amd mbwd5 1128b akash agrawal

7/31/2019 AMD MBWD5 1128B Akash Agrawal

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UNIVERSITY OF WALES

AND

MANAGEMENT DEVELOPMENT INSTITUE OF SINGAPORE

SUBJECT : ACCOUNTING FOR MANAGERIAL DECISIONS

MODULE : MBWD5 1128 B

LECTURER : MR. MANEK MUKESH[

COURSE : MASTER OF BUSINESS ADMINISTRATION

ASSIGNMENT COVER SHEET

No. Name of Group Members Fin No. Signature

1 Akash Agrawal G1099793W

2 Arjun Vasu G1096085T

3 Muarlidharan Mohana Krishnan G1098021L

4 Shivam Srivastava G1101079U

Submitted on Due Date? YES (Date submitted: 9 th Dec 2011)

Submitted Soft Copy? YES (Date submitted: 9 th Dec 2011)

Word Limit Observed? YES (No of words: 3066)

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TABLE OF CONTENTS

2

CHAPTER TOPIC PAGE NO

01 Executive Summary 3

02 A Traders Perspective 4

03 A Lenders Perspective 6

04 A Direct Competitors Perspective 8

05 An Operation Managers Perspective 9

06 Information of Interest to Shareholders 11

07 Information provided on annual report 13

08 Conclusion 14

09 Screenshots 15

10 Bibliography 17


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EXECUTIVE SUMMARY:

Financial Statement analysis is the procedure of recognizing the potential strength and weakness of

the company by calculating the ratios and numbers from the balance sheets and annual reports and profit loss account. These statements declare various facts and figures of the company and provide

complete details about the assets and liabilities of the company.

Analyzing financial reports shows us the performance of the company financial figures. The

methods that can be used for analyzing the financial statements such as ratio analysis, trend

analysis. One of the major methods used is ratios which are considered the most powerful tool.

Through this report, we analyze the annual reports of the automobile companies of India who are

very close competitors. The perspectives in which the ratios were analyzed were trade supplier, theoperational manager, a direct competitor and a lender to the company.

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QUESTION 1:

1. A TRADE SUPPLIERS PERSPECTIVE

Analysis of the annual report of Bajaj Automobiles and Hero Moto Corp of the year 2010:

Ratios Formulas Bajaj Automobiles Hero MotoCorp

Quick Ratio Current Assets-InventoriesCurrent Liabilities

0.59 times 0.15 times

Working Capital Current Assets Current Liabilities -1061.51 -4640.28

Debt to AssetRatio

Total LiabilitiesTotal Assets


Debt to EquityRatio

Total LiabilitiesOwners Equity


Cash Ratio Cash + Cash EquivalentsCurrent Liabilities


As supplier I would be interested in the Growth and Solvency of the company. This would help us

to take decisions whether to continue the supply to the company which we are dealing.

Quick ratio:

Quick Ratio helps us to assess whether the company is able to meet up with its short term financial

obligations. Bajaj Automobiles has a quick ratio of 0.59 times when compared to Hero Moto

corp.s quick of 0.15 times. A high quick ratio results in more security of the company in short run.And so the company would be able to meet its short term financial obligations. Since Bajaj has

higher quick ratio As a supplier, I would be willing to supply to Bajaj rather than Hero Moto Corp.

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Working Capital:

Working capital with which Bajaj operates is -1061.51 crore rupees whereas Hero Moto Corp

operates with working capital of -4640.28 crore rupees. Since Bajaj has more number of current

assets in terms of Hero Moto Corp there is a vast difference between these two companies. Due tothis reason Bajaj is financially healthy and as a supplier I can trust Bajaj more than Hero Moto

Corp.

Debt to Asset ratio:

This ratio indicates to what extent the company has used debts for financing the organization. If

the organization has lower debt to asset ratio then the organization is said to be financially wealthy.

Bajaj has 0.47 times of debt to asset ratio when compared to Hero Moto Corps ratio of 0.56 times.

As a supplier I would be willing to supply to Bajaj since it has lower debt to asset ratio.

Debt to Equity ratio:

Bajaj has a debt to equity ratio of 0.90 times and Hero Moto Corp has debt to equity ratio of 2.9

times. It is better to have a lower debt to equity ratio because if debt to equity ratio is more than 1

than the majority of companys assets are financed through debt rather than owners equity. From

the above calculations we can see Bajaj is more reliable than Hero Moto Corp since it has a

relatively lower ratio (i.e. less than 1). So as a supplier I would prefer Bajaj because it has lower

debts.

