CHAPTER I

A STUDY ON THE FINANCIAL PERFORMANCE ANALYSIS

WITH REFERENCE TO HERO MOTOCORP LIMITED

1. INTRODUCTION

The performance of the firm can be measured by its financial results, i.e.., by
its size of earnings, riskiness and profitability are two major factors which jointly
determine the value of the concern. Financial statements are prepared to review the
state of investments in a business and result achieved during the specific period.
They reflect recorded facts, accounting conventions and personal judgments.
Financial decisions which increase risk will decrease the value of the firm and on
the other hand financial decisions which increases the profitability will increases
value of the firm. Risk and profitability are two essential ingredients of a business
concern. There has been a considerable debate about the ultimate objective of firm
performance, whether it is profit maximization or wealth maximization. It is
observed that while considering the firm performance, the profit and wealth
maximization are linked and are effected by one-another. However, Profit and loss
account is a statement, which is prepared for a particular financial year. In Indian
context, where an analyst has to rely upon the audited financial statements for a
particular company, the performance so to be judged from the financial statements
only. This chapter however indicates some of the techniques, which can be used for
such analysis of financial performances.
Usefulness of financial performance to various stakeholders:

The analysis of financial performance is used by most of the business communities.

They include the following.

Trade Creditors
The creditors provide goods/ services on credit to the firm. They always face
concern about the recovery of their money. The creditors are always keen to know
about the liquidity position of the firm. Thus, the financial performance parameters
for them evolve short term liquidity condition of the firm.

Suppliers of Long Term Debt

The suppliers of long term debt provide finance for on- going/ expansion
projects of the firm. The long term debt providers will always focus upon the
solvency condition and survival of the business, their confidence in the firm is of
utmost importance as they are providing finance for a longer period of time.

The long term creditors do consider the historical financial statements for
financial performance. However, the financial institution/ bank also depend a lot on
the projected financial statements indicating performance of the firm normally; the
projections are prepared on the basis of expected capacity expansion, projected level
of projection level of production/ service and market trends for the price movements
of raw materials as well as finished goods.

Investors
Investors are the persons who have invested their money in the equity share
capital of the firm. They are the most concerned community as they have also taken
risk of investments- expecting a better financial performance of the firm. The
investor’s community always put more confident in firms growth in earnings. They
judge the performances of the company by analyzing firms present and future
profitability, revenue stream and risk position.

Management

Management for a firm is always keen on financial analysis. It is ultimately

the responsibility of the management to look at the most effective utilization of the
resources. Management to look at the most effective balance between the asset
liability management, effective risk management and short term and long term
solvency condition

Techniques/ tools to measure financial performance

 Financial Tools
Ratio Analysis
Comparative Balance Sheet
Common-Size Balance Sheet
 Statistical tools:

Trend analysis

FINANCIAL TOOLS:
Ratio analysis:

The financial ratio analysis is considered to be the most powerful tool of

financial analysis. In simple language ratio means relationship between two or more
things. It is also said that a ratio is the indicated quotient of two mathematical
expressions. The ratio analysis also helps to summarize the large quantities of
financial data and to make qualitative judgments about the firm’s financial
performance. There are various liquidity ratios which are quantitative in nature but
are helpful to make qualitative judgments about the firm. The financial ratios involve
useful information about the analysis of the firm. However, standalone ratio of one
firm alone may not be useful to evaluate the firm’s performance.

Comparative Statements:

Comparative statement analysis is one of the methods to trace periodic change

in the financial performance of a firm. The changes over the period are described by
way of increase and decrease in income statement and balance sheet. These
statements summaries and resent related data for a number of years, incorporating
therein changes in individual items of financial statements. These statements help in
making inter-period and inter firm comparisons and also highlight the trends in
performance efficiency and financial position. An assessment of comparative
financial statements helps to highlight the significant facts and points out the items
requiring further analysis. All annual report of the selected companies provides data
related to last 2 financial years.

