Running head: FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 1

Financial Performance of Automobile Industry

Sneha Renny

Christ University
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 2

Abstract

A well developed transport network indicates a well developed economy. For rapid development a well

developed and well-knit transportation system is essential. As India's transport network is developing at a fast

pace, Indian Automobile Industry is growing too. Also, Automobile industry has strong backward and forward

linkages and hence provides employment to a large section of the population. Thus the role of Automobile

Industry cannot be overlooked in Indian Economy. India Automobile Industry includes the manufacture of

trucks, buses, passenger cars, defence vehicles, two-wheelers, etc. The industry can be broadly divided into the

Car manufacturing, two-wheeler manufacturing and heavy vehicle manufacturing units. The present study

measures the financial performance of major automobile companies of Indian origin Tata Motors, Maruti

Suzuki, Mahindra & Mahindra, Hindustan Motors, Eicher Motors, TVS, Hero MotoCorp Ltd, Bajaj Auto,

Ashok Leyland Ltd, Force Motors after the policy of liberalization and reveals the comparative financial

strength of the companies under study on the basis of liquidity, efficient use of assets, profitability etc under

current economic policy reforms scenario of Indian Economy.

Keywords: Financial Performance, Profitability, Indian Automobile, Liberalization, Policy Reforms.

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 3

Introduction

The Indian automobile industry has been recording tremendous growth over the years and has emerged as

a major contributor to India’s Gross Domestic Product. It is important to know that how this growing sector is

affecting the financial performance of companies under this sector. The foremost purpose of analyzing the

firms financially is to assess the performance of the firms under study, on a number of aspects such as their

resources, ability to earn profit or fair return on their investment, ability to meet their obligations, value of

assets, extent and nature of their liabilities etc.

Significance of the Study

The study is intended to evaluate the financial performance of Indian Listed companies in the current

economic policy reforms scenario of the Indian economy. It helps to identify the growth, challenges faced by

the automobile industries and their profitability status.

Statement of the Study

The study is focused on analysis and interpretation of financial performance of Indian Automobile industry

in current economic policy reforms scenario of the Indian economy and the various factors affecting the

automobile industry like profitability, competition, market condition, future prospective market condition for

this industry. This study will also deals with reviewing the performance of domestic automobile companies

against foreign automobile companies.

Objectives

Primary Objective

 To study the financial performance of Automobile Industry in the current economic policy reforms

scenario of the Indian Economy.

Secondary Objective

 To examine profitability status.

 To know the strengths of financial ratios in identifying financial efficiency of the industry.

Research Methodology

 Statistical method
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 4

Data Collection

Data collection is a key in marketing research. The design of the data collection method is the backbone of

the research design. Normally the sources of data are classified into 2 types:

Primary Data. The primary data has been collected from the Dealers of popular cars through interactive

sessions.

Secondary Data. The required secondary data has been collected from the published books, handbills,

journals, project reports, internet databanks, capital line software, etc.

Scope of the Study

The study will be done in Automobile Industry in order to analyze the current position of profitability of

Industry. The study helps to know liquidity position as well as maintain the profitability of the Industry. The

study is based on the annual reports of the company Balance sheets, Profit and loss accounts for a period of 5

years and performance rate of selected Automobile companies.

Limitations of the Study

 In profit and loss account net profit is ascertained on the basis of historical costs.

 Profit arrived at by the profit and loss account is of interim nature. Actual profit can be ascertained only

after the firm achieves its maximum capacity.

 The net income disclosed by the profit and loss account is not absolute but only relative.
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 5

Industry Profile

Automobile Industry Profile

The automobile history dates back to the late 18th century. Nicolas-Joseph Cugnot, a French engineer is

credited with investing the first self-propelled automobile. Cugnot’s vehicle used steam power for locomotion.

The vehicle found military application in the French army and was never commercially sold. In the beginning

automobile industry was dominated by steam powered vehicle. The vehicles were expensive and difficult to

maintain. The incidence of frequent boiler expansions also kept potential purchasers away. Commercial history

of automobiles started with the invention of gasoline powered internal combustion engines.

