project report sandeep 2

8/2/2019 Project Report Sandeep 2

1/53

RATIO ANALYSIS

B.E.S Degree College Page 1

INTRODUCTION TO FINANCE


2/53


3/53

RATIO ANALYSIS


Business finance is the activity, which is concerned with the acquisition and

conservation of capital funds in meeting the financial requirements and overall

objectives of the firm. Business finance deals primarily with raising, administering

and disbursing funds by private own business units operating in non- financial fields

of industry. To sum up in simple words we can say that financial management as

practiced by business firms can be called corporation finance or business finance.

AIMS OF FINANCE:

Acquiring sufficient funds

Proper utilization of funds

Increasing profitability Maximizing firms value

Estimating financial requirements

Deciding capital structure

Selecting a source of finance

Selecting a pattern of investment Proper cash management Implementing financialcontrol

Proper use of surplus

FINANCIAL STATEMENTS

Financial statements (or financial reports) are formal records of a business' financial

activities. It is a collection of data organized according to logical and consistent

accounting procedures. These statements provide an overview of a business'

profitability and financial condition in both short and long term.


4/53

RATIO ANALYSIS


A sound understanding of financial statements helps you:

Identify unfavorable trends and tendencies in your business's operations (for example,

the unhealthy buildup of inventory or accounts receivable) before the situation

becomes critical.

DEFINITION:

According to John N. Myer the financial statements provide a summary of the

accounts of a business enterprise, the balance sheet reflecting the assets and liabilities

and the income statement showing the results of operations during a certain period

OBJECTIVES OF FINANCIAL STATEMENTS:

The primary objective of financial statements is to assist in decision making. The

Accounting Principles Board of America (APB) states the following other objectives:

To provide reliable financial information about economic resources and obligations of

a business firm.

To provide other needed information about changes in such economic resources and

obligations.

To provide reliable information about changes in net resources (resources less

obligations) arising out of business activities.

To provide financial information that assists in estimating the earning potentials of

business.To disclose, to the extent possible, other information related to the financial statements

that is relevant to the needs of the users of these statements.

TYPES OF FINANCIAL STATEMENTS:

Generally Accepted Accounting Principles (GAAP) specifies that a complete set of

financial statements must include:


5/53

RATIO ANALYSIS


Balance Sheet:

The American Institute of Certified Public Accountants defines Balance Sheet as, A

tabular statement of summary of balances (debits and credits) carried forward after an

actual and constructive closing of books of account and kept according to principles of

accounting.

The purpose of the balance sheet is to show the resources that the company has, i.e.,

its assets, and from where those resources come from, i.e. its liabilities and

investments by owners and outsiders. The balance sheet shows all the assets owned by

the concern and all the liabilities and claims it owes to owners and outsiders. The

Companies Act, 1956 has prescribed a particular form for showing assets and

liabilities in the balance sheet for companies registered under this act.

Income Statement (Profit and Loss Account):

Income statement is prepared to determine the operational position of the concern. It is

a statement of revenues earned and the expenses incurred for earning that revenue. If

there is excess of revenues over expenditures it will show a profit and if the

expenditures are more than the income then there will be a loss. The income statement

may be prepared in the form of a Manufacturing Account to find out the cost of

production, in the form of Trading Account to determine gross profit or gross loss, inthe form of a Profit and Loss Account to determine net profit or net loss.

A statement of Retained Earnings may also be prepared to show the distribution of

profits.

Statement of Changes in Owners Equity (Retained Earnings)


6/53

RATIO ANALYSIS


The term owners equity refers to the claims of the owners of the business

(shareholders) against the assets of the firm. It consists of two elements

1. Paid-up share capital, i.e. the initial amount of funds invested by the

Shareholders

2. Retained earnings or reserves and surplus representing undistributed

Profits.

The statement of changes in owners equity simply shows the beginning balance of

each owners equity account, the reasons for increases and decreases in each, a nd its

ending balance. A statement of retained earnings is also known as Profit and Loss

Appropriation Account or Income Disposal Statement. As the name suggests it shows

appropriations of earnings. The balance in this account will show the amount of profit

retained in hand and carried forward.

Statement of Changes in Financial Position.

The basic financial statements, that is; the balance sheet and the profit and loss

account or income statement of a business reveal the net effect of the various

transactions on the operational and financial position of the company. But there are

many transactions that do not operate through profit and loss account. Thus, for a

better understanding another statement called statement of changes in financial

position has to be prepared to show the changes in assets and liabilities from the end

of one period to the end of another point of time. The objective of this statement is to

show the movement of funds (working capital or cash) during a particular period.

The statement of changes in financial position may take any of the following twoforms:

i) Funds Flow Statement: The funds flow statement is designed to analyze the

changes in the financial condition of a business enterprise between two periods. The

word Fund is used to denote working capital. This statement will show the sources

from which the funds are received and the uses to which these have been put. This

statement helps the management in policy formulation and performance appraisal.


7/53

RATIO ANALYSIS


ii) Cash Flow Statement: A statement of changes in the financial position of a firm

on cash basis is called Cash Flow Statement. It summarises the causes of changes in

cash position of a business enterprise between dates of two balances sheets. This

statement is very much similar to the statement of changes in working

capital, that is; funds flow statement. A cash flow statement focuses attention on cash

changes only. It describes the sources of cash and its uses.

CHARACTERISTICS OF IDEAL FINANCIAL STATEMENT:

The financial statements are prepared with a view to depict financial position of the

concern. The financial statements should be prepared in such a way that they are able

to give a clear and orderly picture of the concern. The ideal financial statements have

the following characteristics:

1) Depict True Financial Position2) Effective Presentation3) Relevance4) Attractive5) Easiness6) Comparability7)

Analytical Representation

8) Brief

IMPORTANCE OF FINANCIAL STATEMENTS

The financial statements are mirror which reflects the financial position and operating

strength or weakness of the concern. These statements are useful to management,


8/53

RATIO ANALYSIS


investors, creditors, bankers, workers, government and public at large. Following

major uses of financial statements:

As a report of stewardship.

As a basis for fiscal policy.

To determine the legality of dividends.

As guide to advice dividend action.

As a basis for the granting of credit.

As informative for prospective investors in an enterprise

As a guide to the value of investment already made.

As an aid to government supervision.

As a basis for price or rate regulation.

As a basis for taxation.

USERS OF FINANCIAL STATEMENTS

Financial statements are used by a diverse group of parties, both inside and outside a

business. Generally, these users are:

Internal Users: are owners, managers, employees and other parties who are directly

connected with a company.

Owners and managers require financial statements to make important business

decisions that affect its continued operations. Financial analyses are 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 report to its

stockholders, as it form part of its Annual Report.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.

External Users: are potential investors, banks, government agencies and other parties

who are outside the business but need financial information about the business for a

diverse number of reasons.


9/53

RATIO ANALYSIS


Prospective investors make use of financial statements to assess the viability of

investing in a business. Financial analysis are often used by investors and is prepared

by professionals (Financial Analysts), thus providing them with the basis in 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.

Media and the general public are also interested in financial statements for a variety of

reasons.

LIMITATIONS OF FINANCIAL STATEMENTS

The following are the main limitations of the financial statements:

Interim and not final reports: Financial statements do not depict the exact position and

are essentially interim reports. The exact position can be only known if the business is

closed.

1) Lack of precision and definiteness2) Lack of objective judgment3)

Record only monetary facts

4) Historical in nature5) Artificial view6) Scope of manipulations


10/53

RATIO ANALYSIS


FINANCIAL ANALYSIS

The term financial analysis also known as analysis and interpretation of financial

statements, refers to the process of determining financial strengths and weaknesses of

the firm by establishing strategic relationship between the items of 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. It is an

attempt to determine:

1) The significance and meaning of the financial statement data so that forecast may bemade of the future earnings.

2) Ability to pay interest and debt maturities (both current and long term).3) Profitability of a sound business policy.4) The operational efficiency of the concern as a whole and of its various parts or

departments.

5) The comparative study in regard to one firm with another firm or one department withanother department.

