Preface Ack

A PROJECT REPORT ON BAJAJ AUTO LTD. ON 25 NOVEMBER,2008. IN PARTIAL FULFILLMENT OF THE REQUIREMENT IN SEMISTER I MASTER OF BUSINESS ADMINISTRATION TH

SUBMITTED TO: MS. NEHA SHUKLA N.S.V.K.M.S. MBA COLLEGE, VISNAGAR

SUBMITTED BY: PRATIK DEVANI (20) DILIP KHUNT (31) PUNIT LIMBACHIYA (34) TEJAS PANDYA (49)

PREFACE Life is full of efforts and struggles and, success and failures. But the sincere efforts done in right direction and at right time will give us fruits of success as a student of management faculty we are expected with something more i

organized specific and effective efforts with desire results towards the work entrusted to us. Now a day’s cut throat competition prevails in each and every area of management. So with the intension to teach the students how to merge the theoretical knowledge with the actual practice give to the students of M.B.A. Hemchandracharya north Gujarat university has compulsory for each group of student to prepare a project on some topic covered under circulation of Hemchandracharya north Gujarat university. So as per the requirements we the student of Nootan Sarva Vidhyalaya Kelvani Mandal Sanchalit MBA department have tried our level best to prepare the project report and submitting to the college. This report involves collective participation of each and every student of our group. As a part of MBA 1st year syllabus in managerial accounting, we have to prepare a financial report on particular company for getting practical knowledge from that report. This report is prepared on the financial analysis of BAJAJ AUTO LTD. The financial part contains brief introduction of the company and other part contains the financial analysis. The most important thing required for analyzing the financial statement is the annual report of the company.

ACKNOWLEDGEMENT Gratitude is the noble response of one’s soul to kindness or help generously rendered by another and its acknowledgment is a duty and joyance. So it is that We express briefly our debt to those who have made the creation of this project possible. ii

We thank the almighty, Lord on whom we believe and depend on. Our each and every achievement is nothing but a look of the God on us. We thankful to Dr. Jayashish Sethi, Head of Department of N.S.V.K.M.S. MBA College, for giving the guidelines about how to make the project report. We thankful to Ms. Neha Shukla, Lecturer of N.S.V.K.M.S. MBA College, for helping nicely in preparing a Project Report. We extends our thankfulness to all my friends and all my well wishers who had helped in the completion of this project. Last but never the least I extend my wholehearted thankfulness to the librarian Ms. Pallavi Khatri and to the Lab Assistant Mr. Chandrakant Patel and Mr. Kalpesh Patel.

Thank you, BY PRATIK DEVANI (20) DILIP KHUNT (31) PUNIT LIMBACHIYA (34) TEJAS PANDYA (49)

EXECUTIVE SUMMARY Competing with Everyone from Everywhere for Everything, Bajaj has grown operations in 50 countries by creating a line of value-for-money bikes targeted to the different preferences of entry-level buyers with quality such that Kawasaki buys Bajaj products for some of its markets. Bajaj Auto is a iii

major Indian automobile manufacturer. It is India's largest and the world's 4th largest two- and three-wheeler maker. Over the last decade, the company has successfully changed its image from a scooter manufacturer to a two wheeler manufacturer. Its product range encompasses Scooterettes, Scooters and Motorcycles. Its real growth in numbers has come in the last four years after successful introduction of a few models in the motorcycle segment. This project report is prepared on financial analysis of BAJAJ AUTO LTD. This report containing mainly two parts – General information and main theme of the report that is financial analysis. The second part of this report containing financial analysis of BAJAJ. The financial analysis part containing Horizontal analysis, Vertical analysis, Trend analysis, Average analysis, Ratio analysis, Cashflow analysis, Du Pont Chart and their interpretations. Horizontal analysis containing comparative Profit & Loss account and comparative Balance Sheet of three financial years 2005-06, 2006-07 & 2007-08. This part also containing various graphs of growth and sales. Some of the graphs are based on Profit & Loss A/C and some are on Balance Sheet. The vertical analysis part of this report containing common-size Profit & Loss A/C and common-size Balance Sheet of three years. Trend analysis part containing trend analysis of various components of Profit & Loss A/C and Balance Sheet of three years.

1.

COMPANY PROFILE

The Bajaj Group was formed in the first days of India's independence from Britain. Its founder, Jamnalal Bajaj, had been a follower of Mahatma Gandhi, who reportedly referred to him as a fifth son. 'Whenever I spoke of wealthy men becoming the trustees of their wealth for the common good I always had this merchant prince principally in mind,' said the Mahatma after Jamnalal's death. Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in 1942. Kamalnayan, however, was preoccupied with India's struggle for independence. After this was achieved, in 1947, Kamalnayan consolidated and diversified the group, branching into cement, ayurvedic medicines, electrical equipment, and appliances, as well as scooters.

