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8/3/2019 Accnts projest _ Bajaj (1) (1)

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JAIPURIA INSTITUTE OF MANAGEMENT

LUCKNOW

ANALYSIS OF FINANCIALSTATEMENTS OF BAJAJ AUTO Ltd.

Submitted by: Submitted to:

Anushree Srivastava(032) C.A. Rashmi Chaudhary

Ankit Kesarwani(019)Amit Srivastava(015)

Aprajita Saxena(034)

Ankita Singh(026)

Anshul Agrawal(029)


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ACKNOWLEDGEMENT

We express our deep gratitude to C.A. RASHMI

CHAUDHARY for her constant support, guidance and

motivation that helped us immensely in completing this project.

The project provided us with an opportunity to understand the

accounting concepts in respect to the market scenario.

We sincerely thank our parents and family members whose

constant support and guidance has been a motivating and

inspiring source. In addition, we thank each and every individual

who was directly or indirectly associated with the successful

completion of this project.

BAJAJ AUTO LIMITED


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The Bajaj Group is amongst the top 10 business houses in India. Its footprint

stretches over a wide range of industries, spanning automobiles (two-wheelers and

three-wheelers), home appliances, lighting, iron and steel, insurance, travel and

finance.

The group's flagship company, Bajaj Auto , is ranked as the world's fourth largest

two- and three- wheeler manufacturer and the Bajaj brand is well-known in over a

dozen countries in Europe, Latin America, the US and Asia.

Bajaj Auto Ltd. is the largest exporter oftwo and three wheelers. With

Kawasaki Heavy Industries of Japan, Bajaj manufactures state-of-the-art range of

two-wheelers. The brand, Pulsar is continually dominating the Indian motorcycle

market in the premium segment. Its Discover DTSi is also a successful bike on

Indian roads.Since 1986, there is a technical tie-up ofBajaj Auto Ltd. with Kawasaki Heavy

Industries of Japan to manufacture state-of-art range of latest two-wheelers in

India. The JV has already given the Indian market the KB series, 4S and 4S

Champion, Boxer, the Caliber series, and Wind125.

Bajaj Auto Ltd. has registered a 4 per cent drop in net profit at Rs 308.3 crores in

Q4 of 2006-07 (Rs 321.8 crores). The company's turnover for the quarter grew 9

per cent to Rs 2,471.3 crores (Rs 2,269 crores).

For the fiscal year March 31, 2007, the company posted a 10 per cent rise innet profit at Rs 1,237.1 crores (Rs 1,123.3 crores). The turnover was at Rs

10,076 crores (Rs 8,106.4 crores) a rise of 24 per cent.


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FINANCIAL RATIOS

A financial ratio is a relationship that indicates something about a company's activities,

such as the ratio between the company's current assets and its current liabilities orbetween its debtors and its turnover.

The basic source of these ratios is the company's profit & loss account and balance sheet

that contain all kinds of important information about that company. The ratios really help

to bring those details to light and identify the financial strengths and weaknesses of the

company.

When assessing ratios, it is important that the results are compared with other companies

in the same industry and not to be taken in isolation. What may seem like a poor ratio at

first glance may well be normal for that industry and, of course, the reverse applies, inthat what may seem a good ratio on its own, could be below average for that industry.

The following information will outline important ratios

1. Liquidity Ratiosa. Current Ratiob. Quick Asset

2. Profitability Ratiosa. Gross Profit Ratiob. Net Profit Ratio

c. Operating Ratiod. Earnings per ratio

3. Activity Ratiosa. Inventory Turnover Ratiob. Inventory Holding Periodc. Debtor turnover Ratiod. Average Collection Periode. Fixed Asset Turnover Ratiof. Working Capital Turnover Ratio

4. Leverage Ratioa. Debt Equity Ratio

b. Total Debt Ratioc. Interest Coverage Ratiod. Return on Equitye. Proprietary Ratio


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Liquidity Ratios

1. Current Ratio

Current AssetsCurrent Liabilities

One of the most universally known ratios, which reflect the Working Capitalsituation, indicates the ability of a company to pay its short-term creditorsfrom the realisation of its current assets and without having to resort toselling its fixed assets to do so.

Ideally the figure should always be greater than 1, which would indicate thatthere are sufficient assets available to pay liabilities, should the need arise.

The higher the figure the better it is.

Current ratio has increased in the current year but it is below one. Since theideal ratio should be 2:1, short-term financial position of the organization isnot good. Company needs to improve its Current Ratio that is the ability of

company to pay its debt in the short term.

2. Quick Asset

Current Assets StockCurrent Liabilities

This ratio indicates the ability of a company to pay its debts as they fall due.

It is generally considered to be a more accurate assessment of a company'sfinancial health than the current ratio as it excludes stock, thus Figures ofthis ratio are lower than the current ratio which is reducing the risk of relyingon a ratio that may include slow moving or redundant stock.

