Financial Accounting in Decision Making: (Section1 Group13)

FADM Project Part 5

DM number Name
DM21125 Debakalpa Ghosh
DM21131 Janani S
DM21152 Rajat Garg
DM21171 Shreya Das
DM21181 Vimal Agrawal

Source- Annual Reports Of Maruti Suzuki, Tata Motors and Mahindra and Mahindra.

INTRA FIRM DUPONT COMPARISION OF MARUTI SUZUKI (3 Stage)

EAT/Equity EAT/Sales Sales/Total Total
ROE= = X Assets X Assets/equity
2014 2015 2016 2017 2018
Equity 20978 23704.2 27007.1 36171.1 41757.3
Total Assets 30535.7 33551 39195.6 50993.3 59370.1
Sales 43700.6 49970.6 57746.3 77266.2 81994.4
EAT 2783 3711.2 4571.4 7337.7 7721.8
Average equity 19,778 22,341 25,356 31,589 38,964
Average assets 28,635 32,043 36,373 45,094 55,182

CALCULATION 2014 2015 2016 2017 2018

Margin= EAT/Sales (%) 6.37 7.43 7.92 9.50 9.42
Asset turnover= Sales/Total Assets 1.53 1.56 1.59 1.71 1.49
ROA(%) = Margin X Asset turnover 9.72 11.58 12.57 16.27 13.99
Equity multiplier= Total
Assets/Equity 1.45 1.43 1.43 1.43 1.42
ROE= ROA X Equity multiplier 14.07 16.61 18.03 23.23 19.82

 The margin for Maruti Suzuki is rising every year which is a very good sign for the growth of the company. And
the growth in margin for the company is due to rise in both the EAT and the sales of the company.
 The asset turnover ratio for the company is consistent throughout without major fluctuations which is due to a
constant rise in both sales and assets of the company.
 The equity multiplier for the company is constant and on the lower side which is positive for the company.
 Return on Equity: The effect of ROA and Equity multiplier can be seen on the return on
equity which has been growing over the year which has been largely affected by increased
margins and effectiveness to generate revenue from assets. Result of which has led to
growth in return to equity shareholders.
 Intra Firm Five stage DuPont Analysis of Maruti Suzuki
EAT/EBT EBT/EBIT Sales/Total Total
ROE = EAT/Equity = X X EBIT/Sales X Assets X Assets/Equity
Tax Interest Operating income Equity
What is it called? burden burden margin Asset turnover multiplier
What does it show? Effect of Effect of Operating margin Efficiency Leverage
tax on interest on sales is giving
profit profit
2014 2015 2016 2017 2018
Sales 43700.6 49970.6 57746.3 77266.2 81994.4
EAT 2783 3711.2 4571.4 7337.7 7721.8
Average equity 19,778 22,341 25,356 31,589 38,964
Average assets 28,635 32,043 36,373 45,094 55,182
EBIT 3834.4 4868.2 6535 9941.3 11003.4
EBT 3,659 4,662 6,454 9,852 10657.7
Tax burden 0.76 0.80 0.71 0.74 0.72
Interest burden 0.95 0.96 0.99 0.99 0.97
Operating income margin 8.77 9.74 11.32 12.87 13.42
Asset turnover 1.53 1.56 1.59 1.71 1.49
Equity multiplier 1.45 1.43 1.43 1.43 1.42
ROE 14.07 16.61 18.03 23.23 19.82

