By: Taruna Vaibhav Vinika Vishal Yogendra

Incorporated in 1972, Scooters India Limited is an ISO 9001:2000 and ISO 14001 Company, situated at 16 Km mile stone, South-west of Lucknow, the capital of Uttar Pradesh on NH No 25 and is well connected by road, rail and air.
It is a totally integrated automobile plant, engaged in designing, developing, manufacturing and marketing a broad spectrum of conventional and nonconventional fuel driven 3-wheelers.

Companys plant owes its origin to M/s. Innocenti of Italy from which it bought over the plant and machinery, design, documentation, copyright etc. The company also possesses the world right of the trade name LAMBRETTA / LAMBRO.
In 1975, company started its commercial production of Scooters under the brand name of Vijai Super for domestic market and Lambretta for overseas market. It added one more wheel to its product range and introduced three wheelers under the brand name of VIKRAM/LAMBRO. However, in 1997, strategically, the company discontinued its two-wheeler production and concentrated only on manufacturing and marketing of 3 wheelers. These three wheelers have become more relevant in the present socio-economic environment as it transports goods and passengers at least cost.

The company has its own marketing network of Regional Sales Offices all over India, catering to customers requirements in the areas of sales and services.

Significance of Return on Capital Employed Ratio: Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, higher the return on capital employed, the more efficient the firm is in using its funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or otherwise. Formula is Return on Capital Employed=(Adjusted net profits*/Capital employed)100

roce
40 21.97 2.45 20

17.97

1988
-20

1989

1990

1991

1992

1993

1994

1995 1996 -11.15

1997

1998

-40

-35.73 -53.32 -50.04 -62.41 -63.82 -51.98 roce

-60

-80

-100 -114.43

-120

-140

This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firms financial stability. It is also an index of technical solvency and an index of the strength of working capital. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been a deterioration in the liquidity position of the firm. A ratio equal to or near 2 : 1 is considered as a standard or normal or satisfactory.

current ratio
1998
1997 1996 1995 1994 1993 1.33 1.33 1.61 1.56 current ratio 1.58 2.17 2.09

1992
1991 1990 1989 1988 1987 0 0.5 1 1.5

1.55
1.48 1.64 1.7 1.8 2 2.5

[Liquid Ratio = Liquid Assets / Current Liabilities] Significance: The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Usually a high liquid ratios an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory. Although liquidity ratio is more rigorous test of liquidity than the current ratio , yet it A firm having a low liquid ratio may have a good liquidity position if it has a fast moving inventories. Though this ratio is definitely an improvement over current ratio.

liquid ratio
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 0 0.1 0.2 0.3 0.4 0.145 0.151 0.184 0.215 0.298 0.261

0.286
0.315 0.356

liquid ratio

0.419
0.475 0.501 0.5 0.6

 Fixed

Assets Turnover Ratio = Cost of Sales / Net Fixed Assets Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means underutilization of fixed assets.

fixed assets turnover ratio

3

2.5 2.15 2 1.71 1.5 1.44 1.48 1.95

2.36

2.44

2.47 2.29 2.08

1.73

fixed assets turnover ratio

0.5

0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

 Working

Capital Turnover Ratio = Cost of Sales / Net Working Capital Significance: The working capital turnover ratio measure the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation.

working capital turnover ratio

1998 0.31 0.4 0.665 1.33 1.72 1.33

1997
1996 1995 1994 1993 1992 1991 1990 1989 1988 0

1.38
1.64 1.88 1.45 1.36 0.2 0.4 0.6 0.8 1 1.2 1.4

working capital turnover ratio

1.6

1.8

[Inventory Turnover Ratio = Net Sales / Inventory] Significance of ITR: Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies overinvestment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit, a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively a high profits. Similarly a high turnover ratio may be due to under-investment in inventories.

inventory turnover ratio

5 4.5 4 4.45 3.72 2.95

3.5
3 2.5 2 1.5 1 0.5 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 0.78 0.87 0.78 0.82 1.51 1.37 2.04 1.79

1998

inventory turnover ratio

Significance: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in mind that the performance of profits also be seen in relation to investments or capital of the firm and not only in relation to sales. Net Profit Ratio = (Net profit / Net sales) 100

net profit ratio

200

0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

-200

-400

net profit ratio

-600

-800

-1000

Expense ratios indicate the relationship of various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Hence, expense ratios are calculated by dividing each item of expenses or group of expense with the net sales to analyze the cause of variation of the operating ratio. Expense = (expense / Net sales) 100

exp. ratio
96.85 93.97 342.64 208.82 1988 275.65 391.04 1989 1990 1991 1992 1993 400.51 494.7 1994 1995 1996 1997 1998 388.61

513.92 324.58

 Trend

percentage states several years' financial data in terms of a base year . The base year equals 100%, with all other years stated in some percentage of this base.