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Financial Analysis
Financial Analysis of Ashok Leyland
Limited
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Table of ContentsCompany Profile ............................................................................................................................................ 3
Companys last 3 yrs Balance sheet .............................................................................................................. 4
Companys last 3 yrs Income statement ....................................................................................................... 5
Ratio Analysis ................................................................................................................................................ 6
Comments ..................................................................................................................................................... 7
Profitability ratios ..................................................................................................................................... 7
Turnover Ratios ......................................................................................................................................... 8
Liquidity Ratios ........................................................................................................................................ 10
Leverage Ratios ....................................................................................................................................... 11
Valuation Ratios ...................................................................................................................................... 15
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Company Profile
Ashok Leyland is an India-based company engaged in the manufacturing of commercial vehicles
and related components. The Companys products range from 18 seater to 82 seater double-
decker buses, from 7.5 tons to 49 tons in haulage vehicles, from special application vehicles to
diesel engines for industrial, marine and genset applications. Its product categories include buses,
trucks, engines, and defence and special vehicles. It offers bus models, such as compressed
natural gas (CNG), double decker and vestibule bus. It also offers trucks and tractor-trailers. In
addition, the Company offers diesel engines for industrial, genset and marine applications. It
offers logistic vehicles to the Indian army.
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. 2009 2008 200
Source of fundsShareholders' funds
Capital 13303.42 13303.42 13238.70
Reserves and Surplus 334086.5
201594.8
3
176218.10
347389.9 214898.25 189456.8
Loan funds
Secured loans 30441.33 19024 36021.60
Unsecured loans 165373.1 69726.12 28018.20
195814.39 88750.12 64039.8
Deferred tax liability - net 26343.69 25381.97 19692.90
Foreign currency monetary item
translation difference net 384.11
Total 569932.1 329030.3 273189.
Applicatsion of FundsFixed assets
Gross block 495327.2 294243.8 262019.7
Less Depreciation 155415.6
141688.7
8
131316.2
Net Block 339911.6
152555.0
2
130703.3
Capital WIP 99828.94 52924.47 23749.1
439740.57 205479.49 154452.
Investments 26355.71 60989.87 22109.
Current Assets, loans and advances
Inventories 133001.4
122391.4
4
107032.1
Sundry Debtors 95797.42 37583.51 52287.5
Cash and bank balances 8808.36 45137.01 43493.9
Loans and advances 78954.35 82413.85 66957.9
361561.6
287525.8
1
269771.4
Less Current Liabilities and provisions
Liabilities 186886.4
192670.8
4
165162.5
Provisions 26808.17 34523.09 10423.0
213694.6
227193.9
3
175585.5
Net current assets 102866.99 60331.88 94185.
Miscellaneous expenditure 968.82 2229.1 2441.
Total 569932.1 329030.3
273189.
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Companys last 3 yrs Income statement
2009 2008 20
Income
Sales and services 666664 894714.7 830471.7
Less Excise duty 68556.64 120456.7 113654.5
598107.4 774258 716817
Other income 4962.28 5760.52 7080
603069.7 780018.5 723897
Expenditure
Manufacturing and other expenses 551163.9 692219.7 646549.1
Depreciation, amortization and
impairment 17841.42 17736.12
15077.4
Financial expenses 11870.87 4974.01 533.2
580876.2 714929.8 662139
Profit before exceptional item 22193.5 65088.74 61758
Exceptional item
Voluntary retirement scheme
compensation amortized 1348.87 1273.72
1307
Profit before tax 20844.63 63815.02 60450
provision for taxation - current tax 10140 13505
- Deferred tax 1245 6044 2302
- Fringe benefit
tax 600 700
5
Profit after tax 18999.63 46931.02 44128
Excess provision written back Dividend 22.05 259
-
Corporate dividend tax thereon 3.75
36
Balance profit from last year 50227.38 36168.59 23037
Transfer from / (to) - Debenture
redemption reserve (2958.33) 500
1350
- General reserve (2500) (10000) (1000
63794.48 73599.61 58811
Dividede-Interim - - 19858
-Proposed final 1303.38 19977.12
Corporate dividend tax thereon 2260.91 3395.11 2785
Balance profit carried to balance sheet 48230.19 50227.38 36168.6
Earnings per share (F.V. Rs. 1) - Basic (in
Rs.) 1.43 3.53
3.
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Ratio Analysis
Sr.
