Ashok Leyland

FINANCIAL STATEMENTS ANALYSIS OF

ASHOK LEYLAND

A
PROJECT REPORT
Submitted to the faculty of Commerce & Business Administrative
in the partial fulfillment of the requirement for the Degree of
Bachelor of Commerce

HPU University

SUBMITTED BY:

DROMATI
CLASS : B.Com 6th Sem
CLASS ROLL NO. : C3-15-31
UNIV. ROLL NO.: 3113MNO1170006

UNDER THE SUPERVISION OF :

PROF. RAKESH KAPOOR

DEPARTMENT OF COMMERCE
VGC MANDI (H.P.)
April 2016

Ashok Leyland

PRFEACE
As the world is growing rapidly, the businesses are also moving to become the huge one. And
by that result, more and more people want to become a master in these businesses. The main
purpose in the finance field is to know how the financial analysis is done. We all know that
finance is the blood of any business and without it no business can run. Financial analysis of
a company is very difficult and the most important task and by doing this I am able to know
the whole financial position and financial structure of the company.
Simply by looking at how much cash a company has does not provide enough information.
The financial statements need to be analyzed to measure a companys performance and to
compare it with other firms in the same industry. The resulting information is intended to be
useful to owners, potential investors, creditors, analysts, and others as the analysis evaluates
the past performance, future potential and financial position of the firm.
This report is an analysis of financial statements of Ashok Leyland. This report has been
prepared with an objective to develop analytical skills required to interpret the information
(explicit as well as implicit) provided by the financial statements and to measure the
companys performance during the past few years. The financial statements are analyzed
using traditional evaluation techniques such as horizontal analysis, vertical analysis and trend
analysis. Sincere attempts have been made to make this report error free but if any errors and
omissions are found then I apologize for that.

Dromati

Ashok Leyland

ACKNOWLEDGEMENT
This is a great opportunity as well as great honor to submit this Project to you, I am firstly
thanks to my college to give me this kind of course outline and makes me grateful by doing
this project.
I sincerely thank all who have contributed to success this Report. Firstly I thanks to our Prof.
Rakesh Kapoor for makes us able to doing this kind of work and giving us new experience.
And help us a lot whenever we needed. He also provides an important data and makes us to
understand the terms and theory of Finance as well as gives us guidance.

Ashok Leyland

CERTIFICATE
It is certified that project report Financial Statement Analysis of Ashok
Leyland, Submitted by Dromati in partial fulfillment of the requirement for
the Degree of B.Com from HP University, embodies original work and has
been done under my supervision.

Dated

Signature of Guide

Ashok Leyland

CHAPTERS
1.1

Financial Statements

A financial statement (or financial report) is a formal record of the financial activities and
position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form easy to
understand. They typically include basic financial statements, accompanied by a management
discussion and analysis:[1]
1. A balance sheet, also referred to as a statement of financial position, reports on a
company's assets, liabilities, andowners equity at a given point in time.
2. An income

statement,

also

known

as

a statement

of

comprehensive

income, statement of revenue & expense, P&L orprofit and loss report, reports on
a company's income, expenses, and profits over a period of time. A profit and loss
statement provides information on the operation of the enterprise. These include sales
and the various expenses incurred during the stated period.
3. A statement of changes in equity, also known as equity statement or statement of
retained earnings, reports on the changes in equity of the company during the stated
period.
4. A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities.

Ashok Leyland

1.2 Reporting and Interpretation of Financial Statement

Introduction
Financial statements on their own are of limited use. For example: if you were to identify that
a business has made profits of $1 million what does that tell you about the business? Does it
suggest the business is a success? It might, but not if in the previous year they made profits of
$50 million and their closest rival earned profits of $60 million.
It is important that users of financial statements can interpret the financial statements to be
able to draw out valid conclusions. Typically this involves the use of comparisons to prior
years, forecasts and competitors. Users can compare sales and expense figures, asset and
liability balances and cash flows to perform this analysis.
Ratio analysis is widely used to support this process of comparison. Don't forget though that
ratios are calculated using the figures already present in the financial statements. The raw
data is equally useful when performing analysis. Ratios are simply a tool to try and assist
understanding and comparison.
Users of financial statements
When interpreting financial statements it is important to ascertain who are the users of
accounts and what information they need:

shareholders and potential investors primarily concerned with receiving an adequate

return on their investment, but also with the stability/liquidity of the business

suppliers and lenders concerned with the security of their debt or loan

management concerned with the trend and level of profits, since this is the main
measure of their success.

Other potential users include:

financial institutions

employees

professional advisors to investors

Ashok Leyland

financial journalists and commentators.

Ratio analysis
Ratios use simple calculations based upon the interactions in sets of data. For example;
changes in costs of sale are directly linked to changes in sales activity. Changes in sales
activity also have an effect upon wages and salaries, receivables, inventory levels etc. Ratios
allow us to see those interactions in a simple, concise format.
Ratios are of limited use on their own, thus, the following points should serve as a useful
checklist if you need to analyse data and comment on it:

What does the ratio literally mean?

What does a change in the ratio mean?

What is the norm?

What are the limitations of the ratio?

Ashok Leyland

1.3 Financial Analysis Meaning and Concept

Financial analysis (also referred to as financial statement analysis or accounting
analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability
of a business, sub-business or project.
It is performed by professionals who prepare reports using ratios that make use of information
taken from financial statements and other reports. These reports are usually presented to top
management as one of their bases in making business decisions. Financial analysis may
determine if a business will:

Continue or discontinue its main operation or part of its business;

Make or purchase certain materials in the manufacture of its product;

Acquire or rent/lease certain machineries and equipment in the production of its goods;

Issue stocks or negotiate for a bank loan to increase its working capital;

Make decisions regarding investing or lending capital;

Make other decisions that allow management to make an informed selection on various
alternatives in the conduct of its business.

1.4 Tools and Techniques of Financial Statement Analysis:

Following are the most important tools and techniques of financial statement analysis:
1.

Horizontal and Vertical Analysis

2.

