Company Profile

Type Private

Industry Automotive

CEO Saqib H. Shirazi

Predecessor Atlas Auto Ltd

Founded 1962, 57 years ago

Products Motorcycles

Website www.atlashonda.com.pk

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INTRODUCTION:
Atlas Honda Limited is a public listed company which was incorporated on October 16,
1962. It is a joint collaboration between Honda Motor Company Limited Japan, the largest
and most reputed motorcycle brand in the world, and Atlas Group, one of Pakistan’s most
renowned business conglomerates. The Company is principally engaged in progressive
manufacturing and marketing of motorcycles and spare parts.

Atlas Honda Limited is the largest motorcycle manufacturer in Pakistan with the strongest
brand value and highest customer loyalty. The Company is considered a pioneer of
motorcycle industry in the country and has been leading two-wheeler market successfully for
over 50 years.

The Company currently has a production capacity of over 1.35 million units per annum and
continues to maintain its status as market leader both in terms of volume and quality. It also
exports its motorcycles and spare parts to Bangladesh and Afghanistan.

With highest quality products, state of the art manufacturing facilities, largest dealership
network & impeccable after sales service, Atlas Honda Limited is today considered a
benchmark for two-wheeler manufacturing. It has been proudly and successfully fulfilling its
role as the flag bearer of motorcycle industry in Pakistan.

As one of the largest tax payers in the private sector and being one of the best employers in
the country, Atlas Honda Limited stands as a beacon of light for the corporate, social and
intellectual sectors of Pakistan.

Vision
Market leader in the motorcycle industry, emerging as a global competitive Centre of
production and exports.

Mission
“A dynamic growth oriented company through market leadership, excellence in quality and
service and maximizing export, ensuring attractive returns to equity holders, rewarding
associates according to their ability and performance, fostering a network of engineers and
researchers ensuing unique contribution to the development of the industry, customer
satisfaction and protection of the environment by producing emission friendly green products
as a good corporate citizen fulfilling its social responsibilities in all respects.”

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 Why we Select this company (Atlas Honda)?

 Interesting and full of information

 Personal interest in understanding the standing of an organization in market and its
strategies for attracting potential investors.
 Availability of timely, relevant and reliable information.
 Important role in the GDP of the country.
 Actively following this sector in stock market for my investment portfolio.

Ratio Analysis:

Ratio analysis is the process of examining and comparing financial information by

calculating the meaningful financial statement figure percentages instead of comparing line
item from each financial statement.

Why we use ratio analysis of any company?

Ratio analysis is a useful management tool that will improve our understanding of
financial results and trends over time, and provide key indicators of organizational
performance.

Types of Ratio Analysis

Liquidity and Solvency Profitability Market Prospects

Efficiency
Current ratio Debt ratio Profit margin ratio Price earning ratio

Acid-test ratio Equity ratio Gross margin ratio Dividend Yield

Account receivable Debt to Equity ratio Return on assets

turnover
Inventory turnover Time interest
earned

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 1. Liquidity & Efficiency
Shows the extent to which the firm can meet its financial obligations.
Current Ratio:
Current ratio may be defined as the relationship between the current asset and current
liabilities. This ratio is also known as working capital ratio and is used to measure the
liquidity and is most widely used to make the analysis of short-term financial position of the
liquidity of the firm.
This ratio is calculated by dividing the total of current asset by total of current liabilities.
Current Ratio = Current assets/ Current liabilities

Serial No Computation Results

1 5192609 / 4287527 1.21 times

Interpretation:
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay
its current obligation in time as and when they become due. As per the prescribed standard
given by the financial experts the ratio of current asset to current liabilities should be 2:1, but
in this case the ratio stands as 1.21, which gives an indication that the liquidity position of the
firm is not good, and is in a vulnerable position to meet its short term obligation, following a
very aggressive working capital policy.

Acid Test ratio:

The quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which measures
the ability of a company to use its near cash or quick assets to extinguish or retire its current
liabilities immediately.
Quick ratio = Cash + short-term investments + current receivable / current liabilities

Serial No Computation Results

1 (5192609 + 1183116) 0.82
829600

Interpretation:
A high liquid ratio indicates that the firm is liquid and has the ability to meet current
liabilities in time. As per the prescribed standard given by the financial experts the ratio of
current asset to current liabilities should be 1:1, but in this case the ratio stands as 0.34:1,

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which gives an indication that the liquidity position is very poor as inventories are absolutely
non-liquid and reveals that the liquidity position of the firm has deteriorated

Account Receivable Turn-over:

Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to
measure how effective a company is in extending credit as well as collecting debts. The
receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Account receivable turn-over = Net sales / Average account receivable, net

Serial No Computation Results

1 12319.12 / 223.69 55.07

Interpretation:
The debtor’s turn over ratio of Atlas Honda is 55.07 which is higher than Apple&Co (14.8).
There is no prescribed standards given by the financial experts but the turnover is high, gives
an indication that the cash is realized from the debtor’s at regular intervals with minimum
collection period.

