My Mba Project - Draft (v1).docx

CHAPTER I

A STUDY ON THE FINANCIAL PERFORMANCE ANALYSIS WITH REFERENCE TO HERO MOTOCORP LIMITED

1. INTRODUCTION The performance of the firm can be measured by its financial results, i.e.., by its size of earnings, riskiness and profitability are two major factors which jointly determine the value of the concern. Financial statements are prepared to review the state of investments in a business and result achieved during the specific period. They reflect recorded facts, accounting conventions and personal judgments. Financial decisions which increase risk will decrease the value of the firm and on the other hand financial decisions which increases the profitability will increases value of the firm. Risk and profitability are two essential ingredients of a business concern. There has been a considerable debate about the ultimate objective of firm performance, whether it is profit maximization or wealth maximization. It is observed that while considering the firm performance, the profit and wealth maximization are linked and are effected by one-another. However, Profit and loss account is a statement, which is prepared for a particular financial year. In Indian context, where an analyst has to rely upon the audited financial statements for a particular company, the performance so to be judged from the financial statements only. This chapter however indicates some of the techniques, which can be used for such analysis of financial performances.

Usefulness of financial performance to various stakeholders: The analysis of financial performance is used by most of the business communities. They include the following. Trade Creditors The creditors provide goods/ services on credit to the firm. They always face concern about the recovery of their money. The creditors are always keen to know about the liquidity position of the firm. Thus, the financial performance parameters for them evolve short term liquidity condition of the firm.

Suppliers of Long Term Debt The suppliers of long term debt provide finance for on- going/ expansion projects of the firm. The long term debt providers will always focus upon the solvency condition and survival of the business, their confidence in the firm is of utmost importance as they are providing finance for a longer period of time. The long term creditors do consider the historical financial statements for financial performance. However, the financial institution/ bank also depend a lot on the projected financial statements indicating performance of the firm normally; the projections are prepared on the basis of expected capacity expansion, projected level of projection level of production/ service and market trends for the price movements of raw materials as well as finished goods. Investors Investors are the persons who have invested their money in the equity share capital of the firm. They are the most concerned community as they have also taken risk of investments- expecting a better financial performance of the firm. The

investor’s community always put more confident in firms growth in earnings. They judge the performances of the company by analyzing firms present and future profitability, revenue stream and risk position. Management Management for a firm is always keen on financial analysis. It is ultimately the responsibility of the management to look at the most effective utilization of the resources. Management to look at the most effective balance between the asset liability management, effective risk management and short term and long term solvency condition

Techniques/ tools to measure financial performance  Financial Tools Ratio Analysis Comparative Balance Sheet Common-Size Balance Sheet  Statistical tools: Trend analysis FINANCIAL TOOLS: Ratio analysis:

The financial ratio analysis is considered to be the most powerful tool of financial analysis. In simple language ratio means relationship between two or more things. It is also said that a ratio is the indicated quotient of two mathematical expressions. The ratio analysis also helps to summarize the large quantities of financial data and to make qualitative judgments about the firm’s financial

performance. There are various liquidity ratios which are quantitative in nature but are helpful to make qualitative judgments about the firm. The financial ratios involve useful information about the analysis of the firm. However, standalone ratio of one firm alone may not be useful to evaluate the firm’s performance. Comparative Statements: Comparative statement analysis is one of the methods to trace periodic change in the financial performance of a firm. The changes over the period are described by way of increase and decrease in income statement and balance sheet. These statements summaries and resent related data for a number of years, incorporating therein changes in individual items of financial statements. These statements help in making inter-period and inter firm comparisons and also highlight the trends in performance efficiency and financial position. An assessment of comparative financial statements helps to highlight the significant facts and points out the items requiring further analysis. All annual report of the selected companies provides data related to last 2 financial years. Common Size Statements: Common size statement indicates the relationship of various items with some common items, (expressed as percentage of the common item). In the income statements, the sales figure is taken as basis and all other figures are expressed as percentage in sales. Similarly, in the balance sheet the total assets and liabilities is taken as base and all figures are expressed as percentage of this total. The percentages so calculated are compared with corresponding percentages in other periods or other firms and meaningful conclusions are drawn. Generally, a common size income statements and common size balance sheet is prepared.

