THE ORGANISATION HERO CYCLES LTD The Beginning We look over our shoulders, we see the past.

We use it to make a better present and a beautiful tomorrow, as tomorrow isnt just another day, its another chance for us to better ourselves and to excel.

Hero Cycles is a product of this philosophy. The philosophy that instills commitment, team work and foresight. Heros colossal journey started before independence. The four Munjal brothers, hailing from a small town called Kamalia, now in Pakistan, are the men who are behind the mission. Brotherhood apart, what knit the men together was the wealth of will, integrity, ambition & determination. In the year 1944, they decided to start a business of bicycle spare parts in Amritsar. Its is modest beginning and the next 3 years saw the business grow rapidly.But the dark clouds of partition eclipsed their plans of the future. With renewed vigour and optimism, the operational base was shifted to Ludhiana. By 1956, the brothers had began manufacturing key components of bicycles and as a logical way forward, began to assemble the entire cycle at their manufacturing plant in Ludhiana. In the early days, the plant had a capacity for 25 cycles per day. Over the next few years, the Bicycle Unit started growing in stature and size, attracting skilled engineers, technocrats, administrators and entrepreneurs. From a modest beginning of mere 639 bicycles in the year 1956, Hero Cycles products over 18500 cycles a day today, the highest in global reckoning. With the 48% share of the Indian market, this volume has catapulted Hero in the Guinness Books of World Records in 1986 and edge over global players is being maintained since then.

A tiny acorn has now become a mighty Oak. From cycle to two - wheelers was a natural step, and the Hero Group came into being. The Hero Group, today, is a vast conglomerate of companies, either in the form of collaborations, joint ventures or fully owned subsidiaries, with more than Rs. 10000 Crore turnover annually. Hero Group, besides being the worlds largest manufacturers of bicycles, motorcycles and chains to this date, has diversified into newer segments like Information Technology, IT Enabled Services and Financial Services.

THE HERO GROUP

The Hero Group has done business differently right from the inception and that is what has helped us to achieve break-through in whatever product category we have ventured. The Groups low key, but focused, style of management has earned the plaudits amidst investors, employees, vendors and dealers, as also worldwide recognition. The growth of the Group through the years has been influenced by the number of factor: The Hero Group through the Hero Cycles Division was the first to introduce the concept of just-in-time inventory. The Group boasts of superb operational efficiencies. Every assembly line worker operates two machines simultaneously to save time and improve productivity. The fact that most of the machines are either developed or fabricated inhouse has resulted in low inventory levels. In Hero cycles Limited, the just-in-time inventory principle has been working since the beginning of production in the limit in the unit and is functional even till date. The vendors bring in the raw material and by the end of the day the finished product is rolled out of the factory. This is the Japanese style of production and in India; Hero is the first company to have mastered the art of the just-in-time inventory principle

HERO GROUP COMPANIES Hero Group ranks amongst the Top 10 Indian Business Houses comprising 18 companies, with an estimated turnover of US$1.8 billion during the fiscal year 20032004.

Hero Cycles Limited

Hero Honda Motors Limited

Hero Cold Rolling Division

Hero Motors Limited

Hero Exports LO Majestic Auto Limited GO

Rockman Cycle Industries LOG Highway Cycle Industries LOG Sunbeam Auto Limited LOGO O O

Munjal Auto Industries Limited

Munjal Showa Limited

Munjal Castings

Munjal Auto Components

Hero Global Design

Hero Corporate Services Limited

Hero ITES

Hero Mind mine

Hero Soft

Munjal e-systems

Easy Bill Limited

The Driving Force: Chairman Dr.Brijmohan Lall Munjal, patriarch of the US$ 3.19 billion Hero Group was born in 1923, in what is now Pakistan. After partition, the Munjal brothers started a small business of manufacturing bicycle components in Ludhiana in North India in the face of the bottlenecks of industrial infrastructure and investments. Dr Lall led a small time manufacturer of 60 cycles a day to become a manufacturing giant, which churns out not only over 17,000 cycles per day but is also diversified into various domains. Undoubtedly, Dr.Lall is a first generation business entrepreneur of the 1950s'. Dr.Lall has enriched the Hero Group with his vision of sound business governance and value driven management practices. His foresight has made the Hero Group a leader in its business. Dr Brijmohan Lall is a role model for Indian Industry in corporate governance and ethical and value-driven management practices. His principle-based leadership has led the Group companies to receive the best industrial governance and safety awards and acquire stringent value certifications. Dr.Lall was amongst the first Indian industrialists to effectively implement backward integration and he is acknowledged as the trend setter in the area. Apart from the promotion of the Indian industry, he is the actively involved in many national associations such as CII, SIAM, ASSOCHAM and PHD and is a member of the Regional Board of the Reserve Bank of India. He is Honorary Fellow of the Indian Institute of Industrial Engineering.