Ratios Analysis
1. Horizontal and Vertical Analysis:
Horizontal Analysis or Trend Analysis:
Comparison of two or more year's financial data is known as horizontal analysis, or trend
analysis. Horizontal analysis is facilitated by showing changes between years in both dollar
and percentage form.
Horizontal analysis is facilitated by showing changes between years in both dollar and
percentage form as has been done in the example below. Showing changes in dollar form
helps the analyst focus on key factors t hat have affected profitability or financial position.

Ashok Leyland
Observe in the example that sales for 2002 were up $4 million over 2001, but that this
increase in sales was more than negated by a $4.5million increase in cost of goods sold.
Showing changes between years in percentage form helps the analyst to gain perspective and
to gain a feel for the significance of the changes that are taking place. For example a $1
million increase in sales is much more significant if the prior year's sales were $2 million
than if the prior year's sales were $20 million. In the first situation, the increase would be
50% that is undoubtedly a significant increase for any firm. In the second situation, the
increase would be 5% that is just a reflection of normal progress.
Trend Percentage:
Horizontal analysis of financial statements can also be carried out by computing trend
percentages. Trend percentage states several years' financial data in terms of a base year. The
base year equals 100%, with all other years stated in some percentage of this base.
Vertical Analysis:
Vertical analysis is the procedure of preparing and presenting common size
statements. Common size statement is one that shows the items appearing on it in
percentage form as well as in dollar form.
Each item is stated as a percentage of some total of which that item is a part. Key financial
changes and trends can be highlighted by the use of common size statements.
Common size statements are particularly useful when comparing data from different
companies. For example, in one year, Wendy's net income was about $110 million, whereas
McDonald's was $1,427 million. This comparison is somewhat misleading because of the
dramatically different size of the two companies. To put this in better perspective, the net
income figures can be expressed as a percentage of the sales revenues of each company,
Since Wendy's sales revenue were $1,746 million and McDonald's were $9,794 million,
Wendy's net income as a percentage of sales was about 6.3% and McDonald's was about
14.6%.

2. Ratios Analysis:
Accounting Ratios Definition, Advantages, Classification and Limitations:
The ratios analysis is the most powerful tool of financial statement analysis.Ratios simply
means one number expressed in terms of another. A ratio is a statistical yardstick by means of
9

Ashok Leyland
which relationship between two or various figures can be compared or measured. Ratios can
be found out by dividing one number by another number. Ratios show how one number is
related to another.

Definition of Accounting Ratios:

The term "accounting ratios" is used to describe significant relationship between figures
shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any
other part of accounting organization.Accounting ratios thus shows the relationship between
accounting data.
Ratios can be found out by dividing one number by another number. Ratios show how one
number is related to another. It may be expressed in the form of co-efficient, percentage,
proportion, or rate. For example the current assets and current liabilities of a business on a
particular date are $200,000 and $100,000 respectively. The ratio of current assets and current
liabilities could be expressed as 2 (i.e. 200,000 / 100,000) or 200 percent or it can be
expressed as 2:1 i.e., the current assets are two times the current liabilities. Ratio sometimes
is expressed in the form of rate. For instance, the ratio between two numerical facts, usually
over a period of time, e.g. stock turnover is three times a year.

Advantages of Ratios Analysis:

Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages / Benefits of ratio analysis:
1.

Simplifies financial statements: It simplifies the comprehension of financial

statements. Ratios tell the whole story of changes in the financial condition of the business

2.

Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with with successful and unsuccessful firm. They also reveal
strong firms and weak firms, overvalued and undervalued firms.

3.

Helps in planning: It helps in planning and forecasting. Ratios can assist

management, in its basic functions of forecasting. Planning, co-ordination, control and
communications.

10

Ashok Leyland
4.

Makes inter-firm comparison possible: Ratios analysis also makes possible

comparison of the performance of different divisions of the firm. The ratios are helpful in
deciding about their efficiency or otherwise in the past and likely performance in the future.

5.

Help in investment decisions: It helps in investment decisions in the case of

investors and lending decisions in the case of bankers etc.
Limitations of Ratios Analysis:
The ratios analysis is one of the most powerful tools of financial management. Though ratios
are simple to calculate and easy to understand, they suffer from serious limitations.

1.

Limitations of financial statements: Ratios are based only on the information which
has been recorded in the financial statements. Financial statements themselves are subject to
several limitations. Thus ratios derived, there from, are also subject to those limitations. For
example, non-financial changes though important for the business are not relevant by the
financial statements. Financial statements are affected to a very great extent by accounting
conventions and concepts. Personal judgment plays a great part in determining the figures for
financial statements.

2.

Comparative study required: Ratios are useful in judging the efficiency of the
business only when they are compared with past results of the business. However, such a
comparison only provide glimpse of the past performance and forecasts for future may not
prove correct since several other factors like market conditions, management policies, etc.
may affect the future operations.

3.

Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final
regarding good or bad financial position of the business. Other things have also to be seen.

4.

Problems of price level changes: A change in price level can affect the validity of
ratios calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful comparison is
to be made through accounting ratios.

5.

Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There
are no well accepted standards or rule of thumb for all ratios which can be accepted as norm.
It renders interpretation of the ratios difficult.

11

Ashok Leyland
6.

Limited use of single ratios: A single ratio, usually, does not convey much of a
sense. To make a better interpretation, a number of ratios have to be calculated which is likely
to confuse the analyst than help him in making any good decision.

7.

Personal bias: Ratios are only means of financial analysis and not an end in itself.
Ratios have to interpreted and different people may interpret the same ratio in different way.

8.

Incomparable: Not only industries differ in their nature, but also the firms of the
similar business widely differ in their size and accounting procedures etc. It makes
comparison of ratios difficult and misleading.

