A STUDY ON FINANCIAL ANALYSISAnd

RIDE AND HANDLING SUBJECTIVE ASSESSMENT IN 6X4 TIPPERS

ATASHOK LEYLAND LTD, CHENNAI

PROJECT REPORT SUBMITTED BYSUSHANT BETALA

REG.NO: A31001910067

MASTER OF BUSINESS ADMINISTRATION2010-2012

AMITY GLOBAL BUSINESS SCHOOL, CHENNAI

ACKNOWLEDGEMENT

1

I take immense pleasure in thanking Mr. T. Chandrasekar, DGM

Finance, Ashok Leyland Limited, Chennai for giving me an

opportunity to do this project.

I also extend my sincere gratitude to Dr. E. Illamathiyan, Director

of Amity Global Business School, Chennai and my faculty guide

Mrs.Kavitha Menon, who helped me throughout the study and

was a source of motivation to make our project successful.

I thank each and every employee at Ashok Leyland Limited,

Chennai who directly or indirectly had helped me in completing

the project successfully.

Finally I express my gratitude and heartiest thanks to my faculty

members, parents and all my friends who gave full support

throughout the tenure of my project.

SUSHANT BETALA

ABSTRACT

2

The objective of the study is to familiarize with the business organisation

and to get practical experience regarding the organizational function, to

observe and understand the culture in the organization and to get industrial

exposure and experience. It is also to understand the functions of the Finance

Department in Ashok Leyland Limited, Chennai.

My main focus was to study the effectiveness of Financial Analysis and the

impact of the same and to analyse the performance of the company and a

comparative study for the years 2005-2010.Analysis was done using Ratio

Analysis. The various ratios were calculated to analyse the current

performance of the company.

CONTENTS

CHAPTER NO TITLE PAGE NO

I INTRODUCTION

3

- Industry Profile- Consumption Trends- Automobile Industry History- Indian Automobile Industry- Company Profile

II NEED & OBJECTIVE OF THE STUDY

III RATIO ANALYSIS- Meaning- Types Of Ratios

IV DATA ANALYSIS

V RESULT OF THE STUDY- Findings- Suggestions

VI CONCLUSION

VII REFERENCES- Bibliography

- Annexure

4

INTRODUCTION

Finance is regarded as the life blood of a business enterprise. In the modern

oriented economy, finance is one of the basic foundations of all kinds of

economics activities.

Finance statements are prepared primarily for decision-making. They

play a dominant role in setting the frame work and managerial conclusion

and can be drawn from these statements.

5

However, the information provided in the financial statement is of

immense use in decision-making through analysis and interpretation of

financial statements.

As said earlier finance is said to be life blood of any business. Every

business under taking needs finance for its smooth working. It has to raise

funds from the cheapest and risky source to utilize this in most effective

manner. So every company will be interested in knowing its financial

performance.

The project entitled “Financial performance Analysis of Ashok

Leyland Industry Ltd” throw light on over all financial performance of the

company.

INDUSTRY PROFILE

The Automotive industry in India is one of the largest in the world and one

of the fastest growing globally. India manufactures over 17.5 million

vehicles (including 2 wheeled and 4 wheeled) and exports about 2.33 million

every year. It is the world's second largest manufacturer of motorcycles,

with annual sales exceeding 8.5 million in 2009. India's passenger car and

commercial vehicle manufacturing industry is the seventh largest in the

world, with an annual production of more than 3.7 million units in

2010. According to recent reports, India is set to overtake Brazil to become

the sixth largest passenger vehicle producer in the world, growing 16-18 per

6

cent to sell around three million units in the course of 2011-12. In 2009,

India emerged as Asia's fourth largest exporter of passenger cars,

behind Japan, South Korea, and Thailand.

CONSUMPTION TRENDS

About 250 million vehicles are in use in the United States. Around the world, there were

about 806 million cars and light trucks on the road in 2007, consuming over 260 billion

gallons of gasoline and diesel fuel yearly. In the opinion of some, urban transport systems

based around the car have proved unsustainable, consuming excessive energy, affecting

the health of populations, and delivering a declining level of service despite increasing

investments. Many of these negative impacts fall disproportionately on those social

groups who are also least likely to own and drive cars. The sustainable

transport movement focuses on solutions to these problems. The Detroit branch of Boston

Consulting Group predicts that, by 2014, one-third of world demand will be in the

four BRIC markets (Brazil, Russia, India and China). Other potentially powerful

automotive markets are Iran and Indonesia

AUTOMOBILE INDUSTRY HISTORY

In the year 1769, a French engineer by the name of Nicolas J. Cugnot

invented the first automobile to run on roads. This automobile, in fact, was a

self-powered, three wheeler, military tractor that made use of steam engine.

The range of the automobile, however, was very brief and at the most, it

could only run at a stretch for fifteen minutes. In addition, these automobiles

were not fit for the roads as the steam engines made them very heavy and

large, and required ample starting time. Oliver Evans was the first to design

a steam engine driven automobile in the U.S.

7

The automobile industry finally came of age with Henry Ford in 1914 for the

bulk production in cars. This lead to the development of the industry and it

first begun in the assembly lines of his car factory. The several methods

adopted by Ford, made the new invention ie., car, popular amongst the rich

as well as masses.

According to the history of automobile industry U.S, dominated the

automobile markets around the globe with no notable competitors. However,

after the end of Second World Warin 1945, the automobile industry of other

technologically advanced nations such as Japan and certain European

nations gained momentum and within a very short period, beginning in the

early 1980s, the U.S automobile industry was flooded with foreign

automobile companies, especially those of Japan and Germany.

The current trends of the Global automobile industry reveal that in the

developed countries the automobile industry are stagnating as a result of the

drooping car markets, whereas the automobile industry in the developing

nations, such as India and Brazil, have been consistently registering higher

growth rates every passing year for their flourishing automobile markets.

INDIAN AUTOMOBILE INDUSTRY

India is one of the fastest growing automobile industries in the world. After

1960, the automobile industry saw rapid growth and many automotive

manufacturers started production.

The automobile industry in India is the seventh largest in the world with and

annual production of over 2.6 million units in 2009. In 2009, India emerged

as Asia’s fourth largest exporter of automobiles, behind Japan, South Korea

8

and Thailand. By 2050, the country is expected to top the world in car

volumes with approximately 611 million vehicles on the nation’s roads.

