CHAPTER-I

INTRODUCTION: Finance is regarded as the life blood of a business enterprise. In the modern oriented economy, finance is one of the basic foundations of all kinds of economics activities. Finance statements are prepared primarily for decision-making. They play a dominant role in setting the frame work and managerial conclusion and can be drawn from these statements. However, the information provided in the financial statement is of immense use in decision-making through analysis and interpretation of financial statements. As said earlier finance is said to be life blood of any business. Every business under taking needs finance for its smooth working. It has to raise funds from the cheapest and risky source to utilize this in most effective manner. So every company will be interested in knowing its financial performance. The project entitled Financial performance Analysis of Ashok Leyland Industry Ltd throw light on over all financial performance of the company.

OBJECTIVES OF STUDY:
To know the Financial position of the Ashok Leyland.

To know the Liquidity and Profitability position of the company.

To know the Financial strength and weakness of the company.

SCOPE OF THE STUDY

The study covers the Financial performance of the Ashok Leyland.

The study is made by making comparison of five year of it operation. The study aims to reveal where the stands in respect to liquidity and an effective use of asset. PERIOD OF THE STUDY The study covered a period of five years from 2005-06 to 2009-10 accounting year ends 31st march every year.

RESEARCH METHODOLOGY: The study is based on secondary data. Data pertaining behavior of liquidity solvency and profitability position were collection from the Balance Sheet and Profit & Loss account of ashokLeyland. The necessary data were obtained from published annual report.

TOOLS AND TECHNIQUE:

RATIO ANALYSIS

Liquid ratio Solvency ratio Profitability ratio

LIMITATION OF THE STUDY: The study is based on secondary data The time span was limited only a period of five years.
The study suffers all the limitation of ratio analysis, such as lack of

adequate change, income, price level change etc.

CHAPTER SCHEME:
The study is divided into five chapters.
The first chapter deals with introduction objective of study, scope of

the study, period of the study, research methodology, limitation of the study. The second chapter deals with profile of the company. The third chapter deals with analysis & interpretation of the ratios.
The fourth chapter deals with findings & suggestions.

Finally conclusion are given in the fifth chapter

AboutA s h o k L e y l a n d is a commercial vehicle manufacturingcompany base d i n Chennai,India. F o u n d e d i n 1 9 4 8 , t h e company is one of India's leading manufacturers of commercialvehicles, such as trucks and buses, as well as emergency andm i l i t a r y v e h i c l e s . O p e r a t i n g s i x p l a n t s , A s h o k L e y l a n d a l s om a k e s s p a r e p a rt s a n d e n g in e s f o r in d u s tr ia l a n d m ar i n e applications. It sells about 60,000 vehicles and about 7,000engin e s a n n u a l l y . I t i s t h e s e c o n d l a r g e s t c o m m e r c i a l v e h i c l e company in India in the medium and heavy commercial vehicle(M&HCV) segment with a market share of 28% (200708). Withpassenger transportation options ranging from 19 seaters to 80s e a t e r s , A s h o k L e y l a n d i s a m a r k e t l e a d e r i n t h e b u s s e g m e n t . T he c o m p a n y c l a i m s t o c a r r y o v e r 6 0 m i l l i o n passengers a day, more people tha n the entire Indian railnetwo rk. In the trucks segmen t A s h o k L e y l a n d p r i m a r i l y concentrates on the 16 ton to 25 ton range of trucks. HoweverAshok Leyland has presence in the entire truck

range startingf r o m 7 . 5 t o n s t o 4 9 t o n s . T h e j o i n t v e n t u r e a n n o u n c e d w i t h Nissan Motorsof Japan would improve its presence in the LightCommercial Vehicle (LCV) segment (<7.5 tons). Vision Be among the top Indian corporations acknowledged nationallyand internationally for: Excellence in quality of its products Excellence in customer focus and service Mission Be a leader in the business of commercial vehicals, excelling int e c h n o l o g y , q u a l i t y a n d v a l u e t o c u s t o m e r f u l l y s u p p o r t e d b y customer service of the highest order and meeting national andinternational safety environments and safety standards.

