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“RATIO ANALYSIS”

Conducted at
"JAY BHARAT MARUTI LIMITED”
GURGAON

In partial fulfillment for the degree of


Master of Business Administration (M.B.A)
(Session 2006-2008)

Submitted to: Submitted by:


N.K MAHESHWARI AMIT BANSAL
MBA 3 R D SEM

DAV INSTITUTE OF MANAGEMENT


FARIDABAD- HARYANA
“A JOINT VENTURE”

PREFACE
As a new paradigm based on proper integration of formal teaching and actual practice,
this Summer Training has been introduced under the Degree of Master of Business
Administration (M.B.A) to get a feel of actual Business Environment.

To bridge the gap between theory & practice and to cultivate proper temperament and
generate much needed morale i.e. to help the students to identify their strong and
week points in the following and appreciating various organizational activities. So
that appropriate measures can be taken at an earliest time.

Finance is the heart of any organization. Proper utilization of financial


resources is necessary for any organization to survive. With the purpose of
getting myself well dressed with the atmosphere of Prevailing industry, I went
for eight week training at “JAY BHARAT MARUTI LIMITED”.

This report presents the workings, findings and recommendations from the study of
Ratio Analysis at Jay Bharat Maruti Limited. It gives the better understanding of the
financial position of JAY BHARAT MARUTI LIMITED.

Finally I shall consider my hard work worthwhile if this endeavor is able to satisfy all
those concerned and proves useful to anyone or for any further study in future.

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ACKNOWLEDGEMENT
This book is the product of many people, first & foremost is Mr. S.K. Arya,
Managing Director of JBML, for providing various facilities during the course of
training.

This project has been made possible through the direct and indirect corporation of
various people to whom I wish to express my appreciation and gratitude. My
intellectual debt is to Mr. N.K MAHEAHWARI (Finance) without whose help and
guidance; I could not have completed the project successfully. The training in a
reputed concern like JAY BHARAT MARUTI LTD was itself a great learning
experience.

Working with them was really a very good & learning experience. I would like to
thank all other staff members of finance department, without their help it would have
been very difficult for me to carry out any of my work successfully; who constantly
inspired me and solved the problems whenever the need arose.

Beside the mixed experience that I had during the course of my study and analysis;
also helped me to learn a lot regarding the actual working of Finance Department. It
also taught me how to take every experience in right spirit and earn from each ones.

Finally I also extend my heartiest thanks to all my friends and well wishers for being
with me and extending encouragement through out the project.

(AMIT BANSAL)

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CONTENTS

S. NO. TOPICS PAGE NO.

1. Maruti Udhyog Ltd. 05-09


(a) Company Background
(b) Joint Venture

2. Company Profile: JBML 10-20


(a)History of Company
(b)Guiding Principles
(c)JBML Product range
(d)MX Department

3. Financial Highlights 21-25

4. Product and Plant Shorts 26-28

5. Income Statement at JBML 29-30

6. Balance Sheet at JBML 31

7. Ratio Analysis 32-60


(a)Liquidity Ratios
(B)Assest management Ratios
(c)Financial Leverage Ratios
(d)Profitability Ratios
(e)Market Value Ratios

8. Analysis of JBML 61-65

9. References 66

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MARUTI UDYOG LIMITED

Car market leader Maruti Udyog Limited sold 51,967 vehicles in the domestic market
in April 2007. The company had sold 41,574 vehicles in the domestic market in April
2006. In all, Maruti Udyog Limited sold 43,127 vehicles in April 2006. This includes
1,675 units of exports.

Maruti volume in the domestic A2 segment grew by 28.6 per cent and in the A3 and C
segments by 4.9 per cent during the month compared to sales in April 2006. Total
Income of Rs 134,914.3 million (Net of Excise) during fiscal 2006-07, a growth of
10% over the previous year. Profit before tax went up to Rs 27,499.9 million in 2006-
07, a growth of 34.11% over the previous year. Net Profit stood at Rs 16,890.5
million, up 39.29% over fiscal 2006-07.

Total Income (Net of Excise) was Rs 41724.9 million during January-March 2007, a
growth of 19.8% compared to the same period of the previous year. Net Profit for
January-March 2006 stood at Rs 4,809.2 million, up 39.11% over January-March
2006.

New export model

The company also announced that a new export model would be launched during
2008-09. This model, while serving the Indian market, would be for export mainly to
Europe. MUL will target to export 100,000 units of this model annually.

MSAIL to merge into MUL

Maruti Udyog Limited (MUL) today announced on April 13, 2006 that its subsidiary,
Maruti Suzuki Automobile India Limited (MSAIL), will merge into MUL.MUL holds
70 per cent stake in MSAIL while Suzuki Motor Corporation (SMC), Japan, holds the
remaining 30 per cent. MUL will buy out the entire 30 per cent stake held by SMC in
MSAIL. This merger will add value for shareholders and eliminate all potential issues
relating to inter-company transactions.
Demand Drivers

The key factors that determine demand for cars are


 H ousehold Income Levels
Product Availability and Access
Product Affordability
Availability of Finance
Infrastructure (Road) Development

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Company Background

Maruti Udyog Limited was incorporated on February 24, 1981, to meet the growing
demand for a personal mode of transport caused by the lack of an efficient public
transport system. Suzuki Motor Company was chosen from seven prospective
partners worldwide. A license and a Joint Venture agreement were signed with Suzuki
Motor Company (now Suzuki Motor Corporation of Japan) in October 1982, by
which Suzuki acquired 26% share of the equity.

MUL created history by going into production in a record 13 months. Maruti 800 was
the first car that was launched in 1984. The car had an engine capacity of 796 cc, high
fuel efficiency and the pricing was extremely competitive. Over the last 10 years,
MUL has launched various models such as Omni, 1000, Zen, Esteem, Wagon R,
Gypsy, Alto, Baleno and Vitara, targeting all segments of customers.

MUL’s plant is located at Gurgaon in Haryana. It has an installed capacity of 350,000


vehicles. However, the company, through productivity improvement initiatives, would
be easily able to produce 500,000 vehicles with its existing facilities.

Maruti Udyog Limited (MUL), the small car manufacturer, has maintained its market
leadership in the passenger car industry in India, despite the entry of multiple players.
A change in management control from Government to Suzuki and intensive cost
cutting and productivity improvement initiatives, are the two most important factors
that we believe will drive MUL’s profitability in the coming years. MUL has
completed its investment phase and is expected to move into a growth phase. The
Government’s offer of its 25% stake in the company to institutional and retail
investors provides investors with a unique opportunity to invest in the only listed pure
passenger Car Company in India Valuation at the floor price of Rs115/- may appear
expensive on current earnings of Rs5.1/- per share. However, taking a futuristic view -
the benefits expected from reduction in costs and productivity improvement will
result in a sharp earnings jump over the next two years.

The Market Leader

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MUL will be the only pure passenger car company to be listed on the
Indian Stock Exchanges. Being the dominant player in the industry, MUL’s market
share was bound to decline post entry of new players in the late ‘90s. The ongoing
imbroglio between Suzuki and the Government, during the same period, further
impacted MUL adversely as new launches got delayed. As a result MUL saw its
market share dwindle sharply between FY98 to FY00. However, MUL still remains
the leader in the Indian car market with a market share of 57%.

Wide product portfolio

MUL with 10 models in the market has a car for almost every kind of customer. MUL
is the only player in the Indian industry with a presence in all the segments of the
market, thus enabling the company to cater to a wide range of customers, like :

Model Name Launched in


Maruti 800 Dec-83
Omni Nov-84
Alto Sep-00
Wagon R Dec-99
Zen May-93
Baleno Dec-99
Esteem Nov-94
Versa Oct-01
Gypsy Dec-85
Vitara Apr-03

Maruti Udyog Limited. The Group's principal activity is to manufacture, purchase and
sale of Motor Vehicles and Spare parts. The Group is a subsidiary of Suzuki Motor
Corporation. The other activities of the Group comprises of facilitation of Pre-Owned
Car Sales, Fleet Management and Car Financing. The Group also provides services
like framing of customized car policies, economical leasing of cars, maintenance
management, registration and insurance management, emergency assistance and
accident management. The product range includes ten basic models with more than 50
variants. The Group has operations in over 100 cities with more than 150 outlets and
also exports cars to other countries.