12

Ashok Leyland

1.5 Application of available Tools & Techniques for Financial

Analysis of a Company
Financial Analysis is defined as being the process of identifying financial strength and
weakness of a business by establishing relationship between the elements of balance sheet
and income statement. The information pertaining to the financial statements is of great
importance through which interpretation and analysis is made. It is through the process of
financial analysis that the key performance indicators, such as, liquidity solvency,
profitability as well as the efficiency of operations of a business entity may be ascertained,
while short term and long term prospects of a business may be evaluated. Thus, identifying
the weakness, the intent is to arrive at recommendations as well as forecasts for the future of
a business entity.
Financial analysis focuses on the financial statements, as they are a disclosure of a financial
performance of a business entity. A Financial Statement is an organized collection of data
according to logical and consistentaccounting procedures. Its purpose is to convey an
understanding of some financial aspects of a business firm. It may show assets position at
a moment of time as in the case of balance sheet, or may reveal a series of activities over a
given period of times, as in the case of an income statement.
Since there is recurring need to evaluate the past performance, present financial position, the
position of liquidity and to assist in forecasting the future prospects of the organization,
various financial statements are to be examined in order that the forecast on the earnings may
be made and the progress of the company be ascertained.
The financial statements are: Income statement, balance sheet, statement of earnings,
statement of changes in financial position and the cash flow statement. The income
statement, having been termed as profit and loss account is the most useful financial
statement to enlighten what has happened to the business between the specified time intervals
while showing, revenues, expenses gains and losses. Balance sheet is a statement which
shows the financial position of a business at certain point of time. The distinction between
income statement and the balance sheet is that the former is for a period and the latter
indicates the financial position on a particular date. However, on the basis of financial
statements, the objective of financial analysis is to draw informationto facilitate decision
making, to evaluate the strength and the weakness of a business, to determine the earning

13

Ashok Leyland
capacity, to provide insights on liquidity, solvency and profitability and to decide the future
prospects of a business entity.
There are various types of Financial analysis. They are briefly mentioned herein:
External analysis: The external analysis is done on the basis of published financial
statements by those who do not have access to the accountinginformation, such
as, stock holders, banks, creditors, and the general public.
Internal Analysis: This type of analysis is done by finance and accountingdepartment. The
objective of such analysis is to provide the information to the top management, while
assisting in the decision making process.
Short term Analysis: It is concerned with the working capital analysis. It involves the
analysis of both current assets and current liabilities, so that the cash position (liquidity) may
be determined.
Horizontal Analysis: The comparative financial statements are an example of horizontal
analysis, as it involves analysis of financial statements for a number of years. Horizontal
analysis is also regarded as Dynamic Analysis.
Vertical Analysis: it is performed when financial ratios are to be calculated for one year only.
It is also called as static analysis.
An assortment of techniques is employed in analyzing financial statements. They
are: Comparative Financial Statements, statement of changes in working capital, common
size balance sheets and income statements, trend analysis and ratio analysis.
Comparative Financial Statements: It is an important method of analysis which is used to
make comparison between two financial statements. Being a technique of horizontal analysis
and applicable to both financial statements, income statement and balance sheet, it provides
meaningful information when compared to the similar data of prior periods. The comparative
statement of income statements enables to review the operational performance and to draw
conclusions, whereas the balance sheets, presenting a change in the financial position during
the period, show the effects of operations on the assets and liabilities. Thus, the absolute
change from one period to another may be determined.
Statement of Changes in Working Capital: The objective of this analysis is to extract
the information relating to working capital. The amount of net working capital is determined
by deducting the total of current liabilities from the total of current assets. The statement of
changes in working capital provides theinformation in relation to working capital between
two financial periods.

14

Ashok Leyland
Common Size Statements: The figures of financial statements are converted to percentages.
It is performed by taking the total balance sheet as 100. The balance sheet items are expressed
as the ratio of each asset to total assets and the ratio of each liability to total liabilities. Thus,
it shows the relation of each component to the whole - Hence, the name common size.
Trend Analysis: It is an important tool of horizontal analysis. Under this analysis, ratios of
different items of the financial statements for various periods are calculated and the
comparison is made accordingly. The analysis over the prior years indicates the trend or
direction. Trend analysis is a useful tool to know whether the financial health of a business
entity is improving in the course of time or it is deteriorating.
Ratio Analysis: The most popular way to analyze the financial statements is computing
ratios. It is an important and widely used tool of analysis of financial statements. While
developing a meaningful relationship between the individual items or group of items of
balance sheets and income statements, it highlights the key performance indicators, such
as, liquidity, solvency and profitability of a business entity. The tool of ratio analysis performs
in a way that it makes the process of comprehension of financial statements simpler, at the
same time, it reveals a lot about the changes in the financial condition of a business entity.
It must be noted that Financial analysis is a continuous process being applicable to every
business to evaluate its past performance and current financial position. It is useful in various
situations to provide managers the information that is needed for critical decisions. The
process of financial analysis provides theinformation about the ability of a business entity to
earn income while sustaining both short term and long term growth.

15

Ashok Leyland

CHAPTER-1
INTRODUCTION
Ashok Leyland is an Indian automobile manufacturing company based in Chennai, India.
Founded in 1948, it is the 2nd largest commercial vehicle manufacturer in India, 4th largest
manufacturer of buses in the world and 16th largest manufacturer of trucks globally.
Operating six plants, Ashok Leyland also makes spare parts and engines for industrial and
marine applications. 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 (M&HCV) segment with a market share of 28% (200708). 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 more than 60 million passengers a
day, more people than the entire Indian rail network. In the trucks segment Ashok Leyland
primarily concentrates on the 16 ton to 25 ton range of trucks. However Ashok Leyland has
presence in the entire truck range starting from 7.5 tons to 49 tons. With a joint venture
with Nissan Motors of Japan the company made its presence in the Light Commercial Vehicle
(LCV) segment (<7.5 tons).

