Financial Ratio Analysis of Indus Motor Company LTD

UMAR IFTIKHAR
KIYANI
(SP-08-CE-125)
[FINANCIAL RATIO ANALYSIS
SULEMAN AHMAD
OF
AWANINDUS MOTOR COMPANY
(SP-09-CE-118)
LTD]
CENTER FOR ADVANCE STUDIES IN ENGINEERING
FINANCIAL RATIO ANALYSIS OF INDUS MOTOR COMPANY LTD
ACKNOWLEDGEMENT
In the name of “Allah”, the most beneficent and merciful who

gave us strength and knowledge to complete this report. This
report is a part of our course “Finance for Technical Managers”.
This has proved to be a great experience.
We would like to express our gratitude to our teacher Mr.

Mazhar Hussain who gave us this opportunity to fulfill this
report.
CASE 2
VISION OF INDUS MOTOR COMPANY LTD.
"IMC’s Vision is to be the most respected and successful

enterprise, delighting customers with a wide range of products
and solutions in the automobile industry with the best people
and the best technology".
CASE 3
MISSION OF INDUS MOTOR COMPANY LTD.
IMC’s mission is reflected in company’s slogan
ACT # 1
Action, Commitment and Teamwork to become #1 in Pakistan.
The Indus team is committed to ACT so that it achieves #1
position in the auto industry in
 Respect & Corporate Image
 Quality & Safety
 Customer Satisfaction
 Production & Sales
 Profitability
 Best Employer
CASE 4
COMPANY PROFILE
INDUS MOTOR COMPANY LTD has been selected for financial analysis as project. Financial
report of yr 2007-2008 has been picked for analysis purpose. A brief history of the company is
stated below.
Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor
Corporation Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC) for assembling,
progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990.
IMC is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd vehicles in
Pakistan through its dealership network.
The company was incorporated in Pakistan as a public limited company in December 1989 and
started commercial production in May 1993. The shares of company are quoted on the stock
exchanges of Pakistan i.e. Karachi, Lahore and Islamabad stock exchanges. The stock code for
dealer in equity shares of Indus Motor Company Limited at KSE, LSE and ISE is INDU. Toyota
Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. The
majority shareholder is the House of Habib.
IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area
measuring over 105 acres.
Indus Motor Company’s plant is the only manufacturing site in the world where both Toyota
and Daihatsu brands are being manufactured.
Heavy investment was made to build its production facilities based on state of art technologies.
To ensure highest level of productivity world-renowned Toyota Production Systems are
implemented.
IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux
Single Cabin 4x2 and 4 versions of Daihatsu Cuore.
CASE 5
RATIO ANALYSIS
A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless
unless it is related to either the firm’s turnover (sales revenue) or the value of its assets.
Accounting ratios attempt to highlight the relationships between significant items in the
accounts of a firm. Financial ratios are the analyst’s microscope; they allow them to get a better
view of the firm’s financial health than just looking at the raw financial statements.
Ratios are used by both internal and external analysts
 Internal uses
 Planning
 Evaluation of management
 External uses
 Credit granting
 Performance monitoring
 Investment decisions
 Making of policies
CASE 6
CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to five categories:
1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.
2. Asset Management Ratios shows that how effectively the firm is managing its assets.
3. Debt Management Ratios shows the extent to which a firm uses debt financing or
financial leverages.
4. Profitability Ratios relates profits to sales and assets.
5. Market Value Ratios are a measure of the return on investment.
CASE 7
LIQUIDITY ANALYSIS RATIOS
CASE 8
NET WORKING CAPITAL RATIO
Ratio Formula Calculation Value ‘08 Calculation Value ‘07

Net Working Working Capital / Total Assets 5,885,153 / 0.428 6,125,156/ 0.391
Capital Ratio (Rs in ‘000) 13,748,109 15,665,050
Analysis:
There is an increase in the net working capital in 2008 as compared to in 2007. The company
can easily utilize the amount for other profit related activities after paying off its debts. Also we
can see that it is due to decrease in total assets in 2008, thus meaning that company is
effectively utilizing its inventories.
CASE 9
WORKING CAPITAL