Cash Ratio:

Cash Ratio is an indicator of companys short liquidity. It reflects the ability to effectively use its

cash or cash equivalents to pay the current financial obligations. It is better to have higher cash

ratio since it reflects paying capability. Bajaj has a cash ratio of 0.14 times and Hero Moto Corp

has ratio of 0.01 times. So as I supplier I would prefer Bajaj as it has more ability to pay its shortterm finance.

Based on the above comparisons, as a supplier it is better to supply Bajaj when compared to Hero

Moto Corp. Bajaj is more credit worthy and creditor friendly.

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2. A LENDERS PERSPECTIVE:

Analysis of the annual report of Bajaj Automobiles and Hero Moto Corp of the year 2010:

As a lender I would look at the following ratios to compare the two companies

Current ratio:

The current ratio of Bajaj Automobiles is 0.73 times is high when compared to Hero Moto Corpwhich is 0.24 times, Bajaj automobiles has a better short term financial strength when compared toHero Moto Corp.

Acid Test Ratio:

The Acid Test Ratio of the companies tells that Bajaj Automobiles has more ability to pay itscurrent liabilities through its immediate assets when compared to Hero Moto Corp. So as lender Iwould be willing to lend Bajaj when compared to Hero Moto Corp.

Debt to Equity Ratio:

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Ratios Formulas Bajaj Automobiles Hero MotoCorp

Current Ratio Current AssetsCurrent Liabilities

0.73 0.24

Acid TestRatio

Current Assets-InventoriesCurrent Liabilities


Debt to EquityRatio

Total LiabilitiesOwners Equity

0.90 2.08

Solvency Ratio Total Assets/Total Liabilities 2.106683364 0.580706596

Cash Ratio Cash + Cash EquivalentsCurrent Liabilities



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Bajaj has a debt to equity ratio of 0.90 times and Hero Moto Corp has debt to equity ratio of 2.08times. This indicates that majority of the total assets of Hero Moto Corp are financed by debtwhich is not profitable for the company. From the above calculations we can see Bajaj is morereliable than Hero Moto Corp since it has a relatively lower ratio. So as a Lender I would bewilling to supply to Bajaj as the company is more secure financially.

Solvency ratio:

This ratio indicates the probability of a company being solvent as it compares total assets held bytotal liabilities of the company. As a lender I would be willing to select Bajaj because the solvencyratio of Bajaj is far better than that of Hero Motor Corp hence the risk of bad debts is lower inBajaj.

Cash Ratio:

Cash Ratio is an indicator of companys short liquidity. It reflects the ability to effectively use itscash or cash equivalents to pay the current financial obligations. It is better to have higher cash

ratio since it reflects paying capability. Bajaj has a cash ratio of 0.14 times and Hero Moto Corp

has ratio of 0.01 times. So as Lender I would prefer Bajaj as it has more ability to pay its short

term finance.

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3. A DIRECTORS COMPETITORS PERSPECTIVE:

Analysis of the annual report of Bajaj Automobiles and LML

Ratios Formulae Bajaj Auto mobiles LML

2010-11 2008-09

Sales Revenue Available in the statementof earnings

16962.11 161.62

Net ProfitMargin

Net Profit x100Sales Revenue

22.5 -8.1

Earnings Per Share

Profit for the year Number of ordinary shares inissue

119.4 -6.4

InventoryTurnover Times

Net Sales/Inventory 27.81553145 1.68425027

Return on Sales Net Profit/Sales 0.21 -0.07

As a direct competitor the performance of the other organization is very important. I would beinterested in the liquidity and profitability of the organization

Sales Revenue: The revenue of Bajaj Automobiles is nearly 10 times higher than LML this showsthat Bajaj Automobiles are ahead of LML in terms of the sales and is a major competitor to other motorcycles manufacturers. This means that Bajaj is a tough competitor than LML.

Net Profit Margin: The ratio gives us an idea of the cash that is available after all its expenses.Bajaj Automobiles has a higher Net profit margin at 22.5% when compared to LMLs -8.1%.Bajaj Automobiles has been successful in generating a high net profit margin and it shows thecompany has good cost controlling techniques. As a direct competitor Bajaj Automobiles is amajor company to compete with.

Earnings Per Share: Shareholders of Bajaj Automobiles earn 119.4 crore rupees per share incomparison to the shareholders of LML who earn -6.4 Crore rupees per share. This can be anadvantage to attract investors to invest in Bajaj Automobiles. As a competitor we must develop our organization to attract further investments.

