Download - Presentaton AFS
-
8/8/2019 Presentaton AFS
1/32
Honda Atlas And Indus Motor
ByShariq RameezNabeel Aftab
Faizan Ali
Ali Asghar Larik
-
8/8/2019 Presentaton AFS
2/32
1) CURRENT RATIO
This ratio is more indicative of the short-term debt paying ability of anentity. The comparative data of both the companies is as under:
Significantly, Indus is better placed in terms of current ratio. Indus is twicebetter than Honda in term of current ratio, thus INDUS has a better abilityto payoff its short term debts as compare to Honda. Despite that. INDUS isstill lower than the market average which is 2.04 times. Overall others inthe market has a better ability to payoff it shortterm debt than Honda orIndus.
Conclusion: Indus appears to be more in line with the industry average of2.04 X. However, current ratio should be viewed in conjunction withinventory & receivables turnover ratios. Both turnover ratios are good.Therefore, there is no liquidity issue in receivables & inventory.
2009 2008
Honda 0.70 0.79
INDUS 1.69 2.56
Industry 2.04 2.60
-
8/8/2019 Presentaton AFS
3/32
2) QUICK RATIO
This ratio is conservative than current ratio indetermining the short-term debt paying ability
of a company. Inventory is excluded on theassumption being slow moving, obsolete orpledged to creditors.
2009 2008
Honda 0.16 0.24
INDUS 0.99 1.16
Industry 0.93 0.97
-
8/8/2019 Presentaton AFS
4/32
3) CASH RATIO
Cash Ratio is ratio seldom used by the analysts. It is unrealistic to have cashequivalents and marketable securities to cover the current liabilities. Thecomparative numbers are as under:
This ratio is useful when inventory & receivables are slow moving & indicatetowards immediate liquidity of the firm.
Conclusion: Overall, the cash ratios of Indus are better than Honda. For both
years, Indus is well above the industry average of 0.79. The main reasons are asunder:
All sales are on cash basis.
Cash & investments in marketable securities are used for borrowing from banksat cheap rates.
2009 2008
Honda 0.04 0.08
0.98 1.14
Industry 0.80 0.79
-
8/8/2019 Presentaton AFS
5/32
-
8/8/2019 Presentaton AFS
6/32
5) ACCOUNT RECEIVIBLE TURNOVER
This ratio indicates the efficiency of an entity in managing its tradereceivables. Higher the ratio more efficient is the company. The ratios forboth the companies are as under:
The receivable turnover ratios of both Honda and Indus reflect a declining
trend for the years in comparison but Honda still above the industryaverage of 17.09 times. Sales increased for both the companies in 2009because of increase in demand for automobiles and better economicconditions as compare to 2008. This ratio indicates that how efficient anenterprise is in managing its receivables.
2009 2008
Honda 20.79 24.24
15.24 20.41
Industry 17.09 23.83
-
8/8/2019 Presentaton AFS
7/32
6) AVERAGE COLLECTION PERIOD
This indicates the length of time that the average trade receivables have been outstanding at theend of the year
Comparison of both the companies is as under:
The above comparison depicts that there is an increasing trend in Days Sales in Receivables of bothHonda & Indus. However, the rate of increase in case of INDUS is more prominent and is above theindustry average of 22 days. Honda is still within the industry norm.
The quality of receivables of both the companies is good because all mostly sales are through cash
and pay-order. Conclusion: Overall receivables of both the companies are secured & are considered good.
Therefore, provisioning is seldom required. The data reveals that Honda is managing its receivablesmore efficiently than INDUS.
2009 2008
Honda 18 days 15 days
24 days 18 days
Industry 22 days 16 days
-
8/8/2019 Presentaton AFS
8/32
7) INVENTORY TURNOVER
Inventory turnover indicates the efficiency of thecompany in managing its inventory.
The turnover figures of INDUS and Honda show an
increasing trend, but the figures of INDUS as comparedto Honda are well above the industry average of 6.31times which clearly reflects that INDUS is efficient inmanaging its inventory as compared to Honda.
2009 2008
Honda 4.57 8.31
10.57 13.67
Industry 6.31 9.01
-
8/8/2019 Presentaton AFS
9/32
8)AVERAGE NO. OF DAYS IN STOCK
This ratio estimates the number of days required to sell the currentinventory.
Overall ratios of INDUS are better than Honda because INDUS has a largerdistribution network in the Country as compared to Honda.
The ratios computed substantiate that INDUS inventory management is
better than Honda. Conclusion:It takes on average 80 days for the inventory to be turned into
sales for Honda and 35 days for INDUS. It also shows that the marketingstrategies of INDUS are very effective. These ratios are likely to improvewith the increase in purchasing power of the automobiles buyers.