CHAPTER II COMPANY PROFILE

INTRODUCTION

The Ashok Leyland is a Public Limited Company. Founded in 1948, it is an automobile industry and the company is one of India's leading manufacturers of commercial vehicles, such as trucks and buses, as well as emergency and military vehicles. the company is based in Chennai, India., its also makes spare parts and engines for industrial and marine applications. 11500 employees are working in this company, it sells about 60,000 vehicles and about 7,000 engines annually.

It is the second largest commercial vehicle company in India in the medium and heavy commercial vehicle segment with a market share of 28%, With passenger transportation options ranging from 19 seaters to 80 seaters, Ashok Leyland is a market leader in the bus segment. The company claims to carry over 60 million passengers a day, more people than the entire Indian rail network. The company concentrates on the 16 ton to 25 ton range of trucks. Entire truck range starting from 7.5 tons to 49 tons.

HISTORY The origin of Ashok Leyland can be traced to the urge for selfreliance felt by independence of India, Pandit Jawaharlal Nehru, Indias first Prime Minister, persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive manufacture. The company began in 1948 as Ashok Motors, to assemble Austin cars. The company was renamed and started manufacturing commercial vehicles in 1955 with equity participation by British Leyland. Early products included the Leyland Comet bus which was a passenger body built on a truck chassis, sold in large numbers to many operators, it built a reputation for reliability and ruggedness. This was mainly due to the product design legacy carried over from British Leyland. The 5, 00,000 vehicle they have put on the road have considerably eased the additional pressure placed on the road transportation in independent India. The company long term plan to become a global player by benchmarking global standards of technology and quality was soon firmed up. Access to international technology and a US$200 million investment programmed created a state-of-the-art manufacturing base to roll out international class products. This resulted in Ashok Leyland launching the 'Cargo' range of trucks based on European Ford Cargo trucks.

GOALS: The companys plans is to acquire smaller car manufacturers in China and in other developing countries. Ashok Leyland bought a majority stake in the Czech based- Avia. Called Avia Ashok Leyland Motors s.r.o., this will give Ashok Leyland a channel into the competitive European market. According to the company, the joint venture sold 518 LCVs in Europe despite tough economic conditions. the company will expand its product offers into construction equipment. The company says negotiation is progressing on land acquisition, and the production plans are in place. Aside from the full expansion planned for the company, Ashok Leyland is also paying close attention to the environment. they are one of the companies showing the strongest commitment to environmental protection, utilizing eco-friendly processes in their various plants. Even as they thrust into different directions, Ashok Leyland maintains an R&D group that aims to uncover ways to make their vehicles more fuel efficient and reduce emissions

CURRENT STATUS

The company has also maintained its profitable track record for 60 years. The annual turnover of the company was USD 1.4 billion in 2008-09. Selling 54,431 medium and heavy vehicles in 2008-09, Ashok Leyland is India's largest exporter of medium and heavy duty trucks. Ashok Leyland has also entered into some significant partnerships, seizing growth opportunities offered by diversification and globalization with Continental Corporation for automotive infotronics; with Alteams in Finland for high pressure die casting and recently, with John Deere for construction equipment. PARENT Hinduja group

Ennore Foundaries Limited Automotive Coaches and Components Limited Gulf-Aashly Motors Limited Ashley Holdings Limited

SUBSIDIARIES Ashley Investments Limited Ashley Design and Engineering services (ADES) Avia Ashok Leyland Ashok Leyland Project Services Limited Lanka Ashok Leyland

FACILITIES The company has six manufacturing location in India: Ennore and Hosur, Tamilnadu ( Hosur 1, Hosur 2, CPPS) Alwar, Rajasthan Bhandara, Maharastra The company has an Engine Research and Development facility in Hosur

The company is setting up a new Plant in the North Indian state of Uttarakhand at pant Nagar at an investment outlay of Rs. 1200 crores. This plant is expected to go on stream in the year 2010.

The Plant will have a capacity to produce around 40,000 commercial vehicles and is expected to cater mainly to the North Indian market taking advantage of the excise duty and other tax concessions.