The German inventor, Karl Benz constructed his first gasoline powered vehicle in 1885. At Mannheim,

Germany Commercial production of Benz cars stated in 1888. Panhard et Levassor of France was the first

company to exclusively build and sell motor cars from 1889. The first mass production automobile in the

United States was the curved-dash Oldsmobile. It was a three-horsepower machine and sold 5,000 units by

1904. The economy of the US car market was disrupted by the arrival of Henry Ford and his Model T car. The

Model T was the world’s first mass produced vehicle-a million units were sold by 1902 a space of 10 years. It

was only in the 18th century that the first horseless carriage actually hit the roads. That’s not to say that the idea

never struck anyone. Seeds of the idea, in fact, originated long before the first contraption was rolled. The

History of the automobile actually began 4,000 years ago when the first wheel was used for transportation in

India. Several Italians recorded designs for wind-driven cars. The first was Guido da Vigevano in 1335. It was a

windmill-type drive to gears and thus to wheels. Vaturio designed a similar car that was also never built. Later

Leonardo da Vinci designed clockwork-driven tricycle with tiller steering and a differential mechanism

between the rear wheels.

In the early 15th century, the Portuguese arrived in china and the interaction of the two cultures led to a

variety of new technologies, including the creation of a wheel that turned under its own power. By the 1600s,

small steam-powered engine models were developed, but it was another century before a full-sized engine-

powered automobile was created. A Catholic priest named Father Ferdinan Verbiest is credited to have built a

steam-powered car for the Chinese Emperor Chien Lung in about 1678. There is no information about the

automobile, only the event. Since James watt didn’t invent the steam engine until 1705, we can guess that this
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 6

was possibly a model automobile powered by a mechanism like Hero’s steam engine-a spinning wheel with jets

on the periphery. Although by the mid-15th century the idea of a self-propelled automobile had been put into

practice with the development of experimental car is powered by means of springs, clock works, and the

wind, Nicolas-Joseph Cugnot of France in considered to have built the first true automobile in 1769. Designed

by Cugnot and constructed by M. Berzin it is also the first automobile to move under its own power for which

there is a record. Cugnot’s three-wheeled steam powered automobile carried four persons and was meant to

move artillery pieces. It had a top speed of a little more than 3.2km/h (2mph) and had to stop every 20 minutes

to build up a fresh head of steam.

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 7

Methodology of Data Analyzing

For analysis of financial statements, they should be re-arranged to reveal the relative significance and effect

of various items of data in relation to time period and for making inter-firm comparisons. While re-arranging the

data, logical relationship and sequence should be given consideration. The analysis of financial statements will

help in interpretation should logical conclusions. The important methods used in analysis of statements are as

follows:

Comparative Financial Statements: Comparative financial statements are statements of financial position of a

business designed to provide time perspective to the consideration of various elements of financial position

embodied in such statements. Comparative financial statements reveal the following:

1. Absolute data (money value or rupee amounts).

2. Increase or reduction in absolute data in terms of money values.

3. Increase or reduction in absolute data in terms of percentages.

4. Comparison in term of ratios.

5. Percentage of totals.

Common Size Statements: The financial statements viz. profit and loss account and balance sheet are converted to

percentages so as to establish each element to the total figure of the statement and these Statements are called,

common size statements. These statements are useful in analysis of the performance of the company by

analyzing each individual element to the total figure of the statement. This statement will also assist in

analyzing the performance over years and also with the figures of the competitive firm in the industry for

making analysis of relative efficiency. The following statement shows the method of presentation of the data

i.e., Common size Income Statement and Common size Balance sheet.

Trend Ratios: The trend ratios of different items are calculated for various periods for comparison purpose. The

trend ratios are the index numbers of the movements of reported financial items in the financial statements

which are calculated for more than one financial year. The calculation of Trend ratios are based on statistical

technique called index numbers the trend ratios help in making horizontal analysis of comparative statements. It

reflects the behaviour of items over a period of time. The accounting principles and policies should be

consistently followed throughout the period for which the trend ratios are calculated.
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 8

Ratio Analysis: According to J. Batty “the term accounting ratio is used to describe significant relationships

which exist between figures shown in a balance sheet, in a profit and loss account, in a

budgetary control system or in any other part of the accounting organization”. The accounting ratios indicate a

quantitative relationship which is used for analysis and decision making. It provides basis for inter-firm as well

as intra-firm comparison. The ratios will be effective only when they are compared with ratios of base period or

with standards or with the industry ratios.

