NEXTEER AUTOMOTIV

INTRODUCTION TO THE SUBJECT STUDY

FINANCIAL ANALYSIS
Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability of a business, sub-business or project.

Definition of 'Financial Analysis'

According to John N. Myer The financial statements provides a summary of the accounts of a business enterprise, the balance sheet reflecting the assets and liabilities and the income statement showing the results of operations during a certain period The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions.

Continue or discontinue its main operation or part of its business; Make or purchase certain materials in the manufacture of its product; Acquire or rent/lease certain machineries and equipment in the production of its goods; Issue stocks or negotiate for a bank loan to increase its working capital; Make decisions regarding investing or lending capital;

Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

NEXTEER AUTOMOTIV NATURE OF FINANCIAL STATEMENTS

Financial Statements are prepared for the purpose of presenting a periodical review or report by the management and deal with the state of investment in the business and results achieved during the period under review. They reflect a combination of recorded facts, accounting conversations and personal judgments.

OBJECTIVES
To provide reliable financial information about economic resources and obligations of a business enterprise. To provide reliable information about the net resources of an enterprise that results from its activities. To provide financial information that assist in estimating the earning potentials of a business. To provide other needed information about changes in economic resources or obligations. To disclose, to the extent possible, other information related to the financial statements that is relevant to the needs of the users of these statements. To know the present and future earning capacity or profitability of the concern. The possibility of developments in the future by making forecast and preparing budgets. To have a comparative study in regard to one firm with another firm. To know the financial stability of the business concern.

GOALS
Financial analysts often assess the following elements of a firm: 1. Profitability - its ability to earn income and sustain growth in both the short- and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term

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3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; Both solvency and liquidity are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability - the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators. ETC

METHODS
Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):

Past Performance - Across historical time periods for the same firm (the last 5 years for example),

Future Performance - Using historical figures and certain mathematical and statistical techniques, including present and future values, this extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.

Comparative Performance - Comparison between similar firms.

These ratios are calculated by dividing a (group of) account balance(s), taken from the balance sheet and / or the income statement, by another, for example : Net income / equity = return on equity (ROE) Net income / total assets = return on assets (ROA) Stock price / earnings per share = P/E ratio Comparing financial ratios is merely one way of conducting financial analysis. Financial ratios face several theoretical challenges:

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They say little about the firm's prospects in an absolute sense. Their insights about relative performance require a reference point from other time periods or similar firms.

One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least two ways. One can partially overcome this problem by combining several related ratios to paint a more comprehensive picture of the firm's performance.

Seasonal factors may prevent year-end values from being representative. A ratio's values may be distorted as account balances change from the beginning to the end of an accounting period. Use average values for such accounts whenever possible.

Financial ratios are no more objective than the accounting methods employed. Changes in accounting policies or choices can yield drastically different ratio values.

(fundamental analysis) Financial analysts can also use percentage analysis which involves reducing a series of

figures as a percentage of some base amount. For example, a group of items can be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis. Vertical or common-size analysis reduces all items on a statement to a common size as a percentage of some base value which assists in comparability with other companies of different sizes. As a result, all Income Statement items are divided by Sales, and all Balance Sheet items are divided by Total Assets. Another method is comparative analysis. This provides a better way to determine trends. Comparative analysis presents the same information for two or more time periods and is presented side-by-side to allow for easy analysis.

TOOLS OR TECHNIQUES OF ANALYSING AND INTERPRETATION

1. Comparative financial statement analysis: It can be prepared for both income statement as well as position statement. Such statement shows the operating results for number of accounting periods and different dates can be used for comparing assets and liabilities and to find out any increase or decrease in the items.

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2. Common size or measurement statement analysis: Are those in which figures reported are converted to same common base. Vertical analysis is required for an interpretation of underlying causes of changes over a period of time. It is used for balance sheet as well as income statements.

3. Trend analysis: This analysis is an important tool of horizontal financial analysis. It enables to know the changes in the financial functions and operating efficiency between the time period chosen. Trend percentages are calculated for each item of the financial statements taking the figures of the base year as 100.