 The tax burden ratio of Maruti Suzuki seems healthy with an average tax rate of 25% with a little fluctuation in
2015-16.
 The interest burden ratio of Maruti Suzuki is has increased over the years from 2014 to 2018, initially the
company has 5% interest, but in 2016 and onwards this ratio improved a lot which also means that company is
not leveraged.
 The operating income margin of the company is growing constantly which is a good sign for the company as
increase in this ratio signifies improvement in sales along with decrease in expenses of the company.
 The asset turnover ratio signifies that how much sales is obtained on the total assets present. So, a larger ratio is
good for a company. And this ratio is strong for Maruti Suzuki.
 The equity multiplier for the company is constant and on the lower side which is positive for the company. Also
it shows a constant trend of increasing in assets and liabilities of the company.
 Return on Equity: The effect of ROA and Equity multiplier can be seen on the return on
equity which has been growing over the year which has been largely affected by increased
margins and effectiveness to generate revenue from assets. Result of which has led to
growth in return to equity shareholders.
 Inter Firm 3 Stage DuPont Analysis
EAT/Sales Sales/Total Total
ROE=EAT/EQUITY X Assets X Assets/equity
Maruti
Suzuki M&M Tata Motors
Equity 41757.3 30294.04 20,170.98
Total Assets 59370.1 47416.75 59212.3
Sales 81994.4 49444.99 59,624.69
EAT 7721.8 4356.01 -1,034.85
Average equity 38,964 27,982 20,490
Average assets 55,182 43,378 58,874
CALCULATION
Margin= EAT/Sales(%) 9.42 8.81 -1.74
Asset turnover= Sales/Total Assets 1.49 1.14 1.01
ROA(%) = Margin X Asset turnover 13.99 10.04 -1.76
Equity multiplier= Total Assets/Equity 1.42 1.55 2.87
ROE= ROA X Equity multiplier 19.82 15.57 -5.05

 The margin for Maruti Suzuki as well as M&M is positive and good but for tata motors this ratio is negative
which shows that company is in loss.
 Maruti Suzuki is having the highest asset turnover ratio among the 3 companies which is a good sign for the
company.
 The equity multiplier ratio signifies, how much liabilities the company have in comparison to its total assets and
it is favourable for a company to have a low equity multiplier ratio. Maruti Suzuki have the least equity multiplier
ratio among the 3.
 Inter Firm Five stage DuPont Analysis
EAT/EBT EBT/EBIT Sales/Total Total
ROE = EAT/Equity = X X EBIT/Sales X Assets X Assets/Equity
Interest Operating Asset Equity
What is it called? Tax burden burden income margin turnover multiplier
What does it show? Effect of Effect of Operating Efficiency Leverage
tax on interest on margin sales is
profit profit giving
Maruti Suzuki M&M Tata Motors
Sales 81994.4 49444.99 59624.69
EAT 7721.8 4356.01 -1034.85
Average equity 38,964 27,982 20,490
Average assets 55,182 43,378 58,874
EBIT 11003.4 5668.76 797.51
EBT 10,658 5,557 -947
Tax burden 0.72 0.78 1.09
Interest burden 0.97 0.98 -1.19
Operating income margin 13.42 11.46 1.34
Asset turnover 1.49 1.14 1.01
Equity multiplier 1.42 1.55 2.87
ROE 19.82 15.57 -5.05

 The tax burden ratio for Tata Motors is bigger as compared to Maruti Suzuki and Mahindra and Mahindra which
shows that Tata Motors has tax expense net of credit which is positive as they incurred loss during the year as a
result of this it has a tax burden ratio greater than 1.
 The interest burden ratio of tata motors is negative which is due to negative profit of the company which is not
good. For Mahindra and Mahindra and Maruti Suzuki the ratio is close to one which is a good sign for the
company as the interest burden for the company is very less.
 A bigger operating income margin is a good sign for the company which shows the profit as compared to the
sales, it signifies the total expenses related to its sales. Here Tata Motors have a very low operating income
margin which is due to their low profit over the years but Maruti shows a healthy ratio with 13.42%.
 Maruti Suzuki is having the highest asset turnover ratio among the 3 companies which is a good sign for the
company.
 The equity multiplier ratio signifies, how much liabilities the company have in comparison to its total assets and
it is favourable for a company to have a low equity multiplier ratio. Maruti Suzuki have the least equity multiplier
ratio among the 3.
 Maruti Suzuki is providing its shareholders higher return on equity as compared to both tata motors and
Mahindra and Mahindra. The ROE of Maruti and M&M is in a good shape while that of Tata is Negative which
shows that company is facing loss and the shareholders are not making any profit.