Working Capital Current Assets - Current Liabilities 9,664,784 5885153 13,536,082 6125156
(Rs in ‘000) - 3,779,631 - 7,410,926
Analysis:
There is a decrease in the working capital in 2008 as compared to in 2007. The company current
assets have decreased in 2008 as well as its current liabilities. Although company still has
enough working capital after paying off its debts in 2008, it also means that company is
effectively utilizing its inventory.
CASE 10
CURRENT RATIO

Current Ratio Current Assets / Current 9,664,784 2.557 13,536,082 1.826
Liabilities (Rs in ‘000) / 3,779,631 / 7,410,926
Analysis:
There is an increase in the current ratio in 2008 as compared to in 2007. The company can
easily pay off its debts. Moreover company current liabilities have also decreased from 2007.
ACID TEST / QUICK RATIO

CASE 11

Acid Test/ Quick Quick Assets / Current Liabilities 8,406,562 / 2.224 12,304,238 1.660
Ratio (Rs in ‘000) 3,779,631 / 7,410,926
Analysis:
There is an increase in the quick ratio/ acid test in 2008 as compared to in 2007. The company
can easily meet its current liabilities with its most liquid current assets.
QUICK ASSETS
CASE 12

Quick Assets Current Assets – 9,664,784 8406562 13,536,082 12304238
Inventories (Rs in ‘000) - 1,258,222 - 1,231,844
Analysis:
There is a decrease in the quick assets in 2008 as compared to in 2007. This is due to decrease
in the current assets from 2007 to 2008.
CASE 13
ACTIVITY ANALYSIS / TURNOVER RATIOS
CASE 14
INVENTORY TURNOVER RATIO

Inventory Turnover Cost of Goods Sold / 37,575,356 / 30.18 34,620,632 18.717
Average Inventories (Rs in 1,245,033 / 1,849,648
‘000)
Analysis:
There is an increase in the inventory turnover ratio in 2008 as compared to in 2007. It means
that company changed inventory 30.18 times during the year which is a very good sign and sold
more cars as compared to in 2007.
CASE 15
ASSET TURNOVER RATIO

Asset Turnover Sales / Average Total Assets 41,423,843/ 2.816 39,061,226/ 2.481
(Rs in ‘000) 14,706,580 15,743,759
Analysis:
There is an increase in the asset turnover ratio in 2008 as compared to in 2007. The company
has increased sales as compared to in 2007 thus it has sold more services to customer and in
this case it is the company product cars.
CASE 16
ACCOUNT RECEIVABLE TURNOVER RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07

A/R Sales / Average Account 41,423,843 121.81 39,061,226 42.093
Turnover Receivables (Rs in ‘000) / 340,043 / 927,971
Analysis:
There is an increase in the account receivable turnover ratio in 2008 as compared to in 2007.
The company has less account receivables as compared to in 2007 and is getting more cash.
CASE 17
PROFITIABILITY RATIOS
CASE 18
RETURN ON ASSETS

Return on Net Income / Average Total 2,290,845 / 0.155 2,745,701 / 0.174
Assets Assets ( Rs in ‘000) 14,706,580 15,743,759
Analysis:
There is a decrease in the return on asset in 2008 as compared to in 2007. The company total
assets have decreased in 2008 as compared to in 2007 and are due to fewer inventories.
RETURN ON EQUITY
CASE 19

Return on Equity Net Income / Average 2,290,845 / 0.262 2,745,701 / 0.383
Stockholder's Equity 8,740,158 7,150,927
(Rs in ‘000)
Analysis:
There is a decrease in the return on equity in 2008 as compared to in 2007. The company
average total equity has increased from 2007 and has resulted in decrease.
RETURN ON COMMON EQUITY
CASE 20

