Group 1Pranav ShuklaKunal JhaNavdeep SangwanMansi BharadwajNainika Narula

Financial Analysis of

Ashok Leyland

Ashok Leyland

Company Profile- A Hinduja Group flagship company in India.

- Leading manufacturer of commercial vehicles.

- Annual turnover exceeds 7244.71 cr.

- Founded in 1948 and head quartered in Chennai

- First automotive manufacturer in India to receive ISO 9002 certification in 1993.

- The first Indian auto company to receive the latestISO/TS 16949 Corporate Certification (in July 2006

Board Of Directors

R J Shahaney, ChairmanD G Hinduja, Vice Chairman (Alternate : Y M Kale)D J Balaji RaoA K Das (Alternate : P Banerjee)P N GhataliaS R KrishnaswamyS RahaF SahamiS ShroffA SpareR Seshasayee, Managing Director

Board Of Directors

- Interim dividend(paid for year 2006-07).

- The dividend paid in between accounting year

- Declared by the company in anticipation of good profits before the finalisation of accounts .

- Given with the approval of the board of directors.

It favourably affects the share holders in two ways.

1. The share holders get cash before the end of the year

2. share price of the company increases due to improved sentiment

Directors Report

Shareholding Pattern

When the promoters have a high stake that does not necessarily mean that the company is better.

companies with very large promoter holdings can easily manipulate the market price.

A mixture of different organisation puts a check on the promoters.

Company shareholding patter shows a healthy mix of - FII-Mutual funds-State/ Government companies

 

Directors Report

Economy and market trends

-India’s economy in 2006-07 recorded a significant growth

-During the Tenth Plan period – GDP grew 8.5%.

-Due to booming manufacturing and service sectors

-This GDP growth triggered an increase in the country’s per capita income.

-while low interest rates fuelled increased demand

Directors ReportManagement Discussion &

Analysis Report

internal control system has been designed to provide for:

- Accurate recording of transactions.

- internal checks and prompt reporting

- Adherence to applicable Accounting standards and policies

- Review of capital investments and long term business plans

- Effective use of resources and safeguarding of assets

Internal Control System &Adequacy

-Capacity build-up plans are periodically re-assessed,

-Market conditions and demand forecast are taken into account .

- The Company is pursuing plans to increase the share of non- cyclical business

-Sale to Defence sector to mitigate the impact of cyclicality.

- Exports of non-auto engines.

-

Risk Management

-Uncertainty over fuel prices in the international market.

-Competitive pressures to contain freight rates.

-Increasing cost of production( raw material, labour, taxes)

-Increasing interest rates.

-Threat from local manufacturer.

Threats

Company’s Audit Report

1.Auditor has presented unqualified opinion

a. financial statement prepared using GAAP concept

b. statutory requirements and regulations have been met.

c. Adequate disclosure of all material matters relevant to the presentation of the financial information.

2. Financial statements are in agreement with the books of account.

3. GAAP principals have been applied for these books as at March 31, 2007;

(i) in the case of the Balance Sheet.

Company’s Audit Report

(ii) in the case of the Profit and Loss Account.

(#)for the cash flow for the year ending 2006-07

4 .fixed asset and inventory: a. fixed asset and the inventory have been physically verified

b. process are reasonable and adequate

5. there is an adequate internal control procedure with regard to a. purchase of inventory b. purchase and sale of fixed asset.

Company’s Audit Report

6. Internal audit system revalues book over half yearly and yearly basis. 7. the Company has not defaulted in repayment of dues .

8. during the year, maintained good reputation and creditability.

9.The Company is regular in depositing undisputed statutorydues for: provident fund, investor education and protection fund,

Income, sales wealth, service tax

Company’s Audit Report

The three major decisions as function of finance:

1.The Investment decision. a. long term fixed asset b. short term current asset

2.The Financing decision. .change in debt structure.

3.The Dividend policy decision .paid interim dividend

Finance Function Of Company

Comparative Profit & Loss AccountOf Ashok Leyland Ltd

-In 2006-07, the sales registered a growth of 36.60%.

-company’s export grew by 23%.

-Profit of year 2006-07 increase by 34.82%, due to increase in sale.

- The reason for increase in expenditure is due to increase in R&D expense( director report).

- Income coming from investments, profit on sale of Investments.

- Interest has come down as company is preferring secured loans over unsecured loan.

Analysis Of Profit and Loss

Growth

Growth

Sales

- In the year 2006-07 Net sales for the year, at

Rs 71,682 million, has increased by 37% as compared to previous year.

-Primarily due to boost in sale of commercial vehicle and spare parts.

Sales

-The Reserve & Surplus is increased by 36.57%.

-Company transferring major portion of p&l to reserve and surplus.

-Company has paid bonus share

-Shows good sign of health of company

-Secured fund has increased.

- The capacity increased from 77,200 vehicles to 84,000 vehicles

-Share capital increase is due to conversion of debentures into equity.

- Inventories have gone up to Rs.10703. The increase is due to increased activity levels.

- Debtor level increased to Rs.5229 million from Rs.4243 million dueto higher level of fully built commercial vehicles.

Balance Sheet

- Share capital increase is due to conversion of debentures into equity.

- Inventories have gone up to Rs.10703. The increase is due to increased activity levels.

- Debtor level increased to Rs.5229 million from Rs.4243 million dueto higher level of fully built commercial vehicles.

- The capacity increased 84,000 vehicles, company in expansion mode.

- Share capital increase is due to conversion of debentures into equity.

