width: 1996 M.M

Wheel Base: 2120 M.M

MAHINDRA ARJUN 555

ENGINE:

Model: NE 452

Horse Power: 52 HP

No. of Cylinders: 4

Displacement: 3054 CC

Rated RPM: 2100 RPM


Air Cleaner: Dry air cleaner with Clog Indicator

TRANSMISSION:

Type: Full constant mesh with Neutral safety switch

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 65 Ltrs.

Max. Weight carried: 1800 KG

Lower link: CAT II size

DIMENSION:

Max. Length: 3480 M.M

Max. Width: 1940 M.M

Wheel Base: 2120 M.M

MAHINDRA ARJUN 445

ENGINE:

Model: NE 342

Horse Power: 42 HP

No. of Cylinders: 3

Displacement: 2394 CC

Rated RPM: 2100 RPM

Air Cleaner: Dry air cleaner with Clog Indicator


TRANSMISSION:

Type: Full constant mesh with Neutral safety switch

No. of Gears: 8F + 2R

CAPACITY:

Fuel Tank: 65 Ltrs.

Max. Weight carried: 1200 KG

Lower link: CAT II size

DIMENSION:

Max. Length: 3530 M.M

Max. Width: 1845 M.M

Wheel Base: 2010 M.M


SWOT Analysis

SWOT analysis
Strengths:
 Over the years the company has emerged as one of the top players in the world in terms
of number of tractors sold. This gives a clear indication that the company's market share
is one of its biggest strengths.
 The company's ability to introduce new products in the market and to generate sales from
those new products is a major strength. The reason being that this is very essential for any
company, for its survival in the long run.
 Brand name and brand image.
 The company has established its brand name in other countries of the world as well. It
has a wide market spreading over the five continents. This is evident from the 40%
market share that it holds in the 30-40 HP tractors market in the US.
 Market leader in terms of market share is its biggest strength
 The company's ability to introduce new products in the market and to generate sales from
those new products is a major strength. The reason being that this is very essential for any
company, for its survival in the long run.
 The company has established its brand name in other countries of the world as well
which is biggest strength of a company to extend and diversify the business
 Large and effective distribution channel.
 Sufficient financial resources.

Weaknesses:
 The company is highly dependent on the rural sector, and the rural sector in turn is
highly dependent on the monsoons. As a result, if there happen to be bad monsoons
(less of rains) for two consecutive years it could have an adverse impact on the demand
of tractors for the company.
 The company is highly dependent on the rural sector
 Less technological ability as compared to Foreign players.
Opportunities:
 The government has been trying to strengthen the exports of agricultural products. As a
result, the quality of agricultural products necessarily has to be very high. For this, they
need better rural and agricultural infrastructure. This might result in an increase in
demand for tractors.
 In India, the penetration of tractors is 10 tractors per 1000 hectares of cropped area,
which is much below the world average of 19 tractors for the same. Thus there is scope
for the demand to increase.
Threats:

 The company has a history of having invested in unrelated diversifications such as


telecom, holiday and resort inns, financial services, etc. which it has hived off as
subsidiaries from time to time when these turned unmanageable. This is a cause for
concern as such diversifications could divert the company's attention from its core
business. It is a dangerous tendency as it leads to destruction of shareholders value.
 The entry of foreign players in the tractors segment could pose a threat to the company as
these foreign players are technically more competitive than Mahindra & Mahindra.

 MILSTONE, AWARDS AND ACCOLADES


 M&M‘s 61st year was studded with a number of noteworthy achievements, prestigious prizes
and glittering awards.

YEAR ACHIEVMENTS

1947 In October, the first batch of 75 Utility Vehicles (UVs) imported in CKD
condition from Willys overland Export Corporation.
1949 Lease of 11,071 Sq. yards at Mazagaon from British India Steam navigation.
The first Willys Overland Jeep built in India at the Assembly Plant , Mazagaon,
Bombay (now Mumbai).

1954 Manufacture of Vehicles undertaken in collaboration with Kaiser Jeep


Corporation and American Motors Corporation.

1962 Indigenous content of Jeep goes up to 70 per cent. To centralise manufacturing


operations, 137 acres of land purchased at Kandivli.

1965 FC 150 Petrol Trucks introduced.

1967 Two wheelers drive Utility Vehicles introduced. The 101" wheel base and
Metal Body UVs introduced. Indigenous content goes up by 97 per cent.

1969 The start of vehicles export. Export of total 1200 UVs along with spare parts to
Yugoslavia. Exported also to Ceylon, Singapore, Philippines and Indonesia.

1970 The contracts to export of 3304 vehicles, mainly to Yugoslavia and Indonesia
concluded.
1971 Separate R&D section set up.

1974 Maxi miller campaign launched for the conservation of fuel. CJ 4A was
introduced with new transmission and axle ratio. Collaboration agreement with
Jeep corporation (subsidiary of AMC, Detroit).

1975 FC 260 Diesel light truck and CJ 500 D Diesel was introduced with MD 2350
Diesel Engine.

1979 The Government of India approves in principle, technical collaboration with


Peugeot (France) for the manufacture of XDP 4.90 Diesel Engine.

1981 The Nasik Trucks Assembly Plant and Peugeot Engine Assembly Plant at
Ghatkopar inaugurated. NC 665 DP Mini Truck rolls out from Nasik Assembly
Line.

1983 FJ 460 model was introduced with 4-speed gearbox. Engine plant at Igatpuri
formally inaugurated by Mr. Jean Boillot, President of Automobiles Peugeot of
France for the manufacture of 25,000 Peugeot and Petrol engines.
1985 The New Mahindra Vehicle-MM 540 was launched in Bombay. NC 640 DP
with 4 speed gearbox and Mahindra MM 440 was introduced.

1986 CJ 640 DP Vehicle introduced.

1987 MM 540 DP metal Body Wagonette introduced.

1988 M&M signed a MoU with Hyderabad Allwyn Nissan Limited to form
Mahindra Nissan Allwyn Ltd., as its associate company with LCV operations in
Andhra Pradesh.

