A

PROJECT REPORT ON
“FINANCIAL STATEMENTS ANALYSIS”
AT
HERO MOTORS PVT LTD

1
 ABSTRACT
The financial statements are prepared on the basis of recorded facts. The recorded facts are
those which can be expressed in monetary terms. The statements are prepared for a particular
period, generally one year. The transactions are recorded in a chronological order, as and when
the events happen. The accounting records and financial statements prepared from these records
are based on historical costs. The financial statements, by nature, are summaries of the items
recorded in the business and these statements are prepared periodically, generally for the
accounting period.

The American Institute of Certified Public Accountants states the nature of financial
statements as “Financial Statements are prepared for the purpose of presenting a periodical
review of report on progress by the management and deal with the status of investment in
the business and the
results achieved during the period under review. They reflect a combination of recorded
facts, accounting principles and personal judgments.” The American Accounting
Association expresses in its statement. “Every corporate statement should be based on
accounting principles which are sufficiently uniform, objective and well understood to
justify opinions as to the condition and progress of business enterprise. Its basic
assumption was that the purpose of periodic financial statements of a corporation is to
furnish information that is necessary for the formation of dependable judgments.”

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 PARTICULARS PAGE:NO
CHAPTERS

INTRODUCTION

 NEED & IMPORTANCE OF THE STUDY

 OBJECTIVES OF THE STUDY
 SCOPE OF THE STUDY
 METHODOLOGY OF THE STUDY
 LIMITATIONS OF THE STUDY

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 THEORETICAL FRAMEWORK

COMPANY PROFILE
3

INDUSTRY PROFILE

DATA ANALYSIS &INTERPREATION

4

5 FINDINGS, CONCLUSIONS SUGGESTIONS

BIBLIOGRAPHY

INDEX

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4
 INTRODUCTION

Finance is one of the most primary requisites of a business and the modern management

obviously depends largely on the efficient management of the finance. Financial statements are

prepared primarily for decision making. They play a dominant role in setting the frame work of

managerial decisions. The finance manager has to adhere to the five R’s with regard to money.

Whether owned or borrowed funds. At the right time to preserve solvency from the right sources

and at the right cost of capital. The term financial analysis is also known as ‘analysis and

interpretation of financial statements’ refers to the process of determining financial strength and

weakness of the firm by establishing strategic relationship between the items of the Balance

Sheet, Profit and Loss account and other operative data. The purpose of financial analysis is to

diagnose the information contained in financial statements so as to judge the profitability and

financial soundness of the firm.

Financial management is that managerial activity which is concerned with the planning and
controlling of the firm’s financial resources. As a separate activity or discipline it is of recent
origin, it was the branch of economics till 1980. Still today it has no unique body of knowledge
of its own, and it draws heavily on economics for its theoretical.

Financial management is concerned with rising of CASH and their effective utilization keeping
in view the overall objective of the firm financial management is one of the four important
functional areas of the management. The major objective of any business field of a firm is to
make a profit for its owners by producing goods or services for sale in the market. To reach the
goal, the firm purchases the various factors of the production and produces the output in cell.
The all process requires fund. Finance may be said in the circulatory system of economic body
of the firm.

Financial management is that administrative area or set of administrative functions, while related
the arrangement of each and credit so that the organization have the means to carryout is

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objectives as satisfactorily as possible. The central features is functional managements is its
formulation of firm’s strategy in determining the most effective use of the CASH, currently it the
firm and is selected the most favorable sources of additional CASH that the firm will need in the
near future.

Financial management is an application of general management principles to the area of

functional decision making in the word of Weston and Brigham. Financial management is an
area of financial decision making harmonizing the individual motives and enterprises goal.
Financial management in the modern sense of the term can be broken down into major decisions
as functions of finance.

Financial Ratio analysis is a commonly used analytical tool for verifying the performance of
a firm. While ratios are easy to compute, which in part explains their wide appeal, their
interpretation is problematic when two or more ratios provide conflicting signals. Indeed, ratio
analysis is often criticized on the grounds of subjectivity that is the analysts must pick and
choose ratios in order to assess the overall performance of a firm.

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 OBJECTIVES OF THE STUDY:
1 To know the profit of HERO MOTORS PVT LTD.
2 To study of the financial statements for HERO MOTORS PVT LTD.

3 To analyze financial information that assists in estimating the earning potentials of business.

4 To know the liquidity position of the company.

5 To give useful suggestions to the company for overall development.

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 NEED FOR THE STUDY:
1. The most common methods used for financial statement analysis are comparative statements,
common-size statements, funds flow analysis and ratio analysis.

2. These methods include calculations and comparisons of the results to historical company data,
competitors, or industry averages to determine the relative strength and performance of the
company being analyzed.

3. Financial statement analysis is to diagnose the information contained in financial statements so

as to judge profitability and financial soundness of the firm. Just like a doctor examines his
patient by recording hi body temperature, blood pressure, etc.

4. Financial statement analysis is used to identify the trends and relationships between financial
statement items. Both internal management and external users(such as analysts,creditors,and
investors) of the financial statements need to evaluate a company’s profitability,liquidity,and
solvency.

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 METHODOLOGY OF THE STUDY
Research methodology is a way to systematically solve the research problem. It may be understood as a

science of studying how research is done scientifically. So, the research methodology not only talks about

the research methods but also considers the logic behind the method used in the context of the research

study.

Primary Data:
 The primary data was collected mainly through interactions and discussions with the
company’s executives.

Secondary Data:  
     Secondary data is data that is neither collected directly by the user nor specifically for the
user; often under conditions not known to the user. Secondary data is cheaper and more quickly
available than primary data, but likely to need processing before it is useful.

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 SCOPE OF STUDY

The scope and period of the study is being restricted to the following.

1. The scope is limited to the operations of the HERO MOTORS PVT LTD.

2. The information is obtained from the primary and secondary data was
limited to the HERO MOTORS PVT LT sheet was on the last 5 years.

3. Comparison analysis was done by comparison of sister units.

LIMITATIONS OF STUDY

1. The study is confined to a period of last 5 years.

2. As most of the data is from the secondary sources, hence the accuracy is
limited.

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 CHAPTER-2

COMPANY PROFILE
INDUSTRY PROFILE

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 INTRODUCTION
The auto industry is one of India’s a lot of active and growing industries. This industry
accounts for 22 per cent of the country's accomplishment gross calm artefact (GDP). The auto
breadth is one of the bigger job creators, both anon and indirectly. It is estimated that every job
created in an auto aggregation leads to three to 5 aberrant accessory jobs.

India's calm bazaar and its advance abeyant accept been a big allure for abounding all-around
automakers. India is anon the world's third bigger exporter of two-wheelers afterwards China
and Japan. According to a address by Accustomed Chartered Bank, India is acceptable to beat
Thailand in all-around auto-export bazaar allotment by the year 2020.

The next few years are projected to appearance solid but alert advance due to bigger
affordability, ascent incomes and beginning markets. With the government’s backing, and trends
in the all-embracing book such as the abatement in prices of accustomed rubber, the Indian auto
industry is slated to attestant some aloft growth.

Market size

The accumulative adopted absolute investment (FDI) inflows into the Indian auto industry
during the aeon April 2000 – August 2014 was recorded at US$ 10,119.68 million, as per
abstracts by Department of Automated Policy and Promotion (DIPP).

Data from industry physique Society of Indian Auto Manufacturers (SIAM) showed that
137,873 commuter cars were awash in July 2014 compared to 131,257 units during the agnate
ages of 2013. Among the auto makers, Maruti Suzuki, Hyundai Motor India and Honda Cars
India emerged the top three gainers with sales advance of 15.45 per cent, 12 per cent and 11 per
cent, respectively.

The three-wheeler articulation acquaint a 24 per cent advance to 51,461 units on the aback of
added demands from the burghal market. Absolute sales beyond altered car segments grew 12
per cent year on year (y-o-y) to 1,586,123 units.

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Scooter sales accept jumped by 29 per cent in the advancing fiscal, and now anatomy 27 per cent
of the absolute bike bazaar from just 8 per cent a decade back. The ever-rising appeal for
scooters, which has far outstripped accumulation has prompted Honda to set up its aboriginal
committed scooter bulb in Ahmedabad.

Tractor sales in the country is accustomed to abound at a admixture anniversary advance amount
(CAGR) of 8–9 per cent in the next 5 years authoritative India a high-potential bazaar for
abounding all-embracing brands.

Investments

To bout assembly with demand, abounding auto makers accept started to advance heavily in
assorted segments in the industry in the endure few months. Some of the aloft investments and
developments in the auto breadth in India are as follows:

• Ashok Leyland affairs to advance Rs 450–500 crore (US$ 73.54–81.71 million) in India, by
way of basic amount (capex) and investment during FY15. The aggregation is appropriate to
administer Rs 6,000 crore (US$ 980.56 million) of assets in seven locations beyond the world,
for which aliment capex is needed.

• Honda Motors affairs to set up the world's bigger scooter bulb in Gujarat to cycle out 1.2 actor
units annually and accomplish administration position in the Indian bike market. The
aggregation affairs to absorb about Rs 1,100 crore (US$ 179.76 million) on the new bulb in
Ahmedabad, and aggrandize its ambit with a few added offerings.

• Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor India (YMI) will
yield affliction of its India operations. “The restructuring is allotment of Yamaha’s mid-term
plan aimed at convalescent organisational efficiency,” as per Mr Hiroyuki Suzuki, Arch
Authoritative and Managing Director. YMI would be amenable for accumulated planning and
strategy, business planning and business expansion, superior control, and bounded ascendancy of
Yamaha India Business.

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• Government Initiatives

The Government of India encourages adopted investment in the auto breadth and allows 100 per
cent FDI beneath the automated route. To addition manufacturing, the government had bargain
customs assignment on baby cars, motorcycles, scooters and bartering cars to eight per cent from
12 per cent, on sports account cars to 24 per cent from 30 per cent, on mid-segment cars to 20
per cent from 24 per cent and on large-segment cars to 24 per cent from 27 per cent.

The government’s accommodation to boldness VAT disputes has aswell resulted in the top
Indian auto makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors
announcement an investment of about Rs 11,500 crore (US$ 1.87 billion) in Maharashtra.

The Auto Mission Plan for the aeon 2006–2016, advised by the government is aimed at
accelerating and comestible advance in this sector. Also, the absolute Regulatory Framework
beneath the Ministry of Shipping, Road Transport and Highways, plays a allotment in
accouterment a addition to this sector.

The Government of India-appointed SIAM and Automotive Apparatus Manufacturers

Association (ACMA) are amenable in alive for the development of the Indian auto industry.

Road Ahead

The approaching of the auto industry depends on the absolute sentiments and the appeal for cars
in the market. With the anniversary division advancing up, the Indian auto breadth will see a
acceleration in appeal which is accustomed to accompany in aloft growth. An auto banker
analysis by close UBS appropriate that the Indian auto industry, benumbed on trends like the
accessible anniversary division and abatement in ammunition price, will beam a 12 per cent y-o-
y advance in FY15.

Also, befitting up with all-embracing trends, there is accustomed to be a billow in the amount of
amalgam cars in the Indian auto breadth in the years to come.

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The advance adventure for the Indian auto industry in 2014 rode on the bike articulation and not
on commuter cars or bartering vehicles, as top absorption ante and a abashed accomplishment
industry kept a analysis on demand.

The year aswell saw Competition Commission of India (CCI) levying a amends of Rs.2,544.65
crore ($415) on 14 car makers for their akin barter practices by preventing absolute repairers
advancing into the market. Some of the arch car makers aswell had to anamnesis some models
over abnormal components.

When added segments like commuter cars and bartering cars logged abrogating growth, the bike
makers registered about 13 percent advance amid January and October. Benumbed on the bike
sector's growth, the automotive industry grew 9.8 percent by aggregate year-on-year (YoY) amid
January and October.

"The bike articulation is the alone one that has clocked absolute advance at 12.9 percent YoY
(year-on-year) to adeptness sales of about 13.5 actor units by October. This can be attributed to
the low amount of two wheelers

in India," Vijay Kakade, carnality admiral for automotive and busline convenance at Frost &
Sullivan, told IANS.