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The precursor to Bajaj Auto had Bachraj Trading Ltd. It began vehicles in 1948 and obtained a 11 years later. The next year, company.

been formed on November 29, 1945 as M/s selling imported two- and three-wheeled manufacturing license from the government 1960, Bajaj Auto became a public limited

Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of Italy. In 1960, at the age of 22, he became the Indian licensee for the make; Bajaj Auto began producing its first two-wheelers the next year. Rahul Bajaj became the group's chief executive officer in 1968 after first picking up an MBA at Harvard. He lived next to the factory in Pune, an industrial city three hours' drive from Bombay. The company had an annual turnover of Rs 72 million at the time. By 1970, the company had produced 100,000 vehicles. The oil crisis soon drove cars off the roads in favor of twowheelers, much cheaper to buy and many times more fuel-efficient. A number of new models were introduced in the 1970s, including the threewheeler goods carrier and Bajaj Chetak early in the decade and the Bajaj Super and three-wheeled, rear engine Autorickshaw in 1976 and 1977. Bajaj Auto produced 100,000 vehicles in the 1976-77 fiscal year alone. The technical collaboration agreement with Piaggio of Italy expired in 1977. Afterward, Piaggio, maker of the Vespa brand of scooters, filed patent infringement suits to block Bajaj scooter sales in the United States, United Kingdom, West Germany, and Hong Kong. Bajaj's scooter exports plummeted from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million) in 1981-82, although total revenues rose five percent to Rs 1.16 billion. Pretax profits were cut in half, to Rs 63 million. New Competition in the 1980s Japanese and Italian scooter companies began entering the Indian market in the early 1980s. Although some boasted superior technology and flashier brands, Bajaj Auto had built up several advantages in the previous decades. Its customers liked the durability of the product and the ready availability of maintenance; the company's distributors permeated the country. The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was immediately successful, and the company aimed to be able to make 60,000 of them a year by 1985. Capacity was the most important constraint for the Indian motorcycle industry. Although the country's total production rose from 262,000 vehicles in 1976 to 600,000 in 1982, companies like rival Lohia Machines had difficulty meeting demand. Bajaj Auto's advance orders for one of its new mini-motorcycles amounted to $57 million. Work on a new plant at Waluj, Aurangabad commenced in January 1984. The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the Kawasaki Bajaj KB100 motorcycles. The company was making 500,000 vehicles a year at this point. v

Although Rahul Bajaj credited much of his company's success with its focus on one type of product, he did attempt to diversify into tractor-trailers. In 1987 his attempt to buy control of Ahsok Leyland failed. The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion followed a year later. About this time, the Indian government was initiating a program of market liberalization, doing away with the old 'license raj' system, which limited the amount of investment any one company could make in a particular industry. A possible joint venture with Piaggio was discussed in 1993 but aborted. Rahul Bajaj told the Financial Times that his company was too large to be considered a potential collaborator by Japanese firms. It was hoping to increase its exports, which then amounted to just five percent of sales. The company began by shipping a few thousand vehicles a year to neighboring Sri Lanka and Bangladesh, but soon was reaching markets in Europe, Latin America, Africa, and West Asia. Its domestic market share, barely less than 50 percent, was slowly slipping. By 1994, Bajaj also was contemplating high-volume, low-cost car manufacture. Several of Bajaj's rivals were looking at this market as well, which was being rapidly liberalized by the Indian government. Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The company was the world's fourth largest manufacturer of two-wheelers, behind Japan's Honda, Suzuki, and Kawasaki. New models included the Bajaj Classic and the Bajaj Super Excel. Bajaj also signed development agreements with two Japanese engineering firms, Kubota and Tokyo R & D. Bajaj's most popular models cost about Rs 20,000. 'You just can't beat a Bajaj,' stated the company's marketing slogan. The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in 1997. The next year saw the debut of the Kawasaki Bajaj Caliber, the Spirit, and the Legend, India's first four-stroke scooter. The Caliber sold 100,000 units in its first 12 months. Bajaj was planning to build its third plant at a cost of Rs 4 billion ($111.6 million) to produce two new models, one to be developed in collaboration with Cagiva of Italy. New Tools in the 1990s Still, intense competition was beginning to hurt sales at home and abroad during the calendar year 1997. Bajaj's low-tech, low-cost cycles were not faring as well as its rivals' higher-end offerings, particularly in high-powered motorcycles, since poorer consumers were withstanding the worst of the recession. The company invested in its new Pune plant in order to introduce new models more quickly. The company spent Rs 7.5 billion ($185 million) on advanced, computer-controlled machine tools. It would need new models to vi

comply with the more stringent emissions standards slated for 2000. Bajaj began installing Rs 800 catalytic converters to its two-stroke scooter models beginning in 1999. Although its domestic market share continued to slip, falling to 40.5 percent, Bajaj Auto's profits increased slightly at the end of the 1997-98 fiscal year. In fact, Rahul Bajaj was able to boast, 'My competitors are doing well, but my net profit is still more than the next four biggest companies combined.' Hero Honda was perhaps Bajaj's most serious local threat; in fact, in the fall of 1998, Honda Motor of Japan announced that it was withdrawing from this joint venture. Bajaj Auto had quadrupled its product design staff to 500. It also acquired technology from its foreign partners, such as Kawasaki (motorcycles), Kubota (diesel engines), and Cagiva (scooters). 'Honda's annual spend on R & D is more than my turnover,' noted Ruhal Bajaj. His son, Sangiv Bajaj, was working to improve the company's supply chain management. A marketing executive was lured from TVS Suzuki to help push the new cycles. Several new designs and a dozen upgrades of existing scooters came out in 1998 and 1999. These, and a surge in consumer confidence, propelled Bajaj to sales records, and it began to regain market share in the fast-growing motorcycle segment. Sales of three-wheelers fell as some states, citing traffic and pollution concerns, limited the number of permits issued for them. In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65 million. The Italian firm had exited a relationship with entrepreneur Deepak Singhania and was looking to reenter the Indian market, possibly through acquisition. Piaggio itself had been mostly bought out by a German investment bank, Deutsche Morgan Grenfell (DMG), which was looking to sell some shares after turning the company around. Bajaj attached several conditions to his purchase of a minority share, including a seat on the board and an exclusive Piaggio distributorship in India.