Types of financial statement analysis

Different types of financial statements analysis can be made on the basis of:According to the nature of the analyst and the material used by him. On this

basis, the financial analysis can be external and internal analysis:

External Analysis: It is made by those persons who are not connected with the

enterprise. They do not have access to the enterprise. They do not have access to the

detailed record of the company and have to depend mostly on published statements.


11/53

RATIO ANALYSIS


Such type of analysis is made by investors, credit agencies, governmental agencies

and research scholars.

Internal Analysis: The internal analysis is made by those persons who have access to

the books of accounts. They are members of the organization. Analysis of financial

statements or other financial data for managerial purpose is the internal type of

analysis. The internal analyst can give more reliable result than the external analyst

because every type of information is at his disposal.

According to the objectives of the analysis. On this basis the analysis can be long-

term and short-term analysis.

Long-term Analysis: This analysis is made in order to study the long-

term financial stability, solvency and liquidity as well as profitability and

earning capacity of a business concern. The purpose of making such type

of analysis is to know whether in the long-run the concern will be able to earn a

minimum amount which will be sufficient to maintain a reasonable rate of return on

the investment so as to provide the funds required for modernization, growth and

development of the business and to meet its costs of capital.

Short-term Analysis: This is made to determine the short-term solvency,

stability and liquidity as well as earning capacity of the business. The purpose of this

analysis is to know whether in the short run a business concern will have adequate

funds of readily available to meet its short-term requirements and sufficient borrowing

capacity to meet contingencies in the near future. This analysis is made with referenceto items of current assets and current liabilities (working capital analysis).

According to the modus operandi of the analysis. On this basis, the analysis may

be horizontal analysis and vertical analysis.


12/53

RATIO ANALYSIS


Horizontal (or dynamic) Analysis: This analysis is made to review and analyze

financial statements of a number of years and, therefore, based on financial data taken

from several years. This is very useful for long-term trend analysis and planning.

Comparative financial statement is an example of this type of analysis.

Vertical (or Static) Analysis: This analysis is made to review and analyze the

financial statements of one particular year only. Ratio analysis of the financial year

relating to a particular accounting year is an example of this type of analysis.

TECHNIQUES (DEVICES OR METHODS) OF FINANCIAL ANALYSIS

The following techniques can be used in connection with analysis and interpretation of

financial statements:

Comparative financial statements

The comparative financial statements are statements of the financial position at

different periods of time. The elements of financial position are shown in a

comparative form so as to give an idea of financial position at two or more periods.

The statements of two or more periods are prepared to show absolute data of two or

more years, increases or decreases in absolute data in value and in terms of

percentages. The two comparative statements are:

i) Comparative Balance Sheet: the comparative balance sheet analysis is the study of

the trend of the same items, group of items and computed items in two or more

balance sheets of the same business enterprise on different dates.

ii) Comparative Income Statement: the comparative income statement gives the

results of the operations of a business. It gives an idea of the progress of a businessover a period of time.

TREND PERCENTAGE ANALYSIS


13/53

RATIO ANALYSIS


Trend analysis is an important tool of horizontal financial analysis. This analysis

enables to know the changes in the financial function and operating efficiency

between the time period chosen. By studying the trends of each item we can know the

direction of changes and based upon the direction of changes, the opinions can be

formed. These trend ratios may be compared with industry in order to know the strong

or weak points of a concern.

COMMON SIZE STATEMENT

Common size financial statements are those in which figures reported are converted to

some common base. Vertical analysis is required for an interpretation of underlying

causes of changes over a period of time. For this, items in the financial statements are

presented as percentages or ratios to total of the items and a common base for

comparison is provided. Common size statements may be used for:

i) Common Size Balance Sheet: a statement in which balance sheet items are

expressed as the ratio of each asset to total assets and the ratio of each liability is

expressed as a ratio of total liabilities.

ii) Common Size Income Statement: the items in income statement can be shown as

percentages of sales to show the relation of each item to sales. A significant

relationship can be established.

FUNDS FLOW STATEMENT (OR ANALYSIS)

This statement is prepared in order to reveal clearly the various sources where from

the funds are procured to finance the activities of a business concern during the

accounting period and also brings to highlight the uses to which these funds are putduring the said period.

CASH FLOW STATEMENT (OR ANALYSIS)

This statement is prepared to know clearly the various items of inflow and outflow of

cash. It is an essential tool for short-term financial analysis and is very helpful in the


14/53

RATIO ANALYSIS


evaluation of current liquidity of a business concern. It helps the business executives

of a business in the efficient cash management and internal financial management.

Statement of Changes in Working Capital (Net Working Capital Analysis)

This statement is prepared to know the net change in working capital of the business

between two specified dates. It is prepared from current assets and current liabilities of

the said dates to show the net increase or decrease in working capital.

RATIO ANALYSIS

It is done to develop meaningful relationship between individual items or group of

items usually shown in the periodical financial statements published by the concern.

An accounting ratio shows the relationship between the two inter-related accounting

figures as gross profit to sales, current assets to current liabilities, loaned capital to

owned capital etc. Ratios should not be calculated between the two unrelated figures

as it will not serve any useful purpose.

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

Analysis of financial statements is a very important device but the person using this

device must keep in mind its limitations. The following are the main limitations of the

analysis:

1) Historical nature of financial statements: The basic nature of these statements ishistorical, that is; relating to the past period. Past can never be a precise and infallible

index of the future and can never be hundred per cent helpful for the future forecastand planning.

2) No substitute for judgment: Analysis of financial statements is a tool which can beused profitably by an expert analyst but may lead to faulty conclusions if used by

unskilled analyst. The results of analysis, thus, should not be taken as judgments or

conclusions.


15/53

RATIO ANALYSIS


3) Reliability of figures: The reliability of analysis depends on reliability of the figuresof the financial statements under scrutiny. The entire working of analysis will be

vitiated by manipulations in the income statement, window dressing in the balance

sheet, questionable procedures adopted by the accountant for the valuation of fixed

assets and such other factors.

4) Single year analysis is not much valuable and useful: The analysis of thesestatements relating to a single year only will have limited use and value. It will not be

advisable to depend fully on such analysis. Analysis should be extended over a

number of years so that the results may be compared to draw meaningful conclusions.

5) Results may have different interpretation: The results or indications derived fromthe analysis of these statements may be differently interpreted by different users. For

example, a high current ratio may suit the banker, a supplier of goods or the short-term

lender but it may be index of inefficiency of the management due to non-utilization of

funds.

6) Change in accounting methods: Analysis will be effective if the figure derived fromthe financial statements are comparable. Due to change in accounting methods (i.e.,

depreciation method, or method of valuation of stock), the figures of the current period

may have no comparable base, then the whole exercise of analysis will become futile

and will be of little value.

7) Pitfalls in inter-firm comparison: When different firms are adopting differentprocedures, records, objectives, policies and different items under similar headings,

comparison will become more difficult. If done, it will not provide reliable basis toassess the performance, efficiency, profitability and financial condition of the firm as

compared to industry as a whole.

8) Price level changes reduce the validity of the analysis: The continuous and rapidchanges in the value of money, in the present day economy, also reduce the validity of

the analysis. Acquisition of assets at different levels of prices make comparison


16/53

RATIO ANALYSIS


useless as no meaningful conclusions can be drawn from a comparative analysis of

such items relating to several accounting periods.

9) Shortcoming of the tool of analysis: There are different tools of analysis available tothe analyst. Which tool is to be used in a particular situation depends on the skill,

training, intelligence and expertise of the analyst. If wrong tool is used, it may give

misleading results and may lead to wrong conclusions or inferences which may be

harmful to the interest of business.

MEANING OF RATIO:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick

that measures the relationship two figures, which are related to each other and

mutually interdependent. Ratio is express by dividing one figure by the other related

figure.

MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or group of

items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used

both in trend and static analysis. There are several ratios at the disposal of an analyst

but their group of ratio he would prefer depends on the purpose and the objective of

analysis.