He said the ablaze bartering car (LCV) articulation has been the affliction hit, with sales
abbreviation to about 330,000 units -- an 18.9 percent YoY abatement over 2013.

"The commuter car, average and abundant bartering car segments apprenticed by 0.8 and 6.5
percent appropriately during the period, compared to 2013. The abridgement in sales can be
attributed to the arrest and the top absorption ante set by the RBI (Reserve Bank of India)
abbreviation the availability of accounts options to the public," Kakade added.

"These segments accept apparent absolute signs over the accomplished few months, which is
accustomed to advance to advance in the next year."

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"The year 2014 has been a year of stagnation, which is a absolute assurance as the abatement has
stopped. The industry has apparent signs of growth, admitting slower than expected, over the
accomplished few months," Kakade remarked.

P. Balendran, carnality president, General Motors India, had agnate angle to allotment with
IANS: "Of late, we accept apparent some movements in new entries apprenticed by change
factors and some baddest manufacturers accept been accepting the allowances too."

He said the bazaar has not apparent any movement forward, admitting the customs assignment
reduction, while the chump affect has not best up due to adhesive absorption rates, which abide
at top levels.

"Although ammunition prices accept started advancing down significantly, the enquiry levels at
showrooms accept appear down and conversions are not demography abode at all. The sales of
agent cars are as well cone-shaped off because of the absorption amount gap adverse petrol,"
Balendran added.

Assured the government to abide with a lower customs assignment administration for small/mid-
sized/big cars and sports account cars (SUV) till Advance 2015, Balendran said the ante should
be connected till the Goods and Casework Tax ( GST) is alien -- acceptable the turnaround of
the auto sector.

Terming 2014 a alloyed bag for the auto industry, Sumit Sawhney, arch authoritative and
managing administrator of Renault India, told that while there has been a sea change in the
chump affect with a gradually convalescent bread-and-butter altitude in the country, the
optimism has still to construe into abiding sales growth.

"The industry is searching advanced to the account for pro-business behavior to reignite the auto
industry in India."

Highlights of India's auto industry 2015:

* All-embracing advance was 9.8 percent by aggregate year-on-year (YoY) amid January and
October.

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* Bike breadth grew 12.9 percemt

* Commuter car, average and abundant bartering car segments apprenticed by 0.8 and 6.5 till
October

* LCV articulation affliction hit, with sales falling 18.9 percent YoY abatement over 2015 till
October

* Customs assignment abridgement on automobiles

* Competition Commission of India (CCI) fines 14 car-makers Rs.2,544.65 crore for akin barter
practices.

Auto manufacturers accept been aggravating to cope with economical asperous application in
endure two years. Aggravating to addition sales and implementing amount able schemes just
wasn’t enough. They aswell had to cut abounding of their advisers afar to break somewhat
balanced, in some cases. On a fashionable note, chief advisers were asked to yield autonomous
retirement (not abiding what ‘voluntary’ is accomplishing in that sentence).

Tata Motors afar from giving barter adorable offers, gave 600 of their advisers aboriginal
retirement offers, endure month. Ashok Leyland too offered 500 of their advisers with alluring
retirement schemes, endure year (pun intended).

Sales of Cars, SUVs, Vans, pick-ups, and absolute bartering car articulation went south, with
commuter car bazaar encountering aboriginal abatement in the decade. But what adored the all-
embracing book was the bike market. It took 7.31% backpack with motorcycle sales traveling
3.91% up and scooter sales benumbed 23% north. Export sales abstracts aswell contributed to
somewhat extenuative the year with acceleration of 7.21%.

The declivity larboard auto manufacturers with accumulated up account and stagnation. The
acting account appear in February, gave a accessory addition as all cars prices were bargain
marginally, but it hasn’t absolutely helped addition sales yet. Automakers are assured aid from
the government’s new account by way of added tax cuts.

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Sales abstracts of Advance 2014 shows 12.83% all-embracing advance aswell by agency of
added bike sales. Bartering Cars accept added biconcave compared to Advance 2013 and
commuter cars stagnating beneath the graph. However, all-embracing assembly has added by
9.95% comparing Advance abstracts of both years, suggesting auto makers’ aplomb in
advancing budgetary to accomplish better.

Barrage of new A articulation bunched cars by assorted auto majors seems to be accessible in
this economy, for barter as able-bodied as amount alternation entities. Maruti Suzuki
accomplished top on belvedere with 42% allotment in all-embracing car sales, followed by
Hyundai with 15% share.

Society of Indian Auto Manufacturers (SIAM) expects a 6% advance over in the budgetary
2014-15, with addition in accomplishment sector, new investment and beginning capacities in
the industry. Vikram Kirloskar, admiral of SIAM says, “Whichever government comes in…I am
searching for adherence in customs assignment and some abridgement in taxes. We are an over-
taxed industry.”

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 COMPANY PROFILE

Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's bigger architect of two -
wheelers, based in India.

In 2001, the aggregation accomplished the coveted position of getting the bigger bike
accomplishment aggregation in India and also, the 'World No.1' bike aggregation in agreement
of assemblage aggregate sales in a agenda year. Hero MotoCorp Ltd. continues to advance this
position till date.

Vision

The adventure of Hero Honda began with a simple eyes - the eyes of a adaptable and an
empowered India, powered by its two wheelers. Hero MotoCorp Ltd., company's new identity,
reflects its charge appear accouterment apple chic advancement solutions with renewed focus on
accretion company's cast in the all-around arena.

Mission

Hero MotoCorp’s mission is to become a all-around action accomplishing its customers' needs
and aspirations for mobility, ambience benchmarks in technology, administration and superior so
that it converts its barter into its cast advocates. The aggregation will accommodate an agreeable
ambiance for its humans to accomplish to their accurate potential. It will abide its focus on
amount conception and constant relationships with its partners

Strategy

Hero MotoCorp’s key strategies are to body a able-bodied artefact portfolio beyond categories,
analyze advance opportunities globally, continuously advance its operational efficiency,
aggressively aggrandize its adeptness to customers, abide to advance in cast architecture
activities and ensure chump and actor delight.

Manufacturing

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Hero MotoCorp two wheelers are bogus beyond 3 globally benchmarked accomplishment
facilities. Two of these are based at Gurgaon and Dharuhera which are amid in the
accompaniment of Haryana in arctic India. The third and the latest accomplishment bulb is based
at Haridwar, in the acropolis accompaniment of Uttrakhand.

Technology

In the 1980’s Hero Honda pioneered the addition of fuel-efficient, ambiance affable four-stroke
motorcycles in the country. Today, Hero Honda continues to be technology pioneer. It became
the aboriginal aggregation to barrage the Ammunition Injection (FI) technology in Indian
motorcycles, with the barrage of the Glamour FI in June 2006.

Distribution

The Company's advance in the two wheeler bazaar in India is the aftereffect of an built-in
adeptness to access adeptness in new geographies and advance markets. Hero MotoCorp’s all-
encompassing sales and account adjustment now spans over to 6000 chump blow points. These
comprise a mix of accustomed dealerships, account & additional locations outlets and dealer-
appointed outlets beyond the country

Brand

The new Hero is ascent and is assertive to flash on the all-around arena. Company's new
character "Hero MotoCorp Ltd." is absolutely cogitating of its eyes to strengthen focus on
advancement and technology and creating all-around footprint. Architecture and announcement
new cast character will be axial to all its initiatives, utilizing every befalling and leveraging its
able attendance beyond sports, brawl and below activation

HERO'S MANDATE

Hero is a apple baton because of its accomplished manpower, accurate management, all-
encompassing banker network, able accumulation alternation and world-class articles with acid
angle technology from Company, Japan. The teamwork and charge are embodied in the

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accomplished akin of chump satisfaction, and this goes a continued way appear reinforcing its
administration status

BOARD OF DIRECTORS

No. Name of the Directors Designation

1 Mr. Brijmohan Lall Munjal

Chairman & Whole-time Director

2 Mr. Pawan Munjal

Managing Administrator & C.E.O.

3 Mr. Toshiaki Nakagawa

Joint Managing Director

4 Mr. Sumihisa Fukuda

Technical Director

5 Mr. Sunil Kant Munjal

Non-Executive Director

6 Mr. Suman Kant Munjal

Non-Executive Director

7 Mr. Takashi Nagai

Non-Executive Director

8 Mr. Yuji Shiga

Non-Executive Director
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9 Mr. Pradeep Dinodia

Non-executive & Absolute Director

10 Gen. (Retd.) V. P. Malik

Non-executive & Absolute Director

11 Mr. Analjit Singh

Non-executive & Absolute Director

12 Dr. Pritam Singh

Non-executive & Absolute Administrator

13 Ms. Shobhana Bhartia

Non-executive & Absolute Administrator

14. Mr. M. Damodaran

Non-executive & Absolute Administrator

BRIEF PROFILE OF DIRECTORS

MR. BRIJMOHAN LALL MUNJAL

Mr. Brijmohan Lall Munjal is the architect Administrator and Chairman of the Aggregation and
the $ 3.2 billion Hero Group. He is the Accomplished Admiral of Confederation of Indian
Industry (CII), Society of Indian Auto Manufacturers (SIAM) and was a Member of the Lath of
the Country's Axial Bank (Reserve Bank of India). In acceptance of his addition to industry, Mr.
Munjal was conferred the Padma Bhushan Accolade by the Union Government.

Mr. Brijmohan Lall Munjal is currently on the lath of the afterward companies:

No. Name of Aggregation Nature of Appointment

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1 Hero Honda Motors Limited Chairman and Whole-time Administrator

2 Hero Honda Finlease Limited Chairman and Administrator

3 Munjal Showa Limited Chairman and Administrator

4 Easy Bill Limited Director

5 Rockman Industries Limited Director

6 Shivam Autotech Limited Director

KEY MILESTONES OF HERO HONDA

Year Event

1990 Joint Accord Agreement with Honda Motor Co. Ltd. Japan signed

Shareholders Agreement signed

1991 Hero Honda Motors Ltd. incorporated

1992 First motorcycle "CD 100" formed out

1993 100,000th motorcycle produced

1994 New motorcycle archetypal - "Sleek" alien

1995 New motorcycle archetypal - "CD 100 SS" introduced

500,000th motorcycle produced

1996 Raman Munjal Vidya Mandir inaugurated - A Academy in the anamnesis of architect
Managing Director, Mr. Raman Kant Munjal

1997 New motorcycle archetypal - "Splendor" alien

1,000,000th motorcycle produced

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1998 New motorcycle archetypal - "Street" alien

Hero Honda's 2nd accomplishment bulb at Gurgaon inaugurated

1999 2,000,000th motorcycle produced

2000 New motorcycle archetypal - "CBZ" alien

Environment Administration Arrangement of Dharuhera Bulb certified with ISO-14001 by DNV

Holland

Raman Munjal Memorial Hospital inaugurated - A Hospital in the anamnesis of architect

Managing Director, Mr. Raman Kant Munjal

2001 4,000,000th motorcycle produced

Environment Administration Arrangement of Gurgaon Bulb certified ISO-14001 by DNV

Holland

Splendor declared 'World No. 1' - bigger affairs individual bike archetypal

"Hero Honda Passport Programme" - CRM Programme launched

2002 New motorcycle archetypal - "Passion" introduced

One actor assembly in one individual year

New motorcycle archetypal - "Joy" introduced

5,000,000th motorcycle produced

2003 New motorcycle archetypal - "Dawn" introduced

New motorcycle archetypal - "Ambition" introduced

Appointed Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan Singh and Zaheer
Khan as Cast Ambassadors

24
2004 Becomes the aboriginal Indian Aggregation to cantankerous the accumulative 7 actor sales
mark

Splendor has emerged as the World's bigger affairs archetypal for the third agenda year in a row
(2000, 2001, 2002)

New motorcycle archetypal - "CD Dawn" introduced

New motorcycle archetypal - "Splendor +" introduced

New motorcycle archetypal - "Passion Plus" introduced

New motorcycle archetypal - "Karizma" introduced

2005 New motorcycle archetypal - "Ambition 135" introduced

Hero Honda became the Apple No. 1 Aggregation for the third afterwards year.