In late 2000, Maruti Udyog emerged as another possible acquisition target. The Indian government was planning to sell its 50 percent stake in the automaker, a joint venture with Suzuki of Japan. Bajaj had been approached by several foreign car manufacturers in the past, including Chrysler (subsequently DaimlerChrysler) in the mid-1990s. Employment fell from about 23,000 in 1995-96 (the year Bajaj suffered a two-month strike at its Waluj factory) to 17,000 in 1999-2000. The company planned to lay off another 2,000 workers in the short term and another 3,000 in the following three to four years.

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Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; Bajaj Electricals Ltd.; Bajaj Hindustan Ltd.; Maharashtra Scooters Ltd.; Mukand Ltd. Principal Competitors: Honda Motor Co., Ltd.; Suzuki Motor Corporation; Piaggio SpA.

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1.4 MANAGEMENT PROFILE Rahul Bajaj Madhur Bajaj Rajiv Bajaj Sanjiv Bajaj

Chairman Vice Chairman Managing Director Executive Director

Abraham Joseph Pradeep Shrivastava S Sridhar R C Maheshwari Rakesh Sharma C P Tripathi N H Hingorani Kevin P D'sa S Ravikumar K Srinivas J. Sridhar

Vice President (Research & Development) President (Engineering) CEO (2WH) CEO (Commercial Vehicles) CEO (International Business) Vice President (Corporate) Vice President (Commercial) Vice President (Finance) Vice President (Business Development) Vice President (Human Resources) Company Secretary

Rahul Bajaj Chairman Rahul Bajaj is an Honours Graduate in Economics and Law and a Business Graduate from the Harvard Business School. He was appointed Chief Executive Officer of Bajaj Auto in 1968 and took over later as Head of the Bajaj Group of companies. Madhur Bajaj Vice Chairman After graduating in Commerce, Mr Bajaj did his MBA from Lausanne, Switzerland. Joined as DGM in March 1983, took over as General Manager Aurangabad Division in June 1986, as its Chief Executive in October 1988, became President of Bajaj Auto in September 1994, Executive Director in May 2000 and is Vice Chairman since July 2001. Rajiv Bajaj x

Managing Director Rajiv Bajaj, who took charge as Managing Director on 1 st April 2005, is a Mechanical Engineer from Pune University. He later did his Masters in Manufacturing Systems Engineering from the University of Warwick. He Joined as Officer on Special Duty in 1990, took over as General Manager (Products) in February 1993, Vice President (Products) in June 1995, President in May 2000, President & Whole Time Director in March 2002 and as Joint Managing Director in March 2003.

Sanjiv Bajaj Executive Director Mr. Sanjiv Bajaj, who took charge as the Executive Director in April 2004, is a Mechanical Engineer from Pune University. He obtained a Masters Degree in Manufacturing Systems from the University of Warwick and an MBA degree from Harvard Business School. Mr. Sanjiv Bajaj joined as an Officer on Special Duty in 1994, took over as the General Manager (CF) in 1997 and Vice President (Finance) in April 2001. Abraham Joseph Vice President (Research & Development) Mr. Joseph started his tenure in Bajaj in July 1989 as a Graduate Trainee Engineer, took over as General Manager (R&D) in April 2005 and is currently the Vice President (R&D) since April 2007. He is a Mechanical Engineer from the National Institute of Technology, Bhopal. Pradeep Shrivastava President (Engineering) Mr.Pradeep Shrivastava joined Bajaj in April 1986. He took over as Vice President (Engineering) in April 2005 and is currently the President (Engineering) since July 2007. After receiving a degree in Mechanical Engineering from IIT - Delhi, Mr. Shrivastava obtained a graduate diploma in Production and Finance from IIM – Bangalore in 1986. S Sridhar CEO (2 Wh) Mr. Sridhar joined Bajaj in March 2001 as GM (Sales) for two wheelers, took over as Vice President (Marketing & Sales – 2W) in April 2005 and is currently the CEO (2WH) since July 2007. He holds an Engineering Graduate degree in Agriculture. R C Maheshwari CEO (Commercial Vehicles) Mr. Maheshwari joined Bajaj in July 2007 as CEO (CV). He is a gold medallist Mechanical engineer from BITS, Pilani.

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Rakesh Sharma CEO (International Business) Mr. Sharma joined Bajaj in October 2007 as CEO (IB). He holds a Post Graduate Diploma in Management from IIM – Ahmedabad C P Tripathi Vice President (Corporate)Mr. C.P. Tripathi started in Bajaj in January 1996 as the Vice President (Waluj Plant ), took over as Vice President (Operations) in April 2001 and is Vice President (Corporate) since July 2007. A Science Graduate from Agra University, Mr. Tripathi also holds a degree in Mechanical Engineering from the Indian Institute of Technology, Kharagpur. N H Hingorani Vice President (Commercial) Mr. N.H. Hingorani joined Bajaj in 1997 as the General Manager (Materials), took over as the Vice President (Purchase) in 1998 and is Vice President (Commercial) since February 2006. Mr. Hingorani holds a degree in Mechanical Engineering from the Malaviya Regional Engineering College, Jaipur. Kevin P D'Sa Vice President (Finance) Mr. Kevin D’sa began his career with Bajaj in September 1978 and is presently the Vice President (Finance). After acquiring a Bachelor’s degree in Commerce, he completed his CA in 1978 and ICWA in 1981. S Ravikumar Vice President (Business Development) Mr. Ravikumar joined Bajaj in June 1984 as an Accounts Officer and is now the Vice President (Business Development). He is an active member of the Institute of Chartered Accountants of India. K Srinivas Vice President (Human Resources) Mr. Srinivas joined Bajaj in January 2000 as the DGM (HRD) and is now the Vice President (HR). He holds a Bachelors Degree in Electrical Engineering from VJTI, Mumbai. J. Sridhar Company Secretary Mr. J Sridhar is the Company Secretary since July 2001. A graduate in Commerce and Law, Mr. Sridhar also did his FCA, FCS and MMS. Prior to joining Bajaj, he was the Controller of Finance and Company Secretary, Maharashtra Scooters Ltd., a Bajaj Auto joint venture.

