FINANCIAL ACCOUNTING GROUP PROJECT

Analysis of Financial Statements of

Bosch India Ltd

By Sanmeet Dhokay (2015PGPMX025) & Vinod Maliyekal (2015PGPMX029)

Table of Contents
Introduction................................................................................................................ 2
1. Common-Size Income Statement and Balance Sheet...................................................3
2. DuPont Chart Analysis............................................................................................. 8
3. Comment on the Liquidity position of the company.....................................................10
4. Comment on Solvency position of the company.........................................................13
5. Comment on Profitability position of the company......................................................15
6. Economic Value Added.......................................................................................... 17
7. Market Value Added.............................................................................................. 18
8. Valuation Ratios.................................................................................................... 19
9. Market Efficiency analysis...................................................................................... 20
10.Debt Investor Perspective analysis (Leverage Ratios)................................................21
11.Equity Investor Perspective analysis.......................................................................22
12.Key Financial performance Ratios..........................................................................23
13.As a CEO/ CFO, analyze the overall performance and comment on the financial health of
the company............................................................................................................ 30

Introduction
India is currently the sixth largest passenger car producer in the world and the
automotive industry is one of the key drivers of the Indian economy. The component
industry holds a significant place in the growing Indian economy
Bosch India is the largest player in the auto ancillary sector (manufacturing parts,
casting etc for automobile manufacturers). As on 20th January 2016 - Bosch had a
market capitalization of INR 55,748.12 crore . (www.moneycontrol.com)
The parent company was set up in Stuttgart in 1886 by Robert Bosch (1861-1942) as
Workshop for Precision Mechanics and Electrical Engineering. In India, Bosch set up
its manufacturing operation in 1953, which has grown over the years to include 14
manufacturing sites, and seven development and application centers.

(www.boschindia.com)
Bosch India, along with Motherson Sumi & WABCO India are the largest players in the
sector all with a market cap of over INR 10,000 crore.
In this assignment we will analyse the performance of Bosch using the various tools,
like common size Income Statement/Balance sheet, Dupont Chart Analysis, EVA, Value
Add etc,and look to give a better insight into the performance of Bosch India.

1. Common-Size Income Statement and Balance Sheet

(Please refer to the excel sheet for details)

FA Assignment Bosch - Sanmeet Dhokay & Vinod Maliyekal.xlsx

Analysis (Income Statement)

Revenue
Bosch total revenue growth shows steady improvement from 2013 to 2014, while
competitors Motherson Sumi & Wabco show relatively flat line growth for the same
period.
Revenue from 2013 to 2014-15 showed a 38.87% jump, while for the corresponding
period in Motherson Sumi was 9.45% & Wabco was 20.27%
(Pls note Financial Data for 2014-15 (Bosch India) is for a 15 month period Jan 2014 to March 2015)

P.A.T
When you compare the companies on P.A.T, Bosch shows a jump in Profit after tax of
51.2% which is a major reversal from the negative P.AT of (7.68%) recorded in 2013-14
vs 2012-13
Motherson Sumi witnessed negative profit growth by (3.77%) .
Wabco showed a minor increase in P.A.T of 2.72%

E.P.S
Bosch was the only company posting a positive EPS jump of 51.06% (2014-15 vs
2013-14) period where till had posted a negative EPS growth of (7.54%) in 2013-14 vs
2012-13.
Motherson Sumi in the corresponding period was negative (24.03%) in 2013-14 vs
2012-13, but they were able to reduce this negative growth to (3.79%).
Wabco too started off with negative (10.17%) in 2013-14 vs 2012-13, but they returned
to positive territory with 2.70% growth in 2014-15

Conclusion (Common Income Statement)

Bosch showed stellar performance in revenue, PAT & EPS growth versus the previous
year and also against its major industry competitors who were clearly struggling in the
same time period.