4. Fund flow statement or analysis: FFS is prepared to indicate in summary form, changes occurring in items of financial position between two different balance sheet dates.

5. Cash flow statement or analysis: Cash flow means inflow and outflow of cash. An inflow that is source of cash increase, the total cash available at the disposal of the firm while an outflow that is use of cash decrease it.

6. Ratio analysis: It is one of the powerful tools of the financial sanalysis; a ratio can be defined as, the indicated quotient of two mathematical expressions and as the relationship between two or more things. A ratio can be used as yard stick for evaluating the financial position and performance of a concern.

7. Working capital analysis: This statement is prepared to know the net changes in working capital of the between two specified dates. It is prepared from current assets and current liabilities to show the net increase or decrease in working capital.

8. DuPont analysis: This analysis shows the performance of the company in the form of chart. The return on investment which are comprises of earning before and after tax and the capital employed is clearly depicted in the chart.

NEXTEER AUTOMOTIV ATTRIBUTES OF FINANCIAL STATEMENTS

i. Relevance: Financial statements prepared should be relevant for the purpose they are supposed to serve. As far as possible, relevant and material information should be disclosed properly but confusing and irrelevant disclosures should be avoided.

ii.

Accuracy: Financial statements should be prepared accurately so that these may convey a full and correct idea about the progress, position and prospects of an enterprise.

iii.

Comparability: It is the foundation of financial analysis as it increases the utility of financial statements.

iv.

Analytical presentation: Financial statements should be presented in analytical and classical form so that a better and meaning analysis can be made.

v.

Promptness: Financial statements should be prepared after the end of the accounting period without any delay may present difficulty in tracing the cause of the results as disclosed by these statements.

vi.

Generally accepted principal: Financial statements must be prepared in accordance with the generally accepted accounting principles to have wider acceptability and understandability by the clients.

vii.

Consistency: Financial statements must be prepared on consistent basis following the same rules, procedures and principles in successive periods, unless the situation demands otherwise. It also affects the comparability of these statements.

viii.

Authenticity: Financial statements prepared must be authenticated by an independent and capable person (called auditor) in order to make them more reliable and acceptable by the users.

ix.

Compliance with law: Financial statements must meet the requirements of law, if any, in matter of form, contents and disclosures, procedures and methods.

NEXTEER AUTOMOTIV IMPORTANCE OF FINANCIAL STATEMENTS

Owners-provides funds for the business operations Creditors-suppliers of goods and services on credit, bankers and other lenders of money Investors-Prospective investors, analyze financial statements of that firm to know how safe proposed investment will be. Employee-They serve particularly when payment of bonus depends upon the size of the profits earned. Government-Financial statements reflect the earnings for a particularly period for the purpose of taxation. Research Scholars-who wants to make a study into financial operations of a particular firm. Consumers-Interested in establishment of good accounting control so that cost of Production may be reduced. Managers-Financial statements serve the manager is appraising the performance of the subordinates.

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1. INDUSTRY PROFILE OF NEXTEER COMPANY

Starting its journey from the day when the first car rolled on the streets of Mumbai in 1898, the Indian automobile industry has demonstrated a phenomenal growth to this day. Today, the Indian automobile industry presents a galaxy of varieties and models meeting all possible expectations and globally established industry standards. Some of the leading names echoing in the Indian automobile industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors in addition to a number of others. The Automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 11 million vehicles (including 2 wheeled and 4 wheeled) and exports about 1.5 million every year. It is the world's second largest manufacturer of motorcycles, with annual sales exceeding 8.5 million in 2010. India's passenger car and commercial vehicle manufacturing industry is the seventh largest in the world, with an annual production of more than 2.6 million units in 2010. In 2010, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea and Thailand. As of 2010, India is home to 40 million passenger vehicles and more than 2.6 million cars were sold in India in 2010 (an increase of 26%), making the country the second fastest growing automo bile market in the world. According to the Society of Indian Automobile Manufacturers, annual car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads. A chunk of India's car manufacturing industry is based in and around the city of Chennai, also known as the "Detroit of India", with the Indian city accounting for 60 per cent of the country's automotive exports. Gurgaon and Manesar near New Delhi are hubs where all of the Maruti Suzuki cars in India are manufactured. The Chakan corridor near Pune, Maharashtra is another vehicular production hub with General Motors, Volkswagen/Skoda, Mahindra and Mahindra in the process of setting up or al ready set up facilities. Ahmedabad with Tata Motors Nano plant and Halol with General Motors in Gujarat, Aurangabad in Maharashtra, Kolkata in West Bengal are some of the other automotive manufacturing regions around the country.