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2.1 Trend analysis of profit and loss account

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particulars

200809

200708

200607

INCOME Net sales

115.98

124.40

100

79.37

123.05

100

113.11

124.30

100

Materials

124.34

129.61

100

Other Expenses

114.18

122.00

100

Interest

1517.6 5 90.81

1570.5 9 95.20

100

121.97

127.62

100

Compansation paid under voluntary

452.12

216.25

100

Total

123.12

127.93

100

Profit before tax

71.78

109.32

100

Current tax

76.48

97.46

100

Deffered tax

43.91

34.00

100

Fringe benefit tex

67.00

60.00

100

Net tax

79.06

102.29

100

profit after tax

68.62

112.38

100

Othe income Total EXPENDITURE

Depriciation

100

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INTERPRETATION: By the above graph we can see that the sales and other income is increasing in the year 2006-07 but in 2007-08 it is decreasing around 10 %.

INTERPRETATION: In 2006-07 the profit before tax is increasing but suddenly in the year of 2007-08 it decrease largely and reaches at 71.78 %.

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INTERPRETATION: In the year of 2006-07 the profit after tax is increasing but suddenly because of recession period the profit is increasing 50% compare to last year.

2.2 TREND ANALYSIS OF BALANCE SHEET

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Sources of funds

200 7-08

1. shareholder's fund a) share capital b) Reserves and Surplus total 2. Loan Fund a) Secured loan b) unsecured loan total 3. Deferred Tax Adjustments a) Deferred Tax Liability b) Deferred Tax Assets total 1. Fixed Assets a) Gross Block b) less-Depreciation c) Net Gross Block d) Lease Adjustment Account Plant & Machinary e) Capital Work in Progress total 2. Technical know-how 3. Investments 4. Current Assets, Loans and Advances a) inventories b) Sundry Debtors c) Cash and Bank Balance d) Other Current Assets e) Loans and Advances total less- current liabilities and provisions a) liabilities b) provisions net current assets total

20 06-07

2005 -06

142.99 30.90 33.28

100 116.35 116.01

100 100 100

34750 90.48 90.95

112300.00 109.26 110.79

100 100 100

74.62 127.60 46.37

96.99 107.49 114.36

100 100 100

103.15 97.04 112.92 0

109.73 108.08 112.37 100.00

100 100 100 100

143.67 111.85 785.82 31.71

111.33 106.97 308.21 110.08

100 100 100 100

127.36 91.30 68.30 110.84 41.78 57.76

113.47 175.70 101.69 50.21 134.41 133.70

100 100 100 100 100 100

84.90 36.01 33.05 46.37

121.98 122.36 74.65 114.36

100 100 100 100 xvii

INTERPRETATION: From the above graph we can see that the sources of funds are increasing in the year of 2006-07 but because of recession period the sources of funds are decreasing in the year of 2007-08.

INTERPRETATION: From the above graph we can see that the applications of funds are increasing in the year of 2006-07 but because of recession period the applications of funds are decreasing in the year of 2007-08.

.3 Vertical analysis of profit and loss account

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particulars

200708

200607

200506

INCOME Net sales

94.51

92.22

92.14

5.51

7.78

7.86

100.00

100.00

100.00

materials

72.21

68.49

65.68

other expenses

12.60

12.25

12.48

interest

0.06

0.05

0.00

depriciation

1.65

1.57

2.05

86.51

82.36

80.22

1.12

0.49

0.28

total

87.62

82.85

80.50

profit before tax

12.38

17.15

19.50

current tax

4.28

4.97

6.34

deffered tax

-0.19

-0.13

-0.49

fringe benefit tex

0.04

0.03

0.06

net tax

4.13

4.86

5.91

profit after tax

8.24

12.29

13.59

othe income total EXPENDITURE

compansation paid under voluntary

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INTERPRETATION: xx

In the vertical analysis we have taken sales and other income as 100 %

INTERPRETATION: The profit after tax is increasing every year that we can see that. In the year of 2005-06 the PAT is 14 %, in the next year it is 12.29 % and in the year of 2007-08 PAT is 8.24 % because of recession period.

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2.4 Vertical analysis of Balance Sheet Sources of funds

200708 %

1. shareholder's fund a) share capital b) Reserves and Surplus

200607 %

2005-06 %

total

4.93 49.20 54.13

1.40 75.11 76.51

1.60 73.82 75.42

total

0.24 45.26 45.50

0.31 22.16 22.47

0.00 23.19 23.19

total

4.84 -4.47 100.00

2.55 -1.53 100.00

3.01 -1.62 100.00

101.75 58.85 42.90 0.00

43.88 26.58 17.31 0.24

45.73 28.12 17.61 0.28

1.18 44.08 0.36 63.32

0.37 17.09 0.06 89.13

0.38 18.27 0.02 92.59

11.85 9.39 1.91 2.73 30.30 56.25

4.28 7.32 1.15 0.50 39.53 52.79

4.31 4.77 1.30 1.14 33.63 45.15

35.57 28.44 -7.76 100.00

20.72 39.17 -7.11 100.00

19.43 36.61 -10.89 100.00

2. Loan Fund a) Secured loan b) unsecured loan 3. Deferred Tax Adjustments a) Deferred Tax Liability b) Deferred Tax Assets 1. Fixed Assets a) Gross Block b) less-Depreciation c) Net Gross Block d) Lease Adjustment Account Plant & Machinary e) Capital Work in Progress total 2. Technical know-how 3. Investments 4. Current Assets, Loans and Advances a) inventories b) Sundry Debtors c) Cash and Bank Balance d) Other Current Assets e) Loans and Advances total less- current liabilities and provisions a) liabilities b) provisions net current assets total

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INTERPRETATION: From the above graph we can see that in the year 2007-08 from the whole Sources of funds 54.13 % are shareholder’s fund,45.5 % are loan fund,0.37 % are deferred loans. As compare to the year of 2007-08 shareholder’s funds are more in 2005-06 and 2006-07.