Dr.Lall has received various accolades and awards for his immense contribution to the Indian industry. He was adjudged Businessman of the Year in 1994 by a leading business magazine - Business India. In 1995, Dr.Lall received the National Award for outstanding contribution to the Development of Indian Small Scale Industry. (NSIC award - presented by the President of India) In 1999, the Business Baron recognized him as the "Most Admired CEO." The PHD Chamber of Commerce and Industry presented him with the Distinguished Entrepreneurship Award in 1997, in recognition of his outstanding exemplary entrepreneurship. Xavier Labour Relations Institute (XLRI), a premier institution has conferred on him the honor of Sir Jehangir Ghandy Medal for Industrial Peace in 2000. Ernst and Young has recognized him as the "Entrepreneur of the year 2001." All India Management Association conferred him with the Lifetime Achievement award for "Managment"(2003) Banaras Hindu University, Varanasi one of the most prestigious Universities of India conferred him with a Doctrate; degree of " Doctors of letters" Honoris Causa in October 2004 The Government Of India honoured him with the prestigious " Padma Bhushan"in March 2005 for his contribution to Trade and Industry

MILESTONES Heros success saga contains the element of courage, great; determination, enterprises and perseverance coupled with vision and meticulous planning:

1956 Hero Cycles Ltd. is established.

1961 Rockman Cycle Industries Ltd. established which is today the largest manufacturer of bicycle chains & hubs in the world.

1963 Bicycle exports take off from India a faray into the international market.

1971 Highway Cycles was set up. It is today the largest manufacturer of single speed & multispeed freewheels in the country.

1975 Hero Cycles Limited became the largest manufacturer of bicycles in India.

1978 Majestic Auto Limited was formed and Hero Majestic Moped was introduced.

1981 Munjal Casting established.

1984 Hero Honda Motors Limited established in joint venture with Honda Motors, Japan to manufacture Motorcycles. It is now the worlds largest producer of two-wheelers.

1985 Munjal Showa Ltd. established to manufacture shock absorbers and struts and is

today one of the topmost shock absorber manufacturers companies in this country. 100cc Hero Honda Motorcycle was launched, which, later on in 1988, became No.1 among all motorcycles in India.

1986 Hero Cycles Limited entered the Guinness Books of World Records as the Largest bicycle manufacturer in the world.

1987 Hero Motors, a division of Majestic Auto Limited set up on collaboration with Steyr Diamler Puch of Austria.

1987 Gujarat Cycles Limited, now known as Munjal Auto Centre Ltd. was established to manufacture and export state-of-the-art bicycles and light products in its full automated plant at Wagodia.

1987 Sunbeam Auto Limited, earlier a unit of Highway Cycle Ind. Ltd., established as an ancillary to Hero Honda. It has the largest die casting plant in India.

1988 Hero Puch was introduced by Hero Motors Ltd., which was a revolutionary machine to set new records of petrol.

1989 Ranger bicycles (a generic name for Mountain Bikes today) was introduced by Hero Cycles Limited.

1990 Hero Cold Rolling Division established which is one of the most modern steel cold rolling plants in India.

1991 Hero Honda received National Productivity Council Award and also the Economic Times Harvard Business School Association Award against 200 contenders.

1991 Hero Cycles introduced Kid the first branded bike in childrens segment.

1992 Hero Cycles introduces Impact, the first citibike in India.

1992 Munjal Showa Ltd. received national safety award.

1993

Hero Exports was established as International Trading Division for group & non-group products.

1995 Hero Corporate Services Ltd. was established. The first exerbike from Hero Group was introduced with the name Allegro.

1996 Hero Winner, a large wheeled scooter with a choice of 50 cc & 75 cc engines was launched by Hero Motors Ltd.

1998 Hero Briggs & Stratton Auto (P) Ltd. was set up to produce 4-stroke two wheeler engines in various cubic capacities.