Crossed sales of over 2 actor units in a individual year, a all-around record.

Splendor - World's bigger affairs motorcycle beyond the 5 actor mark

New motorcycle archetypal - "CBZ*" introduced

Joint Technical Agreement renewed

Total sales beyond a almanac of 10 actor motorcycles

2006 Hero Honda is the Apple No. 1 for the 4th year in a row

New motorcycle archetypal - "Super Splendor" introduced

New motorcycle archetypal - "CD Deluxe" introduced

New motorcycle archetypal - "Glamour" introduced

New motorcycle archetypal - "Achiever" introduced

25
First Scooter archetypal from Hero Honda - "Pleasure" introduced

2007 Hero Honda is the Apple No. 1 for the 5th year in a row

15 actor assembly anniversary accomplished

2008 Hero Honda is the Apple No. 1 for the 6th year in a row

New 'Splendor NXG' launched

New 'CD Deluxe' launched

New 'Passion Plus' launched

New motorcycle archetypal 'Hunk' launched

20 actor assembly anniversary achieved

2009 Hero Honda Haridwar Bulb inauguration

New 'Pleasure' launched

Splendor NXG lauched with ability alpha feature

New motorcycle archetypal 'Passion Pro' launched

New 'CBZ Xtreme' launched

25 actor assembly anniversary achieved

CD Deluxe lauched with ability alpha feature

New 'Glamour' launched

2010

2011

26
2012

Hunk' (Limited Edition) launched

Splendor completed 11 actor assembly landmark

New motorcycle archetypal 'Karizma - ZMR' launched

Silver ceremony celebrations

New archetypal Splendor Pro launched

Launch of new Super Splendor and New Hunk

New licensing adjustment active amid Hero and Honda

Launch of new active versions of Glamour, Glamour FI, CBZ Xtreme, Karizma

Crosses the battleground amount of 5 actor accumulative sales in a individual year

2013 Migration of all articles to Cast Hero.

Launch of Impulse, Maestro and Ignitor.

Debut in the AMA Superbike Racing in the US.

Strategic affiliation with Erik Buell Racing (EBR) of USA.

27
2014

2015 Neemrana Bulb Foundation Stone laid.

Global Locations Centre Foundation Stone laid.

50 Actor accumulative 2 wheelers production.

New bulb enactment in Gujarat

New R&D aggregation for Indian roads

New booty of XTREME

PROMINENT AWARDS TO THE COMPANY

Year Awards & Recognitions

2015

2014

2013

2012

2011 • Green Avant-garde baton in india-2014

• Green Accumulation Alternation Administration Program-2014.

• Green Avant-garde Accolade - 2013

• "Business Baton of the Year" Accolade by Hon'ble Admiral of India, Shri. Pranab Mukherjee,
at the AlMA Managing India Awards 2013 on April 11, 2013 (Conferred on Mr. Pawan Munjal)

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• "Business Baton of the Year" Accolade in the Auto (Two Wheelers) chic by Deputy Chairman
of the Planning Commission Mr. Montek Singh Ahluwalia, at the NDTV Business
Administration Awards 2013 (Conferred on Mr. Pawan Munjal)

• CFO of the year Accolade (Conferred on Mr. Ravi Sud)

• Business Baton in Automobiles (two-wheelers) at the NDTV Profit Business Administration

Awards 2012 (Conferred aloft Mr. Pawan Munjal)

• Best amount for Money Bike Maker and Best Advertising in Two Wheelers Chic at the Auto
India Best Cast Awards 2012

• Digital Advertiser of the year at the Indian Digital Media Awards (IDMA) 2012

• Three awards (Launch Event of the year, Rural Engagement Progamme and Reside Patron
Accolade for Marketing Excellence) at the WOW Awards organised by EventFAQs

Two-wheeler Architect of the Year accolade by Bike India magazine.

Adjudged the "Bike Architect of the Year" at the Bread-and-butter Times ZigWheels Car and
Bike Awards.

- CNBC Awaaz - Storyboard appropriate acclamation for "Effective rebranding of a new

accumulated entity" by CNBC Awaaz Chump Awards

- "Most Recommended Two-Wheeler Cast of the Year" accolade by CNBC Awaaz Chump
Awards

- Colloquy Loyalty Awards "Innovation in Loyalty Marketing All-embracing 2011" for Hero
GoodLife

- "Best Action Generating Short or Long-Term Cast Loyalty" by the Promotion Marketing
Accolade of Asia Adjustment of Merit for Hero GoodLife

- Ranked No 1 cast in the Auto (Two-Wheelers) chic in the Cast Equity "Most Trusted Brand"
2011 survey
29
Company of the Year awarded by Bread-and-butter Times Awards for Accumulated Arete 2008-
09.

CNBC TV18 Overdrive Awards 2010 'Hall of Fame' to Splendor

NDTV Profit Car & Bike Awards 2010 -

• Two-wheeler Architect of the Year

• CnB Viewers' Choice Bike of the Year (Karizma ZMR)

Bike Maker of the Year by ET-ZigWheels Car & Bike of the Year Awards 2009

2010 'Two-wheeler Architect of the Year' by NDTV Profit Car & Bike Awards 2009 and
Passion Pro adjudged as CNB Viewers' Choice two-wheeler

Top Indian Aggregation beneath the 'Automobile - Two-wheelers' breadth by the Dun &
Bradstreet-Rolta Accumulated Awards

Won Gold in the Reader's Digest Trusted Cast 2009 in the 'Motorcycles' category

NDTV Profit Business Administration Awards 2009 - bike category

2009 NDTV Profit Business Administration Accolade 2008 - Hero Honda Wins the Coveted
"NDTV Profit Business Administration Accolade 2008"

TopGear Design Awards 2008 - Hunk Bike of the Year Award

NDTV Profit Car India & Bike India Awards - NDTV “Viewers’ Choice Award” to Hunk in
Bike category

IndiaTimes Mindscape and Savile Row ( A Forbes Accumulation Venture ) Loyalty Awards -
“Customer and Cast Loyalty Award” in Auto (two-wheeler) sector

Asian Retail Congress Accolade for Retail Arete (Strategies and Solutions of business addition
and transformation) - Best Chump Loyalty Program in Auto category

30
NDTV Profit Car India & Bike India Awards - Bike Architect of the year

Overdrive Annual - Bike Architect of the year

TNS Voice of the Chump Awards:

• No.1 authoritative motorcycle Splendor NXG

• No.1 accustomed motorcycle CD Deluxe

• No. exceptional motorcycle CBZ Xtreme

2008 The NDTV Profit Car India & Bike India Awards 2007 in the afterward category:

• Overall "Bike of the Year" - CBZ X-treme

• "Bike of the Year" - CBZ X-treme (up to 150 cc category)

• "Bike Technology of the Year" - Glamout PGM FI

"Auto Tech of the Year" - Glamout PGM FI by Overdrive Magazine.

"Bike of the Year" - CBZ X-treme by Overdrive Magazine. mer Awards 2006.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

STAKEHOLDER TIES AT THE GRASSROOTS

Hero Honda Motors takes ample pride in its stakeholder relationships, abnormally ones
developed at the grassroots. The Aggregation believes it has managed to accompany an
economically and socially astern arena in Dharuhera, Haryana, into the civic bread-and-butter
mainstream.

An Chip Rural Development Centre has been set up on 40 acreage of acreage forth the Delhi-
Jaipur Highway. The Centre-complete with advanced access roads, apple-pie water, and
apprenticeship accessories for both adults and children-now nurtures a vibrant, accomplished
and advantageous community.
31
The Foundation has adopted assorted villages amid aural around of the Hero Honda branch at
Dharuhera for chip rural development. This includes:

• Installation of abysmal bore duke pumps to accommodate apple-pie bubbler water.

• Constructing metalled anchorage and abutting these villages to the Civic Highway (NH -8).

• Renovating primary academy barrio and accouterment aseptic baptize and toilet facilities.

• Ensuring a able arising arrangement at anniversary of these villages to anticipate water-

logging. Announcement non-conventional sources of action by accouterment a 50 per cent
subsidy on b

• The Raman Munjal Vidya Mandir began with three classes (up to chic II) and 55 acceptance
from adjacent areas. It has now developed into a avant-garde Chief Secondary, CBSE affiliated
co-educational academy with over 1200 acceptance and 61 teachers. The academy has a ample
playground, an ultra-modern laboratory, a well-equipped audio beheld room, an action room, a
abounding library and a computer centre.

The Raman Munjal Sports Complex has basketball courts, volleyball courts, and hockey and
football breadth are acclimated by the bounded villagers. In the abreast future, sports academies
are planned for advance brawl and bassinet ball, in accord with Civic Sports Authority of India.

Vocational Training Centre

In adjustment to advice bounded rural people, abnormally women, Hero Honda has set up a
Vocational Training Centre. So far 26 batches absolute of about 625 women accept been
accomplished in tailoring, adornment and knitting. The Aggregation has helped women
accomplished at this centre to set up a assembly assemblage to stitch uniforms for Hero Honda
employees. Interestingly, a lot of of the women are now self-employed.

Adult Literacy Mission

32
This Scheme was launched on 21st September, 1999, accoutrement the adjacent villages of
Malpura, Kapriwas and Sidhrawali. The activity started with a bashful enrolment of 36 adults.
Hero Honda is now in the action of imparting Adult Literacy Capsules to another

Marriages of underprivileged girls

Marriages are organized from time to time, decidedly for girls from astern classes, by the
Foundation by accouterment banking advice and added abutment to the families.

Rural Bloom Affliction

Besides ambience up a avant-garde hospital, the Foundation aswell consistently provides

doorstep bloom affliction casework to the bounded community. Free bloom affliction and
medical camps are now a approved affection in the Hero Group's association beat program

KEY POLICIES AN ENVIRONMENTALLY AND SOCIALLY, AWARE COMPANY

At Hero Honda, our ambition is not alone to advertise you a bike, but aswell to advice you every
footfall of the way in authoritative your apple a bigger abode to reside in. Besides its will to
accommodate a high-quality account to all of its customers, Hero Honda takes a angle as a
socially amenable action admiring of its ambiance and admiring of the important issues.

Hero Honda has been acerb committed not alone to ecology attention programmers but aswell
expresses the more inseparable antithesis amid the bread-and-butter apropos and the ecology and
amusing issues faced by a business. A business have to not abound at the of flesh and man's
approaching but rather serve mankid.

"We have to do something for the association from whose acreage we accomplish our wealth."

A acclaimed adduce from our Worthy Chairman Mr.Brijmohan Lall Munjal.

Ambiance Policy

We at Hero Honda are committed to authenticate arete in our ecology achievement on a around-
the-clock basis, as an built-in aspect of our accumulated philosophy.

33
To accomplish this we accomplish ourselves to:

• Integrate ecology attributes and cleaner assembly in all our business processes and practices
with specific application to barter of chancy chemicals, breadth applicative and strengthen the
greening of accumulation chain.

• Continue artefact innovations to advance ecology compatibility.

• Comply with all applicative ecology legislation and aswell authoritative our ecology discharges
through the attempt of "alara" (as low as analytic achievable).

• Institutionalise ability conservation, in particular, in the areas of oil, water, electrical energy,
paints and chemicals.

• Enhance ecology acquaintance of our advisers and dealers / vendors, while announcement their
captivation in ensuring complete ecology management.

Superior Policy

Arete in superior is the amount amount of Hero Honda's philosophy.

We are committed at all levels to accomplish top superior in whatever we do, decidedly in our
articles and casework which will accommodated and beat customer's growing aspirations
through:

34
• Innovation in products, processes and services.

• Continuous advance in our absolute superior administration systems.

Safety Policy

Hero Honda is committed to assurance and bloom of its advisers and added bodies who may be
afflicted by its operations. We accept that the safe plan practices advance to bigger business
performance, motivated workforce and college productivity.

We shall actualize a assurance ability in the alignment by:

• Integrating assurance and bloom affairs in all our activities.

• Ensuring acquiescence with all applicative aldermanic requirements.