ACHIEVEMENTS

Ashok Leyland buses carry 60 million passengers a day, more people than the entire Indian rail network

Ashok Leyland has a near 85% market share in the Marine Diesel engines markets in India

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified for their Environmental Management System, making it the first Indian commercial vehicle manufacture to do so.

In 2005, received the BS7799 Certification for its Information Security Management System (ISMS), making it the first auto manufacturer in India to do so.

In 2006, received the ISO/TS 16949 Corporate Certification, making it the first auto manufacturer in India to do so.

It is one of the leading suppliers of defense vehicles in the world and also the leading supplier of logistics vehicles to the Indian Army.

PRODUCTS Luxura Viking BS-I - city bus Viking BS-II - city bus Viking BS-III -city bus Cheetah BS-I Cheetah BS-II Panther 12M bus Stag Mini Stag CNG

CHAPTER III RATIO ANALYSIS

MEANING: Ratios are relationship expressed in mathematical items between figures which are connected with each other in some manner. CLASSIFICATION: Short term solvency ratio:
I. Liquidity ratio

3.1 Current ratio. 3.2 Liquid ratio. 3.3 Absolute liquidity ratio. II. Activity ratio 3.4 Inventory turnover ratio 3.5 Inventory conversion period 3.6 Debtor turnover ratio 3.7Average collection period 3.8 Working capital turnover ratio. Long term solvency ratio: 3.9 Deb Equity ratio 3.10 Proprietary ratio 3.11 Fixed asset to net worth ratio 3.12 fixed asset ratio. 3.13 Current asset to proprietary fund 3.14 Fixed asset turn over ratio.

 Profitability ratio 3.15 Gross profit ratio 3.16 Net profit ratio 3.17 Operating profit ratio 3.18 Selling & administration expenses ANALYSIS AND INTERPRETATION: The financial performed of a firm can be evaluated by constructing ratio for the various items appearing in the financial statement. A ratio is a simple artificial expression of the relationship between two mathematical variables. Ratio analysis is a technique of analysis and interpretation of financial statement by establishing and interpreting various ratios useful for decision making. In this chapter I have applied various ratios for analyzing financial position of the company. The result and interpretation are given below.

SHORT-TERM SOLVENCY RATIO I.LIQUIDITY RATIO: 3.1. CURRENT RATIO

Current ratio may be defined as the relationship between current asset and current liabilities. The current ratio is the index of the concern financial stability since it shows extent of the working capital, which is the amount by which the current asset exceeds the current liabilities. The rule of the thumb is 2:1

Current ratio=

Current Asset ______________ Current Liability

Current asset= Inventories + Sundry debtors+ Cash & Bank balance. Current liabilities= Bills payable + Bank O/D.

TABLE: I CURRENT RATIO * Rs .in . Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: The rule of thumb of current ratio is 2:1 the ratio shows a fluctuating trend. In the year 2005-2006 the ratio was 1.11 and it was decreased from 0.90 to 0.74 in 2006-2007 and 2007-2008. In 2008-2009 the ratio was decreased to 1.07 and 2009-2010 the ratio was again decreased to 0.94. So it was not satisfactory. Current Asset* 1492.88 1681.75 1644.30 2374.91 2849.22 Current liabilities* 1344.19 1865.97 2196.40 2207.29 3002.68 Ratio 1.11 0.90 0.74 1.07 0.94

CHART : 1

Current ratio

1.6 1.11 Ratio 0.9 0.8 0.74

1.07

0.94

0 200506 200607 2007- 200808 09 years 200910

3.2. LIQUID RATIO:

This ratio also termed as acid test or quick ratio. This is ascertaining by comparing the liquid asset and current liability. It is the test of liquidity to the ability of the current ratio .the term liquidity refers to the ability of a firm to pay its short term obligation. The rule of thumb is 1:1. Liquid Asset _______________ Current Liability

Liquid ratio =

Liquid Asset = Current Asset Inventories.

