financial analysis of ashok leyland

FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 1

INTRODUCTION

1.1 Company Profile

Ashok Leyland, the Hinduja Group flagship company in India, is a leading manufacturer of commercial vehicles with a product range of 7.5 tonne to 49 tonne in haulage vehicles, from numerous special application vehicles to diesel engines for industrial, marine and genset applications, Ashok Leyland offers a wide range of products goods vehicles and 18 seaters to 82 seaters in passenger models. The Company’s annual turnover exceeds US $ 2 billion. It has a production capacity of 84,000 vehicles which is being enhanced to 100,000 in the current year and 87,000 engines per annum. The Company has associate companies in the Czech Republic and the UAE and joint ventures in Sri Lanka and Bangladesh, and also exports to over 20 countries worldwide.

Founded in 1948 and head quartered in Chennai, Ashok Leyland started manufacturing commercial vehicles in 1955, with technology from and equity participation by Leyland Motors Ltd, UK. In 1987, Hinduja Group jointly with IVECO, the commercial vehicle arm of Fiat, Italy, gained a controlling interest in Ashok Leyland and its associate companies when it acquired the UK-based Land Rover Leyland International Holdings Ltd (LRLIH).

With its own comprehensive R&D base, strengthened by collaborations with global technology leaders, Ashok Leyland has established a tradition of technological leadership and a strong reputation for product reliability. The history of Company has been punctuated by a number of technological innovations, which have since become industry norms.

For over three decades, Ashok Leyland has been a pioneer in the design and development of special vehicles for the armed forces. The Company has been supporting the modernization of the Indian Army by developing a host of modern special application vehicles that include Light Recovery Vehicles, High Mobility Vehicles, Fire Fighting Trucks and Field Artillery Tractors.

The Company’s all-India customer-base is served through an all-India sales, service and parts network.

In 1995, Ashok Leyland set up a driver-training center in Namakkal, the first of its kind in India – offering a comprehensive training package that prepares a driver for life on and off the road. Over 100,000 drivers have already been trained. Close on the lines of Namakkal, a Driver Training

S V INSTITUTE OF MANAGEMENT, KADIBATCH 2007-09

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Institute has been recently established at Burari near Delhi as a joint venture with the Government of NCT of Delhi.

Ashok Leyland was the first automotive manufacturer in India to receive ISO 9002 certification in 1993. While the ISO 9001 certification came in 1994, the QS 9000 certification came in 1998. All the manufacturing Units of Ashok Leyland are ISO 14001 certified for their Environment Management System (EMS). In addition, the Company has taken up a ‘Greening the supply chain’ initiative so as to extend its commitment of a green environment to its suppliers.

In its effort to convert its technological leadership into market leadership through improved customer satisfaction, the Company has been enhancing its product range by positioning customized models to suit geographical and application segments.

The Company employs 12,000 people and has six manufacturing units with an annual capacity of 112500 vehicles.

1.2 Company HistoryThe 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 a tradition 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


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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 500000 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 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 liberalization and globalization 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.


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1.3 General Information

EXHIBIT 1.31. Name of unit : Ashok Leyland Limited.2. Registered office : 19, Rajaji Salai,

Chennai – 600001.3. Plants locations : Ennor & Ambattar at Chennai.

Hosur – I, II, IIA units at Tamilnadu. Bhandra at Maharastra. Alwar at Rajasthan.

4. Form of organization : Public Limited Company.5. Types of industry : Heavy Automobiles Industries.

6. Book closure date : From July 18, 2007 to July 20, 2007

7. Stock codea. Trading symbol at

b. Demat ISIN no. in NSDL & CDSL

:Madras Stock Exchange – AllMumbai Stock Exchange

(Physical) – 477 (Demat) - 500477

National Stock Exchange – AshokLey

Equity shares – INE208A1029.

8. Accounting year : 1st April to 31st March.9. Incorporated year : 194810.

Face value : Re.1 (for year 2005), Re, 10 (for year 2004 & past years).

11.

Subsidiary company : Ashley Holdings Limited Ashley Investments Limited Ashley Transport Services Limited Ashok Leyland Project Services

Limited Ashok Leyland (UAE) LLC, Ras Al

Khaimah, UAE Automotive Coaches and Components

Limited Avia Ashok Leyland Motors s.r.o,

Czech Republic Gulf Ashley Motor Limited Irizar TVS Limited Lanka Ashok Leyland Limited, Sri

Lanka Ashok Leyland Finance Limited.


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1.4 Corporate InformationEXHIBIT 1.4

1 Board Of Directors R J Shahaney Chairman D G Hinduja Vice Chairman D J Balaji Rao A K Das Chatterjee Alternate : P

Banerjee) P N Ghatalia S R Krishnaswamy Representing LIC

S Raha F Sahami

S ShroffA Spare

R Seshasayee Managing Director2 Chief Operating

Officer

Vinod K Dasari 3 Executive Directors J N Amrolia S Balasubramanian N Basavanahalli

A BhatA R ChandrasekharanA K JainR MalhanN MohanakrishnanS NagarajanM NatrajB M Udayashankar

4 Company Secretary N Sundararajan

5 Auditors M S Krishnaswami & Rajan Deloitte Haskins & Sells

6 Cost Auditors Geeyes & Co. 7 Bankers Bank Of America Bank Of Baroda Canara Bank Central Bank Of India Citibank N.A. HDFC Bank Limited ICICI Bank Limited IDBI Bank Limited Punjab National Bank Standard Chartered Bank State Bank Of India HSBC Limited 8 Registrar & From April 1,2003, the


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Transfer Agents company has appointed M/s Integrated Enterprises (India) Ltd,

2nd Floor, Kences Tower, 1 Ramakrishna Street,

North Usman Road, T. Nagar, Chennai – 600017. Tel: 91-44-28140801/03 Fax: 91-44-28142479 E-mail:

[email protected]

9 Listing On Stock Exchange

Listing of Equity shares Madras Stock Exchange Ltd.

Bombay Stock Exchange Ltd.

National Stock Exchange of India Ltd.

Listing of Global Depository Receipts (GDRs)

At London Stock Exchange

Listing of Foreign Currency Convertible Notes (FCCNs)

At London Stock Exchange

1.5 Finance Function OF CompanyFinance function is the life board of any company so the management puts special attention towards it. A firm performs finance function efficiently so that the business goes on smoothly and interruption and the company remains not only able to grow on its own resources generated through surpluses. Finance function call for skill planning control and execution of s firm’s activities.

Following are the three major decisions as function of finance1. The Investment decision.

2. The Financing decision.

3. The Dividend policy decision.


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1.5.1 The Investment Decision:

The investment decision relates to the selection of assets in which funds will be invested by a firm > the assets that can be acquired fall into two broad groups

I. Long term or Fixed assets II. Short term or Current assets

The financial manager has to carefully allocate the available funds to recover not only the cost of the fund but also must earned sufficient return on the investment. Two important aspects of the investment decision are:

a) The evolution of the prospective return of new investmentb) The measurement of cut off rate against that prospective return of

new investment could be compared. Investment proposal should be evaluated in term of both expected and risk. In brief the main element in the financial decision is

The long & short-term assets and their computation

The business risk complexion of the firm Concept and measurement of the cost of capital Efficient management of asset

1.5.2 Financing Decision:

Financing decision is the second important function to be performed by the financial manager. Broadly, he or she must decide when, where & how to acquire funds to meet the firm’s investment needs. In practice, a firm considers many other factors such as control, flexibility, loan covenants, legal aspects etc. in deciding its capital structure.

EXHIBIT 1.5.2(Rs in Millions)

2003 2004 2005 2006 2007SOURCE OF FUNDS Share capital 1189.29 1189.29 1189.29 1221.59 1323.87 Reserve & surplus 8405.57 9328.68

10489.36

12902.94

17621.81

Secured loans 5045.62 3103.56 2634.96 1846.91 3602.16 Unsecured loans 2129.60 1885.52 6169.10 5072.37 2801.82 Deferred tax liability 1684.99 1802.86 1708.48 1796.89 1969.29

TOTAL: -18455.0

7 17309.9

1 22191.1

9 22840.7

0 27318.9

5


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1.5.3 Dividend Decision: -

Dividend decision is the third major financial decision. The financial manager must decide whether the firm should distribute all profits, or retain them, or distribute a portion & retain the balance. The optimum dividend policy is one that maximizes the market value of the firm’s shares.The director’s receded dividend of 150% (Rs. 1 per Equity share of Rs. 1.5) for the year ended March 31st 2007.


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1.6 Highlights of Performance

Particular 2006-2007

2005-2006

2004-2005

2003-2004

2002-2003

2001-2002

2000-2001

1999-2000

1998-1999

1997-1998

Sales VolumeVehicles (nos.) 83094 61655 54740 48654 36444 29673 32475 37859 29741 31547Engines (nos.) 8202 7171 6254 5085 5924 5298 6311 6004 7185 7611Spare parts & Others 5468 7838 5460 4468 4771 5492 5139 2145 2145 2520

Sales Values 83047 60531 48113 39273 30740 26304 26067 25987 20451 20143Profit Before Tax 6045 4523 3550 2865 1701 1322 1019 933 233 207Profit After Tax 4413 3273 2714 1936 1202 923 917 785 204 184

AssetsFixed Assets 15445 10847 9790 9211 9398 10098 9613 9458 9547 9026Investments 2211 3682 2292 1466 1576 1173 1179 1204 625 485Net Current Assets 9419 8239 9916 6310 7481 9825 10223 10329 10491 13914

27075 22768 21998 16987 18455 21096 21015 20991 20663 23425

Financed ByShareholder’s fund - Capital 1324 1222 1189 1189 1189 1189 1189 1189 1189 1189 - Reserve 17378 12830 10296 9006 8406 9131 10496 10145 9852 9763Loan funds 6404 6919 8804 4990 7175 8884 9330 9657 9622 12473Deferred Tax Liability - Net 1969 1797 1709 1803 1685 1892 - - - -

27075 22768 21998 16987 18455 21096 21015 20991 20663 23425

Basic Earning Per Share(Paise) (Face Value Re.1 Each) 338 274 228 163 101 78 77 66 17 15

Dividend (%) 150 120 100 75 50 45 40 35 10 10

Employee (Nos.) 12125 11845 12178 12007 11860 13218 13489 14056 14254 14635


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1.7 Production PlantAshok Leyland has six manufacturing plants - the mother plant at Ennore near Chennai, two plants at Hosur (called Hosur I and Hosur II, along with a Press shop), the assembly plants at Alwar, Bhandara and the castings plant at Hyderabad. The total covered space at these six plants exceeds 450,000 sq m and together employs over 11,500 personnel.

1. Encore2. Hosur unit-13. Hosur unit-24. Hosur unit-2a5. Alwar6. Bhandara


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1.8 Functional Distribution of Employees

Ashok Leyland limited committed to maintaining their technological leadership. Ashok Leyland limited manages this through continuous learning. So that they can master ever-evolving technologies and meet changing customer needs. Understandably, a career with Ashok Leyland offers a lifetime of learning.

Structured training programmers address the needs of workmen, apprentices, graduate engineering trainees, executives in the managerial levels for knowledge and skills up gradation, computerization, attitudinal changes, self-development, and supervisory and managerial skills orientation to new technologies as also requirements specific to various requirements specific to various functional areas. This breadth is reflected in the comprehensive annual training calendar.


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1.9 Qualification Analysis - Executives

Ashok Leyland has a tie-up with BITS, Pilani for a custom-designed, off-campus 2-year MS course in Engineering Management. Aimed at making Managers out of Engineers, assignments and projects are central to the learning process thus bridging the classroom with the engineers' workplace. From 2000, a BS programme in Industrial Engineering and Technology, is offered for diploma holders, again in collaboration with BITS. Apart from updating their knowledge base, the programme empowers engineers to acquire multiple skills.

Ashok Leyland is one of the moving forces behind a Mitch course in Automobile Engine Technology jointly managed by the automobile industry (Indian Society for Automotive Technology, made up of auto manufacturers), IIT, Madras and Institute Francais du Petrole, the French institute for IC engines.


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1.10 Environment FriendlinessWe are concerned about the earth our children will inherit. That's why we make sure our vehicles consume less, pollute less. This concern is reflected in the manufacturing systems, the various processes, energy conservation measures and conscious greening initiatives of the Company.”

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified with Environmental Management System.

Over the decades, Ashok Leyland's R&D engineers have been addressing the twin concerns of fuel-efficiency and emissions. Not surprisingly, when the legislation came in 1987, limiting vehicular emission, Ashok Leyland vehicles were already meeting them. In 1992, came the more stringent norms for gaseous emissions. By then, Ashok Leyland, through timely technology tie-ups - and ahead of competition - had absorbed and was offering eco-friendly engine technology. In 1996, when the permissible levels of gaseous exhaust emissions were further tightened, Ashok Leyland again met the norms with ease.


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1.11 PRODUCT PROFILE

1.11.1 BUSES

Ashok Leyland. Over five decades in the transport solutions industry. Offering a world-class range of trucks buses special application vehicles and engines touching millions across 40 countries worldwide

Viking BS - I Viking BS - II 12 M Bus

Cheetah BS - I Panther Luxury Cheetah BS - II

Stag BS - II Vestibule Bus Airport Tarmac coach

222 CNG Bus Lynx Double Decker


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1.11.2 TRUCK

Ashok Leyland manufactures trucks of various capacities that take on any task with ease.

4 X 2 Haulage Models 4 X 2 and Multi axle Tippers

Multi axle Vehicles

Tractors E comet

1.11.3 ENGINE

Ashok Leyland manufacturer’s diesel engines in collaboration with world leaders for industrial, genset and marine applications These are mostly manufactured at Hosur with the traditional engines being manufactured at the Ennore plant. Click on the links below for details.

Engines for Generating Set Application

Range: 30 - 125 KVA (Conforms to CPCB emission norms)Industrial SegmentHospitals / ClinicsCommercial / Residential ComplexesHotels / RestaurantsTheatresShopping mall / OfficesRice Mills


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Engines for Special Applications

Range: 39 - 200 PSFront End LoadersExcavatorsCompactorsPaversRoad SweepersHarvester CombinesCompressorsCranes Pumps

Marine Diesel Engines

Range: 42 - 193 PSIdeal Choice forTrawlers, Pure -Seiners, Gill-nettersSailing VesselsMarine generating setsPaversAuxiliary drive in Vessels

1.11.4 DEFENCE AND SPECIAL VEHICLES

Ashok Leyland has long been in the manufacture of Defence and speciality vehicles. Each as rugged as and performance intensive as any comparable vehicle in the world

Special Vehicles Defence Vehicles


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CHAPTER 2

HORIZONTAL ANALYSIS

Financial statements present comparative uniformities for the current year and the previous year. A simple approach to financial statement analysis, known as horizontal analysis is to calculate amount changes & percentage changes from the previous year to the current year.

Relative = Current year amount – previous year amountAbsolute (%) = ((Current year – Previous Year) \ Previous Year) x 100

EXHIBIT 2.1

2.1 COMPARATIVE PROFIT & LOSS ACCOUNT OF ASHOK LEYLAND LTD FOR THE YEAR ENDED

31st March 2003-04Rs. In Millions

Particulars 2003-04 2002-03Increase/(Decrease)

AmountPercentage

INCOME SALES 33938.8

4 26803.7

5 7135.09 26.62 OTHER 186.20 152.93 33.27 21.76 34125.0

4 26956.6

8 7168.36 26.59 EXPENDITURE MANUFACTURING & OTHER EXPENSES

29992.80

23554.18 6438.62 27.34

DEPRECIATION 964.54 1029.69 (65.15) (6.33)FINANCIAL EXPENSES 207.91 585.10 (377.19) (64.47) 31165.2

5 25168.9

7 5996.28 23.82 PROFIT BEFORE EXTRA ORDINARY EXPENSES 2959.79 1787.71 1172.08 65.56 EXTRA ORDINARY EXPENSE 95.19 86.69 8.50 9.81 PROFIT\(LOSS) FOR THE YEAR (PBT) 2864.60 1701.02 1163.58 68.40 PROVISION FOR TAXATION 928.80 498.90 429.90 86.17 PROFIT\(LOSS) FOR THE YEAR (PAT) 1935.80 1202.12 733.68 61.03


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In 2003-04, the sales increased by 26.62% over 2002-03 & profit is also increased by 61.03%.

Increase in expenditure by 23.82% that is less then the increase in income by 26.59%.

Other income increased by 21.76% but depreciation & financial expenditure decreased by 6.33% & 64.47% respectively.

Extra ordinary expense increased by 9.81%. This year sales, expenditure & profit increase compare to the last

year because of company introducing some engines. So that increases in sales, expenditure and profit.