Fund Flow Analysis: In view of recognized importance of capital inflows and outflows, which often involves

large amounts of money should be reported to the stakeholders; the funds flow statement is devised. In a funds

flow analysis, the details of financial resources availed and the ways in which such resources are used during a

particular accounting period, are given in a statement from called, Funds Flow Statement the sources of funds

also include the funds generated from operations internally. The funds flow statement can explain the reason for

liquidity problems of the firm even through it is earning profits.

Cash Flow Analysis: Cash flow statement provides information about the cash receipts and payments of a firm

for a given period. It provides important information that compliments the profit and loss accounting and

balance sheet. The information about the cash flow of a firm is useful in providing users or financial statements

with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the

enterprise to utilize this cash flow. The economic decisions that are taken by users require an evaluation of the

ability of an enterprise to generation. The statement deals with the provision of information about the historical

changes in cash equivalents of an enterprise by means of a cash flow statement which classifies cash flows

during the period from operating, investing and financing activities.

Break-Even and Cost–Volume Profit Analysis: Break- even analysis used for ascertainment of level of

operations where total revenue equals to total costs. It is an analysis to determine the probable profit or loss at

any level of operations. Break- even analysis is a method of studying the relationship among sales revenue,

variable cost and fixed cost to determine the level of operation at which all the costs are equal to its sales

revenue and it is the no profit no loss situation. This is an important made through graphical charts. Break-even

chart indicates approximate profit or loss at different levels of sales volume within limited range. The break-
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 9

even charts show fixed and variable costs and sales revenue so that profit or loss at any given level of

production or sales can be ascertained.

Value Added Analysis: Value added is described as “the wealth created by the reporting entity by its own and

its employees efforts and comprises salaries and wages, fringe benefits, interest, dividend, tax, Depreciation and

net profit (retained)”. It is also defined as “the increase in market value resulting from an alteration in the form,

location or availability of a product or service excluded the cost of goods and services purchased from outside”.

Ratio Analysis and Interpretation

According to J. Batty “the term accounting ratio is used to describe significant relationships which exist

between figures shown in a balance sheet, in a profit and loss account, in a budgetary control system or in any

other part of the accounting organization”. The accounting Ratios indicate a quantitative relationship which is

used for analysis and decision making. It provides basis for inter-firm as well as intra-firm comparison. The

ratios will be effective only when they are compared with ratios of base period or with standards or with the

industry ratios. The financial statement viz. income statement and Balance sheet report what has actually

happened to earnings during a specific period and presents a summary of financial position of the company at a

given point of time. The statement of retained earnings reconciles income earned during the year and any

dividends distributed with the change in retained earnings between the start and end of the financial year under

study.

Liquidity Ratio

The liquidity Ratios measures the liquidity of the firms and its ability to meet its maturing short term

obligations. Liquidity is defined as the realise value in money, the most liquid of assets. It refers to the ability to

pay in cash, which are due.

Current Ratio - This ratio measure the solvency of the company in short-term. Current assets are those

assets which can be converted into cash within a year. Current liabilities and provisions are those liabilities that

are payable within a year.

Current Ratio = Current Assets / Current Liabilities

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 10

Table 1

Comparative Current Ratio

Company Current Ratio Current Liabilities Ratios

Tata Motors 135,972.84 143,219.47 0.94

Maruti Suzuki 79,300 154,485 0.51

Mahindra& Mahindra 59,076.02 49,149.54 1.20

Hindustan Motors 2,543.11 10,407.37 0.24

Eicher Motors 2,524.42 2,194.63 1.15

Hero Motocorp 9,002.23 4,481.36 2.00

Bajaj Auto 9,250.83 4,111.40 2.25

Tvs Motors 6,372.89 7,853.08 0.68

Ashok Leyland 1442155.90 1,419,148.20 1.01

Force Motors 1,12,180 68,298 1.64

Figure 1. The Chart showing Comparative Current Ratio

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 11

Interpretation - A current ratio of 2:1 indicates a highly solved position. A current ratio of 1.33:1 is considered

by banks as the minimum acceptable level for providing working capital finance. Bajaj Auto Ltd has very high

current ratio (2.25) will have adverse impact on the profitability of the organization. A high current ratio may

be due to the piling up of inventory, inefficiency in collection of debtors, high balance in cash and bank

accounts without proper investment etc. While Hindustan Motors has low current ratio (0.24) .