TABLE: I LIQUID RATIO *Rs .in. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Liquid asset* 590.32 611.43 420.39 1044.91 1210.98 Current liabilities* 1334.19 1865.97 2196.49 2207.29 3002.68 Ratio 0.44 0.32 0.19 0.47 0.40

INTERPRETATION:
The rule of thumb of liquid ratio is 1:1. The liquid ratio in the year 2005-2006 and it was decreased from 0.32 to 0.19 in 2006-2007 and 20072008. The ratio was again increased to 0.47 in 2008-2009 and 2009-2010. The ratio was again decreased to 0.40 in the year 2005-2006 to 2009-2010. The liquid ratio was not satisfactory of the company

CHART :2

Liquid ratio 0.64

0.47 0.44 0.4 Ratio 0.32 0.32 0.19

0 200506 200607 2007- 200808 09 years 200910

3.3. ABSOLUTE LIQUID RATIO OR CASH RATIO: The ratio measures the relationship between cash and near cash item on the hand and immediately maturing obligation on the other. The inventory and debtor are excluded from current asset to calculate this ratio. The rule of thumb is 0.5:1.

Absolute Liquid Asset Absolute ratio= ___________________ Current Liability

Absolute liquid asset = Cash & Bank balance

TABLE: 3 ABSOLUTE LIQUID RATIO * Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Absolute liquid asset* 165.98 88.5 44.55 86.93 188.92 Current liabilities* 1334.19 1865.97 2196.49 22.7.29 3002.68 Ratio 0.12 0.04 0.02 0.03 0.06

INTERPRETATION: The rule of thumb of absoluter liquid ratio is 0.5:1. In the year 20052006 the ratio was 0.10 and next year onwards it was decreasing trend. In the year 2006-2007 to 2008-2009, the ratio was decreased from 0.04 to 0.02. In 2009-2010 the ratio was decreased to 0.06. So it was not satisfactory in 2005-2006 to 2009-2010.

CHART :3

Absolute liquid ratio

0.16 0.12 0.12 Ratio

0.08 0.04 0.04 0.02

0.06

0.03

0 200506 200607 2007- 200808 09 years 200910

II.ACTIVITY RATIO

3.4. INVENTORY TURNOVER RATIO:

Every firm has to maintain a certain level of inventory to finished goods. It was able to meet the requirements of the business, inventory turnover indicates the number of times stock has been turned during the period and evaluate the efficiency with which a firm is able to manage.

Inventory turnover ratio=

Net Sales ____________ Inventory

Net sales = Sales Excise duty.

TABLE: 4 INVENTORY TURNOVER RATIO * Rs. in . Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Inventory* 902.56 1070.32 1223.91 1330.01 1638.24 Ratio 5.93 6.87 6.51 4.63 4.53

INTERPRETATION: The inventory turnover ratio in the year 2005-2006 was 5.95 but it was increased to 6.87 in 2006-2007. In 2007-2008 to 2009-2010 the ratio was decreased from 6.51 to 4.53. This stock turnover ratio implies over investment in stock.

CHART :4

inventory turnover ratio 8 6.87 5.93 4.63 Ratio 4 6.51

4.53

0 200506 200607 2007- 200808 09 years 200910

3.5. INVENTORY CONVERSION PERIOD: It may be of interest to see average time taken for clearing the stock. This can be possible by calculating inventory conversion period. This period is calculated by dividing the number of days by inventory turnover ratio.

Inventory conversion period=

No. of days in a year ________________________ Inventory turnover ratio

TABLE: 5 INVENTORY CONVERSION PERIOD * Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: In the year 2005-2006 the conversion period was 61 days and it was decreased to 56 days in 2006-2007. In 2007-2008 the days slightly increased to 56 days. In 2008-09 and 2009-10 the days was increased from 78 to 80 days. It indicates more days to clear stock compared to previous year. Days in a year* 365 365 365 365 365 Stock turn over ratio* 5.93 6.87 6.51 4.63 4.63 Ratio 61 53 56 78 80

CHART :5

Inventory conversion period 90

80

78

80

Ratio

70 61 60 53 50 200506 200607 2007- 200808 09 years 200910 56

3.6. DEBTOR TURNOVER RATIO: It established the relationship between the net credit sales and average debtor. It indicates the number of times the collection debtor has turnover during the year. The higher the ratio is better result with ratio is better result with efficient management. Net credit sales Debtor turnover ratio= ______________ Average debtor

Average debtor= Opening debtor + Closing debtor+ Opening bills receivable + Closing bills receivable.