EXHIBIT 2.1.1

Growth in year 2003 – 2004 Figures in %

Particulars 2003-04INCOME 26.59EXPENDITURE 23.82PROFIT\(LOSS) FOR THE YEAR (PBT) 68.40PROVISION FOR TAXATION 86.17PROFIT\(LOSS) FOR THE YEAR (PAT) 61.03

Chart 2.1.1 Growth in percentage of the year 2003-04

2003-04

26.59

68.4

86.17

61.03

23.82

0102030405060708090

100

I NCOME EXPENDI TURE PROFI T\(LOSS)FOR THE YEAR

(PBT)

PROVI SI ON FORTAXATI ON

PROFI T\(LOSS)FOR THE YEAR

(PAT)

PARTI CULARS

GR

OW

TH

IN

%


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EXHIBIT 2.2

2.2 COMPARATIVE PROFIT & LOSS ACCOUNT OF ASHOK LEYLAND LTD FOR THE YEAR ENDED

MARCH 31 2004-05Rs. In Millions


AmountPercentage

INCOME SALES 41818.9

7 33938.8

4 7880.13 23.22 OTHER 537.55 186.20 351.35 188.69 42356.5

2 34125.04 8231.48 24.12

EXPENDITURE MANUFACTURING & OTHER EXPENSES

37590.47

29992.80 7597.67 25.33

DEPRECIATION 1092.14 964.54 127.60 13.23 FINANCIAL EXPENSES 27.98 207.91 (179.93) (86.54) 38710.5

9 31165.2

5 7545.34 24.21 PROFIT BEFORE EXTRA ORDINARY EXPENSES 3645.93 2959.79 686.14 23.18 EXTRA ORDINARY EXPENSE 95.83 95.19 0.64 0.67 PROFIT\(LOSS) FOR THE YEAR (PBT) 3550.10 2864.60 685.50 23.93 PROVISION FOR TAXATION 836.00 928.80 (92.80) (9.99)PROFIT\(LOSS) FOR THE YEAR (PAT) 2714.10 1935.80 778.30 40.21

In 2004-05, the sales registered a growth of only 23.22% over 2003-04.

Profit of year (2004-05) increase by 40.21%, which is more than the last year. Increase in profit is more than increase in sales for every year.

Expenditure increased by 24.21%, which is, more than increase in sales by 23.22%.

In 2004-05 provision for tax decreased by 9.99% so that profit of the company has increased to 40.21% from 23.93%.

Extra ordinary expenses increased by 0.67% compare to last year.


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EXHIBIT 2.2.1

Growth in year 2004- 2005Figures in %

Particulars 2004-05 INCOME 24.12EXPENDITURE 24.21PROFIT\(LOSS) FOR THE YEAR (PBT) 23.93PROVISION FOR TAXATION (9.99)PROFIT\(LOSS) FOR THE YEAR (PAT) 40.21

Chart 2.2.1Growth in percentage of the year 2004-05

2004-05

24.12 24.21 23.93

-9.99

40.21

-20

-10

0

10

20

30

40

50

INCOME EXPENDITURE PROFIT\(LOSS)FOR THE YEAR

(PBT)

PROVISION FORTAXATION

PROFIT\(LOSS)FOR THE YEAR

(PAT)

PARTICULARS

GR

OW

TH

IN

%


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EXHIBIT 2.3

COMPARATIVE PROFIT & LOSS ACCOUNT OF ASHOK LEYLAND LTD FOR THE YEAR ENDED



AmountPercentag

e INCOME SALES 52476.5

7 41818.9

7 10657.6

0 25.49

OTHER 329.74 537.55 (207.81) (38.66) 52806.3

1 42356.5

2 10449.7

9 24.67

EXPENDITURE MANUFACTURING & OTHER EXPENSES 47075.8

7 37590.4

7 9485.40 25.23

DEPRECIATION 1260.06 1092.14 167.92 15.38 FINANCIAL EXPENSES 164.53 27.98 136.55 488.03 48500.4

6 38710.5

9 9789.87 25.29

PROFIT BEFORE EXTRA ORDINARY EXPENSES 4305.85 3645.93 659.92 18.10 EXTRA ORDINARY EXPENSE (217.15) 95.83 (312.98) (326.60)PROFIT\(LOSS) FOR THE YEAR (PBT) 4523.00 3550.10 972.90 27.40 PROVISION FOR TAXATION 1249.80 836.00

413.80 49.50

PROFIT\(LOSS) FOR THE YEAR (PAT) 3273.20 2714.10 559.10 20.60

In 2005-06, the sales registered a growth of 25.49% over 2004-05 Profit of year (2005-06) increase by 20.60%, which is less than the

last year. Increase in profit is less than increase in sales for the year because of this year provision for taxation is increased by 49.50% and in the last year it was decreased by 9.99%

Decrease in the other income by 38.66% is due to one-time gain earned from sale of shares of Indus Ind Bank during 2004-05.

Expenditure increased by 25.23%, which is, less than increase in sales by 25.49%. Because of steel price has been softened this year.


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Reason for Increase in expenditure is increase in man power expenditure by 14%.

Extra ordinary expenses has been decreased by 326.60%


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EXHIBIT 2.3.1

Growth in year 2005-06Figures in %



2005-06

27.4

49.5

20.6

24.67 25.29

0

10

20

30

40

50

60


(PBT)



(PAT)

PARTICULARS

GR

OW

TH

IN

%


23


EXHIBIT 2.4

COMPARATIVE PROFIT & LOSS ACCOUNT OF ASHOK LEYLAND LTD FOR THE YEAR ENDED



AmountPercentag

e INCOME SALES 71681.7

6 52476.5

7 19205.1

9 36.60 OTHER 708.03 329.74 378.29 114.72 72389.7

9 52806.3

1 19583.4

8 37.09 EXPENDITURE MANUFACTURING & OTHER EXPENSES 64654.9

147075.8

717579.0

4 37.34 DEPRECIATION 1505.74 1260.06 245.68 19.50 FINANCIAL EXPENSES 53.32 164.53 (111.21) (67.59) 66213.9

7 48500.4

6 17713.5

1 36.52 PROFIT BEFORE EXTRA ORDINARY EXPENSES 6175.82 4305.85 1869.97 43.43 EXTRA ORDINARY EXPENSE 130.76 (217.15) 347.91 160.22PROFIT\(LOSS) FOR THE YEAR (PBT) 6045.06 4523.00 1522.06 33.65 PROVISION FOR TAXATION 1632.20 1249.80 382.40 30.60 PROFIT\(LOSS) FOR THE YEAR (PAT) 4412.86 3273.20 1139.66 34.82

In 2006-07, the sales registered a growth of 36.60% over 2005-06.the reason for increase in the sale by this much is due to company’s export grew by 23% and launch of new product.

Profit of year 2006-07 increase by 34.82%, which is more than the last year because of increase in sale.

Expenditure increased by 36.52%, while last year it was increased by 25.29%. the reason for increase in expenditure is due to increase in R&D expense.

In 2006-07 other income has been increased by 114.72% which is mainly on account of income from investments, profit on sale of Investments and profit on disposal of fixed assets.


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Extra ordinary expenses has been increased in this year is by 160.22%.


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EXHIBIT 2.4.1

Growth in year 2006-2007Figures in %



2006-07

30.634.8233.6537.09 36.52

0

5

10

15

20

25

30

35

40


(PBT)



(PAT)

PARTICULARS

GR

OW

TH

IN

%

EXHIBIT 2.5

COMPARATIVE GROWTH OF LAST FOUR YEARS

Growth in percent (%)

Particulars 2003-04 2004-05 2005-06 2006-07INCOME 26.59 24.12 24.67 37.09EXPENDITURE 23.82 24.21 25.29 36.52PROFIT\(LOSS) FOR THE YEAR (PBT) 68.40 23.93 27.40 33.65PROVISION FOR TAXATION 86.17 (9.99) 49.50 30.60PROFIT\(LOSS) FOR THE YEAR (PAT) 61.03 40.21 20.60 34.82

Chart 2.5


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COMPARATIVE GROWTH OF LAST FOUR YEARS

23.82

68.4

86.17

61.03

24.12 23.93

-9.99

25.29 27.4

49.5

20.6

37.09 36.5230.626.59

40.21

24.2124.67

34.82

33.65

-20

0

20

40

60

80

100

INCOME EXPENDITURE PROFIT\ (LOSS) FORTHE YEAR (PBT)


PROFIT\ (LOSS) FORTHE YEAR (PAT)

YEARS

GR

OW

TH

IN

%

2003-04 2004-05 2005-06 2006-07

The difference in the growth of Ashok Leyland is very large in the year 2003-04. In the year 2003-04 high growths is registered.

In year 2005-06 sales & profit was 24.67% & 20.6% respectively but in the current year 2006-07 sales & profit is increased by 37.09% and 34.82% respectively. Reason for this large difference in growth are:

1. The company has renovated its production plant.2. Introducing some engines.

Here tax is decreased so that profit is increased

EXHIBIT 2.6

2.6 STATUS OF INCOME, EXPENDETURE AND PROFIT IN FIVE YEARS

Rs. In Millions

Particulars 2003 2004 2005 2006 2007INCOME 26956.6

8 34125.04

42356.52

52806.31

72389.79

EXPENDITURE 25168.97

31165.25

38710.59

48500.46

66213.97

PROFIT\(LOSS)(PAT) 1202.12 1935.80 2714.10

3273.20 4412.86


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STATUS OF INCOME, EXPENDETURE AND PROFIT IN FIVE YEARS

Chart 2.6.1

26956.68

34125.04

42356.52

52806.31

72389.79

25168.97

31165.25

38710.59

48500.46

66213.97

1202.12 1935.8 2714.1 3273.2 4412.86

0

10000

20000

30000

40000

50000

60000

70000

80000

2003 2004 2005 2006 2007

YEARS

RS I

n M

illions

INCOME EXPENDITURE PROFIT\ (LOSS) FOR THE YEAR (PAT)

Chart 2.6.2

26956.68 25168.97

34125.0431165.25

42356.5238710.59

52806.3148500.46

72389.79

66213.97

1202.121935.8

2714.13273.2 4412.86

0

10000

20000

30000

40000

50000

60000

70000

80000

I NCOME EXPENDI TURE PROFI T\(LOSS) FOR THE YEAR (PAT)

PARTICULARS

Rs. In

Millions

2003 2004 2005 2006 2007

From the above two graph, we can see that the income, expenditure & profit of the Ashok Leyland Ltd are increasing every year. It shows very progressive status of the company.

The profit of Ashok Leyland is very Low in every year in compare to sales or revenue low in every high level of expenditure.

The reason for that is the company is developing presently. Ashok Leyland doing lots of expenditure for their product, quality standards & expansion of its production and distribution.


28


2.7 SALES OF LAST FIVE YEARS

EXHIBIT 2.7(Rs. In Millions)

Particulars 2003 2004 2005 2006 2007SALES 26803.75 33938.84 41818.97 52476.57 71681.76

Chart 2.7

SALES

26803.75

33938.84

41818.97

52476.57

71681.76

0

10000

20000

30000

40000

50000

60000

70000

80000

2003 2004 2005 2006 2007

YEARS

Rs I

n M

illions

From the above graph, it clear that the sales of the Ashok Leyland Ltd are increasing every year. This is favorable sign for the Co.

In the year 2002-03 Turnover for the year at Rs.26803.75 million has increased by 16.9% as compared to previous year, mainly due to increase in sale of commercial vehicles by 22.8% and engines by 12.7%. However the sale of castings and spare parts and others were lower by 31.0% and 13.1% respectively mainly due to lower off take of castings by tractor industry and lower orders from Defence.

In the year the 2003- 04 Net Sales for the year at Rs.33939 Million has increased by 26.62% as compared to previous year, contributed mainly by the volume increases in commercial vehicles by 33.5% and 65.1% increase in castings.

In the year 2004-05 Net sales for the year, at Rs. 41,818 Million has grown by 23.22% as compared to previous year, contributed mainly by volume increases in vehicles by 13%, engines by 23% and 52% increase in castings. Spare parts sales were up 22%.

In the year 2005-06 Net sales for the year, at Rs. 52477 million has increased by 25.49% as compared to previous year, contributed mainly by volume increases in vehicles by 13%, engines by 15% and a 44% increase in sales revenue from Spare Parts.

In the year 2006-07 Net sales for the year, at Rs 71,682 million, has increased by 37% as compared to previous year, contributed mainly


29


by volume increases in vehicles by 35% and engines (including traded) by 23%. The reduction in spare parts revenue by 30% is mainly due to lower off take by Vehicle Factory, Jabalpur, compared to the previous year.

2.8 COMPARISION OF SALES & PROFIT PERCENTAGEEXHIBIT 2.8

Figures in %

Particulars 2003-04 2004-05 2005-06 2006-07SALES (%) 26.62 23.22 25.49 36.60PROFIT\ (LOSS) FOR THE YEAR (PAT) (%) 61.03 40.21 20.60 34.82

Chart 2.8

23.22

36.6

61.03

40.21

20.6

26.62 25.49

34.82

0

10

20

30

40

50

60

70

2003-04 2004-05 2005-06 2006-07

YEARS

GR

OW

TH

IN

%

SALES PROFIT\ (LOSS) FOR THE YEAR (PAT)

In year 2003-04 the sales is increased in large percentage i.e. 61.30% that is good sign for company. In year 2003-04 sales & profit percentages ware maximum.

Now in this year 2004-05 sales have little decrement that is 23.22% because of expenses are more so that profit is decreased by 40.21%.

In the year the 2005-06 the sales was increased to 25.49% compare to last year i.e. 2004-05 but the profit has decreased to 20.6% compare to 2004-05. Reason for such decrement is due to increase of research & development expenses in the year 2005-06.

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


30


EXHIBIT 2.9

2.9 COMPARATIVE BALANCESHEET OF ASHOK LEYLAND LTD AS ON MARCH 31 2003-04

Rs. In Millions

Particular 2003 2004Increase/(Decrease)

AmountPercentag

eSOURCE OF FUNDS SHAREHOLDER’S FUND SHARE CAPITAL 1189.29 1189.29 0.00 0.00 RESERVE & SURPLUS 8405.57 9328.68 923.11 10.98

9594.86 10517.9

7 923.11 9.62 LOAN FUNDS SECURED LOANS 5045.62 3103.56 (1942.06) (38.49)UNSECURED LOANS 2129.60 1885.52 (244.08) (11.46) 7175.22 4989.08 (2186.14) (30.47)DEFERRED TAX LIABILITY 1684.99 1802.86 117.87 7.00 8860.21 6791.94 (2068.27) (23.34)

TOTAL: -18455.0

7 17309.9

1 (1145.16) (6.21)APPLICATION OF FUND FIXED ASSETS

GROSS BLOCK18120.6

9 18756.4

2 635.73 3.51

LESS: DEPRECIATION 9095.50 10008.1

3 912.63 10.03 NET BLOCK 9025.19 8748.29 (276.90) (3.07)CAPITAL WORK IN PROGRESS 373.19 462.71 89.52 23.99

A 9398.38 9211.00 (187.38) (1.99)INVESTMENTS B 1575.76 1466.02 (109.74) (6.96)CURRENT ASSETS, LOANS & ADVANCES INVERTORIES 4104.56 5069.41 964.85 23.51 SUNDRY DEBTORS 5181.50 4056.19 (1125.31) (21.72)CASH & BANK BALANCE 2219.23 3249.74 1030.51 46.44 LOANS & ADVANCES 1899.41 2261.33 361.92 19.05

13404.7

0 14636.6

7 1231.97 9.19 LESS: CURRENT LIAB & PROVI LIABILITIES 4928.65 6856.71 1928.06 39.12 PROVISIONS 995.12 1470.31 475.19 47.75

5923.77 8327.02 2403.25 40.57 NET CURRENT ASSETS C 7480.93 6309.65 (1171.28) (15.66)MISCELLANEOUS EXPENSES D 0.00 323.24 323.24 0.00

TOTAL (A+B+C+D)18455.0

7 17309.9

1 (1145.16) (6.21)


31



32


The Reserve & Surplus has been increased by 10.98% of 923.11, which is 47.68% of profit of the year 2003 – 04.

The Loan Fund of the company has been decreased by 30.47%. Secured Loans & Unsecured Loans have been decreased by 38.49% & 11.46% respectively.

The deferred tax liability – net is increased by 6.99%. The total fund of Ashok Leyland Ltd has been decreased by 6.20%. The Fixed assets decreased by 1.99% because of the addition in

fixed assets this year is very less & depreciation provided for year 2003 – 04 are more compare to last year.

Net Current Assets as on 31.3.2004 stood at Rs. 6311 Million as against the previous year level of Rs. 7481 Million.

Inventories have gone up to Rs. 5069 Million compared to Rs. 4105 Million as at March 2003. The increase is in line with the activity increase.

Debtors have come down to Rs. 4056 Million from Rs. 5182 Million mainly due to repayment of deferred receivables by Ashok Leyland Finance Ltd.

The high level of cash and bank balance is due to substantial collections from Debtors / Bill Discounting during the last few days of the financial year.

Last year (2002 –03) miscellaneous expenses were zero but this year (2003-04) is 323.24 reasons for that is renovation in production plant.