STATISTICAL TOOLS: Trend analysis: Trend analysis is one of the tools for the analysis of the company’s monetary statements for the investment purposes. Investors use this analysis tool a lot in order to determine the financial position of the business. In a trend analysis, the financial statements of the company are compared with each other for the several years after converting them in the percentage.

1.1

NEED FOR THE STUDY “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 own 26% stake in the Company. In 2010, it was reported that Honda planned to sell its stake in the venture to the Munjal family.

The company has a stated aim of achieving revenues of $10 billion and volumes of 10 million two-wheelers by 2017-18. This in conjunction with new countries where they can now market their two-wheelers following the disengagement from Honda, Hero MotoCorp hopes to achieve 10 per cent of their revenues from international markets, and they expected to launch sales in Nigeria by end-2011 or early-2012. This is the main stream to study about the Hero Motocorp Limited.

1.2

OBJECTIVE OF THE STUDY

Primary objectives: 

To analyze the financial performance of HERO MOTOCORP

LIMITED. Secondary objectives:  To study the liquidity, solvency, profitability position of the company.  To know the future prospectus of the company.  Ascertaining the past and current financial performances of the firm with the help of comparative balance sheet.

1.3 SCOPE OF THE STUDY The scope of study is limited to the operations of HERO MOTOCORP LIMITED. The information obtained from the primary and secondary sources are limited to HERO MOTOCORP LIMITED. The key performance indicators were taken from annual reports of HERO MOTOCORP LIMITED. The information regarding Annual reports, profit & loss Account, Balance Sheet are taken from last five years. Comparison Analysis was done with information available in annual reports. This study helps the company to improve the performance. Effective utilization of financial resource and that leads to achieve profitability and efficiency of operation. This study will help to frame strategies and to take decision-making.

1.4 INDUSTRY PROFILE Introduction: Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two - wheelers, based in India. The company was a joint venture between India's Hero Group and Honda Motor Company, Japan that began in 1984.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. The technology in the bikes of Hero Honda for almost 26 years (1984–2010) has come from the Japanese counterpart Honda. Hero MotoCorp has three manufacturing facilities based at Dharuhera, Gurgaon in Haryana and at Haridwar in Uttarakhand. These plants together are capable of churning out 3 million bikes per year. Hero MotoCorp has a large sales and service network with over 3,000 dealerships and service points across India. Hero Honda has a customer loyalty program since 2000, called the Hero Honda Passport Program. During the current financial year, in view of the separation of the joint venture partners, the Company had started the process of change of name of the Company from Hero Honda Motors Limited to Hero MotoCorp Limited. The new name was approved by the members of the Company in their Extra-ordinary General Meeting held on June 17, 2011. Also, the new Corporate Identity (new Corporate Logo) was

adopted by the Board of Directors of the Company on August 17, 2011 for all future practical purposes. The Hero Group would buy out the 26% stake of the Honda in JV Hero Honda. Under the joint venture Hero Group could not export to international markets (except Sri Lanka) and the termination would mean that Hero Group can now export. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and also, the 'World No.1' twowheeler company in terms of unit volume sales in a calendar year. Hero MotoCorp Ltd. continues to maintain this position till date. The story of Hero Honda began with a simple vision - the vision of a mobile and an empowered India, powered by its bikes. Hero MotoCorp Ltd., company's new identity, reflects its commitment towards providing world class mobility solutions with renewed focus on expanding company's footprint in the global arena. Hero MotoCorp's mission is to become a global enterprise fulfilling its customers' needs and aspirations for mobility, setting benchmarks in technology, styling and quality so that it converts its customers into its brand advocates. The company will provide an engaging environment for its people to perform to their true potential. It will continue its focus on value creation and enduring relationships with its partners. Hero MotoCorp's key strategies are to build a robust product portfolio across categories, explore growth opportunities globally, continuously improve its operational efficiency, aggressively expand its reach to customers, continue to invest in brand building activities and ensure customer and shareholder delight. At Hero MotoCorp, it is the firm’s belief that the essence of Corporate Governance lies in the phrase ''Your Company''. It is ''Your'' Company because it belongs to you