2009 2008
Honda 80 days 44 days
35 days 27 days
Industry 70 days 48 days
-
8/8/2019 Presentaton AFS
10/32
9) PAYABLE TURNOVER RATIO
INDUS credit rating is much more improved as
compare to Honda as Indus avail credit for
much longer days from its suppliers as
compare to its competitors. The more creditsuppliers gave to its clients shows higher
rating of clients.
2009 2008
Honda 3.52 3.72
5.41 6.68
Industry 5.74 6.03
-
8/8/2019 Presentaton AFS
11/32
10) AVERAGE NO. OF DAYS PAYABLE
OUTSTANDING
Honda took much longer to pay off it
suppliers as compare to Indus. Indus payoff
period is almost the same as compare to the
industry made it a benchmark company forthe whole automobile industry.
2009 2008
Honda 104 days 98 days
67 days 55 days
Industry 72 days 67 days
-
8/8/2019 Presentaton AFS
12/32
11) CASH CONVERSION CYCLE
Automobile industry normally has a negative cash cyclebecause most of the automobile companies took theirpayments upfront. Last years, this ratio was much higherbecause automobile companies have started taking longerperiod advance payments. INDUS has much better
conversion ratios as compare to Honda, Indus converted itsinvestment into sales at a higher rate as compare to Honda.Negative cash conversion cycle gives more flexibility to thecompanies and its very attractive for the investors.
2009 2008
Honda (6.31) (39.21)
(8.92) (10.09)
Industry 2.34 (3.71)
-
8/8/2019 Presentaton AFS
13/32
12) GROSS PROFIT MARGIN
This ratio shows the efficiency with which the resourceshave been utilized to make finished goods and create saleskeeping costs at a minimum.
The Gross profit for both the companies shows adecreasing trend because of the appreciation of JPYPKRrate as well as the overall inflation which has decrease thepurchasing power of automobiles buyers. The ratios showthat the gross profit margin for INDUS is better thanHONDA.
2009 2008
Honda 1.25% 4.26%
6.13% 9.29%
Industry 3.18% 5.01%
-
8/8/2019 Presentaton AFS
14/32
13) OPERATING PROFIT MARGIN
INDUS is better off in paying its fixed cost such asinterest on debt etc as compare to Honda. Operatingmargin is leftover after paying for variable costs ofproduction such as wages, raw materials, etc. A healthyoperating margin is considered as a positive indicatorfor investment point of view. Indus has a much betterability to pay off its fixed cost relative to itscompetitors.
2009 2008
Honda (2.82)% 2.02%
5.47% 8.50%
Industry 1.44% 4.39%
-
8/8/2019 Presentaton AFS
15/32
14) PRE TAX MARGIN
INDUS has a much better profitability as
compare to Honda.
2009 2008
Honda (4.40)% 0.43%
5.40% 8.55%
Industry 0.88% 3.83%
-
8/8/2019 Presentaton AFS
16/32
15) NET PROFIT MARGIN
Net profit margin for Indus shows decreasing trend butstill the numbers are positive as compare to Hondawhose net profitability in 2009 is in negative. OverallIndus profitability is better than its competitors withrespect to the overall sales.
Conclusion: Profitability margins of both thecompanies are volatile but INDUS is still much betterplaced.
2009 2008
Honda (2.84)% 0.51%
3.60% 5.50%
Industry 0.58% 2.53%
-
8/8/2019 Presentaton AFS
17/32
RETURN ON INVESTMENT RATIOS
16) RETURN ON ASSETS
INDUS is effectively managing its assets to
generate earnings relative to Honda and the
whole Automobile Industry.
2009 2008
Honda (0.05) 0.04
0.12 0.24
Industry 0.04 0.10
-
8/8/2019 Presentaton AFS
18/32
17) RETURN ON COMMON EQUITY
INDUS gives a much better return to its
stakeholders as compare to Honda.
2009 2008
Honda (0.28) 0.07
1.76 2.91
Industry 0.60 1.25
-
8/8/2019 Presentaton AFS
19/32
18) RETURN ON TOTAL EQUITY
This ratio shows the firms efficiency in utilizing thepermanently invested capital (equity) in generatingsales. The higher the efficiency in investing equity for along time period in fixed assets, the higher the capacityto produce, leading to higher revenue and lower costs.
It is an indirect channel for increasing net profit. Itshould ideally be used for expansion and long-termpurposes. The return to shareholders of INDUS ishigher than Honda.
2009 2008
Honda (0.13) 0.03
0.14 0.26
Industry 0.01 0.11
-
8/8/2019 Presentaton AFS
20/32
EEFICIENCY RATIOS
19) TOTAL ASSET TURNOVER
Comparative figures are as under:
Indus average assets are converted almost
80% more than Honda. The more averageassets conversion into sales, the better it is.