Quick / Liquid Acid Test Ratio - Quick ratio is used as a measure of the company’s ability to meet its

current obligations. Since bank over draft is secured by the inventories, the other current assets must be

sufficient to meet other current liabilities. This ratio is also called quick ratio or acid test ratio.

Liquid Ratio = Liquid Assets / Liquid Liabilities

Table 2

Comparative Liquid Ratio

Liquid
Company Liquid Assets Ratios
Liabilities

Tata Motors 93,835.21 143,219.47 0.65

Maruti Suzuki 47698 154,485 0.30

Mahindra& Mahindra 49740.45 49,149.54 1.01

Hindustan Motors 2415.37 10407.37 0.23

Eicher Motors 2145.19 2194.63 0.97

Hero Motocorp 8039.55 4481.36 1.79

Bajaj Auto 8508.25 4111.40 2.06

Tvs Motors 5316.74 7,853.08 0.67

Ashok Leyland 1221386.99 1419148.2 0.86

Force Motors 64951 68295 0.95

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 12

Figure 2. The Chart showing Comparative Liquid Ratio

Interpretation - This chart showing quick ratio of 1:1 indicates highly solvent position. 2.78:1 this ratio serves as a

supplement to the current ratio in analysing liquidity. Bajaj Auto Ltd quick ratio 2.06:1, it indicates highly

solvent position when compared to the other companies. Hindustan Motors indicates 0.23 low liquidity ratio

when the compare to the other companies.

Profitability Ratios

The profitability ratios are to help assessing the adequacy of profit earned by the company and also to discover

whether profitability is increasing or declining. The profitability of the firm is the net result of a large number

of policies and decisions. The profitability ratios show the combined effects of liquidity, asset management and

debt management on operating results. Profitability ratios are measured with reference to sales, capital

employed, total asset employed, shareholders’ funds etc.

Gross Profit Margin Ratio - The ratio measures the gross profit margin on the total net sales made by the

company. The gross profit represents the excess of sales proceeds during the period under observation over

their cost, before taking into account administration, selling and distribution and financing changes. The ratio

measures the efficiency of the company’s operations and this can also be compared with the previous year’s

results to ascertain to ascertain the efficiency.

Sales – Cost of goods sold * 100 (OR) Gross profit * 100

Sales Sales
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 13

Table 3

Comparative Gross Profit Margin Ratio

Company Gross Profit Sales Ratios

Tata Motors 122927.04 283,748.32 43.32

391437
Maruti Suzuki 803,488 48.71

45455.14
Mahindra& Mahindra 78,005.02 58.27

Hindustan Motors 795.31 1433.01 55.49

Eicher Motors 4983.76 9,175.16 54.31

Hero Motocorp 11628.17 32,231.18 36.07

Bajaj Auto 10776.37 25,098.64 42.93

Tvs 5798.32 15,669.43 37.004

Ashok Leyland 1278326.54 2,746,996.86 46.53

Force Motors 98325 3,49,319 28.14

Figure 3. The Chart showing Comparative Gross Profit Margin Ratio

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 14

Interpretation - A high margin enables all operating expenses to be covered and provides a reasonable return to

the shareholders. From the above table it clearly shows that the gross profit ratio of Mahindra & Mahindra is

58.27 are higher when compared to other companies and Force motors has relatively low gross profit ratio.

Net Profit Margin Ratio - The ratio is designed to focus-attention on the net profit margin arising from

business operations before interest and tax is deducted. The convention is to express profit after tax and interest

as percentage of sales. Interest is charged above the line while dividends are deducted below the line. It is for

this reason that net profit i.e., earnings before interest and tax (EBIT) is used this ratio reflects net profit margin

on the total sales after deducting all expenses but before deducting interest and taxation.