Inventory Turn-over:
The Inventory turnover is a measure of the number of times inventory is sold or used in a
time period such as a year. It is calculated to see if a business has an excessive inventory in
comparison to its sales level.
Inventory turn-over = Cash of goods sold / Average inventory

Serial No Computation Results

1 224859 / 225582 16.66

Interpretation:
The inventory turn-over ratio of Atlas Honda is 16.66 which is better as compare to
Apple&CO because higher inventory turn-over may endanger the firm and may result in
stock-out and thus may interrupt smooth flow of the production process.

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Days’ Sales Uncollected:
The days' sales uncollected ratio is a liquidity ratio used by creditors and investors to
estimate how many days before the company will collect their accounts receivable. In other
words, the days' sales uncollected ratio measures how long it will take for the customers to
pay their credit card balances.
Days’ sales uncollected = Account receivable, net / net sales *365

Serial No Computation Results

1 (149.94 / 12319.12) *360 4.38 days

Interpretation:
The Days’ sales uncollected ratio represents the average number of days for which a firm has
to wait before its receivable are converted into cash.
There is no ‘thumb-rule’ or prescribed standards in interpreting this ratio, but as the
computation reveals very high recovery of receivable into cash removing the burden of
having excess employment of capital in business.

Total Assets Turn-over:

The asset turnover ratio measures the value of a company's sales or revenues relative to the
value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with
which a company is using its assets to generate revenue.
Total assets turn-over = Net sales / Average total assets

Serial No Computation Results

1 9819973 / 120336500 0.81 times

Interpretation:
According to the calculations above the productivity of assets in year 2008 is good as it was
in previous years. In 2007, it was 0.81 times and now it has been increased to 0.89 times.
This change was brought about by increase of only 4.59% in the total assets, where as the
total sales increased by 13.13%.

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 2. Solvency:
Solvency directly relates to the ability of an individual or business to pay their long-term
debts including any associated interest. To be considered solvent, the value of an entity's
assets, whether in reference to a company or an individual, must be greater than the sum of its
debt obligations.

Debt – to - Equity ratio:

It is also known as external-internal equity ratio, and is calculated to measure the relative
claims of outsiders (i.e. share-holders), against the firm’s assets. This ratio indicates the
relationship between the external equities or the outsiders fund and the internal equities or the
shareholders fund.
Debt to equity ratio = Total liabilities / Total equity

Serial no Computation Results

1 78.49/3800.75 0.02

Interpretation:
The debt-equity ratio is calculated to measure the extent to which debt financing has been
used in a business. This ratio indicates the proportionate claims of owners and the outsiders
against the firm’s assets.
As per the prescribed standards given by the financial experts the debt equity ratio is 2, but
the debt-equity mix in this case is very low, indicating the firms inability of utilizing low-cost
outsider’s fund to magnify their earnings.

Times Interest Earned:

The times interest earned ratio is an indicator of a corporation's ability to meet
the interest payments on its debt.
Time Interest Earned = income before interest expense & income taxes / interest expense

Serial No Computation Results

1 37569 +1455 +666 298 times

Interpretation:

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A lower times interest earned ratio means fewer earnings are available to meet interest
payments. Failing to meet these obligations could force a company into bankruptcy. It is used
by both lenders and borrowers in determining a company’s debt capacity.

3. Profitability:
Profitability ratio is used to evaluate the company’s ability to generate income as compared to
its expenses and other cost associated with the generation of income during a particular
period. Profitability is also relevant to solvency This ratio represents the final result of the
company.

Profit margin ratio:

gross profit ratio measures the relationship of gross profit to net sales and is usually
represented as a percentage. This ratio indicates the profit earned directly from manufacturing
process, without any further indirect expenditure.
Profit margin ratio = Net income / Net sales

Serial No Computation Results

1 $1781.46 / $3800.75 47%

Interpretation:
the gross profit indicates the extent to which selling prices of goods per unit may decline
without resulting in losses on operation of the firm.
There is no prescribed standard given by any financial expert, but the rate 35-45% is
normally considered satisfactory return, since the return is 47%,therefore we can conclude
that the earning capacity of the firm is very good and the firm should try and maintain this
rate.

Net Profit Ratio:

Net profit establishes a relationship between net profit and sales, and indicates the efficiency
of the management in manufacturing, selling, administration and other activities of the firm.
The two-basic element of the ratio are net profit and sales.
Net profit ratio = Net profit after tax / Net sales *100

Serial No Computation Results

1 ($1281.76 / $12319.12) *100 10.4%

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Interpretation:
The net-profit are obtained after deducting income tax and indicates the firms capacity to face
adverse economic conditions such as price, competition, low-demand,etc. .the higher the
ratio, the better is the profitability. As per the prescribed standard by the experts the net-profit
should range between 11-15%, so in this case the company earns favorable amount of net
profit, but there is a drastic decrease in the profitability because of the increase in the indirect
expenditure of the company, so the company should try to minimize the cost.