• Empowering advisers to ensure assurance in their corresponding plan places.

• Promoting assurance and bloom acquaintance amidst employees, suppliers and contractors.
Continuous improvements in assurance achievement through precautions besides accord and
training of employees.

INTRODUCTION ABOUT PHOENIX DEALER PROFILE (PHOENIX MOTORS)

PHOENIX MOTORS PVT LTD is dealership blazon of business. PHOENIX MOTORS PVT
LTD. is accustomed on 21st advance 2003. The business is active by alone one man. The buyer
name is ch .madhu mathi the close is amid at habsiguda in Hyderabad.

Generally the auction will be either on banknote base or on institutional basis. Bank like ICICI,
HDFC and CENTURION are accouterment loans to customers.

35
Advertising action of archetype motors:

They are giving the ads through newspapers, bank paintings, hoardings and acreage staff. They
are advance sales by introducing the schemes, accumulation bookings, institutional sales and
chump door-to-door activities.

Categorization of Agents members:

Agents associates are categorized for technicians, 25 associates are allotted for acreage staff, 5
associates are recruited for sales for persons, 5 bodies are placed for evaluating for additional
parts, 5 associates are allotted for authoritative accounts and addition 3 bodies for banknote
transaction and added associates are allotted for actual work.

Customer relationship:

They absorb the exhibit accouterment a customer’s huge accepting basin game, internet ability
and television with home there system. They accommodate acerbity aliment programs on every
week.

According to added dealers PHOENIX motors in aboriginal in sales and best in service. They
amusement customer, is the actual important being at PHOENIX motors chump achievement is
their motto, why because, they will annoyed chump is the best advertisement. They
accommodate bigger amount for the barter and as able-bodied as advisers also. At PHOENIX
motors the chump is the boss.

SALES STRATEGY OF PHOENIX MOTORS:

Average they are affairs 28 cars per day. PHOENIX motors PVT L.T.D is the A.P s NO.1
dealership in sales and added activities? It is a QLAD (qualify baton through superior dealer). At
PHOENIX motor they gave the superior account to the barter why because ‘the amount is
continued abandoned but the superior is remembered for ever”. They amusement superior has
a...

Q Quest for excellence

36
U Understanding customer’s needs

A Action to accomplish customer’s appreciation.

L Administration bent to be a leader

I involving all the people

T Aggregation spirit to plan for a accustomed goal

Y Yard sticks to admeasurement programs.

WARRANTY ON PROPRIETARY ITEMS:

Assurance on proprietary items like Tyros, Tubes and Battery etc, will be anon handled by the
corresponding aboriginal articles (OEM’s) except AMCO for batteries and Dunlop and Falcon
tires and Tubes. In case of any birthmark in proprietary items, added than the aloft two
mentioned OEM’S the dealers have to access the Brach appointment banker of the
corresponding manufacture.

For AMCO batteries and Dunlop and falcon tires, tubes claims will be accustomed at our
accustomed dealerships per the mutually agreed agreement and altitude amid HERO and of these
two OEM’s in case the affirmation is not accustomed for invalid reasons. Then the affirmation
forth with the abnegation agenda anatomy the OEM can be beatific to the assurance breadth at
gorgon plan afterwards due to advocacy of the breadth account engineer. If any added six
casework or consecutive paid casework is not availed as per the recommended agenda
accustomed in the owner’s manual. If HERO recommended engine oil is not used. To
accustomed abrasion & breach apparatus like bulbs, electric wiring, filters, atom plug, clamp
plates, braded shoes, fasteners, bushing washers, oil seals, gaskets, elastic locations (other than
tyre and tube) artificial components, chain$ sprockets and in case of caster rim misalignment or
bend.

If there is any accident due o modification or accessories of accessories added than ones
recommended by HERO. If the motor has been acclimated in any aggressive contest like
tracking contest or rallies. If there is any accident to the corrective apparent due to automated
37
abuse or added accidental factors. For clams fabricated for any consequential accident due to any
antecedent malfunction. For accustomed abnormality like noise, vibration, oil seepage, which do
not affect the achievement of the motorcycles.

SOCIAL SERVICE ACTIVITIES

PHOENIX motors participate and conduct social service activities. Recently the phoenix
motors organized a BLOOD DONATION CAMP for the trust on 21 st January 2006.they
motivated on the consumers to participated in this camp and also provide certificate for the
customers

38
THE MARKETED BIKES OF PHOENIX (All Hero Moto Corp.)

 
 

39
40
41
42
CUSTOMER RELATIONSHIP:
43
      To entertain the customers the showroom providing a customers huge having pool game,
Internet facility and television with home theatre system. They provide bike maintenance
programs on every week.   According to other dealers PHOENIX motors in first in sales and best
in service. They treat customer, is the very important person at PHOENIX motors customer
satisfaction is their motto, why because, the well satisfied customer is the best advertisement.
They provide better value for the customers and as well as employees also. At PHONIX motors
the customer is the boss.

44
 CHAPTER-III

(A Theoritical frame work)

45
 THEORITICAL FRAME WORK

MEANING OF FINANCIAL STATEMENTS

According to Himpton John, “A financial statement is an organized collection of data according

to logical & consistent accounting procedures. Its purpose is to convey an understanding of some
financial aspects of a business firm. It may show a position at a moment of time as in the case of
balance sheet, or may reveal a series of activities over a given period of time, as in the case of an
income statement”.
On the basis of the information provided in the financial statements, management makes review
of the progress of the company and decides the future course of action. The term financial
statements refer to two basic statements:
The income statement and (ii) the Balance Sheet. Of course, a business may also prepare (iii)
Statement of Retained earnings, and (iv) a statement of change in financial Position.

3.1 DIFFERENT TYPES OF FINANCIAL STATEMENTS

Income Statement: The income statement or profit & loss account is considered as a very useful
statement of all financial statements. It depicts the expanses incurred on production, sales and
distribution and sales revenue and the net profit or loss for particular period. It shows whether
the operations of the firm resulted in profit or loss at the end of a particular period.
Balance Sheet: Accounting Standards Board, India has defined balance sheets as, “ a statement
of financial position of an enterprise as at a given date which exhibits its assets, liabilities,
capital reserves and other account balances at their respective book values”. Balance sheet is a
statement, which shows the financial position of a business as on a particular date. It represents
the assets owned by the business and the claims of the owners and creditors against the assets in
the form of liabilities as on the date of statement. According to Harry G. Guthmann, “ the
balance sheets might be described as financial cross section taken at certain intervals and earning
statements as condensed history of the growth and decay between the cross sections”.
Statement of Retained Earnings: The statement of retained earnings is also called profit & loss
appropriation account. It is a link between income statement & balance sheet. Retained earnings
are the accumulated excess of earnings over losses and dividends. The balance shown by the
income statements is transferred to the balance sheet through this statement after making the
necessary appropriations.

46
Fund Flow Statement: According to Anthony,” The funds Flow Statement described the sources
from which the additional funds were derived and the use to which these funds were put”. Funds
flow statements help the financial analyst in having amore detailed analysis and understanding
the changes in the distribution of resources between two balance sheet periods. The statement
reveals the sources of funds and their application for different purposes.
Cash Flow Statements: A cash flow statement depicts the changes in cash position from one
period to another. It shows the inflow and outflow of cash and helps the management in making
plans for immediate future. An estimated cash flow statement enables the management to
ascertain the availability of cash to meet business obligations. This statement is useful for short
term planning by management.
Schedules & Note to Financial Statements: Schedules are the statements, which explain the
items given in the income statement and balance sheet. Schedules are a part of financial
statement, which give detailed information about the financial position of a business
organization. Certain notes are often used to supplement the information comprised in basic
financial statements. These are virtually a part of financial statements.
Annual Reports / Corporate reports: Apart from the financial statements annual report contains
other relevant information such as Management discussion & analysis, Reports on corporate
Governance, Director’s report, details of the subsidiary companies. These reports play as
important role as financial statements of the company in understanding of the complete financial
position.
NATURE OF FINANCIAL STATEMENTS
According to the American Institute of Certified Public Accountants, financial statements reflect
“ a combination of recorded facts, accounting conventions and personal judgments and
conventions applied affect them materially”. It means that data presented in financial statements
is affected by recorded facts, accounting concepts & conventions and personal judgments.
a) Recorded facts: The term-recorded facts refer to the figures, which are shown in the book of
accounts. The figures, which are not recorded in the books, are not depicted in financial
statements, no matter how important or unimportant those facts are.
b) Accounting policies, Assumptions, concepts & conventions:
Accounting policies encompasses the principles, bases, conventions, rules and procedures
adopted by in preparing and presenting financial statements. Accounting policies of the

47
 organisation are consistently followed over along period of time and are reported as schedule
to financial statements or as notes to financial statements in the annual report.
As per accounting standards Board, India, fundamental accounting assumptions mean “basic
accounting assumptions which underline the preparation & presentation of financial
statements. Usually, they are not specifically stated because their acceptance and use are
assumed. Disclosure is necessary if they are not followed”. Some fundamental accounting
assumptions are going concern concept, consistency, accrual etc.
Accounting concepts are basic framework on the basis of which accounting work is carried
out. Some accounting concepts are Business entity concept, Money measurement concept,
going concern concept, cost concept, matching concept, Dual aspect concept etc.
Accounting conventions are the principles, which enjoy the sanctity of application on
account of long usage, are termed as accounting conventions. E.g. consistency,
conservatism, materiality, full disclosure.
c) Personal Judgments: Personal judgments of the accountant are of importance despite of
properly laid down concepts, conventions, policies and assumptions. The judgment needs to
be exercised in proper classification of assets, classification of expenditure into capital &
revenue, creation of provisions and reserves.

48
VARIOUS TECHNIQUES OF FINANCIAL ANALYSIS
Comparative Financial Statements: Comparative financial statements are statements of financial
position of a business designed to provide time perspective to the to the consideration of various
elements of financial position embodied in such statements. Comparative statements reveal the
following:
(i) Absolute data (Money value or rupee amounts)
(ii) Increase or reduction in absolute data (in terms of money values)
(iii) Increase or reduction in absolute data (in terms of percentage)

Comparative balance sheets, comparative income statements and comparativstatements of

changes in financial position can be prepared. American Institute of Certified Public
accountants have explained the utility of preparing the comparative statements, thus:
“ The presentation of comparative statements is annual and other reports enhance the usefulness
of such reports and brings out more clearly the nature and trend of current changes affecting the
enterprise. Such presentation emphasis the fact that statements for a series of period are far more
significant that those of a single period and that the accounts of one period are but an installment
of what is essentially a continuous history. In any one year, it is ordinarily desired that the
balance sheet, the Income statement and the surplus statement be given for one or more
preceding years as well as for the current years”.
Common size Statements: The figures shown in financial statements viz. Profit & loss account
and balance sheet are converted to percentages so as to establish each element to the total figure
of the statement and theses statement are called common size statements. These statements are
useful in analysis of the performance of the company by analyzing each individual element to
the total figure of the statement. Theses statements will also assist in analyzing the performance
over years and also with the figures of the competitive firm in the industry for making analysis
of relative efficiency.
Trend Analysis: In trend analysis ratios different items are calculated for various periods for
comparison purposes. Trend analysis can be done by trend percentages, trend ratios and graphic
and diagrammatic representation. The trend analysis is a simple technique and does not involve
tedious calculations. However, comparisons would be meaningful only when accounting policies
are uniform and price level changes do not present a distorted picture of phenomenon. The trend
analysis conveys a better understanding of management’s philosophies, policies and motivations,
49
which have boughabout the changes revealed over the years. Thus method is a useful analytical
device for the management since by substitution of percentages for large amounts, the brevity
and readability are achieved. However trend percentages are not calculated only for major items
since the purpose is to highlight important changes.
Fund flow analysis: Fund Flow Statement: Fund flow analysis reveals the changes in working
capital position. Working capital is of paramount importance in any business so this kind of a
analysis proves to be very useful. According to Anthony,” The funds Flow Statement described
the sources from which the additional funds were derived and the use to which these funds were
put”. Funds flow statements help the financial analyst in having amore detailed analysis and
understanding the changes in the distribution of resources between two balance sheet periods.
The statement reveals the sources of funds and their application for different purposes. Fund
flow analysis has become an important tool for any financial analyst; credit granting institutions
and financial managers.
Cash Flow Analysis: A cash flow statement depicts the changes in cash position from one period
to another. It shows the inflow and outflow of cash and helps the management in making plans
for immediate future. An estimated cash flow statement enables the management to ascertain the
availability of cash to meet business obligations. This statement is useful for short term planning
by management.
Ratio Analysis: Ratio analysis is very important analytical tool to measure performance of an
organization .The ratio analysis concentrates on the interrelationship among the figures
appearing in the financial statements. The ratio analysis helps the management to analyze the
past performance of the firm and to make further projections. Ratio analysis allows interested
parties like shareholders, investors, creditors, government and analysts to make an evaluation of
certain aspects of firm’s performance. It is a process of comparison of one figure against
another, which make a ratio, and the appraisal of the ratios to make proper analysis about the
strength and weakness of firm’s operations. This tool of financial has been discussed in detail in
next chapter.
Value Added Analysis: ‘Value Added’ is a basic and important measurement to judge the
performance of an enterprise. It indicates the net value or wealth created by the manufacturer
during a specified period. No enterprise can survive or grow if it fails to generate wealth. An
enterprise can survive without making profits but cannot survive without adding value.

