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NTCC TERM PAPER

ON
Financial Trend analysis of
HERO MOTOCORP LTD.
Submitted by: Submitted to
Pawan kumar Dr Anjali Munde
B Com (Hons.)
Sem. 3
A3104616308
Acknowledgement
This is the final submission of my project report
on Financial trend analysis of HERO
MOTOCORP LTD. as a part of my internship.
This project would not have been possible
without the kind support and help of many
individuals. I would like to extend my sincere
thanks to all of them. I express my deep sense
of gratitude to my faculty guide Dr Anjali
Munde for her guidance and constant
supervision as well as for providing necessary
information regarding the project.

Pawan Kumar
INDEX

S.no. Topic
1. Objective Of Study
2. Background and introduction
3. Financial tools and Techniques
4. Balance sheet
5. Ratio analysis (Table Review)
6. Analysis of Ratios
7. Conclusion
OBJECTIVE OF STUDY
To study the financial performance analysis of
HERO MOTOCORP LTD..
To analyze the financial changes over a period
of three years.
To analyze the financial statements of the
company by using financial tools.
To evaluate the financial position of the
company in terms of solvency, profitability,
activity and earning ratios.
To suggest effective measures in the existing
system of the company.
BACKGROUND & INTRODUCTION
Hero Motocorp Ltd., formerly Hero Honda, is an
Indian motorcycle and scooter manufacturer based
in New Delhi, India. The company is the largest two-
wheeler manufacturer in world and also in India
where it has a market share of about 46% in the
two-wheeler category. The 2017 Forbes list of the
2000 World's Most Respected Companies has Hero
Honda Motors ranked at #1587. As of May 2017,
the market capitalisation of the company was US$
10 billion .
HISTORY
Hero Honda started its operations in 1984 as a joint
venture between Hero Cycles (sometimes called
Hero Group, not to be confused with the Hero
Group food company of Switzerland) of India
and Honda of Japan. In 2010, when Honda decided
to move out of the joint venture, Hero Group
bought the shares held by Honda. Subsequently, in
August 2011 the company was renamed Hero
MotoCorp with a new corporate identity.
In June 2012, Hero MotoCorp approved a proposal
to merge the investment arm of its parent Hero
Investment Pvt. Ltd. with the automaker. This
decision came 18 months after its split from Hero
Honda.
"Hero" is the brand name used by the Munjal
brothers for their flagship company, Hero Cycles
Ltd. A joint venture between the Hero Group and
Honda Motor Company was established in 1984 as
the Hero Honda Motors Limited at Dharuhera.
India. Munjal family and Honda group both owned
26% stake in the Company.
During the 1980s, the company introduced
motorcycles that were popular in India for their fuel
economy and low cost. A popular advertising
campaign based on the slogan 'Fill it Shut it
Forget it' that emphasized the motorcycle's fuel
efficiency helped the company grow at a double-
digit pace since inception. In 2001, the company
became the largest two-wheeler manufacturing
company in India and globally. It maintains global
industry leadership to date. The technology in the
bikes of Hero Motocorp (earlier Hero Honda) for
almost 26 years (19842010) has come from the
Japanese counterpart Honda.
FINANCIAL TOOLS AND TECHNIQUES

RATIO- It is the relationship between two figures


expressed in arithmetical terms is called RATIO. It
is found by dividing one number into the other. The
objectives of the ratio analysis is:
1. To locate the weak spots of business which
needs more attention
2. To provide deeper analysis of liquidity,
solvency, activity and profitability of the
business.
3. To provide the information for making
comparison with that of some selected firms
4. To provide information for making a
comparison of a firms present ratio with past
ratios.
To provide information useful for making
estimates and preparing the plans for future.

Classification of Ratios
Ratios may be classified into four categories as
follows:
1. Liquidity ratio
2. Solvency ratio
3. Activity or Turnover ratio
4. Profitability ratio
1. Liquidity ratio- It refers to the ability of the firm
to meet its current liabilities. These are also
called as Short term Solvency Ratios. These
ratios are used to access the short term
financial position of the concern. If the firm
wants to take the short-term loan from the
bank, the bankers also study the liquidity ratio
to access the margin of the current assets and
current liabilities. It includes two ratios-
Current ratio
Quick ratio or liquid ratio
Current ratio- The ratio explains the relationship
between current assets and current liabilities of a
business. This ratio is used to meet firms ability to
meet its short-term liabilities on time. The ideal
ratio is 2:1 which means the current assets of
business be twice the current liabilities.
Current ratio = Current assets
Current liabilities

Current assets- Current investment+ inventories+


Trade receivables (Less Provisions) + cash & cash
equivalents+ short term loans and advances+ other
current assets (Prepaid expenses+ accrued income+
Advance tax)

