Ratio Analysis of Hero Honda 2007-2008

Prepared by: Akanksha Tajender Singh Sonali Satpathy Nidhi Agarwal Ravi Ranjan Ankita Dhal Suvasish Debata

About Hero Honda

Type: Joint Venture (Hero Cycles and Honda)

Industry: Two wheeler manufacturer

Founded: 1984

Market Capital: 442327.78125 ( Rs. in Millions )

Revenue: 4633.86 ( USD in Millions )

Objective of study
1.To understand the financial soundness of the company. 2.To analyze and interpret the financial statements for two years 3.Helpful in giving independent opinion. 4.Estimate about the trends of the business

Limitation of study
1.Restricted to one company only for two years only. 2.Study is based on secondary data, due to which there are chances of window dressing. 3.Ratios alone are not adequate for proper conclusions. 4.Ratio analysis may become less effective due to price level change.

Methodology
Selection of relevant data from the financial statements. Calculation of appropriate ratios from the above data Comparison of the calculated ratios with the ratios of the same firm.

Interpretation of the ratios

Debt equity ratio

Debt Equity Ratio

= Long Term Debt/ Shareholders fund
2007=0.07 2008=0.04 1:1 is considered satisfactory. However for a well established concern 2:1 is considered satisfactory.

0.07 0.06 0.05 0.04 Debt euity ratio

0.03
0.02 0.01 0 2007 2008

current ratio

Current Ratio
= Current assets/ Current liabilities
2007: 0.62 2008:0.57 A ratio of 2:1 is considered satisfactory

0.62 0.61 0.6 0.59 0.58 0.57 0.56 0.55 0.54 2007 2008 current ratio

quick ratio

Quick Ratio
=Liquid assets/ Current Liabilities

0.36 0.355 0.35 0.345

2007=0.36 2008=0.33 1:1 is considered satisfactory

0.34 0.335 0.33

quick ratio

0.325
0.32

0.315
2007 2008

proprietary ratio

Proprietary Ratio
Shareholders fund/ Total assets
=

0.92 0.915 0.91

2007=0.89 2008=0.92 Higher the ratio lesser the dependency working capital on outside sources.

0.905

0.9
0.895 0.89

proprietary ratio

0.885
0.88 0.875 2007 2008

Solvency ratio

Solvency Ratio
= Total Liabilities to outsiders/ Total Assets
2007= 0.030 2008=0.025 Higher the ratio the greater is the dependence on outsider.

0.03 0.025 0.02 0.015 0.01 0.005 0 2007 2008 Solvency ratio

Fixed assets to Net worth ratio

=Fixed asset(after depreciation)/ Shareholders fund 2007=0.51 2008=0.50

Fixed asset to net worth ratio

0.51 0.508 0.506 0.504 0.502 0.5 0.498 Fixed asset to net worth ratio

The ratio should not exceed 1:1, lesser the ratio better the position of the company.

0.496 0.494 2007 2008

Interest coverage Ratio

=EBIT/ Total interest charged
2007=55.20 2008=40.38 The ratio indicates whether the earning of the business is sufficient to pay the interest charges

Interest Coverage Ratio

60 50 40 30 20 Interest Coverage Ratio

10
0 2007 2008

Inventory turnover Ratio

= Cost of goods sold/ Average inventory
2007=34.56 2008=30.17 Based on nature of industry and sales policy of the firm

Inventory Turnover Ratio

35 34

33
32 31 30 29 28 27 2007 2008 Inventory Turnover Ratio

Working capital turnover

=Net sales/ Working Capital
2007=17.49 2008=11.64 The higher working capital shows efficient utilisation of working capital
18

Working capital turnover

16
14 12 10 8 6 4 2 0 2007 2008 Working capital turnover

Fixed Asset Turnover

=Net Sales/ Fixed assets
2007=7.30 2008=6.67 In manufacturing industry 5:1 ratio is considered satisfactory

Fixed Asset Turnover

7.3 7.2 7.1 7 6.9 6.8 6.7 6.6 6.5 Fixed Asset Turnover

6.4 6.3
2007 2008

Debtors Turnover Ratio

= Net credit sales/ Average receivables
2007=40.11 2008=32.70 Higher the value the more efficient is the management of debtors

Debtors Turnover Ratio

45 40 35

30
25 20 15 Debtors Turnover Ratio

10
5 0 2007 2008

Total Asset Turnover Ratio

= Net sales/ Total assets
2007=3.99 2008=3.52 2:1 is considered satisfactory

Total Asset Turnover Ratio

4 3.9

3.8
3.7 3.6 3.5 3.4 3.3 3.2 Total Asset Turnover Ratio

2007

2008

Gross Profit Ratio

Gross Profit Ratio

=Gross profit/Net sales x 100
2007=12.34% 2008=13.46% Higher the ratio the better it is

13.60% 13.40% 13.20% 13.00% 12.80% 12.60% Gross Profit Ratio

12.40%
12.20% 12.00% 11.80% 11.60% 2007 2008

Operating Ratio

Operating Ratio
= Operating cost/ Net sales X 100
2007=89.07% 2008=88.09% 75% to 80% is considered satisfactory in a manufacturing concern

89.20%

89.00%
88.80% 88.60% 88.40% 88.20% 88.00% 87.80% 87.60% 2007 2008 Operating Ratio

Earnings Per Share

Earning Per Share

=Net profit after tax and pref. dividend/ number of equity shares
2007= Rs.42.96 2008= Rs. 48.47 Higher the EPS the better it is

49
48 47

46
45 44 43 42 41 40 2007 2008 Earnings Per Share

Return on capital employed

=Profit after tax / Capital employed X 100 2007= 43.48% 2008= 41.57% This ratio measures the overall profitability and efficiency of the business

Return on Capital employed

43.50% 43.00% 42.50% 42.00% 41.50% 41.00% 40.50% 2007 2008 Return on Capital employed

Return on Total Assets

= Net profit before inertest and tax/ Total Asset 2007= 123.70 2008=149.55

Return on Total Assets

160 140 120 100 80 60 40 Return on Total Assets

Higher the ratio better it is.

20 0 2007 2008

Return on Net Worth

= Net Profit (after interest tax)/ Shareholders fund X 100
2007=34.73% 2008=32.41% Higher the ratio better are the results

Return on Net Worth

35.00% 34.50% 34.00% 33.50% 33.00% 32.50% 32.00% Return on Net Worth

31.50% 31.00% 2007 2008

Conclusion

Thank You