BOSCH

2012-13 vs 2013-14(%)

2013-14 vs 2014-2015(%)

Total Revenue

0.90

38.88

Profit After Tax (PAT)

-7.68

51.20

Earnings per Share (EPS)

-7.54

51.06

Analysis (Balance Sheet)

(Please refer to the excel sheet for details)

FA Assignment Bosch - Sanmeet Dhokay & Vinod Maliyekal.xlsx

Equity has increased by 16.81% in Bosch, however Liabilities have grown at a faster
rate of 18.76%. Total assets have shown growth of 17.32%.
Motherson Sumi - 10.90% growth in Equity, Liability has seen negative growth of
(6.93%) & assets has grown by 2%.
Wabco - 14.45% growth in Equity, Liability has grown at 24.14%. Assets have grown by
16.36%
Bosch have seen good growth in both Equity & assets, but it was accompanied by a
faster rise in liabilities - In this regards Motherson Sumi has shown much better overall
performance.

2. DuPont Chart Analysis

A method of performance measurement that was started by the DuPont Corporation in
the 1920s. With this method, assets are measured at their gross book value rather than
at net book value in order to produce a higher return on equity (ROE). It is also known
as "DuPont identity".
DuPont analysis tells us that ROE is affected by three things:
- Operating efficiency, which is measured by profit margin
- Asset use efficiency, which is measured by total asset turnover
- Financial leverage, which is measured by the equity multiplier
ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity
Multiplier (Assets/Equity)
Bosch 2014-15
ROE = 0.11 * 1.13 * 1.42 = 0.18 = 18 %

ROE for Bosch has seen improved over the last 2 years, though it is significantly less
that Motherson Sumi, it is however delivered better ROE that its other international
competitor - WABCO

2015

2014

2013

2012

2011

BOSCH

18.2

14.1

17.2

23.7

21

Motherson
Sumi

25.9

25.9

19.4

13.9

24.3

WABCO

14

15.6

20.2

29

33

The below chart offers a good comparison with industry peers over the last couple of
years.

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3. Comment on the Liquidity position of the company

Liquidity Ratios
Current Ratio
The current ratio measures a companys ability to pay off its current liabilities (payable
within one year) with its current assets such as cash, accounts receivable and
inventories. The higher the ratio, the better the companys liquidity position.

Current ratio = Current assets / Current liabilities

= 59265 / 25511 = 2.32 (1.5 - 2.0 ) Healthy Range - Bosch is
slightly above the advised range, but is in a comfortable position.

Acid Test or Quick Ratio

The quick ratio measures a companys ability to meet its short-term obligations with its
most liquid assets, and therefore excludes inventories from its current assets. It is also
known as the acid-test ratio.
Acid-Test Ratio = (Cash and Cash Equivalents + Short-Term Investments +
Accounts Receivable) / Current Liabilities
= (18,960+2,650+11,877) / 25511

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= 1.31

A variation of the acid-test ratio simply subtracts inventory from current assets, making it
a bit more generous than the version listed above:

Acid Test (Var) = (Current assets Inventories) / Current liabilities

= (59,265 - 12,762) / 25511
= 1.82 (Bosch has adequate liquid assets to meet its
liabilities)

Cash Ratio :The Cash Ratio is the most exacting of the liquidity ratios ,excluding accounts
receivable as well as inventories and other current assets.More than the current ratio or
acid-test ratio, it assesses an entitys ability to stay solvent in the case of an emergency.
Even highly profitable companies can run into trouble if they do not have the liquidity to
react to unforeseen events.
Cash Ratio = (Cash and Cash Equivalents + Short-Term Investments)/ Current
Liabilities

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= (18,960 + 2,650) / 25511

= 0.85

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4. Comment on Solvency position of the company

Solvency ratio
The solvency ratio indicates whether a companys cash flow is sufficient to meet its
short-term and long-term liabilities. The lower a company's solvency ratio, the greater
the probability that it will default on its debt obligations.
Solvency ratio = (PAT + depreciation)/(short term + long term liabilities)
= (13377+ 5484) / (25511+5327) = 18861 / 30838 = 0.61

Total
Debt
To
Total
Assets
(Leverage
ratio)
Total debt to total assets is a leverage ratio that defines the total amount of debt relative
to assets. This enables comparisons of leverage to be made across different
companies. The higher the ratio, the higher the degree of leverage, and consequently,
financial risk. This is a broad ratio that includes long-term and short-term debt
(borrowings maturing within one year), as well as all assets tangible and intangible.
= Total debt / Total assets
= 30838 / 104308 = 0.30
Bosch has not over leveraged itself to fuel growth in the company - At 0.30 - Bosch
Debt to Asset ratio is very manageable.

