Introduction To The Topic: The Financial Analysis of Ashok Leyland, LTD

THE FINANCIAL ANALYSIS OF ASHOK LEYLAND, LTD.
INTRODUCTION TO THE TOPIC

Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may: 1. Continue or discontinue its main operation or part of its business; 2. Make or purchase certain materials in the manufacture of its product; 3. Acquire or rent/lease certain machineries and equipment in the production of its goods; 4. Issue stocks or negotiate for a bank loan to increase its working capital; 5. Make decisions regarding investing or lending capital; 6. Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.
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OBJECTIVES OF STUDY
1) The main objective of study is to forecast and/or determine the actual financial status and performance of Ashok Leyland, Ltd.
2) This Financial analysis study will helps in accessing the viability, stability and profitability of Ashok Leyland, Ltd.
3) The other objective of the study is to measure the operational performance and achievement of financial objectives.
4) Financial analysis helps in making effective business decisions.
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RESEARCH METHODOLOGY
Research is a process of systematic and in-depth study of research of any topic, subject backed by the collection, presentation and interpretation of relevant data. Methodology is important tool in any research work. It acts as a guideline and leads to completion of research project. It consists of various steps that are generally adapted by researcher in study in problem along with logic behind them. On the basis of general guideline, a model of the following steps is prepared and presented in the dissertation work. A) Selection of subject: Selection of subject or topic for dissertation work is a very important job for researcher. The difficult task is the information which is required for the purpose of research. It should be easily available. Researcher has chosen this subject after discussion with guide and with other person. B) Title of dissertation: In view of the object behind the selection of subject researcher has chosen the topic entitled Study of Financial Analysis of Ashok Leyland, Ltd., Company.
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C) Collection of data: The research methodology would like to gather information for carrying out analysis by using the following method during research study. Secondary data: Financial search is the systematic design, collection and analysis of data and finding relevant to specific financial aspects of the company. The data was collected through financial statements like: 1) Annual reports. 2) Balance sheet. 3) Profit and Loss Account 4) Other articles.
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HYPOTHESIS The term hypothesis has several meanings. It may be taken to mean a supposition or an assumption. In general it is taken as a proposal to accept something as true. A hypothesis is tentative generalization, the validity of which has got to be tested. Hypothesis at its initial stages may be an imagined idea or more given. A hypothesis is made in order to find out correct explanation of the phenomenon through investigation. On the basis of hypothesis facts are observed and collected when by verification. In this project the following areas has been formulated:
1. That the financial structure of the company is appropriate.
2. That the profitability of the company is satisfactory. 3. That company uses the fixed assets efficiently. 4. That the liquidity position of the concern is satisfactory
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INTRODUCTION
HISTORY OF AMBUJA CEMENT:
Major Achievements of Ashok Leyland, Ltd.
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TYPES OF FINANCIAL ANALYSIS
TYPES OF FINANCIAL ANALYSIS
ON THE BASIS OF MATERIAL USED
ON THE BASIS OF MODUS OPERANDI
EXTERNAL ANALYSIS
INTERNAL ANALYSIS
HORIZONTAL ANALYSIS
VERTICAL ANALYSIS
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ON THE BASIS OF MATERIAL USED According to it, Financial Analysis can be of two types: (A)EXTERNAL ANALYSIS: External Analysis is done by outsiders who do not have access to the detailed internal accounting records of the firm. For Financial Analysis, these outsiders depend almost entirely on the published financial ststements. These outsiders include investors, potential investors creditors, government agencies, credit agencies and the general public. The main objective of such analysis varies from any party-to-party. (B)INTERNAL ANALYSIS: Internal Analysis are conducted by persons who have access to the internal accounting records and the other related information of a business firm. This internal analysis is conducted for measuring the operational and managerial efficiency of the firm. This analysis is performed by the employees of the organisation as well as government agencies, this analysis is quite comperensive and reliable.