50
‘Value added’ is described as “ the wealth created by the reporting entity by its own and its
employees’ efforts and comprises salary, wages, fringe benefits, interest, dividend, tax,
depreciation and net profit (Retained).
Value added is the increase in the market value brought by an alteration in the form, location or
availability of a product or service excluding the cost of bought in material or services used in
that product or service. To carry out the Value added analysis, a typical statement of added
value is prepared as routine part of management information system. The value added statement
is basically rearrangement of information given in income statement.
Types of Financial Analysis
(i) On the basis of Material Used: The analysis can be of following types:
Internal Analysis: It indicates the analysis carried out by those parties who have the access
to the book and records of the company. Naturally, it indicates basically the analysis carried
out by management of the company to enable the decision making process. This may also
indicate the analysis carried out in legal or statutory matters where the parties which are not
a part of management of the company may have the access to the books and records of the
company.
External Analysis: It indicates the analysis carried out by those parties who do not have the
access the books an\d records of the company. This may involve the analysis carried out by
creditors, prospective investors, and other outsiders. Naturally, those outsiders are required to
depend upon the published financial statements. As such, the depth & correctness of the external
analysis is restricted, though some of the recent amendments of the statutes like Companies Act,
1956 hamait mandatory for the companies to reveal maximum information relating to the
operations & financial position, in order to facilitate the
Horizontal Analysis: The horizontal analysis consists of the study of the behavior of each of the
item in the financial statement- that is, its increase & decrease with the passage if time. It is also
known as dynamic type of analysis since it shows the changes, which have taken palace. The
comparison of the items is made across the year, , the eyes look at the comparative analysis is at
the horizontal level , hence the analysis id termed as horizontal analysis.
Vertical Analysis: In vertical analysis a study is made of the quantitative relationship between
he various items in the financial statements on a particular date. It’s a static type of analysis or
study of position. Such an analysis is useful in comparing the performance of several companies
in the same group or divisions or department in the same company. Since this analysis depends
51
 on the data for one period, this is not very conducive to a proper analysis of the company’s
financial position. It is also called ‘Static’ analysis as it is frequently used for referring to ratio
developed on the date or for one accounting period.
Analysis can be done both horizontally and vertically. As a matter of fact one type of analysis is
incomplete in itself. Both are complementary to each other. Both these analysis form the
backbone of the technique of financial statement analysis.

FINANCIAL STATEMENTS ANALYSIS

The financial statements are indicators of the two significant factors:

1. Profitability and

2. Financial soundness

Analysis and interpretation of financial statement therefore, refers to such a treatment of the information

contained in the Income Statement and Balance Sheet so as to afford full diagnosis of the profitability and

financial soundness of the business.

BALANCE SHEET:-

A balance sheet is the basic financial statement. It presents data on a company’s financial conditions on a

particular date, based on conventions and generally accepted principles of accounting. The amount shown

in the statements on the balances, at the time it was prepared in the various accounts listed in the

company’s accounting records, is considered to be a fundamental accounting statements. The income

statement summarizes the business operations during the specific period and shows the results of such

operations in the form of net income or net loss. By comparing the income statements of successive

periods, it is possible to determine the progress of a business. A statement is supplemented by a

comparative statement of the cost of goods manufactured and sold. It is prepared at regular intervals and

shows what a business enterprise owns and what it owes. It provides information which helps in the
52
assessment of the three main aspects of an enterprises position – its profitability, liquidity and solvency.

Of these, the later two are concerned with an enterprises ability to meet its liabilities, while profitability is

most useful overall measure of its financial conditions, the balance sheet is a statements of assets,

liabilities capital on specified date. It is therefore a static statement, indicating resources and the allocation

of these resources to various categories of asset. It is so to say financial photography finance. Liabilities

show the claims against its assets.

The shareholders equity comprises the total owner ship claims in a firm. This claim includes net worth of

shareholders equity and preferred stock. The traditional company balance sheet statement of assets valued

on the basis of their original cost and the means by which they have been financed by its shareholders,

lenders, suppliers and by the retention of income.

This tool suffers from the following limitations:

1. A balance sheet gives only a limited picture of state of affairs of a company, because it

Includes only those items which can be expressed in monetary terms.

2. The values shown on the balance sheet for some of the assets are never accurate

3. A balance sheet assumes that the real value of money remain constant.

4. On the basis of balance sheet, it is not possible to arrive at any conclusion about the success of an

enterprise in the future.

5. It is a detailed statement of the financial structure of a business.

INCOME STATEMENT

The results of operations of a business for a period of time are presented in the income statement.

53
From the accounting point of view, an income statement is subordinate to the balance sheet because the

former simply presents the details of the changes in the retained earnings in balance sheet accounts.

However, if vital source of financial information an income statement summarizes the results of business

operations during specific period and shows in the form of net income or net loss by comparing income

statements for successive periods, it is possible to observe the progress of the business the statement is

supplemented by a comparative statement of cost of goods manufactured and sold. It summarizes firms

operating results for the past period.

Comparative balance sheet

Financial statements are sometimes recast for facility of scrutiny. The effects of the conductor

Businesses are reflected in its balance sheet by changes in assets and liabilities and in its net worth.

The comparative income statement presents a review of operating activities in business. A comparative

balance sheet shows effect of the operations on the assets and liabilities. The practice of presenting

comparative statement in the annual report is now becoming wide spread because it is a connection

between balance sheet and income statement. Considerations like price levels and accounting methods are

given due weight at the time of comparison.

54
Common-size statements

The percentage balance sheet is often known as the common size balance sheet. Such balance

sheet are, in a broad sense ratio analysis general items in the profit and loss accounts and in the

balance sheet are expressed in analytical percentages when expressed in the form, the balance

sheet and profit and loss account are referred to as a common size statement. Such statements

are useful in comparative analysis of the financial position in operating results of the business.

Cash flow statement

A cash flow statement is the financial analysis of the net income or profit after including book expense

items which currently do not use cash; for example, depreciation, depletion and amortization. Revenue

items, which do not currently provide funds, are to be deducted. A gross cash flow is net profit after tax

plus provision for depreciation. A net cash flow is arrived after deducting dividends from the gross cash

flow. The cash flow is very significant because it represents the actual amount of cash available to the

business.

Ratio Analysis

Financial ratio analysis is the calculation and comparison of ratios which are derived from the

information in a company's financial statements. The level and historical trends of these ratios can

be used to make inferences about a company’s financial condition, its operations and attractiveness

as an investment.

Financial ratios are calculated from one or more pieces of information from company’s financial

statements. For example, the "gross margin" is the gross profit from operations divided by the total

55
sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a

useless piece of information. In context, however, a financial ratio can give a financial analyst an

excellent picture of a company's situation band the trends that are developing.

A ratio gains utility by comparison to other data and standards. Taking our example, a gross

profit margin for a company of 25% is meaningless by itself. If we know that this company's

competitors have profit margins of 10%, we know that it is more profitable than its industry peers

which are quite favorable. If we also know that the historical trend is upwards, for example has

been increasing steadily for the last few years, this would also be a favorable sign that management

is implementing effective Business, policies and strategies.

Classification of Ratios

Financial ratio analysis involves the calculation and comparison of ratios which are derived from

the information given in the company's financial statements. The historical trends of these ratios

can be used to make inferences about a company’s financial condition, its operations and its

investment attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the different facets of a

company's financial state of affairs. Some of the categories of ratios are described below:

 Liquidity Ratios give a picture of a company's short term financial situation or solvency

 Turnover Ratios show how efficient a company's operations and how well it is using its

assets.

 Solvency Ratios show the long term profitability of the company.

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Liquidity Ratios

Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the Liquidity of the

company as on a particular day i.e. the day that the Balance Sheet was prepared. These ratios are

important in measuring the ability of a company to meet both its short term and long term

obligations.

1. Current Ratio

2. Liquid Ratio

3. Net working capital ratio

1. Current Ratio:

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the

more liquid the company is. Current ratio is equal to current assets divided by current liabilities.

If the current assets of a company are more than twice the current liabilities, then that company

is generally considered to have good short-term financial strength. If current liabilities exceed

current assets, then the company may have problems meeting its short-term obligations.

Current Ratio = Current assets / Current liability

2. Quick Ratio:

Liquid ratio is also known as ‘quick’ or ‘Acid test ‘ratio. Liquid assets refer to assets which are

quickly convertible into cash. Current Assets other stock and prepaid expenses are considered as

quick assets. The ideal liquid ratio accepted ‘norm’ for liquid ratio ‘1’.

Quick Ratio = Total Quick Assets/ Total Current Liabilities

57
Quick Assets = Total Current Assets (minus) Inventory

3. Net Working Capital Ratio

Working Capital is more a measure of cash flow than a ratio. The result of this calculation must

be a positive number. Companies look at Net Working Capital over time to determine a

company's ability to weather financial crises. Loans are often tied to minimum working capital

requirements.

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Net working capital ratio = Net Working Capital / Capital Employed

Turnover Ratios

The turnover ratio is also known as activity or efficiency ratios. They indicates the efficiency

with which the capital employed is rotated in the business (i.e.) the speed at which capital

employed in the business rotates. Higher the rate of rotation, the greater will be the profitability.

Turnover ratios indicate the number of times the capital has been rotated in the process of doing

business.

1. Fixed Asset Turnover Ratio

2. Working Capital Turnover Ratio

3. Debtor Turnover Ratio

4 Stock Turnover Ratio

1. Fixed Assets Turnover Ratio

Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the value of your

fixed assets (on your balance sheet). It indicates how well your business is using its fixed assets

to generate sales.

Generally speaking, the higher the ratio, the better, because a high ratio indicates the business

has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may

indicate that you've over-invested in plant, equipment, or other fixed assets.

Fixed Assets Turnover Ratio = Gross Sales / Net Fixed Assets

2. Working Capital Turnover Ratio

59
Working capital refers to investment in current assets. This is also known as gross concept of

working capital. There is another concept of working capital known as net working capital. Net

working capital is the difference between current assets and current liabilities. Analysts intend to

establish a relationship between working capital and salsas the two are closely related. Through

this ratio we are attempting to see that one rupee blocked by the organization in net working

capital is generating how much sales. Higher the ratio better it is.So, the working capital can be

defined either as a gross working capital, which include funds invested in all current assets, or as

net working capital, which denotes the difference between the current assets current liabilities of

an organization.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

Debtors Turnover Ratio

Debtor’s turnover ratio measures the efficiency with which the debtors are converted into cash.

This ratio indicates both the quality of debtors and the collection efforts of the business

enterprise. This ratio is calculated as follows:

I. Debtors’ turnover ratio

II. Debt collection period.

The numerator of this ratio should preferably be credit sales. This is so because the denominator

is logically related to credit sales as it arises from credit sales only. Cash sales do not generate

debtors. However, as the information related to credit sales is not separately available in

corporate accounts, so total sales could be taken in the numerator. Average debtors are

calculated by dividing the sum of beginning-of-year and end-of-year balance of debtors by 2.