The CJ 340 DP model was introduced. M&M and Peugeot announced their tie
1989 up for the manufacture of Peugeot 504 pickup truck, BA 10 gearboxes and
latest XD 3 diesel engines. M&M acquired automotive pressing unit at Kanhe,
from Guest Keen Williams Ltd.

1991 Introduced CJ 500 DI model with MDI 2500 A direct injection diesel engines.
M&M bags order to export 10,000 CKD kits. Commander range of models:
650 DI, 750 DP/HT were also launched with tremendous market response.

1993 The Mahindra Armada was launched


Mahindra Nissan Allwyn Ltd. (MNAL) was merged with M&M and
1995 Zaheerabad LCV operations becoming part of Automotive Sector. FJ series of
LCVs were shifted from Nasik to Zaheerabad. Igatpuri Engine Plant received
ISO 9002 certificate.

1996 The new LCV model Cabking DI 3150 & Mahindra Classic vehicles were
launched. New Commander 5 Door Hard Top introduced.

Commercial production of the Ford Escort commenced at Nasik Plant. License


1997 & Technical Assistance Agreement signed with Mitsubishi Motors Corporation
for Manufacture of SL Body at Zaheerabad (Voyager with XD 3 and BA 10).
Kandivli and Nasik plants received ISO 9002 certificate from RW-TUV.

1998 Die shop Inauguration at Nasik Plant 2-8/8/97. Voyager was launched by the
Chairman at Zaheerabad Plant on 12/11/97

Awards

1. Bombay Chamber Good Corporate Citizen Award for 2006-07


2. Business world FICCI-SEDF Corporate Social Responsibility Award – 2007
3. Deming Application Prize.
4. Japan Quality Medal in 2007.

M&M, in 2004 announced that they had bought majority stake (80%) in Jiangling
Tractor Company, and renamed it Mahindra Jiangling Motor Co Group (JMCG). This is
the first instance of Indian tractor industries participating in India's reverse FDI. The
plant in China reportedly has a production capacity of 12,000 tractors annually. M&M
has two main tractor manufacturing plants located at Mumbai and Nagpur in
Maharashtra. Apart from these two main manufacturing units, the Farm Equipment
Sector has satellite plants located at Rudrapur in Uttarachal and Jaipur in Rajasthan.

The Farm Equipment Sector as reported by the Company has a dealer network of over
450 dealers. This dealer network is managed by 28 area offices, situated in all the major cities
and covering all the principal states and M&M tractors has sold more than 13,00,000 tractors

Introduction

Sensitivity Analysis (SA) is the study of how the variation in the output of a model (numerical or
otherwise) can be apportioned, qualitatively or quantitatively, to different sources of variation.

Sensitivity Analysis (SA) aims to ascertain how the model depends upon the information fed into
it, upon its structure and upon the framing assumptions made to build it. This information can be
invaluable, as:

 Different level of acceptance (by the decision-makers and stakeholders) may be attached
to different types of uncertainty.
 Different uncertainties impact differently on the reliability, the robustness and the
efficiency of the model.
Sensitivity analysis is also referred to as ―what if analysis‖

Building Financial Analysis Model


Several activities can be considered in building financial analysis model. In the building of the
financial model the following have to be considered:

1. Conservative estimations of the revenues/benefits


This is helpful to ensure that the viability of the proposed project is not easily threatened
by unfavorable circumstances. The capital budgeting should be done in a such a way that
it has a build in system for conservative estimations. The revenue figures should be
justifiable given the capital expenditure proposals.
2. Safety Margin Cost figures
A margin of safety for the cost items should be estimated. He margin can be between
10% -30%. For instance, in estimation of installation costs of a wireless telephone
system, 10%-30% of the normal installation costs can be added. The management can
decide on the percentages in the cost estimation of various items depending on the
experience and other firm considerations.

Flexible Investment yardsticks


Cutting point for the investments can be changed considerably to allow more room for seeing
beyond the normal cut-off points. Example if the policy of a company is to accept the projects
with payback period of less than three years, the use of a prolonged period can be assessed to
determine the impact thereto.

Calculating the Overall risk index


Some projects may call for the calculation of the overall risk index for various project
components. These cutoff points may be based on sales, prices, operating cots, etc.

The company may vary all the items by 62% favorable, given the risks index consideration.

5. Judgment on Three point estimation


Telecommunication companies may judge their operations on three point estimation
based on the hours of access as follows:
o Business (peak) hours
E.g. From 0800hrs – 1800hrs
o Evening/Morning (off-peak) hours
Various interconnection and charging rates are considered between three different times as
indicated above. Reasons may be due to the fact that the use of bandwidth (which is paid even if
not consumed) varies from the three time zones indicated above.

Other considerations may be backed on the market responses and returns. The returns for this
case may be classified as:

 Most pessimistic
 Most likely

The Financial Statements are a System (Balance Sheet & Statement of Cash Flow)
Financial statements paint a picture of the transactions that flow through a business. Each
transaction or exchange--for example, the sale of a product or the use of a rented facility--is a
building block that contributes to the whole picture.

Financial RATIO ANALYSIS


Financial ratios are useful indicators of a firm's performance and financial situation. Most
ratios can be calculated from information provided by the financial statements. Financial ratios
can be used to analyze trends and to compare the firm's financials to those of other firms. In
some cases, ratio analysis can predict future bankruptcy.
INTRODUCTION
OBJECTIVE:
To understand the information contained in financial statements with a view to know the
strength or weaknesses of the firm and to make forecast about the future prospects of the firm
and thereby enabling the financial analyst to take different decisions regarding the operations of
the firm.
RATIO ANALYSIS:
Fundamental Analysis has a very broad scope. One aspect looks at the general
(qualitative) factors of a company. The other side considers tangible and measurable factors
(quantitative). This means crunching and analyzing numbers from the financial statements. If
used in conjunction with other methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income statement,
and cash flow statement. It's comparing the number against previous years, other companies, the
industry, or even the economy in general. Ratios look at the relationships between individual
values and relate them to how a company has performed in the past, and might perform in the
future.