A well developed transport network indicates a well developed economy.

For rapid development a well-developed and well-knit transportation system

is essential. As India’s transport network is developing at a fast pace, Indian

automobile industry is growing too. Also, the automobile industry has strong

backward and forward linkages and hence provides employment to a large

section of the population. Thus the role of automobile industry cannot be

overlooked in the Indian economy. Indian automobile industry includes

manufacture of trucks, buses, passenger cars, defence vehicles, two wheelers

etc.., The industry can be broadly divided into the car manufacturing, two-

wheeler manufacturing and heavy vehicle manufacturing units.

The major car manufacturers are Hindustan Motors, Maruti Udyog, Fiat

India Pvt. Ltd, Ford India Ltd., General Motors Pvt. Ltd., Honda Siel Cars

India Ltd., Hyundai Motors India Ltd., Skoda India Pvt. Ltd., Toyota

Kirloskar Motor Ltd., to name a few.

The two wheeler manufacturing is dominated by companies like TVS,

Honda Motorcycle &

Scooter India Pvt. Ltd., Hero Honda, Yamaha, Bajaj etc..,

The heavy motors like buses, trucks, defence vehicles, auto rickshaws and

other multi utility vehicles are manufactured by Tata-Telco, Ashok Leyland,

Eicher Motors, Bajaj, Mahindra and Mahindra etc..,

KEY STATISTICSThe production of automobiles has greatly increased in the last decade. It passed the 1

million mark during 2003-2004 and has more than doubled since.

YearCar

Production%

ChangeCommercial

% Change

Total Vehicles Prodn.

% Change

9

2010 2,814,584 29.39 722,199 54.86 3,536,783 33.89

2009 2,175,220 17.83 466,330 -4.10 2,641,550 13.25

2008 1,846,051 7.74 486,277 -9.99 2,332,328 3.35

2007 1,713,479 16.33 540,250 -1.20 2,253,999 10.39

2006 1,473,000 16.53 546,808 50.74 2,019,808 19.36

2005 1,264,000 7.27 362, 755 9.00 1,628,755 7.22

2004 1,178,354 29.78 332,803 31.25 1,511,157 23.13

2003 907,968 28.98 253,555 32.86 1,161,523 22.96

2002 703,948 7.55 190,848 19.24 894796 8.96

2001 654,557 26.37 160,054 -43.52 814611 1.62

2000 517,957 -2.85 283,403 -0.58 801360 -2.10

1999 533,149 285,044 818193

Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Motor Vehicle

Production8,467,853 9,743,503 11,087,997 10,853,930 11,175,479

Industry Revenue

24,379 26,969 30,507 32,383 33,342

Exports (Units)

629,544 806,222 1,011,529 1,238,333 1,530,660

Exports (Revenue)

1,915 2,231 2,552 3,008 3,718

Automobile Production

Type of Vehicle2005-2006

2006-2007

2007-2008 2008-2009 2009-2010

Passenger Vehicles

1,209,876 1,309,300 1,545,223 1,777,583 1,838,697

Commercial Vehicles

353,703 391,083 519,982 549,006 417,126

Three Wheelers 374,445 434,423 556,126 500,660 501,030

Two Wheelers 6,529,829 7,608,697 8,466,666 8,026,681 8,418,626

10

Total 8,467,853 9,743,503 11,087,997 10,853,930 11,175,479

Automobile Sales

Type of Vehicle

2004-2005

2005-2006 2006-2007 2007-2008 2008-2009

Passenger Vehicles

1,061,572 1,143,076 1,379,979 1,549,882 1,551,880

Commercial Vehicles

318,430 351,041 467,765 490,494 384,122

Three Wheelers 307,862 359,920 403,910 364,781 349,719

Two Wheelers 6,209,765 7,052,391 7,872,334 7,249,278 7,437,670

Total 7,897,629 8,906,428 10,123,988 9,654,435 9,723,391

Automobile Exports

Type of Vehicle2004-2005

2005-2006 2006-2007 2007-2008 2008-2009

Passenger Vehicles 

166,402 175,572 198,452 218,401 335,739

Commercial Vehicles 

29,940 40,600 49,537 58,994 42,673

Three Wheelers  66,795 76,881 143,896 141,225 148,074

Two Wheelers 366,407 513,169 619,644 819,713 1,004,174

Total 629,544 806,222 1,011,529 1,238,333 1,530,660

Vehicle Registration

India had over 100 million vehicles registered on its roads in the year 2008.This is a growth of about 100% in the past 9 years. Over 77% and about 77 million of these vehicles are two wheelers, about 14% and over 14 million are cars, jeeps and taxis. Over 5 million and over 1 million vehicles registered are goods vehicles and buses respectively.

11

Two wheelers account a significant market share. Tata Motors with the launch of Tata Nano is trying to attract some of these two wheeler buyers to buy a small, cheap and affordable passenger car.

Total Number of Vehicle Registrations in India from 2001- 2008

YearAll

Vehicles (in '000)

Two Wheelers (in '000)

Cars, Jeeps and Taxis (in

'000)

Buses (in

'000)

Goods Vehicles (in '000)

Other Vehicles (in '000)

2001 54,991 38,556 7,058 634 2,948 5,795

2002 58,924 41,581 7,613 635 2,974 6,121

2003 67,007 47,519 8,599 721 3,492 6,676

2004 72,718 51,922 9,451 768 3,749 6,828

2005 80,045 57,417 10,460 822 4,053 7,337

2006 88,068 63,487 11,571 879 4,345 7,891

2007 96,808 70,141 12,810 936 4,652 8,464

2008 106,591 77,588 14,222 1,003 5,018 9,065

AT PRESENT INDIA IS THE WORLD’S

Largest tractor and three-wheel vehicle producer.

2nd largest two-wheeled vehicle producer.

4th largest commercial vehicle producer.

11th largest passenger car producer.