Net profit before interest and tax / Sales * 100

Table 4

Comparative Net Profit Margin Ratio

Net Profit Before Interest

Company Sales Ratios
and Tax

Tata motors 11155.03 283,748.32 3.93

Maruti Suzuki 111669 803,488 13.89

Mahindra & Mahindra 10325.52 78,005.02 13.23

Hindustan Motors 6227.06 1433.01 4.34

Eicher Motors 3115.65 9,175.16 33.95

Hero Motocorp 5292.10 32,231.18 16.41

Bajaj Auto 5933.41 25,098.64 23.64

Tvs 930.81 15,669.43 5.94

Ashok Leyland 257766.60 2,746,996.86 9.38

Force Motors 20058 3,49,319 5.74

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 15

Figure 4. The Chart showing Comparative Net Profit Margin Ratio

Interpretation - It is a measure of overall profitability of the firm. The higher ratio the greater would be the return

to the shareholders and vice versa. A net profit margin of 10% is considered normal this ratio is very useful to

control cost and to increase the sales. The Eicher Motors Ltd has (33.98), the higher ratio the greater would be

the return to the shareholders, Tata motors (3.93) shows the lower net profit margin when the compare to the

other companies.

Cash Profit Ratio- The cash profit ratio is a more reliable indicator of performance where there are sharp

fluctuation in the profit before tax and net profit from year to year owing to difference in depreciation changed.

Cash profit ratio evaluates the efficiency of operations in terms of cash generation and is not affected by the

method of depreciation charged. It also facilitates inter-firm comparison of performance since different methods

of depreciations may be adopted by different companies.

Cash Profit/Sales * 100

Cash profit = Net profit + Depreciation

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 16

Table 5

Comparative Cash Profit Ratio

Company Net Profit Depreciation Sales Ratios

Tata Motors 9179.89 21553.59 283,748.32 10.83

Maruti Suzuki 111,669 26475 803,488 17.19

Mahindra& Mahindra 6590.14 3279.90 78,005.02 12.65

Hindustan Motors 1669.52 101.37 1433.01 10.94

Eicher Motors 2859.09 208.43 9,175.16 33.43

Hero Motocorp 5292.10 574.98 32,231.18 18.20

Bajaj Auto 5965.41 269.5 25,098.64 24.84

Tvs 930.24 373.60 15,669.43 8.32

Ashok Leyland 257,070.78 64588.74 2,746,996.86 11.70

Force Motors 20,058 11458 3,49,319 9.02

Figure 5. The Chart showing Comparative Cash Profit Ratio

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 17

Interpretation - Cash profit ratio of the Eicher Motors 33.43 shows the higher cash profit margin when

compared to the other companies. It is in better position.TVS shows low cash profit margin when compared to

the other companies that is 8.32. Increase in cash sales it can come in better position. Cash profit ratio evaluates

the efficiency of operations in terms of cash generation and is not affected by the method of depreciation

charged.

Return on Total Asset- The profitability of the firm is measured by establishing relation of net profit with

the total assets of the organization. This ratio indicates the efficiency of utilization of assets in generating

revenue. Net profit after tax / sales * 100

Table 6

Comparative Return on Total Asset Ratio

Company Net Profit After Tax Total Assets Ratios

Tata Motors 6813.1 331,350.51 2.05

Maruti Suzuki 78,807 602,484 13.08

Mahindra& Mahindra 7,957.79 1,37,210.91 5.51

Hindustan Motors 5657.88 5,040.10 112.25

Eicher Motors 1,959.67 9,522.23 22.89

Hero Motocorp 3722.17 17,396.73 21.39

Bajaj Auto 4218.95 25,141.00 16.78

Tvs 664.78 13,213.53 5.03

Ashok Leyland 181,381.90 3,351,799.36 5.44

Force Motors 14721 2,52,297 5.83

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 18

Figure 6. The Chart showing Comparative Return on Total Asset Ratio

Interpretation - Return on total assets of the Hindustan Motors is higher (112.25) when compared to the other

companies. And Tata motors have low return of 2.05. The profitability of the firm is measured by establishing

relation of net profit with the total assets of the organization. This ratio indicates the efficiency of utilization of

assets in generating revenue.

Operating Profit Ratio - Operating profit ratio studies the relationship between operating profit (EBIT –

Earning before Interest and Tax) and sales. The purpose of this ratio is to find out the amount of operating profit

for each rupee of sales.