OBJECTIVE OF RATIOSRatio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term2) Short term3) Immediate

B) Stability


17/53

RATIO ANALYSIS


C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

FORMS OF RATIO:

Since a ratio is a mathematical relationship between to or more variables / accounting

figures, such relationship can be expressed in different ways as follows

A] As a pure ratio:

B] As a rate of times:

C] As a percentage:

CLASSIFICATION OF RATIO

BASED ON FINANCIAL

1 Balance sheet Ratio2 Revenue Statement Ratio3 Composite Ratio

BASED ON FUNCTION

1) Liquidity Ratio2) Leverage Ratio3) Activity Ratio4) Profitability Ratio5) Coverage Ratio


18/53

RATIO ANALYSIS


BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from financial

statements. Figures may be taken from Balance Sheet, P&L A/C, or both. One-way of

classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are called Balance Sheet

Ratios. These ratios study the relationship between the assets & the liabilities, of the

concern. These ratio help to judge the liquidity, solvency & capital structure of the

concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, etc

2] Revenue ratio:

These ratios study the relationship between the profitability & the sales of the concern.

Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio,

etc

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in the

balance sheet & other in revenue statement. The types of composite ratios-return on

capital employed, return on proprietors fund, return on equity capital, debtors turnover

ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios

BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in to liquidity

ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios: It shows the relationship between the current assets & current

liabilities of the concern e.g. liquid ratios & current ratios.


19/53

RATIO ANALYSIS


2] Leverage ratios: It shows the relationship between proprietors funds & debts used

in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, &

Proprietary ratios.

3] Activity ratios: It shows relationship between the sales & the assets. It is also

known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors

turnover ratios.

4] Profitability ratios: It shows the relationship between profits & sales e.g. operating

ratios, gross profit ratios, operating net profit ratios, expenses ratios .It shows the

relationship between profit & investment e.g. return on investment, return on equity

capital.

5] Coverage ratios: It shows the relationship between the profit on the one hand &

the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios &

debt service ratios.

BASED ON USER:

1] Ratios for the shareholders: Return on proprietors fund, return on equity capital

2] Ratios for management: Return on capital employed, turnover ratios, operating

ratios, expenses ratios

3] Ratios for long-term creditors: Debt equity ratios, return on capital employed,

proprietor ratios.

IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance. The importance

of ratio analysis lies in the fact that it presents facts on a comparative basis & enablesthe drawing of interference regarding the performance of a firm. Ratio analysis is

relevant in assessing the performance of a firm in respect of the following aspects:

1] Liquidity position

2] Long-term solvency

3] Operating efficiency

4] Overall profitability


20/53

RATIO ANALYSIS


5] Inter firm comparison

6] Trend analysis.

1] LIQUIDITY POSITION: -

The liquidity position of a firm would be satisfactory if it is able to meet its current

obligation when they become due. A firm can be said to have the ability to meet its

short-term liabilities if it has sufficient liquid funds to pay the short term liabilities

within a year. The liquidity ratio is particularly useful in credit analysis by bank &

other suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financial viability of a

firm. This respect of the financial position of a borrower is of concern to the long-term

creditors, security analyst & the present & potential owners of a business.

3] OPERATING EFFICIENCY

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint

of management, is that it throws light on the degree of efficiency in management &

utilization of its assets. The various activity ratios measure this kind of operational

efficiency.

4] OVERALL PROFITABILITY:

Unlike the outsides parties, which are interested in one aspect of the financial position

of a firm, the management is constantly concerned about overall profitability of the

enterprise. That is, they are concerned about the ability of the firm to meets its shortterm as well as long term obligations to its creditors, to ensure a reasonable return to

its owners & secure optimum utilization of the assets of the firm.

5] INTERFIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm but also serves as

a stepping-stone to remedial measures. This is made possible due to inter firm

comparison & comparison with the industry averages.


21/53

RATIO ANALYSIS


ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of significant

accounting data relationships, which give the decision-maker insights into the

financial performance of a company. The advantages of ratio analysis can be

summarized as follows:

Ratios facilitate conducting trend analysis, which is important for decision making andforecasting.

Ratio analysis helps in the assessment of the liquidity, operating efficiency,profitability and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. The comparison of actual ratios with base year ratios or standard ratios helps the

management analyze the financial performance of the firm.

LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:

The figures in a set of accounts are likely to be at least several months out of date, andso might not give a proper indication of the companys current financial position.

Where historical cost convention is used, asset valuations in the balance sheet could bemisleading. Ratios based on this information will not be very useful for decision-

making.

Changes in accounting policy may affect the comparison of results between differentaccounting years as misleading.

Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do not indicatefuture trends and they do not consider economic conditions


22/53

RATIO ANALYSIS


MANAGERIAL USES OF RATIO ANALYSIS

i) Ratio analysis helps in making decisions from the information provided in these

financial statements.

ii) It helps in financial forecasting and planning.

iii) The financial strength and weakness of a firm are communicated in a more easy

and understandable manner by the use of ratios.

iv) Ratios even help in co-ordination which is of utmost importance ineffective.

v) Ratio analysis even helps in making effective control of the business.

vi) These are so many other uses of the ratio analysis. It is an essential part of the

budgetary control and standard costing.

UTILITY TO SHAREHOLDERS/INVESTORS

An investor in the company will like to assess the financial position of the concern

where he is going to invest. His first interest will be the security of his investment and

then a return in the form of dividend or interest. For the first purpose he will try to

asses the value of fixed assets and the loans raised against them. The investor will feel

satisfied only if the concern has sufficient amount of assets. Long-term solvency ratios

will help him in assessing financial position of the concern. Profitability ratios, on the

other hand, will be useful to determine profitability position. Ratio analysis will be

useful to the investor in making up his mind whether present financial position of the

concern warrants further investment or not.

UTILITY TO CREDITORS

The creditors or suppliers extend short-term credit to the concern. They are interestedto know whether financial position of the concern warrants their payments at a

specified time or not. The concern pays short- term creditors out of its current assets.

If the current assets are quite sufficient to meet current liabilities then the creditor will

not hesitate in extending credit facilities. Current and acid-test ratios will give an idea

about the current financial position of the concern.


23/53

RATIO ANALYSIS


UTILITY TO EMPLOYEES

The employees are also interested in the financial position of the concern

Especially profitability. Their wage increases and amount of fringe

Benefits are related to the volume of profits earned by the concern. The

Employees make use of information available in financial statements.

Various profitability ratios relating to gross profit, operating profit, net profit, etc.

enable employees to put forward their viewpoint for the increase of wages and other

benefits.

UTILITY TO GOVERNMENT

Government is interested to know the overall strength of the industry. Various

financial statements published by industrial units are used to calculate ratios for

determining short-term, long-term and overall financial position of the concerns.

Profitability indexes can also be prepared with the help of ratios. Government may

base its future policies on the basis of industrial information available from various

units. The ratios may be used as indicators of overall financial strength of public as

well as private sector. In the absence of the reliable economic information,

governmental plans and policies may not prove successful.


24/53

RATIO ANALYSIS



25/53

RATIO ANALYSIS


RESEARCH DESIGN

INTRODUCTION

Accounting ratios or ratio analysis establishes relationship between closely related

financial statements. If the items appearing in the financial statements are to be really

meaningful and useful, they should be analyzed in such a way that one item can be

compared with another. Ratio analysis is one of the tools available to analyze financial

statements.

TITLE OF THE STUDY:

A STUDY ON RATIO ANALYSIS OF HYUNDAI MOTOR COMPANY

STATEMENT OF PROBLEM

Manufacturing industries involves huge investment and to be successful these

industries requires efficient management. In the present prevailing conditions it is very

important to understand the financial conditions of the company as on any given date.

So, it is necessary for the management to analyze the financial statement in detail.

Financial statements contain large numbers of financials figures. From a study of these

absolute figures it is important to derive a precise idea about their financial position.

To get a clear picture, it is necessary to establish a relationship between closely related

figures, say, inventory and sale etc. hence this project report contains analysis offinancial statements ratio analysis and interpretation.


26/53

RATIO ANALYSIS


OBJECTIVES OF THE STUDY:

To analyze and interpret the financial statement of the company through ratio analysis. To study the profitability of the company and give necessary recommendations to the

company.

To find out the liquidity position of the company.

SCOPE OF THE STUDY

The study of the financial statements through the tools of ratio analysis confined to

HYUNDAI MOTOR COMPANY. Analysis of the financial and Ratio statement helps

in taking important managerial decision, which helps to improve the solvency,

liquidity, profitability and earning capacity of the business concern.