1998 Munjal Auto Components established to manufacture gear shaft & gear blanks for motorcycles.

2000 The first fully automated bicycles by the name POWERBIKE was introduced by Hero Cycles Limited. Hero Corporate diversified into I.T. and I.T. Enabled Services through its services segment Hero Corporate Services Limited.

2001 Hero Honda emerges as the market leader in motorcycles with the sales of over a million motorcycles and a market share of 47%.

2002

Hero Cycles Limited ties up with National Bicycle Industries, a part of Matsushita Group, Japan, to manufacture high-end bicycles. Fastener World established.

2002 Easy Bills Limited established to offer utility bill collection and retail services.

2003 Tie-up with Live Bridge Inc., U.S.A., Aprilia Scooters, Haly & Bombardier Rotax GmbH of Germany.

2003 Super Starter Series Launched by Hero Cycles Limited.

2003 Hero Honda continues to be the worlds largest manufacturer of two-wheelers with the market of more than 48%. 2004 Hero Retail Insurance Business established. Super Smart Series introduced by Hero Cycles Limited.

2005 Hero ITES strengthens its relationship with ACS, USA USD 5 BILLION-market cap and fortune 500 companies.

2006 Hero Honda crosses a unit sales threshold of 3 MILLION motorcycles.

2006 Hero Honda enters the scooters segment, launches 100 cc pleasure.

2006 Hero group celebrates GOLDEN JUBILLEE YEAR since inception. It was commemorated by sales of over 15 million motorcycles & over 100 million bicycles.

2007 Hero group has made 13 models of e-bikes.

GLOBAL GEARING: EXPORTS

HERO CYCLES HERO HONDA MOTORS As early as in the 1960s' very few Indian bicycle manufacturers were interested in exports. However, the Hero Group's foray into the overseas markets in 1963 pioneered Indian exports in the bicycle segment. It was a move prompted essentially by the need to remain attuned to the global marketplace. HERO MOTORS HERO CORPORATE SERVICE LIMITED (Hero Mindmine, Munjal eSystems, NsurePlus) HERO MANAGMENT SERVICE LIMITED(HERO ITES) MUNJAL SHOWA LIMITED

While initial exports were restricted to Africa and the Middle East, today more than 50 percent of the exports from Hero Cycles

Limited meet the demands of sophisticated markets in Europe and America. This is primarily because of appropriate product development and excellent quality that Hero offers. The Group has been continuously upgrading technology and has set up special units - like Gujarat Cycles Limited (now Munjal Auto Industries Limited), to meet international quality standards. Munjal Auto Industries Limited has state-of-the-art equipments imported from Europe and Taiwan. The unit is designed to match international standards and is an Export Oriented Unit (EOU). Its products are supplied to the International Markets of developed countries like United Kingdom, Germany, France etc. The Group's exports have gone beyond cycles and their components. The success of the Hero Majestic moped did not remain confined to Indian shores. Finding enthusiastic buyers across the world, it became the largest exported moped from India. Hero Puch is perhaps the first Indian two-wheeler to be homologated abroad (in Spain) and has assembly plants in Mauritius and Egypt. Today Hero Puch mini-motorcycles can also be seen in Paraguay, Mexico, Argentina, Turkey and Holland. Group Company, Munjal Showa Limited is one of the largest suppliers of shock absorbers to major auto giants in Japan, United States and the United Kingdom, amongst other developed markets. In 1993 Hero Exports was established as the International Trading Division for Group and non-Group products. The Government of India recognizes Hero Exports as a Trading House. And the latest diversification for the Group in the export market is in the area of Software exports and providing Business Processing and Contact Center Services through Hero Corporate Service limited. The company exports services to many Fortune 1000 corporations in the USA, UK and Australia and has offices in UK & USA to manage client relationships.

VISION AND MISSION

The Vision We, at the Hero Group are continuously striving for synergy between technology, systems and human resources to provide products and services that meet the quality, performance, and price aspirations of the customers. While doing so, we maintain the highest standards of ethics and societal responsibilities, constantly innovate products and processes, and develop teams that keep the momentum going to take the group to excellence in everything we do.

The Mission Statement Its our mission to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of our customers. While doing so, we maintain the highest standards of ethics and societal responsibilities. This mission is what drives us to new heights in excellence and helps us forge a unique and mutually beneficial relationship with all our stakeholders. We are committed to move ahead resolutely on this path, shown to us by visionaries like Mr. Satyanand Munjal, Mr. Om Prakash Munjal, the late Mr. Dayanand Munjal and late Mr. Raman Kant Munjal. Mr. Brijmohan Lall Munjal, Chairman & MD THE HERO GROUP.