Debt/Equity
Ratio
Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage,
calculated by dividing a companys total liabilities by its stockholders' equity. The D/E
ratio indicates how much debt a company is using to finance its assets relative to the

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amount

of

value

represented

in

shareholders

equity

= Total debt / Total equity

=30838 / 73470 = 0.42
Bosch has kept its Debt/Equity level well under control

Interest Coverage Ratio

The interest coverage ratio is a debt ratio and profitability ratio used to determine how
easily a company can pay interest on outstanding debt. The interest coverage ratio may
be calculated by dividing a company's earnings before interest and taxes (EBIT) during
a given period by the amount a company must pay in interest on its debts during the
same period.
= Operating income (or EBIT) / Interest expense

= 19559 / 143 = 136.78

Bosch is more than adequately positioned to meet its interest payment obligations.

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5. Comment on Profitability position of the company

Profitability is a main aspect in a companys financial reporting. While all financial
statements include certain elements related to profitability, such as retained earnings in
the balance sheet and operating cash flows from the statement of cash flows, the
income statement directly shows profitability of a company by providing information on
net income for a specified accounting period. An income statement can use different
formats and have various reporting elements, depending on a companys business
activities.
The long-term profitability of a company is vital for both the survivability of the company
as well as the benefit received by shareholders. It is these ratios that can give insight
into the all-important profit
Gross Profit Margin = Gross Profit / Net Sales (Revenue)
= 19839 / 126508 = 16%

Operating Profit Margin = Operating Profit / Net Sales (Revenue)

= 19839 / 126508 = 16%

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Pretax Profit Margin = Pretax Profit / Net Sales (Revenue)

= 19559 / 126508 = 15%

Net Profit Margin = Net Income / Net Sales (Revenue)

= 13377 / 126508 = 10.5%

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6. Economic Value Added

A measure of a company's financial performance based on the residual wealth
calculated by deducting cost of capital from its operating profit (adjusted for taxes on a
cash basis). (Also referred to as "economic profit".)
Capital = INR 314 Million
Cost Of Capital :Dividend per Share = INR 85
Current Market Value of Stock = 25383.5
Growth Rate of Dividend Calculation:Dividend for 2014-2015 = INR 85
Dividend for 2013-2014 = INR 55
Growth Rate = (85-55)/55 * 100 = (30/55) *100 = 54.5 %
Cost of Capital =

Dividend per Share

+ Growth Rate of Dividend

Current Market Value of Stock

=
=

(85/25383.5 ) + 54.5 %
0.5483

The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

= 13377 - (314 * 0.5483)

= 13377 - 172.16
= 13204.84 million

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7. Market Value Added

A calculation that shows the difference between the market value of a company and the
capital contributed by investors (both bondholders and shareholders). In other words, it
is the sum of all capital claims held against the company plus the market value of debt
and equity.
Calculated as:
MVA = Companys Market Value - Invested Capital
Market Value Calculation :-

Companys Market Value = No of Shares * Price per Share

= 31398900 * 25383.5
= 797014 (in INR Millions)

Invested Capital

Market Value Added

= 104308

= 797014 - 104308
= 692706

High MVA indicates that the Bosch has created substantial wealth for the shareholders

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8. Valuation Ratios
The Price/Earnings ratio (P/E) is the best known of the investment valuation indicators.
The P/E ratio has its imperfections, but it is nevertheless the most widely reported and
used valuation by investment professionals and the investing public. The financial
reporting of both companies and investment research services use a basic earnings per
share (EPS) figure divided into the current stock price to calculate the P/E multiple (i.e.
how many times a stock is trading (its price) per each dollar of EPS).