It helps to review the overall working of the company and helps the management to

control various costs such as manufacturing costs, administration cost and selling cost.

It also facilities the organization to have efficient office management. Above all it

helps to evaluate the performance of the business concern in the light of objective of

the organization. Thus it helps to implement the principle of management by

exception.


27/53

RATIO ANALYSIS


OBJECTIVES:

1. To analyse the short-term solvency or financial position of Hyundai motor

company. Through Liquidity ratios.

2. To analyse Hyundai motor companys ability to meet the interest costs and

repayment schedules of its long-term obligations using Long-term Solvency and

Leverage Ratios.

3. To analyse the efficiency of resources employed in Hyundai motor company using

Activity Ratios.

4. To measure the results of business operations or overall performance and efficiency

of Hyundai motor conpany using Profitability Ratios.

LIMITATIONS

1. The analyzed data does not take into consideration qualitative data that influence

decision.

2. The main limitation in the study was time due to which, ratio and analysis only for

Five years could be done and detailed study on the company was not possible.

3. The study was mainly on secondary data for the analysis of the performance of the

company.

Period

The study was conducted during the period beginning from January 2012 to March

2012 taking into account the statement for past 5 years i.e. 2007, 2008,2009,2010and2011


28/53

RATIO ANALYSIS


Research Methodology

Primary Data:

Primary data was collected through the interaction with the manager and assistant

manager of ADVAITH HYUNDAI

Secondary Data:

Information regarding the company has been provided by the specific organization,

information regarding key concepts like ratio analysis and analysis of balance sheet

has been obtained from popular books and websites. Annual Reports of Hyundai

motor company has been of immense help for reference.

TOOLS OF DATA COLLECTION:

Data was collected from the annual reports of the company for the past five years

dated 2007-2008, 2008-2009, 2009-2010,2010-2011

PLAN OF ANALYSIS:

Data collected with the help of balance sheet and profit and loss a/c for the purpose of

calculating the various ratios. Tables, graphs and charts are shown wherever necessary

to facilitate better understanding.

Technique of Analysis:

Five years of balance sheet and profit and loss account stated in the annual report

were used for the analysis. Liquidity Ratios. Long-term Solvency Ratios, Activity

Ratios, Profitability Ratios etc. were used as tool of analysis. Based on the

computation the financial position and performance of the business were evaluated

and suggestions were made regarding the performance of the company, the methodswere evaluated by extracting information from the balance sheet of five years, then the

best alternative was chosen and based on which the liquidity, turnover, profitability

and solvency position of the company was known.


29/53

RATIO ANALYSIS


OPERATIONAL DEFINITIONS

Working capital: The fund required for the actual running of any business or unit, thepurchase of raw materials for meeting the manufacturing, selling and administrative

expenses etc., is termed as working capital. Working capital is life blood for

business. The working capital is also known as operating capital. A most important

value, it represents the amount of day to day operating liquidity available to a

business. Working capital can be divided into two categories viz. permanent and

temporary.

Net worth: Equity share capital, preference share capital, reserve and surplus less theintangible assets (including losses).

Capital employed: Is equal to total of fixed assets are reduced by current liabilities. Proprietary ratio: is a test of financial & credit strength of the business. It relates

shareholders fund to total assets. This ratio determines the long term or ultimate

solvency of the company.

Debt equity ratio: It is also called as leverage ratio. Leverage means the process ofthe increasing the equity shareholders return through the use of debt. Leverage is also

known as gearing or trading on equity. Debt equity ratio shows the margin of

safety for long-term creditors & the balance between debt & equity.

Cost of capital: It is the cut off rate for determining estimated future cash proceeds ofa project and eventually deciding whether the project is worth undertaking or not. It is

also the minimum rate of return that a firm must earn on its investment which will

maintain the market value of share at its current level.


30/53

RATIO ANALYSIS



31/53

RATIO ANALYSIS


COMPANY PROFILE

ABOUT ADVAITH HYUNDAI:

Advaith Hyundai is a wholly owned company of the Advaith Group. One of the

largest automotive retail corporations in India, the Advaith Group is focused on

delivering a world class customer experience across all its business functions.

Advaith Hyundai has an enviable record of consistently being World's largest and

most awarded Hyundai dealer with 4 showrooms conveniently located across

Bangalore on Residency Road, Outer Ring Road, Vasanthnagar and Bannerghatta

Road. The facility on Outer Ring Road is Hyundai's largest 3Sfacility in India With a

1200 strong work force committed to exceeding customer expectation, Advaith

Hyundai services are at par with Hyundai global standards.

The Service Centres are continuously upgraded and equipped with the state-of-the art

equipment, in line with Hyundai's exacting worldwide standards. The Advaith

Hyundai showrooms are a one-stop shop to meet all customer needs, displaying the

latest cars from the Hyundai stable, the latest range of popular and exquisite

accessories, vehicle financing options and expert customer guidance to help select the

right Hyundai car.


32/53

RATIO ANALYSIS


INTRODUCTION ABOUT HYUNDAI MOTOR COMPANY:

Hyundai Motor Company is aKoreanautomakerwhich along withKiacomprises the

Hyundai Kia Automotive Group, the worlds fifth largest automaker as of 2009. As of

2009, it is the world's fastest growing automaker. In 2008, Hyundai ranked as the

eighth largest automaker.

Headquartered inSeoul,South Korea, Hyundai operates the worlds largest

integratedautomobilemanufacturing facility inUlsan, which is capable of producing

1.6 million units annually. The company employs about 75,000 persons around the

world. Hyundai vehicles are sold in 193 countries through some

6,000dealershipsandshowroomsworldwide.

The Hyundai logo, a slanted, stylized H, symbolizes the company shaking hands with

its customer.

HISTORY:

Chung Ju-Yungfounded the Hyundai Engineering and Construction Company in

1947. Hyundai Motor Company was later established in 1967. The companys first

model, theCortina, was released in cooperation withFord Motor Companyin 1968.

When Hyundai wanted to develop their own car, they hired George Turnbull, the

former Managing Director of Austin Morris atBritish Leyland. He in turn hired five

other top British car engineers.They were Kenneth Barnett body design, engineers

John Simpson and Edward Chapman,John Crosthwaiteex-BRMas chassis engineerand Peter Slater as chief development engineer. In 1975, thePony, the first Korean

car, was released, with styling by Giorgio Giugiaro ofItalDesignand powertrain

technology provided by JapansMitsubishi Motors. Exports began in the following

year toEcuadorand soon thereafter to theBenelux countries. In 1991, the company

succeeded in developing its first proprietary gasoline engine, the four-cylinder Alpha,