Quality: The Driving Force

At Hero Cycles, quality is a tradition, be it in the form of well trained labour, technically superb machines or world class quality. The conformance to quality at Hero begins on shop floor, with every worker ensuring at each stage manufacturing, that only perfect product passes through his hands. Heros production department too believes in following the zero-defect approach and continuous upgradation of its manufacturing systems. The marketing and operations teams are also constantly creating new and effective strategies using modern management techniques. And finally, every Hero cycle goes through a series of rigorous quality checks before it leaves the factory. No wonder, Hero is in proud possession of ISO-9001, ISO-9002 & BVQI certifications and also ISO 14001, environmental compliance endorsement from the Ministry of Environment.

Constant quality upgradation ensures that the company stays in the global mainstream and maintains its edge, through excellence. A technology tie-up with National Bicycle Industries of Japan led to the launch of the World 1 series of cycles, besides introduction of new frame designing and features like- A-frame, D-frame, Y-frame, Swan shaped frame, speedometers & indicators among other

Promotions

Until 1986, the company had no need for mass communication. But as competition started growing, Hero Cycles begun to feel the need for creating lasting impression on the customers mind. In the mid 1980s Hero was perceived to be the manufacturer of the basic black bicycles. The company required an image change. It needed to communicate to customers the vast portfolio of products that it had, particularly in the recreational segment. The launch of innovative products and their use as image builders happened simultaneously. Since 1986, the communication strategy has been to build each product separately and create a unique positioning for them. In this way the Ranger was positioned as the bike for outdoor fun, Impact was the preferred choice among city riders and Jet was projected as the lightest running roadster while Hawk was the racers edge. Each of these launches and their promotion, gave the Hero brand a new meaning. The brand has also used celebraties - including film stars Sanjay Dutt, Rani Mukherjee, Hrithik Roshan and Ameesha Patel. The latest is Indias new bowling sensation, Irfan Pathan who has also been a real life Hero cycle user.

MAJOR PRODUCTS

The Hero Cycles Ltd. Manufactures cycles, rims , free wheels ,hubs & chains and cold rolled strips as a main product. Company has long portfolio of different range of cycles. Company has 132models in the list , covers all the three section-gents, ladies and kids. It also manufactures cycles parts for its own requirements. After fulfilling the requirements of company ,it can export its remaining quantity.

The main products are:-

i) ii) iii) iv) v) vi)

Cycles Rims Free wheels Hubs and Chains Cold Rolled strips E-Bikes

COMPETITORS

IN CYCLE MARKET: AVON OPERA TI ATLAS OTHERS (NEELAM,KW,BS)

OWNERSHIP OF MANAGEMENT

BOARD OF DIRECTORS

SH. BRIJMOHAN LAL MUNJAL SH. SATYANAND MUNJAL SH. OM PARKASH MUNJAL SH. VIJAY KUMAR MUNJAL SH. SURESH CHANDRA MUNJAL ASHISH KUMAR MUNJAL SH. SUNIL KANT MUNJAL SH. PANKAJ MUNJAL SH. S.K. RAI DR. M.A. ZAHIR DR. D.R. SINGH

(CHAIRMAN) (CO-CHAIRMAN CUM M.D. WORKS) (CO-CHAIRMAN CUM M.D. MKTG. & ADMN.) (M.D. INTNL MARKETING) (M.D. DOMESTIC MKTG.) (M.D. UNIT TO SAHIBABAD) (M.D. C.R.DIVISION) (M.D. NEW HERO AUTO RIM DIV.) (M.D. WORKS) (DIRECTOR) (DIRECTOR)

Meaning of financial analysis The term financial analysis also known as analysis and interpretation of financial statements refers to the process of determining financial strength and weaknesses of the firm by establishing strategic relationship between the items the balance sheet, profit and loss account and other operative data. Acc. To Myers- Financial statement analysis is largely a study of relationship among the various financial factors in a business is disclosed by a single set of statements, and a study of the trend of these factors as shown in a series of statement.

Purpose of financial statement analysis:

The purpose of financial statement analysis depends upon the need of person who is analyzing these statements. These varying needs may be:

To know the earning capacity or profitability of the firm. To know the solvency position of firm. To know the financial strength of the business. To make comparative study with other firms. To know the capability of payment of interest and dividend. To know the trend of the business. To know the efficiency of the management. To provide useful information to the management.