Inventory Turnover Times:

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Bajaj has inventory turnover ratio of 27.81 when compared to LMLs 1.68. Bajaj Automobiles hasa better inventory turnover ratio when compared to LML. It shows that Bajaj has better conversionof stock into sales and efficiently manages the inventory and sales.

Return on Sales:

Return on sales determines the profit margin and determines that the growth of the company. Sincethe return on sales for Bajaj is efficient and that of LML is is negative so from a competitors

perspective Bajaj is a stronger competitor.

4. AN OPERATIONAL MANAGERS PERSPECTIVE:

Analysis of the annual report of Bajaj Automobiles and Hero Moto Corp

Ratios Formulas Bajaj Automobiles

LML

2010-11 2008-09

Inventory

Turnover Ratio

Cost of Sales

Average Stock

27.81 1.68

Fixed AssetTurnover Ratio

Cost of Sales Net Fixed Assets

10.32 1.14

Inventory DaysHeld

Inventory x100Cost of Sales

13.12 216.71 days

Total Inventory Provided in Balance Sheet 576.25 days 92.7 days

As an operational a manager I would be interested in the following ratios to compare the two

companies.

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Inventory Turnover Ratio:

Bajaj has inventory turnover ratio of 27.81 when compared to LMLs 1.68. Bajaj Automobiles has

a better inventory turnover ratio when compared to LML. It shows that Bajaj has better conversionof stock into sales and efficiently manages the inventory.

Fixed asset turnover ratio:

Bajaj has effective utilization of fixed assets to improve the profit earning capacity of the

company. LML does not use its fixed assets properly. It is evident from the fixed assets turnover

ratio of 1.14 times comparing to 10.32 times of Bajaj. So as an operational I would support bajaj.

Inventory Days Held:

Bajaj is managing its stock better than LML. The inventory days held by Bajaj is just 13.12 days

whereas LML holds its stock for 261.71 days. So as an Operational manager I would not be

interested in LML and I would be interested in Bajaj.

Total Inventory:

The inventory days shows how fast the company can sell its products. Bajaj sells its product faster

than LML. It is evident from the Bajaj has a total inventory of 576.25 days whereas LML has atotal inventory of 92.7 days.

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QUESTION 2.1

If you owned shares in a company, what information would be of particular interest to you?

If we are the shareholders in a company we would like to analyze the annual report and financial

statements of the company in order to take decision regarding weather to hold, buy or sell the

shares held by us and also to keep a check on our Return on investment.

Earnings per Share:

= Net earnings/No. of shares . It is the most important perspective of any share holder as it

provides the information regarding the return on investment made by us. Every share holder invest

in a company to get good returns from that, hence if the EPS of our company is good than we shall

hold the shares and enjoy the profits.

Return on Capital Employed:

= EBIT/ (Total Assets-Current liability) . This ratio is very crucial from a shareholders view as

it shows the efficiency and profitability of companys capital investment. Grater the ROC of a

company, the better is its performance. Hence we can find out the performance of our company by

comparing it with the performance of other companies in the industry.

Debt Equity Ratio:

= Total Debts/Shareholders fund . The debt equity ratio defines the financial structure of the

company as it shows the ratio between total liabilities and shareholders fund. This means that if

this ratio is higher than the company is more into loans and debentures rather than self financing

which can be risky if the company does not earn sufficient profits and it also reduces the earning

per share by way of interest charges. So we will ensure that this ratio should not be more than 1.

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Solvency Ratio:

=Total Assets/Total Liabilities . This ratio indicates the probability of a company being solvent as

it compares total assets held by total liabilities of the company. As a share holder we would

observe this ratio to feel secured that in future if the company dissolves than it has enough assets to

pay off its debts and no liability comes on us.

Past Performance and Growth:

As a share holder, observance of past performance and growth is necessary in order to know

whether the company is in a growing stage or not. This will help us to estimate the future

performance of the company n help us to take decisions regarding when to hold, buy or sell the

shares.

Dividend Policy and Cash Observance: As an investor, we would like to go through the

companys dividend policy as it shows that the company is maintaining enough retained earnings

in order to meet the bad circumstances in future. Also that the company does not have excess

liquid cash to make sure that it is not misused and if it has excess cash than the company should

buy back its shares so that higher EPS is achieved.

Others;

Other important factors like Market Share, Goodwill, Contingent liabilities, Future Plans, Risk

Assessment, AGM Report, Directors Report etc, will also be observed by us as a shareholder to

make sure that our investment are making High returns and risk involved is minimum.

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Question 2.2

Do you consider that the information outlined in (i) is provided in the Annual Report of your

chosen company?