No.Ratio Formula 2009 2008 2007
Profitability Ratios
1 Return on equity PAT/Net worth 5.47 21.84 23.29
2 Gross profit margin Gross profit / Net sales 14.00 15.50 10.36
3 Operating profit margin Operating profit / Net sales 4.90 8.30 8.62
4 Net profit margin Net profit / Net sales 3.18 6.06 6.16
5 Return on Assets PAT / Total assets 2.43 8.47 9.89
6 Return on Investment PAT/Capital employed 3.50 15.57 16.15
Turnover Ratios
7 Capital turnover ratio Sales/Capital employed 1.10 2.57 2.62
8 Inventory turnover ratio Cost of goods sold/ Average inventory 3.87 5.35 6.559 Debtors turnover ratio Net sales / Debtors 6.24 20.60 13.71
10 Average collection
period 365/Debtors turnover ratio 58.46 17.72
26.62
Liquidity Ratios
11 Current Ratio Current assets / Current Liabilities 1.11 0.90 1.54
12 Acid Test ratio Quick assets / current liabilities 0.49 0.36 0.93
13 Inventory to working
capital ratio Inventory / Net current assets 1.29 2.03
1.14
14
Cash Flow margin
Cash flow from operating activities / net
sales (8.76) 13.72
6.98
Leverage Ratios
15 Debt equity ratio Total loan funds / total shareholder funds 0.56 0.41 0.34
16 Interest Coverage ratio EBIT/Interest charges 2.42 10.46 26.29
Valuation Ratios
17
Book value per share
(Equity capital + Reserves and
surplus)/No. of equity shares 15.85 15.98
14.13
18 Dividend yield ratio DPS/CMP*100 1.86 10.80 3.88
19 Earnings Per Share Profit available to equity/ No. of shares 1.43 3.53 3.38
20 Dividend Per Share Total profit distributed/No. of shares 1.00 1.50 1.49
21 Price Earnings ratio Price of the share/EPS 37.62 3.94 11.39
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Comments
Profitability ratios
Profitability is a result of a larger number of policies and decisions. The profitability ratios show
the combined effects of liquidity, asset management (activity) and debt management (gearing) on
operating results. The overall measure of success of a business is the profitability which results
from the effective use of its resources.
Sr.
No.Ratios
2009 2008 2007
1
Return on equity
5.47 21.84
23.29
This ratio shows the profit attributable to
the amount invested by the owners of the
business. It also shows potential investors
into the business what they might hope to
receive as a return. This ratio has
decreased as the net profit margin hasalmost halved and also the net worth has
increased by more than 50%.
2
Gross profit margin
14.00 15.50
10.36
The gross profit ratio indicates how much
of total sales are available to meet
operating and non-operating expenses and
earning profits after merely paying for the
goods that were sold. The ratio is quite
stable for the years 2008 and 2009.
3
Operating profit margin
4.90 8.30
8.62
Operating profit margin indicates how
effective a company is at controlling the
costs and expenses associated with their
normal business operations. The operating
profit margin has halved because of less
sales but relatively high operating
expenses.
4
Net profit margin
3.18 6.06
6.16
It is used to measure the overall
profitability and hence it is very useful to
proprietors. The net profit margin has
declined on account of slow down in the
economic activity
5
Return on Assets
2.43 8.47
9.89 ROA tells you what earnings were
generated from invested capital (assets).
The higher the ROA number, the better,because the company is earning more
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money on less investment. As the profits
of the company have reduced, the ROA
has gone down and the assets have
increased.
6
Return on Investment
3.50 15.57
16.15
ROI evaluates the efficiency of an
investment or to compare the efficiency of
a number of different investments. The
ratio again has gone down due to
reduction in profits and increase in
Reserves and Surplus.
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Turnover Ratios
If a business does not use its assets effectively, investors in the business would rather take their
money and place it somewhere else. In order for the assets to be used effectively, the business
needs a high turnover. Unless the business continues to generate high turnover, assets will be idle
as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios
are therefore used to assess how active various assets are in the business.
Turnover Ratios2009 2008
2007
7
Capital turnover ratio
1.10 2.57
2.62 This ratio indicates the firms ability of
generating sales per rupee of long term
investment. Higher the ratio, the more
efficient the utilization of owners and long
term creditors funds. On account of reduction
in sales, this ratio has reduced significantly
8
Inventory turnover ratio
3.87
5.35
6.55 This ratio establishes the relationship between
the cost of goods sold during the year and
average inventory held during the year.
Decrease in the ratio is on account of high
inventory and less sales.
9
Debtors turnover ratio
6.24 20.60
13.71 This ratio throws light on the collection and
credit policies of the firm. Similarly, this ratio
has been hit badly as the debtors have
increased but the sales have reduced.