( Current Assets - Inventories )


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Current Liabilities

Ratio Analysis and its Interpretation

An ideal quick ratio is 1:1. The idea is that for every rupee of currentliabilities there should be at least one rupee of liquid assets. Here in both theyears ratio is below the desired one but it is still showing a increasing trendas compared to previous year ratio, which shows that short term financial

position of the company has improved.

Profitability Ratios

1. Gross Profit Ratio:

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



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

2. Net Profit Ratio

Net Profit x 100

Sales

Net profit ratio is the ratio of net profit (after taxes) to net sales. It isexpressed as percentage.

Deducting all the operating expenses from gross profit such as office andadministration expenses, selling and distribution expenses, discount, baddebts etc. arrives at operating net profit. On profit expenses are notdeducted from GP. Here net profit is showing a growing trend, which is goodfor companys financial position.

3. Operating Ratios:

Operating Profit x100Sales

It is arrived at by deducting all the expenses from GP such as office andadministrative expenses, selling and distribution expenses, interest, baddebts etc. Non operating expenses are not deducted from GP.



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2009-10 2010-11

2572/12118*100 21.22462453 (3626/16931)*100

21.4163369

This ratio indicates the extent of sale that is absorbed by the cost of goods

sold & operating expenses, lower than operating ratio, the better it is,

because it will leave higher margin of profit on sales which is in year 2010 is

78%.

4. Earnings per share:

Profit after taxNo. of shares

Earnings per share (EPS) are the amount of earnings per each outstandingshare of a company's stock.

The portion of a company's profit allocated to each outstanding share ofcommon stock. Earnings per share serve as an indicator of a company'sprofitability.


2009-10 2010-11

1703.6/14.4 118.3055556 3339/28 115.4018659

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


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Activity ratios

1. Inventory Turnover Ratio:

____COGS______

Average Inventory

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

(Opening Stock+ purchases- Closing Stck)Avg Inventory


2009-10 2010-11

(338+8070-446)/Average(338,446)

20.31122449(446+11798-547)/

((446+547)/2)23.55891239

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


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The financial position of the company has improved.

2. Inventory Holding Period:

________365_________Inventory turnover ratio

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

365(Holding period)Inventory turnover ratio


2009-10 2010-11

365/20.31122449 17.97035921 365/23.55891239 15.49307515

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


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3. Debtor turnover Ratio:

Net Credit SalesAverage Debtors

This ratio indicates the relationship between credit sales and average

debtors during the year.

__________Net Credit Sales__________(Opening debtors + Closing debtors / 2)


2009-10 2010-11

11508/Average(239,358)

38.55276382

15998/((239+362)/2)

53.23793677

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


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4. Average Collection Period

________365________Debtor Turnover Ratio

Measures the length of time a company takes to collect its debts and ismeasured in days. In general terms the figure indicates the effectiveness ofthe company's credit control department in collecting monies outstanding.


2009-10 2010-11

365/38.55 9.468223087 365/53.23793677 6.856013252

Increase in this ratio indicates the excessive blockage of funds with debtors

which increase the chances of bad debts. Here the position of industry hasimproved from previous year.

5. Fixed Asset Turnover Ratio


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___Total sales___Average Fixed asset

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


2009-10 2010-11

12118/average(3379,3334)

3.61030835716931/Average(33

90,3379)5.002511449

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

5. Working Capital Turnover Ratio :

COGSWorking capital


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

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


2009-10 2010-11

(338+8070-446)/(926-2026)

-7.238181818(446+11798-547)/

(1683-2426)-15.74293405

Due to net current assets being negative in value, working capital has alsocome out to be negative, which shows a relatively bad position of the firm in

terms of under utilization of working capital.


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Leverage/Solvency Ratios

1. Debt Equity Ratio:

DebtEquity

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


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Long term LoansShare Holders Fund or Net worth


2009-10 2010-11

1338/2928 0.456967213 325/4910 0.066191446

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

2. Total Asset to Debt Ratio:

Total AssetDebt

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


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2009-10 2010-11

2447/1338 1.828849028 3231/325 9.941538462

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

3. Interest Coverage Ratio :

Earnings before Interest& taxInterest

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

interest charges.


2009-10 2010-11

(2411+5.98)/5.98

404.1772575 4352.44/1.69 2575.408284

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


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ratio comes out to be very high.

4. Return on Equity:

Net IncomeShareholder's Equity

The amount of net income returned as a percentage of shareholdersequity. Return on equity measures a corporation's profitability by revealinghow much profit a company generates with the money shareholders haveinvested.


2009-10 2010-11

12043/2928 4.113046448 16974/4910 3.457026477

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

5. Proprietary Ratio:

EquityTotal Assets

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

EquityFixed Asset+ Current Asset


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2009-10 2010-11

2928/2447 1.196567225 4910/3231 1.519653358

This ratio should be more than 33%. This ratio is generally treated anindicator of sound financial position from long term point of view, because itmeans that the firm is less dependent on external sources of finance. Thelower the ratio , the less secured are the long term loans and they face therisk of losing their money.


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