MEANING OF RATIO:
A ratio is one figure express in terms of another figure. It is a mathematical yardstick that
measures the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is
an expression relating one number to another. It is simply the quotient of two numbers. It can be
expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as ― so many
times‖. As accounting ratio is an expression relating two figures or accounts or two sets of
account heads or group contain in the financial statements.
Ratio analysis is the method or process by which the relationship of items or group of items in
the financial statement are computed, determined and presented. Ratio analysis is an attempt to
derive quantitative measure or guides concerning the financial health and profitability of
business enterprises. Ratio analysis can be used both in trend and static analysis. There are
several ratios at the disposal of an annalist but their group of ratio he would prefer depends on
the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus
on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.
This technique is called cross-sectional analysis. Cross-sectional analysis compares financial
ratios of several companies from the same industry. Ratio analysis can provide valuable
information about a company's financial health. A financial ratio measures a company's
performance in a specific area. For example, you could use a ratio of a company's debt to its
equity to measure a company's leverage. By comparing the leverage ratios of two companies,
you can determine which company uses greater debt in the conduct of its business. A company
whose leverage ratio is higher than a competitor's has more debt per equity. You can use this
information to make a judgment as to which company is a better investment risk. However, you
must be careful not to place too much importance on one ratio. You obtain a better indication of
the direction in which a company is moving when several ratios are taken as a group.

OBJECTIVE OF RATIOS
Ratio is work out to analyze the following aspects of business organization-
A) Solvency-
1) Long term
2) Short term
3) Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing

FORMS OF RATIO:
Since a ratio is a mathematical relationship between to or more variables / accounting figures,
such relationship can be expressed in different ways as follows –

A] As a pure ratio:
For example the equity share capital of a company is Rs. 20,00,000 & the preference share
capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000:
5,00,000 or simply 4:1.
B] As a rate of times:
In the above case the equity share capital may also be described as 4 times that of preference
share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs.
30,00,000. sothe ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000]
or simply by saying that the credit sales are 2.5 times that of cash sales.

C] As a percentage:
In such a case, one item may be expressed as a percentage of some other item. For example, net
sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the
gross profit may be described as 20% of sales
[ 10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS


The ratio analysis requires two steps as follows:
1] Calculation of ratio
2] Comparing the ratio with some predetermined standards. The standard ratio may be the past
ratio of the same firm or industry‘s average ratio or a projected ratio or the ratio of the most
successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot
reach any fruitful conclusion unless the calculated ratio is compared with some predetermined
standard. The importance of a correct standard is oblivious as the conclusion is going to be based
on the standard itself.

CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER


STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR


RATIO 2] LEVERAGE RATIO SHORT TERM
2] REVENUE 3] ACTIVITY RATIO CREDITORS
STATEMENT 4] PROFITABILITY 2] RATIO FOR
RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR


RATIO RATIO MANAGEMENT

4] RATIO FOR
LONG TERM
CREDITORS

TYPES OF COMPARISONS
The ratio can be compared in three different ways –

1] Cross section analysis:


One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or
ratios of some other selected firm in the same industry at the same point of time. So it involves
the comparison of two or more firm‘s financial ratio at the same point of time. The cross section
analysis helps the analyst to find out as to how a particular firm has performed in relation to its
competitors. The firms performance may be compared with the performance of the leader in the
industry in order to uncover the major operational inefficiencies. The cross section analysis is
easy to be undertaken as most of the data required for this may be available in financial
statement of the firm.

2] Time series analysis:


The analysis is called Time series analysis when the performance of a firm is evaluated over a
period of time. By comparing the present performance of a firm with the performance of the
same firm over the last few years, an assessment can be made about the trend in progress of the
firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess
whether the firm is approaching the long-term goals or not. The Time series analysis looks for
(1) important trends in financial performance
(2) shift in trend over the years
(3) significant deviation if any from the other set of data\

3] Combined analysis:
If the cross section & time analysis, both are combined together to study the behavior & pattern
of ratio, then meaningful & comprehensive evaluation of the performance of the firm can
definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard
firm can give good results. For example, the ratio of operating expenses to net sales for firm may
be higher than the industry average however, over the years it has been declining for the firm,
whereas the industry average has not shown any significant changes.
The combined analysis as depicted in the above diagram, which clearly shows that the
ratio of the firm is above the industry average, but it is decreasing over the years & is
approaching the industry average.

PRE-REQUISITIES TO RATIO ANALYSIS


In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-
requisites, which must be taken care of. It may be noted that these prerequisites are not
conditions for calculations for meaningful conclusions. The accounting figures are inactive in
them & can be used for any ratio but meaningful & correct interpretation & conclusion can be
arrived at only if the following points are well considered.
1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise there must be
sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross section analysis
otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios
must be preferred. This will be conductive to counter checks.
5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio
must be related to each other, otherwise there is no purpose of calculating a ratio.

BASED ON FINANCIAL STATEMENT


Accounting ratios express the relationship between figures taken from financial statements.
Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of classification of
ratios is based upon the sources from which are taken.

1] Balance sheet ratio:


If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g.
ratio of current assets to current liabilities or ratio of debt to equity. While calculating these
ratios, there is no need to refer to the Revenue statement. These ratios study the relationship
between the assets & the liabilities, of the concern. These ratio help to judge the liquidity,
solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio,
and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:
Ratio based on the figures from the revenue statement is called revenue statement ratios. These
ratio study the relationship between the profitability & the sales of the concern. Revenue ratios
are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio,
Stock turnover ratio.

3] Composite ratio:
These ratios indicate the relationship between two items, of which one is found in the balance
sheet & other in revenue statement. There are two types of composite ratios
a) Some composite ratios study the relationship between the profits & the investments of the
concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc.
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout
ratios, & debt service ratios

BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in to liquidity ratios,
leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the concern e.g. liquid
ratios & current ratios.

2] Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the assets of the
concern e.g. capital gearing ratios, debt equity ratios, & Proprietary ratios.

3] Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover ratios &
productivity ratios e.g. stock turnover ratios, debtors turnover ratios.

4] Profitability ratios:
a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios,
operating net profit ratios, expenses ratios
b) It shows the relationship between profit & investment e.g. return on investment, return on
equity capital.

5] Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the outsiders to be
paid out of such profit e.g. dividend payout ratios & debt service ratios.

BASED ON USER:
1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders: Return on proprietors fund, return on equity capital

3] Ratios for management: Return on capital employed, turnover ratios, operating ratios,
expenses ratios

4] Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor
ratios

Ratio Analysis and Performance


Because there are so many tools for doing performance assessment, we must remember
that different techniques address measurement in very specific and often narrowly defined ways.
One can be tempted to ―run all the numbers,‖ particularly given the speed and ease of computer
spreadsheets. Yet normally, only a few selected
relationships will yield information the analyst really needs for useful insights and decision
support. By definition, a ratio can relate any magnitude to any other—the choices are limited
only by the imagination. To be useful, both the
meaning and the limitations of the ratio chosen have to be understood. Before beginning any
task, therefore, the analyst must define the following elements:
• The viewpoint taken.
• The objectives of the analysis.
• The potential standards of comparison.
Any particular ratio or measure is useful only in relation to the viewpoint taken and the specific
objectives of the analysis. When there is such a match, the measure can become a standard for
comparison. Moreover, ratios are not absolute

criteria: They serve best when used in selected combinations to point out changes in financial
conditions or operating performance over several periods and as compared to similar businesses.
Ratios help illustrate the trends and patterns of such changes, which, in turn, might indicate to
the analyst the risks and opportunities
for the business under review.
A further caution: Performance assessment via financial statement analysis is based on
past data and conditions from which it might be difficult to extrapolate future expectations. Yet,
any decisions to be made as a result of such performance assessment can affect only the future—
the past is gone, or sunk, as an economist would call it. No attempt to assess business
performance can provide firm answers. Any insights gained will be relative, because business
and operating conditions vary somuch from company to company and industry to industry.
Comparisons and standards based on past performance are especially difficult to interpret in
large, multibusiness companies and conglomerates, where specific information by individual
lines of business is normally limited. Accounting adjustments of various types present further
complications. To deal with all these aspects in detail is far beyond the scope of this book,
although we‘ll point out the key items. The reader should strive to become aware of these issues
and always be cautious in using financial
data.

To provide a coherent structure for the many ratios and measures involved, the discussion
will be built around three major viewpoints of financial performance analysis. While there are
many different individuals and groups interested in the success or failure of a given business, the
most important are:
• Managers.
• Owners (investors).
• Lenders and creditors.
Closest to the business on a day-to-day basis, but also responsible for its long-range
performance, is the management of the organization, whether its members are professional managers or
owner/managers. Managers are responsible and accountable for operating efficiency, the
effective deployment of capital, useful human effort, appropriate use of other resources, and
current and long-term results—all within the context of sound business strategies.

Management’s Point of View


Management has a dual interest in the analysis of financial performance:
• To assess the efficiency and profitability of operations.
• To judge how effectively the resources of the business are being used.
Judging a company‘s operations is largely done with an analysis of the income statement, while
resource effectiveness is usually measured by reviewing both the balance sheet and the income
statement. In order to make economic judgments, however, it‘s often necessary to modify the
available financial data to reflect current economic values and conditions.
The same statements are shown here in We‘ll use this information for the remainder of this
chapter. For added convenience, we‘ve also expressed the various items on the income statement
as a percent of sales, a common

Management Owners Lenders


Operational Analysis Investment Return Liquidity
Gross margin Return on total net worth Current ratio
Profit margin Return on common equity Acid test
EBIT; EBITDA Earnings per share Quick sale value
NOPAT Cash flow per share
Operating expense analysis Share price appreciation
Contribution analysis Total shareholder return
Operating leverage
Comparative analysis
Resource Management Disposition of Earnings Financial Leverage
Asset turnover Dividends per share Debt to assets
Working capital management Dividend yield Debt to capitalization
Inventory turnover Payout/retention of earnings Debt to equity
Accounts receivable patterns Dividend coverage
Accounts payable patterns Dividends to assets
Human resource effectiveness
Profitability Market Performance Debt Service
Return on assets (after taxes) Price/earnings ratio Interest coverage
Return before interest and Cash flow multiples Burden coverage
taxes Market to book value Fixed changes coverage
Return on current value basis Relative price movements Cash flow analysis
EVA and economic profit Value drivers
Cash flow return on Value of the firm
investment
Free cash flow

Financial ratios can be classified according to the information they provide. The
following types of ratios frequently are used:

LIQUIDITY RATIOS
Liquidity ratios provide information about a firm's ability to meet its short-term financial
obligations. They are of particular interest to those extending short-term credit to the firm. Two
frequently used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.

Items Required in Liquidity Ratio:


 Current Assets
 Current Liabilities
 Inventory
 Cash
 Marketable Securities

Current Ratio :
Current Ratio: Current Ratio establishes relationship between the current assets and
current liabilities and measures the ability of the firm to meet current liabilities
Current Assets
Current Ratio =

Current Liabilities
This ratio indicates the rupees of current assets available for each rupee of current liability /
obligation. The higher the ratio, larger is the ability to meet current obligations and greater is the
safety of funds of short-term creditors. Depending upon the industry the ratio may vary between
1.5 to 3.5 though the rule of thumb is 2.

Quick Ratio :
Liquid Ratio or Acid Test Ratio or Quick Ratio: Liquid Ratio measures the ability to
meet the current liabilities from the current assets which are readily or quickly convertible into
cash (Current Assets less Inventory & Pre-paid expenses). Inventory is not readily convertible
into cash and hence to be excluded.