10
Average collection period
58.46 17.72
26.62 Average collection period is the credit period
that the firm allows to its debtors. It thus
indicates the speed of collection. The increase
in the average collection period signifies that
the company has been comparatively
unsuccessful to collect its debt as compared to
the previous year.
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Liquidity Ratios
Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as
they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet
their short-term maturing obligations. Failure to do this will result in the total failure of the
business, as it would be forced into liquidation.
Liquidity Ratios 2009 2008 2007
11Current Ratio
1.11 0.90
1.54 It indicates the availability of current asse
to meet its current liabilities. Higher theratio better is the coverage. Traditionally,
is also called 2:1 ratio. The current ratio
has increased, which shows that the
liquidity of the firm has improved.
However, it is majorly due to decrease in
current liabilities rather than increase in
current assets
12Acid Test ratio
0.49 0.36
0.93 Measures assets that are quickly converte
into cash and they are compared withcurrent liabilities. The quick ratio, also
referred to as acid test ratio, examines the
ability of the business to cover its short-
term obligations from its quick assets
only. The increase in the quick ratio
indicates that the company is in a better
position cover its short term obligations.
13
Inventory to working capital
ratio
1.29 2.03
1.14 It indicates how much of the funds are tie
up in the inventory of the business.Inventory is considered not near cash
assets. The composition of the inventory
in the working capital of the company is
seen to be decreasing. However, this is
majorly due to reduction in the current
liabilities rather than better management o
inventories.
14Cash Flow margin
-8.76 13.72
6.98 It expresses relationship between cash
generated from operating activities andsales. Knowing that a company is
continually improving its Cash Flow
Margin is extremely valuable and is a key
indicator of performance. The cash flow
margin has become negative for 2009. Th
is majorly due to the increase in working
capital as a result of tremendous increase i
the debtors.
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Leverage Ratios
The ratios indicate the degree to which the activities of a firm are supported by creditors funds
as opposed to owners. The relationship of owners equity to borrowed funds is an important
indicator of financial strength. The debt requires fixed interest payments and repayment of the
loan and legal action can be taken if any amounts due are not paid at the appointed time. A
relatively high proportion of funds contributed by the owners indicate a cushion (surplus) which
shields creditors against possible losses from default in payment.
Note: The greater the proportion of equity funds, the greater the degree of financial strength.
Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of
earnings on capital employed is greater than the rate payable on borrowed funds
Leverage Ratios 2009 2008 2007
15
Debt equity ratio0.56 0.41
0.34 This ratio indicates the extent to whic
debt is covered by shareholders funds.
reflects the relative position of the equit
holders and the lenders and indicates th
companys policy on the mix of capita
funds. The increase in debt equity ratio i
spite of increase in the Reserves an
surplus of the company indicates heav
borrowings by the company.
16
Interest Coverage ratio2.42 10.46
26.29 This ratio measure the extent to whic
earnings can decline without causin
financial losses to the firm and creatin
an inability to meet the interest cost. Th
sharp decline in interest coverage ratio i
because of the lower profits and hig
borrowing during the year.
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Valuation Ratios
A valuation ratio is a measure of how cheap or expensive a security or business is, compared to
some measure of profit or value. Investment valuation ratios attempt to simplify this evaluation
process by comparing relevant data that help users gain an estimate of valuation. Valuation ratios
are important, in particular to a stockholder of the company as these ratios deal with the returns
that a shareholder of the company would get.
Valuation Ratios 2009 2008 2007
17
Book value per share
15.85 15.98
14.13 Book value per share represents the intrins
value of the share. The ratio is more or le
constant indication that the intrinsic value
the company has not suffered even thoug
other operations of the company have be
impacted considerably. This is due to t
revaluation reserve created for land a
building during the year.
18
Dividend yield ratio1.86 10.80
3.88 It represents how much dividend is paid
relation to the market price of the sha
rather than the face value of the share. T
ratio is impacted because of the low sha
price prevalent in 2008. The share was pric
at Rs 14/- in 2008 and is currently priced
Rs. 53/-
19
Earnings Per Share1.43 3.53
3.38 It represents the earnings which are availab
for distribution among the shareholders aftmaking all other payments such as intere
preference dividend etc. Earnings per sha
have reduced due to reduction in PAT
20
Dividend Per Share1.00 1.50
1.49 It is the rate of dividend declared by t
company.
21
Price Earnings ratio37.62 3.94
11.39 It represents how a share of particul
company is perceived in the market. It is th
times at which the share is priced comparison to the earnings that a share earn
When seen in context of the industry, it hel
us to determine which share is undervalu
or overvalued. The increase in the price
the share by almost 4 times is the reason f
such a significant change in this ratio.
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