TABLE: 6 DEBTOR TURNOVER RATIO *Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: In this year 2005-2006 the ratio was 12.60 times and it decreased to 14.07 in 2006-2007. In 2007-2008 the ratio again increased to 21.21 and it was decreased to 6.43 in 2008-2009. In 2009-2010 it was slightly increased to 7.27. It implies in efficient management of debtor or sales. Net credit sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Average debtor* 424.34 522.88 375.84 957.97 1022.06 times 12.60 14.07 21.21 6.43 7.27

CHART :6

Debtor turnover ratio 24

21.21

18 14.07 12.6 Ratio 12 6.43 6 7.27

0 200506 200607 2007- 200808 09 years 200910

3.7. AVERAGE COLLECTION PERIOD: The number of days taken by a firm for collecting of its receivable or debtors during the year. It indicates the relationship between average debtor and net credit sales.

Average collection period =

No. of days in a year _____________________ Debtor turnover ratio TABLE: 7

AVERAGE COLLECTION PERIOD Year 2005-06 2006-07 2007-08 2008-09 2009-10 Days in a year 365 365 365 365 365

Rs .in cores Debtor turnover Days ratio 12.60 28 14.07 25 21.21 17 6.43 56 7.27 50

INTERPRETATION: The collection period in the year 2005-2006 the days was 28. In 200607 and 2007-2008 it was reduced from 25 days to 17 days. In 2008-2009 it was increased to 56 days and it was decreased to 50 days in 2009-2010. It indicates the debt was collected in 50 days.

CHART :7

Average collection period 60 56 50

45 Ratio

30

28 25

17 15 200506 200607 2007- 200808 09 years 200910

3.8. WORKING CAPITAL TURNOVER RATIO: This ratio indicates the number of time the working capital is turned over in the course of a year. . The higher ratio indicates efficient utilization of working capital. The higher may be the result of high turnover of inventories of receivable Net sales ____________________ Net working capital

Working capital turnover ratio=

Net working capital = Current Assets Current Liabilities.

TABLE-8 WORKING CAPITAL TURNOVER RATIO Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: The ratio shows fluctuating trend from 2005-2006 to 2009-2010. The ratio was 9.12 in 2005-2006 and it was increased from 12.80 to 36.62 in 2007-2008. But it was decreased to 8.56 in 2008-09and in the year 20092010 it was again slightly increased to 10.10. Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Working capital* 587.32 574.72 217.66 720.32 736.17 *Rs. in. Cr Ratio 9.12 12.80 36.62 8.56 10.10

CHART :8

working capital turnover ratio 38 36.62

Ratio

19 12.8 9.12 8.56 10.1

0 200506 200607 2007- 200808 09 years 200910

LONG TERM SOLVENCY RATIO

3.9. DEBT EQUITY RATIO

This ratio is also known as internal and external equality ratio .it is mainly calculated to assess the soundness of long term financial policies and to determine the relatives stakes of outsiders and owners. It indicates the relationship between debt and equity.

Debt equity ratio=

Long term fund _________________________ Shareholders fund

Long term debt = Secure loan + Un secured loan. Shareholder fund= Share capital, Reserve & Surplus.

TABLE: 9 DEBT EQUITY RATIO * Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10
INTERPRETATION:

Long term debt* 691.93 640.40 887.50 1961.98 2280.45

Shareholders fund* 1412.46 1894.58 2148.98 3478.89 3656.30

Ratio 0.48 0.33 0.41 0.56 0.62

The rule of thumb is 2:1. The debt equity in the year 2005-06 was 0.48 but and 2006-2007 it was decreased to 0.33 and next three year it was slightly increased from 0.41 to 0.62 in the year 2007-2008 to 2009-2010. The ratio shows that the long term debt is very low, so the company can make use of the law cost of fund, and it was satisfactory.