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JOINT VENTURE

A joint venture is like a marriage, which establishes a bond between companies which
binds them together. There are different terms and conditions, agreeing upon which
they join hands.

There are a large number of old established companies mostly set up with foreign
collaboration initially, who are supplying components such as electricals, pistons,
rings, brakes, wheels, carburettors and shock absorbers. These have developed and
manufactured components for Maruti, Contessa and NE 118 mostly on their own but
in some cases with assistance from their previous collaborators.

In a few cases they needed fresh foreign technical know-how e.g. carburetors for
Maruti 800. These companies have benefitted from contact with Japanese vehicle
specifications in maintaining quality standards. Many of these companies are already
exporting their product. In some cases units have been set up specifically for
supplying to Maruti. Here joint venture companies have been set up with Maruti and
technical know-how is mostly on the basis of Maruti's collaboration with Suzuki, or
fresh collaboration with Suzuki's suppliers.

Some examples are:-

 Jai Bharat Maruti for sheet metal component


 Machino Plastic for plastic items
 Bharat Seats for seats
 Sona Steering for steering gears

Sona steering has collaboration with Koyo of Japan, and Bharat seats with Howa
Kagis of Japan.

Though initially there had been some problems with indigenizing of imported items
because of time taken by component manufacturers to develop components of
acceptable quality, the component manufacturers have by now developed most of the
items. One problem faced by component manufacturers was that in many cases
materials to the required specification were not available and had to be imported.

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0.3.4 Most component manufacturers state that they are conversant with
the latest developments in the world for their products and would be in a position to
develop these when required by vehicle manufacturers.

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HISTORY OF THE COMPANY

Jay Bharat Maruti Limited set up in 1987 is one of the largest joint ventures of Maruti
Udyog Limited. This is a unique combination of modern Press Shop and Weld Shop
capable of supplying components in Just in Sequence (JIS) meeting customer’s
quality and quantity requirements. Manufacturing facilities at JBML also include die
maintenance, dedicated facilities for manufacturing exhaust systems and in house
modern tool room. JBML is rising to meet new challenges with modern equipment
and higher goals of manufacturing and quality control.

JBM group began its engineering activity in 1983 with the establishment of Gurera
gas cylinder limited and entered the auto component industries in 1985 with the
inception of SUZUKI AUTO INDIA. JBML is a multi- unit, multi-product group
with extensive and diversified interest in engineering and precision tooling, dies and
facilities spread over different parts of the country. The JBML engineering groups
deals in brand range of sheet metal assemblies, die casting components and forging
for the domestic and export markets.

The period from 1988 to 1995 was a steep rise in the demand of passenger car in
India. To meet this rising demand, JBML had to continually expand its manufacturing
facilities. Because of space constraints a new plant (Plant-2) was set us for the
manufacturing of sheet Metal parts with latest technologies like fully automatic
tandem line from Rovetta of Italy, 5-axis laser cutting machine from Prima of Italy.
This new plant is located approximately 14 kms from Plant-1. Space crated extra
because of this new plant was being utilized by additional business of weld
assemblies like front under body, rear under body for car & exhaust systems for
various models of Maruti. Now this year-2006, company is going to start a new plant,
plant-3 to meet increasing market demand.

Driven by a commitment to customer satisfaction and international standards of


quality, JBML has not only won customer confidence but also industry recognition
through several awards and accolades viz. “National Productivity Award”’ “Best
Performing Vendor Award”, “Quality Trophy” etc.

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JBM MILESTONE BRICK BY BRICK

COMPANY INCORPORATED 19-03-87


COMMERCIAL PRODUCTION COMMENCED
01-03-89
 EQUITY HOLDING
MUL 29.30%
S.K. ARYA & ASSOCIATES 29.30%
PUBLIC 41.40%

 PLANT 2 COMMISSIONED WITH 95-96


UPGRATION OF PRODUTION TECHNOLOGY

 FORAY INTO EXHAUST SYSTEM SUPPLIES 96-97


FOR MUL VEHICLES

 SYSTEM SUPPLIER CONCEPT STARTED 97-98


FOR MUL FENDER ASSEMBLY

 BAAN IV SOFTWARE SYSTEM 98-99


IMPLIMENTED

 EXHAUST SYSTEM OF ALTO AND 99-00


WAGON-R WITH EMMISSION NORMS

COMPLIANCE COMMENCED

 SYSTEM SUPPLIES FOR CAR UNDER 00-01


BODIES STARTED

 VERSA LINE COMMISSIONED 01-02


 5-AXIS LASER CUTTING MACHINE 03-04
COMMISIONED

 REAR AXLE LINE COMMISIONED 04-05


 PROPOSED “PT-CED” PAINT SHOP 04-05
 AXLE LINE OF MODEL YN4 COMMISSIONED 04-05
 COMMENCEMENT OF COMMERCIAL
PRODUCTION OF MODEL YN4 05-06

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GUIDING PRINCIPLES AT JBML

MISSION
To make JBML a synonym for world class organization excelling in sheet metal
technologies.

VISION
Expanding leadership in our business through people, keeping pace with market
trends and technology.

HR POLICY
JBML will always keep on striving for the deployment of competent and efficient
employees at all levels to create inculcate and foster excellent. Working and learning
environment; because it believes in nurturing strength of individuals for developing
mutual trust, support and positive attitude for achieving organization goals to create a
world class manufacturing organization and to remain the market leader in sheet metal
components not only today but for all the tomorrows to come.

QUALITY POLICY
The policy of JBML is to achieve total customer satisfaction by delivering products
and providing services that meet or exceed their exacting requirements and
expectations and to do so on time and at most competitive prices in domestic and
export market for our entire product range.

More than anything else, the driving force at JBML is “Quality”. Stringent quality
control maintained at every stage of the designing and manufacturing processes
translates into zero-defects, international standard products. Rooted on the policy to
achieve total customer satisfaction by delivering products and services that meet and
exceed their expectations, on time and at competitive cost, JBML has developed a
tradition of quality. Every personnel is positively attuned and committed to
excellence. It is a corporate motto at JBM to accomplish tasks right the first time,
every time. And ongoing improvement on manufacturing processes and advanced
quality planning play a critical role in ensuring high standards. No wonder, globally
JBML became the first company to achieve ISO/TS-16949-2002 certification. Also,
concern for environment protection has brought JBML ISO 14000 certification.

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Customer Management

Customer focus is one of the basic values adopted by the company. Quality policy
revolves around the customer satisfaction. There is emphasis on understanding the
unspoken and meeting the implied needs expectations of the customer also. Customer
satisfaction has been identified as one of the CSF. It is one of the business
performance measures of long term plan and its improvement. Over the years based
on periodic reviews various forms have been established for regular interaction with
customer. Top management apart from personal meetings of middle managers
regularly visits customers. The process of satisfaction surveys also provides the voice
of customer for policy and strategy making. All customer complaints, customer ends
non-conformances, performance of delivery, result of customer satisfaction surveys
and any other need and expectation of customer is reviewed on weekly basis. Major
customers are Maruti Udyog Limited, Eicher Motors Ltd. M&M Ltd., and HMSI.

Supplier Management

The definition of customer in the company is not limited to buyers of the product. The
company treats all its associates as customers in one way or the other way. Various
form set-ups for regular meeting, understanding, and responding to the suppliers need
are maintained. Major vendors are connected through emails. The information on
vendors and suppliers expectations and needs gathered through these forms are
analyzed and considered by formulating policies and strategies. Day to day
expectations and needs are responded through the normal communication channel of
materials division, purchase department, supply chain cell as part of MX dept.
Vendors and suppliers are rated and communicated the performances with respect to
quality and delivery. These are reviewed for continual improvements on weekly basis.
Major suppliers for bought out parts are group companies whereas raw material is
arranged from leading Indian steel manufacturers and through imports.