KEY COMPETITORS IN THE COMMERCIAL VEHICLE SEGMENT

1. TATA MOTORS – Market Share of 63.94%

12

2. ASHOK LELAND - Market Share of 22%

3. MAHINDRA & MAHINDRA – Market Share of 10.01%

Market Characteristics

Market Size

The Indian Automotive Industry after de-licensing in July 1991 has grown at a

spectacular rate on an average of 17% for last few years. The industry has attained a

turnover of USD 35.8 billion, (INR 165,000 crores) and an investment of USD 10.9

billion. The industry has provided direct and indirect employment to 13.1 million people.

Automobile industry is currently contributing about 5% of the total GDP of India. India’s

current GDP is about $ 1.4 trillion and is expected to grow to $ 3.75 trillion by 2020. The

projected size in 2016 of the Indian automotive industry varies between $ 122 billion and

$ 159 billion including USD 35 billion in exports. This translates into a contribution of

10% to 11% towards India’s GDP by 2016, which is more than double the current

contribution.

Demand Determinants

Determinants of demand for this industry include vehicle prices (which are determined

largely by wage, material and equipment costs) and exchange rates, preferences, the

running cost of a vehicle (mainly determined by the price of petrol), income, interest

rates, scrapping rates, and product innovation.

Exchange Rate:

Movement in the value of Rupee determines the attractiveness of Indian products

overseas and the price of import for domestic consumption.

Affordability: Movement in income and interest rates determine the affordability of new

motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in

13

competition in the domestic market hence, making better vehicles available at affordable

prices.

Product Innovation is an important determinant as it allows better models to be available

each year and also encourages manufacturing of environmental friendly cars.

Demographics:

It is evident that high population of India has been one of the major reasons for large size

of automobile industry in India. Factors that may be augment demand include rising

population and an increasing proportion of young persons in the population that will be

more inclined to use and replace cars. Also, increase in people with lesser dependency on

traditional single family income structure is likely to add value to vehicle demand.

Infrastructure:

Longer-term determinants of demand include development in Indian’s infrastructure.

India’s banking giant State Bank of India and Australia’s Macquarie Group has launched

an infrastructure fund to rise up to USD 3 billion for infrastructure improvements. India

needs about $500 billion to repair its infrastructure such as ports, roads, and power units.

These investments are been made with an aim to generate long-term cash flow from

automobile, power, and telecom industries. (Source: Silicon India)

Price of Petrol:

Movement in oil prices also have an impact on demand for large cars in India. During

periods of high fuel cost as experienced in 2007 and first –half of 2008, demand for large

cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in

customer preferences for smaller more fuel efficient vehicles led to the launch of Tata

Motor’s Nano – one of world’s smallest and cheapest cars.

14

COMPANY PROFILE

15

HISTORY

The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by

independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Mr.

Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok

Motors was set up in what was then Madras, for the assembly of Austin Cars. The

Company's destiny and name changed soon with equity participation by British Leyland

and Ashok Leyland commenced manufacture of commercial vehicles in 1955.

Since then Ashok Leyland has been a major presence in India's commercial vehicle

industry with atradition of technological leadership, achieved through tie-ups with

international technology leaders and through vigorous in-house R&D.

Access to international technology enabled the Company to set a tradition to be

first with technology. Be it full air brakes, power steering or rear engine busses, Ashok

Leyland pioneered all these concepts. Responding to the operating conditions and

practices in the country, the Company made its vehicles strong, over-engineering them

with extra metallic muscles. "Designing durable products that make economic sense to

the consumer, using appropriate technology", became the design philosophy of the

Company, which in turn has moulded consumer attitudes and the brand personality.

Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The

5,00,000 vehicles we have put on the roads have considerably eased the additional

pressure placed on road transportation in independent India.

In the populous Indian metros, four out of the five State Transport Undertaking

(STU) buses come from Ashok Leyland. Some of them like the double-decker and

vestibule buses are unique models from Ashok Leyland, tailor-made for high-density

16

routes.In 1987, the overseas holding by Land Rover Leyland International Holdings

Limited (LRLIH) was taken over by a joint venture between the Hinduja Group, the Non-

Resident Indian transnational group and IVECO. (Since July 2006, the Hinduja Group is

100% holder of LRLIH).

The blueprint prepared for the future reflected the global ambitions of the

company, captured in four words: Global Standards, Global Markets. This was at a time

when liberalisation and globalisation were not yet in the air. Ashok Leyland embarked on

a major product and process up gradation to match world-class standards of technology.

In the journey towards global standards of quality, Ashok Leyland reached a

major milestone in 1993 when it became the first in India's automobile history to win the

ISO 9002 certification. The more comprehensive ISO 9001 certification came in 1994,

QS 9000 in 1998 and ISO 14001 certification for all vehicle manufacturing units in 2002.

It has also become the first Indian auto company to receive the latest ISO/TS 16949

Corporate Certification (in July 2006) which is specific to the auto industry.

Ashok Leyland is the leading manufacturer of trucks, buses, special application

vehicles and engines in India. The products of Ashok Leyland are at par with the best in

the world. Ashok Leyland is the leaders in the Indian bus market, offering unique models

such as CNG, Double Decker and Vestibule bus. More than 80% of the State Transport

Undertaking (STU) buses come from Ashok Leyland. The company is a pioneer in multi

axle trucks and tractor-trailers. Ashok Leyland is the largest provider of logistic vehicles

to the Indian army. It also manufactures diesel engines for Industrial, Genset and Marine

applications, in collaboration with technology leaders.

The birth of Ashok Leyland can be attributed to the quest for self-reliance in the

aftermath of independence. Pandit Jawaharlal Nehru persuaded Mr. Raghunandan Saran,

an industrialist, to enter automotive manufacture. In 1948, Ashok Motors was set up in

Madras (Chennai) for the assembly of Austin Cars. Soon, British Leyland acquired an

equity stake in the company and the name of the company was changed from Ashok

Motors to Ashok Leyland. In 1955, Ashok Leyland commenced of commercial vehicles.

Since then Ashok Leyland has maintained its technological leadership in the India's

commercial vehicle industry. Tie-ups with international technology leaders and through

17

vigorous in-house R&D enabled Ashok Leyland to introduce latest technological

breakthroughs in the Indian market. Ashok Leyland was the first to introduce full air

brakes, power steering and rear engine busses in India.

In 1987, the overseas holding by Land Rover Leyland International Holdings

Limited (LRLIH) was taken over by a joint venture between the Hinduja Group and

IVECO. Since July 2006, the Hinduja Group is 100% holder of LRLIH.