CHART : 9

Debt equity ratio 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 200506 200607 2007- 200808 09 years 200910 0.48 0.41 Ratio 0.33 0.56

0.62

3.10. PROPRIETARY RATIO: This ratio is also called as equity ratio or owners fund ratio. This ratio points out relationship between the shareholders fund and total asset of the company. It indicates the proportion of total asset financed by shareholders.

Proprietary ratio=

Shareholders fund _________________ Total asset.

Total asset= Current asset +Fixed asset.

TABLE: 10 PROPRIETARY RATIO *Rs. in. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Shareholders fund total asset* 1412.46 1894.58 2148.98 3473.89 3656.30 Total asset* 2104.40 2534.97 3036.48 5435.87 5936.76 Ratio 0.67 0.74 0.74 0.63 0.61

INTERPRETATION: The rule of thumb is above 50% of the ratio is satisfactory. The ratio shows in the year 2005-2006 was 0.67 and it was increased to 0.74 in 20062007 and 2007-2008. In 2008-2009 the ratio was decreased to 0.63 and again decreased to 0.61 in 2009-2010. It shows the shareholders are financed to total asset so it was satisfactory.

CHART :10

proprietory ratio 0.8 0.67 0.63 0.6 0.61 0.74 0.74

Ratio

0.4

0.2

0 200506 200607 2007- 200808 09 years 200910

3.11. FIXED ASSET TO NET WORTH RATIO: This ratio indicates as to what extends the shareholders fund have been invested in fixed assets. If the ratio is high, it implied that much of shareholders are invested in fixed asset. But too high indicates what the high amount is tied up in fixed capital.

Fixed asset Fixed asset to net worth ratio= _______________ Shareholders fund

TABLE: 11 FIXED ASSET TO NETWORTH RATIO * Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: There is no rule of thumb but 60 plus 0.65 is said to be satisfactory. The ratio was 0.66 in the year 2005-2006. In 2006-2007 it was increased to 0.68 but in 2007-2008 it was increased to 0.63 in 2008-2009 the ratio was increased to 0.97 and 2009-2010 again the ratio was increased to 1.16. The shareholders fund is properly utilized. Fixed asset* 943.27 1307.04 1525.55 3399.11 4249.56 Shareholders fund* 1412.46 1894.58 2148.98 3473.89 3656.30 Ratio 0.66 0.68 0.63 0.97 1.16

CHART :11

fixed asset to networth ratio 1.4 1.2 1 0.8 0.6 0.4 0.2 0 200506 200607 2007- 200808 09 years 200910 0.68 0.97 1.16

Ratio

0.66

0.63

3.12. FIXED ASSET RATIO: The ratio indicates the extend to which the total of fixed asset are financed by long term fund of the firm. Generally the total fixed asset should be equal to the total long term fund. But if fixed assets exceeds, it implies that firm has financial asset, which not good the financial policy.

Fixed asset ratio=

Fixed asset before depreciation ______________________________ Total long term

Fixed assets = Long term investment. Fixed term funds = Share capital, Reserve & Surplus

TABLE: 12 FIXED ASSET RATIO *Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: In the year 2005-2006 the fixed asset ratio was 1.51 and it was decreased from 1.38 to 1.36 in 2006-2007 and 2007-2008. In 2008-2009 the ratio was slightly increased from 1.42 to 1.64 in 2008-2009 and 20092010. It implies the company has financed a part of fixed out of current asset. Fixed asset* 2138.50 2620.20 2942.44 4953.27 6018.63 Long term funds* 1412.46 1894.58 2148.98 3473.89 3656.30 Ratio 1.51 1.38 1.36 1.42 1.64

CHART :12

fixed asset ratio

1.6

1.51 1.38 1.36 1.42

1.64

Ratio 0.8 0 200506 200607 2007- 200808 09 years 200910

3.13. CURRENT ASSET TO PROPRIETORS FUND: The ratio is calculated by dividing the total of current asset by the amount of shareholders fund. The ratio indicates the extent to which proprietors fund are invested in current assets.