33


EXHIBIT 2.10


Rs. In Millions

Particular 2004 2005Increase/(Decrease)Amoun

tPercentag

eSOURCE OF FUNDS SHAREHOLDER’S FUND SHARE CAPITAL 1189.29 1189.29 0.00 0.00

RESERVE & SURPLUS 9328.68 10489.3

6 1160.68 12.44

10517.9

7 11678.6

5 1160.68 11.04 LOAN FUNDS SECURED LOANS 3103.56 2634.96 (468.60) (15.10)UNSECURED LOANS 1885.52 6169.10 4283.58 227.18 4989.08 8804.06 3814.98 76.47 DEFERRED TAX LIABILITY 1802.86 1708.48 (94.38) (5.24)

6791.94 10512.5

4 3720.60 54.78

TOTAL: -17309.9

1 22191.1

9 4881.28 28.20 APPLICATION OF FUND FIXED ASSETS

GROSS BLOCK18756.4

2 20022.5

0 1266.08 6.75

LESS: DEPRECIATION10008.1

3 11084.0

4 1075.91 10.75 NET BLOCK 8748.29 8938.46 190.17 2.17 CAPITAL WORK IN PROGRESS 462.71 851.55 388.84 84.04 A 9211.00 9790.01 579.01 6.29 INVESTMENTS B 1466.02 2291.90 825.88 56.33 CURRENT ASSETS, LOANS & ADVANCES INVERTORIES 5069.41 5680.81 611.40 12.06 SUNDRY DEBTORS 4056.19 4587.66 531.47 13.10 CASH & BANK BALANCE 3249.74 7966.82 4717.08 145.15 LOANS & ADVANCES 2261.33 3337.34 1076.01 47.58

14636.6

7 21572.6

3 6935.96 47.39 LESS: CURRENT LIAB & PROVI LIABILITIES 6856.71 9611.87 2755.16 40.18 PROVISIONS 1470.31 2044.80 574.49 39.07

8327.02 11656.6

7 3329.65 39.99 NET CURRENT ASSETS C 6309.65 9915.96 3606.31 57.16 MISCELLANEOUS EXPENSES D 323.24 193.32 (129.92) (40.19)


34



1 22191.1

9 4881.28 28.20

The Reserve & Surplus is increased by 12.44%. This year also the company has transferred all the profit to the reserve & surplus and out of that company makes provision for taxation.

The Loan Fund of the company increased by 76.47%. Secured Loans decreased by 15.11% because of debentures is less than last year.

The total fund of Ashok Leyland Ltd has been increased by 28.20% that is very good compare to last two years & also which shows the efficient use of capital.

During the year, the Company incurred Capital expenditure of Rs. 1,797 Million towards investments in capacity expansion/up gradation and R& D. The capacity increased from 50,000 vehicles in March’04 to 67,000 vehicles by October’04. Nearly 70 acres of land was acquired for putting up state-of-art R&D facilities at the Technical Centre.

This year the Fixed assets increased at a lower than the sales growth rate. This indicates the efficient assets utilization.

Net Current Assets (excluding cash/ bank balances) as on March 31, 2005 stood at Rs. 1,949 Million, as against the previous year level of Rs. 3,060 Million

Inventories have gone up to Rs. 5,681 Million, as on March 31, 2005 compared to Rs. 5,069 Million, as at March 31, 2004.

Debtors have increased to Rs. 4,588 Million, from Rs. 4,056 Million. The increase in Debtors and Inventory is less than proportionate to the activity increase.

The high level of cash and bank balance is around 145.15% of which 80% of the funds raised through foreign currency convertible notes (FCCN) issue kept in bank deposits to be utilized in the capital expenditure programmes during 2005-06.

Miscellaneous expenses this year also get decreased by 40.19% that is good control over expenses.


35


EXHIBIT 2.11


Rs. In Millions


AmountPercentag


RESERVE & SURPLUS10489.3

6 12902.9

4 2413.58 23.01

11678.6

5 14124.5

3 2445.88 20.94 LOAN FUNDS SECURED LOANS 2634.96 1846.91 (788.05) (29.91)UNSECURED LOANS 6169.10 5072.37 (1096.73) (17.78) 8804.06 6919.28 (1884.78) (21.41)DEFERRED TAX LIABILITY 1708.48 1796.89 88.41 5.17

10512.5

4 8716.17 (1796.37) (17.09)

TOTAL: -22191.1

9 22840.7


GROSS BLOCK20022.5

0 21384.9

9 1362.49 6.80


4 11952.2

8 868.24 7.83 NET BLOCK 8938.46 9432.71 494.25 5.53 CAPITAL WORK IN PROGRESS 851.55 1414.17 562.62 66.07 A 9790.01

10846.88 1056.87 10.80

INVESTMENTS B 2291.90 3681.78 1389.88 60.64 CURRENT ASSETS, LOANS & ADVANCES INVERTORIES 5680.81 9025.61 3344.80 58.88 SUNDRY DEBTORS 4587.66 4243.37 (344.29) (7.50)CASH & BANK BALANCE 7966.82 6028.76 (1938.06) (24.33)LOANS & ADVANCES 3337.34 3026.39 (310.95) (9.32)

21572.6

3 22324.1

3 751.50 3.48 LESS: CURRENT LIAB & PROVI

LIABILITIES 9611.87 11468.9

5 1857.08 19.32 PROVISIONS 2044.80 2616.21 571.41 27.94

11656.6

7 14085.1

6 2428.49 20.83 NET CURRENT ASSETS C 9915.96 8238.97 (1676.99) (16.91)MISCELLANEOUS EXPENSES D 193.32 73.07 (120.25) (62.20)


36



9 22840.7

0 649.51 2.93


The Loan Fund of the company decreased by 21.41%. Secured Loans decreased by 29.91% because of debentures is less than last year.

During the year, the Company incurred capital expenditure of Rs. 2,434 million towards investments in capacity expansion / up gradation and R & D. Capacity increased from 67,500 vehicles to 77,200 vehicles by August 2005.

Net Current Assets (excluding cash / bank balances) as on 31st March 2006 stood at Rs. 2,210 million as against the previous year level of Rs. 1,949 million

Inventories have gone up to Rs. 9,026 million as on 31st March 2006 compared to Rs. 5,681 million as at 31st March 2005 due to increase in finished inventory levels to meet sudden increase in market demand.

Debtor’s level decreased to Rs. 4,243 million from Rs. 4,588 million i.e. by 7.5% compare to last years

The high level of cash and bank balance includes funds raised through the FCCN issue kept in bank deposits pending utilization in capital Expenditure programmes. As of 31st March 2006, this amounted to Rs. 855 million.

Miscellaneous expenses this year also get decreased by 62.20% that is good control over expenses.


37


EXHIBIT 2.12


Rs. In Millions


AmountPercentag


RESERVE & SURPLUS12902.9

4 17621.8

1 4718.87 36.57

14124.5

3 18945.6

8 4821.15 34.13 LOAN FUNDS SECURED LOANS 1846.91 3602.16 1755.25 95.04 UNSECURED LOANS 5072.37 2801.82 (2270.55) (44.76) 6919.28 6403.98 (515.30) (7.45)DEFERRED TAX LIABILITY 1796.89 1969.29 172.40 9.59 8716.17 8373.27 (342.90) (3.93)

TOTAL: -22840.7

0 27318.9


GROSS BLOCK21384.9

9 26201.9

7 4816.98 22.53


8 13131.6

4 1179.36 9.87

NET BLOCK 9432.71 13070.3

3 3637.62 38.56 CAPITAL WORK IN PROGRESS 1414.17 2374.91 960.74 67.94 A

10846.88

15445.24 4598.36 42.39

INVESTMENTS B 3681.78 2210.94 (1470.84) (39.95)CURRENT ASSETS, LOANS & ADVANCES

INVERTORIES 9025.61 10703.2

1 1677.60 18.59 SUNDRY DEBTORS 4243.37 5228.75 985.38 23.22 CASH & BANK BALANCE 6028.76 4349.39 (1679.37) (27.86)LOANS & ADVANCES 3026.39 6695.79 3669.40 121.25

22324.1

3 26977.1

4 4653.01 20.84 LESS: CURENT LIAB & PROVI

LIABILITIES11468.9

5 16516.2

5 5047.30 44.01 PROVISIONS 2616.21 1042.30 (1573.91) (60.16)

14085.1

6 17558.5

5 3473.39 24.66


38


NET CURRENT ASSETS C 8238.97 9418.59 1179.62 14.32 MISCELLANEOUS EXPENSES D 73.07 244.18 171.11 234.17


0 27318.9

5 4478.25 19.61


The Loan Fund of the company decreased by 7.5%. Secured Loans increased by 95.04% because of Debentures and term loans are secured by certain immovable properties and movable assets of the Company. Cash credit facility is secured by certain movable assets and goods-in-transit and book debts and also by a charge on the immovable properties subordinate to the existing charge created in favor of the lenders.

During the year, the Company incurred capital expenditure of Rs. 6135 million. This expenditure covers investments in capacity expansion / up gradation and R&D. During the year, the capacity increased from 77,200 vehicles to 84,000 vehicles.

Net Current Assets (excluding cash / bank balances) stood at Rs. 5,069 million as against the previous year level of Rs.2, 210 million. FCCN funds parked in deposits in previous year were utilized for capital expenditure in the current year.

Inventories have gone up to Rs.10703 million as on 31st March 2007 compared to Rs.9026 million as on 31st March 2006. The increase is due to increased activity levels.

Debtor level increased to Rs.5229 million from Rs.4243 million due to higher level of fully built vehicles supplied to Defence.


39


CHAPTER 3

VERTICAL ANALYSIS

Vertical analysis is the proportional expression of each item on financial statement to the statement total. The results of vertical analysis are presented in the form of common number & always add up to 100. The items in Profit & Loss a/c are usually expressed as % of sales, while the balance sheet items are given as percentage of total shareholder’s fund & Liabilities or of total assets. Vertical analyses help in making comparisons of companies that differ in size since the financial statement is expressed in comparable common – size format. Further a comparison of common – size statements for several years may reveal important changes in the components from one year to the next.

EXHIBIT 3.1


40


3.1 COMMON – SIZE PROFIT & LOSS ACCOUNT OF ASHOK LEYLAND LTD FOR THE YEAR ENDED MARCH 31.

Figure in Percent (%)PARTICULARS 2003 2004 2005 2006 2007

INCOME SALES 99.43 99.45 98.73 99.38 99.02 OTHER 0.57 0.55 1.27 0.62 0.98 100.0

0 100.0

0 100.0

0 100.0

0 100.0

0 EXPENDITURE MANUFACTURING & OTHER EXPENSES 87.38 87.89 88.75 89.15 89.31 DEPRECIATION 3.82 2.83 2.58 2.39 2.08 FINANCIAL EXPENSES 2.17 0.61 0.07 0.31 0.07 93.37 91.33 91.39 91.85 91.47 PROFIT BEFORE EXTRAORDINARY EXPENSES 6.63 8.67 8.61 8.15 8.53 EXTRA ORDINARY EXPENSE 0.32 0.28 0.23 (0.41) 0.18 PROFIT\(LOSS) FOR THE YEAR (PBT) 6.31 8.39 8.38 8.57 8.35 PROVISION FOR TAXATION 1.85 2.72 1.97 2.37 2.25 PROFIT\(LOSS) FOR THE YEAR (PAT) 4.46 5.67 6.41 6.20 6.10

Comment on Profit & Loss Account:1. Sales: the common size statement shows that the main source of

income for the company is sales. In year 2003 sales in were 99.43% but in year 2004 it was highest up to 99.45%. Now in year 2005 it was decreased up to 98.73% and then it has been decreased to 99.38% and 99.02% in the year 2006 & 2007 respectively.

2. Total Expenditure: The total expenditure of the company has been found continuously increase up to year 2006-07. It has been increased due to increase in the total amount of sales. Financial expense is also decreased it is favorable sign for the company.

3. Profit before Tax: PBT in year 2003 is 6.31%. It was in year 2004, 2005, 2006 & 2007 it is little 8.39%, 8.38, 8.57 & 8.35 respectively.

4. Profit after Tax: According to common size statement PAT of the company for the year 2003 is 4.46% & than it has been increased to 6.41% in 2005 and than it has been reduced to 6.10%in the year 2007.


41


EXHIBIT 3.2

COMMON – SIZE BALANCE SHEETS OF ASHOK LEYLAND LTD AS ON MARCH 31

Figure in Percent (%)Particular 2003 2004 2005 2006 2007

SOURCE OF FUNDS

SHARE CAPITAL 4.88 4.64 3.51 3.31 2.95 RESERVE & SURPLUS 34.48 36.39 30.99 34.94 39.27 SECURED LOANS 20.70 12.11 7.78 5.00 8.03 UNSECURED LOANS 8.74 7.35 18.23 13.74 6.24 DEFERRED TAX LIABILITY 6.91 7.03 5.05 4.87 4.39 LIABILITIES 20.22 26.75 28.40 31.06 36.80 PROVISIONS 4.08 5.74 6.04 7.09 2.32

TOTAL100.0

0 100.0

0 100.0

0 100.0

0 100.0

0

APPLICATION OF FUND

FIXED ASSETS 37.02 34.12 26.41 25.54 29.12 CAPITAL WIP 1.53 1.80 2.52 3.83 5.29 INVESTMENTS 6.46 5.72 6.77 9.97 4.93 INVERTORIES 16.84 19.77 16.78 24.44 23.85 SUNDRY DEBTORS 21.25 15.82 13.55 11.49 11.65 CASH & BANK BALANCEEE 9.10 12.68 23.54 16.33 9.69 LOANS & ADVANCES 7.79 8.82 9.86 8.20 14.92 MISC. EXP. 0.00 1.26 0.57 0.20 0.54

TOTAL 100.0

0 100.0

0 100.0

0 100.0

0 100.0

0

1. Sources of Fund: the common size statement shows that the shareholder’s fund of the company in year 2002-03 was 39.36% & in year 2003-04 it was also increased up to 41.03% but in year 2004-05 was decreased up to 34.5% & in the year 2005-06 it increase to 48.25% & in the year 2006-07 it was highest increase i.e. by 42.22% the borrowed fund of the company goes on increasing in this year. It indicates that the company is less dependent on borrowed funds than shareholder’s fund.

2. Fixed Assets: According to common size statement, fixed assets of the company in years 2002-03, 2003-04, 2004-05, 2005-06 it were 37.02%, 34.12%, 26.41% , 25.54% respectively. It is happening due to sales has decreasing trend in this year. But in the year 2006-07 it increase to 29.12%

3. Investments: The investments of the company in year 2002-03 was 6.46% but it was decreased by 5.72% in year 2003-04 but it has increased by 6.77% in year 2004-05. In the year 2006-07 it was highest


42


increase of investment i.e. by 9.97%. But in the year 2006-07 it was decrease to 4.93%. It indicates that investments are stated at cost. If investment is more then company get more return.

4. Current Liabilities & Current Assets: the current liabilities of the company go on increasing every year. It means that there was decrease in working capital that affect the liquidity position of the company. The current assets has also increased every year that is 54.99%, 57.09%, 63.73% for the year 2002-03, 2003-04, 2004-05 accordingly.

The analysis of various figures shows that the company has satisfactory long term & short-term financial position. It shows financial position of company is sound.


43


3.3 COMPOSITION OF SHAREHOLDER’S FUNDS & LIABILITIES IN DIFFERENT YEARS

EXHIBIT 3.3SHAREHOLDER’S FUND

& LIABILITIES 2003 2004 2005 2006 2007SHARE CAPITAL 4.88 4.64 3.51 3.31 2.95 RESERVE & SURPLUS 34.48 36.39 30.99 34.94 39.27 SECURED LOANS 20.70 12.11 7.78 5.00 8.03 UNSECURED LOANS 8.74 7.35 18.23 13.74 6.24 DEFERRED TAX LIABILITY 6.91 7.03 5.05 4.87 4.39 CURRENT LIABILITIES 20.22 26.75 28.40 31.06 36.80 PROVISIONS 4.08 5.74 6.04 7.09 2.32 TOTAL 100.00 100.00 100.00 100.00 100.00

Chart -3.3

SHAREHOLDER’S FUND & LIABILITIES

0

510

1520

2530

3540

45

SHARECAPITAL

RESERVE &SURPLUS

SECUREDLOANS

UNSECUREDLOANS

DEFERRED TAXLIABILITY

CURRENTLIABILITIES

PROVISIONS

PARTICULARS

FIG

UR

ES I

N %

2003 2004 2005 2006 2007

Share Capital & Secured Loan decreasing in total funds. Reserve & surplus increases up to 36.39% in year 2003-04 but in

year 2004-05 it is decreased to 30.99%. Again it shows increase in the year 2005-06 as well as in year 2006 i.e. 34.94% & 39.27 respectively.

Unsecured Loan is increased up to year 2004-05 by 18.22% but it decreased to 6.24% in 2006-07

Proportion of C.L has increasing every year from 20.22% to 36.8%. Deferred tax liabilities decreased up to 2004-05 & than it remains

stable than after.


44


3.4 COMPOSITION OF ASSETS IN DIFFERENT YEARS

EXHIBIT 3.4

APPLICATION OF FUND 2003 2004 2005 2006 2007FIXED ASSETS 37.02 34.13 26.41 25.55 29.12 CAPITAL WIP 1.53 1.80 2.52 3.83 5.29 INVESTMENTS 6.46 5.72 6.77 9.97 4.93 INVERTORIES 16.84 19.78 16.78 24.44 23.85 SUNDRY DEBTORS 21.26 15.82 13.55 11.49 11.65 CASH & BANK BALANCE 9.11 12.67 23.54 16.32 9.69 LOANS & ADVANCES 7.79 8.82 9.86 8.20 14.92

MISCELLANEOUS EXP 0.00 1.26 0.57 0.20 0.54

TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00

Chart 3.4

COMPOSITION OF ASSETS

0

5

10

15

20

25

30

35

40

FIXED ASSETS CAPITAL WIP INVESTMENTS INVERTORIES SUNDRYDEBTORS

CASH & BANKBALANCE

LOANS &ADVANCES

MISCELLANEOUSEXP

PARTICULARS

FIG

UR

ES I

N %

2003 2004 2005 2006 2007

Here % of Fixed Assets decreasing every year from 37.02% to 25.55% up to year 2005-06& than it increases to 29.12%

Capital Work In Progress increases every year & Investment decreased up to 5.72% in 2003-04 but it is increased to 9.97% in 2005-06. But it again decreases to 4.93% in the year 2006-07.