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ON THE BASIS OF MODUS OPERANDI According to it, Financial Analysis can be of two types: (A)HORIZONTAL ANALYSIS: Horizontal analysis refers to the comparison of financial a company for several years. The figures of the various years are compared with standard or base year this comparison focus attention on items that have changed significantly during the period under review. So, horizontal analysis is useful for long term analysis and planning.
(B)VERTICAL ANALYSIS: Vertical Analysis refer to the process of evaluating the relationship of the various items in the financial statement of one accounting period. In vertical analysis, the figures from financial statement of a year are compared with a base selected from the same years statement. So, it is a study in terms of information at a perticular data only.
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METHODS OF FINANCIAL ANALYSIS The analysis and interpretation of the financial statement is used to determine the financial position and result of operation, number of methods are used to analysis the relationship between different financial statement such as. (A) COMPARATIVE STATEMENT: The comparative financial statements are statements of the financial position at different period of time, in this financial data two or more year are placed and presented in adjecent columns in order to facilitate periodic comparision. The presentation of such data enhance the usefulness of these reports and bring out more clearly the nature and trend of changes affecting the profitability and financial position of firm. The two types of comparative financial statements are prapared: 1) Comparative balance sheet. 2) Comparative income statement. (B) COMMON-SIZE STATEMENT: The common size statement represents the relationship of different items of a financial statements with some common item by expressing each item as a percentage of common items. In common-size balance sheet, each item of the balance sheet is stated as a percentage of total
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of the balance sheet. Similarly in common-size income statement, each item is stated as percentage of the net sales. Thus, the common-size statement useful in Intra-firm as well as inter-firm comparison for the same year as for several years. (C) TREND ANALYSIS: The trend analysis is a technique of studying several financial
statement over a serios of years because the financial statement easily analysed by computing trends of series of information, this method determine the direction upward and involves the computation of the percentage relationship that each statement item bears to the same item in the base year, generally the starting years of the base year are taken as 100 and trend ratios for other years are calculated on the basis of base year. (D) FUND FLOW ANALYSIS: Fund flow analysis is a technical device designed to analysis the source from which additional funds were drived and the use to which these sourses were put. It is an effective tool to analyze changes in the working capital of a business enterprise between beginning and the ending financial statement dates. Fund flow analysis is helpful in accessing the growth of the firm, it result in financial needs and in determining the best way of financing these needs.
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DATA COLLECTION & ANALYSIS
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WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates the velocity of the utilization of the net working capital. This ratio indicates that number of times the working capital is turnover in the course of time that is in one accounting year and measure the efficiency with which the working capital is being used by firm. This ratio should be always higher. This is calculated by the following formula Working Capital Turnover Ratio = Sales Working Capital Year 2011 2012 Sales 7102.65 7721.42 Working Capital 5960.22 6633.75 Ratio 1.192 1.164
Working Capital = Current Assets-Current Liabilities INTERPRETATION: This ratio shows the velocity of the utilization of working capital. The ratio measures the efficiency of the company with which the working capital is used by the company. Hence higher the ratio better it is. From the above analysis it is clear that the company utilizes its working capital properly and effectively.
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CURRENT RATIO: Current ratio measures the relationship between current asset and current liabilities. This ratio highlights the firms ability to meet its short term liabilities from its short term assets. The standard for the ratio is 2:1. However one should not rely on it blindly. The current ratio should be subject to qualitative test. It should be remembered that this ratio is subject to the influence of many financial forces, which may depress or retrive it dramatically overnight. It is represented as follows. Current Ratio = Current Assets Current Liabilities
Year 2011 2012
Current assets 2368.14 2008.76
Current liabilities 1884.49 2258.84
Ratio 1.257 0.889
INTERPRETATION: As per general norms, current ratio should be 2:1. In this regard the current ratio of Ashok Leyland, Ltd. Is very low. This ratio further decline in the year 2009. It shows liquidity position is not satisfactory.
