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International Journal of Application or Innovation in Engineering & Management (IJAIEM)

Web Site: www.ijaiem.org Email: editor@ijaiem.org


Volume 8, Issue 10, October 2019 ISSN 2319 - 4847

FINANCIAL PERFORMANCE OF
AUTOMOBILE SECTOR IN INDIA
1
Dr. Hetal C. Chotaliya

1
M.K.Dey College, Amraghat, Cachar, Assam 788116, India

ABSTRACT
The automobile sector is an indicator of economic development of any country. It is also a technology and knowledge
intensive sector because it demands high performance and quality parts. In India, also the automobile sector occupies a
prominent place due to its deep forward and backward linkages with many key segments of the economy. This sector has a
strong multiplier effect and is capable of being the driver of economic growth. The financial performance of the automobile
sector can be correlated to the health of the Indian economy. A sound transportation system, to which the automobile sector is
linked, plays a pivotal role in the country’s rapid economic and industrial development. The prime objective of this paper is to
analyses the financial performance of selected automobile company in India.

Key-ward: Automobile sector, financial, performance, liquidity, ratio

1. INTRODUCTION

A well-developed transportation system plays a key role in the development of an economy, and India is no
exception to it. Automobile is one of the largest industries in the global market. The Indian automobile sector has
emerged as a 'sunrise sector' in the India. India is emerging as one of the world's fastest growing passenger car markets.
Second, largest two-wheeler manufacturer. It is also home for the largest motorcycle manufacturer and fifth largest
commercial vehicle manufacturer. India is the largest base to export compact cars to Europe. Moreover, hybrid and
electronic vehicles are new developments on the automobile canvas and India is one of the key markets for them. It has
been recognized as one of the drivers of economic growth and the domestic automobile industry is believed to be the
barometer of the economy.

2. REVIEW OF LITERATURE
Praveen Kumar Jain (1989), the study was mainly devoted to working capital and liquidity analysis with the help of
following indicators (1) Trend Analysis (2) Ratios Analysis. Researcher analyzed that the working capital trend was not
significant. The seven years average percentage of inventory to total current assets was very high in the three
companies while it was very low in one company and satisfactory in remaining companies.

Dr. Miss Kailash P. Damor (2002), has done research on “A comparative analysis of profitability trends in co-operative
sugar industry of India”, in her research, she has given clear idea about profit and profitability. Profitability is related
with two words, Profit and Ability. We discuss the word profit in many senses but the word profit is used as per its
purpose, where as the ability shows the capability of earning profit from business. Profitability also shows our capacity
of how much return we can give to our investors on their investment.

Dr. Sanjay Bhayani (2003), published a book, “Practical financial statement analysis” The study covered 16 public
limited cement companies in private sector. He made study of analysis of profitability, working capital, capital structure
and activity of Indian cement industry. In his research, he revealed various problems of cement industries and

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International Journal of Application or Innovation in Engineering & Management (IJAIEM)
Web Site: www.ijaiem.org Email: editor@ijaiem.org
Volume 8, Issue 10, October 2019 ISSN 2319 - 4847

suggested remedies for the problems. He also suggested for the improvement of profitability and techniques of cost
control.
Ray (2012), this study tries to evaluate the performance of Indian automobile industry in terms of various financial
indicators, sales trend, production trend, export trend etc. for the period of 2003-04 to2009-10.The result suggests that
the automobile industry has been passing through turbulent phases characterized by enhanced debt burden, low
utilization of assets, and above all, huge liquidity crunch . The key to success in the industry is to improve labour
productivity, labour flexibility, and capital efficiency.

Dharmaraj and Kathirvel (2013), the Indian Automobile Industry marked a new journey in the 1991 with the financial
revolutionary New Industrial Policy Act 1991, opening automatic route which allowed the 100 per cent Foreign Direct
Investment(FDI). Here, an attempt is made to find out the effect of FDI on the financial performance of Indian
Automobile Industry. The efficiency analysis showed that the companies are efficiently utilizing the available resources
during post FDI as compared to pre FDI. It is concluded that foreign direct investment in India makes positive impact
on the financial variables of the Automobile Companies.