Inventories have variation effects i.e. the values are fluctuating every year.

Debtors decreasing every year Cash & Bank balance increasing up to 2004-05 but decrease

thereafter up to 2006-07. Loan & Advances increases from 7.80% to 9.86% than decrease to

8.20% & it was highest in the year 2006-07 i.e. to 14.92% Misc. Exp. was zero in 2002-03 but it were increases up to 1.27% in

2003-04 again it is decreased to 0.20% in 2005-06 & again increase to 0.54% in 2006-07.


45


3.5 ANALYSIS OF SOURCES OF FUNDS & APPLICATION OF FUND

Particular 2002-03 2003-04 2004-05 2005-06 2006-07SOURCE OF FUNDSSHARE CAPITAL 6.44 6.87 5.36 5.35 4.85RESERVE & SURPLUS 45.55 53.89 47.27 56.49 64.50SECURED LOANS 27.34 17.93 11.87 8.09 13.19UNSECURED LOANS 11.54 10.89 27.80 22.21 10.26DEFERRED TAX LIABILITY 9.13 10.42 7.70 7.87 7.21TOTAL 100.00 100.00 100.00 100.00 100.00

APPLICATION OF FUNDFIXED ASSETS 50.93 53.21 44.12 47.49 56.54INVESTMENTS 8.54 8.47 10.33 16.12 8.09NET CURRENT ASSETS

40.54 36.45 44.68 36.07 34.48

MISCELLANEOUS EXPENSES 0.00 1.87 0.87 0.32 0.89TOTAL 100.00 100.00 100.00 100.00 100.00

For the year 2002-2003

Source of Fund:Chart 3.5.1

Sources of Fund For 2003

SECURED LOANS, 27.34

RESERVE & SURPLUS, 45.55

SHARE CAPI TAL, 6.44

DEFERRED TAX LI ABI LI TY, 9.13

UNSECURED LOANS, 11.54

SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS

UNSECURED LOANS DEFERRED TAX LIABILITY


46


Application of Fund:

Chart 3.5.2

APPLICATION OF FUND FOR 2003

NET CURRENT ASSETS ,

40.54

INVESTMENTS , 8.54

MISCELLANEOUS EXPENSES , 0.00

FIXED ASSETS, 50.93

FIXED ASSETS INVESTMENTS

NET CURRENT ASSETS MISCELLANEOUS EXPENSES

For the year 2003-04:Source of Fund:

Chart 3.5.3SOURCE OF FUNDS FOR 2004


SHARE CAPITAL, 6.87

DEFERRED TAX LIABILITY, 10.42



SHARE CAPITAL RESERVE & SURPLUS SECURED LOANSUNSECURED LOANS DEFERRED TAX LIABILITY

Application of Fund:Chart 3.5.4

APPLICATION OF FUND FOR 2004

I NVESTMENTS , 8.47


36.45

MI SCELLANEOUS EXPENSES , 1.87

FI XED ASSETS, 53.21




47


For the year 2004-05Source of Fund:

Chart 3.5.5

SOURCES OF FUNDS 2004-05




SHARE CAPITAL, 5.36





APPLICATION OF FUND FOR 2004-05

MISCELLANEOUS EXPENSES , 0.87


44.68

INVESTMENTS , 10.33

FIXED ASSETS, 44.12



For the year 2005-06Source of Fund:

Chart 3.5.7

SOURCE OF FUNDS FOR 2005-06

SHARE CAPITAL, 5.35



SECURED LOANS, 8.09





48




I NVESTMENTS 16.12

FI XED ASSETS 47.49

MI SCELLANEOUS EXPENSES

0.32NET CURRENT

ASSETS 36.07



For the year 2006-07

Source of Fund:Chart 3.5.9

SOURCE OF FUNDS FOR 2006-07


DEFERRED TAX LI ABI LI TY, 7.21



SHARE CAPI TAL, 4.85





INVESTMENTS 8.09

NET CURRENT ASSETS34.48

MISCELLANEOUS EXPENSES

0.89

FIXED ASSETS 56.54




49


From the above pie graphs we can see that the portion of secured loan is decreasing every year but it has increased in 2007 compared to 2006 & unsecured loan is decreased up to 2004 but this is increased to 27.80% in year 2005 and again decreased to 10.26% in 2007.

The portion of share capital which is 1189.29 has been same up to 2004-05 and increase to Rs. 1221.59 in 2005-06 & Rs. 1323.87 in 2006-07 but it shows decreasing trend in % due to increase in other fund.

Reserve & Surplus has been increase every year but in the year 2004-05 it is decreased but it again shows increasing trend.

Deferred tax liability has fluctuation trend in all the years. Fixed assets increasing every year but it are decreased to 44% in

year 2004 – 05 but again it shows increasing trends up to current year i.e. 2006-07.

Net current assets in this year is 45% that means the working capital of Ashok Leyland has efficient useful.

Miscellaneous expenses are Nil in year 2003 but it has increased by 1.87% in year 2004 and shows decreasing trend till 2005-06 but again it increases in the current year to 0.89% i.e. in 2006-07.


50


CHAPTER 4

TREND ANALYSIS

For studying the trend of various items of financial statements, figures of a single year are not enough. Comparative figures of some more years are significant. Such comparative figures may be either absolute figure or may be presented in % form. If the item of one year, which called base year, is compared with similar items of one year in the form of Percentage This method is known as trend percentage method or trend ratio method.

4.1 TREND OF PROFIT & LOSS ACCOUNTEXHIBIT 4.1

Figure in (%)Particulars 2003 2004 2005 2006 2007 INCOME SALES 100.0

0 126.6

2 156.0

2 195.78 267.4

3 OTHER 100.0

0 121.7

6 351.5

0 215.61 462.9

8 100.0

0 126.5

9 157.1

3 195.89 268.5

4 EXPENDITURE MANUFACTUREING & OTHER EXPENSES 100.0

0 127.3

4 159.5

9 199.86 274.4

9 DEPRECIATION 100.0

0 93.67 106.0

6 122.37 146.2

3 FINANCIAL EXPENSES 100.0

0 35.53 4.78 28.12 9.11

100.00

123.82

153.80

192.70 263.08

PROFIT BEFORE EXTRAORDINARY EXPENSES 100.0

0 165.5

6 203.9

4 240.86 345.4

6 EXTRA ORDINARY EXPENSE 100.0

0 109.8

1 110.5

4 (250.49) 150.8

4 PROFIT\(LOSS) FOR THE YEAR (PBT) 100.0

0 168.4

0 208.7

0 265.90 355.3

8 PROVISION FOR TAXATION 100.0

0 186.1

7 167.5

7 250.51 327.1

6


51


PROFIT\(LOSS) FOR THE YEAR (PAT) 100.0

0 161.0

3 225.7

8 272.29 367.0

9


52


Trend analysis of profit & loss account

4.1.1 Trend Analysis of Sales (Base Year: 2003)

EXHIBIT 4.1.1Particulars 2003 2004 2005 2006 2007SALES 100.00 126.62 156.02 195.78 267.43

Chart 4.1.1

SALES

267.43

195.78

156.02

100.00126.62

0

50

100

150

200

250

300

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

SALES

The above graph of sales shows continuously increase in the sales compared to the base year 2002-03.

In the year 2002-03 it was 100% it has been continuously increase to 267.14% in the year 2006-07. It means it has been increased 167.14% in this period.

In real it was 26803.75 (Rs In millions) in the year 2002-03 and increased to 71681.76 (Rs In millions).

So it is favorable for the company & increases the reputation of the company.

4.1.2 Trend Analysis of Expenditure (Base Year: 2003)

EXHIBIT 4.1.2

Particulars 2003 2004 2005 2006 2007EXPENDITURE 100.00 123.82 153.80 192.70 263.08

Chart 4.1.2


53


EXPENDITURE

263.08

192.70

153.80123.82

100.00

0

50

100

150

200

250

300

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

EXPENDITURE

The above graph of expenditure shows continuously increase in the expense compared to the base year 2002-03.


It has increased only because of sales has increased and only manufacturing expense has increased in total expense.


It has been increased only due to increases in sales, so it is good for the company.

4.1.3 Trend Analysis of PAT (Base Year: 2003)EXHIBIT 4.1.3

Particulars 2003 2004 2005 2006 2007PROFIT\(LOSS) FOR THE YEAR (PAT) 100.0

0 161.0

3 225.7

8 272.29

367.09

EXHIBIT 4.1.3

PROFIT\ (LOSS) AFTER TAX (PAT)

367.09

272.29225.78

161.03100.00

050

100150200250300350400

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

PROFIT\ (LOSS) AFTER TAX (PAT)

The above graph of PAT shows continuously increase in PAT compared to the base year 2002-03.


54


In the year 2002-03 it was 100% it has been continuously increase to 367.09% in the year 2006-07. It means it has been increased 267.09% in this period. It is very favorable for the company.

It has increased due to increase in sales over the years. In real it was 1202.12 (Rs In millions) in the year 2002-03 and

increased to 4412.86 (Rs In millions). It has been increased continuously, so by seeing the increase in

trend of PAT investors will increase. So it is favorable for the company.


55


EXHIBIT 4.2

4.2 TREND OF BALANCE SHEET

Particular 2003 2004 2005 2006 2007SOURCE OF FUNDS SHARE CAPITAL 100.00 100.00 100.00 102.72 111.32 RESERVE & SURPLUS 100.00 110.98 124.79 153.50 209.64 SECURED LOANS 100.00 61.51 52.22 36.60 71.39 UNSECURED LOANS 100.00 88.54 289.68 238.18 131.57 DEFERRED TAX LIAB. 100.00 107.00 101.39 106.64 116.87 LIABILITIES 100.00 139.12 195.02 232.70 335.11 PROVISIONS 100.00 147.75 205.48 262.90 104.74 TOTAL FUNDS 100.00 105.16 138.84 151.47 184.08

APPLICATION OF FUND

FIXED ASSETS 100.00 96.93 99.04 104.52 144.82 CAPITAL WIP 100.00 123.99 228.18 378.94 636.38 INVESTMENTS 100.00 93.04 145.45 233.65 140.31 INVERTORIES 100.00 123.51 138.40 219.89 260.76 SUNDRY DEBTORS 100.00 78.28 88.54 81.89 100.91 CASH & BANK BAL. 100.00 146.44 358.99 271.66 195.99 LOANS & ADVANCES 100.00 119.05 175.70 159.33 352.52 MISC. EXP 100.00 0.00 0.00 0.00 0.00 TOTAL ASSETS 100.00 105.16 138.84 151.47 184.08


56


Trend analysis of Balance Sheet:-

4.2.1 APPLICATION OF FUND

4.2.1.1 Trend Analysis of Net Fixed Assets (Base Year: 2003)

EXHIBIT 4.2.1.1

Particular 2003 2004 2005 2006 2007GROSS ASSETS 100.00 103.51 110.50 118.01 144.60 LESS: DEPRECIATION 100.00 110.03 121.86 131.41 144.38 NET FIXED ASSETS 100.00 96.93 99.04 104.52 144.82

Chart 4.2.1.1

The above graph of net fixed assets shows little fluctuation but net fixed assets have been increased compared to the base year 2002-03.

In the year 2002-03 it was 100% it increases to 144.82 in the year 2006-07. It means it has been increased 44.82% in this period.


Actually, gross fixed assets has been increased continuously but in the year 2003-04 & 2004-05 it shows downward trend only due to depreciation.

4.2.1.2 Trend Analysis of Investments (Base Year: 2003)

EXHIBIT 4.2.1.2Particular 2003 2004 2005 2006 2007INVESTMENTS 100.00 93.04 145.45 233.65 140.31


NET FIXED ASSETS

144.82

104.5299.0496.93100.00

0

20

40

60

80

100

120

140

160

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

NET FIXED ASSETS

57


Chart 4.2.1.2

INVESTMENTS

140.31

233.65

145.45

93.04100.00

0

50

100

150

200

250

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

INVESTMENTS

The above graph of trend of investments shows fluctuation but investments have been increased compared to the base year 2002-03.

In the year 2002-03 it was 100% but in the year 2003-04 it has been reduced to 93.04% but then it has been increased to 145.45% & 233.65% in the year 2004-05 & 2005-06 respectively but than it reduced to 140.31% in the year 2006-07 than to it has been increased 40.31% in this period.


It has reduced in the year 2006-07 because of sale of investments in this year.

4.2.1.3 Trend Analysis of Inventories (Base Year: 2003)EXHIBIT 4.2.1.3

Particular 2003 2004 2005 2006 2007INVENTORIES 100.00 123.51 138.40 219.89 260.76

Chart 4.2.1.3

INVENTORIES

260.76

219.89

138.40123.51

100.00

0

50

100

150

200

250

300

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

INVENTORIES

The above graph of trend of inventories shows continuously increase in the inventories compared to the base year 2002-03.


58




4.2.1.4 Trend Analysis of Sundry Debtors (Base Year: 2003)

EXHIBIT 4.2.1.4

Particular 2003 2004 2005 2006 2007SUNDRY DEBTORS 100.00 78.28 88.54 81.89 100.91

Chart 4.2.1.4

SUNDRY DEBTORS

100.91

81.8988.5478.28

100.00

0

20

40

60

80

100

120

2003 2004 2005 2006 2007

YEARS

PE

RC

EN

TA

GE

(%

)

SUNDRY DEBTORS

The above graph of trend of sundry debtor’s shows huge fluctuation over the years but sundry debtors has been increased compared to the base year 2002-03.

In the year 2002-03 it was 100% but in the year 2003-04 it has been reduced to 78.28% but then it has been increased to 88.54 in the year 2004-05 & again it reduced to 81.89% in the year 2005-06 but than it increased to 100.91% in the year 2006-07. It has been increased only by 0.91% in this period.


We can say that there is good control over the debtors, so it is favorable for the company.

4.2.1.5. Trend Analysis of Cash & Bank Balance (Base Year: 2003)

EXHIBIT 4.2.1.5Particular 2003 2004 2005 2006 2007

CASH & BANK BALANCE 100.00 146.44 358.99 271.66 195.9

9


59


EXHIBIT 4.2.1.5

CASH & BANK BALANCE

195.99

271.66

358.99

146.44100.00

0

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

CASH & BANK BALANCE

The above graph of trend of cash & bank balance shows huge fluctuation over the years but cash & bank balance has been increased compared to the base year 2002-03.

In the year 2002-03 it was 100% but it has been increased to 146.44% & 358.99% in the year 2003-04 & 2004-05 respectively. But then it has been reduced to 271.66% & 195.99% in the year 2005-06 & 2006-07 respectively. It means it has been increased 95.99% in this period.


4.2.1.6 Trend Analysis of Loans & Advances (Base Year: 2003)

EXHIBIT 4.2.1.6Particular 2003 2004 2005 2006 2007LOANS & ADVANCES 100.00 119.05 175.70 159.33 352.52

Chart 4.2.1.6

LOANS & ADVANCES

352.52

159.33175.70

119.05100.00

0

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

LOANS & ADVANCES

The above graph of trend of loans & advances shows increase in the loans & advances compared to the base year 2002-03.


60


In the year 2002-03 it was 100% it has been increased to 119.05% & 175.70% in the year 2003-04 & 2004-05 respectively but than it has been decreased to 159.33% in the year 2008-06 & than it has increased to 352.52% in the year 2006-07. It means it has been increased 252.52% in this period.


4.2.2 SOURCES OF FUND:-

4.2.2.1 Trend Analysis of Share Capital (Base Year: 2003)


SHARE CAPITAL 100.00 100.00 100.00 102.72 111.32

Chart 4.2.2.1

SHARE CAPITAL

111.32

102.72

100.00100.00100.00

949698

100102104106108110112114

2003 2004 2005 2006 2007

YEARS

PE

RC

EN

TA

GE

(%

)

SHARE CAPITAL

The above graph of trend of share capital shows stability & then increase in the share capital.

In the year 2002-03 it was 100% and than it has increased to 111.32% in the year 2006-07. It means it has been increased by 11.32% in this period.

It has been increased due to further issue of share, it has lead to increase the share capital.


They have issued the share capital to meet the further requirement of capital.

4.2.2.2Trend Analysis of Reserve & Surplus (Base Year: 2003)EXHIBIT 4.2.2.2

Particular 2003 2004 2005 2006 2007RESERVE & SURPLUS 100.00 110.98 124.79 153.50 209.64

Chart 4.2.2.2


61


RESERVE & SURPLUS

209.64

153.50124.79

110.98100.00

0

50

100

150

200

250

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

RESERVE & SURPLUS

The above graph of trend of reserve & surplus shows continuously increase in reserve & surplus compared to the base year 2002-03.

In the year 2002-03 it was 100% it has been continuously increase to 209.64% in the year 2006-07. It means it has been increased 109.64% in this period. It is very favorable for the company.

