A PROJECT REPORT ON RATIO ANALYSIS ON HINDUSTAN MANUFACTURING COMPANY

PREPARED BY: BHAVIK HARIYANI M. CLASS ROLL NO. : :

M.B.A. SEM. -1

53

GUIDED BY: PROFESSOR PRIYANKA MADAM

PREFACE

As an M.B.A. student, we have to study the theoretical subject and this theoretical knowledge we have to use in the industry practically. Report is the part of our study. In module -5 we have to prepare a report, so it is a part of it. I have prepared the report of HINDUSTAN MANUFACTURING COMPANY. This report contains the true knowledge and all the aspect over gone in the practical.

DATE : PLACE : -

(SIGNATURE) (HARIYANI BHAVIK)

ACKNOWLEDGEMENT

First of all I would like to say thank you to professor PRIYANKA MADAM for providing me such an opportunity to prepare a report.
I would like to thank my family, my friends and colleagues who constantly encouraged me to prepare report. So this project report is dedicated to all of them.

Date : Place : (SIGNATURE) ( HARIYANI BHAVIK)

DECLARATION

I undersigned HARIYANI BHAVIK student of PARUL INSTITUTE OF MANAGEMENT would like to declare that this project report is my own work, for the completion of this work I had taken guidance from PROFESSOR PRIYANKA MADAM.

This work has not been previously submitted to any other university for any examination.

Date

Place : (SIGNATURE) (HARIYANI BHAVIK)

INDEX

SR. NO.

PARTICULARS

1. 2. 3. 4.

GENERAL INFORMATION FINANCIAL INFORMATION RATION ANALYSIS BIBLIOGRAPHY

INDEX Sr. No.

1 2 3 4 PARTICULERS INTRODUCTION HISTORY&DEVELOPMENT PROFILE PRODUCT

INTRODUCTION

Hindustan Motors Mfg. Co. is one of the leading Electric Motors Manufacturers in India having ISO 9001 Certification. They have experience of over more than 28 years in Design, Development and Manufacturing of Electric Motors. Hindustan Motor Manufacturing Co. caters the need of Machine Tools, Blowers and Fans, Air-Conditioners, Compressors, Material Handling Equipment, Cranes and Hoist, Textile Machinery, Cement Plant, Pharmaceutical Machinery, Packaging Machinery, Construction Equipment, General Engineering Applications and wide range of Applications. The list of esteemed customers includes Voltas , Blue Star, HMT, WIDIA, Bajaj Electrical, Trumac, Mihir Engineers, Telco, Relience Industries, Lohia, Kolsite, Killick Nikson, and many more.

HISTORY AND DEVELOPMENT

HINDUSTAN MANUFACTIRUNG COMPANY was established in 1973. Hindustan Motors Mfg. Co. is one of the leading Electric Motors Manufacturers in India having ISO 9001 Certification. We have experience of over more than 28 years in Design, Development and Manufacturing of Electric Motors.

PROFILE

Name of the Company : HINDUSTAN MOTOR MANUFACTURING Business type Year of Establishment No. of employees Annual turnover Bankers : Manufacturer : 1973 : 400
: 78 million : STATE BANK OF INDIA

Standard Certification : ISO 9001-2000 Address

: P.O. BOX 18701, 32/A, VIDYAVILLA COMPOUND, OLD NAGARDAS ROAD, ANDHERI (EAST), Mumbai - 400069, Maharashtra, India Phone No. Fax Factory Location : 91-22-28325028/28324837/28380080/28380081 : 91-22-28380947 : Daman

Board of directors

: Designation

Name

P Jagadeeswaran G R Sundaravadivel R Subburathinam Shashank Goel Gautam Basu

Chairman and Managing director Nominee Director Director Director Director

Mission Statement :
We will be the leading Indian producer of Premium Quality Electric Motors catering to domestic and International markets, by establishing and maintaining the growth rate of 20% every year.

Quality Policy

We are committed to the Design and Manufacture of Premium Quality Motors at a competitive price. We will always ensure that our Customer requirements are determined and met effectively so that we will have continual quality improvements in all our products and services. To achieve this by regularly reviewing our QMS and continually improving upon the effectiveness of QMS.

