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JAIPURIA INSTITUTE OF MANAGEMENT LUCKNOW

ANALYSIS OF FINANCIAL STATEMENTS OF BAJAJ AUTO Ltd.

Submitted by: Anushree Srivastava(032) Ankit Kesarwani(019) Amit Srivastava(015) Aprajita Saxena(034) Ankita Singh(026) Anshul Agrawal(029)

Submitted to: C.A. Rashmi Chaudhary

ACKNOWLEDGEMENT

We express our deep gratitude to C.A. RASHMI CHAUDHARY for her constant support, guidance and motivation that helped us immensely in completing this project. The project provided us with an opportunity to understand the accounting concepts in respect to the market scenario. We sincerely thank our parents and family members whose constant support and guidance has been a motivating and inspiring source. In addition, we thank each and every individual who was directly or indirectly associated with the successful completion of this project.

BAJAJ AUTO LIMITED

The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range of industries, spanning automobiles (two-wheelers and three-wheelers), home appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship company, Bajaj Auto , is ranked as the world's fourth largest two- and three- wheeler manufacturer and the Bajaj brand is well-known in over a dozen countries in Europe, Latin America, the US and Asia. Bajaj Auto Ltd. is the largest exporter of two and three wheelers. With Kawasaki Heavy Industries of Japan, Bajaj manufactures state-of-the-art range of two-wheelers. The brand, Pulsar is continually dominating the Indian motorcycle market in the premium segment. Its Discover DTSi is also a successful bike on Indian roads. Since 1986, there is a technical tie-up of Bajaj Auto Ltd. with Kawasaki Heavy Industries of Japan to manufacture state-of-art range of latest two-wheelers in India. The JV has already given the Indian market the KB series, 4S and 4S Champion, Boxer, the Caliber series, and Wind125. Bajaj Auto Ltd. has registered a 4 per cent drop in net profit at Rs 308.3 crores in Q4 of 2006-07 (Rs 321.8 crores). The company's turnover for the quarter grew 9 per cent to Rs 2,471.3 crores (Rs 2,269 crores). For the fiscal year March 31, 2007, the company posted a 10 per cent rise in net profit at Rs 1,237.1 crores (Rs 1,123.3 crores). The turnover was at Rs 10,076 crores (Rs 8,106.4 crores) a rise of 24 per cent.

FINANCIAL RATIOS
A financial ratio is a relationship that indicates something about a company's activities, such as the ratio between the company's current assets and its current liabilities or between its debtors and its turnover. The basic source of these ratios is the company's profit & loss account and balance sheet that contain all kinds of important information about that company. The ratios really help to bring those details to light and identify the financial strengths and weaknesses of the company. When assessing ratios, it is important that the results are compared with other companies in the same industry and not to be taken in isolation. What may seem like a poor ratio at first glance may well be normal for that industry and, of course, the reverse applies, in that what may seem a good ratio on its own, could be below average for that industry. The following information will outline important ratios
1. 2. Liquidity Ratios a. Current Ratio b. Quick Asset Profitability Ratios a. Gross Profit Ratio b. Net Profit Ratio c. Operating Ratio d. Earnings per ratio Activity Ratios a. Inventory Turnover Ratio b. Inventory Holding Period c. Debtor turnover Ratio d. Average Collection Period e. Fixed Asset Turnover Ratio f. Working Capital Turnover Ratio Leverage Ratio a. Debt Equity Ratio b. Total Debt Ratio c. Interest Coverage Ratio d. Return on Equity e. Proprietary Ratio

3.

4.

Liquidity Ratios

1. Current Ratio
Current Assets Current Liabilities One of the most universally known ratios, which reflect the Working Capital situation, indicates the ability of a company to pay its short-term creditors from the realisation of its current assets and without having to resort to selling its fixed assets to do so. Ideally the figure should always be greater than 1, which would indicate that there are sufficient assets available to pay liabilities, should the need arise. The higher the figure the better it is. Current ratio has increased in the current year but it is below one. Since the ideal ratio should be 2:1, short-term financial position of the organization is not good. Company needs to improve its Current Ratio that is the ability of company to pay its debt in the short term.