Current Assets - Inventory


Quick Ratio
=
Current Liabilities
It is called Acid Test Ratio since it is more severe and stringent test. Rule of thumb is 1.
Cash Ratio/ Absolute Liquid Ratio :
Cash Ratio / Absolute Liquid Ratio: Absolute Liquid Assets are considered here.
Receivables have doubts about their reliability in time and hence they are excluded here.
Cash + Marketable Securities

Cash Ratio =

Current Liabilities
Working Capital Ratio
Net Working capital Ratio=Working Capital/Total Assets

Defensive Interval : This ratio measures the ability to meet projected daily operating
expenditure
Cash
Interval Ratio =
One year projected expenditure
This ratio indicates the relative proportions of debt and equity in financing & claims against the
assets of the firm.

Activity Ratios :
Activity ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred
to as efficiency ratios, asset utilization ratios, or asset management ratios.

Items Required in Activity Ratios:


 Annual Sales
 Purchases
 Accounts Receivable
 Accounts Payable
 Net Fixed Assets
 Total Assets

Account Receivables Turnover


Annual Credit Sales

Receivables Turnover =

Accounts Receivable
Average Collection Period
360
Average Collection Period =
Accounts Receivable Turnover
Account Payable Turnover
Purchases

Account Payables Turnover =

Accounts Payables
Average Payment Period
360
Average Payment Period =
Accounts Payable Turnover

Fixed Asset Turnover


Sale
Fixed Asset Turnover =
Net Fixed Asset
Total Asset Turnover
Sale
Total Asset Turnover =
Total Assets
Inventory in day :
360 Inventory
Inventory in day =
Cost of goods sold
Debtor turnover ratio :
Sales
Debtor turnover ratio =
Trade debtors

Collection period :
360* Receivables
Collection period =
Sales
Working Capital Turn Over :
Sales
Working capital turn over =
Working capital
Payment Period :
360* creditors
Payment period =

Purchase
Operating Cycle :

Operating Cycle = Inventory turnover in day + receivable turnover in day

Solvency ratios:
The solvency ratios measure business risk, which shows the ability if the business to pay its long
term debts. Investors are very interested in these ratios because they indicate the amount of debt your
company can handle. They also indicate the amount of investment you have in your company.
Items Required in Solvency Ratio:
 EBIT
 Interest Expense
 Total Debts
 Total Assets
 Net Profit
 Equity
Times Interest Earned
EBIT
Times Interest Earned =
Interest Expense
Debt Ratio
Total Debts
Debt Ratio =
Total Assets
Equity Ratio
Equity
Equity Ratio =
Total Assets

Debt To Equity Ratio


Total Debt
Debt to Equity Ratio =
Equity
PROFITABILITY RATIOS
Profitability ratios offer several different measures of the success of the firm at
generating profits.
Items Required In Profitability Ratios:
 Sales
 Cost of Goods Sold
 Net Profit
 Total Assets
 Shareholder‘s Equity

Gross Profit Margin


Sales - Cost of Goods Sold
Gross Profit Margin =
Sales
Operating Profit Margin
Operating Profit
Operating Profit Margin =
Sales
Net Profit Margin
Net Profit After Tax
Net Profit Margin =
Sales

Operating Ratio
Operating Expenses
Operating Ratio =
Sales
Return On Assets
Net Income
Return on Assets =
Total Assets

Return On Equity
Net Income
Return on Equity =
Shareholder Equity
Return On Investment
Net Income
Return on Investment =
Investment
Return On Fixed Asset
Net Income
Return on Fixed Asset =
Fixed Assets
Market analysis :

Degree of financial leverage


EBIT
DDegree of financial leverage
=
EBT

Price earning ratio


PPrice earning ratio = Market price per share
Earning per share

Earning per share


Net profit
EEarning per share
=
No of share issued

Dividend yield ratio


Dividend per share
DDividend yield ratio =
D
Market value per share

Dividend pay out ratio


Dividend per share
DDividend payout ratio =
Earning per share

Diluted earning per share


Stock dividend per share
r Diluted earning per share =
DDiluted earning per share

Percentage Of Retained Earnings


r Percentage Of Retained Earnings = Total-dividend
Total income

Time-Series Techniques/Trend Analysis

Session Learning Outcomes


Learners will understand and be appreciative on the use of the time series analysis technique
while analysing the financial statements information, its application and interpretation

Trend analysis: Is the type of analysis in which the information for a single company is compared
over time.
Over the course of the business cycle, sales and profitability may expand and contract, so the ratio
analysis for one year may not present an accurate picture of the firm.
‗The analysis of the changes in a given item of information over a period of time or a
comparative analysis of a company's financial ratios over time‖

Trend analysis can be used to compare various other items in the industry/sector such as:

 Number of subscribers
 Investment in fixed assets
 Investment in total assets
 Sales
 Charging rates

Trend analysis can be established by comparing items in the regional area such as:

 Number of telephone operators in Tanzania and average number of operators per country
in Sub Saharan Africa
 Charge rates of Botswana mobile subscribers and the average charge rates in the Sub
Saharan region over years
Trend analysis can help telecommunication operators enhance their policy making decisions by
comparing themselves to other countries and providers in the region. At the same time may seek
expertise in the areas which the sector wants to improve if there is a country of comparative
benefits as compared to others.

Trend analysis is basically used to determine the trend of the firm. It provides trend of
items involved in Income statement and Balance Sheet. E.g. how much percentage of sales is
increased this year comparing to base year. Considering these trends in mind management takes
the future decisions. Trend analysis is not only useful for management but also for potential
investors of the company who can evaluate the performance of the company by comparing with
previous years performance. Basically there are two types of Trend analysis, which are:

Horizontal analysis.

Horizontal analysis is basically compares horizontally the items of income statement and
balance sheet with previous years keeping one base year as 100%. At least four years data is
required for conducting Horizontal Trend Analysis. When an analyst compares financial
information more than three years for a single company, the process is referred to as Horizontal
Analysis.

In Horizontal Trend Analysis the analyst computes percentage changes from year to year for all
financial statement items, such as cash and inventory. Trend analysis involves calculating each
year's financial statement balances as percentages of the first year, also known as the Base year.
When expressed as percentages, the base year figures are always 100 percent, and percentage
changes from the base year can be determined.