It has increased due to increase in PAT over the years. In real it was 8405.57 (Rs In millions) in the year 2002-03 and

increased to 17621.81 (Rs In millions). It is favorable for the company.

4.2.2.3 Trend Analysis of Shareholder’s Fund (Base Year: 2003)

EXHIBIT 4.2.2.3 Particular 2003 2004 2005 2006 2007

SHAREHOLDER’S FUND 100.00 109.62 121.72 147.21 197.4

6

Chart 4.2.2.3

SHAREHOLDER’S FUND

197.46

147.21121.72109.62100.00

0

50

100

150

200

250

2003 2004 2005 2006 2007

YEARS

PE

RC

EN

TA

GE

(%

)

SHAREHOLDER’S FUND

The above graph of trend of share holder’s fund shows continuously increase in the share holder’s fund compared to the base year 2002-03.


62



Share holder’s fund constitutes of share capital & reserves & surplus. The one of the reason for increase in the share holder’s fund is issue of new shares.


So it is favorable for the company & increases the reputation of the company.

4.2.2.4 Trend Analysis of Loan Funds (Base Year: 2003)


LOAN FUNDS 100.00 69.53 122.70 96.43 89.25

Chart 4.2.2.4

LOAN FUNDS

89.2596.43

122.70

69.53

100.00

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007

YEARS

PER

CEN

TA

GE (

%)

LOAN FUNDS

The above graph of trend of loan funds shows huge fluctuation over the years.

In the year 2002-03 it was 100% but it has been reduced to 69.53% in the year 2003-04 & than increased to 122.70% in the year 2004-05. But then it has been again reduced to 96.43% & 89.25% in the year 2005-06 & 2006-07 respectively. It means it has been reduced 10.75% in this period.


4.2.2.5 Trend Analysis of Deferred Tax Liability (Base Year: 2003)


DEFERRED TAX LIABILITY 100.00 107.00 101.39 106.64 116.8

7 Chart 4.2.2.5


63


DEFERRED TAX LIABILITY

116.87

106.64

101.39

107.00

100.00

90

95

100

105

110

115

120

2003 2004 2005 2006 2007

YEARS

PE

RC

EN

TA

GE

(%

)

DEFERRED TAX LIABILITY

The above graph of deferred tax liability shows fluctuation but deferred tax liability has been increased compared to the base year 2002-03.

In the year 2002-03 it was 100% but in the year 2003-04 it has been increased to 107.00% but then it has been reduced to 101.39% in the year 2004-05 & than it has increased to 106.64% & 116.87% in the year 2005-06 & 2006-07 respectively. That means it has been increased 16.87% in this period.


4.2.2.6 Trend Analysis of Current Liabilities & Provisions (Base Year: 2003)


CURRENT LIABILITIES & PROVISIONS

100.00

140.57

196.78

237.77

296.41

Chart 4.2.2.6


296.41

237.77196.78

140.57100.00

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007

YEARS

PE

RC

EN

TA

GE

(%

)


The above graph of trend of current liabilities & provisions shows continuously increase in the current liabilities & provisions compared to the base year 2002-03.


64



Current liabilities & provisions constitutes of liabilities & provisions. In real it was 5923.77 (Rs In millions) in the year 2002-03 and

increased to 17558.55 (Rs In millions).


65


CHAPTER 5

CASH FLOW ANALYSIS

The statement of Cash Flow respects an enterprise’s major sources of cash receipts and cash payments. It reports the cash effects during a period of an enterprise’s operation, its investing transactions, and its financing transactions. The statement provides information to understand the movements over the period in cash and cash equivalents.

Purpose and uses of the statement of Cash Flow:

The main purpose of the statement of cash flow is to provide relevant information about the cash receipt and cash payments of an enterprise during a period. The information will help users of financial statements to assess the amounts, timing and uncertainty of prospective cash flow to the enterprise.

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.7. Evaluate management decisions.

EXHIBIT 5.1


66


5.1 CASH FLOW STATEMENT FOR THE YEAR 2002 – 2003

PARTICULARS 2002-03 Profit before Tax 1701.02 ADJUSTMENTS FOR: Depreciation 1029.69 Other Amortizations 100.25 Unrealized foreign exchange gains / losses (2.24)Interest expense 810.42 Interest income (360.02)Income from Investments (92.11)Provision for diminution in value of Investments / Advances 20.72 (Profit)/Loss on disposal of Fixed Assets / Long Term Investments

(13.00)

Transfer from General Reserve - Employee benefits 0.00 Profit on sale of undertaking 0.00 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES

3194.73

ADJUSTMENTS FOR CHANGES IN: Inventories 1848.84 Debtors (254.16)Advances (125.20)Current Liabilities and Provisions 135.13 CASH GENERATED FROM OPERATIONS 4799.34 Income Tax (Paid) / Refund (558.78)NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXTRAORDINARY ITEM

4240.56

Payments under Voluntary Retirement Scheme (627.86)NET CASH FLOW FROM OPERATING ACTIVITIES AFTER EXTRAORDINARY ITEM (A)

3612.70

CASH FLOWS FROM INVESTING ACTIVITIES Payments for assets acquisition (1243.20)Proceeds on sale of Fixed Assets 11.61 Proceeds on sale of undertaking 0.00 Purchase of Long Term Investments (671.00)Sale/Redemption of Long Term Investments 48.04 Income from Investments - Interest 42.46 - Dividend 92.06 Changes in Advances 284.07 NET CASH FLOW FROM INVESTING ACTIVITIES (B) (1435.96)

CASH FLOWS FROM FINANCING ACTIVITIES Long term Borrowings - Raised 2321.17 - Repaid (3155.91)


67


Changes in Short term borrowings (871.42)Debenture issue and Loan raising expenses paid (1.66)Premium paid on Prepayment of Loan (65.18)Interest paid - net (449.81)Dividend Paid and tax thereon (535.18)Interim dividend and tax thereon 0.00 NET CASH FLOW FROM FINANCING ACTIVITIES (C) (2757.99)

NET CASH INFLOW / (OUTFLOW) (A+B+C) (581.25)OPENING CASH AND CASH EQUIVALENTS (D) 2842.98 CLOSING CASH AND CASH EQUIVALENTS (E) 2261.73 NET INCREASE IN CASH AND CASH EQUIVALENTS (E-D)

(581.25)

Interpretation:

Operating activities:

The Ashok Leyland Ltd’s net cash flow from operations of 3612.70 (Rs In Millions) is more than the sum of accrual based profit & depreciation that equals Rs. 2231.81, showing that the profit has been fully realized in cash. From the cash flow statements, the main positive item is the depreciation charge of Rs. 1029.69. Thus the company’s earning can be said to be of high quality. Increase in Inventories was 1848.84 and increase in debtors is Rs. 254.16 resulted in strain on the cash generated from generation.

Investing Activities:

From the Investing Activities section; Ashok Leyland Ltd has incurred capital expenditures of Rs. 1243.20. The expenditure has been financed partly by:

a) Realizing Rs. 11.61 from the Sales of Plant.b) Realizing Rs. 622.96 from the Sale Of Investments, Net OF

Purchase.c) Interest Revenue Rs. 42.46. This has left a gap of Rs. 1435.96

to be financed from other sources.

Financing Activities:

It is seen from the Financing Activities section that the Ashok Leyland Ltd raised long-term borrowing Rs. 2321.17 & repaid long term borrowing Rs. 3155.91. Further, the company paid dividend Rs. 535.18 and interest of Rs. 449.81 has been left, with net cash of Rs. 2757.99 from financing activities.

Net Cash Flow:


68


It is clear that the expansion in the plant & machinery during the period was major drain on cash. The net cash out flow from investing activities of Rs. 1435.96 was met from three sources:

1. Cash Flow from Operations, Rs. 3612.70.2. Proceeds from Issuance of Share Capital, Rs. 2757.99 (after

repaying loans & disturbing interest and dividend).3. Withdrawal from Cash Balance, Rs. 581.25.

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


69


EXHIBIT 5.2

5.2 CASH FLOW STATEMENT FOR THE YEAR 2003 – 2004


(28.96)

Transfer from General Reserve - Employee benefits 0.00 Profit on sale of undertaking 0.00 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES

3978.91

ADJUSTMENTS FOR CHANGES IN: Inventories (964.85)Debtors 1121.67 Advances (104.38)Current Liabilities and Provisions 2174.29 CASH GENERATED FROM OPERATIONS 6205.64 Income Tax (Paid) / Refund (520.37)NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXTRAORDINARY ITEM

5685.27


5406.83

CASH FLOWS FROM INVESTING ACTIVITIES Payments for assets acquisition (986.79)Proceeds on sale of Fixed Assets 26.26 Proceeds on sale of undertaking 0.00 Purchase of Long Term Investments (202.84)Sale/Redemption of Long Term Investments 508.39 Income from Investments - Interest 0.59 - Dividend 103.48 Changes in Advances (285.92)NET CASH FLOW FROM INVESTING ACTIVITIES (B) (836.83)

CASH FLOWS FROM FINANCING ACTIVITIES Long term Borrowings - Raised 1279.14


70


- Repaid (3392.37)Changes in Short term borrowings (71.26)Debenture issue and Loan raising expenses paid (5.08)Premium paid on Prepayment of Loan (142.75)Interest paid - net (346.68)Dividend Paid and tax thereon (670.83)Interim dividend and tax thereon 0.00 NET CASH FLOW FROM FINANCING ACTIVITIES (C) (3349.83)

NET CASH INFLOW / (OUTFLOW) (A+B+C) 1220.17 OPENING CASH AND CASH EQUIVALENTS (D) 2261.73 CLOSING CASH AND CASH EQUIVALENTS (E) 3481.90 NET INCREASE IN CASH AND CASH EQUIVALENTS (E-D)

1220.17

Interpretation: Operating activities:

Profit before tax was of Rs. 2846.60. The net cash flow from Operating Activities Rs. 2900.34 that includes the depreciation, other amortizations, and interest expenses were 964.54, 106.07, and 553.83 respectively. Increase in inventories, advances & current liabilities by 964.85, 104.38, 2174.29 respectively & decreases in debtors by 1121.67 Investing Activities: From the Investing Activities section; Ashok Leyland Ltd has incurred capital expenditures of Rs. 836.83. The expenditure has been financed partly by:


Purchase.c) Income from investments (including interest & dividend) Rs

104.08. This has left a gap of Rs. 836.83 to be financed from other sources.

Financing Activities: Long-term borrowing raised was Rs. 1279.14 that was repaid Rs. 3392.37. Interest paid and dividend paid 346.68 & 670.83 that carried out finance activities Rs. 3349.83. Net Cash Flow: In year 2003 – 2004 Net Cash in Flow is the summation of Operating, Investing & Financing that was [5406.83 + (836.83) + (3349.83)] 1220.17.


71


EXHIBIT 5.3

5.3 CASH FLOW STATEMENT FOR THE YEAR 2004 - 2005


(351.35)

Transfer from General Reserve - Employee benefits 0.00 Profit on sale of undertaking 0.00 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 4254.13 ADJUSTMENTS FOR CHANGES IN: Inventories (611.40)Debtors (120.32)Advances (1013.00)Current Liabilities and Provisions 2675.05 CASH GENERATED FROM OPERATIONS 5184.46 Income Tax (Paid) / Refund (693.29)NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXTRAORDINARY ITEM

4491.17


4473.46




72


- Repaid (1131.07)Changes in Short term borrowings 76.79 Debenture issue and Loan raising expenses paid (112.86)Premium paid on Prepayment of Loan 0.00 Interest paid - net 4.16 Dividend Paid and tax thereon (1008.54)Interim dividend and tax thereon 0.00 NET CASH FLOW FROM FINANCING ACTIVITIES (C) 2803.82

NET CASH INFLOW / (OUTFLOW) (A+B+C) 5722.81 OPENING CASH AND CASH EQUIVALENTS (D) 3481.90 CLOSING CASH AND CASH EQUIVALENTS (E) 9204.71 NET INCREASE IN CASH AND CASH EQUIVALENTS (E-D)

5722.81

Interpretation: Operating activities:

The Ashok Leyland Ltd’s net cash flow from operations of 4473.46 (Rs in Millions) is more than the sum of accrual based profit & depreciation that equals Rs. 3806.24, showing that the profit has been fully realized in cash. From the cash flow statements, the main positive item is the depreciation charge of Rs. 1092.14. Thus the company’s earning can be said to be of low quality. Increase in Inventories was Rs. 611.40 and increase in debtors is Rs.120.32 resulted in strain on the cash generated from generation.


Form the Investing Activities section; Ashok Leyland Ltd has payments for assets acquisition of Rs. 1824.56. The expenditure financed partly by:

a) Realizing Rs. 48.56 from the Sales of Plant.b) Realizing Rs. [154.16+ (92.60)] 61.56 from the Sale Of

Investments, Net of Purchase.c) Interest Revenue Rs. 42.70 & dividend 106.78. This has left a

gap of Rs. 1554.47 to be financed from other sources.

Financing Activities: It is seen from the Financing Activities section that the Ashok Leyland Ltd raised long-term borrowing Rs. 4975.34 & repaid long term borrowing Rs. 1131.07. Further, the company paid dividend Rs. 1008.54 and interest of Rs. 4.16 has been left, with net cash of Rs. 2803.82 from financing activities.

Net Cash Flow:



73


I. Cash Flow from Operations, Rs. 4473.46II. Proceeds from Issuance of Share Capital, Rs. 1554.47 (after

repaying loans & disturbing interest and dividend).III. Withdrawal from Cash Balance, Rs. 5772.81.



74


EXHIBIT 5.4

5.4 CASH FLOW STATEMENT FOR THE YEAR 2005 - 2006

PARTICULARS 2005-06 Profit before Tax 4523.00 ADJUSTMENTS FOR: Depreciation 1260.06 Other Amortizations 132.84 Unrealized foreign exchange gains / losses 102.05 Interest expense 288.33 Interest income (193.87)Income from Investments (87.47)Provision for diminution in value of Investments /Advances 0.00 (Profit)/Loss on disposal of Fixed Assets / Long Term Investments (66.61)Transfer from General Reserve - Employee benefits 0.00 Profit on sale of undertaking (301.66)OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES

5656.67

ADJUSTMENTS FOR CHANGES IN: Inventories (3477.99)Debtors (179.55)Advances 314.73 Current Liabilities and Provisions 2051.52 CASH GENERATED FROM OPERATIONS 4365.38 Income Tax (Paid) / Refund (1135.68)NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXTRAORDINARY ITEM

3229.70


3220.17




75


- Repaid (1162.88)Changes in Short term borrowings (76.79)Debenture issue and Loan raising expenses paid 0.00 Premium paid on Prepayment of Loan 0.00 Interest paid - net (166.96)Dividend Paid and tax thereon (1356.10)Interim dividend and tax thereon 0.00 NET CASH FLOW FROM FINANCING ACTIVITIES (C) (2576.04)NET CASH INFLOW / (OUTFLOW) (A+B+C) (691.72)OPENING CASH AND CASH EQUIVALENTS (D) 9194.94 CLOSING CASH AND CASH EQUIVALENTS (E) 8503.22 NET INCREASE IN CASH AND CASH EQUIVALENTS (E-D)

(691.72)

Interpretation:


The Ashok Leyland Ltd’s net cash flow from operations of 3220.17 (Rs in Millions) is less than the sum of accrual based profit & depreciation that equals Rs. 4533.26, showing that the profit has not been fully realized in cash. From the cash flow statements, the main positive item is the depreciation charge of Rs. 1260.06. Thus the company’s earning cannot be said to be of high quality. Increase in Inventories was Rs. 3477.99 and increase in debtors is Rs.179.55 resulted in strain on the cash generated from generation.



a) Realizing Rs. 54.34 from the Sales of Plant.b) Realizing Rs. [479.68 + (138.66)] 341.02 from the Sale Of

Investments, Net OF Purchase.c) Interest Revenue Rs. 48.95 & dividend 56.93. This has left a

gap of Rs. 1335.85 to be financed from other sources.


It is seen from the Financing Activities section that the Ashok Leyland Ltd raised long-term borrowing Rs. 186.69 & repaid long term borrowing Rs. 1162.88. Interest paid and dividend paid 166.96 & 1356.10 that carried out finance activities Rs. 2576.04.

Net Cash Flow:


76



1. Cash Flow from Operations, Rs. 3220.172. Proceeds from Issuance of Share Capital, Rs. 1335.85 (after

repaying loans & disturbing interest and dividend).3. Withdrawal from Cash Balance, Rs. 691.72.