Finance Management:

Financial management system and policies are directed towards optimum utilization
of financial resources. The approach has been to use the financial resources for
minimizing returns to the company, and in return to the stakeholder. There is clear-cut
laid down rules and regulation for its transparent monitoring and inflows and outflows
of funds. There is transparent pricing system between the company and all major
customers, so that prices are continuously reviewed and rationalized in view of any
KAIZEN/Cost reduction/VA-VE exercise as the case may be. It is all that because of
this transparent price reviewing system in existence we have passed on around 20%
discounts to MUL since last five years. The other important stakeholders are banks
and Finance Institutions. The financial policies are in line with the expectations and
high level of commitment to them. The company ensures the timely payment to entire
supply chain partners in time. The company has been rated as P1 by CRISIL(one of
the best credit rating agency in India) various currency movements are monitored and
accordingly risks are hedged by forward coverage. The company has been constantly
working on the various financial strategies for reducing the cost of funds. Conversion
of term loan to lease Transactions, Foreign currency, short term unsecured loans, inter

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changeability of limits etc are negotiated from time to time which has
helped in bringing down its weighted average cost of funds from 13.25% in 2001 to
10% in 2002. By negotiating the L.C. charges and bank charges have been brought
down to half of normal rates. No commitment charges are paid to the bank. Due to
these measures, the other income on account of cash discount and interest earned has
been to the tune of 221 Lac in 2004. The company has been able to manage its
working capital in efficient manner. The company is continuously improving its
financial system. Baan ERP System has been implemented. Decisions on all new
investment are based on IRR at the pre-project analysis stage.

Technology Management
In line with vision the company is continually upgrading the technology to world-
class level. Visiting collaborators plants, visiting exhibitions and regular interaction
with customer and different forums gather the information of new technology. The
company has one fully automated tandem press line, fully automatic laser cutting
machine etc. Latest IT technologies are being used like Baan ERP is used for
managing companies business. Integrated communication system is developed.
Knowledge management system has been developed to share improvements and good
practices adopted in the organization.

Shareholders Management
Annual shareholder s meeting and board meetings provide useful information on
needs and expectation on them. A shareholders grievance committee has been formed
at director s level. Grievances are reviewed in board meetings. Shareholders views are
captured in one to one communications, letters also. The company has been giving
dividend to share holders continuously.

Regulator Management
All the laws and regulations applicable to the operations are taken care off. The
company has been consciously and proactively ensuring compliance to all such
applicable laws and regulations. There has never been any challan from authorities
concerned with respect to labor laws and factories act. The company has been rated
"good" during the audits conducted by central excise department during the year 1999
to 2003. The sales tax and income tax returns have always been satisfactorily assessed
and no penalty was imposed. Company is actively involved in various industries and
association, which interact with government agencies.

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JBM’S PRODUCT RANGE


JBM nicely diversified their business by starting manufacturing not only sheet metal
components but also started manufacturing other automobile components and tools.

PRESENT MANUFACTURING RANGE:


 Skin panels (unpainted) for driver cabin of LCV and MCV.
 Underbody parts / assemblies (unpainted) for passenger cars, e.g.,
 Front and rear underbodies
 Fenders
 Aprons
 Cross members
 Floor tunnel
 Rear axle (painted) for passenger cars.
 Fuel neck pipe (electroplated)
 Exhaust systems for
 Passenger cars in SS / coated steel, and
 Two wheelers in painted condition

JBM’S MAIN PRODUCTS:


 Sheet Metal Stamping.
 Welded Sub Assemblies.
 Chassis and Suspension System.
 Jigs and Fixtures.
 Exhaust System.
JBM manufactures a range of specialized components for front ranking OEMs.
Flawless on quality and reliability these products have won the confidence of industry
leaders.

Production Volume:(Approximate)
 Products per day: 32,000 assemblies of 203 types
 Made up of about: 2,00,000 pressed parts
20,00,000 spots
1,20,000 hardware

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MX DEPARTMENT

MX Material transaction department deals with supply chain. This department is a


combination of raw material & consumable store, PPC, and Dispatch. JBM P2 supply
materials to JBM Plant 1, Maruti Udyog Ltd., Eicher Motor Ltd., Mahindra &
Mahindra, Honda Motorcycle & Scooters Pvt. Ltd. along-with job work for JBM
Auto components Ltd. There are two types of components supplied by JBM P2, one is
in house production and other is job work by subcontractors to fulfill the requirement
of customers. The components manufactured by subcontractors the raw material is
supplied by JBM P2. MX department monitor & control the whole supply chain of
subcontractors, raw material for production at JBM P2. The customers of JBM P1 are
JBM P2, MUL, EML, M&M, HMSI and JBM Auto. All customers have given their
production plan and schedule for dispatch of material. MUL communicate daily
schedule on their WEB SITE for vendors. In the MUL daily schedule and time of
deliveries is also indicated. This is to control inventories at MUL. All other customers
give their schedule on weekly basis. App. 70% of the total components manufactured
by JBM P1 is of Maruti Vehicles and remaining 30% are for other customers.
For the purpose of raw material planning JBM P1 consider the production of vehicles
per day at customer end and the requirement of our components for manufacturing
these vehicles MUL communicate their production plan in advance so every vendor
should plan production and purchase of raw material. To bring the planning on one
plate form a Daily Status Report (Annexure No.1) is generated by PPC department.
On the basis of DSR raw material planning is done by raw material store and a
schedule is raised to suppliers. Daily consumption of steel at JBM P1 is app. 70-100
tons and for feed the lines of JBM P1we have to purchase the same quantity of
material per day. Therefore to avoid criticalities we should have the material, which is
required in next 3 days.
In making schedule for raw material (Annexure No.02) first we check the status of the
material, secondly requirement of material in the week for which schedule is
generated and third, material requirement date and forth, minimum loading plan. First,
status of material, status tells us about the finished goods inventory and seconds the
coverage. Coverage means the material in finished goods cover the requirement of
number of days. It is counted on the basis of production levels of our customers.
For example, If we take a component no. PPC58120 it is used in manufacturing of
Maruti 800, on any day its finished goods is 800 nos. and Maruti 800 production per
day is 600 nos. PPC58120 is required one component per vehicle so the coverage is
800/600 = 1.3 days. To feed the line of MUL we have to take loading of this material
of the same day or next day. Second, when we get the per-day requirement of material
and status of raw material then we can calculate requirement of material per week.
Third, on which date of the week material will be required for take loading, it is
calculated by the coverage of material and schedule for dispatch. For example: If any
day, coverage of PPC58120 is zero and there is no schedule in next two days then this
material required today because of coverage is zero. Fourth, and very important, to

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control the loss time in die changing, minimum loading for every
component is standardized.

TODAY, JBM ENJOYS A COMPETITIVE EDGE IN THE MARKET.


SOME OF THE REASONS FOR THIS ARE:

 A unique combination of modern press shop and weld shop.


 The capacity of supplying components on a just in time (JIT) basis.
 Indigenization and system engineering to manufacture complex automobile
exhaust systems.
 Flexible manufacturing systems.
 Support of modern tool room facilities available within the group.

FEATHERS ADDED IN THE CAP JBML: -

 National productivity council’s Certificate of merit’ 1993-94&1996-97.


 ACMA productivity award 1993-94.
 Best performing vendor award” in the technology group largest sheet metal
components-category A from MUL for four consecutive years, 1993-97.
 Certificate of recommendation from Haryana state pollution control board in
recognition of environment friendly industry 1994-95
 Certificate of merit for excellence in products of automotive components from
ACMA 1996-97
 Award for quality ACMA1997-98
 QS 9000 accreditation by UL 1997-98
 Award for quality ACMA 1998-99
 Safety and welfare award by Government of Haryana 1999-2000
 Merit certificate for quality by ACMA 1999-2000
 Award for productivity by ACMA 2000-01
 ISO 14000 Accreditation by UL 2001-02
 Recommendation by UL for ISO/TS -- 16949 certificate
 The prestigious QS-9000 CERTIFICATE by KPMG Peat-Marvic, the Quality
Register of India, representing Peat- Marvic, USA, has also awarded the
company.
 CRISIL, (in famed credit rating agency) has assigned P-1 rating to company
for its commercial paper program.
 JBM, under the guidance of Prof. Y. Tsuda of Japan, Quality M management
Adviser, is working in close conjunction with a cluster of companies. Together
they will march towards TQM.
 ION has initiated a major drive to improve the production process by the
implementation of KAIZEN (continuous improvement in small steps) in the
various areas of operations, resulting in a phenomenal improvement in JBML.
 OHSAS 18001 Accreditation By UL 03-04.
 Outstanding overall performance trophy by MUL
 Commendation certificate for strong commitment to TQM by CII EXIM
BANK 03-04.