MISSION
Achieving Customer Delight
Excellence in technology and engineering
Continuous Improvement and Learning
Teamwork, training, transparency, people - based management and internal customer
satisfaction
Protection of working environment that promotes safety and health of our employees

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Ashok Leyland

Branch office:

No. 1 Sardar Patel Road,

Guindy,
Chennai 600 032,
India.
Tel: 0091 44-2220 6000
Fax: 0091 44-2220 6000

Management Team
Ashok Leyland is currently headed by Mr R. Seshasayee who is the Managing Director since
1998. Under his leadership, the company has expanded from a purely India-centric company
to a company with global focus. Mr. Seshasayee was also the President of CII (Confederation
of Indian Industry), the apex body representing Indian Industry for the year 2006-2007.
The following are the other functional heads at Ashok Leyland
1. Mr. Vinod Dasari - Chief Operating Officer.
2. Mr. K. Sridharan - Chief Financial Officer.
3. Mr. N. Mohanakrishnan - Executive Director - Internal Audit
4. Mr. Rajive Saharia - Executive Director - Marketing
5. Mr. Shekar Arora - Executive Director - Human Resources
6. Mr. B. M. Udayashankar - Executive Director - Manufacturing
7. Mr. Anup Bhat - Executive Director - Strategic Sourcing
8. Mr. Rajindar Malhan - Executive Director - International Operations
9. Mr. R.R.G.Menon - Executive Director - Product Development
10. Mr. A. K. Jain - Executive Director - Project Planning

17

Ashok Leyland
SHAREHOLDING PATTERN OF ASHOK LEYLAND
Shareholding Pattern - Ashok Leyland Ltd.

Holder's Name

No of Shares

% Share Holding

180710605

7.25%

1104646899

44.3%

Others

651767594

26.14%

GeneralPublic

272757705

10.94%

FinancialInstitutions

167010763

6.7%

NBanksMutualFunds

114527708

4.59%

2209720

0.09%

ForeignInstitutions
ForeignPromoter

CentralGovt

SALES DATA

18

Ashok Leyland

CHAPTER-2
COMPANY PROFILE

About Ashok Leyland

Ashok Leyland is a commercial vehicle manufacturing company based in Chennai, India. It is the
second largest commercial vehicle company in India in the medium and heavy commercial vehicle
(M&HCV) segment with a market share of 28% (2007-08).Ashok Leyland is a market leader in the bus
segment.
The company was established in 1948 as Ashok Motors, with an aim to assemble Austin cars.
Manufacturing of commercial vehicles was started in 1955 with equity contribution from the British
company, Leyland Motors. Today the Company is the flagship of the Hinduja Group, a British-based
and Indian originated transnational conglomerate.
Ashok Leyland is a technology leader in the commercial vehicles sector of India. Its annual turnover
exceeded USD 2 billion in 2007-08. Selling close to around 83,000 medium and heavy vehicles in
2007-08, Ashok Leyland is India's largest exporter of medium and heavy duty trucks out of India. It is
also one of the largest Private Sector Employers in India - with about 12,000 employees working in 6
factories and offices spread over the length and breadth of India
Over the years, Ashok Leyland vehicles have built a reputation for reliability and ruggedness. This
was mainly due to the product design legacy carried over from British Leyland.
In the populous Indian metros, four out of the five State Transport Undertaking (STU) buses come
from Ashok Leyland. Some of them like the double-decker and vestibule buses are unique models
from Ashok Leyland, tailor-made for high-density routes.
In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was
taken over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational
group and IVECO Fiat SpA, part of the Fiat Group and Europe's leading truck manufacturer. This
resulted in Ashok Leyland launching the "Cargo" range of trucks. These vehicles used Iveco engines
and for the first time AL vehicles had factory-fitted cabs. The Cargo trucks are no longer in production
and the use of Iveco engine was discontinued, but the Cargo cab continues to be used on the eComet
range of trucks.
Ashok Leyland also had a collaboration with Hino Motors, Japan from whom the technology for the Hseries engines was bought. Many indigenous versions of H-series engine was developed with 4 and 6
cylinder and also conforming to BS2 and BS3 emission norms in India. These engines proved to be
extremely popular with the customers primarily for their excellent fuel efficiency. Most current models
of Ashok Leyland come with H-series engines.
In the journey towards global standards of quality, Ashok Leyland reached a major milestone in 1993
when it became the first in India's automobile history to win the ISO 9002 certification. The more
comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO 14001 certification for
all vehicle manufacturing units in 2002. In 2006, Ashok Leyland became the first automobile company
in India to receive the TS16949 Corporate Certification.

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Ashok Leyland

Achievements

Eight out of ten metro state transport buses in India are from Ashok Leyland. At60 million
passengers a day, Ashok Leyland buses carry more people than the entire Indian rail network.

Ashok Leyland has a near 98.5% market share in the Marine Diesel Engines Markets in India.

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO 14001 certified with
Environmental Management System.

In the 2006-07 financial year, the company sold a record 83,101 vehicles which is an all time
high for Ashok Leyland.

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.

20

Ashok Leyland

CHAPTER-3
ABOUT MY PROJECT :Objectives of the study
To calculate the important financial ratio of the organisation as
a part of the ratio analysis thereby to understand the changes
the needs and trends in the firms financial position.
To assess the performance of ASHOK LEYLAND. on the
basis of earnings and also to evaluate the solvency position of
the company.
To identify the financial strengths and weaknesses of the
organization.
To give the appropriate suggestions to the investors. To help
them to make more informed decisions.
Limitations of study
1. The study is confined to a period of last 5 years.
2. As most of the data is from the secondary sources, hence the accuracy is
limited.

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Ashok Leyland

CHAPTER-4
FINANCIAL STATEMENTS OF ASHOK
LEYLAND
3.1 Horizontal Analysis
3.1.1 Horizontal Analysis of Balance Sheet
for the year 2008-07
Table 1 Horizontal Analysis of Balance Sheet
For the year 2008-07
Particulars

(Rs in millions)
Change
Change
(Rs)
(%)

Mar, 08

Mar, 07
(Rs)

1330.34
20159.48
21489.82

1323.87
17621.81
18945.68

6.47
2537.67
2544.14

0.49%
14.40%
13.43%

Loan Funds:
A) Secured Loans
B) Unsecured Loans
Total

1902.4
6972.61
8875.01

3602.16
2801.82
6403.98

-1699.76
4170.79
2471.03

-47.19%
148.86%
38.59%

Deferred Tax Liability

2538.2

1969.29

568.91

28.89%

32903.03

27318.95

5584.08

20.44%

29424.38
14168.88
15255.5
5292.45

26201.97
13131.64
13070.33
2374.91

3222.41
1037.24
2185.17
2917.54

12.30%
7.90%
16.72%
122.85%

6099

2210.94

3888.06

175.86%

Sources of funds
A) Share Capital
B) Reserves and Surplus
Total

TOTAL
Application of Funds
Fixed Assets:
A) Gross Block
B) Less: Depreciation
C) Net Block
E) Capital work-in progress
Investments
Current assets, loans and