Earnings per Share(EPS) = Net Income / Average Outstanding Shares

= 13377000000/31398900
= 426
Dividend per Share(DPS) = Dividends Paid Out / Outstanding Shares
=

2668906500/ /31398900

= 85

Price/Earnings Ratio = 25383.5/ 426 = 59.58 (Closing Stock Price as of 31 st March

2015)

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9. Market Efficiency analysis

The Three Basic Forms of the EMH
The efficient market hypothesis assumes that markets are efficient. However, the
efficient market hypothesis (EMH) can be categorized into three basic levels:
1. Weak-Form EMH
The weak-form EMH implies that the market is efficient, reflecting all market information.
This hypothesis assumes that the rates of return on the market should be independent;
past rates of return have no effect on future rates. Given this assumption, rules such as
the ones traders use to buy or sell a stock, are invalid.
2. Semi-Strong EMH
The semi-strong form EMH implies that the market is efficient, reflecting all publicly
available information. This hypothesis assumes that stocks adjust quickly to absorb new
information. The semi-strong form EMH also incorporates the weak-form hypothesis.
Given the assumption that stock prices reflect all new available information and
investors purchase stocks after this information is released, an investor cannot benefit
over and above the market by trading on new information.
3. Strong-Form EMH
The strong-form EMH implies that the market is efficient: it reflects all information both
public and private, building and incorporating the weak-form EMH and the semi-strong
form EMH. Given the assumption that stock prices reflect all information (public as well
as private) no investor would be able to profit above the average investor even if he was
given new information.

Looking at the above data, we can infer that BOSCH has Strong Market Efficiency

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10.Debt Investor Perspective analysis (Leverage

Ratios)
Companies rely on a mixture of owners' equity and debt to finance their operations. A
leverage ratio is any one of several financial measurements that look at how
much capital comes in the form of debt (loans), or assesses the ability of a company to
meet
financial obligations.
The most well known financial leverage ratio is the debt-to-equity ratio. It is expressed
as:
Leverage Ratio = Total Debt / Total Equity
= 30838/73470 = 0.42

BOSCH has a very low Leverage Ratio which shows low volatility and high financial
stability of the company.

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11.Equity Investor Perspective analysis

We have covered the below points in the different sections.
Return on Equity - Please refer Page 25
Return on Assets - Please refer Page 24
Fixed Assets Turnover - Please refer Page 27
Gross Profit Margin - Please refer Page 15
Operating Profit Margin - Please refer Page 15
Net Profit Margin - Please refer Page 16

Liquidity : - Please refer Page 10

Quick Ratio
Current Ratio
Cash Ratio
Solvency : - Please refer Page 13

Debt Equity Ratio

Coverage Ratios

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12.Key Financial performance Ratios

For calculations ,please refer the embedded excel sheet

FA Assignment Bosch - Sanmeet Dhokay & Vinod Maliyekal.xlsx

Price ratios are used to get an idea of whether a stock's price is reasonable or not. They
are easy to use and generally pretty intuitive, but do not forget this major caveat: Price
ratios are "relative" metrics, meaning they are useful only when comparing one
company's ratio to another company's ratio, a company's ratio to itself over time, or a
company's ratio to a benchmark.
1) Price-to-Earnings Ratio (P/E)
Income Statement, Most Recent Stock Price
P/E Ratio = Price per Share / Earnings Per Share
= 59.59

2) Price-to-Sales Ratio
Income Statement, Most Recent Stock Price
Price-to-Sales Ratio = Price per Share / Annual Sales Per Share
= 5.96

25

3) Price-to-Book Ratio (P/B)