Dr. Lalitkumar R. Chauhan (2014) “A Comparative Study of Financial Performance of Selected Companies of
Automobile Industry of India” In this study profile of the selected companies of automobile industries in India, Analysis
of Profitability, Capital Structure, Working Capital and Activity of the Automobile industry in India.

OBJECTIVES OF THE STUDY

• To understand the concept of Financial performance


• To evaluate the liquidity Ratio of the selected Automobile sector in India during the period of study.

3. CONCEPT OF WORKING CAPITAL MANAGEMENT


Quantitative and Qualitative are two concepts of working capital. Some people also define the two concepts as gross
concept and net concept. According to quantitative concept, the amount of working capital refers to “Total of current
assets”. Current assets are considered gross working capital in this concept. The qualitative concept gives an idea
regarding source of financing capital. According to qualitative concept, the amount of working capital refers to “Excess
of current assets over current liabilities.” The excess of current assets over current liabilities is termed as “Net working
capital”. In this concept, “Net working capital” represents the amount of current assets, which would remain if all
current liabilities were paid. Both the concepts of working capital have their own points of importance. If the objectives
are to measure the size and extent to which current assets are being used, “Gross concept” is useful; whereas in
evaluating the liquidity position of an undertaking “Net concept” becomes pertinent and preferable. It is necessary to
understand the meaning of current assets and current liabilities for learning the meaning of working capital, which is
explained below.

 CURRENT ASSETS:-
It is observed that “Current assets” have a short life span. These types of assets are engaged in current
operation of a business and normally used for short-term operations of the firm during an accounting period.

 CURRENT LIABILITIES:-
The firm creates a Current Liability towards Creditors, ‟ (sellers) from whom it has purchased raw materials
on credit. This liability is also known as accounts payable and shown in the balance sheet till the payment
have been made to the Creditors”. The claims or obligations, which are normally expected to mature for
payment within an accounting cycle, are known as current liabilities.

 CIRCULATING CAPITAL:-
Working capital is also known as circulating capital or current capital. ‟The use of the term circulating capital
instead of working capital indicates that its flow is circular in nature.”

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International Journal of Application or Innovation in Engineering & Management (IJAIEM)
Web Site: www.ijaiem.org Email: editor@ijaiem.org
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PERIOD OF THE STUDY


The present study is covered for a period of the 5 (Five) accounting years ending to 31-3-2017. (From 2012-13 to
2016-17)

SOURCE OF DATA
The researcher uses secondary data collection for his convenience. Researcher gives more emphases on secondary
data because the researcher undertakes research in Financial Performance practices for which researcher needs all
Annual reports and records from the selected companies, which are in nature of secondary data.

4. SELECTED AUTOMOBILE COMPANIES FOR RESEARCH WORK

HYPOTHESIS OF THE STUDY

Following hypothesis have been developed for fulfill objective of to examine Working Capital Ratio (Liquidity) of the
selected Automobile industry in India during the period of study.

NULL HYPOTHESIS (H0):


1. H0: There is no significant difference in current ratio of selected Automobile companies during the period of
study.
2. H0: There is no significant difference in quick ratio of selected Automobile companies during the period of
study.
3. H0: There is no significant difference in interest coverage ratio of selected Automobile companies during the
period of study.
4. H0: There is no significant difference in financial charges coverage ratio of selected Automobile companies
during the period of study.

ALTERNATIVE HYPOTHESIS (H1):


1. H1: There is significant difference in current ratio of selected Automobile companies during the period of
study.
2. H1: There is significant difference in quick ratio of selected Automobile companies during the period of study.
3. H1: There is significant difference in interest coverage ratio of selected Automobile companies during the
period of study.
4. H1: There is significant difference in financial charges coverage ratio of selected Automobile companies
during the period of study.

5. RESEARCH METHODOLOGY
For this study researcher is using secondary data as a source of information for thus research e.g. the Annual Reports,
websites and other publications. The following tool & techniques have been classification in the study.