Common Size Statements:

Common size statement indicates the relationship of various items with some
common items, (expressed as percentage of the common item). In the income
statements, the sales figure is taken as basis and all other figures are expressed as
percentage in sales. Similarly, in the balance sheet the total assets and liabilities is
taken as base and all figures are expressed as percentage of this total. The
percentages so calculated are compared with corresponding percentages in other
periods or other firms and meaningful conclusions are drawn. Generally, a common
size income statements and common size balance sheet is prepared.
STATISTICAL TOOLS:

Trend analysis:

Trend analysis is one of the tools for the analysis of the company’s monetary
statements for the investment purposes. Investors use this analysis tool a lot in order
to determine the financial position of the business. In a trend analysis, the financial
statements of the company are compared with each other for the several years after
converting them in the percentage.

1.1 NEED FOR THE STUDY

“Hero” is the brand name used by the Munjal brothers for their flagship
company Hero Cycles Ltd. A joint venture between the Hero Group and Honda Motor
Company was established in 1984 as the Hero Honda Motors Limited At Dharuhera
India. Munjal family and Honda group both own 26% stake in the Company. In 2010,
it was reported that Honda planned to sell its stake in the venture to the Munjal family.

The company has a stated aim of achieving revenues of $10 billion and volumes of
10 million two-wheelers by 2017-18. This in conjunction with new countries where
they can now market their two-wheelers following the disengagement from Honda,
Hero MotoCorp hopes to achieve 10 per cent of their revenues from international
markets, and they expected to launch sales in Nigeria by end-2011 or early-2012.
This is the main stream to study about the Hero Motocorp Limited.
1.2 OBJECTIVE OF THE STUDY

Primary objectives:

 To analyze the financial performance of HERO MOTOCORP

LIMITED.

Secondary objectives:

 To study the liquidity, solvency, profitability position of the company.

 To know the future prospectus of the company.
 Ascertaining the past and current financial performances of the firm with
the help of comparative balance sheet.

1.3 SCOPE OF THE STUDY

The scope of study is limited to the operations of HERO MOTOCORP
LIMITED. The information obtained from the primary and secondary sources are
limited to HERO MOTOCORP LIMITED. The key performance indicators were
taken from annual reports of HERO MOTOCORP LIMITED. The information
regarding Annual reports, profit & loss Account, Balance Sheet are taken from last
five years. Comparison Analysis was done with information available in annual
reports.
This study helps the company to improve the performance. Effective utilization of
financial resource and that leads to achieve profitability and efficiency of operation.
This study will help to frame strategies and to take decision-making.
1.4 INDUSTRY PROFILE

Introduction:

Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest
manufacturer of two - wheelers, based in India. The company was a joint venture
between India's Hero Group and Honda Motor Company, Japan that began in
1984.During the 1980s, the company introduced motorcycles that were popular in
India for their fuel economy and low cost. A popular advertising campaign based on
the slogan “Fill it - Shut it - Forget it” that emphasized the motorcycle's fuel
efficiency helped the company grow at a double-digit pace since inception.

The technology in the bikes of Hero Honda for almost 26 years (1984–2010) has
come from the Japanese counterpart Honda. Hero MotoCorp has three
manufacturing facilities based at Dharuhera, Gurgaon in Haryana and at Haridwar
in Uttarakhand.

These plants together are capable of churning out 3 million bikes per year. Hero
MotoCorp has a large sales and service network with over 3,000 dealerships and
service points across India. Hero Honda has a customer loyalty program since 2000,
called the Hero Honda Passport Program.

During the current financial year, in view of the separation of the joint venture
partners, the Company had started the process of change of name of the Company
from Hero Honda Motors Limited to Hero MotoCorp Limited. The new name was
approved by the members of the Company in their Extra-ordinary General Meeting
held on June 17, 2011. Also, the new Corporate Identity (new Corporate Logo) was
adopted by the Board of Directors of the Company on August 17, 2011 for all
future practical purposes.

The Hero Group would buy out the 26% stake of the Honda in JV Hero Honda.
Under the joint venture Hero Group could not export to international markets
(except Sri Lanka) and the termination would mean that Hero Group can now
export. In 2001, the company achieved the coveted position of being the largest
two-wheeler manufacturing company in India and also, the 'World No.1' two-
wheeler company in terms of unit volume sales in a calendar year. Hero MotoCorp
Ltd. continues to maintain this position till date.

The story of Hero Honda began with a simple vision - the vision of a mobile and an
empowered India, powered by its bikes. Hero MotoCorp Ltd., company's new
identity, reflects its commitment towards providing world class mobility solutions
with renewed focus on expanding company's footprint in the global arena.