2. Quick Asset
Current Assets Stock Current Liabilities

This ratio indicates the ability of a company to pay its debts as they fall due. It is generally considered to be a more accurate assessment of a company's financial health than the current ratio as it excludes stock, thus Figures of this ratio are lower than the current ratio which is reducing the risk of relying on a ratio that may include slow moving or redundant stock.

( Current Assets - Inventories )

Current Liabilities

Ratio Analysis and its Interpretation

An ideal quick ratio is 1:1. The idea is that for every rupee of current liabilities there should be at least one rupee of liquid assets. Here in both the years ratio is below the desired one but it is still showing a increasing trend as compared to previous year ratio, which shows that short term financial position of the company has improved.

Profitability Ratios

1. Gross Profit Ratio:


Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.

Ratio Analysis and its Interpretation

This ratio has decreased in 2011 in comparison to 2010. This may be due to the price of materials purchased may have gone up or wages & other direct charges may have increased but the sales prices may not have increased in the same proportion.

2. Net Profit Ratio


Net Profit x 100 Sales Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage. Deducting all the operating expenses from gross profit such as office and administration expenses, selling and distribution expenses, discount, bad debts etc. arrives at operating net profit. On profit expenses are not deducted from GP. Here net profit is showing a growing trend, which is good for companys financial position.

3. Operating Ratios:
Operating Profit x100 Sales It is arrived at by deducting all the expenses from GP such as office and administrative expenses, selling and distribution expenses, interest, bad debts etc. Non operating expenses are not deducted from GP.

Ratio Analysis and its Interpretation

2009-10 2572/12118*100 21.22462453

2010-11 (3626/16931)*10 21.4163369 0

This ratio indicates the extent of sale that is absorbed by the cost of goods sold & operating expenses, lower than operating ratio, the better it is, because it will leave higher margin of profit on sales which is in year 2010 is 78%.

4. Earnings per share:


Profit after tax No. of shares Earnings per share (EPS) are the amount of earnings per each outstanding share of a company's stock. The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.

Ratio Analysis and its Interpretation


2009-10 1703.6/14.4 2010-11 3339/28

118.3055556

115.4018659

This ratio is helpful in estimating the capacity of the company to declare dividends on equity shares. And here we can see that position of company to declare dividends has came down , not with a greater percentage but still is lower as compared to previous year.

Activity ratios

1. Inventory Turnover Ratio:

____COGS______ Average Inventory


Measures the number of times a company converts its stock into sales during the year. When examining this ratio it should be borne in mind that different companies will have varying levels of stock turnover depending on what they produce and the industry they operate in.

(Opening Stock+ purchases- Closing Stck) Avg Inventory

Ratio Analysis and its Interpretation

2009-10 (338+8070446)/Average(338,446)

2010-11

20.31122449

(446+11798-547)/ ((446+547)/2)

23.55891239

The ratio has increased over the year which shows that the sales of the company have increased and company has good management of the inventory.

The financial position of the company has improved.

2. Inventory Holding Period:


________365_________ Inventory turnover ratio
This ratio indicates whether stock has been efficiently used or not. It shows the speed with which the stock is rotated into sales. Higher ratio is considered to be a better one. This ratio can be used for comparing the efficiency of sales policies of two firms doing same type of business.

365(Holding period) Inventory turnover ratio

Ratio Analysis and its Interpretation

2009-10

2010-11

365/20.31122449

17.97035921

365/23.55891239

15.49307515

The inventory of the current year has not been used efficiently as compared to previous year. The ratio has declined over the year. The low stock turnover indicates that stock does not sell quickly and remains lying in the go down for quite a long time.

3. Debtor turnover Ratio:


Net Credit Sales Average Debtors This ratio indicates the relationship between credit sales and average debtors during the year. __________Net Credit Sales__________ (Opening debtors + Closing debtors / 2)

Ratio Analysis and its Interpretation

2009-10

2010-11

11508/Average(23 9,358)

38.55276 382

15998/ ((239+362)/2)

53.23793677

This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio the better it is because it indicates that amount is being collected quickly and less is the risk from bad debts. In this case ratio indicates that position of company has improved as compared to last year. Lower ratio tells about the inefficient credit sales policy.