and transmission, thus paving the way for technological independence.
http://en.wikipedia.org/wiki/Koreahttp://en.wikipedia.org/wiki/Koreahttp://en.wikipedia.org/wiki/Automakerhttp://en.wikipedia.org/wiki/Automakerhttp://en.wikipedia.org/wiki/Automakerhttp://en.wikipedia.org/wiki/Kia_Motorshttp://en.wikipedia.org/wiki/Kia_Motorshttp://en.wikipedia.org/wiki/Kia_Motorshttp://en.wikipedia.org/wiki/Hyundai_Kia_Automotive_Grouphttp://en.wikipedia.org/wiki/Hyundai_Kia_Automotive_Grouphttp://en.wikipedia.org/wiki/Seoulhttp://en.wikipedia.org/wiki/Seoulhttp://en.wikipedia.org/wiki/Seoulhttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Automobilehttp://en.wikipedia.org/wiki/Automobilehttp://en.wikipedia.org/wiki/Automobilehttp://en.wikipedia.org/wiki/Ulsanhttp://en.wikipedia.org/wiki/Ulsanhttp://en.wikipedia.org/wiki/Ulsanhttp://en.wikipedia.org/wiki/Car_dealershiphttp://en.wikipedia.org/wiki/Car_dealershiphttp://en.wikipedia.org/wiki/Car_dealershiphttp://en.wikipedia.org/wiki/Showroomhttp://en.wikipedia.org/wiki/Showroomhttp://en.wikipedia.org/wiki/Showroomhttp://en.wikipedia.org/wiki/Chung_Ju-Yunghttp://en.wikipedia.org/wiki/Chung_Ju-Yunghttp://en.wikipedia.org/wiki/Ford_Cortinahttp://en.wikipedia.org/wiki/Ford_Cortinahttp://en.wikipedia.org/wiki/Ford_Cortinahttp://en.wikipedia.org/wiki/Ford_Motor_Companyhttp://en.wikipedia.org/wiki/Ford_Motor_Companyhttp://en.wikipedia.org/wiki/Ford_Motor_Companyhttp://en.wikipedia.org/wiki/George_Turnbullhttp://en.wikipedia.org/wiki/George_Turnbullhttp://en.wikipedia.org/wiki/George_Turnbullhttp://en.wikipedia.org/wiki/British_Leylandhttp://en.wikipedia.org/wiki/British_Leylandhttp://en.wikipedia.org/wiki/British_Leylandhttp://en.wikipedia.org/wiki/John_Crosthwaitehttp://en.wikipedia.org/wiki/John_Crosthwaitehttp://en.wikipedia.org/wiki/John_Crosthwaitehttp://en.wikipedia.org/wiki/BRMhttp://en.wikipedia.org/wiki/BRMhttp://en.wikipedia.org/wiki/BRMhttp://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/ItalDesignhttp://en.wikipedia.org/wiki/ItalDesignhttp://en.wikipedia.org/wiki/ItalDesignhttp://en.wikipedia.org/wiki/Mitsubishi_Motorshttp://en.wikipedia.org/wiki/Mitsubishi_Motorshttp://en.wikipedia.org/wiki/Mitsubishi_Motorshttp://en.wikipedia.org/wiki/Ecuadorhttp://en.wikipedia.org/wiki/Ecuadorhttp://en.wikipedia.org/wiki/Ecuadorhttp://en.wikipedia.org/wiki/Benelux_countrieshttp://en.wikipedia.org/wiki/Benelux_countrieshttp://en.wikipedia.org/wiki/Benelux_countrieshttp://en.wikipedia.org/wiki/Benelux_countrieshttp://en.wikipedia.org/wiki/Ecuadorhttp://en.wikipedia.org/wiki/Mitsubishi_Motorshttp://en.wikipedia.org/wiki/ItalDesignhttp://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/BRMhttp://en.wikipedia.org/wiki/John_Crosthwaitehttp://en.wikipedia.org/wiki/British_Leylandhttp://en.wikipedia.org/wiki/George_Turnbullhttp://en.wikipedia.org/wiki/Ford_Motor_Companyhttp://en.wikipedia.org/wiki/Ford_Cortinahttp://en.wikipedia.org/wiki/Chung_Ju-Yunghttp://en.wikipedia.org/wiki/Showroomhttp://en.wikipedia.org/wiki/Car_dealershiphttp://en.wikipedia.org/wiki/Ulsanhttp://en.wikipedia.org/wiki/Automobilehttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Seoulhttp://en.wikipedia.org/wiki/Hyundai_Kia_Automotive_Grouphttp://en.wikipedia.org/wiki/Kia_Motorshttp://en.wikipedia.org/wiki/Automakerhttp://en.wikipedia.org/wiki/Korea


33/53

RATIO ANALYSIS


In 1983, Hyundai exported thePonytoCanada, but not to the United States because

the Pony didn't pass emissions standards there. Canadian sales greatly exceeded

expectations, and it was at one point the top-selling car on the Canadian market. The

Pony afforded a much higher degree of quality and refinement in the lowest price auto

segment than the Eastern-bloc imports of the period then available.

In 1986, Hyundai began to sell cars in theUnited States, and theExcelwas nominated

as "Best Product #10" byFortune magazine, largely because of its affordability. The

company began to produce models with its own technology in 1988, beginning with

the midsizeSonata.

In 1996, Hyundai Motors India Limited was established with a production plant in

Irrungattukotai nearChennai,India.

In 1998, Hyundai began to overhaul its image in an attempt to establish itself as a

world-class brand. Chung Ju Yung transferred leadership of Hyundai Motor to his

son,Chung Mong Koo, in 1999.Hyundai's parent company,Hyundai Motor Group,

invested heavily in the quality, design, manufacturing, and long-term research of its

vehicles. It added a 10-year or 100,000-mile (160,000 km) warranty to cars sold in

theUnited Statesand launched an aggressive marketing campaign.

In 2004, Hyundai was ranked second in "initial quality" in a survey/study byJ.D.

Power and Associates. Hyundai is now one of the top 100 most valuable brands

worldwide. Since 2002, Hyundai has also been one of the worldwide official sponsors

of theFIFA World Cup.

In 2006, the South Korean government initiated an investigation ofChung MongKoo's practices as head of Hyundai, suspecting him ofcorruption. On April 28, 2006,

Chung was arrested, and charged forembezzlementof 100 billionSouth Korean

won(US$106 million). As a result, Hyundai Vice Chairman and CEO, Kim Dong-jin,

replaced him as head of the company.

Research & Development
http://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/Hyundai_Ponyhttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Hyundai_Excelhttp://en.wikipedia.org/wiki/Hyundai_Excelhttp://en.wikipedia.org/wiki/Hyundai_Excelhttp://en.wikipedia.org/wiki/Fortune_magazinehttp://en.wikipedia.org/wiki/Fortune_magazinehttp://en.wikipedia.org/wiki/Fortune_magazinehttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Hyundai_Motor_Grouphttp://en.wikipedia.org/wiki/Hyundai_Motor_Grouphttp://en.wikipedia.org/wiki/Hyundai_Motor_Grouphttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/J.D._Power_and_Associateshttp://en.wikipedia.org/wiki/J.D._Power_and_Associateshttp://en.wikipedia.org/wiki/J.D._Power_and_Associateshttp://en.wikipedia.org/wiki/J.D._Power_and_Associateshttp://en.wikipedia.org/wiki/FIFA_World_Cuphttp://en.wikipedia.org/wiki/FIFA_World_Cuphttp://en.wikipedia.org/wiki/FIFA_World_Cuphttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Corporate_crimehttp://en.wikipedia.org/wiki/Corporate_crimehttp://en.wikipedia.org/wiki/Corporate_crimehttp://en.wikipedia.org/wiki/Embezzlementhttp://en.wikipedia.org/wiki/Embezzlementhttp://en.wikipedia.org/wiki/Embezzlementhttp://en.wikipedia.org/wiki/South_Korean_wonhttp://en.wikipedia.org/wiki/South_Korean_wonhttp://en.wikipedia.org/wiki/South_Korean_wonhttp://en.wikipedia.org/wiki/South_Korean_wonhttp://en.wikipedia.org/wiki/South_Korean_wonhttp://en.wikipedia.org/wiki/South_Korean_wonhttp://en.wikipedia.org/wiki/Embezzlementhttp://en.wikipedia.org/wiki/Corporate_crimehttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/FIFA_World_Cuphttp://en.wikipedia.org/wiki/J.D._Power_and_Associateshttp://en.wikipedia.org/wiki/J.D._Power_and_Associateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Hyundai_Motor_Grouphttp://en.wikipedia.org/wiki/Chung_Mong_Koohttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Fortune_magazinehttp://en.wikipedia.org/wiki/Hyundai_Excelhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Hyundai_Pony


34/53

RATIO ANALYSIS


Hyundai has 5 R&D centres worldwide. Located inSouth Korea,California, United

States,Germany,JapanandHyderabad, India.[13

HYUNDAI IN INDIA

Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai

Motor Company (HMC), South Korea and is the largest passenger car exporter and the

second largest car manufacturer in India. HMIL presently markets 6 models of

passenger cars across segments. The A2 segment includes the Santro, i10 and the i20,

the A3 segment includes the Accent and the Verna, the A5 segment includes the

Sonata Transform and the SUV segment includes the Santa Fe.

HMILs fully integrated state-of-the-art manufacturing plant near Chennai boasts of

the most advanced production, quality and testing capabilities in the country. To cater

to rising demand, HMIL commissioned its second plant in February 2008, which

produces an additional 300,000 units per annum, raising HMILs total production

capacity to 600,000 units per annum.