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Ashok Leyland
advances
A) Inventories
B) Sundry debtors
C) Cash & bank balances
D) Loans & advances

12239.14
3758.35
4513.7
8241.37

10703.21
5228.75
4349.39
6695.79

Total

28752.56

26977.14

Less: Current liabilities and

provisions

1535.93
-1470.4
164.31
1545.58
1,775.4
2

14.35%
-28.12%
3.78%
23.08%
6.58%

A) Liabilities

19267.09

16516.25

B) Provisions

3452.31

1042.3

Total

22719.4

17558.55

Net current assets

6033.16

9418.59

2,750.8
4
2,410.0
1
5,160.8
5
(3,385.4
3)

244.18

(21.2
6)

-8.71%

27318.95

5,584.0
8

20.44%

Misc. Expenses

TOTAL

222.92

32903.03

16.66%
231.22%
29.39%
-35.94%

Chart 1: Horizontal Analysis of Balance Sheet

For 2008-07
23

Ashok Leyland

3.1.2. Horizontal Analysis of Balance Sheet

For the year 2007-06
24

Ashok Leyland

Table 2 Horizontal Analysis of Balance Sheet

For the year 2007-06

Particulars

(Rs in millions)
Change
Change
(Rs)
(%)

Mar, 07

Mar, 06
(Rs)

1323.87
17621.81
18945.68

1221.59
12902.94
14124.53

102.28
4718.87
4821.15

8.37%
36.57%
34.13%

Loan Funds:
A) Secured Loans
B) Unsecured Loans
Total

3602.16
2801.82
6403.98

1846.91
5072.37
6919.28

1755.25
-2270.55
-515.3

95.04%
-44.76%
-7.45%

Deferred Tax Liability

1969.29

1796.89

172.4

9.59%

27318.95

22840.7

4478.25

19.61%

26201.97
13131.64
13070.33
2374.91

21384.99
11952.28
9432.71
1414.17

4816.98
1179.36
3637.62
960.74

22.53%
9.87%
38.56%
67.94%

2210.94

3681.78

-1470.84

-39.95%

10703.21
5228.75
4349.39
6695.79
26977.14

9025.61
4243.37
6028.76
3026.39
22324.13

1677.6
985.38
-1679.37
3669.4
4,653.01

18.59%
23.22%
-27.86%
121.25%
20.84%

Sources of funds
A) Share Capital
B) Reserves and Surplus
Total

TOTAL
Application of Funds
Fixed Assets:
A) Gross Block
B) Less: Depreciation
C) Net Block
E) Capital work-in progress
Investments

Current assets, loans and

advances
A) Inventories
B) Sundry debtors
C) Cash & bank balances
D) Loans & advances
Total

25

Ashok Leyland

Less: Current liabilities and

provisions
A) Liabilities

16516.25

11468.95

B) Provisions
Total
Net current assets

1042.3
17558.55
9418.59

2616.21
14085.16
8238.97

244.18

73.07

27318.95

22840.7

Misc. Expenses
TOTAL

5,047.30
(1,573.91
)
3,473.39
1,179.62
171.11
4,478.25

44.01%
-60.16%
24.66%
14.32%
234.17%
19.61%

Chart 2 Horizontal Analysis of Balance Sheet

For the year 2007-06

3.1.4 Horizontal Analysis of Income Statement

For the year 2008-07

26

Ashok Leyland

Table 4 Horizontal Analysis of Income Statement

For the year 2008-07
(Rs in millions)
Particulars

Mar, 08

Mar, 07

Change

Change

(Rs)

(Rs)

(Rs)

(in %)

Income
77,291.23

71,681.76

5,609.47

7.83%

Other Income

739.99

708.03

31.96

4.51%

Total Income

78,031.22

72,389.79

5,641.43

7.79%

57,646.34

54,631.91

3,014.43

5.52%

Employee Expenses

6,162.00

4,807.00

1,355.00

28.19%

Other Expenses

5,443.00

5,216.00

227.00

4.35%

497.4

53.32

444.08

832.86%

1773.61

1505.74

267.87

17.79%

71,522.35

66,213.97

5,308.38

8.02%

6381.5

6045.06

336.44

5.57%

provision for taxation - current tax

1014

1350.5

-336.50

-24.92%

- Deferred tax

604.4

230.2

374.20

162.55%

70

51.5

18.50

35.92%

4693.1

4412.86

280.24

6.35%

5022.74

3616.86

1,405.88

38.87%

Sales less returns

Expenditure
Cost of material

Financial expenses
Depreciation
Total Expenditure
Profit before tax

- Fringe benefit tax

Profit after tax
Balance profits carried to balance
sheet

Chart 4 Horizontal Analysis of Income Statement

For the Year 2007-06

27

Ashok Leyland

3.1.5 Horizontal Analysis of Income Statement

For the Year 2007-06

28

Ashok Leyland

Table 5 Horizontal Analysis of Income Statement

For the Year 2007-06
(Rs in millions)
Particulars

Mar, 07

Mar, 06

Change

Change

(Rs)

(Rs)

(Rs)

(in %)

Income
71,681.76

52,476.57

19,205.19

36.60%

Other Income

708.03

329.74

378.29

114.72%

Total Income

72,389.79

52,806.31

19,583.48

37.09%

54,631.91

37,690.87

16,941.04

44.95%

Employee Expenses

4,807.00

4,038.00

769.00

19.04%

Other Expenses

5,216.00

5,347.00

-131.00

-2.45%

53.32

164.53

-111.21

-67.59%

1505.74

1260.06

245.68

19.50%

66,213.97

48,500.46

17,713.51

36.52%

6045.06

4523

1,522.06

33.65%

provision for taxation - current tax

1350.5

1130.5

220.00

19.46%

- Deferred tax

230.2

72.3

157.90

218.40%

51.5

47

4.50

9.57%

Profit after tax

4412.86

3273.2

1,139.66

34.82%

Balance profits carried to balance

sheet

3616.86

2303.7

1,313.16

57.00%

Sales less returns

Expenditure
Cost of material

Financial expenses
Depreciation
Total Expenditure
Profit before tax

- Fringe benefit tax

Chart 5 Horizontal Analysis of Income Statement

For the Year 2007-06

29

Ashok Leyland

3.2 Vertical Analysis

3.2.1 Vertical Analysis of Balance Sheet

30

Ashok Leyland

Table 7 Vertical Analysis of Balance Sheet

(Rs in millions)
Particulars

Mar, 08

Mar, 07

Mar,06

Mar,05

21489.82

18945.68

14124.53

11678.65

(%)