Operating profit ratio = Operating profit * 100

Sales
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 19

Table 7

Comparative Operating Profit Ratio

Company Sales Operating Profit Ratios

283,748.32 35,316.54 12.44

Tata Motors

Maruti Suzuki 803,488 11003.20 1.36

M&M 78,005.02 13226.10 16.95

Hindustan Motors 1433.01 21.36 1.49

Eicher Motors 9,175.16 2807.63 30.60

Hero Motocorp 32,231.18 5018.43 15.57

Bajaj Auto 25,098.64 4781.64 19.05

Tvs 15,669.43 2160.82 13.79

Ashok Leyland 2,746,996.86 4248.44 0.15

Force Motors 3,49,319 275.38 0.07

Figure 7. The Chart showing Comparative Operating Profit Ratio

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 20

Interpretation - A high ratio is an indicator of the operational efficiency of the Eicher Motors (30.6) and Force

Motors (0.07) a low ratio stands for operational inefficiency of the firm, when compared to the

other companies. The purpose of this ratio is to find out the amount of operating profit for each rupee of sales.

Stock Turnover Ratio- This ratio establishes the relationship between costs of goods sold and average

value of inventory of stock. The purpose of this ratio is to show the number of times the inventory of a firm is

rotated in a year. It gives an indication of the efficiency of inventory management.

Stock turnover ratio = Sales / inventory * 100

Table 8

Comparative Stock Turnover Ratio

Company Sales Inventories Ratios

Tata Motors 283,748.32 42137.63 673.38

Maruti Suzuki 803,488 31602 2542.52

Mahindra& Mahindra 78,005.02 9335.57 835.56

Hindustan Motors 1433.01 127.74 1121.81

Eicher Motors 9,175.16 394.64 2324.94

Hero Motocorp 32,231.18 962.68 3348.04

Bajaj Auto 25,098.64 742.58 3379.92

Tvs 15,669.43 1056.15 1483.63

Ashok Leyland 2,746,996.86 220768.91 1244.28

Force Motors 3,49,319 47710 732.17

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 21

Figure 8. The Chart showing Comparative Stock Turnover Ratio

Interpretation - This chart showing a high inventory turnover ratio is Hero (3379.92) an index of efficient

inventory management and a low ratio Tata Motors (673.38) stands for inefficient inventory management. A

low ratio also implies that the firm has excess stock in relation to production and sales, when compared to the

other companies.

Combined Ratios

Return on Total Resources- This ratio shows the relationship between net profit after taxes and total assets.

It reveals the rate of return on total assets. This ratio is also known as Net profit to total assets.

Return on Total Resources = Net profit after Tax * 100

Total Assets
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 22

Table 9

Comparative Return on Total Resource Ratio

Company Net Profit After Tax Total Assets Ratios

Tata Motors 6813.1 331,350.51 2.05

Maruti Suzuki 78807 602,484 13.08

Mahindra& Mahindra 7566.03 1,37,210.91 5.51

Hindustan Motors 5657.88 5,040.10 112.25

Eicher Motors 2179.72 9,522.23 22.89

Hero Motocorp 3722.17 17,396.73 21.39

Bajaj Auto 4218.94 25,141.00 16.78

TVS 664.78 13,213.53 5.03

Ashok Leyland 182655.05 3,351,799.36 5.44

Force Motors 14721 2,52,297 5.83

Figure 9. The Chart showing Comparative Return on Total Resource Ratio

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 23

Interpretation - This chart shows Return on total asset ratio is the highest of Hindustan Motors (112.25) and the

lowest return is of Tata Motors (2.05).This ratio shows the relationship between net profit after taxes and total

assets.

Interest Coverage Ratio - This ratio shows the relationship between net profit before interest and tax and

interest.

Interest coverage ratio = net profit (before interest and tax) * 100

Interest

Table 10

Comparative Interest Coverage Ratio

Net Profit Before

Interest Ratios
Company Interest And Tax

Tata Motors 11155.03 4681.79 238.26

Maruti Suzuki 111669 75.90 147126.48

Mahindra &
10325.52 3987.09 258.96
Mahindra

Hindustan Motors 6227.06 10.36 60106.75

Eicher Motors 3115.65 5.34 58345.50

Hero Motocorp 5292.10 37.18 14233.72

Bajaj Auto 5933.41 1.31 452932.06

TVS 930.81 663.40 140.30

Ashok Leyland 257766.60 1231.72 2091.92

Force Motors 20058 6.67 300719.64

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 24

Figure 10. The Chart showing Comparative Interest Coverage Ratio

Interpretation - This chart shows Interest coverage ratio of Bajaj (452932.06) is the highest interest rate to the

current liabilities that is because profitability position is low, when compared to the other companies. And Tvs

shows the least interest coverage ratio.