Hero MotoCorp's mission is to become a global enterprise fulfilling its customers'

needs and aspirations for mobility, setting benchmarks in technology, styling and
quality so that it converts its customers into its brand advocates. The company will
provide an engaging environment for its people to perform to their true potential. It
will continue its focus on value creation and enduring relationships with its
partners.

Hero MotoCorp's key strategies are to build a robust product portfolio across
categories, explore growth opportunities globally, continuously improve its
operational efficiency, aggressively expand its reach to customers, continue to
invest in brand building activities and ensure customer and shareholder delight.

At Hero MotoCorp, it is the firm’s belief that the essence of Corporate Governance
lies in the phrase ''Your Company''. It is ''Your'' Company because it belongs to you
the shareholders. The Chairman and Directors are ''Your'' fiduciaries and trustees.
Their objective is to take the business forward in such a way that it maximizes
''Your'' long-term value.
CHAPTER II
2.1 REVIEW OF LITERTURE

Pai, Vadivel & Kamala (1995)

In this research article on financial performance, they have studied about the
diversified companies and financial performance. Main purpose of research was found out
the relationship between diversified firms and their financial performance. For the purpose
of research, they have selected seven large firms and analyzed those firm which having
different products-both related and otherwise in their portfolio and operating in diverse
industries. In this study, a set of performance measures / ratios was employed to determine
the level of financial performance and variation in performance from one firm to another
has been observed and statistically established. They revealed that the diversified firms
studied have been healthy financial performance.

Doron Nissim & Stephen H Penman (1999)

In this research article on financial performance, they have pointed that this
paper outlines a financial statement analysis for use in equity valuation. Standard
profitability analysis is incorporated, and extended, and is complemented with an analysis
of growth. The perspective is one of forecasting payoffs to equities. So financial statement
is presented first as a matter of Performa analysis of the future, with forecasted ratio
viewed as building blocks of forecasts of payoffs.

Kennedy and Muller (1999)

In this research article on financial performance, they have pointed that the
analysis and inferences/ interpretation of financial statement are an attempt to determine
the significance and meaning of financial statement data so that the forecast may be made
of the prospects for future earnings, ability to pay interest and debt maturates (both current
and long term) and profitability and sound dividend policy.
Abate, Juan Manuel De La Fuente Puente, Esther de Quevedo (2003)

This paper reviews the empirical literature analyzing the relationship between
corporate reputation and financial performance. It points out the progress made and the
new trends that have become apparent, reflects on the gaps that have been left in our
knowledge and speculates on possible future studies that will allow us to enlarge our
knowledge of this relationship.

Elizabeth Duncan and Elliott (2004)

In this research article on financial performance, they have pointed that they
had stated that the paper in the title of efficiency, customer service and financing
performance among Australian financial institutions showed that all financial performance
measures as interest margin, return on assets, and capital adequacy are positively
correlated with customer service quality scores.

Jonas Elmerraji (2005)

In his research article on financial performance, he has pointed that he
tries to say that ratio can be an invaluable tool for making an investment decision.
Even so, many new investors would rather leave their decision to fate than try to
deal with the intimidation of financial ratios. The truth is that ratios are not that
intimidating, even if you do not have a degree in business or finance. Using ratio to
make informed decisions about an investment makes many scenes, once you know
how use them.

John J. Wild, K.R. Subramanyam & Robert f. Halsey (2006)

In this research article on financial performance, they have pointed that the
financial statement analysis is the application of analytical tool and technique to general-
purpose financial statements and related data to derive estimates and inferences useful in
business analysis. Financial statement analysis reduces reliance on hunches, guesses, and
intuition for business decision. It decreases the uncertainty of business analysis.

Samuel & Vanniarajan (2007)

In this research article on financial performance, they have discussed about financial
performance of bank by applying Du-Pont analysis. They concluded that the liberalization
of the finance sector in India has divulged Indian banks to a new economic environment
that is considered by increased competition and new regulatory requirements. They also
revealed that Indian and foreign banks need to explore development opportunities in India
by initiating new products for different customer segment, and many of which were not
conservatively viewed as customer for the banking industry. They suggested all banks
should to evaluate their performance and compare with the others. In the last they depicted
from the analysis the performance of the banks may be viewed on the base of three
dimensions like structural, functioning and efficiency factors which was suggested by the
India Bank Association.