the shareholders. The Chairman and Directors are ''Your'' fiduciaries and trustees. Their objective is to take the business forward in such a way that it maximizes ''Your'' long-term value.

CHAPTER II

2.1 REVIEW OF LITERTURE Pai, Vadivel & Kamala (1995) In this research article on financial performance, they have studied about the diversified companies and financial performance. Main purpose of research was found out the relationship between diversified firms and their financial performance. For the purpose of research, they have selected seven large firms and analyzed those firm which having different products-both related and otherwise in their portfolio and operating in diverse industries. In this study, a set of performance measures / ratios was employed to determine the level of financial performance and variation in performance from one firm to another has been observed and statistically established. They revealed that the diversified firms studied have been healthy financial performance. Doron Nissim & Stephen H Penman (1999) In this research article on financial performance, they have pointed that this paper outlines a financial statement analysis for use in equity valuation. Standard profitability analysis is incorporated, and extended, and is complemented with an analysis of growth. The perspective is one of forecasting payoffs to equities. So financial statement is presented first as a matter of Performa analysis of the future, with forecasted ratio viewed as building blocks of forecasts of payoffs. Kennedy and Muller (1999) In this research article on financial performance, they have pointed that the analysis and inferences/ interpretation of financial statement are an attempt to determine the significance and meaning of financial statement data so that the forecast may be made of the prospects for future earnings, ability to pay interest and debt maturates (both current and long term) and profitability and sound dividend policy.

Abate, Juan Manuel De La Fuente Puente, Esther de Quevedo (2003) This paper reviews the empirical literature analyzing the relationship between corporate reputation and financial performance. It points out the progress made and the new trends that have become apparent, reflects on the gaps that have been left in our knowledge and speculates on possible future studies that will allow us to enlarge our knowledge of this relationship. Elizabeth Duncan and Elliott (2004) In this research article on financial performance, they have pointed that they had stated that the paper in the title of efficiency, customer service and financing performance among Australian financial institutions showed that all financial performance measures as interest margin, return on assets, and capital adequacy are positively correlated with customer service quality scores. Jonas Elmerraji (2005) In his research article on financial performance, he has pointed that he tries to say that ratio can be an invaluable tool for making an investment decision. Even so, many new investors would rather leave their decision to fate than try to deal with the intimidation of financial ratios. The truth is that ratios are not that intimidating, even if you do not have a degree in business or finance. Using ratio to make informed decisions about an investment makes many scenes, once you know how use them.

John J. Wild, K.R. Subramanyam & Robert f. Halsey (2006) In this research article on financial performance, they have pointed that the financial statement analysis is the application of analytical tool and technique to generalpurpose financial statements and related data to derive estimates and inferences useful in

business analysis. Financial statement analysis reduces reliance on hunches, guesses, and intuition for business decision. It decreases the uncertainty of business analysis. Samuel & Vanniarajan (2007) In this research article on financial performance, they have discussed about financial performance of bank by applying Du-Pont analysis. They concluded that the liberalization of the finance sector in India has divulged Indian banks to a new economic environment that is considered by increased competition and new regulatory requirements. They also revealed that Indian and foreign banks need to explore development opportunities in India by initiating new products for different customer segment, and many of which were not conservatively viewed as customer for the banking industry. They suggested all banks should to evaluate their performance and compare with the others. In the last they depicted from the analysis the performance of the banks may be viewed on the base of three dimensions like structural, functioning and efficiency factors which was suggested by the India Bank Association. I.M Pandey (2007) In his research article on financial performance, he has pointed that the financial statement contain information about the financial consequences and sources and uses of financial resources. One should be able to say whether the financial variable given in financial statements in a meaningful way which will suggest the actions which one may have to initiate to improve the firm’s financial condition.