Conclusion: Overall asset turnover ratio ofIndus is better than Honda.
2009 2008
Honda 1.69 1.95
2.20 2.82
Industry 1.80 2.28
-
8/8/2019 Presentaton AFS
21/32
20) FIXED ASSETS TURNOVER
INDUS ability to convert sales through fixed
assets investment is much better than Honda.
Indus comparison with the industry in terms
of Fixed assets turnover ratio is far better thanany other ratio, thus Indus is much better
placed.
2009 2008
Honda 2.72 3.27
9.40 13.34
Industry 5.73 8.14
-
8/8/2019 Presentaton AFS
22/32
21) EQUITY TURNOVER
Honda conversion to sales in terms of equity is
much better than Indus. Honda converted to
sales more repeatedly than Indus with respect
to equity of both companies.
2009 2008
Honda 4.67 5.19
3.84 4.74
Industry 3.45 4.25
-
8/8/2019 Presentaton AFS
23/32
FINANCIAL RISK RATIOS
22) DEBT TO TOTAL CAPITAL
Leverage is the use of fixed cost to magnify profit. Leverage Ratiosmeasure the extent to which firms finance their assets throughdebt and they indicate the financial leverage of the firm.
Honda debt ratios are high as compared to Indus. Honda ratiosindicate that more than 70% of assets are financed by the creditors.
Conclusion: The creditors of Indus are well protected as comparedto Honda.
2009 2008
Honda 0.72 0.53
0.50 0.31
Industry 0.47 0.34
-
8/8/2019 Presentaton AFS
24/32
23) DEBT TO EQUITY
This ratio also determines the entity long-term debtpaying ability. Comparative figures are as under:
The ratio is another computation that determines theentitys long-term debt paying ability. This ratioindicates that the creditors of Honda are well protected
as compared to INDUS. Conclusion: Honda are well protected as compared to
INDUS.
2009 2008
Honda 0.53 0.15
0.05 0.06
Industry 0.27 0.14
-
8/8/2019 Presentaton AFS
25/32
24) INTEREST COVERAGE RATIO
This ratio indicates the firms long-term debt paying ability.Comparison reveals that both the companies haveimpressive coverage of their interest obligations.
Conclusion: In case of Honda there is a major decline in
2009 even the earning turned red, However INDUS have anedge in both the years. Ratios indicate Indus has a betterlong term debt paying ability as compare to Honda, alsoIndus is well above the market.
2009 2008
Honda (1.79) 1.27
0.78 1.28
Industry (0.22) 0.92
-
8/8/2019 Presentaton AFS
26/32
26) RETENTION RATE
Higher retention rate means more investments from thecompanies own profits but from the investor point of viewit would be considered as negative indicator. Those who hasinvested in the company need more returns from theirinvestment and most important return is dividend. Honda
retains all of its profit, thus indicates a negative sign to itsinvestor as compare to Indus which payout around 57% ofits profits in 2009. Indus is much better placed in terms ofretention and dividend payout policy.
2009 2008
Honda 100% 100%
43.25% 63.97%
Industry 75.75% 83.66%
-
8/8/2019 Presentaton AFS
27/32
INDUS
CFO
Major improvement in terms of themanagement of operations for INDUS. Overall
company reliability on short terms debts
decreased to major extent. Effectivemanagement of operating activities was the
main reason for better profitability of INDUS
relative to its competitors.
-
8/8/2019 Presentaton AFS
28/32
INDUS CFI
Overall investments have decreased in 2009,
mainly because of heavy investments in 2008.
Reasonable investments, all that is needed for
a company to grow at a stable rate.
-
8/8/2019 Presentaton AFS
29/32
INDUS CFF
A very good sign for the investors as the
company is paying of its long term debt both
in 2008 and 2009. Thus shows the overall
strength of the company relative to its
competitors who has taken more finances to
cover up for the slow down in demand and
poor operations management.
-
8/8/2019 Presentaton AFS
30/32
HONDA
CFO
Honda CFO appears to be in very bad shape astheir 2009 cash utilization on operating activitiesincreased more than 200% showing the overall
inefficient management from the operation side.Working capital is not managed properly whichshows that company heavily rely on short termdebts. Overall CFO indicates weak standing of the
company relative to Indus.
-
8/8/2019 Presentaton AFS
31/32
Honda CFI
Capital investments is always considered a
good sign for the company and same is the
case with Honda which has invested major
amount in 2009 for investing activities. Fixed
cost would be higher this year, but prospects
of growth are visible with such high
investments.
-
8/8/2019 Presentaton AFS
32/32
Honda CFF
Company has taken additional loan to finance
its investment. Additional loan is always
considered as negative indicator for the
company and may create a cautious approach
from the investor point of view.