In continuation with its commitment to providing Indian customers with cutting-edge

global technology, HMIL has set up a modern multi-million dollar research and

development facility in the cyber city of Hyderabad. It aims to become a centre of

excellence for automobile engineering and ensure quick turnaround time tochangingconsumerneeds.

As HMCs global export hub for compact cars, HMIL is the first automotive company

in India to achieve the export of 10 lakh cars in just over a decade. HMIL currently

exports cars to more than 110 countries across EU, Africa, Middle East, Latin

America, Asia and Australia. It has been the number one exporter of passenger car of

the country for the sixth year in a row.
http://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/California,_United_Stateshttp://en.wikipedia.org/wiki/California,_United_Stateshttp://en.wikipedia.org/wiki/California,_United_Stateshttp://en.wikipedia.org/wiki/California,_United_Stateshttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Hyundai_Motor_Company#cite_note-12http://en.wikipedia.org/wiki/Hyundai_Motor_Company#cite_note-12http://en.wikipedia.org/wiki/Hyundai_Motor_Company#cite_note-12http://en.wikipedia.org/wiki/Hyundai_Motor_Company#cite_note-12http://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/California,_United_Stateshttp://en.wikipedia.org/wiki/California,_United_Stateshttp://en.wikipedia.org/wiki/South_Korea


35/53

RATIO ANALYSIS


To support its growth and expansion plans, HMIL currently has a 315 strong dealer

network and 640 strong service points across India, which will see further expansion

in 2010.

Hyundai Motor India Limitedis currently the second largest carmaker afterMaruti

Suzukiand largest auto exporter inIndia. It is making India the global manufacturing

base for small cars. Hyundai sells several models in India, the most popular being

theSantro Xing,i10and thei20. Other models includeGetz

Prime,Accent,Terracan,Elantra(Discontinued), second

generationVerna,Tucson,Santa Feand theSonata Transform. Hyundai has two

manufacturing plants in India located at Sriperumbudur in the Indian state ofTamil

Nadu. Both plants have a combined annual capacity of 600,000 units.In the year 2007

Hyundai opened its R&D facilty in Hyderabad Andhra pradesh , employing now

nearly 450 engineers from different parts of the country.Basically the Hyundai Motors

India Engineering (HMIE) gives technical & engineering support in Vehicle

development and CAD & CAE support to Hyundai's main R&D center in Namyang

Korea
http://en.wikipedia.org/wiki/Hyundai_Motor_India_Limitedhttp://en.wikipedia.org/wiki/Hyundai_Motor_India_Limitedhttp://en.wikipedia.org/wiki/Maruti_Suzukihttp://en.wikipedia.org/wiki/Maruti_Suzukihttp://en.wikipedia.org/wiki/Maruti_Suzukihttp://en.wikipedia.org/wiki/Maruti_Suzukihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Hyundai_Santro_Xinghttp://en.wikipedia.org/wiki/Hyundai_Santro_Xinghttp://en.wikipedia.org/wiki/Hyundai_Santro_Xinghttp://en.wikipedia.org/wiki/Hyundai_i10http://en.wikipedia.org/wiki/Hyundai_i10http://en.wikipedia.org/wiki/Hyundai_i10http://en.wikipedia.org/wiki/Hyundai_i20http://en.wikipedia.org/wiki/Hyundai_i20http://en.wikipedia.org/wiki/Hyundai_i20http://en.wikipedia.org/wiki/Hyundai_Clickhttp://en.wikipedia.org/wiki/Hyundai_Clickhttp://en.wikipedia.org/wiki/Hyundai_Clickhttp://en.wikipedia.org/wiki/Hyundai_Clickhttp://en.wikipedia.org/wiki/Hyundai_Accenthttp://en.wikipedia.org/wiki/Hyundai_Accenthttp://en.wikipedia.org/wiki/Hyundai_Accenthttp://en.wikipedia.org/wiki/Hyundai_Terracanhttp://en.wikipedia.org/wiki/Hyundai_Terracanhttp://en.wikipedia.org/wiki/Hyundai_Terracanhttp://en.wikipedia.org/wiki/Hyundai_Elantrahttp://en.wikipedia.org/wiki/Hyundai_Elantrahttp://en.wikipedia.org/wiki/Hyundai_Elantrahttp://en.wikipedia.org/wiki/Hyundai_Vernahttp://en.wikipedia.org/wiki/Hyundai_Vernahttp://en.wikipedia.org/wiki/Hyundai_Vernahttp://en.wikipedia.org/wiki/Hyundai_Tucsonhttp://en.wikipedia.org/wiki/Hyundai_Tucsonhttp://en.wikipedia.org/wiki/Hyundai_Tucsonhttp://en.wikipedia.org/w/index.php?title=Hyundai_Santa_fe&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Hyundai_Santa_fe&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Hyundai_Santa_fe&action=edit&redlink=1http://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/wiki/Tamil_Naduhttp://en.wikipedia.org/wiki/Tamil_Naduhttp://en.wikipedia.org/wiki/Tamil_Naduhttp://en.wikipedia.org/wiki/Tamil_Naduhttp://en.wikipedia.org/wiki/Tamil_Naduhttp://en.wikipedia.org/wiki/Tamil_Naduhttp://en.wikipedia.org/wiki/Hyundai_Sonatahttp://en.wikipedia.org/w/index.php?title=Hyundai_Santa_fe&action=edit&redlink=1http://en.wikipedia.org/wiki/Hyundai_Tucsonhttp://en.wikipedia.org/wiki/Hyundai_Vernahttp://en.wikipedia.org/wiki/Hyundai_Elantrahttp://en.wikipedia.org/wiki/Hyundai_Terracanhttp://en.wikipedia.org/wiki/Hyundai_Accenthttp://en.wikipedia.org/wiki/Hyundai_Clickhttp://en.wikipedia.org/wiki/Hyundai_Clickhttp://en.wikipedia.org/wiki/Hyundai_i20http://en.wikipedia.org/wiki/Hyundai_i10http://en.wikipedia.org/wiki/Hyundai_Santro_Xinghttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Maruti_Suzukihttp://en.wikipedia.org/wiki/Maruti_Suzukihttp://en.wikipedia.org/wiki/Hyundai_Motor_India_Limited


36/53

RATIO ANALYSIS


AWARDS AND ACHIEVEMENTS

2009:

Hyundai i20 awarded 'Five Star Rating' for

Safety by European New Car Assessment

Programme (NCAP).

Hyundai Motor wins the Manufacturer o

the Year award at the NDTV Profit Car &

Bike Awards 2009.

Hyundai Motor India was named the

Manufacturer of the Year award and the

'Best Variant' award for its i-10 Kappa

engine at the UTVi Autocar Awards 2009.

Hyundai Motor India wins the Highest

Resale Value award at the Apollo Tyres

Auto India Best Brand Survey Awards for

the year 2009.

2010:

Hyundai i10 wins 'Small Family Favourite

Car Award' by CarWale.com


37/53

RATIO ANALYSIS


Hyundai i20 wins the Viewers Choice

Award at the Overdrive CNBC TV 18

Awards 2010.

Hyundai Motor India Ltd wins the award

for Customer Service at the Apollo Auto

India Best Brand Awards 2010.

Hyundai i20 wins the Design of the Year

award at the NDTV Profit Car & Bike

Awards 2010.

Hyundai i10 brand ambassador Shahrukh

Khan wins the Brand Ambassador of theYear award at NDTV Profit Car & Bike

Awards 2010.

Hyundai Motor Company achieved much in 2007 despite the challenging business

climate. Numerous sections of the world media have praised Hyundai's high quality.

Improvements in customer satisfaction and a continuous sales growth demonstrates

Hyundai Motor's ability to increase its market share. Hyundai's success, watched

closely worldwide, is a result of continuous and aggressive innovations that have been

implemented on behalf of our customers. Customer satisfaction is our number one

value. Hyundai Motor Company considers its most important mission to be bringing

the enjoyment of elegance and confidence to its customers, rather than just selling

products. Hyundai strives to bring its customers luxury and style. Therefore, Hyundai


38/53

RATIO ANALYSIS


will continue to stabilize its global management by establishing an effective

cooperation system among production bases around the world. Hyundai Motor

Company's management goal in 2009 is customeroriented management and

continuous

For example, second plants in China and India will begin full operation, construction

of plants in the Czech Republic will be completed, and construction of plants in Russia

will commence. The focus will be on effective management and stable production

operation bases in each area and maximization of sales and marketing goals.