Susan ward (2008) In his research article on financial performance, he has pointed that emphasis that financial analysis-using ratio between key values help investors cope with the massive

amount of numbers in company financial statements. For example, they can compute the percentage of net profit a company is generating on the funds it has deployed. All other things remaining the same, a company that earns a higher percentage of profit compared to other companies is a better investment option. Vedran Capkun, Ari‐Pekka Hameri, Lawrence A. Weiss, (2009) The paper finds a significant positive correlation between inventory performance (total as well as the discrete components of inventory) and measures of financial performance (at both the gross and operating levels) for firms in manufacturing industries. The correlation between the performance of discrete types of inventory and financial performance varies significantly across inventory types. RMI performance has the highest correlation with all financial performance measures. Between WIP inventory and FGI performance, the former is more highly correlated with gross profit measures while the latter is more highly correlated with operating profit measures. Rachchh Minaxi A (2011) In his research article on financial performance, he has pointed & suggested that the financial statement analysis involves analyzing the financial statements to extract information that can facilitate decision-making. It is the process of evaluating the relationship between component parts of the evaluating the relationship between component parts of the financial statements to obtain a better understanding of an entity’s position and performance.

Bhunia, Mukhuti & Roy (2011) In this research article on financial performance, they have discussed about “Financial Performance Analysis - Case Study”. The main aim of study was to identify the financial strengths and weaknesses by covering two public sector drug & pharmaceutical

enterprises listed on BSE. For study purpose, they have been selected twelve years from 1997-98 to 2008-09. They analyzed the data by using ratios, and statistical tools like A.M., S.D., C.V., linear multiple regression analysis and test of hypothesis t-test. They used SWOT analysis to overcome the weakness and grab the opportunities available in public sector drug & pharmaceutical enterprises in consideration of strengths and threats. They concluded that growth during last decade was noteworthy and market trend was growing at a faster rate. They suggested that the opportunities can be grabbed through the diversification of export basket in untouched foreign destinations. They also revealed that strict quality standards, services and use of latest technology can provide an edge over competitors across the globe.

S.M. Tariq Zafar (2012) The author made study to explored the truth that the ratios are calculated from the financial statements which are prepared as desired by the management and policies adopted on depreciation and stock values and thus produce only a collection of facts expressed in monetary term and cannot produce complete and authentic picture of the business and also may not highlight other factors which affects performance. They found that to control manager’s management often overuse ratio and concentrate more on improving the ratios and also known fact that ratio is simple comparison of numerator and a denominator and in comparing ratios it become difficult to adjudicate whether differences are due to change in the numerator or denominator or in both. It is also found that ratios are interconnected but are often treated by management in isolation and also found that analysis of ratios lack authenticity as data used in calculation are not accurate but manipulated presentation by the promoters.

Priyaaks (2012) In this research article on financial performance, he has pointed that financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a tool in decision- making processes related to stocks, bonds. Tariq Zafar & Khalid (2012) In this research article on financial performance, they have discussed about “A Comparative Evaluation of Financial Performance and Market Value of Maruti& Tata Company”. For the purpose of analysis, they have been selected two most preferred companies like Maruti Suzuki Ltd. and Tata Motors Ltd., and for the using period of 20062010. They tried to analyse qualitative and quantitative performance of both companies and to investigated their risk and returns factors, their market position, their collective impact on profitability and to come up with the best and worst performing company by using modern performance evaluating techniques and later ranking them according to their achieved performance. They concluded from the ratio analysis there was a lack authenticity in data, in calculation which may manipulating presentation by the promoters. They have also found that different firms follow different accounting policies like depreciation allowance; valuation of inventory etc. and often management ignore these differences while making inter-firm comparison. They revealed that the change in price levels due to inflation is also not properly considered by management.