Return on Total Assets:

Return on assets is a profitability ratio that provides how much profit a company is able to
generate from its assets. In other words, return on assets (ROA) measures how efficient a
company's management is in generating earnings from their economic resources or assets on
their balance sheet.
Return on assets = Net income / Average total assets

Serial no Computation Results

1 $298756 / $48968777 6.66%

Interpretation:
This ratio is one of the most important ratios measuring the overall efficiency of a firm. As
the primary objective of the business is to maximize its earnings, it also indicates the extent
to which the primary objectives are achieved. There is no prescribed standards given by any
expert, but in this case the firm has a considerable rate of return from the business, shows
better results of the firm.

Return on common stockholder Equity:

Return on equity (ROE) is a measure of financial performance calculated by dividing net
income by shareholders' equity. Because shareholders' equity is equal to a company’s assets
minus its debt, ROE could be thought of as the return on net assets.
ROE = Net income – preferred dividends / Average common stockholder equity

Serial No Computation Results

1 (1281.76-0 / 39.94) 32.09

Interpretation:

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As there is no prescribed standard given by any expert and since the firm is dependent more
on the equity capital for its operations so the organization return on its equity capital is
considerably satisfactorily.

4. Market Prospects:
Market Prospect ratios are used to compare publicly traded companies’ stock prices with
other financial measures like earnings and dividend rates. Investors use market prospect
ratios to analyze stock price trends and help figure out a stock’s current and future market
value.
In other words, market prospect ratios show investors what they should expect to receive
from their investment. They might receive future dividends, earnings, or just an appreciated
stock value.

Price-Earnings Ratio:
Price earnings ratio is the ratio between market price per share and earning per share. The
ratio is calculated to make an estimate of appreciation in the value of shares of a company
and is widely used by the investor to decide or not to buy shares in a particular company.
Price earning ratio = Market price per common share / earnings per share

Serial No Computation Results

1 $1625.35/ $63.15 25.73

Interpretation:
This ratio is particularly used in appraising the divisional and department performance of the
firm and in determining the selling price so as to earn the desired percentage on return.
As there is no prescribed standards by the financial experts, whereas in this case the return
on capital is quite satisfactory as the company is earning fair return on their capital they are
employing in the business.

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Dividend Yield:
This ratio shows what percentage of the market price of a share a company annually pays to
its stockholders in the form of dividends. It is calculated by dividing the annual dividend per
share by market value per share. The ratio is generally expressed in percentage form and is
sometimes called dividend yield percentage.
Dividend yield = Dividend per share / Market price per share

Serial No Computation Results

1 $12.36 / $214.66 2.56%

Interpretation:
Since there is no ‘thumb rule’, given by any expert, but the 2-2.5% may be considered to be
good in case of manufacturing undertaking, and in this case the company maintains it
business is good.

CONCLUSION:
Asset Management Ratios Atlas Honda have a very good credit and collection policies. Asset
Management Ratios Atlas Honda company higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate
revenues. Looking at the Turnover ratios’ investors are more likely to invest in Indus Motor
Company because of large generation of revenue from these assets. Higher Total Asset
turnover of Indus Motor shows that company can operate with fewer assets than other less
efficient competitors can, and so requires less debt and equity to operate. The result is of this
high ratio is comparatively greater return to its shareholders.
However, It’s liquidity position is not so good as well as it’s long term solvency

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 Recommendations:

1. Liquidity Position:
These are the ratios which measures the short-term solvency or financial position of a firm.
These ratios are calculated to comment upon the short-term paying capacity of a concern or
the firm’s ability to meet its current obligations. The various liquidity ratios are current ratio
& liquid ratio. These ratio shows that the short-term repaying capacity of the firm is very
poor.
hence the organization should employ more fund in working capital to have uninterrupted
flow of production process and try to follow the moderate working capacity in order to have a
balance between liquidity and profitability. Moreover, this may also affect the solvency
position of the firm if the keep on following policy.

2. Long-term solvency and leverage position:

long-term solvency position ratio conveys a firm ability to meet the interest cost and
repayment schedule of its long term obligation.
Since the company does not have adequate mixture of debt capital in their capital structure,
so the company does not obtain any leverage benefit. moreover, in order to finance the
operational activity, they are dependent on their equity capital, since the company does not
bear the burden to repaying interest to its financial institutions, bears a good credit-worthiness
and a sound financial background.

3. Activity benefit:
Activity ratios are calculated to measure the efficiency with which the resources of the firm
have been employed. These ratios are called turn-over ratio, as per the position of the firm the
firm earns high profit from production process, but the net profit gradually decreases. The
turn-over of stock, debtor’s creditors are very healthy showing a high turn-over of sales and
frequent conversion of credit sales into cash. Since the rate of conversion is very high the
company gets a very high return on their capital employed and thus the return on

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REFERENCE

 www.atlashonda.com.pk
 www.wikipedia.com

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