As we know that minimum four years data is required to conduct the Horizontal Trend Analysis
of a company, so here this analysis could not be performed due to unavailability of financial
data.

Vertical Analysis
Vertical Analysis is basically vertically analyze or compare the items include in Income
Statement and Balance Sheet. Mainly one of the item is consider as base and keep that item equal
to 100 all the remaining items are divided by that base and evaluating the answers.

In Vertical Analysis analyst uses base of income statement is net sales revenue, while in balance
sheet it is total assets. This approach to financial statement analysis, also known as component
percentages, produces common-size financial statements. Common-size balance sheets and
income statements can be more easily compared, whether across the years for a single company
or across different companies. Vertical Analysis requires minimum two years data.
Gross-Margin and Cost-of-Goods-Sold Analysis
One of the most common ratios in operational analysis is the calculation of cost of goods sold
(cost of sales) as a percentage of sales. This ratio indicates the magnitude of the cost of goods
purchased or manufactured, or the cost of services provided, in relation to the gross margin
(gross profit) left over for operating expenses and profit.

Profit Margin
The relationship of reported net profit after taxes (net income) to sales indicates
management‘s ability to operate the business with sufficient success. Success in this case means
not only recovering the cost of the merchandise or services, the expenses of operating the
business (including depreciation), and the cost of borrowed funds, but also leaving a margin of
reasonable compensation to the owners for putting their capital at risk. The ratio of net profit
(income) to sales (total revenue) essentially expresses the overall cost/price effectiveness of the
operation.
As we‘ll demonstrate later, however, a more significant ratio for this purpose is the
relationship of profit to the amount of capital employed in generating it.

Operating Expense Analysis


Various expense categories are routinely related to sales. These comparisons include such
items as administrative expense, selling and promotional expenses, and many others typical of
particular businesses and industries.
The general formula used to calculate this expense ratio is:

Various expanse ratio


EExpanse Ratio=

Sale
There are relatively few expense categories shown in the abbreviated income statement of TRW,
but the ratio to sales was calculated for each item in In practice, a much finer breakdown would
be desirable, something
that is internally available as a matter of course. Most trade associations collect extensive
financial data—many of them company confidential—from their members and compile
published summary statistics on expense ratios, as well as on most of the other ratios discussed
in this chapter. These publications help provide broad standards of comparison and can serve as a
basis for trend analysis. As in any statistical references, however, care must be taken to select
reasonably comparable groupings of companies and businesses to obtain meaningful insights.
In such statistics, businesses should be carefully categorized within an industry by size and other
characteristics to reduce the degree of error introduced by large-scale averaging. Moreover,
companies with complex product or service offerings, or companies with many international
operations, might be hard to categorize.
Yet, even without specific comparative data available, a skilled analyst will scan the revenue and
expense categories on an income statement as a matter of course over a number of time periods
to see if any of them seem out of line or
are trending adversely within the particular company‘s experience

Contribution Analysis
This type of analysis has been used mainly for internal management, although itis increasingly
applied in broader financial analysis. It involves relating sales to\ the contribution margin of
individual product groups or of the total business. Such calculations require a very selective
analysis or estimate of the fixed and variable costs and expenses of the business, and take into
account the effect of operating leverage (see Chapter 6). Usually only directly variable costs are
subtracted from sales to show the contribution of operations toward fixed costs and profits for
the period.

Sales _ Direct costs (variable costs)


EExpanse Ratio=

Sale
Asset Turnover
The most commonly used ratios relate sales to gross assets, or sales to net assets. The
measure indicates the size of the recorded asset commitment required to support a particular
level of sales or, conversely, the sales dollars generated by each dollar of assets.
While simple to calculate, overall asset turnover is a crude measure at best, because the balance
sheets of most well-established companies list a whole variety of assets recorded at widely
differing cost levels of past periods. These stated values often have little relation to current
economic values, and the distortions grow with time, with any significant change in the level of
inflation, or with the appreciation of assets such as real estate. Such discrepancies in values can
attract corporate raiders intent on realizing true economic values through the breakup and
selective disposal of the company.
Another distortion is caused by a company‘s mix of product or service lines. Most manufacturing
activities tend to be asset-intensive, while others, like services or wholesaling, need relatively
fewer assets to support the volume of revenues generated. Again, wherever possible, a
breakdown of total financial data into major product or service lines should be attempted when a
company has widely different businesses.
Basically, the turnover ratio serves as one of several clues that, in combination, can indicate
favorable or unfavorable performance. If total assets are used for the purpose of averaging the
beginning and ending amounts for the year, the calculation for TRW‘s turnover ratios appears as
follows:
Sales
Sales to assets=
Average total asset
Average total asset

= Average total asset =


Sales
Return on Assets (ROA or RONA)
The easiest form of profitability analysis is to relate reported net profit (net income) to
the total assets on the balance sheet. Net assets (total assets less current liabilities) might also be
used, with the argument (already mentioned earlier) that current operating liabilities are available
essentially without cost to support a portion
of the current assets. Net assets are also called the capitalization of the company, or invested
capital, representing the portion of the total assets supported by equity and long-term debt.
Whether total or net assets are employed, it‘s also appropriate to use average assets for the
period, instead of ending balances. Using average assets allows for changes due to growth,
decline, or other significant influences on the business.