Current Liabilities = short term borrowings (incl.


bank overdraft) + Trade Payables+ other current
liabilities (Unpaid dividends+ interest accrued on
borrowings+ outstanding expenses+ income
received in advance) + short term provisions
(Provisions for tax + Proposed dividend)

Quick ratio or Liquid ratio- It indicates whether the


firm is in a position to pay its current liability within
a month or immediately. A quick ratio is said to be
1:1. If it is more it is considered to be better. The
ratio is better test of short term financial position of
the company as it considers only those assets which
can be readily and easily converted into cash.
Quick ratio = Liquid assets
Current liabilities

Liquid assets- Current assets inventories - Prepaid


expenses

2. Solvency ratio- These ratios are calculated to


access the ability of the firm to meets the long-
term liabilities as & when they become due. It
discloses the firms ability to meet the costs
regularly & long term indebtedness at maturity.
Some solvency ratios are:
Debt equity ratio
Total assets to debt ratio
Interest Coverage ratio

Debt equity ratio- It indicates the proportion


of funds by long term borrowings in comparison to
share-holders fund. 2:1 is considered to be the safe.
If ratio is more than that, it shows a rather risky
financial position from the long-term point of view.
A high debt equity ratio danger signal for long term
lenders.

Debt equity ratio = Long term debts


Shareholders fund

Shareholders fund incl. share capital& reserves and


surplus
Long term debts incl. long term borrowings and
long term provisions

Total assets to debt ratio This ratio expresses the


relationship between total assets and long term
debts.
Total assets to debt ratio = Total assets
Debt

Total assets= Non-current assets + current


assets
Interest Coverage ratio- This ratio is also called as
Debt Service Ratio. This ratio measures the
margin of safety for long term lenders.
Interest Coverage ratio = Profit before interest & income tax
Fixed Interest Charges

3. Activity ratio or turnover ratio- These are


utilized to quantify the relative proficiency of a
firm in view of its utilization of its advantages,
influence or other such accounting report
things. These proportions are critical in figuring
out if an organization's administration is making
a sufficient showing of producing incomes,
money, and so forth from its assets.
Inventory Turnover Ratio
Trade receivables Turnover
Ratio
Trade Payables Turnover
Ratio
Working Capital Turnover
Ratio

Inventory Turnover Ratio- This ratio indicates


the relationship between the cost of revenue from
operation during the year and average inventory. It
indicates whether inventory has been used
efficiently or not.
Inventory Turnover Ratio =
cost of revenue from operation = times

average inventory

Trade receivables Turnover Ratio- This ratio


indicates the relationship between the credit of
revenue from operation during the year and
average trade receivables. It indicates the speed at
which the amount is collected from trade
receivables.
Trade receivables Turnover Ratio =
Net credit revenue from operation = .. times

Average trade receivables

Trade Payables Turnover Ratio- It indicates the


relationship between credit purchase & average
trade payables. The ratio indicates the speed at
which the amount is being paid to the trade
payables.
Trade Payables Turnover Ratio =
Credit Purchase = times

average trade payables

Working Capital Turnover Ratio-


Working Capital Turnover Ratio =
Net revenue from operations= ... times

Working Capital*

*Working capital= Current assets - Current liabilities


4. Profitability Ratio- It measures various aspects
of business/ company, such as (i) what is the
profit rate on sales? (ii) whether profits are
increasing or decreasing. Some profitability
ratios are:
Gross Profit Ratio
Net profit Ratio
Operating Profit Ratio
Return on capital
employed or
investment

Gross Profit ratio- It indicates the relationship


between the gross profit & Revenue from
operations. It measures the margin of profit
available on revenue from operation. Gross Profit
Ratio = gross profit x 100
Revenue from operation

Net Profit Ratio- It indicates the relationship


between the net profit & Revenue from operations.
It measures the margin of net profit available on
revenue from operations.
Net Profit Ratio = Net Profit x 100
Revenue from operations

Operating Profit Ratio = It represents the


relationship between operating profit &net revenue
from operations.
Operating Profit Ratio = Operating Profit x 100
Net Revenue from operations

Return on Investment- this ratio reflects the overall


profitability of business. It is calculated by
comparing the profit earned and capital employed
to earn it.
R.O.I = Net profit before interest and tax and dividend x 100
Capital employed
Capital employed = Shareholders fund + non-
current liabilities
BALANCE SHEET OF HERO MOTOCORP LTD.
( in crores)
Mar 17 16-Mar 15-Mar
EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 39.94 39.94 39.94