2.

RATIO ANALYSIS xxiii

The relationship of one item to another expressed in simple mathematical form is known as the ratio. A company keeps fit by ensuring that among another things, its various financial propositions are kept healthy. Its business performance can be measured the use of ratio. A ratio is quotient of two numbers. It must be interpreted against some standards. In assessing the financial stability of firm, a management should apart from profitability, be interested in relative figures rather than in absolute figures. In fact an analysis of financial statements is possible only when figures are express as percentages or ratios. There is growing body of evidence that ratio can be directly helpful as basis for making predication. A ratio is a mathematical relationship between two quantities. It is of major important for financial analysis. It engages qualitative measurement and shows precisely how adequate is one key item in relation to another. To evaluate the financial condition and purpose of a firm the financial analyst need certain yardsticks. The yardsticks frequently used are ratio or an index relating to pieces of financial data to each other. Not only those who manage a company but also its shareholders and creditors are interested in knowing about the financial position or earning capacity of that concern.

ADVANTAGES:

I. Lee observed that the process of producing financial ratio is essentially concerned with the identification of the significant accounting data relationships, which give the decision makers insights into the company that is assessed. II. A ratio analysis involves the study of total financial picture. By basing conclusions upon thorough understanding of the important of each ratio, the analyst can recommend and indicate positive action with confidence. III. One of the most fruitful areas for the use of traditional financial ratio seems to be that of predication company failures. IV. Ratio are tool which enables management to analysis business situation and to monitor their performance as well as that of their competitors.

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V. Ratio analysis helps the management to diagnose the situations, monitor the performance and help plan forward. VI. There are certain priority ratios for chief executives. These are related to key areas, which are common to nearly all businesses and with which top management is seriously concerned. These priority ratios enable the chief executive to understand the relationship between his organization, at one end, and the market, investors, suppliers and employees. He is also in a position to watch how well is the organization using its assets and how well it is providing for the future. VII. There are ratios which help the marketing manager, the purchasing manager, the financial manager and other representing the middle management to know the what positions are like how to make a way in typical situations, from time to time.

The integrated relationships of various functions ratio can be presented as under: • • • • •

Liquidity ratio Profitability ratio Asset turnover ratio Finance structure ratio Valuation ratio.

(1) LIQUIDITY RATIO: Liquidity is the ability of a company to meets in short term obligations when they fall due. A company should have enough cash and other current assets. This can be converted into cash, so that it can pay its suppliers and lenders on time.

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(1.1) Current Ratio: Current ratio is an indicator of the firm’s commitment to meet it short term liabilities. It is calculated to establish a relationship between current asset and current liabilities. it is also called as working capital ratio. Current Ratio = Current Assets Current Liabilities Generally the current assets should be least twice the current liabilities for a comfortable liquid positions, i.e. current ratio be 2:1 which is referred to as excepted standard of liquidity.

PARTICULARS CURRENT ASSETS CURRENT LIABILITY CURRENT RATIO

TABLE-1.1 (IN MN.) 2005-06 2006-07 9592.3 7287 14989.7 12288.7 0.64 0.59

2007-08 7609.4 10432.5 0.73

Interpretation: A current ratio of less than 1.0 indicates that a company does not have enough current assets to cover current liabilities. Most analysts expect a company to have a current ratio of at least 1.5. In the year of 2007-08 The Current Ratio is 0.73 that was 0.14 less in the year 2006-07 and in the year of 2005-06 the Current Ration was 0.64. We can say that with this comparison that in the year of 2006-07 the level of Current Assets was xxvi

decreased as compare to Current Liability. But in the next year we can see the change. (1.2) Quick Ratio: Quick Ratio is base on those current assets which are highly liquidinventories are excluded from the numerator of this ratio because inventories are deemed to be the least liquid component of current assets. Quick Ratio = Quick Assets / Liquid Liabilities Quick Assets = Current Assets – Stock – Debtors Quick Liabilities = Current Liabilities – Bank Overdraft Quick ratio is also known as Liquid Ratio or Acid Test Ratio. Ideally quick assets should be at least equal to the current liability. i.e. quick ratio should be 1 is ideal.