ASSOCIATE COMPANIES OF ASHOK LEYLAND

Automotive Coaches & Components Ltd (ACCL):

ACCL was promoted by Ashok Leyland and the Tamil Nadu Industrial Development

Corporation (TIDCO) in the 1980s. The company has two Divisions: ACCL Division and

PL Haulwel Trailers (PLHT). ACCL is the largest Tipper Body manufacturer in the

organised sector in India. Apart from the tippers, it also manufactures bus bodies, front-

end structures (FES), tankers, aluminium containers, OB vans, energy vans and the like.

PLHT manufactures a wide variety of after-chassis products. These include Fifth Wheel

Couplers and Hoists, Semi Trailers, Container trailers, Ladle Carriers, for foundries

(Steel / Aluminium), Running gears for LPG tankers, Car / Truck / Tractor Carriers,

Bottom dumpers, and all types of user-specific custom-designed trailers for niche

applications.

Lanka Ashok Leyland:

 The Company was established in 1982. It is a joint venture between Ashok Leyland

and the Government of Sri Lanka. Ashok Leyland supplies chassis in both completely

built-up and knocked down conditions to Lanka Ashok Leyland, which in turn assembles

the chassis and builds bodies.

Ennore Foundries:

18

 Ennore Foundries was established in 1959. It is India's largest automotive jobbing

foundry and caters to different segment like automobiles, tractors, industrial engines and

power generators.

IRIZAR-TVS:

 IRIZAR-TVS is a joint venture between Ashok Leyland, TVS & Sons Ltd and

IRIZAR, the internationally reputed bus body builder from Spain. The company was

started in 2001 and it manufactures luxury coaches. 

Ashok Leyland Project Services Limited: 

Ashok Leyland Project Services Limited (ALPS) looks after the project development

activities of the Hinduja Group in India. It assists the investment entities of the Group and

provides professional services to help international companies interested in projects in

India. 

NISSAN ASHOK LEYLAND:

In 2007, the company announced a joint venture with Japanese auto giant Nissan

(Renault Nissan Group) which will share a common manufacturing facility in Chennai,

India. The shareholding structures of the three joint venture companies are:

Ashok Leyland Nissan Vehicles Pvt. Ltd., the vehicle manufacturing company

will be owned 51% by Ashok Leyland and 49% by Nissan

Nissan Ashok Leyland Powertrain Pvt. Ltd., the power train manufacturing

company will be owned 51% by Nissan and 49% by Ashok Leyland

Nissan Ashok Leyland Technologies Pvt. Ltd., the technology development

company will be owned 50:50 by the two partners.

19

Dr. V. Sumantran, Executive Vice Chairman of Hinduja Automotive Limited and a

Director on the Board of Ashok Leyland is the Chairman of the Powertrain Company and

he is on the Boards of the other two JV companies.

Ashok Leyland Defence Systems

Ashok Leyland Defence Systems (ALDS) is a newly floated company by the

Hinduja Group. Ashok Leyland, the flagship company of Hinduja group, holds 26

percent in the newly-formed Ashok Leyland Defence Systems (ALDS). The newly

floated company has a mandate to design and develop defence logistics and tactical

vehicles, defence communication and other systems. Ashok Leyland is the largest

supplier of logistics vehicles to the Indian Army. It has supplied over 60,000 of its

Stallion vehicles which form the Army's logistics backbone.

Facilities

The company has seven manufacturing locations in India:

o Ennore and Hosur, Tamilnadu (Hosur - 1, Hosur - 2, CPPS)

o Alwar , Rajasthan

o Bhandara , Maharastra

o Pantnagar , Uttarakhand

Ashok Leyland's Technical Centre, at Vellivoyalchavadi in the outskirts of

Chennai, is a state-of-the-art product development facility, that apart from modern

test tracks and component test labs, also houses India's one and only Six Poster

testing equipment

The company has an Engine Research and Development facility in Hosur

The company has signed an agreement with Ras Al Khaimah Investment

Authority (RAKIA) in UAE for setting up a bus body building unit in the Middle

East.

20

Major Achievements of Hinduja Group In 1993, became first Indian Auto Company to receive ISO 9002 certification.

Received ISO 9001 certification in 1994, QS 9000 in 1998, and ISO 14001

certification for all vehicle manufacturing units in 2002.

Became the first Indian auto company to receive the latest ISO/TS 16949

Corporate Certification (in July 2006).

First company to introduce full air brakes, power steering and rear engine busses

in India.

Products

Luxura

Viking BS-I - city bus

Viking BS-II - city bus

Viking BS-III -city bus

Cheetah BS-I

Cheetah BS-II

Panther

12M bus

Stag Mini

Stag CNG

222 CNG

Lynx

Double Decker

Vestibule bus

Airport Tarmac Coach

Gensets

21

Goods Segment Comet 1611

1612 H

1613 H

1613 H/2 (12m Goods)

4/51 GS

1613

Taurus 2516/2 (6x4) Tipper

CT 1613 H/1 & H/2

Bison Tipper

1613 ST (4x2)

Taurus HD 2516MT/1 (6x4)

Taurus 2516 - 6X4

2516 H (6X2)

Taurus 2516 - 6 X 2

4018 Tractor

Artik 30.14 Tractor

Tusker Turbo Tractor 3516

ecomet 912

ecomet 111i

4921

U-Truck Tippers U-3123 U-2523 U-2518 U-1616 U-1618

U-Truck Tractors U-4923 U-4023 U-3518

22

NEED FOR THE STUDY

Liquidity management refers to the administration of all aspects of current assets

and current liabilities.

The annual report of the company constitutes the most important source of data

for judging the liquidity position.

Analysing the financial statements is a process of evaluating the competent part of

financial statement to obtain a better understanding of firm’s position and

performance.

OBJECTIVE OF THE STUDY

Honouring all cash outflow commitments on an ongoing, daily basis.

Avoiding raising funds at market premium or through the forced sale of assets.

Satisfying statutory liquidity and statutory reserve requirements.

SCOPE OF THE STUDY

The study covers the Financial performance of the Ashok Leyland.

The study is made by making comparison of five year of it operation.

The study aims to reveal where the stands in respect to liquidity and an effective

use of asset.