I.M Pandey (2007)

In his research article on financial performance, he has pointed that the

financial statement contain information about the financial consequences and sources and
uses of financial resources. One should be able to say whether the financial variable given
in financial statements in a meaningful way which will suggest the actions which one may
have to initiate to improve the firm’s financial condition.

Susan ward (2008)

In his research article on financial performance, he has pointed that emphasis
that financial analysis-using ratio between key values help investors cope with the massive
amount of numbers in company financial statements. For example, they can compute the
percentage of net profit a company is generating on the funds it has deployed. All other
things remaining the same, a company that earns a higher percentage of profit compared
to other companies is a better investment option.

Vedran Capkun, Ari‐Pekka Hameri, Lawrence A. Weiss, (2009)

The paper finds a significant positive correlation between inventory

performance (total as well as the discrete components of inventory) and measures of
financial performance (at both the gross and operating levels) for firms in manufacturing
industries. The correlation between the performance of discrete types of inventory and
financial performance varies significantly across inventory types. RMI performance has
the highest correlation with all financial performance measures. Between WIP inventory
and FGI performance, the former is more highly correlated with gross profit measures
while the latter is more highly correlated with operating profit measures.

Rachchh Minaxi A (2011)

In his research article on financial performance, he has pointed & suggested
that the financial statement analysis involves analyzing the financial statements to extract
information that can facilitate decision-making. It is the process of evaluating the
relationship between component parts of the evaluating the relationship between
component parts of the financial statements to obtain a better understanding of an entity’s
position and performance.

Bhunia, Mukhuti & Roy (2011)

In this research article on financial performance, they have discussed about “Financial
Performance Analysis - Case Study”. The main aim of study was to identify the financial
strengths and weaknesses by covering two public sector drug & pharmaceutical
enterprises listed on BSE. For study purpose, they have been selected twelve years from
1997-98 to 2008-09. They analyzed the data by using ratios, and statistical tools like A.M.,
S.D., C.V., linear multiple regression analysis and test of hypothesis t-test. They used
SWOT analysis to overcome the weakness and grab the opportunities available in public
sector drug & pharmaceutical enterprises in consideration of strengths and threats. They
concluded that growth during last decade was noteworthy and market trend was growing
at a faster rate. They suggested that the opportunities can be grabbed through the
diversification of export basket in untouched foreign destinations. They also revealed that
strict quality standards, services and use of latest technology can provide an edge over
competitors across the globe.

S.M. Tariq Zafar (2012)

The author made study to explored the truth that the ratios are calculated from
the financial statements which are prepared as desired by the management and policies
adopted on depreciation and stock values and thus produce only a collection of facts
expressed in monetary term and cannot produce complete and authentic picture of the
business and also may not highlight other factors which affects performance. They found
that to control manager’s management often overuse ratio and concentrate more on
improving the ratios and also known fact that ratio is simple comparison of numerator and
a denominator and in comparing ratios it become difficult to adjudicate whether differences
are due to change in the numerator or denominator or in both. It is also found that ratios
are interconnected but are often treated by management in isolation and also found that
analysis of ratios lack authenticity as data used in calculation are not accurate but
manipulated presentation by the promoters.
Priyaaks (2012)

In this research article on financial performance, he has pointed that financial statement
analysis is the process of examining relationships among financial statement elements and
making comparisons with relevant information. It is a tool in decision- making processes
related to stocks, bonds.

Tariq Zafar & Khalid (2012)

In this research article on financial performance, they have discussed about “A

Comparative Evaluation of Financial Performance and Market Value of Maruti& Tata
Company”. For the purpose of analysis, they have been selected two most preferred
companies like Maruti Suzuki Ltd. and Tata Motors Ltd., and for the using period of 2006-
2010. They tried to analyse qualitative and quantitative performance of both companies
and to investigated their risk and returns factors, their market position, their collective
impact on profitability and to come up with the best and worst performing company by
using modern performance evaluating techniques and later ranking them according to their
achieved performance. They concluded from the ratio analysis there was a lack
authenticity in data, in calculation which may manipulating presentation by the promoters.
They have also found that different firms follow different accounting policies like
depreciation allowance; valuation of inventory etc. and often management ignore these
differences while making inter-firm comparison. They revealed that the change in price
levels due to inflation is also not properly considered by management.