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Debtor’s Turnover Ratio = Credit sales / Average accounts receivables

Debt collection period:

The ratio indicates the extent to which the debt has been collected in time. It gives the average

debt collection period. The ratio is very helpful to lenders because it explains to them whether

their borrowers are collecting money within a reasonable time. An increase in the period will

result in greater blockage of funds in debtors.

Debt collection period = Months/Days in a year/ Debtor’s turnover ratio

4. Stock Turnover Ratio:

This ratio indicates whether investment in inventory is efficiently used or not. It is therefore

explains whether investment in inventories is within proper limits or not. The Inventory turnover

ratio signifies the liquidity of the Inventory. A high inventory turnover ratio indicates brisk sales.

The ratio is, therefore a measure to discover the possible trouble in the form of over stocking or

over valuation.

It is difficult to establish a standard ratio of inventory because it will differ from industry to

industry.

Stock Turnover Ratio = Sales / Average Inventory

Profitability Ratios

Profitability is an indication of the efficiency with which the operation of the business is carried

on. Poor operational performance may indicate poor sales and hence poor profits. A lower

profitability may arise due to lack of control over the expenses. Bankers, financial institutions

61
and other creditors look at the profitability ratios as an indicator whether or not the firm earns

substantially more than it pays interest for the use of borrowed funds.

1. Return on Investment

2. Return on Shareholders’ fund

3. Return on total asset

4. Earnings per Share

5. Net profit Ratio

6. Operating ratio

7. Payout ratio

1. Return on Investment:

It is also called as “Return on Capital Employed”. It indicates the percentage of return on the total capital

employed in the business.

The term ‘operating profit ‘ means ‘profit before interest and tax’ and the term ‘capital employed ‘ means

sum-total of long term funds employed in the business. i.e. Share capital + Reserve and surplus + long

term loans – [non business assets +fictitious assets]

Return on investment = Operating profit/ Capital employed *100

2. Return on Shareholder’s Fund:

In case it is desired to work out the productivity of the company from the shareholder’s point of view, it

should be computed as follows:

Return on shareholder’s fund = Net profit after Interest and Tax/Shareholders’ fund*100
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The term profit here means ‘Net Income after the deduction of interest and tax’. It is different from the

“Net operating profit” which is used for computing the ‘Return on total capital employed’ in the business.

This is because the shareholders are interested in Total Income after tax including Net non-operating

Income (i.e. Non- Operating Income -Non-Operating expenses).

3. Return on Total Assets:

This ratio is computed to know the productivity of the total assets.The term ‘Total Assets’ includes the

fixed asset, current asset and capital work in progress of the company. The above table clearly reveals the

relationship between the net profit and Total Assets employed in the business.

Return on Total Assets = Net profit after Tax/Total Assets* 100

4. Earnings per Share:

In order to avoid confusion on account of the varied meanings of the term capital employed, the overall

profitability can also be judged by calculating earnings per share with the help of the following formula:

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

The earnings per share of the company helps in determining the market price of the equity shares of the

company. A comparison of earning per share of the company with another will also help in deciding

whether the equity share capital is being effectively used or not. It also helps in estimating the company’s

capacity to pay dividend to its equity shareholders.

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Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

5. Net Profit Ratio:

This ratio indicates the Net margin on a sale of Rs.100.This ratio helps in determining the efficiency with

which affairs of the business are being managed. An increase in the ratio over the previous period

indicates improvement in the operational efficiency of the business. The ratio is thus on effective measure

to check the profitability of business. However, constant increase in the above ratio after year is a definite

indication of improving conditions of the business.

Net Profit Ratio =Net Operating Profit/Net Sales*100

6. Operating Ratio:

This ratio is a complementary of Net Profit ratio. In case the net profit ratio is20%. It means that the

operating profit ratio is 80%.It is calculated as follows:

Operating Ratio =Operating Cost/Net Sales*100

The operating cost include the cost of direct materials, direct labor and other overheads, viz., factory,

office or selling.

Direct Material cost to sales =Direct Material/Net Sales*100

This ratio is the test of the operational efficiency with which the business is being carried. The operating

ratio should be low enough to leave a portion of sales to give a fair to the investors.

Payout Ratio:

This ratio indicates what proportion of earning per share has been used for paying dividend. The payout

ratio is the indicator of the amount of earnings that have been ploughed back in the business. The lower

the payout ratio, the higher will be the amount of earnings ploughed back in the business and vice versa.

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Payout Ratio =Dividend per equity share/Earning per equity share*100

7. Dividend Yield Ratio

This ratio is particularly useful for those investors who are interested only in dividend income.

The ratio is calculated by comparing the ratio of dividend per share with its market value.

Dividend yield =Dividend per Share/Market price per share*100

And Dividend per share = Dividend paid/ Number of shares.

Long Term Financial Position or Solvency Ratios

The term ‘solvency’ refers to the ability of a concern to meet its long term obligations. The long term

indebtedness of a firm includes debenture holders, financial institutions providing medium and long term

loans and other creditors selling goods on installment basis. So, the long term Solvency ratios indicate a

firm’s ability to meet the fixed interest and costs and repayment schedules associated with its long term

borrowings. Two types of ratios are there:

1. Capital structure ratios-ex. Debt equity ratio

2. Coverage ratios-ex. Debt service ratio or Interest coverage ratio

1. Debt-Equity Ratio

Debt –Equity ratio also known as External- Internal Equity Ratio is calculated to measure the relative

claims of outsiders and the owners against the firm’s assets.

The ratio is calculated as:

Debt equity ratio = Outsider’s funds / Shareholder’s funds

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Outsiders fund includes all debts/liabilities to outsiders, whether long term or short term or whatever in

the form of debentures bonds, mortgages or bills. The shareholders fund consist of equity share capital,

preference share capital , capital reserves, revenue reserves, and reserves representing accumulated

profits and surpluses.

2. Interest Coverage Ratio

This ratio is used to test the debt servicing capacity of a firm. The ratio is calculated as:

Interest coverage ratio = EBIT/Fixed interest charge

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 A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity. In British English—including United Kingdom company law—
a financial statement is often referred to as an account, although the term financial statement is
also used, particularly by accountants.
For a business enterprise, all the relevant financial information, presented in a structured manner
and in a form easy to understand, are called the financial statements. They typically include four
basic financial statements, accompanied by a management discussion and analysis:[1]
Statement of Financial Position: also referred to as a balance sheet, reports on a company's
assets, liabilities, and ownership equity at a given point in time.
Statement of Comprehensive Income: also referred to as Profit and Loss statement (or a "P&L"),
reports on a company's income, expenses, and profits over a period of time. A Profit & Loss
statement provides information on the operation of the enterprise. These include sale and the
various expenses incurred during the processing state.
Statement of Changes in Equity: explains the changes of the company's equity throughout the
reporting period
Statement of cash flows: reports on a company's cash flow activities, particularly its operating,
investing and financing activities.
For large corporations, these statements are often complex and may include an extensive set of
notes to the financial statements[2] and explanation of financial policies and management
discussion and analysis. The notes typically describe each item on the balance sheet, income
statement and cash flow statement in further detail. Notes to financial statements are considered
an integral part of the financial statementsFinancial statement analysis (or financial analysis) the
process of understanding the risk and profitability of a firm (business, sub-business or project)
through analysis of reported financial information, particularly annual and quarterly reports.
Financial statement analysis consists of 1) reformulating reported financial statements, 2)
analysis and adjustments of measurement errors, and 3) financial ratio analysis on the basis of
reformulated and adjusted financial statements. The two first steps are often dropped in practice,
meaning that financial ratios are just calculated on the basis of the reported numbers, perhaps
with some adjustments. Financial statement analysis is the foundation for evaluating and pricing
credit risk and for doing fundamental company valuation.

67
1) Financial statement analysis typically starts with reformulating the reported financial
information. In relation to the income statement, one common reformulation is to divide reported
items into recurring or normal items and non-recurring or special items. In this way, earnings
could be separated in to normal or core earnings and transitory earnings. The idea is that normal
earnings are more permanent and hence more relevant for prediction and valuation. Normal
earnings are also separated into net operational profit after taxes (NOPAT) and net financial
costs. The balance sheet is grouped, for example, in net operating assets (NOA), net financial
debt and equity.
2) Analysis and adjustment of measurement errors question the quality of the reported
accounting numbers. The reported numbers can for example be a bad or noisy representation of
invested capital, for example in terms of NOA, which means that the return on net operating
assets (RNOA) will be a noisy measure of the underlying profitability (the internal rate of return,
IRR). Expensing of R&D is an example when such investment expenditures are expected to
yield future economic benefits, suggesting that R&D creates assets which should have been
capitalized in the balance sheet. An example of an adjustment for measurement errors is when
the analyst removes the R&D expenses from the income statement and put them in the balance
sheet. The R&D expenditures are then replaced by amortization of the R&D capital in the
balance sheet. Another example is to adjust the reported numbers when the analyst suspects
earnings management.
3) Financial ratio analysis should be based on regrouped and adjusted financial statements. Two
types of ratio analysis are performed: 3.1) Analysis of risk and 3.2) analysis of profitability:
Analysis of risk typically aims at detecting the underlying credit risk of the firm. Risk analysis
consists of liquidity and solvency analysis. Liquidity analysis aims at analyzing whether the firm
has enough liquidity to meet its obligations when they should be paid. A usual technique to
analyze illiquidity risk is to focus on ratios such as the current ratio and interest coverage. Cash
flow analysis is also useful. Solvency analysis aims at analyzing whether the firm is financed so
that it is able to recover from a losses or a period of losses. A usual technique to analyze
insolvency risk is to focus on ratios such as the equity in percentage of total capital and other
ratios of capital structure. Based on the risk analysis the analyzed firm could be rated, i.e. given
a grade on the riskiness, a process called synthetic rating.

68
Ratios of risk such as the current ratio, the interest coverage and the equity percentage have no
theoretical benchmarks. It is therefore common to compare them with the industry average over
time. If a firm has a higher equity ratio than the industry, this is considered less risky than if it is
above the average. Similarly, if the equity ratio increases over time, it is a good sign in relation
to insolvency risk.
Analysis of profitability refers to the analysis of return on capital, for example return on equity,
ROE, defined as earnings divided by average equity. Return on equity, ROE, could be
decomposed: ROE = RNOA + (RNOA - NFIR) * NFD/E, where RNOA is return on net
operating assets, NFIR is the net financial interest rate, NFD is net financial debt and E is equity.
In this way, the sources of ROE could be clarified.
Unlike other ratios, return on capital has a theoretical benchmark, the cost of capital -
also called the required return on capital. For example, the return on equity, ROE, could be
compared with the required return on equity, kE, as estimated, for example, by the capital asset
pricing model. If ROE < kE (or RNOA > WACC, where WACC is the weighted average cost of
capital), then the firm is economically profitable at any given time over the period of ratio
analysis. The firm creates values for its owners.
Insights from financial statement analysis could be used to make forecasts and to evaluate credit
risk and value the firm's equity. For example, if financial statement analysis detects increasing
superior performance ROE - kE > 0 over the period of financial statement analysis, then this
trend could be extrapolated into the future. But as economic theory suggests, sooner or later the
competitive forces will work - and ROE will be driven toward kE. Only if the firm has a
sustainable competitive advantage, ROE - kE > 0 in "steady state"Purpose of financial
statements by business entities"The objective of financial statements is to provide information
about the financial position, performance and changes in financial position of an enterprise that
is useful to a wide range of users in making economic decisions."[3] Financial statements should
be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income
and expenses are directly related to an organization's financial position.Financial statements are
intended to be understandable by readers who have "a reasonable knowledge of business and
economic activities and accounting and who are willing to study the information diligently."[3]
Financial statements may be used by users for different purposes:

69
Owners and managers require financial statements to make important business decisions that
affect its continued operations. Financial analysis is then performed on these statements to
provide management with a more detailed understanding of the figures. These statements are
also used as part of management's annual report to the stockholders.
Employees also need these reports in making collective bargaining agreements (CBA) with the
management, in the case of labor unions or for individuals in discussing their compensation,
promotion and rankings.
Prospective investors make use of financial statements to assess the viability of investing in a
business. Financial analyses are often used by investors and are prepared by professionals
(financial analysts), thus providing them with the basis for making investment decisions.
Financial institutions (banks and other lending companies) use them to decide whether to grant a
company with fresh working capital or extend debt securities (such as a long-term bank loan or
debentures) to finance expansion and other significant expenditures.
Government entities (tax authorities) need financial statements to ascertain the propriety and
accuracy of taxes and other duties declared and paid by a company.
Vendors who extend credit to a business require financial statements to assess the
creditworthiness of the business.
Media and the general public are also interested in financial statements for a variety of reasons.
Government financial statements
The rules for the recording, measurement and presentation of government financial statements
may be different from those required for business and even for non-profit organizations. They
may use either of two accounting methods: accrual accounting, or cash accounting, or a
combination of the two (OCBOA). A complete set of chart of accounts is also used that is
substantially different from the chart of a profit-oriented business
The financial statements that not-for-profit organizations such as charitable organizations and
large voluntary associations publish, tend to be simpler than those of for-profit corporations.
Often they consist of just a balance sheet and a "statement of activities" (listing income and
expenses) similar to the "Profit and Loss statement" of a for-profit. Charitable organizations in
the United States are required to show their income and net assets (equity) in three categories:
Unrestricted (available for general use), Temporarily Restricted (to be released after the donor's
time or purpose restrictions have been met), and Permanently Restricted (to be held perpetually,
e.g., in an Endowment).
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Personal financial statements

Personal financial statements may be required from persons applying for a personal loan or
financial aid. Typically, a personal financial statement consists of a single form for reporting
personally held assets and liabilities (debts), or personal sources of income and expenses, or
both. The form to be filled out is determined by the organization supplying the loan or aid.
Although laws differ from country to country, an audit of the financial statements of a public
company is usually required for investment, financing, and tax purposes. These are usually
performed by independent accountants or auditing firms. Results of the audit are summarized in
an audit report that either provide an unqualified opinion on the financial statements or
qualifications as to its fairness and accuracy. The audit opinion on the financial statements is
usually included in the annual report.
There has been much legal debate over who an auditor is liable to. Since audit reports
tend to be addressed to the current shareholders, it is commonly thought that they owe a legal
duty of care to them. But this may not be the case as determined by common law precedent. In
Canada, auditors are liable only to investors using a prospectus to buy shares in the primary
market. In the United Kingdom, they have been held liable to potential investors when the
auditor was aware of the potential investor and how they would use the information in the
financial statements. Nowadays auditors tend to include in their report liability restricting
language, discouraging anyone other than the addressees of their report from relying on it.
Liability is an important issue: in the UK, for example, auditors have unlimited liability.
In the United States, especially in the post-Enron era there has been substantial concern
about the accuracy of financial statements. Corporate officers (the chief executive officer (CEO)
and chief financial officer (CFO)) are personally liable for attesting that financial statements "do
not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by th[e] report." Making or certifying
misleading financial statements exposes the people involved to substantial civil and criminal
liability. For example Bernie Ebbers (former CEO of WorldCom) was sentenced to 25 years in
federal prison for allowing WorldCom's revenues to be overstated by billion over five years.

71
Different countries have developed their own accounting principles over time, making
international comparisons of companies difficult. To ensure uniformity and comparability
between financial statements prepared by different companies, a set of guidelines and rules are
used. Commonly referred to as Generally Accepted Accounting Principles (GAAP), these set of
guidelines provide the basis in the preparation of financial statements, although many companies
voluntarily disclose information beyond the scope of such requirements.
Recently there has been a push towards standardizing accounting rules made by the
International Accounting Standards Board ("IASB"). IASB develops International Financial
Reporting Standards that have been adopted by Australia, Canada and the European Union (for
publicly quoted companies only), are under consideration in South Africa and other countries.
The United States Financial Accounting Standards Board has made a commitment to converge
the U.S. GAAP and IFRS over time.
Inclusion in annual reports
To entice new investors, most public companies assemble their financial statements on fine
paper with pleasing graphics and photos in an annual report to shareholders, attempting to
capture the excitement and culture of the organization in a "marketing brochure" of sorts.
Usually the company's chief executive will write a letter to shareholders, describing
management's performance and the company's financial highlights.
In the United States, prior to the advent of the internet, the annual report was considered the
most effective way for corporations to communicate with individual shareholders. Blue chip
companies went to great expense to produce and mail out attractive annual reports to every
shareholder. The annual report was often prepared in the style of a coffee table book.
Moving to electronic financial statements
Financial statements have been created on paper for hundreds of years. The growth of the Web
has seen more and more financial statements created in an electronic form which is
exchangeable over the Web. Common forms of electronic financial statements are PDF and
HTML. These types of electronic financial statements have their drawbacks in that it still takes a
human to read the information in order to reuse the information contained in a financial
statement.

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73
 CHAPTER-IV

DATA ANALYSIS
AND
INTERPRETATION

74
 DATA ANALYSIS AND INTERPRETATION

The following are some of the ratios that are used in this for evaluating the company
performance with particular reference to “HERO MOTORS limited”

LIQUIDITY RATIOS :

The liquidity of a business firm is measured in terms of the ability to satisfy its short – term
obligations which are due. Liquidity is nothing but solvency of the firm’s over all financial
position the case with which it can pay its bills.

1) Current ratio:
 Current ratio= current assets / current liabilities

(Rs in Millions)

Current Current Ratio in

Years
assets liabilities %
2013-14 5,050.22 3,629.70 1.39
2014-15 4,619.99 3,080.02 1.50
2015-16 3,206.54 2,563.82 1.25
2016-17 3,274.39 2,313.57 1.42
2017-18 3,601.37 2,423.55 1.49

Note :

 An ideal current ratio is 2:1.

 A firm having a seasonal trading activity may show a lower or higher current ration at a
certain period of the year .so, it does not possible to maintain ideal ratio.
 The current ratio can also be manipulated very easily

Chart-1

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 .

Interpretation:

 The ideal current ratio is 2:1.

 The industry average ratio is 1.55.
 Current ratio of the company was 1.58 in the year 2014. It is the highest ratio in the entire
study period.
 The rest of four year from 2015 to 2018, the current ratio is fluctuating.
 The overall performance of the company is not satisfactory because the company is not
maintaining idle ratio.

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 2) QUICK RATIO( Acid test ratio):

 Quick ratio= quick assets-inventories /current liabilities.

(Rs in Million)

Current Ratio in
Years Quick assets
liabilities %
2013-14 3,437.47 3,629.70 0.95
2014-15 3,394.66 3,080.02 1.10
2015-16 2,524.20 2,563.82 0.98
2016-17 2,592.86 2,313.57 1.12
2017-18 3,122.77 2,423.55 1.29

Note :

 The quick ratio is more conservative than the current ratio, a more well-known liquidity
measure, because it excludes inventory from current assets.
 The ratio is also an indicator of short-term solvency of the company.

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 Chart-2

Interpretation:

 In the year 2014 the quick ratio was high and 15-2016 the ratio is very low and again in
the year 2017 and 2018 was increased.
 The standard of quick ratio is 1:1 and the company should not maintain the ideal ratio.
 The company not able to meet current obligations .it can interpreted based on the
previous ratio.

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 3) ABSOLUTE QUICK RATIO:
 Absolute quick ratio=quick assets/current liabilities.

(Rs in Millions)

Absolute Current Ratio in

Years
Quick assets liabilities %
2013-14 7,808.03 14,085.16 0.43
2014-15 7,131.97 17,558.55 0.247
2015-16 4,901.92 22,719.40 0.19
2016-17 4,262.35 21,369.45 0.046
2017-18 3,640.44 29,609.52 0.2

Interpretation:

 Absolute ratio of the company was 0.43 in the year 2014. And the rest of the following
years the ratio is fluctuating .and in 2017 the ratio has decreased to 0.046 .
 The company is not maintaining proper liquidity assets to meet current obligations.

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LEVERAGE RATIO :

1) PROPRIETOR RATIO
 Proprietors ratio or equity ratio=shareholders funds/total assets.

(Rs in Millions)

Years Shareholders’ funds Total assets Ratio in %

2013-14 7,798.16 7,808.03 1.00
2014-15 7,094.75 7,131.97 0.99
2015-16 4,963.16 4,901.92 1.01
2016-17 4,230.26 4,262.35 0.99
2017-18 3,600.93 3,640.44 0.99

Note:

 A high proprietary ratio will indicate a relatively little danger to the creditors, etc., in the
event of forced reorganization or winding up of the company.
 A ratio below 50% alarming for the creditors since they may have to lose heavily in the
event of the company’s liquidation on account of heavy losses.

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 Chart -4

(Rs in Millions )

Interpretation:

In the year 2014 the proprietary ratio was 0.38 but in the next year 2015 , it increased to
0.42 and again in the year 2016 it come down to 0.38 and it increased to 0.44 in next year
and the following year 2018 ratio was fell down to 0.39.
It can analyses that the proprietary ratio has fluctuating.

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ACTIVITY RATIO:

1) WORKING CAPITAL TURNOVER RATIO:

 Working capital turnover ratio = sales/working capital

(Rs in Millions)

WORKING
YEARS Sales RATIO
CAPITAL
2013-14 52,476.57 1,420.52 36.94
2014-15 71,681.76 1,539.97 46.55
2015-16 77,291.23 642.72 120.26
2016-17 59,810.73 960.82 62.25
2017-18 72,447.10 1,177.82 61.51
Note:

 A company's efficiency, financial strength and cash-flow health show in its management
of working capital.

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CHART-5

INTERPRETATION:

 A high working capital turnover ratio may be the result of favourable turnover of
inventories and receivables. The low working capital turnover ratio indicates the
efficient utilization of working capital.

 Working capital turnover ratio of the company was 6.36 in the year 2014 and it
had been increasing till the 2015,and in next the ratio was slow down to 5.81,and
in the year 2018 the ratio again increased to 6.14.

 In the 2015 the working capital ratio was very high, compare to rest of the years.

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 2) FIXED ASSETS TURNOVER RATIO:
 Fixed assets turnover ratio = Cost of sales / net fixed assets
(Rs in Millions)

Years Cost of sales Net fixed assets Ratio

2013-14 46,720.36 9,423.71 4.95
2014-15 65,281.07 13,070.33 4.99
2015-16 69,210.63 15,255.50 4.53
2016-17 55,427.74 33,991.16 1.63
2017-18 64,937.72 42,495.59 1.64

NOTE:

 The fixed assets turnover can further be divided into turnover of each item of fixed assets
to find out the extent each fixed assets has been properly used. For example

- plant and machinery to turnover

- land and buildings to turnover

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 Chart-6

Interpretation:
 In the year 2014 the fixed assets turnover ratio was 4.95, and rest of the following
year the ratio was slow down like 4.95, 4.53, 1.63, 1.64.

 The overall performance of fixed assets turnover ratio of the company is not
satisfactory up to the year 2018.

 The company following straight line method so net fixed assets was decreased.

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 CAPITAL TURNOVER RATIO:
 Capital turnover ratio = cost of goods sold/capital employed.

(Rs in Millions)

Years Cost of goods sold Capital employed Ratio

2013-14 43,830.63 14,124.53 3.10
2014-15 61,623.23 18,945.68 3.25
2015-16 65,289.69 21,489.82 3.03
2016-17 51,745.71 34,738.99 1.48
2017-18 60,176.82 36,687.58 1.64

Chart-7

Interpretation:
 The capital turnover ratio was very high in the year 2015.
 Capital turnover of the company was 3.10 in the year 2014 and next following
year the ratio had increased to 3.25 and the ratio came to down to 1.48 in the year
2017 and again has increased .