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The company has also been awarded by the prestigious QS-9000 certificate by
KPMG Peat-Marvic, the Quality Register of India, representing Peat- Marvic, USA.

CRISIL, (in famed credit rating agency) has assigned P-1 rating to company for its
commercial paper program.

JBM, under the guidance of Prof. Y. Tsuda of Japan, Quality Management Advisor,
is working in close conjunction with a cluster of companies. Together they will march
towards TQM.

Furthermore, SUZUKI MOTOR CORPORATION has initiated a major drive to


improve the production process by the implementation of KAIZEN (continuous
improvement in small steps) in the various areas of operations, resulting in a
phenomenal improvement ISO 14000 Accreditation by UL 2001-02nt in JBML.

JBML`s GROUP COMPANIES

 JAI BHARAT MARUTI LTD-PLANT -2


 JBM AUTO COMPONENT LTD
 NEEL METAL PRODUCT LIMITED
 JBM INDUSTRIES LIMITED
 JAI BHARAT BREEDS LIMITED
 NEEL INDUTRIES PRIVATE LIMITED
 JAY BHARAT EXHAUST SYSTEM LTD
 THYSSENKRUPP JBM PRIVATE LTD
 NEEL ENGINEERING SOLUTIONS
 JAICO STEEL FASTENERS LTD

JBM’S GLOBAL ALLIANCES:

 BELLSONICA COMPANY, JAPAN.


 MARUTI UDYOG LIMITED.
 SUZUKI MOTORS COMPANY.
 NAGATA AUTOPARTS CO. LTD., JAPAN.
 HAMAMATSU PIPE COMPANY LTD., JAPAN.

JBM’S MAJOR CUSTOMERS:

 MARUTI UDYOG LIMITED.


 ASHOKA LEYLAND.
 DEFENCE.
 DELPHI.
 EICHER.
 ESCORTS.

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 HINDUSTAN MOTORS.
 HONDA SCOOTERS.
 MAHINDRA & MAHINDRA.
 YAMAHA MOTORS INDIA L.T.D.

ACCOLADES AND RECOGNITIONS

 MERIT CERTIFICATE FOR PRODUCTIVITY BY NPC 1993-94


 AWARD FOR PRODUCTIVITY BY ACMA 1993-94
 BEST VENDOR AWARD BY CUSTOMER (MUL) 1994-94
 BEST VENDOR AWARD BY CUSTOMER (MUL) 1994-95
 ISO 9002 ACCREDITATION BY RWTUV (GERMANY) 1994-95
 MERIT CERTIFICATION FOR PRODUCTIVITY BY ACMA 1996-97
 BEST VENDOR AWARD BY CUSTOMER (MUL) 1996-97
 MERIT CERTIFICATION FOR PRODUCTIVITY BY NPC 1996-97
 AWARD FOR QUALITY BY ACMA 1997-98
 QS 9000 ACCREDITATION BY UL 1997-98
 AWARD FOR QUALITY BY ACMA 1998-99
 SAFETY & WELFARE AWARD BY GOVT. OF HARYANA 1999-00
 MERIT CERTIFICATE FOR QUALITY BY ACMA 1999-00
 AWARD FOR PRODUCTIVITY BY ACMA 2000-01
 ISO 14000 ACCREDITATION BY UL 2001-02
 ISO/TS 16949:2002 ACCREDITATION BY UL 2002-03
 OHSAS 18001 ACCREDITATION BY UL 2003-04
 OUTSTANDING OVERALL PERFORMANCE TROPHY 2003-04
BY MUL
 CERTIFICATE BY MUL FOR COST REDUCTION THROUGH
(1) VA / VE 2003-04
(2) YIELD IMPROVEMENTS 2003-04
(3) KAIZENS 2003-04
 CII-EXIM BANK AWARD FOR BUSINEES EXELLENCE 2003-04
&
STRONG COMMITMENT TO EXCEL 2004-05

20
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FINANCIAL HIGHLIGHTS

GROSS SALES

GROSS SALES

70000
62198
60000
51105
49141
50000
42221
40000
RS. IN LACS 31173
27978
30000 24576

20000

10000

0
2001 2002 2003 2004 2005 2006 2007
YEAR

The increasing sales each year


for JBML can be seen as a
reflection of the growing
trends in the Automobile
industry as a whole.

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PROFIT AFTER TAX

PROFIT AFTER TAX

1197

1200 1034 954

1000

800 584

RS. IN LACS 600 336


193
218
400

200

0 3-D Colum n 1
2001 2002 2003 2004 2005 2006 2007
YEAR

The graph shows an increasing


trend till 2005 and there is a sharp
increase in 2004-05. But in 2006 it
shows an decrease, this is due to
decrease in depreciation which
resulted in an increase in profit. But
at the same time there is a increase
in tax liability, which brought profit
after tax down.

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NET WORTH

NET WORTH

5664
4467
6000
3728
5000
2911
4000 3172 2358 2523

RS. IN LACS 3000

2000

1000
3-D Colum n 1
0
2001 2002 2003 2004 2005 2006 2007
YEAR

With an increasing trend


net worth has increased
up to 19% form last year
and its reason is increase
in net sales and increase
in reserves and surplus
of the company.

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EARNING PER SHARE

EARNING PER SHARE

25

20
19.1

15
RS. IN LACS

10.78
10
8.81

6.21
5.53
5
4.05
3.58

0
2001 2002 2003 2004 2005 2006 2007
YEAR

The graph shows a


continuous increase in
EPS over five year. But
in 2006. EPS declined to
8.81 from 19.1 due to
decrease in Profit after
tax and split in face
value of shares from 10
to 5.

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MARKET PRICE OF SHARES AS ON 31ST MARCH (RS.)

125.00
MARKET PRICE PER SHARE 124.15

140

126.00

120

77.40
100

80

RS. IN LACS

60
26.25
20.10
18.00
40

20

0
2001 2002 2003 2004 2005 2006 2007
YEAR

The share price with values


Rs.18 has gone up to 125 in
2006. This is due to
increasing reputation of the
company and overall growth
and demand of the auto-
industry. The price in 2005
and 2006 are almost same
due to increasing
expectations of shareholders.

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PRODUCT AND PLANT SHOTS…

Progressive die

TRAINING AREA

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RAW MATERIL STORE

AUTOMATIVE SYSTEM

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PRESS LINE

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INCOME STATEMENT OF JBML


FOR THE YEAR ENDING 31st MARCH,2007

(Rupees in lacks)
2007 2006
INCOME
Sales 62197.51 51104.84
Less: Excise Duty 10243.15 8217.16
Net Sales 51954.36 42887.68
Other Income 297.94 253.97
Increase / (Decrease) in Stock 69.81 137.89

52322.11 43279.54

EXPENDITURE
Raw Material Consumed 42017.54 33893.89
Employee Remuneration & Benefits 2311.96 1902.40
Mfg, Administrative & Other Expenses 3422.86 2651.06
Lease Rent 10.64 478.26
Financial Charges 534.94 322.90
Financial Charges-Lease Assets 8.73 59.91
Depreciation
-on Fixed Assets 1889.32 1889.97
-on Lease Assets 274.21 608.53

50470.20 41806.92

PROFIT BEFORE TAX 1851.91 1472.62

Less: Provision for income tax


-earlier years (14.32) (29.73)
-current year 485.00 544.00
-deferred tax 162.48 (28.92)
-fringe benefit tax 21.33 22.65

PROFIT AFTER TAX 1197.41 954.12

Balance brought forward from previous year 2970.49 2332.38

PROFIT AVAILABLE FOR APPROPRIATIONS 4167.91 3286.50

(Rupees in lacks)
2007 2006

APPROPRIATIONS

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Proposed Dividend 0.00 186.44


Dividend Tax 0.00 26.57
Transferred to General Reserve 200.00 100.00
Balance carried to Balance Sheet 3967.91 2970.49

4167.91 3286.50

Basic and Diluted EPS (Rs.) 5.53 4.41


Face Value of a Equity Share (Rs.) 5.00 5.00

BALANCE SHEET OF JBML AS ON 31st MARCH, 2007


(Rupees in lacks)