PERIOD OF THE STUDY

23

The study covered a period of five years from 2005-06 to 2009-10 accounting

year ends 31st march every year.

RESEARCH METHODOLOGY:

The study is based on secondary data. Data pertaining behavior of liquidity

solvency and profitability position were collection from the Balance Sheet and Profit &

Loss account of ashokLeyland. The necessary data were obtained from published annual

report.

TOOLS AND TECHNIQUE:

RATIO ANALYSIS

Liquid ratio

Solvency ratio

Profitability ratio

LIMITATION OF THE STUDY:

The study is based on secondary data

The time span was limited only a period of five years.

The study suffers all the limitation of ratio analysis, such as lack of adequate

change, income, price level change etc.

24

RATIO ANALYSIS

MEANING

25

It refers to the systematic use of ratios to interpret the financial statements in terms of the

operating performance and financial position of a firm. It involves comparison for a

meaningful interpretation of the financial statements.

In view of the needs of various uses of ratios the ratios, which can be calculated from the

accounting data are classified into the following broad categories

CLASSIFICATION:

Short term solvency ratio:

I. Liquidity ratio

3.1 Current ratio.

3.2 Liquid ratio.

3.3 Absolute liquidity ratio.

II. Activity ratio

3.4 Inventory turnover ratio

3.5 Inventory conversion period

3.6 Debtor turnover ratio

3.7Average collection period

3.8 Working capital turnover ratio.

Long term solvency ratio:3.9 Debt Equity ratio

3.10 Proprietary ratio

3.11 Fixed asset to net worth ratio

3.12 fixed asset ratio.

3.13 Current asset to proprietary fund

3.14 Fixed asset turnover ratio.

Profitability ratio3.15 Gross profit ratio

3.16 Net profit ratio

3.17 Operating profit ratio

3.18 Selling & administration expenses

SHORT TERM SOLVENCY RATIO

26

I.LIQUIDITY RATIO:

3.1. CURRENT RATIO

Current ratio may be defined as the relationship between current

asset and current liabilities. The current ratio is the index of the concern

financial stability since it shows extent of the working capital, which is

the amount by which the current asset exceeds the current liabilities. The

rule of the thumb is 2:1

Current AssetCurrent ratio= ______________ Current Liability

Current asset= Inventories + Sundry debtors+ Cash & Bank balance.

Current liabilities= Bills payable + Bank O/D.

TABLE: I

27

CURRENT RATIO * Rs .in . Cr

Year Current Asset* Current liabilities*

Ratio

2005-06 1492.88 1344.19 1.112006-07 1681.75 1865.97 0.902007-08 1644.30 2196.40 0.742008-09 2374.91 2207.29 1.072009-10 2849.22 3002.68 0.94

INTERPRETATION:

The rule of thumb of current ratio is 2:1 the ratio and here it shows a

fluctuating trend. In the year 2005-2006 the ratio was 1.11 and it was

decreased from 0.90 to 0.74 in 2006-2007 and 2007-2008. In 2008-2009 the

ratio was decreased to 1.07 and 2009-2010 the ratio was again decreased to

0.94.Initially there is a high increase in the liailities when compared to the

increase in assets and that’s the reason the current ratio is low. There was

high decrease in the stock and cash balances of the company result of which

the ratio was low.

So it was not satisfactory.

28

CHART : 1

29

3.2. LIQUID RATIO:

This ratio also termed as acid test or quick ratio. This is ascertaining

by comparing the liquid asset and current liability. It is the test of liquidity to

the ability of the current ratio .the term “liquidity” refers to the ability of a

firm to pay its short term obligation. The rule of thumb is 1:1.

Liquid Asset Liquid ratio = _______________

Current Liability

Liquid Asset = Current Asset – Inventories.

30

TABLE: I

LIQUID RATIO *Rs .in. Cr

Year Liquid asset* Current liabilities*

Ratio

2005-06 590.32 1334.19 0.442006-07 611.43 1865.97 0.322007-08 420.39 2196.49 0.192008-09 1044.91 2207.29 0.472009-10 1210.98 3002.68 0.40

INTERPRETATION:

The rule of thumb of liquid ratio is 1:1. The liquid ratio in the year

2005-2006 and it was decreased from 0.32 to 0.19 in 2006-2007 and 2007-

2008. The ratio was again increased to 0.47 in 2008-2009 and 2009-2010.

The ratio was again decreased to 0.40 in the year 2005-2006 to 2009-

2010.The reason being current ratio is very low.In 2007-2008 the liquid

asset had a major fall while the current liabilities of the company was

incresing as a result of which the liqud ratio is not satisfactory. There was

decrease in the stocks of the company..

31

CHART :2

32

3.3. ABSOLUTE LIQUID RATIO OR CASH RATIO:

The ratio measures the relationship between cash and near cash item

on the hand and immediately maturing obligation on the other. The

inventory and debtor are excluded from current asset to calculate this ratio.

The rule of thumb is 0.5:1.

Absolute Liquid Asset

Absolute ratio= ___________________ Current Liability

Absolute liquid asset = Cash & Bank balance

33

TABLE: 3

ABSOLUTE LIQUID RATIO * Rs. In. Cr

Year Absolute liquid asset* Current liabilities*

Ratio

2005-06 165.98 1334.19 0.122006-07 88.5 1865.97 0.042007-08 44.55 2196.49 0.022008-09 86.93 22.7.29 0.032009-10 188.92 3002.68 0.06

INTERPRETATION:

The rule of thumb of absoluter liquid ratio is 0.5:1. In the year 2005-

2006 the ratio was 0.10 and next year onwards it was decreasing trend. In

the year 2006-2007 to 2008-2009, the ratio was decreased from 0.04 to 0.02.

In 2009-2010 the ratio was decreased to 0.06. The Absoloute Liquid Asset

of the company had been decresing and there is a huge difference between

the Absolute liquid asset and the current liabilities. This Ratio of the

company is poor from the beginning from the year when the analysis is

made. There has been poor cash and bank balances of the company..

34

CHART :3

35

II.ACTIVITY RATIO

3.4. INVENTORY TURNOVER RATIO:

Every firm has to maintain a certain level of inventory to finished

goods. It was able to meet the requirements of the business, inventory

turnover indicates the number of times stock has been turned during the

period and evaluate the efficiency with which a firm is able to manage.