Best company! Best sales does not necessarily mean Best company. Being the best

company is possible only if customers, the community, the environment, and the

company are in harmony. Hyundai Motor Company has continued to engage in

environmental management activities such as development of environmentally

friendly technologies and clean production, in order to address environmental issues.

In addition, Hyundai Motor Company is continuously striving to fulfill its obligations

as a responsible enterprise - as a good 'citizen' - through social contributions to the

communities we serve. Such a paradigm shift is possible because we are Hyundai

Motor Company. Hyundai seeks innovation with global vision, challenges itself to

embrace new company values, and continues to evolve with our customers.

ADVANCED MANAGEMENT PHILOSOPHY OF A WORLD CLASSAUTOMOBILE COMPANY:

Competition among automobile companies throughout the world has been fierce. In

spite of these conditions, Hyundai Motor Company has made a giant leap forward

thanks to its advanced management philosophy, designed to ensure a better future for

Hyundai Motor Company and its customers. This management philosophy has become

even more solid since the inauguration of MongKoo Chung as Chairman and CEO in


39/53

RATIO ANALYSIS


1999.

Hyundai Motor Company is growing into a brand appreciated by its customers

because it is continuously striving to achieve the single goal of making good quality

products with an emphasis on the customer first principle across all management

levels, including production, sales, and service. Moreover, Hyundai Motor will

continue building its brand image as a top global automobile company by handling

every task with transparency and fairness from the perspective of business ethics.

Marching into the future through the move forward and growth. It will be reborn as a

truly global company gaining a competitive edge in the global market.

ACCELERATING GLOBAL MANAGEMENT BY EXPANDING THE

WORLDWIDE PRODUCTIONS BASE:

Further expanding its global reach, Hyundai Motor Company established its European

manufacturing base through construction of a production plant with an annual capacity

of 300,000 units in the Czech Republic in 2009. Additionally, the construction of the

Russia plant with an annual capacity of 150,000 units is set for full operation from

2011, bringing a strong foothold in the European market. The plant in Brazil is

expected to play a key role in reinforcing the Companys market share in Central and

South America.

EXCEPTIONAL BUSINESS PERFORMANCE DESPITE GLOBAL

ECONOMIC CRISIS THROUGH SUPERIOR PRODUCT QUALITY AND

AGGRESSIVE MARKETING STRATEGIES

In 2009, Hyundai Motor Company succeeded in selling 2.4 million vehicles overseas,a meaningful accomplishment considering the global economic crisis. In particular,

Elantra, Genesis, Genesis Coupe, Santa Fe, and Veracruz were recognized as the best

and safest cars in their categories by leading agencies and the media in the US. Also,

Hyundai achieved cumulative export sales of 1 million cars in Africa during the 33

years since it first began exporting to the region. Hyundai Motor Company pledges


40/53

RATIO ANALYSIS


continuous growth by maximizing brand value in developed markets and expanding its

sales capacity in emerging markets.

AWARDED 10 BEST ENGINES FOR THE SECOND CONSECUTIVE YEAR:

The TAU 4.6 engine was selected as a winner of the 201110 Best Engines of the US

automotive media Wards AutoWorld for the second consecutive year. Earning

favorable reviews including the engines velvety power delivery, aggressive tip-

in, and a remarkable combination of satisfactory exhaust emission and amazing fuel

efficiency, Hyundai Motors high product quality was proven once again, this time in

engine technologythe heart of an automobile. Hyundai Motor pledges to concentrate

its technical capabilities and pay special attention to the development of high fuel

efficiency-related technologies to become a true global environmental leader.

HYUNDAIS COMPETITIVE EDGE:

Hyundai Motor Company was named Carmaker of the Year by AM, UKs leading

auto trade magazine, in the AM Awards 2010. Carmaker of the Year is awarded to

companies that launch innovative vehicles that pioneer changes in the auto industry

through continuous investment in R&D and advanced dealer network programs.

Highly recognized for its sharp sales increase, first-rate dealership programs, and

growth in brand awareness, Hyundai Motor Company beat other candidates including

Ford, Jaguar, and Landrover to be selected as the winner of the coveted title. In 2008,

UKs Autocar selected Hyundai Motor Company as Automaker of the Year, praising

Hyundai for having grown into a top-class global automaker with its competitive

products.SELECTED AS THE TOP 100TH GLOBAL BRAND FOR THE 5TH

CONSECUTIVE YEAR

Once again, Hyundai Motor placed in the Top 100 Global Brands in 2011 based on a

joint study conducted by Business Week and Interbrand. By enhancing Hyundais

brand image through high quality products and unique marketing initiatives amidst the

downturn in the automotive market, Hyundai Motor is steadily climbing the ranks


41/53

RATIO ANALYSIS


since it first entered the Top 100 Global Brands in 2005. Hyundai will continue to

strengthen its management and pursue the highest in quality so that Hyundai Motor

Company will equal global premium brand in the minds of consumers worldwide.

Under the Board of Directors, there are the Audit Committee and External Director

Candidates Recommendation Committee. We further established the Ethics

Committee in 2007.

BOARD OF DIRECTORS

The Board of Directors makes decisions on matters defined by the laws or articles of

incorporation, matters delegated by the general shareholders meeting, and key matters

related to the basic guidelines for company operations and work execution. Moreover,

we have the authority to supervise duties of directors and management, and consist of

four internal directors and five external directors. The Board of Directors holds regular

meetings and special meetings, if necessary.

The Audit Committee under the Board of Directors consists of four external directors.It is responsible for auditing finance and management of HMC. It has the authority to

review reports on business management and financial status. The Audit Committee

approves matters related to audit, the shareholders meeting, directors, and the board

of directors. It can access business and management information for auditing.

The External Director Candidates Recommendation Committee consists of two

internal directors and two external directors. External directors should be


42/53

RATIO ANALYSIS


recommended by the External Director Candidates Recommendation Committee. The

2007 Shareholders Meeting approved the directors compensation ceiling of 10

billion won. From January 1 to December 31, 2007, total compensation paid to

internal and external directors was 7.737 billion.

The Ethics Committee, which monitors internal transactions and supervises

transparency and ethics management. The Ethics Committee consists of five external

directors, one executive, and two advisors. It reviews matters related to the Anti-Trust

and Fair Trading Act, transactions between parties in special relations specified in the

Securities Trading Act, voluntary compliance with fair trading regulations, policies on

ethics management and social contribution, and the Ethics Charter.

MANAGEMENT PHILOSOPHY

With the spirit of creative challenge, we will strive to create a more affluent lifestyle

for humanity, and contribute to the harmony and co-prosperity with shareholders,

customers, employees and other stakeholders in the automobile industry.

The spirit of creative challenge has been a driving force in leading HMC to where it is

today.

It is the permanent key factor for HMC to actively respond to change in the

management system and seek creative and selfinnovative system. With the spirit of

creative challenge, we create profits, the primary objective of a private enterprise.

Furthermore, we take responsibility for the environment and society we belong to, and

offer sustainable mobility in order to implement our corporate philosophy and providebenefits to all stakeholders including shareholders, customers, executives, employees,

suppliers, and communities.


43/53

RATIO ANALYSIS


VISION

HYUNDAI announced "Innovation for Customers" as their mid longterm vision

with five core strategies: global orientation, respect for human values, customer

satisfaction, technology innovation, and cultural creation.the company desire to create

an automobile culture of putting customer first via developing humancentered and

environmentfriendly technological innovation.

MANAGEMENT POLICY

Based on a respect for human dignity,Hyundai makes efforts to meet the expectations

of all stakeholders including customers and business partners by building a

constructive relationship amongst management, labor, executives and employees.Also, they focus on communicating

Corporate values internally and externally, and gaining confidence from all

stakeholders.


44/53

RATIO ANALYSIS


MID-AND LONG-TERM STRATEGIES

Hyundai developed five midand longterm strategies: global management, higher

brand values, business innovation, environmental management, and strengthening

product competitiveness. Especially, select environmental management as one of their

strategies to meet the needs of stakeholders and the society .. they intend to promote

sustainability development and preservation of the environment.