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India has emerged as one of the world's largest manufacturers of small carsAccording to New York Times, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai Motors, Nissan. Toyota, Volkswagen and Suzuki In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011. According to Bloomberg L P, in 2009 India surpassed China as Asia's fourth largest exporter of cars. In recent years, India has emerged as a leading center for the manufacture of small cars. Hyundai, the biggest exporter from the country, now ships more than 250,000 cars annually from India. Apart from shipments to its parent Suzuki, Maruti Suzuki also manufactures small cars for Nissan, which sells them in Europe. Nissan will also export small cars from its new Indian assembly line. Tata Motors exports its passenger vehicles to Asian and African markets, and is in preparation to launch electric vehicles in Europe in 2010. The firm is also planning to launch an electric version of its low-cost car Nano in Europe and the U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and small SUV models in the U.S. market. Bajaj Auto is designing a low-cost car for the Nissan-Renault alliance, which will market the product worldwide. Nissan Renault may also join domestic commercial vehicle manufacturer Ashok Leyland in another small car project. While the possibilities are impressive, there are challenges that could thwart future growth of the Indian automobile industry. Since the demand for automobiles in recent years is directly linked to overall economic expansion and rising personal incomes, industry growth will slow if the economy weakens. In September 2009, Ford Motors announced its plans to setup a plant in India with an annual capacity of 250,000 cars for US$500 million. The cars will be manufactured both for the Indian market and for export. The company said that the plant was a part of its plan to make India the hub for its global production business. Fiat Motors also announced that it would source more than US$1 billion worth auto components from India.

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COMPANY PROFILE:
Opens New Channels for Growth in China Largest Chinese Investment in a U.S. Based Automotive Supplier SAGINAW, Mich. PCM, an entity formed by PCAS and Beijing E-Town International Investment & Development Co., Ltd. (E-Town) an affiliate of the Beijing Municipal Government, today announced the completion of its acquisition of Nexteer Automotive, a global leading supplier in advanced steering and driveline systems, from General Motors. The transaction marks the single largest Chinese investment in the global automotive supplier industry. The transaction is effective on Tuesday, November 30. Saginaw will remain the worldwide headquarters for Nexteer and the key center for engineering, research and development. The current management team will remain in place under the leadership of Robert J. Remenar, CEO. According to Moelis & Company, the investment banker of PCM, the Nexteer business includes global steering and half shaft operations in 22 manufacturing facilities, six engineering facilities and 14 customer support centers in North and South America, Europe and Asia. Under the terms of the agreement, PCM will support the recently approved 5-year labor agreement with the UAW. We are committed to building on the hard work and success of the management team and everyone at Nexteer, said Mr. Zhao Guangyi, Chairman of the Board of E-Town and PCM. As the new ownership, PCM is proud to provide access to continued capital investment that will allow Nexteer to continue its global growth in technology and manufacturing, particularly in the China market.

With a well-capitalized owner committed to growing the business, we can focus all of our resources on our industry-leading engineering and product development, said Robert J. Remenar. This sale was an important move for us to strengthen a diverse, global customer base and build on our current growth trajectory. While we will continue to build in high growth regions around the world, our owner's relationships will open new channels to the dynamic and rapidly growing Chinese automotive market, particularly among Asia-Pacific OEMs and manufacturers globally.