Total Share Capital 39.94 39.94 39.94

Reserves and Surplus 10,071.35 7,904.81 6,501.39

Total Reserves and Surplus 10,071.35 7,904.81 6,501.39

Total Shareholders Funds 10,111.29 7,944.75 6,541.33

NON-CURRENT LIABILITIES

Long Term Borrowings 0 0 0

Deferred Tax Liabilities [Net] 414.34 227.79 0

Other Long Term Liabilities 0 34.89 31.33

Long Term Provisions 75.3 84.44 65.62

Total Non-Current Liabilities 489.64 347.12 96.95


CURRENT LIABILITIES
Trade Payables 3,247.27 2,766.88 2,841.87
Other Current Liabilities 807.05 483.19 307.49

Short Term Provisions 39.01 798.75 734.06

Total Current Liabilities 4,093.33 4,048.82 3,883.42

Total Capital And Liabilities 14,694.26 12,340.69 10,521.70


ASSETS
NON-CURRENT ASSETS
Tangible Assets 4,310.73 3,717.85 2,818.29
Intangible Assets 84.86 118.89 94.4
Capital Work-In-Progress 270.72 288.34 712.55
Intangible Assets Under
194.33 317.06 0
Development
Fixed Assets 4,860.64 4,442.14 3,625.24
Non-Current Investments 1,349.00 1,019.36 863.78

Deferred Tax Assets [Net] 0 0 73.54


Long Term Loans And
23.13 870.42 616.82
Advances
Other Non-Current Assets 1,008.31 73.68 60.19

Total Non-Current Assets 7,241.08 6,405.60 5,239.57


CURRENT ASSETS
Current Investments 4,540.85 3,247.01 2,290.33
Inventories 656.31 672.98 815.49
Trade Receivables 1,561.87 1,282.80 1,389.59
Cash And Cash Equivalents 15.4 131.36 159.25
Short Term Loans And
143.06 521.46 567.66
Advances
OtherCurrentAssets 535.69 79.48 59.81
Total Current Assets 7,453.18 5,935.09 5,282.13
Total Assets 14,694.26 12,340.69 10,521.70

OTHER ADDITIONAL INFORMATION

CONTINGENT LIABILITIES,
COMMITMENTS

Contingent Liabilities 480.68 650.44 816.42

CIF VALUE OF IMPORTS


Raw Materials 0 0.62 16.92
Stores, Spares And Loose
0 894.5 1,182.28
Tools
Capital Goods 0 162.04 145.98

EXPENDITURE IN FOREIGN EXCHANGE

Expenditure In Foreign
0 272.3 403.57
Currency

REMITTANCES IN FOREIGN CURRENCIES


FOR DIVIDENDS

Dividend Remittance In
- - -
Foreign Currency

EARNINGS IN FOREIGN EXCHANGE

FOB Value Of Goods - 776.74 720.18


Other Earnings - 1.42 1.49
BONUS DETAILS
Bonus Equity Share Capital 23.96 23.96 23.96

NON-CURRENT INVESTMENTS

Non-Current Investments
288.11 486.06 615.34
Quoted Market Value

Non-Current Investments
1,229.43 748.73 329.94
Unquoted Book Value

CURRENT INVESTMENTS

Current Investments Quoted


123.08 303.23 346.01
Market Value

Current Investments Unquoted


4,419.80 2,987.22 1,984.33
Book Value

*(Source : http://www.moneycontrol.com/financials/heromotocorp/balance-
sheetVI/HHM#HHM)
Ratio Analysis Of HERO MOTOCORP LTD.

Types Ratio Mar 17 Mar 16 Mar 15


Liquidity Ratio Current Ratio 1.82 1.47 1.36
Quick Ratio 1.66 1.3 1.15
Activity or Turnover Inventory Turnover
Ratio Ratio 43.39 42.5 33.83
Trade receivables
Turnover Ratio 5.39 7.42 5.865
Trade Payables
Turnover Ratio 13.74 12.4 12
Working Capital
Turnover Ratio 3.55 5.83 9.14
Financial Leverage Debt equity Ratio
Ratio ---- ---- ----
Total asset to debt
Ratio 0.00 0.00 0.00
PROPRIETARY Ratio 0.47 0.44 0.46
Profitability Ratio Gross Profit Ratio 14.54% 14.00% 10.88%
Net Profit Ratio 11.85% 10.95% 8.64%
Operating Profit Ratio 43.30%
51.56% 52.04%
Return on Capital 31.85% 37.77% 35.93%
Employed
OPERATING RATIO 57.60% 72.02%
53.77%
Analysis of the Ratios
1. Liquidity Ratios
Ideally the current ratio should be 2:1 which
indicates that the current assets of the business
should be at least twice the current liability. In
the year Mar 17; Mar 16 & Mar 15 the current
ratio is 1.82:1; 1.47:1 & 1.36:1 respectively
which shows that in each year the short term
financial position of the company is not
satisfactory.