P/B Ratio = Price per Share / Book Value per Share
Book value (BV) is already listed on the balance sheet, it's just under a different name:
shareholder equity. Equity is the portion of the company that owners (i.e. shareholders)
own free and clear. Dividing book value by the number of shares outstanding gives you
book value per share.
= 10.84
4) Dividend Yield
Dividend Yield = Dividend per Share / Price per Share
Dividends are the main way companies return money to their shareholders. If a firm
pays a dividend, it will be listed on the balance sheet, right above the bottom
line. Dividend yield is used to compare different dividend-paying stocks. Some people
prefer to invest in companies with a steady dividend, even if the dividend yield is low,
while others prefer to invest in stocks with a high dividend yield.
=0.00
5) Dividend Payout Ratio
Dividend Payout Ratio = Dividend / Net Income
The percentage of profits distributed as a dividend is called the dividend payout ratio.
Some companies maintain a steady payout ratio, while other try to maintain a steady
number of dollars paid out each year(which means the payout ratio will fluctuate). Each
company sets its own dividend policy according to what it thinks is in the best interest of
its shareholders. Income investors should keep an especially close eye on changes in
dividend policy.
= 19.9
Profitability Ratios
Profitability ratios tell you how good a company is at converting business operations into
profits. Profit is a key driver of stock price, and it is undoubtedly one of the most closely
followed metrics in business, finance and investing.
6) Return on Assets (ROA)

26

Return on Assets = Net Income / Average Total Assets

A company buys assets (factories, equipment, etc.) in order to conduct its
business. ROA tells you how good the company is at using its assets to make money.
For example, if Company A reported $10,000 of net income and owns $100,000 in
assets, its ROA is 10%. For ever $1 of assets it owns, it can generate $0.10 in profits
each year. With ROA, higher is better.
= 0.19
7) Return on Equity (ROE)
Return on Equity = Net Income / Average Stockholder Equity
Equity is another word for ownership. ROE tells you how good a company is at
rewarding its shareholders for their investment. For example, if Company B reported
$10,000 of net income and its shareholders have $200,000 in equity, its ROE is 5%. For
every $1 of equity shareholders own, the company generates $0.05 in profits each year.
As with ROA, higher is better.
= 0.27
8) Profit Margin
Profit Margin = Net Income / Sales
Profit margin calculates how much of a company's total sales flow through to the bottom
line. As you can probably tell, higher profits are better for shareholders, as is a high
(and/or increasing) profit margin.
= 0.17
Liquidity Ratios
Liquidity ratios indicate how capable a business is of meeting its short-term obligations.
Liquidity is important to a company because when times are tough, a company without
enough liquidity to pay its short-term debts could be forced to make unfavorable
decisions in order to raise money (sell assets at a low price, borrow at high interest
rates, sell part of the company to a vulture investor, etc.).

9) Current Ratio
Current Ratio = Current Assets / Current Liabilities

27

The current ratio measures a company's ability to pay its short-term liabilities with its
short-term assets. If the ratio is over 1.0, the firm has more short-term assets than
short-term debts. But if the current ratio is less than 1.0, the opposite is true and the
company could be vulnerable to unexpected bumps in the economy or business
climate.
= 2.32
10) Quick Ratio
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
The quick ratio (also known as the acid-test ratio) is similar to the quick ratio in that it's a
measure of how well a company can meet its short-term financial liabilities. However, it
takes the concept one step further. The quick ratio backs out inventory because it
assumes that selling inventory would take several weeks or months. The quick ratio
only takes into account those assets that could be used to pay short-term debts today.
= 1.82
Debt Ratios
These ratios concentrate on the long-term health of a business, particularly the effect of
the capital and finance structure on the business:

11) Debt to Equity Ratio

Debt-to-Equity Ratio = Total Liabilities / Total Shareholder Equity

Total liabilities and total shareholder equity are both found on the balance sheet.
The debt-to-equity ratio measures the relationship between the amount of capital that
has been borrowed (i.e. debt) and the amount of capital contributed by shareholders
(i.e. equity). Generally speaking, as a firm's debt-to-equity ratio increases, it becomes
more risky because if it becomes unable to meet its debt obligations, it will be forced
into bankruptcy.
= 1.42
12) Interest Coverage Ratio
Interest Coverage Ratio = EBIT / Interest Expense

28

Both EBIT (aka, operating income) and interest expense are found on the income
statement. The interest coverage ratio, also known as times interest earned (TIE), is a
measure of how well a company can meet its interest payment obligations. If a company
can't make enough to make interest payments, it will be forced into bankruptcy. Anything
lower than 1.0 is usually a sign of trouble.
= 136.78

Efficiency Ratios

These ratios give investors insight into how efficiently a business is employing
resources invested in fixed assets and working. It's can also be a reflection of how
effective a company's management is.