Earnings per Share- This ratio shows the relationship between net profit after taxes and preference

dividend and number of equity shares. This ratio is also known earnings per share.

Earnings per share = Net profit after tax – preference dividend * 100

No of equity shares

Table 11

Comparative Earnings per Share Ratio

Company Earnings Per Share

Tata Motors 26.45

Maruti Suzuki 260.88

Mahindra& Mahindra 69.03

Hindustan Motors 2.71

Eicher Motors 719.70

Hero Motocorp 186.30

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 25

Bajaj Auto 145.8

TVS 13.73

Ashok Leyland 6.06

Force Motors 111.72

Figure 11. The Chart showing Earnings per Share Ratio

Interpretation - This chart shows Earnings per share for the Eicher Motors (719.7) shareholders will earn

maximum earning per share; that is shareholders to benefit on the future market basis easy to invest in this

company. Hindustan Motors is only 2.71% that shareholders earn which is very low. And in the future market it

is not easy for the investors to invest in this company due to difficulty to collect the money when compared to

other companies.

Debt Equity Ratio - Debt equity ratio shows the relationship between borrower funds and owners fund the

purpose of this ratio is to shown the extent of the firm’s dependences on external liabilities. In order to calculate

its ratio, the required components are external liabilities and owners equity. External liability includes both

long-term as well as short-term borrowings. The term owner’s funds include equity share capital, preference

share capital, Reserves and surplus, but excludes past accumulated losses such preliminary expenses, discount

on issue of share or debentures, underwriting commission and profit and loss account debt balanced etc.

Debt equity ratio = Total debts / Equity

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 26

Table 12

Comparative Debt Equity Ratio

Company Total Debt Equity Ratios

Tata Motors 235397.54 287070.17 0.82

Maruti Suzuki 176729 425,755 0.41

Mahindra & Mahindra 92185.25 74947.35 1.23

Hindustan Motors 10711.48 5,671.38 1.88

Eicher Motors 2492.16 7,030.07 0.35

Hero Motocorp 5332.06 12,064.67 0.44

Bajaj Auto 4715.74 20,425.26 0.23

TVS 10335.25 4992.87 2.07

Ashok Leyland 2527207.12 1540979.95 1.64

Force Motors 72021 1,80,276 0.39

Figure 12. The Chart showing Comparative Debt-Equity Ratio

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 27

Interpretation - From the above chart showing for analysing the capital structure, debt-equity ratio gives an idea

about the relative share of funds of outside and owners invested in the business. The ratio of long term debt of

equity is generally regarded as safe if it is 2:1. TVS shows better Debt-Equity ratio when compared with other

companies. And Bajaj exhibits the poor Debt-Equity performance.

 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 28

Findings

This study has been undertaken at Automobile Companies to analyse the financial performance of the company

by using Ratio analysis technique where the last five years Balance sheet and Profit and loss account were

considered for analysing various financial ratios. The major findings with respect to the study are stated below:

 The current ratio of Bajaj Auto Ltd is highly solved position and the current ratio of Hindustan Motors

current ratio is very low.

 A quick ratio of 1:1 indicates highly solvent position. Hindustan Motors is low liquid solvent position

this ratio serves as a supplement to the current ratio in analysing liquidity, compared to the other companies

Baja Auto Ltd is highly liquid solvent position.

 In Gross profit margin ratio a high margin enables the Mahindra & Mahindra and Force Motors has low

ratio when the compared with other companies.

 Net profit margin ratio is a measure of overall profitability of the firm. The higher ratio, the greater

would be the return to the shareholders and vice versa. A net profit margin of 10% is considered normal this

ratio is very useful to control cost and to increase the sales. The Eicher Motors has the higher ratio and then

greater would be the return to the shareholders. Tata Motors shows the lower ratio.

 Cash profit ratio of the Eicher Motors will show the higher cash profit margin when compared with

other companies. TVS shows the low cash profit margin

 Return on total assets the Hindustan Motors has higher Return when compared with other companies

and Tata Motors has low return.

 Tata motors show low return on total assets and total resources.