current asset Current asset to proprietors fund= __________________ Shares holders fund

TABLE: 13 CURRENT ASSET TO PROPRIETORY FUND *Rs. in. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: The ratio shows fluctuating trend. In the year 2005-2006 the ratio was 1.05 and it was reduced from 0.88 to 0.68 in 2006-2007 to 2008-2009. But it was slightly increased to 0.77. This shows more than 50% of share holders are invested in current asset. Current asset* 1492.88 1681.75 1644.30 2374.91 2849.22 Share holders fund* 1412.46 1894.58 2148.98 3478.89 3656.30 Ratio 1.05 0.88 0.76 0.68 0.77

CHART :13

Current asset to proprietory fund 1.2 1.05 0.96 0.88 0.79 0.72 Ratio 0.68 0.77

0.48

0.24

0 200506 200607 2007- 200808 09 years 200910

3.14. FIXED ASSET TURNOVER RATIO: This ratio measures the efficiency in utilization of fixed asset. A high ratio reflects overtrading on the other hand a lower ratio indicates idle capacity and excessive investment in fixed asset.

Fixed asset turnover ratio=

Net sales ________________ Net fixed asset.

TABLE: 14 FIXED ASSET TURNOVER RATIO *Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Net fixed asset* 943.27 1307.04 1525.5 3399.11 4249.56 Ratio 5.68 5.63 5.22 1.81 1.75

INTERPRETATION: The fixed asset turnover ratio. The ratio was decreasing trend was 5.68 in the year 2005-2006. And it easy slightly reduced from 5.63 to 5.22 in 2006.2007 and 2007-2008. In 2008-2009 and 2009-2010 the ratio was again decreased from 1.81 to 1.75. The ratio implies the company utilizes the fixed asset to achieve the highest sales.

CHART : 14
fixed asset turnover ratio 6 5.68 5.63

5.22

4 Ratio

1.81

1.75

0 200506 200607 2007- 200808 09 years 200910

PROFITABILITY RATIO

3.15. GROSS PROFIT RATIO:

It indicates the margin of profit on sale. It measures the relationship of gross profit to net sales and it is represented in percentage. The high gross profit ratio is sign of good management. The relatively low profit ratio is not good for the company. There are no standard norms.

Gross profit ratio=

Gross profit ________________ Net profit

X 100

Gross profit = Sales- Cost of goods sold

TABLE: 15 GROSS PROFIT RATIO *Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Gross profit* 556.59 768.16 828.25 400.35 752.16 Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Ratio 10 10 10 6 10

INTERPRETATION: This ratio represent in percentage. The ratio shows in the year 20052006, 2006-2007and 2007-2008 was 10 % and the ratio was decreased to 6% in the year 2008-2009. In 2009-2010 the ratio again increased to 10%. The Gross profit ratio was increasing trend, so overall ratio was satisfactory.

CHART :15

gross profit ratio 12 10 10 10 10

8 Ratio 6

0 200506 200607 2007- 200808 09 years 200910

3.16. NET PROFIT RATIO: Net profit ratio indicate the relationship between net profit and sales the efficiency of the manufacturing, welling and other activities of the firm

Net profit (after tax) Net profit ratio= _______________________ X 100 Net sales

TABLE: 16 NET PROFIT RATIO *Rs. In. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: The ratio shows in the year 2005-2006 was 6% and the ratio was decreased to 5% in 2006-2007 and 2007-2008. Again the ratio was decreased to 3% in 2008-2009 and it was increased again 5% in 2009-2010. Because the company has been increased the net sales and overall net profit was increased trend. Net profit (after tax)* 327.32 441.29 469.31 190.00 423.67 Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Ratio in % 6 5 5 3 5

CHART :16

Net profit ratio 9

6 Ratio

6 5 5 5

3 3

0 200506 200607 2007- 200808 09 years 200910

3.17. OPERATING PROFIT RATIO: Operating profit ratio is calculated for analyzing profitability of a concern. Increase in operate profit indicates improvement of firm working by cost reduction or increase sales.