13) Asset Turnover Ratio

Asset Turnover Ratio = Sales / Average Total Assets

Like return on assets (ROA), the asset turnover ratio tells you how good the company is
at using its assets to make products to sell. For example, if Company A reported
$100,000 of sales and owns $50,000 in assets, its asset turnover ratio is 2x. Forever $1
of assets it owns, it can generate $2 in sales each year.

= 1.13

14) Inventory Turnover Ratio

Inventory Turnover Ratio = Costs of Goods Sold / Average Inventory

29

If the company you're analyzing holds has inventory, you want that company to be
selling it as fast as possible, not stockpiling it. The inventory turnover ratio measures
this efficiency in cycling inventory. By dividing costs of goods sold (COGS) by the
average amount of inventory the company held during the period, you can discern how
fast the company has to replenish its shelves. Generally, a high inventory turnover ratio
indicates that the firm is selling inventory (thereby having to spend money to make new
inventory) relatively quickly.
= 5.06

Key Financial Performance Ratios

P/E Ratio

P/E Ratio = Price per

Share / Earnings Per
Share

59.59

Price-to-Sales Ratio

Price-to-Sales Ratio =
Price per Share /
Annual
Sales
Per
Share

5.96

P/B Ratio

P/B Ratio = Price per

Share / Book Value per
Share

10.84

Dividend Yield

Dividend
Yield
=
Dividend per Share /
Price per Share

0.00

Dividend Payout Ratio

Dividend Payout Ratio

= Dividend / Net
Income

19.90

30

Return on Assets

Return on Assets = Net

Income / Average Total
Assets

0.19

Return on Equity

Return on Equity = Net

Income
/
Average
Stockholder Equity

0.27

Profit Margin

Profit Margin = Net

Income / Sales

0.17

Current Ratio

Current
Ratio
Current
Assets
Current Liabilities

2.32

Quick Ratio

Quick Ratio = (Current

Assets - Inventory) /
Current Liabilities

1.82

Debt-to-Equity Ratio

Debt-to-Equity Ratio =
Total Liabilities / Total
Shareholder Equity

1.42

Interest Coverage Ratio

Interest
Coverage
Ratio = EBIT / Interest
Expense

136.78

Asset Turnover Ratio

Asset Turnover Ratio =

Sales / Average Total
Assets

1.13

Inventory Turnover Ratio

Inventory

5.06

=
/

Turnover

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Ratio = Costs of
Goods Sold / Average
Inventory

13.As a CEO/ CFO, analyze the overall performance

and comment on the financial health of the company
Bosch Group in India employs over 29,000 associates .The Group in India has close to
12,000 research and development associates and has filed for around 150 patents in
2014.
In India, Bosch Limited is the flagship company of the Bosch Group.
Shareholder Capital
For the year 2014 - 2015,Reserves and Surplus stand at Rs. 73156 Million which is
grown at 16.81 % from Rs 62629 Million in the previous year

Assets
The company added Rs 15398 million in Assets in the year 2014-15. Cash and Bank
balances has increased at a high rate of 31.53 % and the Noncurrent investments
increased at a rate of 161.88 %.

Liabilities
Current Liabilities have increased from Rs 21770 Million to Rs 25511 Million.

Revenues
The Company achieved revenue of Rs 126508 Million in the financial year 2014-15 as
compared to Rs 91093 in the financial year 2013-14, registering a growth of 38.88%
which is very high as compared to our competitors.

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The Profit for the financial year 2014-15 is Rs 13377 Million as compared to Rs 8847
Million in financial year 2013-14, registering a growth of 51.20% which is also very high
as compared to our competitors.

Sales have increased year after year which is a good sign

2012-2013 and 2013-2014 saw a dip in EPS and DPS , but it is showing an upward
trend in 2014-2015

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