 Maruti Suzuki has higher value of interest coverage ratio as compared to other companies.
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 29

Suggestions

This study has been undertaken at Automobile Industry to analyse the financial performance of the companies

by using Ratio analysis technique where the last five years Balance sheet and Profit and loss account were

considered for analysing various financial ratios.

o Necessary steps should be taken by the Bajaj Auto Ltd company to decrease current ratio, increase gross

profit ratio, net profit ratio, return on total asset ratio and return on total resource ratio. And interest coverage

ratio should be reduced to improve company reputation and for future market growth and to make equity share

holders easy to invest in this company.

o Necessary steps should be taken by the Force Motors to decrease the Interest coverage ratio because the

expenses reduce the profitability. Debt equity ratio should be decreased with the equal proportion of debt and

equity is preferable.

o Necessary steps should be taken by the Maruti Suzuki Company to increase Quick ratio which is used as

a measure of the company’s ability to meet its current obligations. The other current assets must be sufficient to

meet other current liabilities. It establishes the relationship between Liquid assets is those which can be

converted in to cash without any loss or delay. Liquid liabilities are those liabilities which are payable

immediately.

o Necessary steps should be taken by the Mahindra and Mahindra company, we have any ratios increase

or decrease is not necessary when compare to the other companies it is medium position should be increase the

profit position in future market computation.

o Necessary steps should be taken by the Hindustan Motor company to increase Net profit ratio, cash

profit ratio, Return on total asset ratio, operating ratio and the company sales to increase the profit that also

increase the cash sales when it comes to the cash profit, operating profit. Return on total Resources, Earning per

share and debt proportion must and should be increased, so that it comes in better position when compared to

the other companies.

o Necessary steps should be taken by the Tata Motors Company to increase current ratio and gross profit

ratio because when current assets are more than the current liabilities, better the position of the company and

must do to increase the current assets. The Gross profit ratio must be increased by sales to maximum level.
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 30

When this company increases these two ratios the company could attain reputation and profitability status. And

it comes in a better position in computation with other companies.

o Necessary steps should be taken by the Hero MotoCorp company to increase the earnings per share so

that more investors could invest in their company which ensures higher profitable return to their investors.

Conclusion and Discussions

This study has been undertaken at Automobile Companies to analyse the financial performance of the company

by using Ratio analysis technique where the last five years Balance sheet and Profit and loss account were

considered for analysing various financial ratios.

An automobile company is a very reputed company for manufacturing world renowned cars, two-wheelers

and heavy vehicles. Innovation of new products, maintaining the good quality of the products and active

involvement of the company personnel with the entire activities made it reputed across the country as well as

around the world. From the entire study it is found that the company should take necessary measures to

improve few areas like- Cost management, cash and inventory management and investment decisions. In order

to improve the overall performance, the management must take all possible steps, review and modify various

policies, cash budgets and inventory status by using sound information management system to enable

management to have a close control over the various operations.

The automobile Industry day by day faces the competitiveness. And other country manufacturer, new

technology and low cost are the main reason for this competition that will face in future market condition.
 FINANCIAL PERFORMANCE OF AUTOMOBILE INDUSTRY 31

References

Amalendu Bhunia, Sri Somnath Mukhuti and Sri Gautam Roy Financial Performance Analysis-A Case

Study, 25th may 2011 Current Research Journal of Social Sciences 3(3): 269-275, 2011ISSN: 2041-

3246© Maxwell Scientific Organization, 2011.

Azhagaiah Dr. R, Sankaran P. Financial Performance of Automobile Industry in India. 2014; 3(1). Issn No

2277-8179.

Dharmaraj and Kathirvel (2013)” Financial Performance of Indian Automobile Industry - A Comparative

Study During Pre and Post Foreign Direct Investment,” International Journal of Scientific Research, Vol

2 Issue 9, ISSN No 2277 – 8179.

Zafar Tariq. “A Comparative Evaluation of Financial Performance of Maruti and Tata Company” Bookman

International Journal of Accounts, Economics & Business Management, 2012; 1(1). Issn No. 2319-426x

© Bookman International Journals.

 Websites

1. www.Automobileindustry.com

2. www.Tatamotor.com

3. www.Marutisuzuki.com

4. www.M&M.com

5. www.Hindmotor.com

6. www.heromotocorp.com

7. www.bajajauto.com

8. www.ashokleyland.com

9. www.tvs.com

10. www.eichermotors.com

11. www.forcemotors.com

12. www.Moneycontrol.Com

 Annual Reports

Financial statements of the year 2018, 2017, 2016, 2015, 2014 of the selected companies.