Tools of financial Analysis: The analysis and interpretation of financial statement is used to determine the financial position and results of operations as well. A number of methods or devices are used to study the relationship between different statements. A financial analyst may use following methods:

Comparative statements Ratio analysis Fund Flow analysis Common size statement

COMPARATIVE STATEMENTS The comparative financial statements are statements of the financial position at different period; 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. From practical point of view, generally, two financial statements (balance sheet and income statement) are prepared in comparative form for financial analysis purpose. Not only the comparison of the figure of two periods but also be relationship between balance sheet and income statement may show:

i. ii. iii. iv.

Absolute figures (rupee amounts) Changes in absolute figures (increase or decrease in absolute figures) Absolute data in term of percentages Increase or decrease in terms of percentages

1.

COMPARATIVE BALANCE SHEET The comparative balance sheet analysis is the study of the trend of the same

items, groups of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and changes can help in forming an opinion about the progress of an enterprise. The comparative balance sheet has two columns for the data of original balance sheets. A third column is used to show increase in figures. The fourth column may be added for giving percentages of increases or decreases.

2.

COMPARATIVE INCOME STATEMENT The comparative income statement gives an idea of a business over a period of

time. The changes in absolute data in money values and percentages can be determined to analyze the profitability of the business. It has also four columns. First two columns give figures of various items for two years. Third and fourth columns are used to show increase or decrease in figures in absolute amounts and percentages respectively.

HERO CYCLE LTD. I) COMPARATIVE STATEMENT A) Comparative Balance Sheet Particulars 2006 2007 Increase/Decrease Assets Fixed Assets Investments Deferred Tax Assets (Net) Current Assets - Inventories - Sundry Debtors - Cash & Bank Balance Loan and advances Total Assets Liabilities Shareholder Fund Loan Funds Current Liabilities - Liabilities - Provisions Total Liabilities Interpretation 1. 1968881237 2851504001 4892714 766521142 1860512457 69481654 337661837 7859455042 1893341411 3843437861 19845655 805661034 2228592486 22134657 457780835 9270793939 - 75539826 +991933860 +14952941 +39139892 +368080029 - 47346997 +120118998 +1411338897

%age

-3.84 +34.79 +305.62 +5.11 +19.78 -68.14 +35.57 +17.95

4427446105 1567876432 1640425867 223706638 7859455042

5364231022 1732223697 1978589143 19575007 9270793939

+936784917 +164347265 +338163276 -27956561 +1411338897

+21.16 +10.48 +20.61 -14.28 +17.95

Comparative Balance Sheet reveals that total Assets of Hero cycle increased during a year by 17.95%.

2.

There has been increase in shareholder funds by 21.16%.

HERO CYCLE LTD B) Comparative Income Statement Particulars 2006 2007 Increase/ Decrease (Rs). +1939367706 +1976688932 %age

Net Sales Less : Cost of Goods Sold (Material consumed, manufacturing expenses & personal expenses) Gross Profit

11369337410 9756380835

13308705116 11733069767

+17.06 +20.26

1612956575

1575635349

-37321226

-2.31

Less : Operating expenses (Administrative expenses, financial expenses, selling expenses & depreciation) Operating profit/loss Add: Other income Less:non operating exp. Net profit Before Tax Less : Tax provision for wealth tax, taxation, fringe benefit tax & deferred tax Net profit After tax

1147615431

1139418653

-8196778

-1.76

465341144 1077448184 906615865 636173463 -28757839

313168939 898158858 123047757 121132797 185742059

-29124448 -179289326 -783568108 +575154334 +214499898

-6.25 -16.64 -86.43 +90.41 +745.88

664931302

1025585738

+360654436

+54.24

Interpretation There has been decrease in the gross profit by 2.31% because the rate of increase in sales is less than the rate of increase in cost of goods sold. But the non operating expenses decreases by 86.43% so net profit increases.

II) COMMON SIZE STATEMENT A) Common Size Balance Sheet Particulars Assets 2006 Amount (Rs.) 2007 Amount (Rs.)