Jerónimo de Burgos‐Jiménez Diego Vázquez‐Brust (2013)

This paper analyses the relationship between environmental protection and mid‐
term financial performance, focusing on when and why this relationship is positive. In
particular, the paper disaggregates environmental protection, differentiating between
environmental management practices, environmental proactivity and environmental
performance of the organization.

Prodromos Chatzoglou , Dimitrios Chatzoudes , Nikolaos Kipraios , (2015)

The purpose of this paper is to explore the relationship between the acquisition of
an ISO 9000 certification and the overall financial performance of the certified firms.
More specifically, the study proposes a multidimensional conceptual framework,
including “customers’ demand”, “ISO adoption”, “operation efficiency”, “market
efficiency” and “overall financial performance”. Such a multidimensional approach has
randomly been explored in the existing literature, making the examination of the proposed
conceptual framework an interesting research topic.

M. Venkata Subramanian (2016)

Financial analysis referred to financial statement analysis or accounting

analysis refers to an assessment of the viability, stability and profitability of a business,
sub-business or project. The main idea behind this study is to analyze the financial
operating position of the company. This research is done with help of secondary data,
which is gathered from the annual report of the company. The financial performance can
be measured by using various financial tools such as profitability ratio, solvency ratio,
comparative statement, etc. Based on the analysis, findings have been arrived that the
company has enough funds to meet its debts & liabilities, the income statement of the
company shows sales of the company increased every year at good rate and profit also
increased every year.
2.2 RESEARCH METHODOLOGY

MEANING OF RESEARCH:

Research in common parlance refers to a search for knowledge. One can also define
research as a scientific and systematic search for pertinent information on a specific
topic. In fact, research is an art of scientific investigation. When we talk of research
methods but also consider the logic behind the methods we use in the context of our
research study and explain why we are using a particular method or technique and
why we are not using others so that research results are capable of being evaluated.

DEFINITION OF RESEARCH:

According to Clifford Woody research comprises of “define and redefining problem,

formulating hypothesis or suggested solution, collecting, organizing and evaluating
data; making deduction and reaching conclusion; and at last carefully testing the
conclusion to determine whether they fit the formulating hypothesis”.

Research can be defined as the search of knowledge or any systematic investigation

to establish fact. The primary purpose for applied research (as opposed to basic
research) is discovering, interpreting and the development of methods and systems
for the advancement of human knowledge on a variety of scientific matters of our
world and the universe.
RESEARCH DESIGN

The Research is of various types like Applied Research, Descriptive Research,

Analytical Research, Empirical Research, Exploratory Research etc. The type of
research used in this study is analytical research.

ANALYTICAL RESEARCH:

Analytical research is concerned with determining validity of hypothesis based on

analysis of facts collected. The researcher uses facts or information already available
and does analysis to make critical evaluation of the material.

SOURCES OF DATA COLLECTION

The data collections classified into two types are Primary data and Secondary data.

Primary Data

Primary Data is a data collected for the first time. The information is collected
directly from the source by means of field study. Primary Data are original and are
like raw materials. It is the crudest form of information. The investigator himself
collects primary data or supervises its collection. It may be collected on a sample or
census basis or from case studies.

Secondary Data

According to M. M. Blair, Secondary data “are those already in existence and which
have been collected for some other purpose”. Secondary Data may be abstracted
from existing records and published sources. The data which have already been
collected and processed by some persons or agency and are not used for the first time
are termed as secondary data. In simple, it refers to information gathered from
sources that are already in existence. Here it refers to

 Company’s annual report

 Company’s website
 Manual
 Existing records

This study is based on secondary data. The details regarding the company like
company profile and financial data was sourced from company’s website and
financial records.

Instruments Used

 Financial Tools
 Ratio Analysis
 Comparative Balance Sheet
 Common-Size Balance Sheet

 Statistical tools:
 Trend analysis

TOOLS USED IN FINANCIAL STATEMENT ANALYSIS

1. RATIO ANALYSIS

Ratio analysis is a widely used tool for financial analysis. It can be used to
compare the risk and return relationships of firms of different sizes. It can be
defined as the systematic use of ratio to interpret the financial statements so that
the strengths and weaknesses of a firm as well as its historical performance and
current financial condition can be determined.
 Modes of Ratios used for analysis

1. Current Ratio

The ratio of current assets to current liabilities is called current ratio. It measures
a company’s ability to repay short-term liabilities. A ratio of 2:1 is usually
considered the benchmark; however, this may vary across industries.