PRODUCT

High Efficiency Standard Motors

Brake Motors

Flame Proof Motors Speed Motors

Multi

Crane Duty Motors Cooling Tower Motors

Inline Helical Geared Motors - M Series

Shaft Mounted Speed Reducer

Hell-Worm Geared Motors - S Series Series

Geared Motors - H

BALANCE SHEET OF HMMC ( Rs. in crores) PARTICULARS Mar-09 Mar-10 Mar-11

LIABILITIESNET WORTH Share Capital Reserves BORROWINGS Debentures Others Long term debt Bank Borrowing CURRENT LIABILITIES Trade Creditors Prov. And others 35.99 222.87 211.21 270.97 339.35 376.53 ---199.87 199.87 442.92 75.75 285.90 361.65 641.39 76.46 312.73 389.19 839.87 225 286.13 225 357.95 225 447.81

Asset side of balance sheet (Rs. in crores)

PARTICULARS
ASSETS--FIXED ASSETS Gross - Depreciation Other non current CURRENT ASSETS Inventories: Raw mat. Stock in process Finished goods Inventories Debtors Cash others

MAR..09 MAR..10 MAR..11

653.49 (159.55) 841.64 194.46 921.55 235.44

52.76 243.42 85.74 147.12 476.28 253.16 8.37 128.27

16.44 384.06 150.55 244.28 778.89 340.61 98.84 186.21

60.72 457.74 230.84 461.81 1150.39 483.18 26.08 211.27

PROFIT AND LOSS A\C PARTICULARS A.Net sales B.Cost of good sold C.Gross profit (A-B) D.- selling & adm. Exp.

2009
2338.90 1929.04 409.86 (239.72)

2010
2825.69 2322.80 502.89 (262.10)

2011
3717.23 3053.66 663.57 (357.87)

E.Operating income (C- 170.14 D) 15.24 F.+other income 185.38 G.EBIT (E+F) (59.84) H- interest 125.54 I.PBT (G-H) 41.79 J.Provision for tax 83.75 K.PAT (I-J) L.Effective tax rate M.Dividend distributed N.Retained earings 33% 33.75 50.00

240.79 25.38 266.17 (124.98) 141.19 30.00 111.19

305.70 36.91 342.61 (143.46) 199.15 64.29 134.86

21% 39.38 71.81

32% 45.00 89.86

RATIO ANALYSIS

Meaning of Ratio Analysis:

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined.

Types of Ratios:
Liquidity Ratio

Leverage ratio

Activity ratio Profitability ratio

1) Liquidity ratio :

Liquidity ratios measure the ability of a firm to meet its short-term obligations. It includes,

A) Current asset ratio B) Quick ratio/acid test ratio

A)Current asset ratio : Current Ratio is a measure of liquidity calculated dividing the current assets by the current liabilities.

Current ratio =

Total Current Assets Total Current Liablities

For, HMC the current ratio is :=

1870 .92 = 1.20 : 1 1555 .75

B)Quick ratio/acid test ratio :

The quick or acid test ratio takes into consideration the differences in the liquidity of the components of current assets.

Quick ratio =

Current Assests - Inventory Current Liablities

For, HMC the Quick Ratio is :

720 .53 = 0.46 : 1 1555 .75

2)

Leverage ratio :

Leverage ratios measure the extent to which a firm has been financed by debt.

Leverage ratios include:

A) Total Debt Ratio B) Debt--Equity Ratio

Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business. Thus, high leverage ratios make it more difficult to obtain credit (loans).

A)

Total Debt Ratio :

Debt Ratio = Capital Employed Total Debt (Total Debts + Net Worth)

For, HMC the debt ratio is : =

1229 .06 = 0.646 or 64% 1901 .87

B) Debt-Equity Ratio :

The Debt-Equity Ratio indicates the percentage of total funds provided by creditors versus by owners. This ratio indicates the extent to which the business relies on debt financing (creditor money versus owners equity
Debt Equity Ratio = Total Debt Net Worth 1,229 .06 =1.83 672 .81

For, HMC Debt - Equity ratio is : =

Where total debt, Long term debt + short term debt + other current liabilities
3)

Activity Ratio :

These ratios evaluate the efficiency with which the firm manages and utilizes its assets.

 They indicate the speed with which assets are being converted or turned over into sales.