77


EXHIBIT 5.5

CASH FLOW STATEMENT FOR THE YEAR 2006 - 2007

PARTICULARS 2006-07 Profit before Tax 6045.06 ADJUSTMENTS FOR: Depreciation 1505.74 Other Amortizations 164.76 Unrealized foreign exchange gains / losses (65.30)Interest expense 196.46 Interest income (160.94)Income from Investments (98.85)Provision for diminution in value of Investments / Advances (168.13)(Profit)/Loss on disposal of Fixed Assets / Long Term Investments (323.15)Transfer from General Reserve - Employee benefits (781.54)Profit on sale of undertaking 0.00 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES

6314.11

ADJUSTMENTS FOR CHANGES IN: Inventories (1677.60)Debtors (1005.76)Advances (1047.41)Current Liabilities and Provisions 4102.54 CASH GENERATED FROM OPERATIONS 6685.88 Income Tax (Paid) / Refund (1356.00)NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXTRAORDINARY ITEM

5329.88


4999.51

CASH FLOWS FROM INVESTING ACTIVITIES Payments for assets acquisition (6812.87)Proceeds on sale of Fixed Assets 108.49 Proceeds on sale of undertaking 0.00 Purchase of Long Term Investments (50.64)Sale/Redemption of Long Term Investments 557.64 Income from Investments - Interest 44.78 - Dividend 129.39 Changes in Advances (1473.70)NET CASH FLOW FROM INVESTING ACTIVITIES (B) (7496.91)



78


- Repaid (829.95)Changes in Short term borrowings 0.00 Debenture issue and Loan raising expenses paid (2.47)Premium paid on Prepayment of Loan 0.00 Interest paid - net (167.02)Dividend Paid and tax thereon (1792.34)Interim dividend and tax thereon (2264.32)NET CASH FLOW FROM FINANCING ACTIVITIES (C) (2893.75)

NET CASH INFLOW / (OUTFLOW) (A+B+C) (5391.15)OPENING CASH AND CASH EQUIVALENTS (D) 8503.22 CLOSING CASH AND CASH EQUIVALENTS (E) 3112.07 NET INCREASE IN CASH AND CASH EQUIVALENTS (E-D)

(5391.15)

Interpretation:


The Ashok Leyland Ltd’s net cash flow from operations of 4999.51 (Rs in Millions) is less than the sum of accrual based profit & depreciation that equals Rs. 5918.60, showing that the profit has not been fully realized in cash. From the cash flow statements, 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 was Rs. 1677.60 and increase in debtors is Rs. 1005.76 resulted in strain on the cash generated from generation.




Purchase.c) Interest Revenue Rs. 42.70. This has left a gap of Rs. 1554.47

to be financed from other sources.


It is seen from the Financing Activities section that the Ashok Leyland Ltd raised long-term borrowing Rs. 6812.87& repaid long term borrowing Rs. 829.95. In effect, the net realization from long-term sources was Rs. 507. Further, the company paid dividend Rs. 1792.34and interest of Rs. 167.02 has been left, with net cash of Rs. 2893.75 from financing activities.


79


Net Cash Flow:


I. Cash Flow from Operations, Rs. 4999.51II. Proceeds from Issuance of Share Capital, Rs. 7496.91 (after

repaying loans & disturbing interest and dividend).III. Withdrawal from Cash Balance, Rs. 5391.15



80


CHAPTER 6

RATIO ANALYSIS

The relationship of one item to another expressed in a simple mathematical form is known as the “RATIO”. A ratio is a quotient to two numbers. It must be interpreted against some standard. In assessing the financial stability of a firm, a management should, part form profitability, be interested in relative figures. A ratio is of major importance for financial analysis; it engages qualitative measurement & shows precisely how adequate is one key item in relation to another. To evaluate the financial condition & the purpose of the firm the financial analyst needs certain yardsticks. The yardsticks frequently used in ratio or an index relating two pieces of financial data to each other’s.

UTILITY OF RATIO ANALYSIS:

1. Probability. 2. Liquidity. 3. Efficiency. 4. Inter – Firm Comparison.5. Indicates Trend.6. Useful of Budgetary Controls.7. Useful for Decision Making.

This ratio analysis contains five types of ratio as below:

2. Profitability Ratios.3. Liquidity Ratios.4. Assets Turnover Ratios.5. Finance Structure Ratios.6. Valuation Ratios.

6.1 Profitability Ratios:

Profitability ratio measures the degree of operating success of a company in an accounting period. Two types of profitability ratios are there.

1. Profit Margin Ratios.2. Rate of Return Ratios.

A profit margin ratio shows the relationship between profit & sales. Three popular profits margin ratios are:


81


Gross Profit Margin Ratios. Net Profit Margin Ratios. Operating Profit Ratios.

Gross Profit Margin Ratio:

It shows the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing.

Gross Profit Margin Ratio = Gross Profit/ Sales X 100.

EXHIBIT 6.1.1 (Rs in Millions)

Particular 2002 2003

2003 2004

2004 2005

2005 2006

20062007

Net Sales 26803.75

33938.84

41818.97

52476.57

71681.76

Cost of Goods Sold

23554.18

29992.80

37590.47

47075.87

64654.91

Gross Profit. 3249.57 3946.04 4228.50 5400.70 7026.85 Gross Profit Ratios.

12.12% 11.63% 10.11% 10.29% 9.80%

Chart 6.1.1

GROSS PROFIT RATIO

12.12 11.6310.11 10.29 9.80

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2002 - 2003 2003 - 2004 2004 - 2005 2005-2006 2006-2007

YEARS

PE

RC

EN

TA

GE

(%

)

Gross Profit Ratios.

The table shows that gross profit has been increased continuously increased over the years.

The reason for increase in the gross profit is due to increase in sale. Sale has been continuously increased over the years Although the gross profit has been increased over the years it has

been found that gross profit ratio has been decreased continuously. In year 2002 – 2003 the GPR was at highest 12.12% but it was again

decrease up to 9.80% in year 2006 – 2007.


82


It has been reduced continuously over the years This ratio shows the better profitability for company but gross profit

ratio has been decreased continuously over the year. So company should take certain steps to increase it.

Net Profit Margin Ratios:

It is most significant of all revenue ratios as it indicates the ultimate profitability of the firm. This ratio is useful to the shareholders for knowing the EPS and to investors in judging the prospects of return on their investments higher ratio indicated higher profitability.

Net Profit Margin Ratio = Net Profit / Sales x 100.



2003 2004

2004 2005

2005 2006

2006 2007

Net Profit. 1202.12 1935.80 2714.10 3273.20 4412.86 Sales. 26803.7

5 33938.8

4 41818.9

7 52476.5

7 71681.7

6 Net Profit

Ratio.4.48% 5.70% 6.49% 6.24% 6.16%

Chart 6.1.2

NET PROFIT RATIO

4.485.70 6.166.246.49

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

PER

CEN

TA

GE (

%)

Net Profit Ratio.

The table shows that there is fluctuation in Net Profit Ratio. In year 2002 – 2003, the NPR was at lowest 4.48% but it was again

increased up to 6.49% which is highest in the year 2004-2005. but again it reduced to 6.16% in 2006-2007.

This ratio shows a better profitability of the firm, which suggests a satisfactory position.


83


Operating Profit Ratio:

This ratio indicate the portion that the cost of sales bears to sales cost of sales includes direct cost of good sold as well as operating expenses, administrative, selling & distribution expenses which, have matching relationship with sales. It is calculated as:

Operating Profit ratio = Operating Profit / Sales X 100.

EXHIBIT 6.1.3(Rs. In Million)


2003 2004

2004 2005

2005 2006

2006 2007

Operating Profit. 1701.02 2864.60 3550.10 4523.00 6045.06Sales. 26803.7

5 33938.8

4 41818.9

7 52476.5

7 71681.7

6 Operating

Profit Ratio.6.35% 8.44% 8.49% 8.62% 8.43%

Chart 6.1.3

OPERATING PROFIT RATIO

8.438.628.498.44

6.35

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

PER

CEN

TA

GE(%

)

Operating Profit Ratio.

The Operating Profit is equal to Sales minus Expenditure of the company. The operating profit ratio goes increasing every year.

In year 2002 – 2003, the OPR was at lowest 6.35% but it was again increased up to 8.44% in year 2003 – 2004. In 2004 – 2005 OPR IS 8.49%, which is highest.

From the year 2005-06 it started reducing & in the year 2006-07 it reduced to 8.43% because the current year witnessed increase in commodity prices and consequent price increase claims by suppliers. In addition, there were cost increases on account of compliance with statutory regulations, which has not been fully passed on to the customers. The margin also suffered due to full impact of previous year’s input cost increases. However the


84


introduction of VAT in Tamil Nadu effective January’07 will improve future margins.

Rate of return ratios reflects the relationship between Profit & Investments. Important rate of return ratios measures are:

Return on assets or Return on investments. Return on equity. Earning power.

Return on assets or Return on investments: This is measure of profitability from a given level of investments. It is an excellent indicator of overall performance of a company. It is also called return on capital employed or return on investment. It measures how efficiently the capital is employed.

Return on Assets = Net Profit / Average Total Assets X 100



2003 2004

2004 2005

2005 2006

2006 2007

Profit After Tax. 1202.12 1935.80 2714.10 3273.20 4412.86P Y Total Assets 21140.8

718455.0

717309.9

122191.1

922840.7

0CY Total Assets 18455.0

717309.9

122191.1

922840.7

027318.9

5Average Total Assets.

19797.97

17882.49

19750.55

22515.95

25079.83

Return on Assets Ratio

6.07% 10.83% 13.74% 14.54% 17.60%

Chart 6.1.4

RETURN ON ASSETS RATIO

14.54

10.83

6.07

17.6013.74

0.002.004.006.008.00

10.0012.0014.0016.0018.0020.00

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

PER

CEN

TA

GE(%

)

Return on Assets Ratio.

Average Total Assets = C. Y. Assets + P. Y. Assets / 2

2002 – 2003 = 21140.87 + 18455.07 / 2 = 19797.97. 2003 – 2004 = 18455.07 + 17309.91 / 2 = 17882.49.


85


2004 - 2005 = 17309.91 + 22191.19 / 2 = 19750.55.2005 - 2006 = 22191.19 + 22840.70 / 2 = 22515.95.2006 - 2007 = 22840.70 + 27318.95 / 2 = 25079.83.

The ROA goes increasing every year i.e. 6.07% to 17.60%. This is showing the efficiency in the use of capital. The company can

earn more profit by optimizing the use of assets. The ROA has increased every year because of increase in profit

every year. The ratio in year 2003 – 2004 is more than the year 2002 – 2003

because there is reduction in average total assets.

Return On Equity:

It measures the profitability of equity funds invested in firm.

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

EXHIBIT 6.1.5 (Rs. in Millions)


2003 2004

2004 2005

2005 2006

2006 2007

PAT or Equity Earning. 1202.12 1935.80 2714.10

3273.20 4412.86

P Y Shareholder’s Equity

10369.53 9594.86

10517.97

11678.65

14124.53

CY Shareholder’s Equity 9594.86

10517.97

11678.65

14124.53

18945.68

Average Shareholder’s Equity

9982.20 10056.42

11098.31

12901.59

16535.11

Return on Equity Ratio

12.04% 19.25% 24.46% 25.37% 26.69%

Average Shareholder’s Equity = C. Y Equity + P. Y Equity / 2. 2002 – 2003 = 10369.53 + 9594.80 / 2 = 9982.19. 2003 – 2004 = 9594.86 + 10517.97/ 2 = 10056.41. 2004 – 2005 = 10517.97 + 11678.65 / 2 = 11098.31.

2005 – 2006 = 11678.65 + 14124.53/2 = 12901.592006 – 2007 = 14124.53 + 18945.68/2 = 16535.11

Chart 6.1.5


86


RETURN ON EQUITY RATIO

12.04%

19.25%

24.46% 25.37% 26.69%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

PER

CEN

TA

GE (

%)

Return on Equity Ratio.

Return on Equity is continuously increasing i.e. from 12.04% in the year 2002-03 to 26.69% in 2006-07 that mean the equity funds invested in the company/ firm is good which shows that the profitability of the business is increasing year by year.

Return of the equity of the company has been increased in 2004 – 2005 to 24.55% from 12.04% in 2002 – 2003. This means that per Re.1. Of shareholder’s equity, company earning 12 paisa.

In 2003 – 2004, Average shareholder’s equity (Owner’s Capital + Reserve & Surplus) has been increased by 0.74% while the PAT has been increased by 61.03% & in year 2004 – 2005 increase in average shareholder’s equity is 10.36% & increase in PAT is 40.20%. So the return on equity has increased.

Earning Power: The earning power is a measure of business performance, which is not affected by Interest & Tax. It is measure of operating profitability.

Earning Power = Earning before Profit & Tax / Average Total Assets x 100.

EXHIBIT 6.1.6 (Rs. in millions)


2003 2004

2004 2005

2005 2006

2006 2007

Profit Before Tax. 1701.02 2864.6 3550.1 4523 6045.06P Y Total Assets 21140.8

718455.0

717309.9

122191.1

922840.7

0CY Total Assets 18455.0

717309.9

122191.1

922840.7

027318.9

5Average Total Assets.

19797.97

17882.49

19750.55

22515.95

25079.83

Earning Power Ratio.

8.59% 16.02% 17.97% 20.09% 24.10%

Chart 6.1.6


87


EARNING POWER RATIO

8.59%

16.02%

20.09%

24.10%

17.97%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

PER

CEN

TA

GE (

%)

Earning Power Ratio.

The Earning Power of the company has been increased to 24.10% in year 2006 – 2007 from 8.59% in year 2002 – 2003.

This is because the increase in earning before interest & tax (EBIT) is more than increase in average total assets.

In 2003 – 2004 the EBIT is increased by 16.02% while PAT is increased by 61.03% because interest & tax is less.

In year 2004 – 2005 EBIT increased by 17.97% while PAT is increased by 40.20% because interest & tax is only by 19%.

In year 2005 – 2006 EBIT increased by 20.09% while PAT is increased by 20.60% because interest & tax is less compares to last year.

In year 2006 – 2007 EBIT increased by 24.10% while PAT is increased by 34.82% because interest & tax is less compares to last year.


88


6.2 Liquidity Ratios:Liquidity is the ability of a company to meet its short-term obligations when fall due. A company should have enough cash % other current assets, which can be converted in to cash so that it can pay its suppliers & lenders on time.In evaluating Ashok Leyland Ltd’s liquidity five ratios are presented.

Current Ratio. Quick Ratio or Acid-test Ratio. Net Working Capital. Cash Generated Per Rupee of Sales. Bank Finance Gap Ratio.

Current Ratio: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

EXHIBIT 6.2.1 (Rs. In Millions)


2003 2004

2004 2005

2005 2006

2006 2007

Current Assets. 13404.70

14636.67

21572.63

22324.13

26977.14

Current Liabilities. 5923.77 8327.02

11656.67

14085.16

17558.55

Current Ratio 2.26 1.76 1.85 1.58 1.54

Chart 6.2.1

CURRENT RATIO

1.541.581.851.76

2.26

0.00

0.50

1.00

1.50

2.00

2.50

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

IN

TIM

ES

Current Ratio.


89


Composition of current ratio is very important at the time of interpretation. Current ratio indicates the sound short term finance from the creditor’s point of view. But on the other hand the higher ratio indicates blocking of funds in current assets. As a conventional rule, current ratio of 2:1 or more is considered satisfactory. To through more light on the quality of current assets the percentage of the current assets is to be calculated.

However, an arbitrary standard of 2:1 should not be blindly followed. Firm’s wit less then 2:1 current ratios may be doing well, while firms with 2:1 or even higher may be finding great difficulties in paying their bills. This is because the current ratio is a test of quantity not quality.

Current Ratio is 2.26 in 2002 – 2003 & decreased up to 1.54 in 2006 – 2007 because current liabilities increased rapid than the increase in current assets.

In the Current ratio it has been found decreasing than the base year, so it is not a favorable sign for the company, it should take certain measure to increase it.

Quick Ratio or Acid Test Ratio:

The Quick Ratio is a more absolute test of a firm’s ability to meet its immediate liabilities. It base on those current assets, which are highly liquid inventories, is excluded from the numerators of this ratio because inventories are deemed to be the least liquid component of current assets.

Quick Ratio = Quick Assets / Liquid Liability.



2003 2004

2004 2005

2005 2006

2006 2007

Current Assets. (A)

13404.7

14636.67

21572.63

22324.13

26977.14

Inventories (B) 4104.56 5069.41 5680.81 9025.61

10703.21

Quick Assets (A-B) 9300.14

9567.26 15891.82

13298.52

16273.93

Liquid Liabilities. 5923.77 8327.02

11656.67

14085.16

17558.55

Quick Assets Ratio.

1.57 1.15 1.36 0.94 0.93


90


Chart 6.2.2

QUICK ASSET RATIO

1.57

1.15

1.36

0.94 0.93

0.000.200.400.600.801.001.201.401.601.80

2002 - 2003 2003 - 2004 2004 – 2005 2005 - 2006 2006 - 2007

YEARS

IN T

IME

S

Quick Assets Ratio.

Generally a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. A quick ratio of 1:1 or more does not necessarily imply sound liquidity position.

A company with a high value of quick ratio can flounder if it has slow-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.

It has same effect as Current Ratio. In year 2002–2003 the ratio was 1.57, which was highest & also

satisfactory level. But then in year 2006–2007, it was decreased to 0.93. Because of rapid increase in liquid liabilities.

Net Working Capital:

This ratio represents that part of the long-term fund represented by the net worth & long-term dept, which are permanently blocked in current assets. Certain minimum level of safety stock, permanent customers unpaid bills, compensatory minimum bank balance & minimum cash balance are the example of permanent working capital.

Net Working Capital = Total Current Assets – Total Current Liabilities.