Current assets

Current ratio =

Current liabilities

2 . Liquid Ratio

This ratio is also called as “Acid test or Quick ratio”. It refers to the assets which are
quickly convertible into cash. The higher the value, the lower the level of risk
because the company has more claims to immediate liquidity than the industry norm.

Liquid assets

Liquid ratio =

Current liabilities

Liquid assets= Total assets – stock- prepaid expenses.

3.Debt-Equity Ratio (DE)

It is also called as external-internal equity ratio. It provides an indication of a

company’s capital structure and whether the company is more reliant on
borrowings (debt) or shareholder capital (equity) to fund assets and activities.

Total long-term debt

DE ratio =

Shareholder’s Funds

4.Return on Shareholder’s Funds (ROS)

It is the ratio of net profit to shareholder’s investment. It is the relationship

between net profit and shareholder’s fund. This ratio determines the profitability
from the shareholder’s point of view:

Net profit after interest and tax

ROS = X 100

Shareholder’s fund
5. Return on Total Assets (ROA)

Here, the profitability ratio is measured in terms of relationship between net

profits and assets. The ROA may be called as profit asset ratio.

Net profit after tax

ROA= X 100

Total Assets

6. Earnings per share (EPS)

This ratio highlights the overall success of the concern from owners’ point of
view and it is helpful in determining market price of equity shares.

Net Profit after interest & tax

EPS =

Weighted average no. of equity shares

7. Proprietary Ratio (PR)

It is the relationship between the shareholder’s funds and total tangible assets (or)
total assets excluding intangible asset and goodwill. Proprietary ratio indicates
the extent to which assets are financed by owner’s fund.
 Shareholder’s funds

PR =

Total Assets

8. Fixed assets ratio

The objective of calculating this ratio is to ascertain the proportion of long-term

funds invested in fixed assets.

Fixed assets

FAR =

Long-term funds

9. Overall solvency/ total debt ratio

It is a ratio which relates the total tangible assets (or) total assets excluding
intangible and goodwill with the total borrowed funds. It also measures the extent
to which the debt is covered by assets

Total debt

Overall Solvency = Total Asset

10.Gross profit ratio:

Gross profit ratio is also called as gross margin. It is calculated by dividing gross
profit by sales. The gross margin represents the limit beyond which fall in sales
prices are outside the tolerance limit.

Gross profit

Gross profit margin = X 100

Sales

11. Net profit ratio:

Net profit ratio is also called as net margin. This measures the relationship
between net profit and sales of the firm.

Net Profit

Net profit ratio = X 100

Net sales
12. Return on equity:

This profitability ratio carries the relationship of return to the sources of funds.
While ROCE expresses the profitability of a firm in relation to the funds supplied
by the lenders and owners taken together, the return on shareholders’ equity
measures exclusively the return on the owner’s funds.

Net income

Return on Equity = *100

Shareholder’s Equity

13. Working capital turnover ratio:

Working capital turnover ratio is a measurement comparing the depletion of

working capital to the generation of sales over a given period. This provides some
useful information as to how effectively a company is using its working capital
to generate sales.

Net Sales

Working capital turnover ratio = Working capital

 COMPARATIVE BALANCE SHEETS

According to “Faulke”-

Comparative Balance Sheet analysis is the study of the trend of the same items,
group of items and computed items in two or more balance sheets of same
business enterprises on different dates.

ADVANTAGES

 It shows the extent to which there is increase or decrease in assets and

liabilities between two balance sheet dates.
 It helps in studying the trends in business firms.
 It shows the effect of business operation on its assets, liabilities and
capital.

COMMON SIZE BALANCE SHEET

A common-size financial statement is simply one that is created to display line

items on a statement as a percentage of one selected or common figure. Creating
common-size financial statements makes it easier to analyze a company over time
and compare it with peers.