%age

%age

Fixed Assets Investments Deferred Tax Assets (Net) Current Assets Inventories Sundry Debtors Cash & Bank Balance

1968881237 2851504001 4892714

25.05 36.28 0.06

1893341411 3843437861 19845655

20.42 41.46 0.22

766521142 1860512457 69481654 337661837 7859455042

9.76 23.67 0.88 4.30 100.00

805661034 2228592486 22134657 457780835 9270793939

8.69 24.04 0.24 4.93 100.00

Loan and advances Total Assets Liabilities Shareholder Fund Loan Funds Current Liabilities Liabilities Provisions

4427446105 1567876432

56.33 19.95

5364231022 1732223697

57.86 18.69

1640425867 223706638 7859455042

20.87 2.85 100.00

1978589143 19575007 9270793939

21.34 2.11 100.00

Total Liabilities

Interpretation The investment in fixed assets, current assets and investment are same in both the years. The ratio of shareholders funds and the loan funds are do not change much.

II) COMMON SIZE STATEMENT B) Common Size Income Statement Particulars Net Sales Less : Cost of Goods Sold (Material consumed, manufacturing expenses & personal expenses) Gross Profit Less : Operating expenses (Administrative expenses, financial expenses, selling expenses & depreciation) Operating profit/loss Add: Other income Less:non operating exp. Net profit Before Tax Less : Tax provision for wealth tax, taxation, fringe benefit tax & deferred tax Net profit After tax Interpretation In 2006 the cost of goods sold is 85.81% of sales which increase to 88.16% in year 2007 resulting the decrease in gross profit from 14.19% to 11.84% but the company is successful in controlling non operating expenses i.e. 7.97% to 0.92% so net profit increases in 2007. 2006 Amount (Rs.) 11369337410 9756380835 2007 Amount (Rs.) 13308705116 11733069767

%age 100.00 85.81

%age 100.00 88.16

1612956575 1147615431

14.19 10.09

1575635349 1139418653

11.84 8.56

1147615431 1077448184 906615865 636173463 -28757839

4.09 9.48 7.97 5.60 -2.53

1139418653 898158858 123047757 121132797 185742059

3.28 6.75 0.92 9.10 1.40

664931302

5.85

1025585738

7.71

HERO CYCLES LTD. Cash Flow Statement

Particulars Profit Before Tax Net Cash Flow Operating Activity Net Cash used in Investing Activity Net Cash used in Financing Activity Net Inc/Dec in Cash & Equivalent Cash and Equivalent at the Begin of the Year

2006 6361.73 8382.83 -4988.22

2007 12113.28 2996.85 -3143.35

Increase/ Decrease +5751.55 -5385.98 -1844.87

%age 90.41 -64.25 -36.98

-3471.47

-326.97

-3144.50

-90.58

-76.86 771.68

-473.47 694.82

+396.61 -76.86

+516.02 -9.96

Cash and Equivalent at the End of the Year

694.82

221.35

-473.47

-68.14

FUND FLOW ANALYSIS

Definition of Fund A question arises as to the definition of FUND. It means: Funds may mean change in cash only; Funds may mean change in working capital (the difference between current assets and current liabilities) only. A more comprehensive definition of funds may be given as follows: Funds may mean change in financial resources, arising from changes in working capital items and from financing and investing activities of the enterprise, which may involve only non-current items. The funds flow statement analyses only the causes of changes in the firms working capital position. The cash flow statement is prepared to analyze changes in the flow of cash only. These statements fail to consider the changes in the firms total financial resources. They do not reveal some significant items that do not affect the firms cash or working capital position, but considerably influence the financing position and asset mix of the firm. The statement of changes in financial position is an extension of the funds flow statement or the cash flow statement. Therefore, to get better insights, a firm may prepare a comprehensive, all inclusive, statement of changes in financial position incorporating changes in the firms cash and working capital positions involving: Changes in the firms working capital position, Changes in the firms cash position, and Changes in the firms total financial resources.

