FINAL PROJECT:

Ratio and Industry Analysis of Indus motors

Company

Submitted to:
Prof. Nizam Feroze
Subject:
Business finance
Section: (F)
MBA program
Submitted by:
Aqsa Rana (L1F18MBAM0247)
Lariab Nadeem (L1F18MBAM0236)
 Indus Motor Company Limited
Company’s profile:
The automobile industry of Pakistan has important role in the economy of country. The
Automobile industry not only contributes significant portion of revenue to the Government but
also facilitates its customers to enjoy safety and comfort in the journey .Indus Motors Company
Limited was incorporated in 1989 as a joint venture company between the house of Habib of
Pakistan. In 1993 indus motors company Karachi made a joint venture with Toyota motors Japan
and introduced Toyota Corolla cars. The company manufactures and markets the Toyota brand
vehicles in Pakistan. The main project offering includes “corolla” in the passenger cars category.
“Hilux” and the “Fortuner” sports vehicle. Its shares are quoted on the stock exchange of
Pakistan.
 Ratio analysis:
1. Quick Test Ratio:

Quick Test ratio

1.6
1.404
1.4

1.2

0.8
2018
0.6
0.44
0.4

0.2

0
toyota indus Suzuki

Explanation:
According to company financial statement they are in Strong Liquidity position and they
are able to pay their liabilities very well. Indus motor will not face any problem in paying
back its short-term liabilities however Suzuki may have problem to satisfy its short-term
obligations when they come due.

2. Cash Ratio:
 Cash Ratio
0.049 0.0487
0.0485

0.048

0.0475
2018
0.047
0.047

0.0465

0.046
Toyota Indus Suzuki

Explanation:
Indus motors cash ratio of 2018 is high as compared to the Suzuki but its ratio is less
than the ideal ration which is 1:1 that means it doesn’t have enough cash to pay off its
current liabilities or its short term debts.

3. Net Working Capital To Total Assets Ratio:

Net working capital to total assets ratio

40.00%
35.87%
35.00%

30.00%

25.00%

20.00% 18.50%
2018
15.00%

10.00%

5.00%

0.00%
Toyota Indus Suzuki

Explanation:
Indus motors networking capital to total asset is higher than Suzuki. In 2018, difference
between Indus motors and Suzuki has 17.37% ,which means Indus motors have more
assets and petty cash that would be used for its day to day purchases than Suzuki.
 4. Interval Measure Ratio:

Interval Measure Ratio

250

195
200

150

2018
100

44
50

0
Toyota Indus Suzuki

Explanation:
Indus motor company can run 195 days without accessing its current assets whereas
Suzuki motor company can run only 44 days. After 44 days Suzuki motor company will
need next round of financing.

5. Debt equity Ratio:

Debt Equity Ratio

1.24 1.229
1.22
1.2
1.18
1.16
1.14
2018
1.12 1.104
1.1
1.08
1.06
1.04
toyota indus Suzuki

Explanation: It reflects the ability of shareholder equity to cover all outstanding debts in
the event of a business downturn so debt equity ratio of Indus motors is slightly higher than
 the Suzuki and both ratios are greater than 1 indicating that more than 50% of the company's
assets have been funded by debt.

6. Times Interest Ratio:

Times Interest Ratio

45 41.18
40
35
30
25
20 2018
15
10 6.75
5
0
Toyota Indus Suzuki

Explanation: Indus motor company can meet its interest obligation 41.18 times before paying
interest and tax but Suzuki motor company can meet its interest obligations 6.75 times. It means
that Indus motor company has more ability to meet its interest obligation than Suzuki motor.

7. Equity Multiplier:

Equity Multiplier
2.25 2.23

2.2

2.15

2.1 2018
2.1

2.05

2
Toyota Indus Suzuki
 Explanation: Equity multiplier of Indus motor is more than Suzuki motor which
means that Indus motor need to use more debt to finance its assets as compared to
Suzuki motors.

8. Inventory turnover:

Inventory turnover (Times)

12 11.32

10

6
2018
4.23
4

0
Toyota Indus Suzuki

Explanation: Indus motor company has more inventory turnover than Suzuki. It can sell and
replace its inventory 11.32 times in 2018 whereas Suzuki motor company can do this only 4.23
times.
9. Days Sales Inventory:

Days sales inventory (Days)

100
90 86.29

80
70
60
50
2018
40 32.24
30
20
10
0
toyota Indus Suzuki

Explanation: Indus motor company sells its cars in 32 days whereas Suzuki motor
company requires 86 days to sell its cars. It means that Suzuki motor company requires
more days to sell their cars than Indus motor company.