Operating profit Operating profit ratio = _______________ Net sales

X 100

TABLE: 17 OPERATING PROFIT RATIO *Rs. in. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Operating profit* 540.36 686.16 804.49 473.09 761.40 Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Ratio 10 9 10 7 10

INTERPRETATION: The ratio was 10% in the year 2005-2006 and slightly decreased to 9% in 2006-2007. In 2007-2008 again reached 10% and it was decreased to 7% in 2008-2009. In 2009-2010 the ratio was increased to 10%. The overall operating profit and sales are increased and reduce the expenses.

CHART :17

Operating profit ratio 15

10 Ratio

10 9

10

10

0 200506 200607 2007- 200808 09 years 200910

3.18. SELLING AND ADMINISTRATION EXPENSES: Selling and administrative ratio indicates the relationship between the expenses and sales .the changes in the selling and administrative expenses will be impact on sales.

Selling & Administration expenses Selling and administration expenses= ___________________________ X100 Net sales

TABLE: 18 SELLING AND ADMINISTRATION EXPENSES *Rs. in. Cr Year 2005-06 2006-07 2007-08 2008-09 2009-10 Selling &Administration expenses* 199.36 259.50 263.5 495.68 445.89 Net sales* 5359.94 7358.88 7972.52 6168.99 7436.18 Ratio 3 3 3 8 5

INTERPRETATION: The expenses ratio was 3% in three year that is 2005-2006, 2006-2007 and 2007-2008. In the year 2008-2009 it was increased to 8% but in the year 2009-2010. It decreased to 5%. Because the expenses are slightly decreased compared to previous year.

CHART : 18

Selling and administration expences 10

Ratio

0 200506 200607 2007- 200808 09 years 200910

CHAPTER-V FINDINGS:
The current ratio was a fluctuating trend from 2005-2006 to 2009-

2010. In last year the ratio was decreased 0.94. Because this is due to increased in debtor and cash & bank balances.
The liquid ratio was declining trend in 2009-2010. Because increase

the debtor and cash & bank balances in last year.

The absolute liquid ratio implies in last year was slightly increased

because the company should keep cash to meet day to day expenses.
Inventors turnover ratio implies the company has made low sales

because more days are taken to clear the stock, and high investment in stocks.
The debtors turnover ratio indicates the last two year decreased.

Because the company marked inefficient management of debtor or sales and debts was collected in 50 days in last years.
The working capital was increased trend 2008-2009 and 2009-2010.

This two year the working capital implies less utilization. Debt equity ratio helps to measure the extend to which debt financing to the business. The ratio is very low expected last year, the company can make use low cost fund in future.
The

proprietary ratio was fluctuating trend. It indicates the

shareholders are more than 50% are investment in total asset. Because increase the value of asset in future. So it was satisfactory.
The fixed asset ratio are measure the utilization of fixed asset. The

fixed asset is increasing trend. So the company was making high sales.

 The gross profit ratio was 10% in four year; the company has making

the sales in proportionally. Because the cost of goods sold is slightly variation. The net profit ratio implies the profitability position of the company has increased in 2009-2010 and sales are growing up. Operating profit ratio also implies the profit has been increased compared to previous year. Because the company was make low amount of cost of goods sold. The exp4ences ratio of the company was decreasing, because to make the high sales.

SUGGESTION
The current ratio and absolute ratio was maintained lower cash

than ideal ratio. So, the company cab take step to increase the cash position to meet its expenses.
The company is allowed credit period for 50 days. The debt

collection period can be reduced with in 30days. The company should increase the long term debt.
To reduce the investor cost of the company must follow average

inventory system, Otherwise, the company was making investment in current asset and reducing cost of sales at the same time increasing sales and profit was good in earlier days.

CONCLUSION:
The project entitled A STUDY OF FINANCIAL

PERFORMANCE ANALYSIS OF ASHOK LEYLAND COMPANY LIMITED was undertaken with the objective of financial performance and to examine profitability performance of the company. From the study gross profit and net profit position was good. The liquidity position should be increase the company. Long term solvency position of company was satisfactory. In over all performance of ASHOK LEYLAND LIMITED was good.