Financial Modeling & Analysis Assignment

Financial Analysis of Maruti Suzuki

Submitted By :

Shipra Adlakha-2K18/MBA/024

Gaurav Beniwal-2K18/MBA/095

Jagrati Sharma-2K18/MBA/114

Submitted To :

Mr. Chandan Sharma

Assistant Professor, Delhi School of Management

DELHI SCHOOL OF MANAGEMENT

Delhi Technological University
Bawana Road Delhi 110042
Ratio Analysis
Liquidity and Solvency Ratio :

Solvency ratios are a financial metric used to measure the ability of a firm in meeting its long-term debt and other
obligations. This indicates whether the cash flow of a company is sufficient enough to meet its debt obligations
there-by hinting towards the financial stability of the firm. The following four ratios are evaluated here under
Liquidity & Solvency ratio:-

Debt-Equity ratio measures the financial leverage and indicates the proportion of equity and debt used to finance a
company’s assets. Since last 5 years, the D-E ratio of Maruti Suzuki is decreasing and reached at 0.01. This means
the company is using less outsider’s fund in financing the company’s asset.

The ratio calculated on the basis of outsider’s fund excluding current liabilities is called as long term debt equity
ratio. Nil ratio since last two financial years of M/s Maruti may interpret that during these years the company is not
using outsider’s fund Or, they have not taken significant long terms loan from outside.

It is seen that the current ratio of M/s Maruti Suzuki is declining and reached at 0.55 in March 2017 which is lowest
since last 5 years. Declining current ratio represents that the liquidity position of the company is not in a very
comfortable shape and the firm’s fund position to pay it’s current liability in time without facing difficulties is also
declined over past 5 years.

This ratio indicates whether the firm has sufficient short term fund/assets to cover it’s immediate liabilities without
selling inventory. Quick run ratio of Maruti Suzuki decreases since last 5 years. Therefore, the company is in
difficult situation to meet it’s immediate liabilities. Maruti’s quick ratio is stable and constant when compared to
current ratio.

Management Efficiency Ratio :

From the above table, it is understood that the fixed asset turnover ratio of Maruti Suzuki has reached highest level
in March 2017 since last 5 years as the net sales increased and the efficiency of utilisation of fixed asset has reached
to highest rate. So we can say, Maruti Suzuki is utilising it’s fixed asset as most efficient way in FY16-17.
In March’2015, the inventory turnover ratio of Maruti Suzuki saw a sharp fall thus indicating that the inventory
levels for the company had gone up and the firm was then having increased cash being blocked in the inventory.

The above data shows the steady growth of Debtor’s turnover ratio of Maruti Suzuki over other automobile
manufacturers. It means Maruti Suzuki is much more efficient to manage the debtor’s/sales or, more liquid are the
debtors.
Profitability Ratio :

A very important and most widely used financial metric, which is used to assess a firm’s ability to generate income
as compared to its expenses. Higher the number is better it is for the company. Here we have evaluated the
following profitability ratios: Gross Profit Margin, Net profit, Return on capital employed and Return of net worth.

We see that the Gross profit margin has been somewhat consistently increasing over the last five years for Maruti
Suzuki compares to it’s rival in passenger car sectors. This indicated that M/s Maruti Suzuki has been highly
efficient in managing its materials and labor flows along-with the direct cost incurred as opposed to its peers.

Net profit margin of Maruti Suzuki increases year on year basis since March 2013 which implies that the revenue for
Maruti Suzuki is greater than the cost involved.

Investment Valuation Ratios :

Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share
outstanding. Dividend per share (DPS) is the total dividends paid out by a business, including interim dividends,
divided by the number of outstanding ordinary shares issued.

This ratio is increasing significantly every year with a greater growth rate compares to it’s rival companies in
passenger car segment. This gives a signal to the investors that the company is doing well in financially. Investors
are very confident on it’s performance and putting more funds.
 Year Ratio
2013 8
2014 12
2015 25
2016 35
2017 75

The book value per share formula is used to calculate the per share value of a company based on its equity available
to common shareholders. The term "book value" is a company's assets minus its liabilities and is sometimes referred
to as stockholder's equity, owner's equity, shareholder's equity, or simply equity.
The table shows how stock value of maruti is valuable and attractive to the investor. It’s growing trend over it’s
competitors also shows it’s steady growth.

Year Ratio
2013 615.2
2014 694.64
2015 784.91
2016 894.27
2017 1197.72

Basic earnings per share is a rough measurement of the amount of a company's profit that can be allocated to one
share of its stock. Basic earnings per share (EPS) do not factor in the dilutive effects of convertible securities. Basic
EPS is calculated as follows:

Basic EPS = (net income – preferred dividends) / weighted average number of common shares outstanding

The performance of Maruti Suzuki’s share in the stock market is showing growing trend over years from 2013
onwards. Among top five Automobile manufacturers in India, Maruti has shown positive sentiment among investors
as well as continuous growth in EPS. This data makes Maruti Suzuki in benchmark position based on EPS
performance.

Year Ratio
2013 79.19
2014 92.13
2015 122.85
2016 151.33
2017 242.91

Conclusion

The study explored that ratios are calculated from the financial statements which are prepared as desired by the
management and policies adopted on stock values and thus produce only a collection of facts expressed in monetary
term and cannot produce complete and authentic picture of the business and also may not highlight other factors
which affects performance. It is also known fact that ratio is simple comparison of numerator and a denominator and
in comparing ratios it become difficult to adjudicate whether differences are due to change in the numerator or
denominator or in both. It is also found that ratios are interconnected but are often treated by management in
isolation.
It is known fact that ratios are calculated from the past records and have no indicator of future and are also not
compared according to standard. In the shadow of above revelation and fact the study conclude that Maruti Suzuki
have better strategic position in comparison to its competitor in all the respective ratios. It has secured top position
in Liquidity analysis, in profitability analysis in relation to sales and in relation to investment, in efficiency analysis,
in leverage analysis, in market valuation and has secured first rank.