Jerónimo de Burgos‐Jiménez Diego Vázquez‐Brust (2013) This paper analyses the relationship between environmental protection and mid‐ term financial performance, focusing on when and why this relationship is positive. In

particular, the paper disaggregates environmental protection, differentiating between environmental management practices, environmental proactivity and environmental performance of the organization.

Prodromos Chatzoglou , Dimitrios Chatzoudes , Nikolaos Kipraios , (2015) The purpose of this paper is to explore the relationship between the acquisition of an ISO 9000 certification and the overall financial performance of the certified firms. More specifically, the study proposes a multidimensional conceptual framework, including “customers’ demand”, “ISO adoption”, “operation efficiency”, “market efficiency” and “overall financial performance”. Such a multidimensional approach has randomly been explored in the existing literature, making the examination of the proposed conceptual framework an interesting research topic. M. Venkata Subramanian (2016) Financial analysis referred to financial statement analysis or accounting analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. The main idea behind this study is to analyze the financial operating position of the company. This research is done with help of secondary data, which is gathered from the annual report of the company. The financial performance can be measured by using various financial tools such as profitability ratio, solvency ratio, comparative statement, etc. Based on the analysis, findings have been arrived that the company has enough funds to meet its debts & liabilities, the income statement of the company shows sales of the company increased every year at good rate and profit also increased every year.

2.2 RESEARCH METHODOLOGY MEANING OF RESEARCH: Research in common parlance refers to a search for knowledge. One can also define research as a scientific and systematic search for pertinent information on a specific topic. In fact, research is an art of scientific investigation. When we talk of research methods but also consider the logic behind the methods we use in the context of our research study and explain why we are using a particular method or technique and why we are not using others so that research results are capable of being evaluated.

DEFINITION OF RESEARCH: According to Clifford Woody research comprises of “define and redefining problem, formulating hypothesis or suggested solution, collecting, organizing and evaluating data; making deduction and reaching conclusion; and at last carefully testing the conclusion to determine whether they fit the formulating hypothesis”. Research can be defined as the search of knowledge or any systematic investigation to establish fact. The primary purpose for applied research (as opposed to basic research) is discovering, interpreting and the development of methods and systems for the advancement of human knowledge on a variety of scientific matters of our world and the universe.

RESEARCH DESIGN The Research is of various types like Applied Research, Descriptive Research, Analytical Research, Empirical Research, Exploratory Research etc. The type of research used in this study is analytical research. ANALYTICAL RESEARCH: Analytical research is concerned with determining validity of hypothesis based on analysis of facts collected. The researcher uses facts or information already available and does analysis to make critical evaluation of the material.

SOURCES OF DATA COLLECTION The data collections classified into two types are Primary data and Secondary data. Primary Data Primary Data is a data collected for the first time. The information is collected directly from the source by means of field study. Primary Data are original and are like raw materials. It is the crudest form of information. The investigator himself collects primary data or supervises its collection. It may be collected on a sample or census basis or from case studies. Secondary Data According to M. M. Blair, Secondary data “are those already in existence and which have been collected for some other purpose”. Secondary Data may be abstracted from existing records and published sources. The data which have already been collected and processed by some persons or agency and are not used for the first time

are termed as secondary data. In simple, it refers to information gathered from sources that are already in existence. Here it refers to  Company’s annual report  Company’s website  Manual  Existing records This study is based on secondary data. The details regarding the company like company profile and financial data was sourced from company’s website and financial records. Instruments Used  Financial Tools  Ratio Analysis  Comparative Balance Sheet  Common-Size Balance Sheet  Statistical tools:  Trend analysis TOOLS USED IN FINANCIAL STATEMENT ANALYSIS 1. RATIO ANALYSIS Ratio analysis is a widely used tool for financial analysis. It can be used to compare the risk and return relationships of firms of different sizes. It can be defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined.