Statement of Changes in Working Capital Particulars 2006 2007 Effect on Working Capital Increase Decrease 39139892 368080029 47346997

Current Assets - Inventories - Sundry Debtors - Cash & Bank Balance 766521142 1860512457 69481654 (A) 2696515253 Current Liabilities - Liabilities - Provisions 1640425867 223706638 (B) 1864132505 Working capital (A-B) 832382748 1978589143 195750077 2174339220 882048957 882048957 435176482 49666209 435176482 27956561 338163276 805661034 2228592486 22134657 3056388177

Net increase in working 4966209 capital Total 882048957

Note : Provision should be taken as current liability

FUND FLOW STATEMENT Sources Raising of Loans Funds from operation Amount (Rs.) 164347265 1135177199 Applications Net Increase in Working Capital Purchase of Investment Purchase of Fixed Assets Loan of Advances given 1299524464 Amount (Rs.) 49666209 991933860 137805397 120118998 1299524464

WORKING NOTES

Adjusted Profit and Loss Account

Particulars To Dep. on fixed Assets To Balance c/d

Amount (Rs.) 213345223 4966018222

Particulars By Balance b/d By Deferred Tax By Fund from Operation (Bal. Figure)

Amount (Rs.) 4029233305 14952941 1135177199 5179363445

5179363445

FIXED ASSETS Particulars To Balance b/d Amount (Rs.) 1968881237 Particulars By Adjusted P & L A/c (Dep.) By Balance c/d Amount (Rs.) 213345223

To purchase on Fixed Assets (Bal. figure)

137805397

1893341411

2106686634

2106686634

Interpretation : As seen from the above analysis that there is increase in working capital which, indicate that company is having sufficient current assets to pay back the current liabilities in time. There is increase in amount of loans by 10.48% and it is being utilized in financing the fixed assets & investments.

1.

Current Ratio

It is also known as Working capital ratio. It is a measure of liquidity and used in making analysis of short term financial position. Current Ratio = Current Assets / Current Liabilities. TABLE 1.1 (Current Ratio) Year Current assets Current liabilities Current Ratio 2006 2696515253 1640425867 1.64 FIGURE 1.1
Current Ratio 2 1.5 1 0.5 0 2006 Years 2007

2007 3056388177 1978589143 1.54

Interpretation : It is decreasing in the year 2007 because current liabilities are increased this year as compare to 2006. Overall this ratio is satisfactory as it is nearest to the thumb rule i.e. 2:1

2.

Liquid Ratio Liquid Ratio is more rigors test of liquidity than the current ratio. It is the ratio

between quick ratio & current liabilities. Quick ratio refers to all current assets except Inventory & prepaid expenses. Liquid Ratio = Liquid assets / Current Liabilities Liquid assets = Current Assets- Prepaid Exp Inventories

Year Liquid assets Current liabilities Liquid Ratio

2006 1929994111 1640425867 1.18

2007 2250727143 1978589143 1.14

TABLE 1.2(Liquid Ratio)

Liquid Ratio 1.5

0.5

0 2006 Years 2007

FIGURE 1.2 Interpretation: As seen from the analysis this ratio is almost same in both the years quite satisfactory with a thumb rule i.e. 1.5 : 1. Companys current assets involved large amount of debtors in it.

3.

Working Capital Turnover Ratio It indicates the velocity of utilization of net working capital. It indicates the

efficiency with which working capital is being used by the company. Working Capital Turnover Ratio = Net Sales /Average working capital

Year Net sales Average working capital Working Capital Turnover Ratio

2006 11369337410 1170612956.5 9.71

2007 13308705116 1066944210 12.47

TABLE 1.3 (Working Capital Turnover Ratio)

Working Capital Turnover Ratio 15

10 Times 5

0 2006 Years FIGURE 1.3 Interpretation : Working capital turnover ratio is increasing as we can see from the above table becomes 12.47 in 2007 from 9.71 in 2006 due to increase in sales 2007

4.

Debt Equity Ratio It shows the relationship between external and internal equities & it is calculated

to measure the claim of outsiders and owners against companys assets The outsider's funds include all debts/ liabilities to outsiders, whether in form of debentures, bonds, mortgage or bills. The shareholders funds include equity + preference share capital included capital reserve, revenue reserve and reserves representing accumulated profits and surpluses. Debt Equity Ratio = Long term Debts / Shareholders Funds*100 Year Long term Debts Shareholders Funds Debt Equity Ratio 2006 1567876432 4427446105 35.41 TABLE 1.4(Debt Equity Ratio) Debt Equity Ratio 40 30
Percentage

2007 1732223697 5364231022 32.29

20 10 0 2006 Years FIGURE 1.4 2007

Interpretation : There has been a slight decrease in this ratio due to the fact that now the company is relying more on own funds then on outsiders funds. As such ratio has been improved and that amount is blocked in inventories.