2003 2004

2004 2005

2005 2006

2006 2007

Current Assets.13404.7

14636.67

21572.63

22324.13

26977.14


11656.67

14085.16

17558.55


91


Net Working Capital

7480.93

6309.65 9915.96 8238.97 9418.59

Chart 6.2.3

NET WORKING CAPITAL

7480.936309.65

9915.96

8238.979418.59

0

2000

4000

6000

8000

10000

12000

2002 2003 2003 2004 2004 2005 2005 2006 2006 2007

YEARS

RS

. IN

MILLIO

N

Net Working Capital

Net working capital has been found very fluctuating every year. Net Working Capital in this year (2004 – 2005) is very useful for

other purpose because it is highest i.e. 9915.96.

Cash Generated Per Rupee of Sales:

This ratio shows that percentage (or Paisa per rupees) of sales which is available in cash form

Cash Generated Per Rupee of Sales = PAT + Depreciation + Non Cash Exp. / Sales X 100


Particular 2002 - 2003

2003 - 2004

2004 - 2005

2005 2006

2006 2007

PAT 1202.12 1935.80 2714.10 3273.20 4412.86 Depreciation 1029.69 964.54 1092.14 1260.06 1505.74 Non Cash Items 671.79 303.10 123.81 (52.62) 184.08 PAT + Dep. + Non Cash Exp 2903.60 3203.44 3930.05 4480.64 6102.68 Sales. 26803.7

5 33938.8

4 41818.9

7 52476.5

7 71681.7

6 Cash Generated Per Rupee Of Sales Ratio

10.83% 9.44% 9.40% 8.54% 8.51%


92


Chart 6.2.4

CASH GENERATED PER RUPEES OF SALES RATIO

8.51%8.54%

9.40%9.44%

10.83%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2002 - 2003 2003 - 2004 2004 - 2005 2005 2006 2006 2007

YEARS

PER

CEN

TA

GE (

%)

Cash Generated Per Rupee Of Sales Ratio

The Cash Generated per Rupee of Sales Ratio includes PAT, depreciation & non-cash expenses (interest).

In the year 2002-2003 cash generated per rupee of sale was highest i.e. 10.83% but it has been than continuously reduced to 8.51% in the year 2006-2007.

Bank Finance Gap Ratio.

Bank Finance Gap Ratio = Total Current Assets – MPBF under Tandon CommitteeMPBF indicates maximum permissible bank finance under tandon committee recommendations of 1975. The maximum permissible bank finance was restricted to 75% of the working capital gap under three successive methods of bank leading.

Method 1:75% (Current Assets – Current Liabilities)

EXHIBIT 6.2.5.1Particular 2002

20032003 2004

2004 2005

2005 2006

2006 2007


14636.67

21572.63

22324.13

26977.14


11656.67

14085.16

17558.55

CA- CL 7480.93 6309.65 9915.96 8238.97 9418.5975%(CA-CL) 5610.70 4732.24 7436.97 6179.23 7063.94


93


Method 2:75% (Current Assets) – Current Liabilities

EXHIBIT 6.2.5.2Particular 2002

20032003 2004

2004 2005

2005 2006

2006 2007


14636.67

21572.63

22324.13

26977.14

75% Current Assets

10053.53

10977.50

16179.47

16743.10

20232.86


11656.67

14085.16

17558.55

75%(CA)-CL 4129.76 2650.48 4522.80 2657.94 2674.31

Method 3:75% (Current Assets – Core Current Assets*) – Current Liabilities.

EXHIBIT 6.2.5.3


2003 2004

2004 2005

2005 2006

2006 2007

Current Assets. 13404.70 14636.67 21572.63 22324.13 26977.14 Core Current Assets (Quick Assets)

9300.14 9567.26 15891.82 13298.52 16273.93

CA -CCA 4104.56 5069.41 5680.81 9025.61 10703.21 75% (CA- CCA) 3078.42 3802.06 4260.61 6769.21 8027.41 Current Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55 75%(CA)-CL (2845.35) (4524.96) (7396.06) (7315.95) (9531.14)

Assets Turnover Ratios

Assets Turnover Ratios are basically Production ratios which measures the output produced from the given input deployed. The relationship of productivity is equal to output divided by input & assets turnover is equal to sales divided by Assets.

Assets Turnover Ratios are as follows: Total Assets Turnover. Net Fixed Assets Turnover. Net Working Capital Turnover. Inventory Turnover. Debtor’s Ratio.


94


Total Assets Turnover:

It shows the relationship between total assets to sales. The sales are affected through investment in fixed assets to earn profit. The higher ratio show that with less amount of investment in total assets, the business has capacity to sell more as such its probability is also more.

Total Assets Turnover = Sales / Total Assets

Where Total Assets = Fixed Assets + Investments + Net Current Assets + Misc. Expenses.

EXHIBIT 6.3.1(Rs. In Millions)


2003 2004

2004 2005

2005 2006

2006 2007

Sales. 26803.75

33938.84

41818.97

52476.57

71681.76

Total Assets. 18455.07

17309.91

22191.19

22840.70

27318.95

Total Assets Turnover Ratio.

1.45 times

1.96 times

1.88 times

2.30 times

2.62 times

Chart 6.3.1

TOTAL ASSETS TURNOVER RATIO

1.45

1.96 1.88

2.302.62

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2002 - 2003 2003 - 2004 2004 – 2005 2005 2006 2006 2007

YEARS

IN T

IMES

Total Assets Turnover Ratio.

Total assets turnover ratio has increased in 2003–2004 that shows the efficient utilization of total assets of the company.

But in year 2004–2005 ratios is decreased to 1.88 times which shows companies has not utilized efficiently it’s total fixed assets in sales as compared to 2002-2003.

But after that it has been increased to 2.30 in 2005-2006 and 2.62 in the year 2006-2007.


95


It is very good sign for the company that it is increasing its use of fixed assets over sales.

Net Fixed Assets Turnover Ratio:

The Fixed Assets Turnover shows the efficiency & profitability of business by comparing the fixed assets with sales. The higher ratio shows that the fixed assets are using efficient manner to increase the sales.

Fixed Assets Turnover Ratio = Sales / Net Fixed Assets.



2003 2004

2004 2005

2005 2006

2006 2007

Sales. 26803.75

33938.84

41818.97

52476.57

71681.76

Net fixed assets9398.38 9211 9790.01

10846.88

15445.24

Fixed assets turnover Ratio

2.85 times

3.68 times

4.27 times

4.84 times

4.64 times

Chart 6.3.2

FIXED ASSETS TURNOVER RATIO

4.84

2.85

3.68 4.27

4.64

0

1

2

3

4

5

6

2002 - 2003 2003 - 2004 2004 – 2005 2005 2006 2006 2007

YEARS

IN T

IMES

Fixed assets turnover Ratio

A fixed assets turnover ratio has been increased. It indicates that fixed assets utilized more efficient in business.

In year 2003-04 the net fixed assets have been decreased by 3.07% and the net sales are increased by 26.62%. So the fixed assets turnover ratio has increased by from 2.85 to 3.68 times.

In 2004-05, the net fixed assets increased by 2.17% and the net sales increased by 23.22%. so the net fixed assets turnover ratio increased to 4.27 time


96


In 2005-06, the net fixed assets increased by 5.53% and the net sales increased by 25.49%. So the net fixed assets turnover ratio increased to 4.84 times which is highest over the period.

In 2006-07, the net fixed assets increased by 38.56% and the net sales increased by 36.60%. Net fixed asset has been increased more than increase in sales. So the net fixed assets turnover ratio decreased to 4.64 times from 4.84 times.

Fixed Working capital turnover Ratio:

It shows the relationship between sales and working capital. It indicates the liquidity strength of the company higher ratio high liquidity; it means company has enough working capital due effective management.

Fixed working capital Turnover Ratio = Sales / Net working Capital.



2003 2004

2004 2005

2005 2006

2006 2007

Sales. 26803.75

33938.84

41818.97

52476.57

71681.76

Current Assets.13404.7

14636.67

21572.63

22324.13

26977.14


11656.67

14085.16

17558.55

Net Working Capital

7480.93 6309.65 9915.96 8238.97 9418.59

Fixed Working Capital

Turnover Ratio

3.58 times

5.38 times

4.22 times

6.37 times

7.61 times

Chart 6.3.3

FIXED WORKING CAPITAL TURNOVER RATIO7.61

3.58

5.38

4.22

6.37

0

1

2

3

4

5

6

7

8

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

YEARS

IN T

IME

S

Fixed Working Capital Turnover Ratio


97


In the fixed working capital turnover ratio too much of fluctuation has been found but then it has increased.

In 2002-03 the ratio was 3.58 times but in year 2003-04 it was increased to 5.38 times but in the year 2004-05 it has been reduced to 4.22 times but than it has increased to 6.37times & 7.61times in the year 2005-06 & 2006-07 respectively. It indicates there is proper utilization of working capital to increase sales.

In 2004-05 net working capital increased by 57.16% but sales has also increased by 23.22% but it is less than the percentage increase in working capital. So Ratio bas been decreased.

Inventory turnover Ratio:

It is also known as Stock Turnover Ratio. It is the number of times. Its average inventories sold during the year. A high inventory turnover is an indication good inventory management & favorable trading situation.

Inventory Turnover Ratio = Cost of Goods Sold / Average Stock.



2003 2004

2004 2005

2005 2006

2006 2007

Cost of Goods Sold.

23554.18

29992.80

37590.47

47075.87

64654.91

Opening Stock (A)

5953.40 4104.56 5069.41 5680.81 9025.61

Closing Stock(B)4104.56 5069.41 5680.81 9025.61

10703.21

Average Stock (A+B)/2

5028.984586.98

55375.11 7353.21 9864.41

Inventory Turnover Ratio

4.68 times

6.54 times

6.99 times

6.40 times

6.55 times


98


Chart 6.3.4

I NVENTORY TURNOVER RATI O

4.68

6.54 6.40 6.556.99

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

2002 - 2003 2003 - 2004 2004 - 2005 2005 2006 2006 2007

YEARS

IN T

IME

S

I nventory Turnover Ratio

This ratio indicates how many times in a year the stock’s turnover. Higher the ratio better it is situation.

The graph shows that the inventory turnover ratio of the company. In year 2002 – 2003 the inventory turnover ratio was 4.68 times, which was lowest. But in year 2003–2004 & 2004-2005 inventory turnover ratios was increased to 6.54 times & 6.99 times respectively. But then it reduced to 6.40 times in 2005-2006 & then it was increased to 6.55 times in 2006-07

It indicates the company has good inventory management & favorable trading situation.

In the year 2004 – 2005 it is increased to 6.99 times that indicates good control over inventory.

Average Age of Inventories:

This ratio indicates the waiting period of the investment in inventories & is measured in days, weeks or months. Inventory turnover & average age of inventories are inversely related. High Inventory Turnover Ratio is goods but longer age of inventory is bad as it indicates idle blocking of money in inventories.

Average Age of Inventories = 360 days / Inventory Turnover.[



2003 2004

2004 2005

20052006

20062007

Days 360 360 360 360 360Inventory turnover 4.68 6.54 6.99 6.40 6.55Avg. Age of Inventory’s Ratio

76.92Days

55.05 Days

51.50 Days

56.25 Days

54.96 Days

Chart 6.3.5


99


AVERAGE AGE OF INVENTORY'S RATIO

76.92

56.25 54.9655.05 51.50

0

10

20

30

40

50

60

70

80

90

2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS

DA

YS

Avg. Age of Inventory’s Ratio

This graph shows the very good situation for company. In Average Age of Inventories lower the ratio better the situation. In year 2002–2003 the average age for inventory was 76.92 days &

it has been reduced to 54.96 days in year 2006–2007. In year 2004 – 2005 Average Age of Inventories ratio was minimum. It shows favorable situation of company as it has decreased.

Debtor’s Ratio:

It indicates the effective of credit and the speed at which the debtors are converted in to cash. It shows the equality of debtor’s also. I.e. good, doubtful or bad etc

Debtor’s Ratio = (Debtors + Bills Receivable/Credit Sales*) x 365.



2003 2004

2004 2005

20052006

20062007

Debtors 5181.5 4056.19 4587.66 4243.37 5228.75Bills Receivable 0 0 0 0 0Total 5181.5 4056.19 4587.66 4243.37 5228.75Credit Sales/ Net Sales

26803.75

33938.84

41818.97

52476.57

71681.76

Debtor’s Ratio 70.56 Days

43.62 Days

40.04 Days

29.51 Days

26.62 Days


100


Chart 6.3.6

DEBTOR'S RATIO

26.6229.51

40.04

43.62

70.56

0

10

20

30

40

50

60

70

80

2002 - 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS

IN D

AY

S

Debtor’s Ratio

The above table shows that every year debtor’s ratio has been decreased continuously.

The higher the ratio, the more unsatisfactory position it shows. It suggests that the credit and collection policy is weak. This would result into unsatisfactory state of working capital and weak liquid position, but it has been reduced continuously here so it is a favorable situation for the company.

It indicates good collection from debtors. The ratio is decrease from 70.56 days to 26.62 days in 2006-2007.

Debtor’s Turnover:

The debtor’s turnovers suggests the number of times the amount of credit sales is collected during the year, while debtors ratio indicates the no. of days during which the dues for credit sales are collected.

Debtor’s Turnover = Credit Sales / Average Debtors.



2003 2004

2004 2005

20052006

20062007

Credit Sales/ Net Sales

26803.75

33938.84

41818.97

52476.57

71681.76

Previous Years Debtors 4928.46 5181.50 4056.19 4587.66 4243.37Current Years Debtors 5181.50 4056.19 4587.66 4243.37 5228.75Average Debtors 5054.98 4618.85 4321.93 4415.52 4736.06

Debtor’s Turnover

5.30 Days

7.35 Days

9.68 Days

11.88 Days

15.14 Days

Chart 6.3.7


101


DEBTOR'S TURNOVER

5.30

7.35

9.68 11.88 15.14

0

2

4

6

8

10

12

14

16

2002 - 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS

IN D

AY

S

Debtor’s Turnover

Debtors constitute an important constituent of current assets and therefore the quality of debtors to a great extent determines a firm’s liquidity.

The higher the ratio the better it is, since it would indicate that debts are being collected more promptly.

Debtor’s Turnover ratio has been increased here continuously, so t is a favorable situation for the company.

In year 2002-03 shows that debtor’s turnover ratio was 5.30 days, which was lowest, and it has continuously increased to 15.14 days, so it good for the company

Average Age of Debtors:

The average age of debtors is compared with “the credit period allowed to the customers”

Avg. Age of Debtor’s Ratio = 360 Days / Debtors Turnover.



2003 2004

2004 2005

20052006

20062007

Days 360 360 360 360 360Debtors turnover 5.3 7.35 9.68 11.88 15.14Avg. Age of Debtor’s Ratio 67.92

Days48.98 Days

37.19 Days

30.30 Days

23.78 Days


102


Chart 6.3.8

AVERAGE AGE OF DEBTOR'S

67.92

48.98

37.1930.30 23.78

0

10

20

30

40

50

60

70

80

2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS

IN D

AY

S

Avg. Age of Debtor’s Ratio

This ratio goes to decrease every year. In year 2002-03 Avg. Age of debtors was 67.92 days than it was

continuously reduced to 23.78 days in 2006-07. Here we can see that debtor’s turnover and avg. Age of debtors are

inversely related.

FINANCE STRUCTURE RATIOS: It indicates the relative mix or blending of owner’s funds and outsider’s debt funds in the total capital employed in the business. Financial leverage refers to the use of debt finance. While debt capital is a cheater source of finance, it is also a riskier source of finance.

Two types of ratio are commonly used to analyze financial leverage 1. Structural Ratios.2. Converge

Structure ratio is base on the proportion of debt and equity in the financial structure of the firm. Important structural ratios are: -

Equity Ratio or proprietary Ratio Debt equity Ratio Debt Ratio

Equity Ratio or Proprietary Ratio: This ratio can be finding out by dividing net worth to total capital

employed. This ratio focuses the attention on the general financial strength of the business enterprise.

Equity Ratio = Net Worth \ Total Capital EmployedWhere,

Net Worth = Equity Capital + Reserves – Misc. ExpensesTotal Capital Employed = Net Worth + Long Term Debt


103


Exhibit 6.4.1(Rs in Millions)


2003 2004

2004 2005

20052006

20062007

Equity Capital (a) 1189.29 1189.29 1189.29 1221.59 1323.87

Reserves (b) 8405.57 9328.6810489.3

612902.9

417621.8

1Misc. Expenses (c) 0.00 323.24 193.32 73.07 244.18Net Worth (a+b-c) A

9594.86 10194.73

11485.33

14051.46

18701.5

Secured loans(d) 5045.62 3103.56 2634.96 1846.91 3602.16Unsecured loans (e) 2129.6 1885.52 6169.1 5072.37 2801.82Long Term Debt(d+e) B

7175.22 4989.08 8804.06 6919.28 6403.98

Total Capital Employed (A+B) = C

16770.08

15183.81

20289.39

20970.74

25105.48

Equity Ratio (A/C)

0.57 0.67 0.57 0.67 0.74

Chart 6.4.1

EQUITY RATIO

0.57 0.67 0.57 0.67 0.74

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS

IN T

IMES

Equity Ratio

The higher the ratio, the stronger the financial position of the company, as it signifies that the proprietors have provided larger funds to purchase the assets.

This ratio cannot exceed 100%. If it is 100%, it means that the business does not use any outside funds or outsider’s liabilities.