Modes of Ratios used for analysis 1. Current Ratio The ratio of current assets to current liabilities is called current ratio. It measures a company’s ability to repay short-term liabilities. A ratio of 2:1 is usually considered the benchmark; however, this may vary across industries.

Current assets Current ratio = Current liabilities 2 . Liquid Ratio This ratio is also called as “Acid test or Quick ratio”. It refers to the assets which are quickly convertible into cash. The higher the value, the lower the level of risk because the company has more claims to immediate liquidity than the industry norm.

Liquid assets Liquid ratio = Current liabilities Liquid assets= Total assets – stock- prepaid expenses.

3.Debt-Equity Ratio (DE) It is also called as external-internal equity ratio. It provides an indication of a company’s capital structure and whether the company is more reliant on borrowings (debt) or shareholder capital (equity) to fund assets and activities.

Total long-term debt DE ratio = Shareholder’s Funds

4.Return on Shareholder’s Funds (ROS) It is the ratio of net profit to shareholder’s investment. It is the relationship between net profit and shareholder’s fund. This ratio determines the profitability from the shareholder’s point of view:

Net profit after interest and tax ROS =

X 100 Shareholder’s fund

5. Return on Total Assets (ROA) Here, the profitability ratio is measured in terms of relationship between net profits and assets. The ROA may be called as profit asset ratio. Net profit after tax ROA=

X 100 Total Assets

6. Earnings per share (EPS) This ratio highlights the overall success of the concern from owners’ point of view and it is helpful in determining market price of equity shares.

Net Profit after interest & tax EPS = Weighted average no. of equity shares

7. Proprietary Ratio (PR) It is the relationship between the shareholder’s funds and total tangible assets (or) total assets excluding intangible asset and goodwill. Proprietary ratio indicates the extent to which assets are financed by owner’s fund.

Shareholder’s funds PR = Total Assets

8. Fixed assets ratio The objective of calculating this ratio is to ascertain the proportion of long-term funds invested in fixed assets. Fixed assets FAR = Long-term funds

9. Overall solvency/ total debt ratio It is a ratio which relates the total tangible assets (or) total assets excluding intangible and goodwill with the total borrowed funds. It also measures the extent to which the debt is covered by assets Total debt Overall Solvency =

Total Asset

10.Gross profit ratio: Gross profit ratio is also called as gross margin. It is calculated by dividing gross profit by sales. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. Gross profit Gross profit margin =

X 100 Sales

11. Net profit ratio: Net profit ratio is also called as net margin. This measures the relationship between net profit and sales of the firm.

Net Profit Net profit ratio =

X 100 Net sales

12. Return on equity: This profitability ratio carries the relationship of return to the sources of funds. While ROCE expresses the profitability of a firm in relation to the funds supplied by the lenders and owners taken together, the return on shareholders’ equity measures exclusively the return on the owner’s funds. Net income Return on Equity =

*100 Shareholder’s Equity

13. Working capital turnover ratio: Working capital turnover ratio is a measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales. Net Sales Working capital turnover ratio =

Working capital

COMPARATIVE BALANCE SHEETS According to “Faulke”Comparative Balance Sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of same business enterprises on different dates. ADVANTAGES  It shows the extent to which there is increase or decrease in assets and liabilities between two balance sheet dates.  It helps in studying the trends in business firms.  It shows the effect of business operation on its assets, liabilities and capital.

COMMON SIZE BALANCE SHEET A common-size financial statement is simply one that is created to display line items on a statement as a percentage of one selected or common figure. Creating common-size financial statements makes it easier to analyze a company over time and compare it with peers. Using common-size financial statements helps investor’s spot trends that a raw financial statement may not uncover. In this, the total assets or liabilities are taken as 100 and all figures are expressed as percentage of the total.