Net SalesInventory turnover ratio= ____________ Inventory

Net sales = Sales – Excise duty.

36

TABLE: 4

INVENTORY TURNOVER RATIO * Rs. in . Cr

Year Net sales* Inventory* Ratio2005-06 5359.94 902.56 5.932006-07 7358.88 1070.32 6.872007-08 7972.52 1223.91 6.512008-09 6168.99 1330.01 4.632009-10 7436.18 1638.24 4.53

INTERPRETATION:

The inventory turnover ratio in the year 2005-2006 was 5.95 but it

was increased to 6.87 in 2006-2007. In 2007-2008 to 2009-2010 the ratio

was decreased from 6.51 to 4.53.

This stock turnover ratio implies over investment in stock.The

company has invested a lot in stock where as this is not matched with the

sales for the company.

37

CHART :4

38

3.5. INVENTORY CONVERSION PERIOD:

It may be of interest to see average time taken for clearing the stock.

This can be possible by calculating inventory conversion period. This period

is calculated by dividing the number of days by inventory turnover ratio.

No. of days in a yearInventory conversion period= ________________________ Inventory turnover ratio

39

TABLE: 5

INVENTORY CONVERSION PERIOD

Year Days in a year* Stock turn over ratio*

Ratio

2005-06 365 5.93 612006-07 365 6.87 532007-08 365 6.51 562008-09 365 4.63 782009-10 365 4.63 80

INTERPRETATION:

In the year 2005-2006 the conversion period was 61 days and it was

decreased to 56 days in 2006-2007. In 2007-2008 the days slightly increased

to 56 days. In 2008-09 and 2009-10 the days was increased from 78 to 80

days.

It indicates more days to clear stock compared to previous year. The

number of days taken for selling the stock was more, and that’s the reason

this ratio is very low.

40

CHART :5

41

3.6. DEBTOR TURNOVER RATIO:

It established the relationship between the net credit sales and average

debtor. It indicates the number of times the collection debtor has turnover

during the year. The higher the ratio is better result with ratio is better result

with efficient management.

Net credit salesDebtor turnover ratio= ______________ Average debtor

Average debtor= Opening debtor + Closing debtor+ Opening bills receivable + Closing bills receivable.

42

TABLE: 6

DEBTOR TURNOVER RATIO *Rs. In. Cr

Year Net credit sales* Average debtor*

times

2005-06 5359.94 424.34 12.602006-07 7358.88 522.88 14.072007-08 7972.52 375.84 21.212008-09 6168.99 957.97 6.432009-10 7436.18 1022.06 7.27

INTERPRETATION:

In this year 2005-2006 the ratio was 12.60 times and it decreased to

14.07 in 2006-2007. In 2007-2008 the ratio again increased to 21.21 and it

was decreased to 6.43 in 2008-2009. In 2009-2010 it was slightly increased

to 7.27.

It implies in efficient management of the company in reducing its

debt and incresing the sale of the company.

43

CHART :6

44

3.7. AVERAGE COLLECTION PERIOD:

The number of days taken by a firm for collecting of its receivable or

debtors during the year. It indicates the relationship between average debtor

and net credit sales.

No. of days in a yearAverage collection period = _____________________ Debtor turnover ratio

TABLE: 7

AVERAGE COLLECTION PERIOD Rs .in cores

Year Days in a year Debtor turnover ratio

Days

2005-06 365 12.60 282006-07 365 14.07 252007-08 365 21.21 172008-09 365 6.43 562009-10 365 7.27 50

INTERPRETATION:

The collection period in the year 2005-2006 the days was 28. In 2006-

07 and 2007-2008 it was reduced from 25 days to 17 days. In 2008-2009 it

was increased to 56 days and it was decreased to 50 days in 2009-2010.

In the earlier years the debt was collected more quickly by the

company but from 2008-2009 the debt collection period is incresed since the

debtor turnover ratio has gone down.

45

CHART :7

46

3.8. WORKING CAPITAL TURNOVER RATIO:

This ratio indicates the number of time the working capital is turned

over in the course of a year. . The higher ratio indicates efficient utilization

of working capital. The higher may be the result of high turnover of

inventories of receivable

Net salesWorking capital turnover ratio= ____________________ Net working capital

Net working capital = Current Assets – Current Liabilities.

47

TABLE-8

WORKING CAPITAL TURNOVER RATIO *Rs. in. Cr

Year Net sales* Working capital*

Ratio

2005-06 5359.94 587.32 9.122006-07 7358.88 574.72 12.802007-08 7972.52 217.66 36.622008-09 6168.99 720.32 8.562009-10 7436.18 736.17 10.10

INTERPRETATION:

The ratio shows fluctuating trend from 2005-2006 to 2009-2010. The

ratio was 9.12 in 2005-2006 and it was increased from 12.80 to 36.62 in

2007-2008. But it was decreased to 8.56 in 2008-09and in the year 2009-

2010 it was again slightly increased to 10.10.

48

CHART :8

49

LONG TERM SOLVENCY RATIO

3.9. DEBT EQUITY RATIO

This ratio is also known as internal and external equality ratio .it is

mainly calculated to assess the soundness of long term financial policies and

to determine the relative’s stakes of outsiders and owners. It indicates the

relationship between debt and equity.

Long term fundDebt equity ratio= _________________________ Shareholders fund

Long term debt = Secure loan + Un secured loan.

Shareholder fund= Share capital, Reserve & Surplus.

50

TABLE: 9

DEBT EQUITY RATIO * Rs. In. Cr

Year Long term debt*

Shareholders fund*

Ratio

2005-06 691.93 1412.46 0.482006-07 640.40 1894.58 0.332007-08 887.50 2148.98 0.412008-09 1961.98 3478.89 0.562009-10 2280.45 3656.30 0.62

INTERPRETATION:

The rule of thumb is 2:1. The debt equity in the year 2005-06 was

0.48 but and 2006-2007 it was decreased to 0.33 and next three year it was

slightly increased from 0.41 to 0.62 in the year 2007-2008 to 2009-2010.

The ratio shows that the long term debt is very low, so the company

can make use of the law cost of fund, and it was satisfactory.