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2007 2006
SOURCES OF FUNDS
1. Shareholders Funds
Share Capital 1082.50 541.25
Reserves & Surplus 4581.66 3925.49

5664.16 4466.74

2. Loan Funds
Secured Loans 5564.16 3660.18

3. Deferred Payments 2166.47 1669.44


4. Deferred Tax Liability 1046.10 883.62
5. Finance Leased Assets Liability 0.00 217.87

14440.89 19897.85

APPLICATIONS OF FUNDS
1. Fixed Assets
a. Gross Block
- Fixed Assets 27333.26 23016.04
- Leased Assets 2532.53 2532.53
29865.79 25548.57
b. Depreciation 17493.22 15351.18
c. Net Block 12372.57 10197.39
d. Capital WIP including advances 1553.09 587.45
13925.66 10725.84
2. Investments
- Long Term 235.06 235.06
- Short Term 0.00 0.00

235.06 235.06
3. Current Assets, Loans & Advances
Inventories 1730.24 1605.37
Sundry Debtors 4155.26 2230.66
Cash & Bank Balances 127.42 133.35
Loans & Advances 1486.64 1518.96

7499.56 5487.96
Less Current Liabilities & Provisions 7219.37 5551.01

Net Current Assets 280.19 (63.05)


14440.91 10897.85

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RATIO ANALYSIS
The Balance Sheet and the Statement of Income are essential, but they are only the
starting point for successful financial management. Apply Ratio Analysis to
Financial Statements to analyze the success, failure, and progress of your business.

Ratio Analysis enables the business owner/manager to spot trends in a business and to
compare its performance and condition with the average performance of similar
businesses in the same industry. To do this compare your ratios with the average of
businesses similar to yours and compare your own ratios for several successive years,
watching especially for any unfavorable trends that may be starting. Ratio analysis
may provide the all-important early warning indications that allow you to solve your
business problems before your business is destroyed by them.

USEFULLNESS:
Ratio Analysis is used to evaluate financial condition of the firm and to:

Determine firm’s ability to meet its short term and long term obligations
Determine firm’s ability to generate profits
To know firm’s liquidity position to meet its current obligations when they become
due.

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It helps in accessing solvency position with the help of leverage and


profitability ratios in a long run.
It helps in planning, controlling and forecasting.
Throw light on degree of efficiency in management and utilization of its assets
Draw conclusions regarding financial requirement and the capabilities of business
limits.
It serves as a medium for inter-firm comparisons.

Purposes and Considerations of Ratios and Ratio Analysis


Ratios are highly important profit tools in financial analysis that help financial
analysts implement plans that improve profitability, liquidity, financial structure,
reordering, leverage, and interest coverage. Although ratios report mostly on past
performances, they can be predictive too, and provide lead indications of potential
problem areas.
Ratio analysis is primarily used to compare a company's financial figures over a
period of time, a method sometimes called trend analysis. Through trend analysis, you
can identify trends, good and bad, and adjust your business practices accordingly.
You can also see how your ratios stack up against other businesses, both in and out of
your industry.
There are several considerations you must be aware of when comparing ratios from
one financial period to another or when comparing the financial ratios of two or more
companies.
• If you are making a comparative analysis of a company's financial statements
over a certain period of time, make an appropriate allowance for any changes
in accounting policies that occurred during the same time span.
• When comparing your business with others in your industry, allow for any
material differences in accounting policies between your company and
industry norms.

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•When comparing ratios from various fiscal periods or companies,


inquire about the types of accounting policies used. Different accounting
methods can result in a wide variety of reported figures.
• Determine whether ratios were calculated before or after adjustments were
made to the balance sheet or income statement, such as non-recurring items
and inventory or pro forma adjustments. In many cases, these adjustments can
significantly affect the ratios.
• Carefully examine any departures from industry norms.

PURPOSE OF RATIOS FOR DIFFERENT

Investors To help them determine whether they should buy shares in the business, hold on
to the shares they already own or sell the shares they already own. They also want
to assess the ability of the business to pay dividends.
Lenders To determine whether their loans and interest will be paid when due
Managers Might need segmental and total information to see how they fit into the overall
picture
Employees Information about the stability and profitability of their employers to assess the
ability of the business to provide remuneration, retirement benefits and
employment opportunities
Suppliers and other Businesses supplying goods and materials to other businesses will read their
trade creditors accounts to see that they don't have problems: after all, any supplier wants to
know if his customers are going to pay their bills!
Customers The continuance of a business, especially when they have a long term
involvement with, or are dependent on, the business
Governments and The allocation of resources and, therefore, the activities of business. To regulate
their agencies the activities of business, determine taxation policies and as the basis for national
income and similar statistics
Local community Financial statements may assist the public by providing information about the
trends and recent developments in the prosperity of the business and the range of

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its activities as they affect their area


Financial analysts They need to know, for example, the accounting concepts employed for
inventories, depreciation, bad debts and so on
Environmental Many organizations now publish reports specifically aimed at informing us about
groups how they are working to keep their environment clean.
Researchers Researchers' demands cover a very wide range of lines of enquiry ranging from
detailed statistical analysis of the income statement and balance sheet data
extending over many years to the qualitative analysis of the wording of the
statements

Which ratios will each of these groups be interested in?

Interest Group Ratios to watch


Investors Return on Capital Employed
Lenders Financial leverage ratios
Managers Profitability ratios
Employees Return on Capital Employed
Suppliers and other trade creditors Liquidity
Customers Profitability
Governments and their agencies Profitability
Local Community This could be a long and interesting
list
Financial analysts Possibly all ratios
Environmental groups Expenditure on anti-pollution
measures
Researchers Depends on the nature of their study

What Ratios express???

Expression is a function of the ratio, relationship expressed and information it


provides.

Ratio generally expresses financial information in three different ways:-

1. As a percentage

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2. On a per unit basis

3. Number of times

Limitations of ratios

The company may change the accounting policies which may result into distortion in
comparisons of different company figures.

1. The business may apply creative accounting in typing to show the better
financial position or performance which may mislead users of financial
accounting.

2. Ratios need to be interpreted carefully. Ratios are not definitive measures as it


requires some quantitative information for an informed analysis to be made.

3. Outdated information in financial statement may give wrong indications.

4. Where Historical cost convention is used, asset valuations in the balance sheet
could be misleading

5. Ratios are based on the summarized year end information which may not be a
true reflection of the over all year’s results.

6. Change in prices (inflation) may create difference between calculated ratios


and current market prices which may lead to wrong interpretations.

7. Change in accounting standards may affect the reporting of an enterprise and


its comparisons of results over a number of years.

8. There may be impact of seasons on trading i.e. businesses which are affected
by the seasons can choose the best time to produce financial statement so as to
show better results.

9. Comparing ratios to compare one company with another could provide


misleading information. Business may be within same industry but may have
different financial and business risks.

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Ratios analysis is useful, but analysis should be aware of these


problems and make adjustments as necessary. Ratio analysis concluded in a
mechanical, unthinking manner is dangerous, but if used intelligently and with
good judgment, it can provide useful insight into the firm’s operations

Financial ratios can be classified according to the information they provide. The
following types of ratios frequently are used:

Liquidity Ratios

Asset Management/Activity Ratios

Financial leverage (Gearing) Ratios

Profitability Ratios

Market Value Ratios

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LIQUIDITY RATIOS

The business should not only provide information on its profitability, but also to
provide information that indicates whether or not the business will be able to pay its
creditors, expenses, loans falling due at correct times. A company may be profitable
but if it fails to generate enough cash to settle its liability is said to be insolvent.

Suppliers and providers of short term finance are interested in these ratios as are used
in assessing the ability of the business to settle its current liabilities.

 Liquidity refers to the ability of a firm to meet its short-term financial


obligations when and as they fall due.

 The main concern of liquidity ratio is to measure the ability of the firms to
meet their short-term maturing obligations. Failure to do this will result in
the total failure of the business, as it would be forced into liquidation.

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CURRENT RATIO
The Current Ratio expresses the relationship between the firm’s current assets and its
current liabilities.

Current assets normally includes: cash, marketable securities, accounts receivable and
inventories. Current liabilities consist of accounts payable, short term notes
payable, short-term loans, current maturities of long term debt, accrued income
taxes and other accrued expenses (wages).