STATISTICAL TOOLS: TREND ANALYSIS: Trend analysis is one of the tools for the analysis of the company’s monetary statements for the investment purposes. Investors use this analysis tool a lot in order to determine the financial position of the business. In a trend analysis, the financial statements of the company are compared with each other for the several years after converting them in the percentage. 2.3 LIMITATION OF THE STUDY  The study has only made a humble attempt at evaluating financial performance and does not and cannot claim as the perfect study.  The data used for calculation is historical data and may have some adjustments made.  Time constraint, Exact value of Gross Profit could not be obtained.

CHAPTER III

3.1 DATA ANALYSIS AND INTERPRETATION The financial performed of a firm can be evaluated by constructing ratio for the various items appearing in the financial statement. A ratio is a simple artificial expression of the relationship between two mathematical variables. Ratio analysis is a technique of analysis and interpretation of financial statement by establishing and interpreting various ratios useful for decision-making. In this chapter, I have applied various ratios for analyzing financial position of the company. The result and interpretation are given below:

RATIO ANALYSIS CURRENT RATIO: Table 3.1.1-showing computation of current ratio

CURRENT ASSETS

CURRENT LIABILITIES

(in millions)

(in millions)

2013-14

55,583

44,236

1.3

2014-15

55,483

33,896

1.6

2015-16

63,033

35,715

1.8

2016-17

75,705

41,767

1.8

2017-18

90,022

44,814

2.0

YEAR

CURRENT RATIO

Chart 3.1.1.1 showing current ratio

CURRENT RATIO 2.5 2 1.5 1 0.5 0 2013-14

2014-15

2015-16

2016-17

2017-18

PROPRIETARY RATIO

INFERENCE: Current ratio is the measure of liquidity calculated by dividing current asset by the current liabilities. The ideal current ratio is 2:1. In the financial year 2013-14, the current ratio was 1.3:1 and it was increased to 1.6:1 in later years 2014-15. The current ratio has a constant raise in the financial year 2016-17 and 2017-2018 as 1.8:1 and 2:1 respectively.

LIQUID RATIO/ QUICK RATIO/ ACID TEST RATIO: Table 3.1.2-showing computation of Liquid Ratio CURRENT YEAR

LIQUID ASSET

LIABILITIES

LIQUID RATIO

(in millions)

(in millions)

2013-14

4400.5

4280.64

1.03

2014-15

7601.21

6020.80

1.26

2015-16

3910.85

9929.80

0.39

2016-17

2419.39

8308.68

0.29

2017-18

7957.05

10322.09

0.77

Chart 3.1.2.1 showing liquid ratio

LIQUID RATIO 2.5 2

1.5 1 0.5 0 2013-14

2014-15

2015-16

2016-17

2017-18

PROPRIETARY RATIO

INFERENCE: Liquid ratio is a measure of liquidity calculated dividing current assets minus inventory and prepaid expenses by current liabilities. A liquid ratio of 1:1 is considered as ideal ratio. A quick ratio higher than 1:1 indicates that the business can meet its obligation

with available quick funds in hand (2014 to 2018) whereas a ratio less than 1:1 indicates that the company relies more on inventory or other assets to pay the obligations. PROPRIETARY RATIO: Table 3.1.3 showing computation of Proprietary Ratio SHAREHOLDER YEAR

FUND (in millions)

TOTAL ASSETS

PROPRIETARY

(in millions)

RATIO

2013-14

5308.40

3070.98

1.73

2014-15

5599.87

2243.25

2.50

2015-16

6541.33

2912.69

2.25

2016-17

7944.75

3836.74

2.07

2017-18

10111.29

4395.59

2.30

Chart 3.1.3.1 showing Proprietary ratio

PROPRIETARY RATIO 2.5 2 1.5 1 0.5 0 2013-14

2014-15

2015-16

2016-17

PROPRIETARY RATIO

2017-18

INFERENCE: The Proprietary ratio indicates the extent to which assets are financed by owner’s fund. The above table shows the proprietary ratio position of the Hero MotoCorp Ltd. The proprietary ratio was ranges from 1.73 to 2.30 during the study period 2012-14 to 201618.