Using common-size financial statements helps investor’s spot trends that a raw
financial statement may not uncover. In this, the total assets or liabilities are taken
as 100 and all figures are expressed as percentage of the total.
STATISTICAL TOOLS:

TREND ANALYSIS:

Trend analysis is one of the tools for the analysis of the company’s monetary
statements for the investment purposes. Investors use this analysis tool a lot in order
to determine the financial position of the business. In a trend analysis, the financial
statements of the company are compared with each other for the several years after
converting them in the percentage.

2.3 LIMITATION OF THE STUDY

 The study has only made a humble attempt at evaluating financial performance
and does not and cannot claim as the perfect study.
 The data used for calculation is historical data and may have some adjustments
made.
 Time constraint, Exact value of Gross Profit could not be obtained.
CHAPTER III
3.1 DATA ANALYSIS AND INTERPRETATION

The financial performed of a firm can be evaluated by constructing ratio for the
various items appearing in the financial statement. A ratio is a simple artificial
expression of the relationship between two mathematical variables. Ratio analysis is
a technique of analysis and interpretation of financial statement by establishing and
interpreting various ratios useful for decision-making.

In this chapter, I have applied various ratios for analyzing financial position of the
company. The result and interpretation are given below:

RATIO ANALYSIS

CURRENT RATIO:

Table 3.1.1-showing computation of current ratio

CURRENT ASSETS CURRENT LIABILITIES

YEAR CURRENT RATIO
(in millions) (in millions)
2013-14 55,583 44,236 1.3

2014-15 55,483 33,896 1.6

2015-16 63,033 35,715 1.8

2016-17 75,705 41,767 1.8

2017-18 90,022 44,814 2.0

 Chart 3.1.1.1 showing current ratio

CURRENT RATIO

2.5

1.5

0.5

0
2013-14 2014-15 2015-16 2016-17 2017-18

PROPRIETARY RATIO

INFERENCE:

Current ratio is the measure of liquidity calculated by dividing current asset by

the current liabilities. The ideal current ratio is 2:1. In the financial year 2013-14, the
current ratio was 1.3:1 and it was increased to 1.6:1 in later years 2014-15. The current
ratio has a constant raise in the financial year 2016-17 and 2017-2018 as 1.8:1 and 2:1
respectively.
LIQUID RATIO/ QUICK RATIO/ ACID TEST RATIO:

Table 3.1.2-showing computation of Liquid Ratio

CURRENT
YEAR LIQUID ASSET LIABILITIES LIQUID RATIO
(in millions) (in millions)
2013-14 4400.5 4280.64 1.03

2014-15 7601.21 6020.80 1.26

2015-16 3910.85 9929.80 0.39

2016-17 2419.39 8308.68 0.29

2017-18 7957.05 10322.09 0.77

Chart 3.1.2.1 showing liquid ratio

LIQUID RATIO

2.5

1.5

0.5

0
2013-14 2014-15 2015-16 2016-17 2017-18

PROPRIETARY RATIO

INFERENCE:

Liquid ratio is a measure of liquidity calculated dividing current assets minus inventory
and prepaid expenses by current liabilities. A liquid ratio of 1:1 is considered as ideal
ratio. A quick ratio higher than 1:1 indicates that the business can meet its obligation
with available quick funds in hand (2014 to 2018) whereas a ratio less than 1:1 indicates
that the company relies more on inventory or other assets to pay the obligations.

PROPRIETARY RATIO:

Table 3.1.3 showing computation of Proprietary Ratio

SHAREHOLDER
TOTAL ASSETS PROPRIETARY
YEAR FUND
(in millions) RATIO
(in millions)

2013-14 5308.40 3070.98 1.73

2014-15 5599.87 2243.25 2.50

2015-16 6541.33 2912.69 2.25

2016-17 7944.75 3836.74 2.07

2017-18 10111.29 4395.59 2.30

Chart 3.1.3.1 showing Proprietary ratio

PROPRIETARY RATIO

2.5

1.5

0.5

0
2013-14 2014-15 2015-16 2016-17 2017-18

PROPRIETARY RATIO
INFERENCE:

The Proprietary ratio indicates the extent to which assets are financed by owner’s fund.
The above table shows the proprietary ratio position of the Hero MotoCorp Ltd. The
proprietary ratio was ranges from 1.73 to 2.30 during the study period 2012-14 to 2016-
18.