CASH FLOW INTERPRETATION OF HERO MOTO CORP FOR THE YEAR 2011-12

Submitted By:Varun Kabaria (221061)Navya Purwar (221075)Priyanka Charaya (221099)Rajat Gupta (221112)Rithik S. Chandran (221116)Romil Goel (221118)

NET CASH FLOW

Why did the cash balance decrease when the company made a net profit for the period?

How did the company finance the acquisition of fixed assets?

How did the company utilize the proceeds of the equity issue?

Is the capacity expansion straining the company’s cash?

Does the company enjoy a fair degree of financial flexibility?

What inferences can we draw from the statement about company’s ability to generate future cash flows, to repay its borrowings and to pay dividends?

FOCUS AREAS

Despite of getting a good profit and amortization value and depreciation, the net cash balance has decreased.• Paid off liabilities of Rs.540.99 crores.• Paid dividends of approximately 73% of profit.• Investing activities not affecting decrease in net

cash balance.

Why did the cash balance decrease when the company made a net profit for the period?

The acquisition of investments and fixed assets and the advances paid for the future acquisition of fixed assets has been financed through the sale of investments.

Sales/Purchases(NET) of investments generates an inflow of Rs Rs.1443.02 crores which is much higher than the amount spent on acquisition and advances of fixed assets i.e. Rs.565.05 crores.

How did the company finance the acquisition of fixed assets?

No application by the company for issuing shares.

Indicates the ability of the company to finance their investing activities on their own.

How did the company utilize the proceeds of the equity issue?

No. The scale of expansion not too large to adopt any external sources of financing and thus has been covered by the company’s own operating and investing activities.

Is the capacity expansion straining the company’s cash?

No loan pressures or restrictions. No issuing of shares in the current or last fiscal.• Thus company has the flexibility to go for these options in

the future. Net cash from operating activity large enough to:• Pay off debtors, loans.• Carry day to day activities.

Also, in case of contingent liabilities, the company: • Can rely on it’s cash from operating activities or • Rely on external sources of funding.

Does the company enjoy a fair degree of financial flexibility?

Has paid huge dividends as compared to its operational cash flow.• This indicates company is confident about future flows.

Investing activities show large advances for acquiring fixed assets.• This is likely to reduce future cash requirements for investing into fixed

assets. These advances also indicate expansion which is likely to increase the yields in future.

We see company paying dividends to shareholders, indicating strong confidence in its operations• High operational profits also indicate strong operations.• All of this indicates company is capable to generate cash.

Cash flows also indicate that the company has made substantial investments in current assets, which may reap benefits in future.

What inferences can we draw from the statement about company’s ability to generate future cash flows, to repay its borrowings and to pay dividends?

Net cash March 31,2012

March 31,2011

Operating activity 2358.78 2254.16Investing Activity 82.78 (1322.31)Financial Activity (2458.18) (955.23)

Comparison

March 31,2012

March 31,2011

Difference

Net Profit before tax 2864.71 2404.76 459.95Sale/purchase of investment 1443.02 (999.40) 2442.42Dividend paid 2096.72 599.06 1497.66Payment to deferred creditors

816.66 - 816.66

Financing policy indicates low levels of debt. Company has been debt free for 5 years (2001 to 2005). Policies skewed towards meeting financing requirements through

internal sources, reason why cash flow shows low interest costs. Thus current cash flows are very much aligned with companies

financing policies. Also it has liberal dividend policies. Company rolled out 5250% dividend in 2010-11. As per Mr. Ravi Sood (CFO, Hero Honda), company generates

Rs.2000 crores every year, enough to maintain their liberal dividend policy.

He is of the opinion that the two wheeler industry is not very capital intensive and hence the liberal dividend policy.

The same policy followed this year as well, with dividends forming 73% of company’s profits.

CONCLUSION

THANK YOU…!!!