Here, the ratio has been found fluctuating every year.


104


In the year 2002-03 it was 0.57 but then in the year 2003-04it was increased to 0.67 and again it has reduced to 0.57 in 2004-05 and then it increased to 0.67 & 0.74 in 2005-06 & 2006-07 respectively.

Debt equity ratio:

This ratio indicates the relationship between borrowed funds and owner’s capital. It shows the proportion of long-term external equities and internal equities. i.e. proportion of funds provided by long-term creditors and that provided by shareholders or proprietors.

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



2003 2004

2004 2005

20052006

20062007

Debt 7175.22 4989.08 8804.06 6919.28 6403.98Net worth 9594.86 10517.97 11678.65 14124.53 18945.68Debt Equity Ratio

74.78% 47.43% 75.39% 48.99% 33.80%

Chart 6.4.2

DEBT EQUITY RATIO

47.43% 48.99%

33.80%

75.39%

74.78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS

PER

CEN

TA

GE (

%)

Debt Equity Ratio

The higher the ratio means that outside creditors have a larger claim than the owners of the business. The pressure from creditors would increase and their interference will also increase.

The company with high-debt position will have to accept stricter conditions from lenders, while borrowing the money.

In the year 2002-03 it was 74.78%andthen it reduced to 47.43% in 2003-04 and then again increased to 75.39% but then it decreased to 48.99% & 33.80% in the year 2005-06 & 2006-07 respectively.


105


In the year 2006-07 it is minimum that is favorable for the company.

Debt ratio:

It shows the relationship between long-term debt and total capital employed. Equity ratio and debt ratio summation is always 1.

Debt ratio = long-term debt / total capital employed.


Particular 20022003

20032004

20042005

20052006

20062007

Long term debt 7175.22 4989.08 8804.06 6919.28 6403.98 Total capital employed

16770.08

15507.05

20482.71

21043.81

25349.66

Debt ratio 0.43 0.32 0.43 0.33 0.25

Chart 6.4.3

DEBT RATIO

0.43 0.43

0.33

0.25

0.32

0.000.050.100.150.200.250.300.350.400.450.50

2002 - 2003 2003 – 2004 2004 – 2005 2005-2006 2006-2007

YEARS

IN T

IME

S

Debt ratio

Debt ratio has been found very fluctuating In year 2002–2003 and in year 2004-2005 ratio is 0.44 that is

highest means more loan funds taken by company. It has been reduced to 0.25 in the year 2006-2007.


106


Coverage ratio show the relationship between debt servicing commitments and the sources for meeting these burdens important coverage ratio is:-

Interest coverage ratio.

Interest coverage Ratio:

This ratio indicates the use of interest bearing debt funds in generating higher operating profit. Higher is the ratio better is the utilization of dept fund. Higher interest cover ratio, enhance the equity earning is passed over to the equity finance portion of the capitalization.

Interest Coverage Ratio = EBIT / Interest.


Particular 20022003

20032004

20042005

20052006

20062007

EBIT. 2286.12 3072.51 3578.08 4687.53 6098.38Interest 585.10 207.91 27.98 164.53 53.32

Interest Coverage

Ratio

3.91 14.78 127.88 28.49 114.37

Chart 6.4.4

INTEREST COVERAGE RATIO

3.9114.78

114.37

28.49

127.88

0

20

40

60

80

100

120

140

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

YEARS

IN T

IME

S

Interest Coverage Ratio

The Interest Coverage Ratio is the better utilization of debt fund i.e. debenture.

The Interest Coverage Ratio is goes increasing every year but then fluctuation has been found in it.

The Interest Coverage Ratio is highest in year 2004 – 2005 & that is 127.88.


107


Valuation Ratios:

Valuation ratios are the results of the management valuation ratio are generally presented on a per share basis and that are more useful to the equity invertors. The per share valuation are popular presented as

Earning per share (EPS). Dividend pay out Ratio (DPS) Divided yield P/E Ratio.

Earning per share (EPS).

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. AS 20 sets out the requirements for computation of EPS*EPS is reported only foe equity share capital.

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


Particular 20022003

20032004

20042005

20052006

20062007

Profit After Tax. 1202.12 1935.80 2714.10 3273.20 4412.86 No. Of Equity Shares. 1189.29 1189.29 1189.29 1221.59 1323.87 Earning Per Share. 1.01 1.63 2.28 2.68 3.33

Chart 6.5.1

EARNING PER SHARE

3.332.682.281.63

1.01

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

IN R

S.

Earning Per Share.


108


The Earning per Share indicates the liquidity situation for company that we can see in graph.

The Earning per Share has been found continuously increasing every year because of its profit has been increased continuously over the years, so it is very good sign for the company.

In year 2002–2003 the EPS was 1.01 but in year 2003–2004 it is increased up to 1.63 & in 2004–2005 EPS achieves the 2.28 and it has been increased to 2.68 & 3.33 per share in the year 2005-2006 & 2006-2007 respectively.

Dividend pay out Ratio (DPS): This ratio indicates the spilt of EPS between cash dividend & reinvestment of profits. Ashok Leyland Ltd has profitable projects; show it is prefer to D/P ratio lower, i.e. it will reinvest higher proportional profits in the business.

Dividend pay out Ratio = Dividend per Share / Earning per Share.


Particular 20022003

20032004

20042005

20052006

20062007

Dividend Per Share. 0.50 0.75 1.00 1.20 1.50 Earning Per Share. 1.01 1.63 2.28 2.68 3.33 Dividend pay out Ratio 0.49 0.46 0.44 0.45 0.45

Chart 6.5.2

DIVIDEND PAY OUT RATIO

0.46

0.440.45 0.45

0.49

0.41

0.42

0.43

0.44

0.45

0.46

0.47

0.48

0.49

0.50

2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS

IN T

IME

S

Dividend pay out Ratio

In the DPS Ratio only minor fluctuation is found In the year 2002-2003 it was highest to 0.49 per share than it goes

decreasing every year from 2003–2004 i.e. 0.46 to 2004–2005 i.e. 0.44 and then it became stable to 0.45 for 2005-2006 & 2006-2007.


109


Dividend Yield:

The Dividend Yield represents the current cash return to share holders. It is computed by dividing the dividend per share by the average market price of share.

Dividend Yield = Dividend per Share / Average Market Price of Share X 100.


Particular 2002 - 2003

2003 - 2004

2004 - 2005

2005-2006

2006-2007

Dividend Per Share. 0.50 0.75 1.00 1.20 1.50Avg. Market Price. 98.20 187.00 21.92 29.18 41.82

Dividend Yield Ratio. 0.51 0.40 4.56 4.11 3.59

Chart 6.5.3

DIVIDEND YEILD RATIO

0.400.51

4.564.11

3.59

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2002 - 2003 2003 - 2004 2004 - 2005 2005-2006 2006-2007

YEARS

PE

RC

EN

TA

GE

(%

)

Dividend Yield Ratio.

The dividend yield ratio is highest in year 2004 – 2005 i.e. 4.56% but this year is goes down to 3.59% that indicates less payment of dividend to the shareholders.

In the year 2002-2003 it was 0.51% & in the year 2003-2004 it has reduced to 0.40% but in the next year it has been increased to 4.56% which is highest over the period.

In the dividend yield ratio too much fluctuation has been found during the period 2002 to 2007.


110


P/E Ratio:

This is popular measure extensively used in investment analysis. In a recent served, 40% of well-known institutional portfolio managers and analysts in the U.S ranked P/E ratio as the key factor in picking stocks.

P/E ratio = current market price of share/Earning per share


Particular 20022003

20032004

20042005

20052006

20062007

Current market price 105.00 267.90 25.10 43.00 41.80Earning Per Share. 1.01 1.63 2.28 2.68 3.33

P/E Ratio 103.96 164.36 11.01 16.04 12.55

Chart 6.5.4

P/ E RATIO

16.04 12.55

103.96

164.36

11.01

0

20

40

60

80

100

120

140

160

180

2002 - 2003 2003 - 2004 2004 - 2005 2005-2006 2006-2007

YEARS

IN T

IMES

P/ E Ratio

It is the ratio to know the profit earning per share. As p/e ratio is low so it is good profit earning per share is high It has been reduced compared to the past years. so, it is favorable

situation for the shareholders and the company.


111


6.6 Comparison of Ratio of five Years

Ratio Formula 20022003

20032004

20042005

20052006

20062007

Gross Profit margin Ratio (%)

Gross Profit / Sales X 100

12.12% 11.63% 10.11% 10.29% 9.80%

Net Profit Margin Ratio (%)

Net Profit / Sales X 100 4.48% 5.70% 6.49% 6.24% 6.16%

Operating Profit Ratio (%)

Operating Profit / Sales X 100

6.35% 8.44% 8.49% 8.62% 8.43%

Return on assets (%)

Net Profit / Average Total Assets X 100

6.07% 10.83% 13.74% 14.54% 17.60%

Return on Equity (%)

PAT / Average shareholder’s equity X 100

12.04% 19.25% 24.46% 25.37% 26.69%

Earning power (%)

EBIT / Average total Assets X 100

8.59% 16.02% 17.97% 20.09% 24.10%

Current Ratio

Current Assets / Current Liabilities

2.26 times

1.76 times

1.85 times

1.58 times

1.54 times

Quick ratio

Quick Assets / Current Liability

1.57 times

1.15 times

1.36 times

0.94 times

0.93 times

Net working capital

Total Current Assets – Total Current Liabilities

7480.93

6309.65

9915.96

8238.97

9418.59

Cash Generated Per Rupee Of Sales

PAT+ Depreciation +Non Cash Expenses / Sales X 100

10.83% 9.44% 9.40% 8.54% 8.51%

Total Sales / Total 1.45 1.96 1.88 2.30 2.62


112


Assets Turnover ratio

Assetstimes times times times times

Net fixed Assets Turnover Ratio

Sales / Net fixed Assets 2.85

times3.68 times

4.27 times

4.84 times

4.64 times

Fixed working capital turnover ratio

Sales / Net working Capital

3.58 times

5.38 times

4.22 times

6.37 times

7.61 times

Inventory Turnover Ratio

COGS / Avg. Inventories

4.68 times

6.54 times

6.99 times

6.40 times

6.55 times

Average Age of Inventories

360 days / Inventory Turnover

76.92Days

55.05 Days

51.50 Days

56.25 Days

54.96 Days

Debtor’s ratio (Days)

(Debtors + Bills receivable / Credit Sales) x365

70.56 Days

43.62 Days

40.04 Days

29.51 Days

26.62 Days

Debtors turnover ratio

Credit Sales / Avg. Debtors

5.30 Days

7.35 Days

9.68 Days

11.88 Days

15.14 Days


113


CHAPTER 7

DU PONT CHART

Profit margin & assets turnover are the two drivers of return on assets. The Du Pont System of financial analysis clearly brings out the effects of these two drivers on return on assets. A system is useful for analysis, which considers important inter relationship based on information found in financial statements.

Importance Of Du Pont Chart:

Any decision affecting the product price per unit costs, volume or efficiency has an impact on the profit margin or turnover ratios. Similarly any decision affecting the amount & ratio of debt or equity used will affect the financial structure & the overall cost of capital of a company. Therefore, these financial concepts are very important to evaluate as every business is competing for Limited Capital Resources. Understanding the inter relationship among the various ratios such as turnover ratio, average & probability ratios helps companies to put their money areas where the risk adjusted return is the maximum.

The chart used by “Du Pont Company” of U.S.A is known as Du Pont Chart.

This is the Du Pont Chart applied to Ashok Leyland Ltd. At the left of the Du Pont Chart is the return on the assets defined as the product of the Net Profit Margin & the Total Assets Turnover Ratio.

Net Profit Total Assets = Net Profit / Sales X Net Sales / Avg. Total Assets.

Such decomposition helps in understanding how the Net Profit Margin & Total Assets Turnover Ratio influences the Return on Total Assets.

Chart 7.1

DU PONT CHART FOR THE YEAR 2002 – 2003


114



Net Profit Margin 4.48 %

Return on Assets 6.07%

Total AssetsTurnover 1.35 %

Net Sales 26803.75

Average total Assets 19797.97

Net Profit1202.12

Net Sales 26803.75

Average fixed

Assets9446.03

Average Investment

1674.57

Average net

current assets

8652.84

Avg.Misc.Exp. 24.53

Net sales+ / -Non-

OperatingSurplus /Deficit

26956.68

TotalCost

25754.56

/ /

+ + + -

X

115


Chart 7.2




Return on Assets 10.83 %


Net Sales 33938.84


Net Profit1935.80

Net Sales 33938.84

Average fixed

Assets9304.69

Average Investment

1520.89

Average net

current assets

6895.29

Avg.Misc.Exp.

161.62

Net sales+ / -Non-


34125.04

TotalCost

32189.20

/ /

+ + + -

X

116


Chart 7.3






Net Sales 41818.97


Net Profit2714.10

Net Sales 41818.97

Average fixed

Assets9500.51

Average Investment

1878.96

Average net

current assets

8112.81

Avg.Misc.Exp.

258.28

Net sales+ / -Non-


42356.52

TotalCost

39642.40

/ /

+ + + -

X

117


Chart 7.4






Net Sales 52476.57


Net Profit3273.20

Net Sales 52476.57

Average fixed

Assets10318.40

Average Investment

2986.84

Average net

current assets

9077.47

Avg.Misc.Exp.

133.20

Net sales+ / -Non-


52806.31

TotalCost

49533.10

/ /

+ + + -

X

118


Chart 7.5






Net Sales 71681.76


Net Profit4412.86

Net Sales 71681.76

Average fixed

Assets13146.10

Average Investment

2946.36

Average net

current assets

8828.78

Avg.Misc.Exp.

158.63

Net sales+ / -Non-


72389.79

TotalCost

67976.90

/ /

+ + + -

X

119


CHAPTER 8

Suggestions & Recommendations

1. The balance sheet figures are showing the declining trend since last few years. It should be the reason for higher inventory level which unnecessary blocked the money. For higher the profitability ratio of the firm, it is required to increase the sales along with:

New advertising techniques through latest media which are more effective and prestigious.

To increase the work efficiency of the workers as well as of the staff members, arrangement of different training programmes like meetings, seminars, conferences, coaching classes etc. is required.

For the innovation of new market, select capable market representatives who are more efficient to recover the more market share.

Try to maintain the quality level as per the market demand which satisfies the customers more.

2. In order to increase the profit the firm should keep proper control over the expenses retaliating to the purchase of goods, manufacturing and lab ours for that, proper supervision and timely comparison of actual with budgeted overheads should be taken. This will help the management to know the causes and taking competitive actions to reduce the expenses.

In order to reduce the expenses relating to payment of interest, the firm should rely more on its share capital rather than borrowing loans and funds. Firm should also try to maintain proper balance between debt and equity.

3. To improve the liquidity position of the firm, proper working capital is necessary to recover the daily cash requirement. For that, the firm should:

Try to reduce the debt collection period which should be main sources for working capital.

Use more credit facility which is given by the creditors. Firm should also use more short term loans to recover the

working capital requirement because the interest rate for short term loans is less and it should be flexible to use.

4. In order to maximize wealth under uncertainty, the firm must pay enough dividends to satisfy investors. It should help to increase the moral of the investors and side by side also helps in long term financial strength of the firm. So, by increasing profits, the firm should pay dividends regularly.


120


CHAPTER 9

CONCLUSION

We are making the financial analysis from its techniques that we are concluding as follows:

Horizontal Analysis:Ashok Leyland Ltd has made good growth in last five years in sales as well as profit. Here growth in sales is increasing every year against that expenditure has also increased but lower than sales. 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. So for the increment of profit in future, the company is requiring to optimize its expenditure on the side of operating as well as administrative.

Trend Analysis: It shows good trend in sales & profit but as above said, expenditure also rising that depends the profit of the company. Reserve & Surplus also shows good trend.

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. All the ratios performs very well in last five years that gives better profitability & liquidity position to the company.

Ashok Leyland Limited is confident that it can meet the challenges passed by the deregulation scenario with its strength in refining. Its strategic scenario with its strength in refining its strategic alliance with Ashok Leyland Limited marketing and in house productivity improvement, profitability maximization and cost reduction exercises, which have already been launched in right earnest. These measures would place the company in a position of comfort to meet the real challenges of the future and we also wish them “Best of Luck” for their bright future. So that Ashok Leyland Limited will be a world clean Automotive Company. Now a day, key customer rates company among the top 5 companies. At last, company is financial healthy.


121


BIBLIOGRAPHY

1. Narayanaswamy R.: “Financial Accounting “, 2nd Edition, Prentice Hall Publication (India), 2005. pg no

2. Shah Sudhir B.: “Advance Accounting & Auditing – 4”, 16th

Edition, Sudhir Publication, 2006. pg no 142 – 337. 3. Mathur Satish B.: “Understanding Balance sheets”, 3rd Edition,

Macmillan India Limited Publication, 2007. Pg NO 113 - 194

WEB LINKS

http://www.ashokleyland.com/performance report.jsp

http://www.ashokleyland.com/products.jsp

http://www.ashokleyland.com/mediakit.jsp

DATABASE

Prowess Database


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http://www.ashokleyland.com/mediakit.jsp

http://www.ashokleyland.com/products.jsp

http://www.ashokleyland.com/performance%20report.jsp

financial analysis of ashok leyland

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