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International Journal of Application or Innovation in Engineering & Management (IJAIEM)
Web Site: www.ijaiem.org Email: editor@ijaiem.org
Volume 8, Issue 10, October 2019 ISSN 2319 - 4847

(A) Accounting Techniques (B) Statistical Techniques

 ACCOUNTING TECHNIQUES:
• Ratio Analysis

 STATISTICAL TECHNIQUES:
The statistical techniques, which are used for the analysis, are as under:
• Arithmetic Mean
• The Standard Deviation
• Co-Efficient of Variation:
• One-way Analysis of Variance Test (ANOVA)

CURRENT RATIO

Current ratio = Current Assets


Current Liabilities

TABLE -1 CURRENT RATIO (%)


YEAR COMPANY NAME
ALL TML SML FML MML
2012-2013 0.91 0.5 1.25 2.43 0.99
2013-2014 0.73 0.42 1.22 1.75 1.02
2014-2015 0.78 0.43 1.45 1.75 1.19
2015-2016 0.94 0.42 1.36 1.7 1.05
2016-2017 1.08 0.53 1.33 1.6 1.01
AVERAGE 0.888 0.46 1.322 1.846 1.052

S.D. 0.13846 0.05148 0.09149 0.33216 0.08012

C.V. 15.5919 11.1909 6.9204 17.9935 7.61644

MIN 0.73 0.42 1.22 1.6 0.99


MAX 1.08 0.53 1.45 2.43 1.19
(Sources: Annual Reports and Accounts from 2012-2013 to 2016-2017)

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GRAPH NO-1 CURRENTRATIO

TABLE NO-1.1 CURRENT RATIO (%) ONE WAY ANOVA TEST

Anova: Single
Factor
SUMMARY
Groups Count Sum Average Variance
ASHOK 5 4.44 0.888 0.01917
LAYLAND
TATA MOTORS 5 2.3 0.46 0.00265
SML 5 6.61 1.322 0.00837
FORCE 5 9.23 1.846 0.11033
MOTORS
MAHINDRA & 5 5.26 1.052 0.00642
MAHINDRA
ANOVA
Source of SS df MS F P-value F crit
Variation
Between Groups 5.308616 4 1.327154 45.15972506 9.68918E-10 2.866081
Within Groups 0.58776 20 0.029388
Total 5.896376 24

 Degree of freedom = 25-1=24


Table Value of ‘F’ =2.86
Calculate Value of ‘F’ = 45.15
Fcal > Ftab
45.15 > 2.86
Fcal > Ftab

Table 1.1 indicates the calculate value of ‘F’ is 45.15972506 and the table value of ‘F’ at 5% levels of significance is
2.86. So, the calculate value ‘F’ which is more than the table value. It indicates that the Null Hypothesis is rejected and
Alternate Hypothesis is accepted. So, it indicates that there is significant difference in Current Ratio of selected
automobile sector under study for the period.

QUICK RATIO:

QUICK RATIO = Quick Assets


Quick Liabilities

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International Journal of Application or Innovation in Engineering & Management (IJAIEM)
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Table No-2 CURRENT RATIO (%)

COMPANY NAME
YEAR
ALL TML SML FML MML
2012-2013 0.51 0.43 0.87 1.64 0.72
2013-2014 0.56 0.4 1.2 1 0.77
2014-2015 0.67 0.36 0.57 1.04 0.93
2015-2016 0.69 0.42 0.64 1.09 0.84
2016-2017 0.78 0.41 0.53 0.92 0.83
AVERAGE 0.642 0.404 0.762 1.138 0.818
S.D. 0.10756 0.02702 0.27797 0.28744 0.07918
C.V. 16.7545 6.68775 36.4796 25.2581 9.68011
MIN 0.51 0.36 0.53 0.92 0.72
MAX 0.78 0.43 1.2 1.64 0.93
(Sources: Annual Reports and Accounts from 2012-2013 to 2016-2017)