Balance Sheet

Sources Of Fund

- From the above pie graphs we can see that the portion of secured loan has increased in 2007 compared to 2006

-The portion of share capital is Rs. 1323.87 in2006-07 but it shows decreasing trend in % due to increase in other fund.

- Reserve & Surplus has shown increase as profit is increasing.

- Net current assets in this year is 45% that means the working capital of Ashok Leyland is efficiently managed.

Sources Of Fund

Usefulness:

1.Predict Future cash flows.

2.Determine the ability to pay dividends & other commitments.

3.Show the relationship of net income to changes in the business cash.

4.Efficiency in Cash Management.

5.Discloses the movement cash.

6.Discloses success or failure of Cash Planning.

Cash Flow Analysis

Cash Flow

Cash Flow Contd…

•Operating activities:

-The main positive item is the depreciation charge of Rs. 1505.74 -Thus the company’s earning cannot be said to be of high quality.

-Increase in Inventories & debtors resulted in strain on the cash.

-Net cash flow from operations< (profits + depreciation)

-profit has not been fully realized in cash because of accruals.

Interpretation

Investing Activities:

- Form the Investing Activities section; Ashok Leyland Ltd has payments for assets acquisition. The expenditure financed partly by:

a) Realization from the Sales of Plant.

b) Realization from the Sale Of Investments

c) Interest Revenue Rs. 42.70.

d)The remaining amount financed from cash flow from operating activity and drawing upon cash equivalents.

Interpretation

- Raised long-term borrowing(Rs. 6812.87).

- Repaid long term borrowing(Rs.829.95).

- Net realization from long-term sources was Rs. 507.

- Paid dividend Rs. 1792.34.

- Paid interest of Rs. 167.02

- It is left with net cash of Rs. 2893.75 from financing activities.

Financing Activities

- expansion in the plant & machinery during the period was major drain on cash.

- loosened control on inventory and debtors further squeeze on cash

- The net cash out flow from investing activities was met from three sources:

I. Cash Flow from Operations, Rs. 4999.51II. Issue of long term loans.III. Withdrawal from Cash Balance, Rs. 5391.15

That is Cash in Flow, which is good sign for company.

Net Cash Flow

a. can sell some investment to raise cash.

b. can issue additional debt/ equity as company enjoy healthy debt equity ratio.

C. can avail additional credit from suppliers.

d. Given its strong financial position, it can likely tap -bank line of credit -from other source.

Degree Of Financial Flexibility

Reveals how much profit a company generates with the money shareholders have invested.  

Return on Equity = Profit after Tax / Average Shareholder’s Equity x 100

Return Of Equity

Current ratio indicates the firm’s ability to pay its current liabilities,

i.e. day-to-day financial obligations. It shows the strength of credit, strength of working capital & capacity to carry on effective operations.

Higher ratio i.e. more than 2:1 indicates sound solvency position.

Current Ratio = Current Assets/ Current Liabilities.

Where,Current Assets = Inventories + Debtors + Cash & Bank Balance + Loan &Advances.Current Liabilities = Liabilities + Provision

Gone up from 1.48 to 1.56

Current Ratio

An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

Quick Ratio = Quick Assets / Liquid Liability.

Quick Ratio & Acid Test Ratio

- Generally a quick ratio of 1:1 is considered to represent asatisfactory current financial condition.

- A quick ratio of 1:1 or more does not necessarily imply sound liquidity position.

-In year 2006–2007, it was decreased to 0.93. Because of rapid increase in liquid liabilities.

-A company with a high value of quick ratio can flounder if it hasslow-paying, doubtful and stretched out-in-age receivables. On the other hand, a company with a low value of quick ratio may be prospering and paying its current obligation in time, if it has been managing its inventories very efficiently wit a continuous stability.

Quick Ratio & Acid Test Ratio

What Does Asset Turnover Mean?The amount of sales generated for every rupees worth of assets. It is calculated by dividing sales in rupees by assets in rupees. It is very good sign for the company that it is increasing its use offixed assets over sales.

Total Assets Turnover = Sales / Total AssetsWhere Total Assets = Fixed Assets + Investments + Net Current Assets + Misc.Expenses.

Total Assets Turnover

It shows proportion of funds provided by long-term creditors and that provided by shareholders or proprietors.

The higher the ratio means that outside creditors have a largerclaim and interference in the business

Reducing debt equity show improving financial capability.

Debt Equity Ratio = (Total long term debt/Net worth) x 100.

Debt Equity Ratio

- Earning per Share is an important major of corporate performance for shareholders & potential investor.

- EPS figures are commonly presented in prospectus & other material send to investor, press reports & reports of equity analyst.

-Earning Per Share = Profit after Tax / No. Of Equity Shares

-Gone up from 2.68 to 3.33 as pat has increased from 3273 million to 4412 million.

Earning Per Share (diluted)

Horizontal Analysis:

- Ashok Leyland Ltd has made good growth over the years in sales as well as profit.

- In 2006-07, the Company’s exports grew by 23% with the sale of 6,025 vehicles.- This improvement was derived from demand in the export markets and the launch of new products. This is the reason the sale & profit has increased compare to last years i.e. 2005-06

Vertical Analysis:

- It shows that the expenditure of the company is accounting for higher percentage of sales around 99% every year & because of the every year profit has increased but a decreasing rate.

Cash Flow

- In Cash Flow Analysis all the activities i.e. operating, investing, financing maintain this year (2006 – 2007).

Ratio Analysis:- We are discussing about mainly 5 kinds of ratio. Shows better performance over the year.

Conclusion

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