Activity ratios include: Inventory Turnover Debtors Turnover Assets Turnover Working Capital Turnover

A) Inventory Turnover :

Indicates the efficiency of the firm in producing and selling its product.

Cost of goods sold/average inventory Cost of goods sold = opening stock + purchases + direct expenses closing stock Average inventory = average of opening and closing inventory

Inventory

Turnover

Ratio =

Cost of Goods Sold 3,053 .66 = = 8.6 Avg Inventory (244 .26 + 7461 .81) / 2 360 = 42 days 8.6

Days of Inventory

Holding

It means that the firm is turning its inventory of finished goods into sales 8.6 times in a year

B)Debtors

turnover ratio :

A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of companies.

When the firm extends credit to its customers, debtors are created in the firms account .

Debtors are convertible into cash over a short period and therefore they are included in current assets. The liquidity position of the firm depends on the quality of debtors to a great extent.

D ebtors(ARTurnover ) =

CreditSales Avg Debtors Sales 3,717.23 = = 7.7 tim es Avg AR 483.18

This means the firm is able to turnover its debtors 7.7 times in a year.

C) Assets turnover ratio:

Assets are used to generate sales A firm should manage its assets efficiently to maximize sales. The relationship between sales and assets is called assets turnover.

Net Assets Turnover

Sales Net Assets 3,717.23 =1.95 times 1901.87

This implies that firm is producing Rs. 1.95 of sales for one rupee of capital employed in net assets.

D) Working capital turnover ratio :

 Sales/Net Current Assets Net Current Assets = Current Assets Current Liabilities Working capital means the day to day requirements of the firm.
Working Capital Turnover ratio = Sales Net Current Assets 3,717.23 = 3.2 times 115.04

4) Profitability ratio :

Profitability ratios measure managements overall effectiveness as shown by returns generated on sales and investment.

Profitability ratio include : Gross profit margin Net profit margin Operating Expense ratio Return on equity (ROE) Return on investment (ROI)

A)

Gross profit :

GP M argin =

Gross Profit Sales 663.57 3,717.23 = 0.179 or 17.9%

The ratio for HM is : = C

B) Net profit :

NP M argin =

Profit after tax Sales 134.86 = 0.036 or 3.6% 3717.23

The ratio for HM is : = C

C)

Operating expenses ratio :

Operating

Expense Ratio =

Operating Expense Sales

The ratio for HM is : = C

3411.53 = 0.918 or 91.8% 3717.23

D)

Return on equity :

Return on equity

Profit After Tax(PAT) Net W orth (Equity) 134.86 = 0.20 or 20% 672.81

The ratio for HM is : = C

E) Return on investment :

1) ROTA (Return on Total Assets) 2) RONA (Return on Net Assets)

AFTER TAX :

1)

Return on total assets :

EBIT (1 - T) Total Assests (TA) 342.61 (1 - .32) The ratio for HMC is : = = 0.089 or 8.9% 2617.75 ROTA =

2)

Return on net assets :

EBIT (1 - T) Net Assests (NA) 342.61 (1 - 0.32) The ratio for HMC is : = = 0.122 or 12.2% 1901.87 RONA =

BEFORE TAX:

1)

Return on total assets :

EBIT Total Assests (TA) 342.61 The ratio for HM is : = C = 0.131 or 13.1% 2617.75 ROTA =

2)

Return on net assets :

EBIT Net Assests (NA) 342.61 The ratio for HM is : = C 1901.87 RONA =

= 0.180 or 18.0%

INTERPRETATION OF RATIO:

1) Liquidity ratio

Liquidity ratio analysis indicates that HMCs liquidity is deteriorating.

HMC seems to depend more on outsider funds to finance its expending activities. The level of long term debts is not very excessive, but the proportion of other liabilities is increasing.

From the creditors point of view, the trend is risky and undesirable.

2)

Activity ratio :

Activity ratio analysis shows HMCs turnover ratios do not show improvement. The company has marginally improved its utilizations of fixed assets, but its current assets turnover is declining.

3) Profitability Ratio:

Profitability ratio analysis indicates that the companys EPS and DPS are increasing.

BIBILIOGRAPHY

Sr. Name of books N o .

1. 2. Financial Accounting www.hindmotors.com

Name of Author

R. Narayanaswamy