PARTICULARS QUICK ASSETS QUICK LIABILITY QUICK RATIO

TABLE-1.2 (IN MN.) 2005-06 2006-07 834.8 820.9 14989.7 12288.7 0.056 0.067

2007-08 560.7 10432.5 0.054

Interpretation: The company’s liquidity position is not good. In future crises may come. From the above ratio we can see that in the year of 2005-06 the Quick Ratio is 0.056 that increase by 0.011 in the next year. But again in the year of 2007-08 the Ratio is 0.054. xxvii

(1.3) Net working capital: Net working capital is the difference between current assets and current liabilities. It is useful in day to day business transactions. Net Working Capital = Total Current Assets – Total Current Liabilities

PARTICULARS CURRENT ASSETS CURRENT LIABILITY CURRENT RATIO

TABLE-1.3 (IN MN.) 2005-06 2006-07 9592.3 7287 14989.7 12288.7 (5394.4) (5001.7)

2007-08 7609.4 10432.5 (2823.1)

Interpretation: The position of the company is decreasing year by year. Company should decrease its noncash expenses. In this ratio the Company is Fully Negative. in comparison of three years its is good but overall that is very bad for company. In the year 2005-06 the Net Working Capital is -5394.4. that is recovered in next year with 392.7 point and in the year the recovery rate is very high. In the year of 2007-08 the Net Working Capital is -2823.1

(1.4) Cash Generated Per Rupee Of Sale: Cash Generated Per Rupee of Sales = xxviii

(Profit After Taxes + Depreciation + Non cash Expenses) × 100 Sales TABLE-1.4 (IN MN.) PARTICULARS 2005-06 2006-07 2007-08 PAT + Depreciation + Non 28803.5 31604 24820.2

Cash Exp Sales Cash Generated Per Rupee Of Sales Ratio

74693.8 38.56 %

92922.3 34.01 %

86632.9 28.65 %

Interpretation: Cash Generated Per Rupee Ratio for the year 2005-06 is 38.56 % and that is decrease in the next year by 4 %. In the year of 2007-08 the ratio is 28.65. so its shows the good cash position for the company.

(2) PROFITABILITY RATIO: Profitability ratio measure the degree of operating success of a company in an accounting period. Failure to earn an adequate rate of profit over a period will also drain the company’s cash and impair liquidity. (2.1) Gross Profits Ratio: xxix

Gross Profits Ratio =

Gross Profits × 100 Sales

Gross Profits = Sales – Total Factory Cost PARTICULARS GROSS PROFIT SALES GROSS PROFIT RATIO

TABLE-2.1 (IN MN.) 2005-06 2006-07 17133.7 18994.4 74693.8 92922.3 22.94 % 20.44 %

2007-08 15560.7 86632.9 17.96 %

Interpretation: Company should maintain its position in profitability. Year by year its decreasing, that’s not good for the company. In the year of 2005-06 the Gross Profit was 22.94 % that decreased 2 % in the next year. In last year the Gross Profit is 17.96 %. For increasing Gross Profit the company should increase the sales. (2.2) Rate Of Return On Investment: This is measure of profitability from the given level of investment. Rate of Return on Investment = EBIT × 100 Total Assets Total Assets = Net Fixed Assets + Investment +Net Working Capital

PARTICULARS EBIT

TABLE-2.2 (IN MN.) 2005-06 2006-07 15804 17227.1

2007-08 11295.7 xxx

TOTAL ASSETS RETURN ON INV.

63241.2 24.99 %

72028.7 23.91 %

28876.4 39.12 %

Interpretation: On the investment on Assets company is making good return. And company should maintain that. Return on Investment is very high for Bajaj Auto. In the year of 2005-06 ROI was 24.99 % that decrease by 1 % in the next year. But in the year of 2007-08 the ROI is 39.12 % that is very good as compare to last year.

(2.3) Rate Of Return On Equity: This is a measure of profitability from the standpoint of the shareholders. The ratio measures the efficiency with which shareholders’ funds are employed. ROE = Profit for the Equity × 100 Net Worth Profit for the Equity = Net Profits – Preference Dividend PARTICULARS PROFIT FOR EQUITY NET WORTH RETURN ON EQT.

TABLE-2.3 (IN MN.) 2005-06 2006-07 4398.6 4743.5 55343.2 47707.3 7.95 % 9.94 %

2007-08 3387.2 15875.9 21.34 % xxxi

Interpretation: Company is highly profitable with the help of equity shares. The Company is profitable in every year. And every year the margin of profit is increasing. In the year 2005-06 the ratio is 7.95 %. That increase by 2 % in next year. The return on equity ratio is very high in the yerar of 2007-08. That is 21.34 %.

3)

ASSET TURNOVER RATIO:

(3.1) Total Asset Turnover Ratio: This is measure of the efficiency with which assets are utilized. It indicates how many times the assets were turned over in a period. Total Assets Turnover Ratio = Sales Total Assets PARTICULARS SALES TOTAL ASSETS ASSET TURNOVER

TABLE-3.1 (IN MN.) 2005-06 2006-07 74693.8 92922.3 63241.2 72028.7 1.18 1.29

2007-08 86632.9 28876.4 3.01

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Interpretation: In the last year the demand is increasing. The sales is increased by 2 times as compare to the last year. The efficiency also increased. The Asset Turnover Ratio is constant increasing in each year. In the year of 2005-06 the ratio was 1.18. It increases by 0.11 in the next year. And in the year of 2007-08 the ratio increase highly and reaches at 3.01.

(3.2) Net Fixed Asset Turnover ratio: This ratio measures sales per rupee of investment in fixed assets. This ratio supposed to measure the efficacy with which fixed assets are employed. A high ratio indicates a high degree of efficacy in assets utilization and vice versa. Net fixed assets turnover Ratio =

PARTICULARS SALES NET FIXED ASSETS NET FIXED ASSET TURNOVER

Sales Net fixed assets

TABLE-3.2 (IN MN.) 2005-06 2006-07 74693.8 92922.3 11141.6 12519.7 6.70 7.42

2007-08 86632.9 12580.5 6.89

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Interpretation: Increase in the fixed assets in lower than increasing in sales. In the year of 2006-07 the ratio of Net Fixed Asset Turnover is high as compare with last year but in the year of 2007-08 it decrease around 0.60 and reaches at 6.89.