65.31%

69.35%

61.84%

52.63%

Loan Funds:

8875.01

6403.98

6919.28

8804.06

(%)

26.97%

23.44%

30.29%

39.67%

32903.03

27318.95

22840.7

22191.19

100%

100%

100%

100%

15255.5

13070.33

9432.71

8938.46

Sources of funds
Shareholders funds

TOTAL
(%)
Application of Funds
Fixed Assets:
(%)

46.37%

47.84%

41.30%

40.28%

28752.56

26977.14

22324.13

21572.63

(%)

87.39%

98.75%

97.74%

97.21%

Less: Current liabilities and provisions

22719.4

17558.55

14085.16

11656.67

(%)

69.05%

64.27%

61.67%

52.53%

32903.03

27318.95

22840.7

22191.19

100%

100%

100%

100%

Current assets, loans and advances

TOTAL
(%)

Chart 7 Vertical Analysis of Balance Sheet

For the Year 2008

31

Ashok Leyland

Chart 8 Vertical Analysis of Balance Sheet

For the Year 2007

Chart 9 Vertical Analysis of Balance Sheet

For the Year 2006

32

Ashok Leyland

Chart 10 Vertical Analysis of Balance Sheet

For the Year 2005

3.3 Trend Analysis

33

Ashok Leyland

Table 9 Trend Analysis of Balance Sheet

(Rs in millions)
Particulars

Mar,05

Mar,06

Mar, 07

Mar, 08

Sources of funds
Shareholders funds

11678.65

14124.53

18945.68

21489.82

(%)

52.63%

61.84%

69.35%

65.31%

Loan Funds:

8804.06

6919.28

6403.98

8875.01

(%)

39.67%

30.29%

23.44%

26.97%

22191.19

22840.7

27318.95

32903.03

100%

100%

100%

100%

Fixed Assets:

8938.46

9432.71

13070.33

15255.5

(%)

40.28%

41.30%

47.84%

46.37%

21572.63

22324.13

26977.14

28752.56

97.21%

97.74%

98.75%

87.39%

11656.67

14085.16

17558.55

22719.4

52.53%

61.67%

64.27%

69.05%

22191.19

22840.7

27318.95

32903.03

100%

100%

100%

100%

TOTAL
(%)
Application of Funds

Current assets, loans and advances

(%)
Less: Current liabilities and provisions
(%)
TOTAL
(%)

Chart 11 Trend Analysis of Balance Sheet

Sources of Funds

34

Ashok Leyland

Chart 12 Trend Analysis of Balance Sheet

Application of funds

ANALYSIS OF PROFITABILITY

35

Ashok Leyland

Profitability Ratios
To analyze the profitability of a company profitability ratios are used. These ratios measure the
operating or income performance of a company. The goal of a business is to make a profit, so this
type of ratio examines how well a company is meeting that goal. The commonly used ratios to
evaluate profitability are:

Gross Profit ratio

Net Profit ratio
Return on Assets
Asset Turnover
Return on Equity

PARTICULARS
GROSS PROFIT
NET SALES
PAT
AVG. TOTAL ASSETS
AVG. EQUITY SHARE HOLDER'S
FUND

2004-05

2005-06

12090.
5
41818.
97
2714.1
19776.
61
11098.
31

14785.
7
52476.
57
3273.2
35253.
66
22515.
94

2006-07

17,049.85
71681.76
4412.86
40743.05
25079.82

2007-08

19,644.
89
77291.
23
4693.1
50016.
41
20217.
75

Chart 13 Profitability Ratio Analysis

36

Ashok Leyland

4.1. Gross Profit Ratio = Gross Profit 100

Net Sales
GROSS PROFIT
NET SALES

GROSS PROFIT RATIO (%)

2004-05

2005-06

2006-07

2007-08

12090.
5
41818.
97

14785.
7
52476.
57

17,049.8
5

19,644.8
9

71681.76

77291.23

2004-05

2005-06

2006-07

28.91

28.18

23.79

2007-08

25.42

Analysis
The GP ratio is showing continuously decreasing trend, starting from 2004/05 in 28.91% to 23.79% in
the financial year 2006/07. This shows that a company is loosing its productivity in maintaining its
gross profit margin. In 2007-08 the ratio again slightly been increased from 23.79 to 25.42.

4.2. Net Profit = PAT

Sales

100

PAT
NET SALES

NETPROFIT(%)

2004-05

2005-06

2006-07

2714.1
41818.
97

3273.2
52476.
57

4412.86

4693.1

71681.76

77291.23

2004-05

2005-06

6.49

6.24

2006-07

6.16

2007-08

2007-08

6.07

Analysis
The NP ratio is showing declining trend from 6.49% in the year 2004/05 to 6.07% in the year 2007/08
which shows that there is increased amount of expenses in the form that increasing in the prices of
row material.

4.3. Assets Turnover Ratio =

Net Sales
Avg. Total Assets

AVG. TOTAL ASSETS

NET SALES

2004-05

2005-06

19776.
61
41818.
97

35253.
66
52476.
57

2004-05

2005-06

2006-07

2007-08

40743.05

50016.41

71681.76

77291.23

2006-07

2007-08

37

Ashok Leyland
ASSET TURN OVER (times)

2.11

1.49

1.76

1.55

Analysis
This ratio measures how efficiently a company uses its assets. The asset turnover ratio is decreasing.
Although the return on asset for the year 2008 is highest but the asset turnover ratio is least for this
year. The company is not using its assets optimally.