51

CHART : 9

52

3.10. PROPRIETARY RATIO:

This ratio is also called as equity ratio or owner’s fund ratio. This ratio

points out relationship between the shareholders fund and total asset of the

company. It indicates the proportion of total asset financed by shareholders.

Shareholders fundProprietary ratio= _________________

Total asset.

Total asset= Current asset +Fixed asset.

53

TABLE: 10

PROPRIETARY RATIO *Rs. in. Cr

Year Shareholders fund total asset*

Total asset* Ratio

2005-06 1412.46 2104.40 0.672006-07 1894.58 2534.97 0.742007-08 2148.98 3036.48 0.742008-09 3473.89 5435.87 0.632009-10 3656.30 5936.76 0.61

INTERPRETATION:

The rule of thumb is above 50% of the ratio is satisfactory. The ratio

shows in the year 2005-2006 was 0.67 and it was increased to 0.74 in 2006-

2007 and 2007-2008. In 2008-2009 the ratio was decreased to 0.63 and

again decreased to 0.61 in 2009-2010.

It shows the shareholders are financed to total asset so it was

satisfactory.

54

CHART :10

55

3.11. FIXED ASSET TO NET WORTH RATIO:

This ratio indicates as to what extends the shareholders fund have

been invested in fixed assets. If the ratio is high, it implied that much of

shareholders are invested in fixed asset. But too high indicates what the high

amount is tied up in fixed capital.

Fixed asset

Fixed asset to net worth ratio= _______________

Shareholders fund

56

TABLE: 11

FIXED ASSET TO NETWORTH RATIO * Rs. In. Cr

Year Fixed asset* Shareholders fund*

Ratio

2005-06 943.27 1412.46 0.662006-07 1307.04 1894.58 0.682007-08 1525.55 2148.98 0.632008-09 3399.11 3473.89 0.972009-10 4249.56 3656.30 1.16

INTERPRETATION:

There is no rule of thumb but 60 plus 0.65 is said to be satisfactory.

The ratio was 0.66 in the year 2005-2006. In 2006-2007 it was increased to

0.68 but in 2007-2008 it was increased to 0.63 in 2008-2009 the ratio was

increased to 0.97 and 2009-2010 again the ratio was increased to 1.16.

The shareholders fund is properly utilized.

57

CHART :11

58

3.12. FIXED ASSET RATIO:

The ratio indicates the extend to which the total of fixed asset are

financed by long term fund of the firm. Generally the total fixed asset should

be equal to the total long term fund. But if fixed assets exceeds, it implies

that firm has financial asset, which not good the financial policy.

Fixed asset before depreciationFixed asset ratio= ______________________________

Total long term

Fixed assets = Long term investment.

Fixed term funds = Share capital, Reserve & Surplus

59

TABLE: 12

FIXED ASSET RATIO *Rs. In. Cr

Year Fixed asset* Long term funds*

Ratio

2005-06 2138.50 1412.46 1.512006-07 2620.20 1894.58 1.382007-08 2942.44 2148.98 1.362008-09 4953.27 3473.89 1.422009-10 6018.63 3656.30 1.64

INTERPRETATION:

In the year 2005-2006 the fixed asset ratio was 1.51 and it was

decreased from 1.38 to 1.36 in 2006-2007 and 2007-2008. In 2008-2009 the

ratio was slightly increased from 1.42 to 1.64 in 2008-2009 and 20092010.

It implies the company has financed a part of fixed out of current

asset.

60

CHART :12

61

3.13. CURRENT ASSET TO PROPRIETOR’S FUND:

The ratio is calculated by dividing the total of current asset by the

amount of shareholder’s fund. The ratio indicates the extent to which

proprietors fund are invested in current assets.

current asset

Current asset to proprietor’s fund= __________________

Shares holders fund

62

TABLE: 13

CURRENT ASSET TO PROPRIETORY FUND *Rs. in. Cr

Year Current asset* Share holders fund*

Ratio

2005-06 1492.88 1412.46 1.052006-07 1681.75 1894.58 0.882007-08 1644.30 2148.98 0.762008-09 2374.91 3478.89 0.682009-10 2849.22 3656.30 0.77

INTERPRETATION:

The ratio shows fluctuating trend. In the year 2005-2006 the ratio was

1.05 and it was reduced from 0.88 to 0.68 in 2006-2007 to 2008-2009. But it

was slightly increased to 0.77.

This shows more than 50% of share holders are invested in current

asset.

63

CHART :13

64

3.14. FIXED ASSET TURNOVER RATIO:

This ratio measures the efficiency in utilization of fixed asset. A high

ratio reflects overtrading on the other hand a lower ratio indicates idle

capacity and excessive investment in fixed asset.

Net salesFixed asset turnover ratio= ________________

Net fixed asset.

65

TABLE: 14

FIXED ASSET TURNOVER RATIO

*Rs. In. Cr

Year Net sales* Net fixed asset* Ratio2005-06 5359.94 943.27 5.682006-07 7358.88 1307.04 5.632007-08 7972.52 1525.5 5.222008-09 6168.99 3399.11 1.812009-10 7436.18 4249.56 1.75

INTERPRETATION:

The fixed asset turnover ratio. The ratio was decreasing trend was

5.68 in the year 2005-2006. And it easy slightly reduced from 5.63 to 5.22 in

2006.2007 and 2007-2008. In 2008-2009 and 2009-2010 the ratio was again

decreased from 1.81 to 1.75.

The ratio implies the company utilizes the fixed asset to achieve the

highest sales.

66

CHART : 14

67

PROFITABILITY RATIO

3.15. GROSS PROFIT RATIO:

It indicates the margin of profit on sale. It measures the relationship of

gross profit to net sales and it is represented in percentage. The high gross

profit ratio is sign of good management. The relatively low profit ratio is not

good for the company. There are no standard norms.

Gross profitGross profit ratio= ________________ X 100

Net profit

Gross profit = Sales- Cost of goods sold

68

TABLE: 15

GROSS PROFIT RATIO

*Rs. In. Cr

Year Gross profit* Net sales* Ratio2005-06 556.59 5359.94 102006-07 768.16 7358.88 102007-08 828.25 7972.52 102008-09 400.35 6168.99 62009-10 752.16 7436.18 10

INTERPRETATION:

This ratio represent in percentage. The ratio shows in the year 2005-

2006, 2006-2007and 2007-2008 was 10 % and the ratio was decreased to 6%

in the year 2008-2009. In 2009-2010 the ratio again increased to 10%.