(3.3) Net Working Capital Turnover Ratio: Net Working Capital Turn Over =

PARTICULARS SALES NET WORKING ASSETS NET WORKING CAPITAL

Sales Net Working Assets

TABLE-3.3 (IN MN.) 2005-06 2006-07 74693.8 92922.3 9592.3 7287 7.79

11.93

2007-08 86632.9 7609.4 11.38

Interpretation: xxxiv

The rate of working capital is declining but it is not bad as compare to the 1 st year. Because of company’s efforts company increased its sales in 2006-07 as compare with last year. But in the year 2007-08 that decrease around 0.50.

(3.4) Inventory Turnover Ratio: This ratio shows the number of times a company’s inventory is turned into sales. The lesser the inventory, the greater the cash available for meeting operating needs. Inventory Turn Over =

PARTICULARS COST OF GOODS SOLD AVG. INVENTORIES INVNTR. TURNOVER RATIO

Cost of Goods Sold Average Inventories

TABLE-3.4 (IN MN.) 2005-06 2006-07 57560.1 73927.9 2485.52 2913.16 19.95 25.38

2007-08 71072.2 3296.55 21.56

Interpretation: In the last year the inventory turnover ratio is decreasing and that is good for company. The company has to maintain this downward slopping. xxxv

(4)

FINANCE

STRUCTURE RATIO: Finance structure ratio indicates the relative mix or blending of owner’s funds and outsider data funds in the total capital employed in business. It should be noted that equity funds are the prime fund which increase progressively through reinvestment of profit, while outside debt funds are supplementary funds and the added at the discretion of the management. Management prefers to choose debt only when it helps in enhancing the earning of equity. The debt fund carry fixed committed interest rate. (4.1) Equity Ratio: Equity Ratio = net worth Total capital employed Net worth = Share capital + reserve and surplus – miscellaneous expense Total capital employed = net worth + long term debt TABLE-4.1 (IN MN.) PARTICULARS 2005-06 2006-07 2007-08 NET WORTH 9592.3 7287 7609.4 TOTAL CAPITAL 62378.8 71597.5 29219.3 EMPLOYED EQUITY RATIO 0.15 0.10 0.26

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Interpretation: Company is reliable on equity shares. Instead of paying 100 % dividend to shareholder its retaining. In the second year the Equity Ratio decreased by 0.14 but in the next year its increase with high rate and reaches at 0.26. (4.2) Debt Ratio: Relationship between creditors’ fund and owners’ capital can also be expressed in terms of another ratio. The outside liabilities are related to the total capitalization of the firm and not merely to the shareholder’s equity. Debt Ratio = Long term Debt Total capital employed TABLE-4.2 (IN MN.) PARTICULARS 2005-06 2006-07 LONG TERM DEBT 14671.5 16254.3 TOTAL CAPITL EMPLD. 62378.8 71597.5 DEBT RATIO 0.24 0.23

2007-08 13343.4 29219.3 0.46

Interpretation: The company is increasing loans from market. The long term debt is highly increasing. This ratio shows us the company’s Debt. We can see that the debt is increasing every year. In the year of 2005-06 it was 0.23 and in the year of 2007-08 the debt ratio is 0.46.

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(4.3) Debt Equity Ratio: The Debt Equity Ratio measures the relationship of the capital provided by creditors to the amount provided by shareholders. Debt includes both short term and long term debt. The ratio indicates the extent of use of financial leverage. Debt Equity Ratio = Total Long Term Debt Net Worth PARTICULARS LONG TERM DEBT NET WORTH DEBT EQUITY RATIO

TABLE-4.3 (IN MN.) 2005-06 2006-07 14671.5 16254.3 55343.2 47707.3 0.27 0.34

2007-08 13343.4 15875.9 0.84

Interpretation: Long term debt is increasing as compare to net worth. The Debt Equity Ratio is constantly increasing every year. In the first year the ratio was 0.27 its increase by 0.7 and reaches at 0.34 in the year of 2006-07. In the third year also its increases highly and reaches at 0.84.

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(4.4) Interest Coverage Ratio: This ratio is also known as “Time interest earned ratio”. It measures the debt servicing the capacity of firm in so far as fixed interest on long term is concerned. Interest coverage ratio = E.B.I.T. Interest TABLE-4.4 (IN MN.) PARTICULARS 2005-06 2006-07 EBIT 15804 17227.1 INTEREST 3.4 53.4 Int. Coverage Ratio 4648.24 322.60

2007-08 11295.7 51.6 218.90

Interpretation: In the first year the Interest Coverage Ratio is very high. its fall highly and reaches at 322.6 and constantly in the year 2007-08 its reaches at 218.9.

(4.5) Earning per Share (E.P.S.): xxxix

It measures the earning per equity shares. Earning Per Share

PARTICULARS NET PROFIT FOR EQT. NO. OF EQT. SHARES EPS

=

Net Profit for Equity Share Number of Equity Shares

TABLE-4.5 (IN MN.) 2005-06 2006-07 4398.6 4743.5 1012 1012 4.35 4.69

2007-08 3387.2 1447 2.34

Interpretation: On every 1 share the company is given 2.34 shares in 2007-08 but it is low. Because of decreasing EPS may be the trust of the shareholder decrease. This ratio shows the company’s performance. The ratio is 4.35 in 2005-06. Its increase and reaches at 4.69 in the next year. But in the year of 2007-08 its decrease and reaches at 2.34.