Return on Net Income / Average 2,290,845 / 2.914 2,745,701 / 3.493
Common Equity Common Stockholder's 786,000 786,000
Equity (Rs in ‘000)
Analysis:
There is a decrease in the return on common equity in 2008 as compared to in 2007. The
company net income has increased from 2007 and has resulted in decrease.
EARNINGS PER SHARE
CASE 21

Earnings Per Net Income / No of 2,290,845,000 29.14 2,745,701,000 34.93
Share Shares Outstanding / 78,600,000 / 78,600,000
(in Rs)
Analysis:
There is a decrease in the earnings per share in 2008 as compared to in 2007. The company
earning per share is Rs 29.14 as compared to Rs 34.93 and is due to fall of stock market.
PROFIT MARGIN
CASE 22

Profit Margin Net Income / Sales 2,290,845 / 0.055 2,745,701 / 0.070
(Rs in ‘000) 41,423,843 39,061,226
Analysis:
There is a decrease in the profit margin in 2008 as compared to in 2007. This is due to increase
in net income and sales of the company in 2008 and giving fewer margins for profit.
CASE 23
CAPITAL MARKET ANALYSIS RATIOS
CASE 24
PRICE EARNINGS RATIO

Price Earnings Market Price of Common 200.1 / 29.14 6.866 305.5 / 34.93 8.746
Ratio Stock / Earnings Per Share
(in Rs)
Analysis:
There is a decrease in the price earning ratio in 2008 as compared to in 2007. The company
market price of common stock has decreased considerably in 2008 and resulting in decrease of
earning per share.
CASE 25
MARKET TO BOOK RATIO

Market to Market Price of Common 200.1 / 12.01 16.66 305.5 / 10.23 29.86
Book Ratio Stock / Book Value of
Equity per Common Stock
Analysis:
There is a decrease in the market to book ratio in 2008 as compared to in 2007. Due to
decrease in market price of share, the market to book ratio has decreased.
CASE 26
BOOK VALUE OF EQUITY PER COMMON STOCK

Book Value of Common Equity / No 9,436,340 / 12.00 8,043,975 / 10.23
Equity per of Shares Outstanding 786,000 786,000
Common Stock (Rs in ‘000)
Analysis:
There is an increase in the book value of equity per common stock in 2008 as compared to in
2007. This is due to increase in equity in 2008.
CASE 27
DIVIDEND YIELD RATIO

Dividend Yield Annual Dividends per 10.5 / 200.1 0.052 13 / 305.5 0.042
Common Share / Market
Price of Common Stock
(in Rs)
Analysis:
There is an increase in the dividend yield ratio in 2008 as compared to in 2007. The company
paid fewer dividends in 2008 of Rs 10.5 per share only.
CASE 28
DIVIDEND PAYOUT RATIO

Dividend Cash Dividends / Net 940,118 / 0.410 939,844 / 0.342
Payout Ratio Income (Rs in ‘000) 2,290,845 2,745,701
Analysis:
There is an increase in the dividend payout ratio in 2008 as compared to in 2007. The company
paid more cash dividends in 2008 as evident from the calculations.
CASE 29
CAPITAL STRUCTURE ANLYSIS RATIO
CASE 30
DEBT TO EQUITY RATIO

Debt to Equity Total Liabilities / Total 4,311,769 / 0.456 7,621,075 / 0.947
Ratio Stockholder's Equity 9,436,340 8,043,975
(Rs in ‘000)
Analysis:
There is a decrease in the debt to equity ratio in 2008 as compared to in 2007. This is due to
considerable decrease in the total liabilities of the company in 2008.
CASE 31
DEBT RATIO

Debt Ratio Long Term Debts / (Long 532,138 / 0.053 210,149 / 0.025
Term Debt + Stockholder's (532,138 + (210,149 +
Equity) (Rs in ‘000) 9,436,340) 8,043,975)
Analysis:
There is an increase in the debt ratio in 2008 as compared to in 2007. The company long term
debts have increased from 2007.
CASE 32
INTEREST COVERAGE RATIO