4.4. Return of Assets = Profit after tax

Average Total Assets
PAT
AVG. TOTAL ASSETS

RETURN ON ASSETS (%)

100

2004-05

2005-06

2006-07

2714.1
19776.
61

3273.2
35253.
66

4412.86

4693.1

40743.05

50016.41

2006-07

2007-08

2004-05

2005-06

13.72

9.28

10.83

2007-08

9.38

Analysis
This ratio is used to measure a companys success in using its assets to earn income for owners and
creditors, those who are financing the business. There is a steep fall in the year 2006, after that there
is a satisfactory utilization of the assets as the graph shows.

4.5. Return on Equity = PAT

100
Avg. Common Shareholders equity
PAT
AVG. EQUITY SHARE HOLDER'S FUND

RETURN ON EQUITY(%)

2004-05

2005-06

2006-07

2714.1
11098.
31

3273.2
22515.
94

4412.86

4693.1

25079.82

20217.75

2004-05

2005-06

24.46

14.54

2006-07

17.60

2007-08

2007-08

23.21

Analysis
The ROE of the company is 42.46% in the 2004/05 which has been decreased to 17.60% in the
2006/07 and then slightly increased to 23.21% in the 2008/07.Also one point here to be noted is that
ROE of the company is higher than the ROA, which may be due to the concept called trading on
equity.

38

Ashok Leyland

ANALYSIS OF SOLVENCY
PARTICULARS
SECURED+UNSECURED LOANS
EQUITY SHARE HOLDER'S FUND
PBIT
INTEREST ON LONG TERM DEBT

2004-05

2005-06

8804.0
6
11678.
65
3882.8
7
236.94

6919.2
8
14124.
53
4594.1
8
288.33

2006-07

6403.98
18945.68
6402.11
226.29

2007-08

8875.0
1
21489.
82
7197.0
6
688.19

Chart 14 Solvency Ratio Analysis

5.1. Debt - Equity Ratio =

DEBT TO EQUITY RATIO

Loan funds
Total shareholders
2004-05

2005-06

0.75

0.49

2006-07

0.34

2007-08

0.41

Analysis
This ratio is used to compare the amount of debt a company has with the amount the owners have
invested in the company. It compares the amount of creditors claims to the owners claims to the
assets of the firm. Trend shows that in 2005 the company was highly leverage but after it has
managed to control this ratio in the year 2006 and 2007.

5.2. Interest coverage ratio= Profit before interest & tax

Interest expense

39

Ashok Leyland

INTEREST COVERAGE RATIO

2004-05

2005-06

16.39

15.93

2006-07

28.29

2007-08

10.46

Analysis
This ratio suggests that whether company manages to earn sufficient income to cover its expenses.
The ratio of the company indicates that company depends much on borrowed funds. The high interest
ratio means that company depends more on debt funds.

40

Ashok Leyland

CASH FLOW STATEMENT ANALYSIS

Cash Flow Statement for the year ended March 31, 2008-2007

2008
Cash low from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation and impairment
Other amortisations
Foreign exchange (gains)/losses
Interest expense net of interest capitalisation
Interest income
Income from investments
(Profit)/Loss on disposal of fixed assets/long term investments
Diminution in value of investments written back net
Transfer from General Reserve Employee benefits
Operating profit before working capital changes
Adjustments for changes in :

Inventories
Debtors
Advances
Current liabilities and provisions
Cash generated from operations
Income tax including Fringe benefit tax paid
Net cash low from operating activities before extraordinary expenditure
Compensation under Voluntary retirement scheme
Net cash low from operating activities after extraordinary expenditure
Cash low from investing activities
Payments for assets acquisition
Proceeds on sale of fixed assets
Purchase of Investments
Sale/redemption of investments
Income from investments Interest
Dividend
Changes in advances

(Rs.
Millions)
2007

6,381.5

6,045.06

1,773.61
143.49
(63.60)
615.01
(214.67)
(22.85)
(375.86)

1,505.74
164.76
(65.30)
196.46
(160.94)
(98.85)
(323.15)
(168.13)
(781.54)
6,314.11

8,236.63

(1,535.93
)
1,426.87
261.52
3,596.82
11,985.91
(1,280.65
)
10,705.26
(48.41)
10,656.85
(6,209.04
)
113.65
(373.82)
474.95
106.61
22.85
(2,231.98
)

(1,677.60)
(1,005.76)
(1,047.41)
4,102.54
6,685.88
(1,356.00)
5,329.88
(330.37)
4,999.51

(6,812.87)
108.49
(50.64)
817.93
59.43
129.39
(1,473.70)

41

Ashok Leyland

Net cash low used in investing activities

Cash low from financing activities
Long term borrowings Raised
Repaid
Changes in short term borrowings
Debenture/Loan raising expenses paid
Interest paid net
Dividend paid and tax thereon
Interim dividend and tax thereon
Net cash low from financing activities
Net cash inflow/(outflow)
Opening cash and cash equivalents
Closing cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents

(8,096.78
)

3,672.1
(404.71)
993.32
(68.94)
(546.59)

3,645.18
6,205.25
1,952.02
8,157.27
6,205.25

(7,221.97)

2,162.35
(829.95)
(2.47)
(181.67)
(1,792.34)
(2,264.32)
(2,908.40)
(5,130.86)
7,082.88
1,952.02
(5,130.86)

Analysis:
Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is
5831.43 millions. Cash and cash equivalents after the adjustment of cash credits balances related to
unclaimed dividend is Rs 4491.75 millions.
The statement of cash flow reveals a net cash outflow from operations of Rs. 10705.26 millions
whereas the company shows a net profit of Rs 6381.50 million. There is a sharp decrease in the
inventories of the company. I.e. Rs 1535.93 million and debtors have increased Rs 1426.87 million.
Further compensation under voluntary retirement scheme is Rs 48.41 million. And a net profit on the
sale of investment is Rs 474.95 million. Profit on disposal of fixed assets would be Rs 375.86 million
for the year 2008.
The conversion of Foreign Currency Convertible Notes into equity shares has not been considered in
the above statement.
Cash flows from Investing activities includes acquisition of 100% shares in Albonair GmbH (cost Rs.
1.59 million) and Defiance Testing & Engineering Services (cost Rs. 141.05 million) and disposal of
60% (Rs. 0.95 million) and 51% (Rs. 71.94 million) shares respectively therein.
The company has used more cash in operations than all of the cash it received from its investing and
financing activities resulting into a net increase in cash.