The Gross profit ratio was increasing trend, so overall ratio was

satisfactory.

69

CHART :15

70

3.16. NET PROFIT RATIO:

Net profit ratio indicate the relationship between net profit and sales

the efficiency of the manufacturing, welling and other activities of the firm

Net profit (after tax)Net profit ratio= _______________________ X 100

Net sales

71

TABLE: 16

NET PROFIT RATIO

*Rs. In. Cr

Year Net profit (after tax)*

Net sales*

Ratio in %

2005-06 327.32 5359.94 62006-07 441.29 7358.88 52007-08 469.31 7972.52 52008-09 190.00 6168.99 32009-10 423.67 7436.18 5

INTERPRETATION:

The ratio shows in the year 2005-2006 was 6% and the ratio was

decreased to 5% in 2006-2007 and 2007-2008. Again the ratio was

decreased to 3% in 2008-2009 and it was increased again 5% in 2009-2010.

Because the company has been increased the net sales and overall net

profit was increased trend.

72

CHART :16

73

3.17. OPERATING PROFIT RATIO:

Operating profit ratio is calculated for analyzing profitability of a

concern. Increase in operate profit indicates improvement of firm working

by cost reduction or increase sales.

Operating profitOperating profit ratio = _______________ X 100

Net sales

74

TABLE: 17

OPERATING PROFIT RATIO

*Rs. in. Cr

Year Operating profit* Net sales* Ratio2005-06 540.36 5359.94 102006-07 686.16 7358.88 92007-08 804.49 7972.52 102008-09 473.09 6168.99 72009-10 761.40 7436.18 10

INTERPRETATION:

The ratio was 10% in the year 2005-2006 and slightly decreased to

9% in 2006-2007. In 2007-2008 again reached 10% and it was decreased to

7% in 2008-2009. In 2009-2010 the ratio was increased to 10%.

The overall operating profit and sales are increased and reduce the

expenses.

75

CHART :17

76

3.18. SELLING AND ADMINISTRATION EXPENSES:

Selling and administrative ratio indicates the relationship between the

expenses and sales .the changes in the selling and administrative expenses

will be impact on sales.

Selling & Administration expensesSelling and administration expenses= ___________________________ X100

Net sales

77

TABLE: 18

SELLING AND ADMINISTRATION EXPENSES

*Rs. in. Cr

Year Selling &Administration expenses*

Net sales* Ratio

2005-06 199.36 5359.94 32006-07 259.50 7358.88 32007-08 263.5 7972.52 32008-09 495.68 6168.99 82009-10 445.89 7436.18 5

INTERPRETATION:

The expenses ratio was 3% in three year that is 2005-2006, 2006-2007

and 2007-2008. In the year 2008-2009 it was increased to 8% but in the year

2009-2010. It decreased to 5%. Because the expenses are slightly decreased

compared to previous year.

78

CHART : 18

79

CHAPTER-V - FINDINGS:

The current ratio was a fluctuating trend from 2005-2006 to 2009-2010. In last year

the ratio was decreased 0.94. Because this is due to increased in debtor and cash &

bank balances.

The liquid ratio was declining trend in 2009-2010. Because increase the debtor and

cash & bank balances in last year.

The absolute liquid ratio implies in last year was slightly increased because the

company should keep cash to meet day to day expenses.

Inventor’s turnover ratio implies the company has made low sales because more days

are taken to clear the stock, and high investment in stocks.

The debtor’s turnover ratio indicates the last two year decreased. Because the

company marked inefficient management of debtor or sales and debts was collected

in 50 days in last years.

The working capital was increased trend 2008-2009 and 2009-2010. This two year

the working capital implies less utilization.

Debt equity ratio helps to measure the extend to which debt financing to the business.

The ratio is very low expected last year, the company can make use low cost fund in

future.

The proprietary ratio was fluctuating trend. It indicates the shareholders are more than

50% are investment in total asset. Because increase the value of asset in future. So it

was satisfactory.

The fixed asset ratio are measure the utilization of fixed asset. The fixed asset is

increasing trend. So the company was making high sales.

The gross profit ratio was 10% in four year; the company has making the sales in

proportionally. Because the cost of goods sold is slightly variation.

The net profit ratio implies the profitability position of the company has increased in

2009-2010 and sales are growing up.

Operating profit ratio also implies the profit has been increased compared to previous

year. Because the company was make low amount of cost of goods sold.

The exp4ences ratio of the company was decreasing, because to make the high sales.

80

SUGGESTIONS

The current ratio and absolute ratio was maintained lower cash than ideal ratio. So,

the company cab take step to increase the cash position to meet its expenses.

The company is allowed credit period for 50 days. The debt collection period can be

reduced with in 30days.

The company should increase the long term debt.

To reduce the investor cost of the company must follow average inventory system,

Otherwise, the company was making investment in current asset and reducing cost of

sales at the same time increasing sales and profit was good in earlier days.

81

CONCLUSION:

The project entitled “A STUDY OF FINANCIAL PERFORMANCE ANALYSIS OF

ASHOK LEYAND LIMITED” was undertaken with the objective of financial

performance and to examine profitability performance of the company. The study at

Ashok Leyland provided me an insight into the workings of the company and how a firm

manages its cash inflow and outflow.

Financial Analysis helps to understand how the company is managing its finance

function is to manage assets and liabilities , both as to cash flow and concentration, to

ensure that cash inflows have an appropriate relationship to approaching cash outflows.

On the review of the performance of company ratio and other financial statements for the

past five years reveals that the company maintained a good solvency position.

Hence it is concluded that Ashok Leyland is found to be efficiently managing its

cash inflows and outflows. It is hoped that these interpretations, findings would support

the organisation in efficient way.

BIBLIOGRAPHY

Book References

82

Financial Management – I.M. Pandey

Financial Management - Srivastava Ashish & Mishra Amit

Websites

www.ashokleyland.com

www.wikipedia.com

www.investopedia.com

ANNEXURE83

ANNEXURE I

84

ANNEXURE II

85

ANNEXURE III

86

ANNEXURE IV

87

88