Interest Income before Interest 3,545,138 / 1034.473 4,272,892 / 98.428
Coverage and Income Tax 3,427 43,411
Ratio Expenses / Interest
Expense (Rs in ‘000)
Analysis:
There is an increase in the interest coverage ratio in 2008 as compared to in 2007. The
company paid more interest expense in 2007 as compared to in 2008.
INCOME BEFORE INTEREST AND INCOME TAX EXPENSES

CASE 33

Income before Income before 3,541,711 + 3,427 3545138 4,229,481 4272892
Interest and Income Taxes + + 43,411
Income Tax Interest Expense
Expenses (Rs in ‘000)
Analysis:
There is a decrease in the income before interest and income tax expenses in 2008 as
compared to in 2007. This is due to less debt by the company in 2008 as compared to in 2007.
ROA
CASE 34

ROA Profit Margin x Asset Turnover 0.0553 / 2.816 0.019 0.0702 / 2.656 0.026
Ratio
Analysis:
There is a decrease in the ROA ratio in 2008 as compared to in 2007. This is due to fewer profit
margins in 2008.
CASE 35
CASE 36
CASE 37
CASE 38
CASE 39
REFERENCES
1. www.toyota-indus.com
2. Fundamentals of Financial Management by Brigham & Houston 10 th edition.
CASE 40

Financial Ratio Analysis of Indus Motor Company LTD

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UMAR IFTIKHAR

In the name of “Allah”, the most beneficent and merciful who

We would like to express our gratitude to our teacher Mr.

VISION OF INDUS MOTOR COMPANY LTD.

"IMC’s Vision is to be the most respected and successful

MISSION OF INDUS MOTOR COMPANY LTD.

IMC’s mission is reflected in company’s slogan

Ratios are used by both internal and external analysts

CATEGORIES OF FINANCIAL RATIOS

LIQUIDITY ANALYSIS RATIOS

NET WORKING CAPITAL RATIO

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

ACID TEST / QUICK RATIO

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

ACTIVITY ANALYSIS / TURNOVER RATIOS

INVENTORY TURNOVER RATIO

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

ASSET TURNOVER RATIO

Ratio Formula Calculation Value ‘08 Calculation Value ‘07

ACCOUNT RECEIVABLE TURNOVER RATIO

Ratio Formula Calculation Value’08 Calculation Value‘07

Ratio Formula Calculation Value’08 Calculation Value‘07

Ratio Formula Calculation Value’08 Calculation Value‘07

RETURN ON COMMON EQUITY

Ratio Formula Calculation Value’08 Calculation Value‘07

EARNINGS PER SHARE

Ratio Formula Calculation Value’08 Calculation Value‘07

Ratio Formula Calculation Value’08 Calculation Value‘07

CAPITAL MARKET ANALYSIS RATIOS

PRICE EARNINGS RATIO

Ratio Formula Calculation Value’08 Calculation Value‘07

MARKET TO BOOK RATIO

Ratio Formula Calculation Value’08 Calculation Value‘07

BOOK VALUE OF EQUITY PER COMMON STOCK

Ratio Formula Calculation Value’08 Calculation Value‘07

DIVIDEND YIELD RATIO

Ratio Formula Calculation Value’08 Calculation Value‘07

DIVIDEND PAYOUT RATIO

Ratio Formula Calculation Value’08 Calculation Value‘07

CAPITAL STRUCTURE ANLYSIS RATIO

DEBT TO EQUITY RATIO

Ratio Formula Calculation Value’08 Calculation Value‘07

Ratio Formula Calculation Value’08 Calculation Value‘07

INTEREST COVERAGE RATIO

INCOME BEFORE INTEREST AND INCOME TAX EXPENSES

Ratio Formula Calculation Value’08 Calculation Value‘07

Ratio Formula Calculation Value’08 Calculation Value‘07

2. Fundamentals of Financial Management by Brigham & Houston 10 th edition.

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