4. Average Collection Period

________365________ Debtor Turnover Ratio Measures the length of time a company takes to collect its debts and is measured in days. In general terms the figure indicates the effectiveness of the company's credit control department in collecting monies outstanding.

Ratio Analysis and its Interpretation

2009-10 365/38.55

2010-11 365/53.23793677

9.468223087

6.856013252

Increase in this ratio indicates the excessive blockage of funds with debtors which increase the chances of bad debts. Here the position of industry has improved from previous year.

5. Fixed Asset Turnover Ratio

___Total sales___ Average Fixed asset


The asset turnover indicates how effectively a company utilizes its investment in assets. It is a measure of how efficient the company has been in generating sales from the assets at its disposal. A low figure would suggest either poor trading performance (which can be evaluated by the profit margin, sales per employee figures) or an over investment in costly fixed assets.

Ratio Analysis and its Interpretation

2009-10 12118/average(33 79,3334)

2010-11 16931/Average(33 90,3379)

3.610308357

5.002511449

This ratio reveals how efficiently the fixed assets are being utilized. Here it is showing an increase in the ratio which tells that there is better utilization of fixed assets.

5. Working Capital Turnover Ratio :


COGS Working capital

This ratio tells how efficiently working capital has been utilized in making sales. It shows the number of times working capital has been rotated in producing sales

COGS{Opening Stock+ purchases- Closing Stck} (Current Assets - Current Liabilities)

Ratio Analysis and its Interpretation

2009-10
(338+8070-446)/ (926-2026) -7.238181818

2010-11
(446+11798-547)/ (1683-2426) -15.74293405

Due to net current assets being negative in value, working capital has also come out to be negative, which shows a relatively bad position of the firm in terms of under utilization of working capital.

Leverage/Solvency Ratios

1. Debt Equity Ratio:


Debt Equity

This ratio expresses the relationship between long term debts and share holders fund. It indicates the proportion of funds which are acquired by long term borrowings in comparison to share holders fund.

Long term Loans Share Holders Fund or Net worth

Ratio Analysis and its Interpretation

2009-10 1338/2928

2010-11 325/4910

0.456967213

0.066191446

2:1 ratio is considered to be safe here. A higher ratio is a risky one and lower this ratio is better for long term lenders because they are more secure in that case. In this case the ratio is less than 1 which provides sufficient protection to long term lenders.

2. Total Asset to Debt Ratio:

Total Asset Debt

This ratio indicates the financial position of the company and total assets in comparison to the debts. This ratio tells the sources or funds of the company held with respect to the total debts of the concern.

Ratio Analysis and its Interpretation

2009-10 2447/1338

2010-11 3231/325

1.828849028

9.941538462

The financial position of the company has improved as compared to the previous year because the funds have increased to the total debts.

3. Interest Coverage Ratio :

Earnings before Interest& tax Interest

This ratio is also termed as Debt service ratio. This indicates how many times the interest charges are covered by the profits available to pay interest charges.

Ratio Analysis and its Interpretation

2009-10 (2411+5.98)/5.9 8

2010-11 4352.44/1.69

404.1772575

2575.408284

In this case the interest charges are very low due to which interest coverage

ratio comes out to be very high.

4. Return on Equity:
Net Income Shareholder's Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Ratio Analysis and its Interpretation

2009-10 12043/2928

2010-11 16974/4910

4.113046448

3.457026477

The above ratio shows a decline in ROE which is due to the increase in the Equity of the company. It also show shows a decrease in the Net income of the company.

5. Proprietary Ratio:
Equity Total Assets

This ratio indicates the proportion of total funds provided by owners.

Equity Fixed Asset+ Current Asset

Ratio Analysis and its Interpretation

2009-10 2928/2447

2010-11 4910/3231

1.196567225

1.519653358

This ratio should be more than 33%. This ratio is generally treated an indicator of sound financial position from long term point of view, because it means that the firm is less dependent on external sources of finance. The lower the ratio , the less secured are the long term loans and they face the risk of losing their money.