1. Net Profit Ratio Net profit ratio established a relationship between net profit and sales. This ratio is the overall measure of firms profitability and is calculated as: Net Profit Ratio = Net profit after tax / Net Sales *100 Year Net profit after tax Net sales Net Profit Ratio 2006 664931302 11369337410 5.84 2007 1025585738 13308705116 7.71

TABLE 1.5(Net Profit Ratio) Net Profit Ratio 10 8

Percentage

6 4 2 0 2006 Years 2007

FIGURE 1.5 Interpretation : There has been decrease in the Gross Profit by 2.31% because the rate of increase in sales is less than the rate of increase in cost of goods sold. The nonoperating expenses decrease by 86.43% so net profit increases.

(6)

Equity Ratio Establish the relationship between shareholders funds and total assets of the

company, the components of this ratio are Equity Ratio = Shareholders Funds / Total Assets *100

Year Shareholders Funds Total Assets Equity Ratio

2006 4427446105 7516900491 59 TABLE 1.6(Equity Ratio)

2007 5367231022 8793167449 61

Equity Ratio 70 60
Percentage

50 40 30 20 10 0

2006 Years FIGURE 1.6

2007

Interpretation : Company is relying more shareholder funds than on loan funds. This is favourable point for the creditors as companys equity ratio in 2006 is 59% and in 2007 is 61% .

FINDINGS 1. Companys is utilizing long term loans to finance fixed assets and investments but it has started relying on own funds. 2. There is decrease in gross profit of the company due to increase in cost of goods sold but there is increase in net profits due to decrease in non operating expense. 3. Debtors are also increasing which is not good sign for the company in long run. 4. Current liabilities are increasing by 20.61%. Where as cash decreases very much by 68.14% 5. There is stability in equity share capital.

SUGGESTIONS 1. The Company is enjoying a good current position. It should take steps to further improve its position by repositioning the composition of current assets as large amount has been block in debtors and inventories.

2. Large amounts of funds are blocked in debtors. Company should reduce its debtors so that the blocked amount is properly utilized.

3. Inventory control is not proper. The Company has not defined the minimum and the maximum stock level scientifically. Therefore there is blockage of funds. Moreover, the safety stock level is also not defined. So the company should apply the proper Inventory Control System so that there is no wastage of funds.

BIBLIOGRAPHY

Sites: www.herocycles.com www.google.com Book Management Accounting Author R.K.Sharma

Annual Reports of HERO CYCLES LIMITED at ending year 31ST MARCH 2006 AND 2007.

FINANCIAL ANALYSIS OF HERO CYCLE LTD.

Submitted To Mrs. Pooja Jain

Submitted By Inderjeet Kaur B.Com 3rd year Roll No. 629

SRI AUROBINDO COLLEGE OF COMMERCE & MANAGEMENT FEROZPUR ROAD, LUDHIANA

ACKNOWLEDGEMENT

Behind this successful undertaking is the blessing and guidance of many. This formal piece of acknowledgement may not be sufficient to express my feelings of gratitude and deep respect that have experienced during my learning process at Hero Cycles. This endeavor would not have been successful without the help and encouragement from a lot of people with whom I had good fortunate of interacting during course of journey. I am indebted to Mrs. Pooja Jain for the knowledge and experience that I gained from her during course of study which I can easily look at as my most rewarding phase the course of my study. Without his immaculate and intellectual guidance, sustained efforts and friendly approach, it would have been difficult to achieve the result in a short span of period. Not leaving behind the contribution of all other staff members at college for sharing with us the wealth of their experience and knowledge.

Inderjeet Kaur

ABSTRACT

The term Financial Analysis also known as analysis and interpretation of financial statements refers to the process of determining financial strength and weaknesses of the firm by establishing strategic relationship between the items the balance sheet, profit and loss account and other operative data. Myers- Financial statement analysis is largely a study of relationship among the various financial factors in a business is disclosed by a single set of statements, and a study of the trend of these factors as shown in a series of statement. The Hero Group has done business differently right from the inception and that is what has helped us to achieve break-through in whatever product category we have ventured. The Groups low key, but focused, style of management has earned the plaudits amidst investors, employees, vendors and dealers, as also worldwide recognition.

TABLE OF CONTENTS
S.No. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Particulars Company Profile Financial Analysis Comparative Statement Common Size Statement Cash Flow Statement Fund Flow Statement Ratio Analysis Findings & Suggestions Bibliography Annexure Page No. 1 20 21 22 23 26 27 29 30 31 32 35 36 42 43 45 46 47 48 58