Integration of Financial Performance Analysis


We‘ve discussed the great variety of financial ratios and measures available to anyone
wishing to analyze the performance of a company and its various units, or of an individual
business. We‘ve also grouped the measures by points of view and shown their many
interrelationships as well as the key management drivers that impact them. At this point, it‘ll be
helpful to provide a few practical guidelines for structuring the process of using the measures.
We‘ll briefly address the following
key points:
• Careful definition of the issue being analyzed and the viewpoint
to be taken.
• Identifying a combination of primary and secondary measures
and tools.
• Identifying key value drivers that affect performance.
• Trending performance data over time, both historical and prospective.
• Finding comparative indicators and supplementary information.
• Using past performance as a clue to future expectations.
• Recognizing systems issues and obstacles to optimal performance.
First, there is nothing more important in any kind of financial/economic analysis than a clear
definition of the issue to be addressed, and the viewpoint to be taken. For example, when a
banker ponders whether to extend a short-term loan to a business for working capital needs, the
key issue is the company‘s ability to repay within a relatively short time period. Immediately, the
analysis focuses on past and prospective cash flow patterns, supplemented by measures on
working capital management and profitability. When a security analyst wishes to assess the
quality of a company‘s management, the focus will be on past and prospective strategic
direction, competitive position, and investment effectiveness. Measures of profitability
benchmarked against comparative industry data will be important, as will be indicators of
shareholder return and value creation. The point is that every type of analysis—complex or
simple—should be preceded by a careful issue definition and choice of viewpoint that will
naturally lead to a focused selection of measures to be applied.
Second, it should be obvious that most financial/economic analysis has to use a combination of
primary and secondary measures to be effective. Rarely will a situation require only a single
measure or indicator, since all ratios are limited to some extent both by the nature of the data and
by the relationships underlying them. Looking only at the return on equity as a measure of
profitability, for example, falls far short of the insights gained when it is combined with key
measures of operating earnings, asset turnover, and contribution from leverage, as we saw
earlier. It‘s good practice to decide which key indicators best fit the specific
issue, and which subsidiary ratios or other measures can provide additional insight or
verification. The analytical results should then be expressed in these
terms.
Third, sound analytical practice includes identifying the key value drivers underlying the
performance of any business. Whether production-oriented, such as the yield in producing
electronic chips, or service-based, such as call volume by sales personnel, performance ratios and
measures are usually directly affected by variations in these key drivers. While one can find
many kinds of value drivers— internal or external—varying greatly between types of business,
there are generally just a few in each situation that really make a difference. The effective analyst
makes it a practice to understand what these drivers are, how they affect the broader
financial/economic measures used, and how trends in the drivers themselves impact both past
and prospective performance. It‘s good practice to test the sensitivity of key measures chosen to
various value driver conditions, and to include critical value drivers as part of the combination of
measures chosen to address the performance issue under review.
Fourth, the results of performance analysis are much more meaningful when placed in the
context of comparable data about the industry, key competitors, or intra company comparisons
of organizational units. It‘s here that both the level of performance and key trends can be judged
in relative terms. While it‘s often hard to find truly comparative data, particularly for
multidivisional businesses, the notion of benchmarking business results whenever possible has
grown in the past decade as U.S. management has begun to focus on improving competitive
effectiveness. which companies often supplement with special efforts to develop even more
specific data through detailed ever. While it‘s proper to identify past trends in both value drivers
and the broader ratios and measures, and to extrapolate them into the future, this is only a first
step. Historical conditions are merely an indication that might not be relevant for the company‘s
prospective results. Past performance trends have to be carefully tested against expectations
about future conditions, both internal to the company and external in the broader context of
business, competitive, and economic conditions. It might very well be true that recent actions
taken by management, or discernible changes in the environment, require a different set of
assumptions about the future. Benchmarking activities, that is, by sharing experiences with
noncompeting companies. Depending on the importance of the issue being analyzed, the
industry/ competitive context for viewing performance results can be critical.
Fifth, it‘s an axiom of good analysis that trends in financial/economic performance be judged in
a time frame befitting the nature of the business and industry, including the aspects of cyclicality,
seasonality, growth. This calls for developing data series that cover at least several years, in
order to judge the trends affecting various aspects of the company‘s performance. Sound analysis
uses the perspective gained from positive or adverse trends in the primary and secondary
performance indicators, and carefully weighs their relative importance to the issue being
addressed. Remember also that performance analysis is not just an exercise in historical
assessment-rather; it‘s the basis from which future expectations are developed. Trend analysis
becomes especially important in this context, for the analyst often needs to project future
conditions and must decide whether the trends observed are likely to continue, or change,
because of foreseeable events.
Sixth, viewing past performance as a clue to potential future expectations is a common practice
in financial/economic analysis. We‘ve already touched on this aspect in our discussion of trend
analysis.

Indicators and Souces of Financial Distress

Learning Objectives
At the end of this session, students should be able to:

 Determine the costs of financial distress


 Explain the factors influencing the risk of financial distress

Important Learning Terms

 Financial distress
 Costs of financial distress
 Indicators for financial distress

In the real world companies do not, generally raise their debt-to-equity ratios to very high levels.
This suggests that there are other important influences on capital structure besides lower costs of
debt and tax relief on debt. The basic additional factors which have a bearing on the gearing level
are: financial distress (bankruptcy costs); agency costs; borrowing capacity; managerial
preference; pecking order; financial slack; signalling; control; and industry group gearing.

Financial Distress
Financial distress is defined as a condition where obligations are not met or are met with
difficulty.
A major disadvantage for a firm taking on higher levels of debt is that it increases the risk of
financial distress, and ultimately liquidation. This may have detrimental effect on both the equity
and debt holders.

Effects of Financial Distress

 The risk of incurring the costs of financial distress has a negative effect on a firm's value
which offsets the value of tax relief of increasing debt levels.
 These costs become considerable with very high gearing. Even if a firm manages to avoid
liquidation its relationships with suppliers, customers, employees and creditors may be
seriously damaged.
 Suppliers providing goods and services on credit are likely to reduce the generosity of
their terms, or even stop supplying altogether, if they believe that there is an increased
chance of the firm not being in existence in a few months' time.
 Customers may develop close relationships with their suppliers, and plan their own
production on the assumption of a continuance of that relationship. If there is any doubt
about the longevity of a firm it will not be able to secure high-quality contracts. In the
consumer markets customers often need assurance that firms are sufficiently stable to
deliver on promises.

In a financial distress situation, employees may become demotivated as they sense increased job
insecurity and few prospects for advancement. The best staff will start to move to posts in safer
companies.

Bankers and other lenders will tend to look upon a request for further finance from a financially
distressed company with a prejudiced eye – taking a safety-first approach – and this can continue
for many years after the crisis has passed.