Except Goodwill(Which Cant be calculated in monetary terms practically), all other information

and ratios outlined by us in order to take decisions regarding the shareholders perspective, is

provided in the Annual Reports of the companies taken by us and this can be verified by the

information given below:

1) Earnings per share: It is provided in the annual report of all the companies chosen by us with

its method of calculation. The EPS of Bajaj Auto Limited is Rs. 119.4 , of Hero Moto Crop Ltd.

Is Rs. 100.53 while for LML Limited is Rs. -6.4 . this means that shareholders of Bajaj and

Hero are enjoying a high return on investments while the shareholders of LML had no profits

and may result to capital reduction in future.

2) Return On Capital employed: The Annual reports provide information regarding EarningsBefore Interest and Tax, total assets and current liabilities by which it becomes easy to

calculate ROC. ROC for Bajaj, Hero and LML are 0.70, 0.53 and 0.20 respectively which

indicates that Bajaj is performing much better than Hero and LML.

3) Debt Equity Ratio: The annual report helped us to calculate The Debt Equity Ratio of Bajaj,

Hero and LML which are 0.90, 2.08, 1.4 respectively. This means Bajaj is again better than

Hero and LML since its has more of self funding than through loans while the funding of Hero

and LML is more from loans and creditors which shows a higher risk involvement.

4) Solvency Ratio: The financial report also provides us with the information which is useful for

calculating Solvency Ratio. The solvency ratio of Bajaj is 2.1 for Hero is 1.75 and LML is

0.58 . This indicates that the shareholders of Bajaj are at a minimum risk as compared to that of

Hero and LML

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5) Past Performance and Growth: The Companys past performance and growth can also be

observed by reading the annual reports of all the three companies. The reports shows balance

sheet of present n previous years along with many graphical data of last 5 years.

6) Dividend Policy and cash observance: This information can also be found in the annual reports

of all the three companies by looking into its Balance sheet and Income Statement.

7) Others: All the other information like Market Share, Contingent liabilities, Future Plans, Risk

Assessment, AGM Report, Directors Report except Goodwill is available in annual reports and Audit

Report of these companies. However the annual report of LML does not provide with the

information of its market share and future plans.

CONCLUSION

As a shareholder (Potential) it can be concluded from above data that investing in Bajaj Auto Ltd.

is much more better than the other two companies since it provides higher returns with low risk.

The Shareholders (Existing) of Bajaj should continue to hold its share for long term benefits and

continue to invest in this company, while the shareholders of Hero must also hold the shares but

must observe the companys performance carefully as the risk level is a bit high and the

shareholders of LML Ltd. Must sell out there shares as soon as possible to avoid further losses in

future. However our conclusion may not be the accurate conclusion as it is just the observance of

Annual reports and ratios which provides just a better understanding of the companys workings

and its financial statement. Hence it can be said that this conclusion is just an estimate of future

performance of the company based on its past and present performance.

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Workings Screenshots:

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Bibliography:

Atrill P and Mclaney E (2008), Accounting and Finance For Non-Specialists, 6th Edition, Pearson

Education Limited, London.

Rice A (2003), Accounts Demystified: How to Understand Financial Accounting and Analysis, 4th

Edition, Prentice Hall Business, London.

Annual Report of Hero Moto Corp of 2010 2011 from

http://www.heromotocorp.com/hero_admin/data_content/pdf/annual_report/Annual_Re

port_2010-11.pdf

Annual Report of LML ltd 2008 2009 from

http://lmlworld.com/Pdf/Annual%20Report%202008-09-LML.pdf

Annual Report of Bajaj Auto ltd of 2010 2011 from

http://www.bajajauto.com/report/BAL_AR_2010-11.pdf

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http://www.heromotocorp.com/hero_admin/data_content/pdf/annual_report/Annual_Report_2010-11.pdfhttp://www.heromotocorp.com/hero_admin/data_content/pdf/annual_report/Annual_Report_2010-11.pdfhttp://lmlworld.com/Pdf/Annual%20Report%202008-09-LML.pdfhttp://www.bajajauto.com/report/BAL_AR_2010-11.pdfhttp://www.heromotocorp.com/hero_admin/data_content/pdf/annual_report/Annual_Report_2010-11.pdfhttp://www.heromotocorp.com/hero_admin/data_content/pdf/annual_report/Annual_Report_2010-11.pdfhttp://lmlworld.com/Pdf/Annual%20Report%202008-09-LML.pdfhttp://www.bajajauto.com/report/BAL_AR_2010-11.pdf

amd mbwd5 1128b akash agrawal

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