Ideally the quick ratio should be 1:1. If it is more


it is considered to be better. In the year Mar 17
the ratio was 1.66:1 which means that the short
term financial position of the company is
satisfactory. And it is also satisfactory in the
year Mar 16 & Mar 15 i.e. 1.3:1 & 1.5:1
respectively which is little above than the ideal
ratio of 1:1.
2. Activity Ratios
The inventory turnover ratio has been
increased to 43.39 times in Mar 17 from 42.5
times in Mar 16 from 33.83 in Mar 15 which
shows that the inventory has been quickly
rotated into sales & hence the policy of the
management regarding inventory management
is efficient.

The trade receivables turnover has been


increased from 5.865 times in 2013-14 to 7.42
times in 2014-15 which indicates that the
company policy regarding collection of trade
receivables and selection of customer for credit
sales purpose was sound. Moreover it has been
declined in the year 2015-16 i.e. 5.39 as
compared to 2013-14 & 2015-16 which
indicates that the company policy regarding
collection of trade receivables and selection of
customer for credit sales purpose was not
sound.
In the year 2013-14 the trade payables turnover
ratio was 12 times in 2014-15 was 12.4 times
and 2015-16 was 13.74 times which indicates
that the trade payables are paid more quickly
which increases the credit worthiness of the
firm.

The working capital turnover ratio has been


increasing from 2013-14 to 2014-15. As in 2013-
14 the ratio was 3.55 times in 2014-15 it was
5.83 times and 2014-15 it was 9.14 times which
shows the efficient use of working capital and
quick turnover of current assets like inventory
and trade receivables.

3. Financial Leverage Ratio


Debt equity ratio compares the
company's debt to its shareholders' equity.
A zero debt-equity ratio obviously
indicates that the company has no debt and
thus it follows that the higher the ratio, the
higher the debt. A high debt to equity
ratio may also indicate a pattern of very
aggressive financing or large losses.
The fact also supported by total assets to debt
ratio. It indicates that long term debts are
covered 4.9 times by assets in the year 2013-14
& this margin of safety has been increased to
5.13 times in 2015-16 but it also got declined to
4.032:1 in 2014-15 but later it recovered in
2015-16.

The proprietary ratio is high as in 2013-14 it was


0.46:1 and it got little reduced in the year 2014-
15 i.e. 0.44:1. But in 2015-16 it was 0.47:1
which got little improved and it does not bring
any effect to the companys performance.

4. Profitability Ratio
The gross profit percentage in the Mar 15 was
10.88 which increased to 14 in Mar 16 and
increased to 14.54 in Mar 17 which shows that
there is an increase in the sale price of goods
without corresponding increase in in cost of
revenue from operation.

The net profit ratio has increased from 8.64 in


Mar 15 to 10.95 in Mar 16 increased further to
11.85 in Mar 17 which is an indication of overall
increment of profitability and efficiency of the
firm.

The operating ratio and operating profit ratio


both are interrelated. Total of these both will be
100. The operating ratio in the year 2013-14
was 72.02% which slowly got declined to
53.77% in 2015-16 followed by 57.6% in 2014-
15 which is good signal for the business as it will
leave the high profit margin of profit on
revenue from operation.

The return on investment or capital employed


of the the company of the year Mar 15, Mar 16,
Mar 17 was 35.93%, 37.77% and 31.85%
reaspectively which is a good sign as it
indicates that how efficiently the capital
employed in the business is being used. It also
indicates the earning power of the net assets of
the business.
Conclusion
To improve the performance of the company
following points to be kept in mind:
1. The current ratio of the company ideally should
be 2:1 but in the financial year Mar 17, Mar 16,
Mar 15 the ratios are 1.82, 1.47 and 1.36
respectively. which is not the good sign and so it
needs to be improved. The current assets of the
business should be at least twice the current
liability.
2. The Trade receivables turnover ratio indicates
the speed with which the amount is collected
from trade receivables. But in the year 2015-16
the company was not sound which indicates
that the company policy regarding collection of
trade receivables and selection of customer for
credit sales purpose was not sound. It needs to
be sound for the smooth functioning.
3. The proprietary ratio of the company
should also be improved which will
represent the relation between total
assets and shareholders fund. Ideally it
should be 2:1. But in Mar 16 it was just
0.47:1 which was not satisfactory.
4. The net profit of the company should be above
10% but in Mar 15 it was not satisfactory. And it
needs to be improve.

THANK-YOU !

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