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

PARTICULARS 2006 2007

Current Assets 5487.96 7499.56

Current Liabilities 5551.01 7219.37

Currant Ratio 0.99 1.03

The rule of thumb says that the current ratio should be at least 2, that is the current
assets should meet current liabilities at least twice.

What does the calculated ratio tells us? In 2006, the company had 0.99 worth of
current assets for every rupee of liabilities. This grew to 1.03 in 2007 indicating
increasing trend on liquidity. However the company is able to support its short-term
debt from its currents assets. A generally acceptable current ratio is 2 to 1. 1:1 current
ratio means; company has Re 1.00 in current assets to cover each Re 1.00 in current
liabilities.

QUICK RATIO

Measures assets that are quickly converted into cash and they are compared with
current liabilities. This ratio realizes that some of current assets are not easily
convertible to cash e.g. inventories.

The quick ratio, also referred to as acid test ratio, examines the ability of the business
to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock).
The quick ratio is calculated as follows:

QUICK RATIO = (CURRENT ASSETS-INVENTORIES) / CURRENT


LIABILITIES

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PARTICULARS 2006 2007

Current Assets-Inventories 5487.96-1605.37 7499.56-1730.24

Current Liabilities 5551.01 7219.37

Quick Ratio 0.70 0.80

Clearly this ratio will be lower than the current ratio, but the difference between the
two (the gap) will indicate the extent to which current assets consist of stock.

The ratio shows an increasing trend on liquidity. This indicates extend to which
company can pay current liabilities without relying on current the sale on the
inventory. Generally ratio of 1:1 is considered satisfactory unless the majority of your
"quick assets" are in accounts receivable, and the pattern of accounts receivable
collection lags behind the schedule for paying current liabilities.

ASSET MANAGEMENT/ACTIVITY RATIOS

If a business does not use its assets effectively, investors in the business would rather
take their money and place it somewhere else. In order for the assets to be used
effectively, the business needs a high turnover.

Unless the business continues to generate high turnover, assets will be idle as it is
impossible to buy and sell fixed assets continuously as turnover changes. Activity
ratios are therefore used to assess how active various assets are in the business.

Note: Increased turnover can be just as dangerous as reduced turnover if the business
does not have the working capital to support the turnover increase. As turnover
increases more working capital and cash is required and if not, overtrading occurs.

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AVERAGE COLLECTION PERIOD

The average collection period measures the quality of debtors since it indicates the
speed of their collection.

 The shorter the average collection period, the better the quality of debtors,
as a short collection period implies the prompt payment by debtors.
 The average collection period should be compared against the firm’s credit
terms and policy to judge its credit and collection efficiency.
 An excessively long collection period implies a very liberal and inefficient
credit and collection performance.
 The delay in collection of cash impairs the firm’s liquidity. On the other
hand, too low a collection period is not necessarily favourable, rather it
may indicate a very restrictive credit and collection policy which may
curtail sales and hence adversely affect profit.

AVERAGE COLLECTION PERIOD = 360 / AVERAGE ACCOUNTS


RECEIVABLE TURNOVER

Where Average Accounts Receivable Turnover = Net Sales/ Average Receivables

PARTICULARS 2006 2007

Average Accounts Receivable 51104.84/2120.23 62197.51/2440.29


Turnover

Average collection period 14.94 14.15

This ratio simply indicates average account is outstanding for 14days approx. It
indicates that the company is efficient in collecting money due you from their
customers.

If this indicates that payments are taking a long time to collect, then collection/billing
procedures should be reviewed. On the other hand, too short a period could cause
customers to move to another supplier that has more reasonable collection policies.

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INVENTORY TURNOVER

This ratio measures the stock in relation to turnover in order to determine how often
the stock turns over in the business. It indicates the efficiency of the firm in
selling its product.

INVENTORY TURNOVER =COST OF GOODS SOLD / AVERAGE


INVENTORY

PARTICULARS 2006 2007

COGS 1379503.92 1679507.82

Average Inventory 53719 63250

Inventory Turnover 25.68 26.66

The ratio shows a relatively high stock turnover which would seem to suggest that the
business deals in fast moving consumer goods.

• The company Inventory turnover has increased from 25.68 in 2006 to 26.66 in
2007.
• The high stock turnover ratio would also tend to indicate that there was little
chance of the firm holding damaged or obsolete stock.

TOTAL ASSETS TURNOVER

Asset turnover is the relationship between sales and assets

 The firm should manage its assets efficiently to maximize sales.


 The total asset turnover indicates the efficiency with which the firm uses
all its assets to generate sales.
 It is calculated by dividing the firm’s sales by its total assets.
 Total assets include current assets, fixed assets and investments.

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TOTAL ASSET TURNOVER = SALES / TOTAL ASSETS

PARTICULARS 2006 2007

Sales 51104.84 62197.51

Total assets 16448.86 21660.28

Total Assets Turnover 3.11 2.87

Generally, the lower the firm’s total asset turnover, the more efficiently its assets have
been utilized. From the above calculations:

 It appears that the activity of the business is relatively constant, with a


slight upward trend.
 The ratio also confirms that in 2007 the company has utilized its assets less
efficiently.

FIXED ASSETS TURNOVER


The fixed assets turnover ratio measures the efficiency with which the firm has been
using its fixed assets to generate sales.
FIXED ASSETS TURNOVER = SALES / NET FIXED ASSETS

PARTICULARS 2006 2007

Sales 51104.84 62197.51

Net fixed Assets 10725.84 13925.66

Fixed Assets Turnover 4.76 4.46


Generally, high fixed assets turnovers are preferred since they indicate a better
efficiency in fixed assets utilization. As net fixed assets has grown rapidly. Thus the
ratio shows a slight decrease in fixed assets turnover which confirms that the business
places a less reliance on working capital than it does on the fixed assets.

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FINANCIAL LEVERAGE (GEARING) RATIOS

 The ratios indicate the degree to which the activities of a firm are
supported by creditors’ funds as opposed to owners.
 The relationship of owner’s equity to borrowed funds is an important
indicator of financial strength.
 The debt requires fixed interest payments and repayment of the loan and
legal action can be taken if any amounts due are not paid at the appointed
time. A relatively high proportion of funds contributed by the owners
indicates a cushion (surplus) which shields creditors against possible
losses from default in payment.
Note: The greater the proportion of equity funds, the greater the degree of financial
strength. Financial leverage will be to the advantage of the ordinary shareholders as
long as the rate of earnings on capital employed is greater than the rate payable on
borrowed funds.
The following ratios can be used to identify the financial strength and risk of the
business.

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EQUITY RATIO
It is calculated as:

EQUITY RATIO = ORDINARY SHAREHOLDER’S INTEREST /


TOTAL ASSETS

PARTICULARS 2006 2007

Ordinary Shareholders 3286.50 4650.50


Interest

Total Assets 16448.86 21660.28

Equity Ratio 19.98 21.47

This indicates that only 21.47% of the total assets in 2007 is supplied by the ordinary
stockholders and this has shown an increasing trend from 19.98% in 2006.

The JBML is having high equity ratio that reflects a strong financial structure of the
company. High equity ratio reflects a low speculative situation because of the effect
of low leverage and lower debt burden.

DEBT RATIO

This is the measure of financial strength that reflects the proportion of capital which
has been funded by debt, including preference shares. This ratio is calculated as
follows:

DEBT RATIO = TOTAL DEBT / TOTAL ASSETS


Where, Total Debt = Secured Loans + Current Liabilities

PARTICULARS 2006 2007

Total Debt 9211019 12783.53

Total Assets 16448.86 21660.28

Debt Ratio 0.56 0.59

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With higher debt ratio (low equity ratio), a very small cushion has
developed thus not giving creditors the security they require. The company would
therefore find it relatively difficult to raise additional financial support from external
sources if it wished to take that route. The higher the debt ratio the more difficult it
becomes for the firm to raise debt.