Management find that much of their time is spent "fire fighting" – dealing with day-to-day
liquidity problems – and focusing on short-term cash flow rather than long-term shareholder
wealth.

The indirect costs associated with financial distress can be much more significant than the more
obvious direct costs such as paying for lawyers, accountants and for refinancing programs. Some
of these indirect and direct costs are shown in the table below:

Preparation of Income Statement, Balance Sheet and Cash Flow Statements

This session provides details on how to prepare financial statements. Most commonly used
financial statements are income statement, balance sheet and cash flow statements.

Session Learning Outcome


Learners will be able to understand and appreciate the process in the preparation of the Income
Statement or the Trading and Profit and Loss Account, Balance sheet and Cash Flow statements
and their importance.

Important Learning Terms

 Financial Statements
 Income statement
 Balance sheet statement
 Cash flow statement
 Revenue/sales determination
 Cost of goods sold
 Manufacturing overheads
 Sources of funds
 Uses of funds

Basic Definitions

Financial statement
A report of basic accounting data that helps investors understand a firm's financial history and
activities.

Income statement (statement of operations)


A statement showing the revenues, expenses, and income (the difference between revenues and
expenses) of a corporation over some period of time.

Balance sheet
Also called the statement of financial condition, it is a summary of a company's assets, liabilities,
and owners' equity.
The document distributed at the annual meeting to shareholders of record who wish to vote their
shares in person.

Cash flow statement


Statement showing earnings before depreciation, amortization, and non-cash charges. Sometimes
called cash earnings. Cash flow from operations indicates the ability to pay dividends.

Preparation of Income Statement


The Income Statement normally shows whether the business is earning profits or sustaining
losses. It communicates the financial performance of the business. The structure of the income
statement differs with the nature of the business. The business can either be a manufacturing,
merchandising/trading or service entity. Regardless of the structure, they however, communicate
the same information.
Factors to be considered in the preparation of income statements are:

Revenues/Sales
This item carries the revenues/sales generations of the company. Sales consist of Cash Sales
(cash is paid at the time of sale) or Credit Sales (Cash paid later). The sales/revenue is made up
with the following items:
Note: Other Incomes/Revenues results from the revenues which are not core business of the
company. Such revenues are for example, if a company earns interest from banking services,
dividends received from investment of other companies or subsidiaries, money awards, etc.
For a trading and service entity the same consideration is made for the revenues/income as sown
above. The only difference for the service company is the return inwards since in most cases
services are consumed when manufactured/prepared with nothing to be left as a return.

Cost of Goods Sold


This represents the total cost of buying raw materials, and paying for all the factors that go into
producing finished goods. The cost of goods should be deducted from the sales revenues.
Note: For manufacturing firm, the process of manufacturing goods is a continuous process.
Hence there might be materials which are in stock or some of the goods may be half processed
(work in progress) both at the opening of the financial year or at the closure of the financial
year. Hence, calculation of the cost of goods sold should include consideration of all the items
shown in the table above.

Trading Firms
Service Firms
In service companies such as telecommunications, cost of service provided may be expressed as
percentage of sales say 60% of the revenues generated regarded as cost of services to pay for
bandwidth access in a satellite company.

Gross Profit
This is the difference between Net Sales and the Cost of Goods Sold. Gross profit is the profit
obtained from the normal operation of a business firm before incurring operating expenses, tax
and other deductions.

Expenses
These are the expenses the company incurs in the process of generating revenues. The expenses
depend on the nature of the business firm.
Profit Before Interest and Tax: This is equal to the Cost of goods sold less expenses

Note: Dividend is a portion of a company's profit paid to common and preferred shareholders. It
is paid to common stock holders only when the company makes profit.

In arriving at the income statement as shown above, there should be supporting documents which
when totalled brings the figures for the above items.

Preparation of the Balance Sheet Statement


The Balance Sheet shows the value of assets owned by the business, the amount of its debts and
the equity of the owner. In other words, it communicates the financial position of the business.
Preparation of Cash flow Statement
This statement shows the changes that have taken place in actual cash and the working capital of
the firm as well as the sources and use of the working capital during the accounting period.
It is a summary of a firm‘s changes in financial position from one period to another; it is also
called the sources and uses of funds statement or a statement of changes in financial position.
The flow of cash/funds in a firm may be visualized as a continuous process. For every use of
cash/funds, there must be an offsetting source. In a broad sense, the assets of a firm represent the
net uses of cash/funds; its liabilities and net worth represent net sources.

The fund flow statement is useful to know whether the uses of the funds can be met by the
available sources funds or there is a need for external financing sources such as bank overdrafts,
etc.
Sources and Uses of Funds Statement

Tracing Cash and Net Working Capital

Sources of Funds
Consist of all events that increase cash:

 A net decrease in any asset other than cash or fixed assets


 A gross decrease in fixed assets
 A net increase in any liability
 Proceeds from the sale of preferred or common stock
 Funds provided by operations
Note: Funds provided by operations usually are not expressed directly on the income
statement. To determine them, one must add back depreciation and any other non-cash
item that was deducted and also deduct any non-cash item that was added to the net
income.

Uses of Funds
Consist of all events that decrease cash and include:

 A net increase in any asset other than cash or fixed assets


 A gross increase in fixed assets
 A net decrease in any liability
 A retirement or purchase of stock
 Cash dividends

Statement of Cash Flows


It emphasizes the critical nature of cash flow to the operation of the firm. The primary sections of
the statement of cash flows are:

 Cash flows from operating activities


 Cash flows from investing activities
 Cash flow from financing activities

The results from each section are added together to compute the net increase or decrease in cash
flow for the firm. The format of the cash flows statement is given below:
Preparation of Other Financial Related Statements

(ii) Explanatory Notes


The explanatory notes communicate additional information regarding items included and
excluded from the body of the statement. These normally include:

 Accounting policies
 Detailed disclosure regarding individual elements
 Commitments and contingencies
 Business combinations
 Transactions with related parties
 Legal proceedings etc.

These are prepared to justify each accounting figure in the prepared financial statements.