GRAPH NO-2 QUICK RATIO

TABLE NO 2.1 QUICK RATIO (%) ONE WAY ANOVA TEST

Anova: Single
Factor
SUMMARY

Groups Count Sum Average Variance


ASHOK
5 3.21 0.642 0.01157
LAYLAND
TATA MOTORS 5 2.02 0.404 0.00073

SML 5 3.81 0.762 0.07727

FORCE MOTORS 5 5.69 1.138 0.08262

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MAHINDRA &
5 4.09 0.818 0.00627
MAHINDRA
ANOVA

Source of Variation SS Df MS F P-value F crit

Between Groups 1.433264 4 0.358316 10.03911 0.000127 2.866081

Within Groups 0.71384 20 0.035692

Total 2.147104 24

 Degree of freedom = 25-1=24


 Table Value of ‘F’ =2.86
 Calculate Value of ‘F’ = 10.03
Fcal > Ftab
10.03 > 2.86
Fcal > Ftab

Table No-2.1 indicates the calculate value of ‘F’ is 10.03911 and the table value of ‘F’ at 5% levels of significance is
2.86. So, the calculate value ‘F’ which is more than the table value. It indicates that the Null Hypothesis is rejected and
Alternate Hypothesis is accepted. So, it indicates that there is significant difference in Quick Ratio of selected
automobile sector under study for the period.

INTEREST COVERAGE RATIO:

TABLE NO-3 INTEREST COVERAGE RATIO (%)


COMPANY NAME
YEAR
ALL TML SML FML MML
2012-2013 3.7 2.58 6.95 2.44 22.49
2013-2014 1.48 1.43 3.61 3.32 23.79
2014-2015 -0.32 0.64 4.1 7.82 17.65
2015-2016 1.87 -1.22 9.37 20.07 18.89
2016-2017 6.7 1.35 14.23 58.69 27.8
AVERAGE 2.686 0.956 7.652 18.468 22.124
S.D. 2.65973 1.40108 4.34939 23.559 4.04975
C.V. 99.0221 146.557 56.84 127.567 18.3048
MIN -0.32 -1.22 3.61 2.44 17.65

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MAX 6.7 2.58 14.23 58.69 27.8


(Sources: Annual Reports and Accounts from 2012-2013 to 2016-2017)

GRAPH NO-3 INTEREST COVERAGE RATIO

TABLE NO-3.1 INTEREST COVERAGE RATIO (%) ONEWAY ANOVA TEST

Anova: Single
Factor
SUMMARY
Groups Count Sum Average Variance
ASHOK 5 13.43 2.686 7.07418
LAYLAND
TATA MOTORS 5 4.78 0.956 1.96303
SML 5 38.26 7.652 18.91722
FORCE MOTORS 5 92.34 18.468 555.02857
MAHINDRA & 5 110.6 22.124 16.40048
MAHINDRA 2
ANOVA
Source of SS Df MS F P-value F crit
Variation
Between Groups 1793.943 4 448.485796 3.741225868 0.019797428 2.866081
Within Groups 2397.534 20 119.876696
Total 4191.477 24

 Degree of freedom = 25-1=24


 Table Value of ‘F’ =2.86
 Calculate Value of ‘F’ = 3.74

Fcal > Ftab


3.74 > 2.86
Fcal > Ftab

Table No-3.1 indicates the calculate value of ‘F’ is 3.741225868 and the table value of ‘F’ at 5% levels of significance
is 2.86. So, the calculate value ‘F’ which is more than the table value. It indicates that the Null Hypothesis is rejected
and Alternate Hypothesis is accepted. So, it indicates that there is significant difference in Interest Coverage Ratio of
selected automobile sector under study for the period.
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FINANCIAL/FIXED CHARGES COVERAGE RATIO:

TABLE NO-4 FIXED CHARGES COVERAGE RATIO

YEAR COMPANY NAME


ALL TML SML FML MML
2012-2013 5.08 3.9 7.94 4.16 26.03
2013-2014 2.49 2.74 4.26 11.83 27.5
2014-2015 0.51 2.18 6.18 17.06 20.98
2015-2016 2.93 0.4 12.77 32.47 23.44
2016-2017 8.32 3 18.02 79.96 34.94
AVERAGE 3.866 2.444 9.834 29.096 26.578
S.D. 2.97255 1.30042 5.55966 30.2627 5.2976
C.V. 76.8894 53.2085 56.535 104.01 19.9323
MIN 0.51 0.4 4.26 4.16 20.98
MAX 8.32 3.9 18.02 79.96 34.94
(Sources: Annual Reports and Accounts from 2012-2013 to 2016-2017)