DEBT TO EQUITY RATIO

This ratio indicates the extent to which debt is covered by shareholders’ funds. It
reflects the relative position of the equity holders and the lenders and indicates the
company’s policy on the mix of capital funds. The debt to equity ratio is calculated as
follows:

DEBT TO EQUITY RATIO = TOTAL DEBT / TOTAL EQUITY

PARTICULARS 2006 2007

Total Debt 9211.19 12783.53

Total Equity 4466.74 5664.18

Debt to Equity Ratio 2.06 2.25

The debt to equity ratio shows that for every 1 rupee of shareholders funds in 2007
there is 2.25 dollars of debt, compared to 2.06 dollars in 2006. This ratio is extremely
low and indicates the financial strongness of the business.
Comparison of how much of the business was financed through debt and how much
was financed through equity. For this calculation it is common practice to include
loans from owner’s in equity rather than in debt. The higher the ratio reflects the
greater the risk to present or future creditors. Look for a debt to equity ratio in the
range of 1:1 to 4:1. Most lenders have credit guidelines and limits for the debt equity
ratio (2:1 is commonly used limit for small business loans). Too much debt can put
your business at risk... but too little debt may mean you are not realizing the full
potential of your business and may actually hurt your over all profitability. This is
particularly true for large companies where shareholders want high reward (dividend
rate) then lenders (interest rate).








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TIME INTEREST EARNED RATIO

This ratio measure the extent to which earnings can decline without causing financial
losses to the firm and creating an inability to meet the interest cost.
• The times interest earned shows how many times the business can pay its
interest bills from profit earned.
• Present and prospective loan creditors such as bondholders, are vitally
interested to know how adequate the interest payments on their loans are
covered by the earnings available for such payments.
• Owners, managers and directors are also interested in the ability of the
business to service the fixed interest charges on outstanding debt.
The ratio is calculated as follows:

TIMES INTEREST EARNED RATIO=EBIT / INTEREST CHARGES

PARTICULARS 2006 2007

EBIT 1694.19 1855.43

Interest Charges 469.28 382.81

Times Interest Earned Ratio 3.61 4.85

The company’s major form of credit are non-interest bearing (Trade Creditors) which
reasults in business enjoying very healthy interest coverage rates. In 2007 the
company could pay their interest 4.85 times from EBIT. However this is a
increase from 3.61 in 2006.

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PROFITABILITY RATIO

Profitability is the ability of a business to earn profit over a period of time. Although
the profit figure is the starting point for any calculation of cash flow, as already
pointed out, profitable companies can still fail for a lack of cash.

Note: Without profit, there is no cash and therefore profitability must be seen as a
critical success factors.

• A company should earn profits to survive and grow over a long period of time.
• Profits are essential, but it would be wrong to assume that every action
initiated by management of a company should be aimed at maximising profits,
irrespective of social consequences.

The ratios examined previously have tendered to measure management efficiency and
risk.

Profitability is a result of a larger number of policies and decisions. The profitability


ratios show the combined effects of liquidity, asset management (activity) and debt
management (gearing) on operating results. The overall measure of success of a
business is the profitability which results from the effective use of its resources.

GROSS PROFIT MARGIN

• Normally the gross profit has to rise proportionately with sales.


• It can also be useful to compare the gross profit margin across similar
businesses although there will often be good reasons for any disparity.

GROSS PROFIT MARGIN = GROSS PROFIT / NET SALES * 100

Here, Net sales = Sales – Excise Duty

And Gross Profit = Sales - COGS

PARTICULARS 2006 2007

Gross Profit 8990.79 9936.82

Net Sales 42884.68 51954.36

Gross Profit Margin 20.96 19.13

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The ratio above shows the increasing trend in the gross profit since the ratio has
improved from 15.2% in 2000 to 20.3% on 2002. This indicates that the rate in
increase in cost of goods sold are less than rate of increase in sales, hence the
increased efficiency.

NET PROFIT MARGIN

This is a widely used measure of performance and is comparable across companies in


similar industries. The fact that a business works on a very low margin need not cause
alarm because there are some sectors in the industry that work on a basis of high
turnover and low margins, for examples supermarkets and motorcar dealers.

What is more important in any trend is the margin and whether it compares well with
similar businesses. It is calculated as follows:

NET PROFIT MARGIN = NET PROFIT / NET SALES * 100

PARTICULARS 2006 2007

Net Profit 954.12 1197.41

Net Sales 42887.68 51954.36

Net Profit Margin 2.22 2.30

The Net Margin Ratio shows that the Margin is fair. However, to know how well the
firm is performing one has to compare this ratio with the industry average or a firm
dealing in a similar business.

RETURN ON INVESTMENT (ROI)

Income is earned by using the assets of a business productively. The more efficient
the production, the more profitable will be the business. The rate of return on total
assets indicates the degree of efficiency with which management has used the assets
of the enterprise during an accounting period. This is an important ratio for all readers
of financial statements.

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Investors have placed funds with the managers of the business. The
managers used the funds to purchase assets which will be used to generate returns. If
the return is not better than the investors can achieve elsewhere, they will instruct the
managers to sell the assets and they will invest elsewhere. The managers lose their
jobs and the business liquidates.

ROI = EBIT / TOTAL ASSETS *100

RETURN ON EQUITY

This ratio shows the profit attributable to the amount invested by the owners of the
business. It also shows potential investors into the business what they might hope to
receive as a return. The stockholders’ equity includes share capital, share premium,
distributable and non-distributable reserves. The ratio is calculated as follows:

RETURN ON EQUITY = PROFIT AFTER TAX / SHARE HOLDER’S


EQUITY

Return on Equity has decline sharply during the year 2006 i.e. from 21.36 in 2006 to
21.14 in 2007 due to decline in Profit after tax.

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PARTICULARS 2006 2007

EBIT 1472.62 1851.91

Total Assets 16448.86 19938.53

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ROI 8.95 9.28

ROI shows the amount of income for every rupee tied up in assets. Here ratio
indicates from 8.95 in 2006 to 9.28 in 2007.

EARNINGS PER SHARE

Whatever income remains in the business after all prior claims, other than owners
claims (i.e. ordinary dividends) have been paid, will belong to the ordinary
shareholders who can then make a decision as to how much of this income they wish
to remove from the business in the form of a dividend, and how much they wish to

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retain in the business. The shareholders are particularly interested in


knowing how much has been earned during the financial year on each of the shares
held by them. For this reason, an earning per share figure must be calculated. Clearly
then, the earning per share calculation will be:

EARNINGS PER SHARE = NET INCOME AFTER TAX - PREFERENCE


DIVIDEND / NO. OF ISSUED ORDINARY
SHARES

PARTICULARS 2006 2007

PAT-Preference dividend 954.12 * 1 Lac 1197.41* 1 Lac

No. Of Issued Ordinary 10825000 21652984


Shares

EPS 8.81 5.53

There is sharp down fall of EPS is because JBML Splits their equity share capital
from face value of Rs 10 to Rs. 5 per share.

MARKET VALUE RATIO

These ratios indicate the relationship of the firm’s share price to dividends and
earnings. Note that when we refer to the share price, we are talking about the Market
value and not the Nominal value as indicated by the par value.

For this reason, it is difficult to perform these ratios on unlisted companies as the
market price for their shares is not freely available. One would first have to value the
shares of the business before calculating the ratios. Market value ratios are strong
indicators of what investors think of the firm’s past performance and future prospects.

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DIVIDEND YIELD RATIO

The dividend yield ratio indicates the return that investors are obtaining on their
investment in the form of dividends. This yield is usually fairly low as the investors
are also receiving capital growth on their investment in the form of an increased share
price. It is interesting to note that there is strong correlation between dividend yields
and market prices. Invariably, the higher the dividend, the higher the market value of
the share. The dividend yield ratio compares the dividend per share against the price
of the share and is calculated as:

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DIVIDEND YIELD RATIO = DIVIDEND PER SHARE / STOCK


PRICE

PARTICULARS 2006 2007

Dividend Per Share 1.75 .75

Stock Price 125 126

Dividend Yield Ratio 1.4 .59

There is fall in dividend yield ratio due to decrease in dividend per share, Stock price
being constant. DPS decline due to Split of Equity Shares.

This is fairly unusual because share prices usually increase when dividends increase.
However there could be number of reasons why this has happened, either due to the
economy or to mismanagement, leading to a loss of faith in the stock market or in this
particular stock.

Normally a very high dividend yield signals potential financial difficulties and
possible dividend payout cut. The dividend per share is merely the total dividend
divided by the number of shares issued. The price per share is the market price of the
share at the end of the financial year.