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QUICK RATIO: This ratio measures the relationship between quick asset and quick liabilities. Quick assets can be immediately converted in to cash, so this ratio gives a more immediate indication of the firms ability to settle its current debts. This is more stringent test of Liquidity than current asset. The firm should have a quick ratio in proportion of 1:1 that is considered as the standard. Where this is not so, a substantial Ash Legged is usually maintained. It accesses how liquid the firm would be, if so business operations come to an abrupt halt. This is written as. Quick Assets Quick Ratio = Quick Liabilities Year 2008 2009 Quick Assets 483.65 250.08 Quick Liabilities 1884.49 2258.84 Ratio 0.257 0.110
INTERPRETATION Quick ratio is used to as a measure of the companys ability to meet its current obligations. A high quick ratio is an indication that the firm has the ability to meet its current liabilities in time and on the other hand, a low quick ratio represents that the firms liquidity position is not good.
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FUND DEBT TO NET WORTH RATIO: This ratio shows that the extent to which a firm should employ one debt showed to be viewed in term of the size of the shareholders fund. If the ratio reveals a high portion of debt finance in the capital structure, this may indicate on over dependence on external finance. So financial risk may be high. High debt usually means high financial risk. This ratio is important indication of a firms longer term solvency and key measure of its financial risk. It is written as Funded Debt Fund Debt to Net Worth = Net Worth Funded Debt = Loan Fund Loan Fund = Secured Loan + Unsecured Loan Year 2011 2012 Funded Debt 288.67 165.70 Net Worth 5671.55 6468.05 Ratio 0.05 0.03
INTERPRETATION: This ratio determines the companys dependence on external fund. It should be always less and we can saw from above table that it has decreased from previous years, so its good for the company.
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NET PROFIT RATIO: The net profit ratio establishes the relationship between net profit (after tax) and the sales in same year. It indicates the efficiency of the management in manufacturing, selling, administrative and self-financing. This ratio shows the earning left for shareholders as a percentage of net sales this ratio is the overall measures of firms profitability. It is written as Net Profit (after tax) Net Profit Ratio = Sales 100
Year 2011 2012
Net Profit 1389.71 1216.84
Sales 7102.65 7721.42
Ratio 19.57% 15.76%
INTERPRETATION: Net profit ratio is used to measure the overall profitability of a concern. It is an index of efficiency and profitability. This ratio also indicates the firms capacity to face adverse economic conditions such as competition and low demand. Higher the profit, the better is the profitability.
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CONCLUSION
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CONCLUSION:
After examining the analysis of
Ashok
Leyland, Ltd.. it has been seen that liquidity position of company needs to be improved. The company is progressing with a normal speed. There is also need to increase the profitability of the company.
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SUGGESTIONS
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SUGGESTIONS 1. Liquidity is required to be improved. 2. Profitability of the Ashok Leyland, Ltd. should also needs to be improved. 3. Proper cash budgeting is required to be followed so that management of cash must be in favour of the company it will improve the liquidity.
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LIMITATIONS
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LIMITATIONS In spite of precautions taken to make the study objective, it can not be denied that there are certain procedural and technical limitations. It is not possible to judge all the parameter to evaluate the efficiency in a wide and dynamic area like financial analysis. Some of the limitations of this study are as under:
(a)
As the research has taken place in very short tenure, the shortage of time is one of the limitation of this study.
(b)
As the report is mainly based on secondary data, limitations of secondary data are the limitations of the study.
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BIBLIOGRAPHY
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BIBLIOGRAPHY: (1). I. M. Pandey --Financial Management
(2). R. K. Sharma & Shashi K. Gupta
---
Management Accounting
(3). Prof. Nirmal Jain
---
Management Accounting
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Introduction To The Topic: The Financial Analysis of Ashok Leyland, LTD

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THE FINANCIAL ANALYSIS OF ASHOK LEYLAND, LTD.