GRAPH NO-4 FIXED CHARGES COVERAGE RATIO

TABLE NO-4.1 FIXED CHARGE COVERAGE RATIO (%) ONE WAY ANOVA TEST

Anova: Single
Factor
SUMMARY
Groups Count Sum Average Variance
ASHOK 5 19.33 3.866 8.83603
LAYLAND
TATA 5 12.22 2.444 1.69108
MOTORS
SML 5 49.17 9.834 30.90978
FORCE 5 145.48 29.096 915.82863
MOTORS

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MAHINDRA & 5 132.89 26.578 28.06452


MAHINDRA
ANOVA
Source of SS Df MS F P-value F crit
Variation
Between Groups 3195.145 4 798.786154 4.053393896 0.014459232 2.866081
Within Groups 3941.32 20 197.066008
Total 7136.465 24

 Degree of freedom = 25-1=24


 Table Value of ‘F’ =2.86
 Calculate Value of ‘F’ = 4.05
Fcal > Ftab
4.05 > 2.86
Fcal > Ftab
Table No-4.1 indicates the calculate value of ‘F’ is 4.053393896 and the table value of ‘F’ at 5% levels of significance
is 2.86. So, the calculate value ‘F’ which is more than the table value. It indicates that the Null Hypothesis is rejected
and Alternate Hypothesis is accepted. So, it indicates that there is significant difference in fixed charge coverage ratio
of selected automobile sector under study for the period.

6. CONCLUSION
“Analysis and Evaluation of Working Capital” describe that its one of the important measurement of the financial
position of the business organization. Therefore, measurement liquidity has its own important. Importance of liquidity
describes that it is lifeblood and controlling nerve center of the business. Without circulation of blood no one can live,
just as without circulation of liquidity business cannot maintain. The performance of liquidity can be judged by
investment in working capital, short-term creditors, and efficiency in working capital. In the present study there were
four types of ratios was calculated i.e. current ratio, quick ratio, and Interest coverage ratio, Fixed charges coverage
ratio, Thus above analysis describe that the need for liquidity to rub day-to-day business activities can’t be over
emphasized.

REFRENCES
1. Dr. P.C. Tulsian. Financial Management, S. Chand & Co. Ltd, New Delhi, 2010, P-13.54.
2. E.W. Walker, Essentials of financial management Prentice Hall of India Pvt. Ltd, New Delhi.
3. James C. Van Horne “Financial Management and Policy” prentice Hall of India, New Delhi, 197
4. K. Rajeshwar Rao, Working Capital Planning and Control in Public Enterprises in India, Ajanta Publication
(India), Jawaharlal Nagar, Delhi-110007, 1985, P.4.
5. N. M. Khandelwal, Working Capital Management in Small Scale Industries, Ashish Publishing House,
Punjabi Baug, New Delhi 1985P.No.5.
6. https://www.accountingtools.com/articles/2017/5/13/fixed-charge-coverage-ratio
7. https://accountingexplained.com/financial/ratios/fixed-charge-coverage
8. https://efinancemanagement.com/financial-analysis/advantages-and-disadvantages-of-current-ratio
9. https://www.myaccountingcourse.com/financial-ratios/interest-coverage-ratio
10. https://www.myaccountingcourse.com/financial-ratios/quick-ratio
11. http://shodhganga.inflibnet.ac.in/bitstream/10603/44157/14/14_chapter%205.p
12. Ashok Leyland Annual Reports from 2012-2013 to 2016-2017.
13. Tata Motors Limited Annual Reports from 2012-2013 to 2016-2017.
14. Swaraj Mazada Limited Annual Reports from 2012-2013 to 2016-2017.
15. Force Motors Limited Annual Reports from 2012-2013 to 2016-2017.
16. Mahindra & Mahindra Limited Annual Reports from 2012-2013 to 2016-2017.

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