PRICE – EARNING RATIO ( P/E Ratio)

P/E ratio is a useful indicator of what premium or discount investors are prepared to
pay or receive for the investment.
• The higher the price in relation to earnings, the higher the P/E ratio which
indicates the higher the premium an investor is prepared to pay for the share.
This occurs because the investor is extremely confident of the potential growth
and earnings of the share.

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The price-earning ratio is calculated as follows:

P/E RATIO = MARKET PRICE PER SHARE / EPS

Where, EPS = Net Profit / Total no. Of Equity Shares

PARTICULARS 2006 2007

Market Price Per Share 125 126

EPS 8.81 5.53

P/E RATIO 14.19 22.78

High P/E generally reflects lower risk and/or higher growth prospects for earnings.
The above ratio shows that the shares were traded at a much higher premium in 2006
than were in 2007. P/E Ratio has increased sharply from 6,50 to 14.19 due to steep
decrease in EPS.

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DIVIDENT COVER RATIO

 This ratio measures the extent of earnings that are being paid out in the form of
dividends, i.e. how many times the dividends paid are covered by earnings
(similar to times interest earned ratio discussed above).

 A higher cover would indicate that a larger percentage of earnings are being
retained and re-invested in the business while a lower dividend cover would
indicate the converse.

DIVIDENT COVER RATIO = EARNING PER SHARE / DIVIDENT PER


SHARE

PARTICULARS 2006 2007

EPS 8.81 5.53

Dividend Per Share 1.75 .75

Dividend Cover Ratio 5.03 7.37

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ANALYSIS

The corporate management of Jay Bharat Maruti Ltd. Would be interested


in examining all the aspects of the company’s financial position, viz. liquidity,
solvency, profitability and funds-flow ratios. In the absence of industry average
figures, my appraisal is based only upon standard norms of these ratios, working
capital, profit and loss account, balance sheet etc.

FUNDING

An examination of the statement of changes in financial position reveals


that the company is relying largely on funds from business operations (profit after tax
plus depreciation) to finance its major expansion programmes of the purchase of
plant. Company has reduced its face value from Rs. 10 to Rs 5. Company is repaying
its long term borrowings and also short term borrowings have been reduced in
comparison to last year. This could be the result of less relying in investments.

Equity to total assets ratio has increased from 16.36 to 19.98% which
shows co. is more relying on equity funds from funding fixed assets. This can also be
proved from reduced debt ratio of 0.59 to 0.56. It has increased the chances of
leverage for equity holders, which can be seen from increased return on investment
and return on equity.

The ratio of current assets to total assets of the company has decreased
from 33.83 to 29.97% which shows the company is investing more in fixed assets.
Decreased Net working capital can also be an indicator above policy. Decrease Net
working capital also shows company’s efficient management of funds.

PROFITABILITY

Profit Before Tax of the company has increased from 1851.91 to1472.62
about 25.75%, which shows its increased strength Asset Management.

Management’s assets turnover ratio also proves also same which has
increased from 3.03 to 3.11.

In spite of increase in overall profitability Gross Profit has gone down


from 20.96 to 19.13% and Net Profit ratio has gone up from 2.22% to 2.30%. But the
sales have shown an increasing trend. The reason for lower profitability in spite of
increased sales can be
 Increase in cost of material
 Increase in lab our charges
 Increase in excise duty paid by company
 Lowering the prices

Other income contributes very highly to the overall income of the


company which is 23.7% in the year 2006 and 17.24% in the year of 2007though
the percentage is decreased but still company relies highly on it.

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In spite of increase in debtors bad debts written off are lesser in


comparison to last year which shows efficient management of collection.

The major part for increase in profit is decrease in lease rent in


company to last year which is 75%. The financial charges for lease assets are also
50%. This shows company is relying more on own assets rather than leased.

Company deals frequently in purchase and sale of fixed assets and


investments. Loss on sale of fixed assets is quite less in comparison to last year
which is Rs. 9.51 lakhs.

Sale of investment has also resulted in a loss but has been


considerably reduced from 41,18 to 3.53 lakhs. This clearly shows the efficiency
of staff in dealing with investments. This could be the reason for not providing
for provision for diminution in value of investment. which was 6.75 lakh last year.

In spite of good results company has reduced its activities in sale


and purchase of investments which has resulted in lesser dividend received.

Inspire of increase in profit before tax , profit after tax has been
reduced because of new rules of income tax Act 1961 for fringe benefit tax.
Fringe benefit tax amounts to Rs. 21.33 lakhs this year in comparision to Rs 22.65
in the previous year.

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LIQUIDITY

The emerging liquidity position of the company appears to be satisfactory.


The current ratio has increased from 0.99% in year 2006 to 1.03% in the year
2007. The acid test ratio has also increased from 0.70 to 0.80, it near by to the
standard.
The company is unlikely to encounter ant serious difficulty in paying the short-
term obligations as and when they become due for payment.

However, the management should realise that the policy relating to


collection of debt is not sound as reflected in the declining trend of receivables
turnover from14.94 in year 2006 to 14.15 in the year 2007. There is less
carelessness either (1) in collecting the payments from debtors, or (2) in extending
credit sales to customers leading to an increase in bed debts and there by an
increase in the expenses ratio. The excessive investment in current assets seem to
be affecting the rate of return.

The delay in collection of receivables would mean that, apart from the interest
involved in maintaining a higher level of debtors, the liquidity position of the firm
would be adversely affected.

But the interest paid by Jay Bharat Maruti Ltd. Shows the
reversing trend. In spite of increase in Debtors collection period interest cost has
goes down by 7.3% in comparision to previous year. Which has also increased
blocking of money in debtors.

This also can be confirmed by decreasing working capital. The


decreased working capital is also the result of the following

 Increase in stock of raw materials up to 25%.


 Increase in finished goods up to 25%
 Increase in Advances to suppliers of Raw material and stores/spares
consumables up to 19%
 Increased in accrued expenses up to 26%

The stable dividend policy of the company is commendable and is


likely to have a salutary effect on the market price of its shares.

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POSITION FROM THE INVESTORS POINT OF VIEW

An investor is primarily concerned with three things

 Earning per share


 Dividend per share
 Prospects of growth in the market value of the share.

The analysis of the financial data of Jay Bharat Maruti Ltd. indicates upward
trend in all these respects. The EPS has gone down from Rs. 8.81 in year 2006
to Rs. 5.53 in year 2007. The dividend cover has also goes up from Rs. 5.03 to
7.14 during the same period. The rate of return on equity investment has gone
up from 27.72 to 29.36.

The company has splited its shares of Rs. 10 to Rs. 5 of two. Though
the EPS of the company has decreased because of the spilt of shares which has
increased no. of shares twice. If we don’t consider the split, then the difference
between the EPS of last year and this year just Rs. 1.48 which is quite
acceptable

The same thing applies in DPS also .Every investor is earning the same
dividend as He/She was in last year. If doubled the dividend of this year as the
no. of shares increased twice. Dividend cover ratio of the company has gone
up from 5.03 to 7.14 which shows the company has given same amount of
dividend in spite of reduction in earnings this can be good from the investors
side but the retained earnings of the company have declined in the year 2006,
which may require funding from outsider.

Another view can be that company has sufficient working capital


with in. But this is not true company is depending more on debt which can be
seen from its debt to equity ratio which has gone up from 2.06 in the year 2006 to
2.25 in the year 2007. High debt to equity ratio have the benefit of leverage for
equity investors.

Dividend yield ratio of company has reduced to 50% from 1.14 in


year 2006 to .59 in the year 2007. This is merely because of increasing the number of
shares. Because of split in spite of reducing the face value of shares from Rs. 10 to
Rs.5 the market value of share has gone up. If we don’t take in to account the split in
this year market value has been twice in comparison to last year which shows the
investors have faith in company’s policies.

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CONCLUSION

In conclusion, it may be said that from the point of view of all parties the overall
performance of the company is very satisfactory. It should improve its position on the
cost and profitability.

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REFERENCES

Annual Report of JBML

Text Books References:

• Financial Management by M Y Khan & P K Jain

• Financial Management by I M Pandey

Web sites Referred:

• www.jbmindia.com

• www.google.com

• www.nseindia.com

• www.jbm-group.com

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