42

Ashok Leyland

Cash Flow Statement for the year ended March 31, 2007-2006

2007
Cash flow from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation and impairment
Other amortisations
Unrealized foreign exchange gains / (losses)
Interest expense net of interest capitalisation
Interest income
Income from investments
(Profit)/Loss on disposal of fixed assets / long term investments
Diminution in value of investments written back - net
Transfer from General Reserve - Employee benefits
Profit on sale of undertaking
Operating profit before working capital changes
Adjustments for changes in :
Inventories
Debtors
Advances
Current liabilities and provisions
Cash generated from operations
Income tax including Fringe benefit tax paid
Net cash flow from operating activities before extraordinary expenditure
Compensation under Voluntary retirement scheme
Net cash flow from operating activities after extraordinary expenditure
Cash flow from investing activities
Payments for assets acquisition
Proceeds on sale of fixed assets
Proceeds on sale of undertaking
Purchase of long term and other Investments
Sale / redemption of long term investments
Income from investments Interest
Dividend
Changes in advances
Net cash flow used in investing activities
Cash flow from financing activities

(Rs. Millions)
2006

6,045.06

4,523.

1,505.74
164.76

1,260.06
132.84

-65.3
196.46
-160.94
-98.85
-323.15
-168.13
-781.54

6,314.11

102.05
288.33
-193.87
-87.47
-66.61

-301.66
5,656.67

-1,677.6
-1,005.76
-1,047.41
4,102.54
6,685.88
-1,356.
5,329.88
-330.37

-3,477.99
-179.55
314.73
2,051.52
4,365.38
-1,135.68
3,229.7
-9.53

4,999.51

3,220.17

-6,812.87
108.49

-50.64
557.64
44.78
129.39

-2,646.86
54.34
620.
-138.66
479.68
48.95
56.93

-1,473.7
-7,496.91

189.77
-1,335.85

43

Ashok Leyland
Long term borrowings Raised
Repaid
Changes in short term borrowings
Debenture / Loan raising expenses paid
Interest paid net
Dividend paid and tax thereon
Interim dividend and tax thereon
Net cash flow from financing activities
Net cash inflow / (outflow)
Opening cash and cash equivalents
Closing cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents

2,162.35
-829.95

-2.47
-167.02

186.69
-1,162.88
-76.79

-166.96

-1,792.34
-2,264.32
-2,893.75
-5,391.15
8,503.22
3,112.07
-5,391.15

-1,356.1

-2,576.04
-691.72
9,194.94
8,503.22
-691.72

Analysis:
Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is
5340.51 millions. Cash and cash equivalents after the adjustment of cash credits balances related to
unclaimed dividend is Rs 1953.31 million.
The statement of cash flow reveals a net cash outflow from operations of Rs. 4999.51 millions
whereas the company shows a net profit of Rs 6045.06 million. There is a sharp decrease in the
inventories of the company. I.e. Rs 1677.60 million and debtors have decreased Rs 1005.76 million.
Further compensation under voluntary retirement scheme is Rs 330.37 million. Loss on disposal of
fixed assets would be Rs 323.15 million for the year 2008.
The conversion of Foreign Currency Convertible Notes into equity shares has not been considered
in the above statement.
Cash flows from Investing activities includes acquisition of 100% ownership interest in Avia Ashok
Leyland Motors s.r.o. (subsidiary) of Rs. 0.38 million and disposal of 60% interest therein of Rs. 0.23
million.

The borrowing of the company has been increased because of that company is not able to repay net
amount efficiently. It results into decrease in cash.

44

Ashok Leyland

CHAPTER 5
OBSERVATION AND CONCLUSION:
I would like to conclude that ASHOK LEYLAND. has travelled a long distance in pursuit of
excellence in all the areas of its performance, for which it has become a world class company.

Organization is based on the traditional approach on financing total funds i.e.

Shareholders fund.
Organization is base on financing its working capital on conservative approach.
The organization is constantly improving its reserve and surplus which a good sign

strengthening future financial stabilities.

Operating expenses of organization are to be improved the profitability of the,

organization.
Liquidity Ratio:
It shows that ASHOK LEYLAND has the ability to meet its current obligations. It doesn't
suffer from excess liabilities. It thus has a proper balance between high liquidity & lack of
liability. It's a good sign for ASHOK LEYLAND as the creditors would definitely extend

credit because of the satisfactory liquidity position of ASHOK LEYLAND.

Solvency Ratios:
The solvency ratios of ASHOK LEYLAND show that at present ASHOK LEYLAND is
debt free company or a zero debt company hence there is no debt holder of ASHOK
LEYLAND& therefore it doesn't pay the fixed interest. Thus the solvency ratio of

ASHOK LEYLAND shows that it has a good long-term solvency position.

Activity Ratios:
The activity ratios show the speed with which the assets are converted to sales. The
efficiencies in turning its inventories ratio has considerable which despite, that ASHOK
LEYLAND is in the position to sell its stock quickly. The company debtor turnover ratio
has increased for some as well as decreases for some year but in' the present year i.e.20
12-13 it has decreased which despite that the company operates on cash basis and

collection of account receivables is efficient enough.

Profitability Ratios:
The primary objective of a business concern is to earn profits which is required not only
for existence but also for expansion & diversification. The profitability ratio of ASHOK
LEYLAND has good one.

45

Ashok Leyland

BIBLIOGRAPHY
Authorized Book

MANAGEMENT ACCOUNTING
(Shashi k. Gupta & R.K. Sharma)

Annual report of ASHOK LEYLAND 2010-2011

Annual report of ASHOK LEYLAND 2011-2012
Annual report of ASHOK LEYLAND 2012-2013

SEARCH ENGINES:

www.google.com
http://www.ashokleyland.com/
www.Investopedia.com

46