RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research

problems.it may be understood as a science of studying mow research is
done systematically.in that various steps,those are generally adopted by a
researcher in studying his problem along with the logic behind them.it is
important for research to know not only the research method but also lkow
methodology.The procedures by which researcher go about their work of
describing,explaining and predicting phenomenon are called methodology.
Methods comprise the procedures used for generating ,collecting and
evaluating data.all this means that it is necessary for the researcher to
design his methodology for his problem as the same may differ from
problem to problem.Data collection is important step in any project and
success of any project will be largely depend upon how much accurate you
will bs to collect and how much time,money and efforts will bs required to
collect that necessary data,this is also important step.
Data collection plays an important role in research work.Without proper
data available for analysis you cannot do the research work accurately.

Primary objective
To evaluate the HONDA PVT LTD performance during 2014-2015.

Secondary objective
The primary objective of the study is to analyze the financial
position of the company through the relevant financial analysis.
To study the liquidity position of the company.
To measure the profitability position of the company.

 To provide valuable suggestions and recommendations to the

company.

Methodology of study
The study is divided into two different parts.The various data is
collected by adopting different method i:e,
Secondary data-in this study the secondary data will be collected
through annual reports,files,brochures,forms and websites.
Period of study
The period of study is of three years.
Financial analysis tools used
Ratio analysis
Profit and loss account
Balance sheet

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is
conducted.The study of profitability and liquidity is based on tool ratio
analysis.Further the study is based on last three years annual report of
HONDA LTD.

OBJECTIVES OF THE STUDY

Study of the profitability and liquidity position of the company is important
because

unless

the

profits

of

the

company

are

managed

effectively,monitored efficiently and distributed properly among the

shareholders,the company cannot earn high profits and increase its

turnover.with this primary objective of the study,the following further

objectives are framed for a depth analysis.
To measure the profitability of the company with the help of ratio
analysis.
To study the optimum level of current assets and current liabilities of
the company.
To study the liquidity position through ratio analysis.

Ratio analysis
A ratio is a simple arithmetical expression one number to
another.The techinique of ratio analysis can be employed for
measuring liquidity and profitability position of a firm.The following
ratios can be calculated for these purposes:
123456-

Current ratio
Quick ratio
Net profit margin ratio
Operating profit margin ratio
Return on equity ratio
Return on capital employed ratio

1-CURRENT RATIO
Current ratio,also known as working capital ratio is a measure of
general liquidity and it is most widely used to make the analysis o
shot term financial position of liquidity of a firm.it is defined as the
relation between current assets and current liabilities.Thus,
CURRENT
LIABILITIES.

RATIO=CURRENT

ASSETS\CURRENT

The two components of this ratio are:

1-CURRENT ASSETS
2-CURRENT LIABILITIES
Current

assets

receivables,sundry

include

cash,marketable

debtors,inventories

and

securities,bill
work

in

progresses.current liabilities include outstanding expenses,bill

payable,dividend payable etc.
A relatively high current ratio is an indication that the firm is liquid
and has the ability to pay its current obligations in time.On the other
hand,a low current ratio represents that the liquitidy position of the
firm is not good and the firm shall not be able to pay its current
obligations on time.A ratio equal or near to the rule of thumb of 2:1
i:e current assets double the current liabilities is considered to be
satisfactory.

2-QUICK RATIO
Quick ratio is a more

rigorous test of liquidity than current

assets.quick ratio may be defined as the relationship between quick

/liquid assets and current or liquid liabilities.An assets is said to be
liquid if it can be converted into cash with a short period without
loss of value.it measures the firms capacity to pay off current
obligations immediately.
QUICK RATIO=QUICK ASSETS/CURRENT LIABILITIES.
Where quick assets are:
1) Marketable securities
2) Cash in hand and cash at bank

3) Debtors
A high ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time on the other hand a low quick ratio
represents that the firms liquidity position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory.It is generally
thought that if quick assets are equal to current liabilities,then the
concern may be able to meet its short term obligations.However a firm
having high quick ratio may not have a satisfactory liquidity position if
it has slow paying debtors.On the other hand, a firm having low
liquidity position if it has fast moving inventories.

YEAR
Current assest
Current liabilities
Current ratio
(Rupees in Billions)

2013
64.41
49.57
1.30:1

2014
57.71
47.11
1.22:1

2015
57.29
48.24
1.18:1

Current Ratio
1.35
1.3
1.25

Current Ratio

1.2
1.15
1.1
2013

2014

2015

INTERPRETATION:As we know that,ideal current ratio for any firm is 2:1.

If we see the current ratio of the company for the last three years,it has
decreased from 2013-2015.
The current ratio of the company is less then the ideal ratio.This depicts that
companys liquidity position is not sound.

YEARS
Quick assets
Current liabilities
Quick ratios
(Rupees in Billion)

2013
49.70
49.57
1:1

2014
44.68
57.71
0.77:1

2015
43.66
57.29
0.76:1

Quick ratio
1.2
1
0.8
Quick ratio
0.6
0.4
0.2
0
2013

2014

2015

INTERPRETATION:A quick ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time.The ideal quick ratio is 1:1.Companys
quick ratio is less than the ideal ratio .This shows that company has some
liquidity problems.

PROFITABILITY RATIOS
1-NET PROFIT MARGIN:- Net profit margin is the percentage of
revenue remaining after all operating expenses, interest, taxes and preferred
stock dividends (but not common stock dividends) have been deducted
from a company's total revenue.
NET PROFIT MARGIN=NET PROFIT AFTER TAX/TURNOVER*100
2-OPERATING PROFIT MARGIN:- Operating margin is a measurement
of what proportion of a company's revenue is left over after paying for
variable costs of production such as wages, raw materials, etc. It can be
calculated by dividing a companys operating income (also known as
"operating profit") during a given period by its net sales during the same
period.
OPERATING

PROFIT

MARGIN=OPERATING

PROFIT/TURNOVER*100
3-RETURN ON EQUITY:- Return on equity (ROE) measures the rate of
return for ownership interest (shareholders' equity) of common stock
owners. It measures the efficiency of a firm at generating profits from each
unit of shareholder equity, also known as net assets or assets minus
liabilities.
RETURN

ON

EQUITY=NET

PROFIT

AFTER

TAX/TOTAL

ASSETS*100
4-RETURN ON CAPITAL EMPLOYED:- Return on Capital Employed
(ROCE) is a financial ratio that measures a company's profitability and the
efficiency with which its capital is employed.

RETURN ON CAPITAL EMPLOYED=NET PROFIT AFTER TAX/

(TOTAL ASSETS-CURRENT LIABILITIES)*100.

YEARS
2013
Net Profit Margin 3.13
Operating Profit 5.51

2014
5.32
6.58

2015
4.21
5.03

Margin
Return on Equity 1.29
Return on Capital 1.85

2.69
3.85

1.81
2.54

Employed

7
6
5
NPM

OPM
ROE

ROCE
2
1
0
2013

2014

2015