HYUNDAI CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility(CSR) has become the key issue in company-society

relations. CSR has taken a position of the core pillars of Hyundai Motor as the

company strives to establish a new Sustainable Business Management System based

on its five primary business principles.

Hyundai Motor Company does not see itself as a mere profit-making entity. It is a

Contributing member of global society based on the responsible corporate citizenship.

It is one of the main purposes to make a better world in close cooperation with all

people and groups, including stake holders, employees, customers, shareholders,

suppliers, and local communities

Specifically in April of 2007, Hyundai Motor announced its socially responsible

management plan to fulfill its responsibility to global society.

THE CONCEPTUAL FOCUS

Hyundai Motor socially responsible management covers three conceptual areas

economic responsibility, social responsibility, and environmental responsibility.

AREA OF STRATEGIC FOCUS

Corporate social responsibility covers three areas: trust-based management,

environmental management, and social contribution.

For trust-based management, we will focus on enhancement of labour relations,

mutually beneficial cooperation with suppliers, ethics management, and transparent


45/53

RATIO ANALYSIS


management. As for environmental management, we will proactively respond to

global trends and regulations related to the environment. For social contribution, we

plan to enlarge our capacity and obtain expertise to effectively carry out global social

contribution projects and participate in volunteering programs to contribute to

development of local communities.

GLOBAL CSR WEBSITE

In 2007, a year dedicated to global social contribution, Hyundai Motor Company

prepared its infrastructure to execute corporate social responsibility , as well as social

contributions. It established the 'Hyundai Motor Global CSR Network' with primary

production and sales subsidiaries around the world, and will establish a network

covering all its subsidiaries worldwide, by continuously extending the network.

Hyundai also laid foundations by promoting global CSR (Corporate Social

Responsibility) activities, and by developing and opening the 'Global CSR Web site'

for information exchange.


46/53

RATIO ANALYSIS



47/53

RATIO ANALYSIS


ANALYSIS AND INTERPRETATON

Meaning of AnalysisAnalysis is the process of critically examining in detail accounting information given in the

financial statements. Analyzing financial statements is a process of evaluating relationship

between component parts of financial statements to obtain a better understanding of firms

position and performance. The analysis of financial statements refers to the treatment to the

information contained in the financial statements in such a way so as to afford a full

diagnosis of the profitability and financial position of the firm. For this purpose, financial

statements are classified methodically, analyzed and compared with the figures of previous

year or similar other firms.

Meaning of interpretation

Analysis and interpretation are closely related. Interpretation is not possible without analysis

and without interpretation analysis has no value. Various account balances appear in the

financial statements. These accounts balances do not represents homogenous data so it is

difficult to interpret them and draw conclusions. This requires an analysis of the data in the

financial statements so as to bring some homogeneity to the figures shown in the financial

statements. Interpretation is thus drawing of inference and stating what the figures in the

financial statements really mean.

LIQUIDITY RATIO

Liquidity means ability of a firm to meet its current liabilities. The liquidity ratios, therefore,

try to establish a relationship between current liabilities, which are the obligations soon

becoming due and current assets, which presumably provide the source from which these

obligations will be met. The failure of a company to meet its obligation due to lack of

adequate liquidity will result in bad credit ratings, loss of creditors confidence or even in


48/53

RATIO ANALYSIS


law suits against the company. The following ratios are commonly used to indicate the

liquidity of business:

Current ratio

Liquid Ratio (Acid Test or Quick Ratio)

Absolute Liquid Ratio or Cash Ratio

Inventory Turnover Ratio.

CURRENT RATIO

This ratio is most commonly used to perform the short-term financial analysis. Also known

as the working capital ratio, this ratio matches the current assets of the firm to its current

liabilities. Current assets include cash in hand and at bank, readily marketable securities, bills

receivable, debtors less provision for bad and doubtful debts, stock in trade, prepaid

expenses, any other asset which, in the normal course of business will be converted in cash

in a years time.

Current Liabilities include all obligations maturing within a year, such as sundry creditors,

bills payable, bank overdraft, income tax payable, dividends payable, outstanding expenses,

provision for taxation and unclaimed dividends.

Formula:

Current ratio = Current Assets/Current Liabilities

Significance and Objective:

Current ratio throws good light on the short-term financial position and policy. It is an

indicator of a firms ability to promptly meet its short-term liabilities. A relatively high


49/53

RATIO ANALYSIS


current ratio indicates that the firm is liquid and has the ability to meet its current liabilities.

On the other hand, a relatively low current ratio indicates that the firm will find it difficult to

pay its bills.

Ideal ratio:

A ratio equal or near to the thumb of 2:1 i.e. current assets double the current liabilities is

considered to be satisfactory.

TABLE-4.1

TABLE DEPICTING CURRENT RATIO

PARTICULARS 2007 2008 2009 2010 2011

CURRENT ASSETS 408.43 646.09 745.12 694.26 2,408.27

CURRENT LIABILITIES1,192.98 1,171.50 1,455.57 1,678.93 3,965.69

CURRENT RATIO0.34 0.55 0.51 0.41 0.60

INFERENCE:

From the above table it can inferred that the current ratio is higher in the year 2011 at a rate

of 0.60 which shows an increasing trend. Hyundai has shown good performance in terms of

the current ratio as it has been increasing year by year which is a good sign. The current ratio

depicts that the company has sufficient current assets to meet its current debt.

In the year 2011 the company current ratio is very high which will have an adverse impact

on the profitability of organization. Very high current ratio is not desirable.


50/53

RATIO ANALYSIS


CHART 4.1

CHART DEPICTING CURRENT RATIO

Interpretation:

As a convention the minimum of 2:1 ratio is referred to as a bankers rule of thumb or

standard of liquidity for a firm. A ratio equal or near to the rule of 2:1 i.e., current assets

double the current liabilities is considered to be satisfactory. From the above table it can be

inferred that over the FIVE years there is good performance in terms of the current ratio as it

has been increasing year by year which is a good sign. The current ratio depicts that the

company has sufficient current assets to meet its current debt.


51/53

RATIO ANALYSIS


2.QUICK OR ACID TEST RATIO

This ratio is also known as acid test ratio or liquid ratio. It is a more severe test of liquidity of

a company. It shows the ability of a business to meet its immediate financial commitments. It

is used to supplement the information given by the current ratio.

Formula:

Quick ratio = Quick (or Liquid) Assets/Quick Liabilities

Liquid Assets = Current AssetsInventoryPre-paid Expenses

Liquid liabilities = Current LiabilitiesBank Over Draft

Significance and Objective:

When quick ratio is used along with current ratio, it gives a better picture of the firms ability

to meet its short-term liabilities out of its short-term assets. This ratio is of great importance

for banks and financial institutions.

Ideal ratio:

An acid test ratio of 1:1 is considered satisfactory as a firm can easily meet all current

claims.


52/53

RATIO ANALYSIS


TABLE 4.2

TABLE DEPICTING LIQUID RATIO

PARTICULARS 2007 2008 2009 2010 2011

LIQUID

ASSETS

181.88 371.32 428.02 3 67.43 1971.87

CURRENT

LIABILITIES

1192.98 1171.50 1455.57 1678.93 3965.69

LIQUID RATIO 0.15 0.31 0.29 0.21 0.49

INFERENCE:

From the above table it can be inferred that the liquid ratio is higher in 2010 at a rate of 0.49

and has shown increasing trend over the years.This indicates that the firm has sufficient

liquid assets to provide a cover to the current liabilities

CHART 4.2


53/53

RATIO ANALYSIS

CHART DEPICTING LIQUID RATIO

0.15

0.310.29 0.21

0.49

0

0.1

0.2

0.3

0.4

0.5

Liquid

Ratio

2006 2007 2008 2009 2010

Year

Interpretation:

It is generally thought that if quick assets are equal to current liabilities then the concern may

be able to meet its short-term obligation. As a convention quick ratio of 1:1 is considered

satisfactory. From the above table it can be inferred that the company has a quick ratio whch

is more than the ideal ratio n all the five years which indicates that the liquid assets are more

sufficient to provide a cover to the current liabilities.

project report sandeep 2

Documents