(5) VALUATION RATIOS: Valuation Ratios are the result of the management of above four categories of the functional ratios. Valuation Ratios are generally presented on a per share basis and thus are more useful to the equity investors. (5.1) Dividend pays out Ratio: xl

Dividend pay out share is the dividend paid to the equity share holders on a per share basis. Dividend Pay Out Ratio

PARTICULARS DIVIDEND PER SHARE EPS DIVIDEND PAY OUT

= Dividend per Share Earning Per Share

TABLE-5.1 (IN MN.) 2005-06 2006-07 3.99 3.99 4.35 4.69 0.91 0.85

2007-08 2.86 2.34 1.22

Interpretation: The company should decrease retained earning and start give more dividend. This ratio is good for the company. As compare with first year the ratio decrease 0.6 and reaches at 0.85 but in the year of 2007-08 effectively increase and reaches at 1.22. So we can tell that company is giving good dividend to its shareholders, but company can give more.

(5.2) Dividend yield Ratio: The ratio represents the current cash returns to the share holders. Dividend Yield Ratio

PARTICULARS DIVIDEND PER SHARE

=

Dividend per Share Average Market Price

TABLE-5.2 (IN MN.) 2005-06 2006-07 3.99 3.99

2007-08 2.86 xli

AVG. MARKET PRICE DIV. YIELD RATIO

945.20 0.0042

840.8 0.0047

639.5 0.0045

Interpretation: Because of recession period in the year of 2007-08 the average market price highly decreased. The market condition is not good in this year because of recession in America.

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Cash Flowstatement particulars

2006

2007

2008

a.Profit before taxation

100

91.46

139.28

b.Adjustment

100

-53.21

-249.72

c.Increase/(decrease) in current assets

100

11.74

167.88

Net Cash From Operation

100

62.07

166.12

a.Increase/(decrease) in subsidiary

100

-4.55

14.13

b.Increase/(decrease) in other investment

100

-72.88

1613.84

c.Capital Expenditure

100

-12.79

51.63

d.Sales Proceeds of Assets

100

0.86

46.57

e.Technical Know how

100

0.05

21.03

f.Increase/(decrease) with Joint Companies Deposites g.Investment and \Other non Operating Income Net Cash From Investment

100

0.83

61.12

100

25.64

70.85

100

62.93

-770.21

a.Cash Credit Fom Banks

100

0.00

0.01

b.Intrest On Cash Credit

100

0.00

-1.43

c.Repayment of Fixed Deposites

100

-0.05

76.00

d.Interest on Fixed Deposites

100

0.00

77.78

e.Increase in Unsecure Loans

100

13.95

198.85

Dividend Paid

100

-14.56

38.55

Net Cash From Financing

100

-0.68

2.26

Opening Balance

100

6.29

193.74

Closing Balance

100

4.75

185.72

1. Cash from operation

2.Investment activities

3.Finaning Activities

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Interpretation Here we have analyzed the cash flow statement in the part as following. 1. 2. 3.

Operating activities Investing activities Financing activities

Analysis of cash flow from operating activities

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As compare to the year of 2006-07 in the next year the operating income is highly increasing. On the other hand, invests significantly in research and development, advertising, training and working capital to support its future growth may able to generate positive cash flow from operation so the cash flow from operating activities increased in the year 2007-08.

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ANALYSIS CASH FLOW FROM INVESTING ACTIVITES

Cash flow is analyzed from investing activities to understand the company’s strategies for long term growth. It also helps to understand whether increases/ decreases in current asset and current liabilities is normal, and whether adequate explanation is available for those changes. As compare to the year of 2006-07 year its highly decreased in the year of 2007-08.

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ANALYSIS OF CASH FLOW FROM FINANCING ACTIVITIES

Financing activities involve obtaining resource from owners and providing them with a return on, and return of, their investment, borrowing money and repaying amounts borrowed, and obtaining and paying for other resources obtain from creditors on long term credit. As compare to the last year It is increased in the next year 2007-08.

LIMITATIONS OF THE ANALYSIS

1) This financial analysis carried out does not consider the effect of the opportunity cost of money. It ignores the present value and the future value of money. 2) The standards for comparison data of the other companies are not available easily. So an overall view of the analysis cannot be brought about through this analysis. 3) No information related to the effects of the external factors on the business conditions and the company policy can be obtained through this analysis. xlvii

4) The analysis carried out is based only on the past information. No one can successfully predict the future conditions and strategies based on this data. 5) Moreover at times there exists a confusion to record some of the expenses or financial terms into both different categories. So one cannot be 100 percent accurate in such analysis.

CONCLUSION A current ratio of less than 1.0 indicates that a company does not have enough current assets to cover current liabilities. The company should improve this situation. Because of liquidity problem crises may come. The gross profit of the company is good. It’s decreasing but not bad at all. Considering the liquidity position the major contributors to the company current assets are the debtors and the inventories. So a high current ratio or quick ratio does not mean that the company has sufficient liquidity. The company needs to focus more on the cash and other current assets. The EPS rate of the company is decreasing. Because of decreasing in EPS the trust of the investors may be decrease. The company should decrease the retained earning and give more dividends to the shareholders. The company is not giving 100 % dividend to the shareholders. The company is also reliable with equities. From investment on profit the company is making good returns. In the last year, company’s sales increased by 3 times.

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BIBLIOGRAPHY BOOKS AND ANNUAL REPORT: • Annual Reports of Bajaj Auto Ltd. • Book: Financial Management By: M.Y. Khan & P.K. Jain 3rd Edition The Mac-Grow Hill Publication WEB-SITES: • www.bajajauto.com • www.bseindia.com WEBLINKS: • Annual Report 2007-08: http://www.bajajauto.com/1024/download/BAJAJ_Auto.pdf • Annual Report 2006-07: http://www.bajajauto.com/1024/download/AR_2006-07.pdf • Average Market Price: http://gujarati.bseindia.com/stockreach/index.aspx? scripcd=&myScrip=bajaj

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