10.Total Asset Turnover:

Total asset turnover

2
1.95
1.95

1.9

1.85

1.8

1.75 2018
1.71
1.7

1.65

1.6

1.55
Toyota Indus Suzuki
 Explanation: Indus motor has total asset turnover ratio of 1.71 which means that every
RS 1 worth of assets generate RS 1.71 worth of revenue. But as compare to Indus motor,
Suzuki motor is generating more revenue because higher ratio mean more revenue.

11.Profit Margin:

Profit margin %
12%
11%

10%

8%

6%
2018

4%

2% 1.10%

0%
Toyota Indus Suzuki

Explanation: Profit margin of Indus motor is higher than Suzuki motor which shows that
Indus motor effectively convert its sale into net income.

12.Return on Equity:
 Return on equity %
50.00%
45.00% 42.92%

40.00%
35.00%
30.00%
25.00%
2018
20.00%
15.00%
10.00%
4.40%
5.00%
0.00%
Toyota Indus Suzuki

Explanation: Indus motor gets 42.92% of net income per rupees amount of equity which
is more than Suzuki motors. As compare to Indus motor , Suzuki gets less net income
which is 4.40%.

13.Return on assets:

Return on Assets %
25.00%

20.00% 19.25%

15.00%

2018
10.00%

5.00%
2.10%

0.00%
Toyota Indus Suzuki
Explanation: Indus motor gets 19.25% of net profit per rupees amount of assets which
is more than Suzuki motors. As compare to Indus motor , Suzuki has less net income and
total assets.

14.Earnings Per Share

EPS
250

200.66
200

150

2018
100

50
15.77

0
Toyota Indus Suzuki

Explanation: Earning per share of Indus motor is more than Suzuki. It makes 200.66
amount of money for each share outstanding whereas Suzuki just make 15.77 amount of
income.
 15.Market to Book Ratio:

Market to book ratio

2.5

1.995
2

1.5

2018
1
0.72

0.5

0
Toyota Indus Suzuki

Explanation: The market to book ratio of Indus motor is above 1, it means that company
stock is overvalued but the Suzuki has below 1 which indicates that it’s undervalued.
 Industry Analysis

SWOT Analysis:

Strengths: Weakness:
 Among new cars, Toyota Corolla has  There supply chain is weak
70% market share.  Investment is low for new projects and
 In Pakistan Automobile sectors, IMC plants
has the second largest market shares.
 There Employees are well-trained.

Opportunities:
• Fuel prices are rising which causes an
increase in demand for hybrid cars.
• Expand your market in developing
countries.
• Increased interest in advanced
electronics vehicles.
Threads:
• Increasing taxes in Pakistan.
• Shift of consumer to imported used
car.
• Increase in labor price.
• Continuously depreciation of
Pakistan’s Rupees against Japan’s
Yen leading to increasing cost of
production

PEST Analysis:

Political Analysis:
 Limitations imposed by the government of Pakistan on the number of parts imported.
 Due to imposition of higher taxes in the budget, prices are rising.
 Devaluation of currency.
 Auto industry is the highest tax paying industry.

Economic analysis:
 Increase in inflation is changing the demand and prices of cars.
 Interest rates are affecting car price.
 Increase in fuel rates.

Social analysis:
  Car culture.
 Fashion and style.
 Trend of customized cars.

Technological:
 New technologies cause growth within the sales figure.
 Demand for electric vehicles

Porters’s five forces model:

1. Threads of Entry (weak):

 Large amount of capital needed.
 Legal barriers defend existing corporations from new entrants.
 Indus motor has a strong brand image.
 It is difficult to attain economies of scale for small corporations.
 Governments usually defend their home markets by introducing high import taxes

2. Buyer Power (strong):

 Corporate or governments sometimes purchase massive fleets and might cut price for
lower costs.
 Buyers are usually price sensitive and their decisions vary according to the cost of
vehicles
 Buyers can easily select from various automobile brands.

3. Competitive Rivalry (Very Strong):

 The competition is very high between the existing companies.
 Most rival are operating in the same market segments.
 Cost on marketing and R&D is increased as everyone is working on it .To gain the
major shares in market

4. Threat of substitutes (Moderate):

 In developing countries like Pakistan, people mostly use public transports and other
vehicles due to their low cost.
 Middle level and lower class people often use public transports.
 Toyota has launched some family cars and environmental friendly cars for less cost.
But the thread of substitutes is still moderate.

5. Supplier Power (weak):

 There are large numbers of suppliers so there are more options to choose for Toyota.
 Easily switch from one supplier to another.
 Material is also accessible easily.