86
 3) CURRENT ASSETS TO FIXED ASSETS:
 Current assets to fixed assets = current assets/fixed assets
(Rs in Millions)
Chart-8

Current Fixed
Years Ratio
assets assets
2013-14 5,050.22 14,528.66 0.35
2014-15 4,619.99 17,656.18 0.26
2015-16 3,206.54 26,646.95 0.12
2016-17 3,274.39 46,609.62 0.07
2017-18 3,601.37 51,371.83 0.07

Interpretation:
 This is ratio expressed relationship between current asset to fixed assets.
 In the year 2014 the percentage of ratio was very high compare to rest of the years.
 Current assets to fixed assets ratio of the company was 1.53 in the year 2014 and
1.52 in the year 2015.it is gradually degreased in the year 2016-12.

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 PROFITABILITY RATIO

1) Gross profit ratio:

Gross profit = gross profit/net sales *100

(Rs in Millions )

Years Gross profit Net sales Ratio*100

2013-14 5400.70 52476.57 10.29 (0.1029)

2014-15 7026.85 71681.76 9.8 (0.098)

2015-16 8039.89 77291.23 10 (0.10)

2016-17 4694.35 59810.73 7.8 (0.078)

2017-18 7628.39 72.447.10 10.5 (0.105)

Chart-9

GROSS PROFIT RATIO

12

10

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

RATIO*100

Interpretation:

 The ratio has multiple with 100.

 In the year 2018 gross profit is very high because of sale is more.
 In the year 2017 the gross sales is high.

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 In the year 2017 the gross profit is low and the rest of the year 2014, 2015,2016
the profit had fluctuating .
2) NET PROFIT:
 Net profit=net profit(AIT)/net sales*100
(Rs in Millions)

YEARS NET PROFIT NET SALES RATIO*100

2013-14 3,273.20 52,476.57 6.2(0.062)

2014-15 4,412.86 71,681.76 6.1(0.061)

2015-16 4,693.10 77,291.23 6.0(0.060)

2016-17 1,899.963 59,810.739 3.1(0.031)

2017-18 4,236.748 72,447.105 5.8(0.058)

Chart-10

NET PROFIT RATIO

8

0
2013-14 2014-15 2015-16 2016-17 2017-18
RATIO*100
In
terpretation:
 Net profit ratio of the company was 0.62(6.20) in the year 2014. It is the
highest ratio in the entire study period.
 In the year 2015 the net profit was 4,412(Millions),it was highest profit
compare to the rest of the years.
 From 2014 to 2017 the net profit ratio is continually decreased like 6.2 (2014),
6.1 (2015),6.0 (2016), 3.1(2017) and the end of the year 2018 the net ratio
again hiked to 5.8.

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3) RETURN ON TOTAL ASSETS:
 Return on total assets = net profit (BIT) / total assets*100

(Rs in Millions)

YEARS NET TOTAL ASSETS RATIO*100

PROFIT(AIT)
2013-14 3,273.20 8.8(0.088)
7,808.03
2014-15 4,412.86 9.8(0.098)
7,131.97
2015-16 4,693.10 8.4(0.084)
4,901.92
2016-17 1,899.963 2.4(0.024)
4,262.35
2017-18 4,236.748 4.5(0.045)
3,640.44

Note:

Return on total assets, can be computed in three types.

 NPAT / total *100

 NPAT + interest / total assets *100
 NPAT + interest / total assets excluding fictitious assets * 100

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 Chart -11

RETURN ON TOTAL ASSETS

12

10

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

Column2

Interpretation:

The return on total assets of the company in year 2014 is 8.8 ,in the year 2015 is 9.8 but
in the year 2016 the ratio is slow down to 8.4.

Over all study of the return on total assets of the company is fluctuating.

91
 4) RESERVE & SURPLUS TO TOTAL CAPITAL:
 Reserve & Surplus to total capital = reserve & surplus /capital
(Rs in Millions)

RESERVE
YEARS & CAPITAL RATIO
SURPLUS
2013-14 7,702.24 1,221.59 6.31
2014-15 6,998.83 1,323.87 5.29
2015-16 4,867.24 1,330.34 3.66
2016-17 4,134.34 1,330.34 3.11
2017-18 3,505.01 1,330.34 2.63

Chart-12

RESERVE &SURPLUS TO CAPITAL

30

25

20

15

10

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

Series 1

Interpretation:

 This is ratio expressed relationship between reserve& surplus to capital.

 The ratio has continuously increasing.
 In the year 2014 the ratio was 10.56 and the following years are 13.13(2015),
15.15(2016), 25.11(2017), and 26.57(2018).
 The overall performance of the company is satisfactory because the company
performed well.
5) EARNINGS PER-SHARE:
 Earnings per-share = net profit (AIT) / no. of equity shares
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 YEARS NET PROFIT(AIT) NO. OF EQUITY RATIO
SHARE

2013-14 3,273.20 1192.92 2.74

2014-15 4,412.86 1303.89 3.38

2015-16 4,693.10 1328.59 3.53

2016-17 1,899.963 1330.33 1.42

2017-18 4,236.748 1330.33 3.18

Note:

 The earning per share helps in determining the market price of the equity shares of the
company.
 It is also estimating the company’s capacity to pay divided to its equity shareholders.
Chart -13

EARNING PER-SHARE
RATIO

3.38 3.53
2.74
3.18

1.42

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

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Interpretation:

 The company has following weighted average method while calculating

earning per share.
 In my observation last three year the company has issued same no of share .
 In the year 2016 the ratio was 3.53.it is the highest ratio in the entire study
period.
 The company has performance well in satisfactory of earning per share.

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 6) PRICE-EARNING RATIO:

 Price earning ratio = Market price per share/no. of equity shares

(Rs in millions)

YEARS MERKET PRICE NO. OF EQUITY RATIO

PER SHARE SHARES
2013-14 11.84 3.79 3.12
2014-15 14.53 4.63 3.13
2015-16 16.17 4.80 3.36
2016-17 26.11 1.56 16.73
2017-18 27.57 4.09 6.74

Chart-14

PRICE-EARNINGS RATIO
RATIO

16.73

3.12
3.13 6.74
3.36

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

Interpretation:

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 The price-earnings ratio of the company was 3.12 in the year 2014, the price
earning ratio is gradually increasing .those ratio are consequently 3.12, 3.13,
3.36, 16.73 and the end of the year the company’s price earning ratio slow
down to 6.74.
 The company is maintaining the sufficient ratio,it shows the investor to invest
their investments.
 The overall price earning ratio position of the company is satisfactory up to
the year 2017 and in the year 2018 the ratio has come down.

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 7) RETURN ON INVESTMENT:
 Return on investment = net profit (AIT) / Share holders funds

SHARE
NET
YEARS HOLDERS RATIO*100
PROFIT(AIT0
FUND
2013-14 3,273.20 7,798.16 0.41974004
2014-15 4,412.86 7,094.75 0.6219895
2015-16 4,693.10 4,963.16 0.94558709
2016-17 1,899.96 4,230.26 0.44913622
2017-18 4,236.75 3,600.93 1.1765705

Chart-15

RETURN ON INVESTMENT
25

20

15

10

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

Column3

Interpretation:
 The return on investment of the company was .41 in the year 2014 and the
return on investment ratio is gradually degreasing ,those ratio are 0.41, 21,
5.4, and 11.5.
 In the year, 2014 and 2015 the ratio was .62, it is highest ratio in my entire
study period.
 The overall performance of company is not satisfactory because company is
not maintaining proper idle ratio.

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 CHAPTER-5

FINDINGS, SUGGESTIONS, CONCLUSIONS

98
 FINDINGS

The current ratio of firm is not maintaining standard i.e. 2:1 in selecting period. So it
indicates the idle funds and inefficient utilization of funds and indicates the weak position of
the firm.
The company’s current ratio maintaining average ratio 1:5.
 The quick ratio of company is also not at all supporting standard norm i.e. 1:1. So it shows
inefficient utilization of the company funds.
 In case of proprietor ratio the company could not maintain the optimum level of the ratio. It
is fluctuating.
 The company has maintained the efficient reserve and surplus throughout my study analysis.
 The company is maintaining weighted average method while calculating earnings per share.
 The return on investment ratio has continuously degreasing .
 Gross profit of company is fluctuating.
 Net profit of company is continuously degreasing trend in my analyses.
The company is maintaining fixed assets & current assets in proper manner.

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 SUGGESTIONS:
 It is suggested for the company that it should maintain required level of current
assets ratio.
 It is suggested that the company should maintain standard norm then only it can
enhance the maximum profits.
 It is suggested that the company should maintain optimum level of proprietor
ratio.
 Sales are very important to every organization to sustain the growth , so company
should try to control the cost of goods sold.
 They have to go in for advertisement and sales promotion policy.
 The company profit has fluctuating so better to take strategic decisions, it must be
made for the profit to increase.
 Funds are utilizing in proper manner.
 The company is following straight line method in depreciation so better to adopt
diminishing method.
 Earnings per share value is continuously fluctuating trend so the must be maintain
increasing trend.

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 CONCLUSION:

This study on the financial performance of "HERO MOTORS LIMITED" proved really
useful to the company to assess its financial position. The study has brought the problem in
maintaining constant liquidity of the company and the working capital which has to be improved
to avoid financial crunch. In the future, the study was extremely useful in identifying the major
areas of concern affecting the financial of the firm.

The study was also extremely useful for the researcher it gave several opportunities to learn
the financial process of the company. It was a learning experience for the researcher as the study
acted as a bridge to apply theory with practical application.

The study could be used as base for future studies in this area. The financial analysis is the
authoritative tool for determining financial strength & weakness of the firm. The financial
performance of the “HERO MOTORS LIMITED “is good.

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 Bibliography:

Books:

 Cost & Management accounting by Dr.S.N Majeswari .

 F inancial Management by prof.I.M Pandey, Prof.Emeritus,IIMA.
 Financial accounting by T.S Reddy and A.Murthy

Web sites:

 www.google.com
 www.wikipedia.com
 www.investopedia.com
 www.accountingformanagement.com

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  -----------------
-- in Rs. Cr.
------------------
Balance Sheet of HERO MOTORS -        
         
  Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Sources Of Funds          
Total Share Capital 95.92 95.92 95.92 95.92 95.92
Equity Share Capital 95.92 95.92 95.92 95.92 95.92
Reserves 7,702.24 6,998.83 4,867.24 4,134.34 3,505.01
Networth 7,798.16 7,094.75 4,963.16 4,230.26 3,600.93
Secured Loans 9.87 37.22 9.37 3.47 6.65
Unsecured Loans 0 0 22.18 28.62 32.86
Total Debt 9.87 37.22 31.55 32.09 39.51
Total Liabilities 7,808.03 7,131.97 4,994.71 4,262.35 3,640.44
Application Of Funds          
Gross Block 3,326.16 3,084.09 3,869.41 3,008.41 2,908.10
Less: Accum. Depreciation 757.63 479.41 1,244.27 1,042.92 895.9
Net Block 2,568.53 2,604.68 2,625.14 1,965.49 2,012.20
Capital Work in Progress 1,391.84 219.76 0 139.54 37.95
Investments 2,577.34 2,913.60 2,439.68 1,893.78 1,030.19
Inventories 2,178.43 2,194.09 1,610.12 1,802.18 1,665.05
Sundry Debtors 1,138.20 994.63 759.06 728.87 712.36
Cash and Bank Balance 120.84 205.94 155.02 61.81 745.36
Total Current Assets 3,437.47 3,394.66 2,524.20 2,592.86 3,122.77
Loans and Advances 1,612.75 1,225.33 682.34 681.53 478.6
Total CA, Loans & Advances 5,050.22 4,619.99 3,206.54 3,274.39 3,601.37
Current Liabilities 3,629.70 3,080.02 2,563.82 2,313.57 2,423.55
Provisions 150.2 146.04 805.62 697.28 617.72
Total CL & Provisions 3,779.90 3,226.06 3,369.44 3,010.85 3,041.27
Net Current Assets 1,270.32 1,393.93 -162.9 263.54 560.1
Total Assets 7,808.03 7,131.97 4,901.92 4,262.35 3,640.44
Contingent Liabilities 1,108.50 1,463.64 351.2 598.28 447.75
Book Value (Rs) 81.3 73.97 51.74 44.1 37.54

103