REPORT ON FINANCIAL STATEMENT ANALYSIS OF MARUTI UDYOG LTD.

BY <STUDENT NAME> ROLL NO: REG. No:

A PROJECT REPORT

Submitted to the FACULTY OF MANAGEMENT SCIENCES In the partial fulfillment for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION

CENTER FOR DISTANCE EDUCATION ANNAMALAI UNIVERSITY CHIDAMBARAM JUN 2011

BONAFIDE CERTIFICATE Certified that the Project report titled

_______________________________________________is the bonafide work of Mr. / Ms.

_____________________________________________who carried out the work under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

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: Mr.VENKATESWARAN : :

Signature of the M.Kumarasamy Professor and Head Address

Signature of Project in-charge Name (Capital) Designation:

Certificate of Viva-voce-Examination This is to certify that Thiru/Ms./Tmt. ... (Roll No. ; Register No. ..) has been subjected to Viva-voce-Examination on (Date) at ..(Time) at the study center .. .. (Name and Address of the Study centre).

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ACKNOWLEDGEMENTS

It is my pleasure to express my grateful affection and thanks to all those who have wholeheartedly contributed to the successful completion of the study. First and foremost, I take this chance to give the LORD ALMIGHTY all the glory, honor and praise for his divine grace upon my life throughout this research work. I also express my sincere thanks to HOD/PRINCIPAL etc for permitting me to do this course. I am immensely indebted to Name, qualification, Department Sociology wing whose guidance and supervision acted as an incentive throughout my effort to complete this work. I express my sincere thanks to All the Staff Members, of the Department for their motivation and support. I also thank Mr. Name, Agency Supervisor, ______ district for over all support and documentation of my study. I thank all the respondents for their participation and patience during my date collection. This acknowledgement would be incomplete without a word of thanks to my parents and siblings for their everlasting support.

TABLE OF CONTENTS

INTRODUCTION ...........................................................................................................................6 THEORITICAL FRAMEWORK...................................................................................................15 METHODOLOGY..........................................................................................................................45 COMPANY PROFILE...................................................................................................................56 FINANCIAL SUMMARY OF MARUTI UDYOG LTD..............................................................60 BALANCE SHEET........................................................................................................................62 CASH FLOW STATEMENT.........................................................................................................64 KEY RATIOS.................................................................................................................................68 ANALYSIS AND INTERPRETATION OF KEY RATIOS.........................................................71 CONCLUSION ..............................................................................................................................73 REFERENCES ...............................................................................................................................74

INTRODUCTION
Meaning of Financial Analysis is to classify the data in simple form given in financial statements and to compare with each other to find out the strong points and weakness of the business and to take decisions for future. For instance, if all items relating to current assets are placed in one group while all items relating to current liabilities are placed in another group, the comparison between the two groups will provide useful information. Actually the figures given in financial statements do not speak anything themselves. The analysis of these figures helps the interested reader by giving tongue to these mute heaps of figures. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. In the words of Finney and Miller: Financial analysis consists in separating facts according to some definite plan, arranging them in groups according to certain circumstances and then presenting them in a convenient and easily read and understandable form.

In the words of John N. Myres: Financial statement analysis is largely a study of relationships among the various financial factors in a business, as disclosed by a single set of statements and a study of the trends of these factors as shown in a series of statements. Tools and Techniques of Financial Statement Analysis: Following are the most important tools and techniques of financial statement analysis: Ratio analysis: Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. Meaning of ratio: A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each

other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure

ratio or in absolute figures as so many times. As accounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements. Meaning of ratio analysis: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool. This technique is called cross-sectional analysis . Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group.

Objective of Ratios Ratio is work out to analyze the following aspects of business organizationA. Solvency1) Long term 2) Short term 3) Immediate B. Stability C. Profitability D. Operational efficiency E. Credit standing F. Structural analysis G. Effective utilization of resources H. Leverage or external financing Forms of ratio: Since a ratio is a mathematical relationship between to or more variables / accounting figures, such relationship can be expressed in different ways as follows A] As a pure ratio:

For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1. B] As a rate of times:

In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs. 30,00,000. sothe ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales are 2.5 times that of cash sales.

C]

As a percentage:

In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is R s . 1 0 , 0 0 , 0 0 0 , t h e n t h e g r o s s p r o f i t m a y b e d e s c r i b e d a s 2 0 % o f s a l e s [ 10,00,000/50,00,000] STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industrys average ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself. TYPES OF COMPARISONS The ratio can be compared in three different ways 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firms financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. The firms performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies. The cross section analysis is easy to be undertaken as most of the data required for this may be available

in financial statement of the firm. 2] Time series analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress of the firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data\ 3] Combined analysis: If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For example, the ratio of operating expenses to net sales for firm may be higher than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes.

The combined analysis as depicted in the above diagram, which clearly shows that the ratio of the firm is above the industry average, but it

is decreasing over the years & is approaching the industry average. PRE-REQUISITIES TO RATIO ANALYSIS In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-requisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered. 1) The dates of different financial statements from where data is taken must be same. 2) If possible, only audited financial statements should be considered, otherwise there must be sufficient evidence that the data is correct. 3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted. 4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks. 5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio must be related to each other, calculating a ratio. otherwise there is no purpose of

CLASSIFICATION OF RATIO CLASSIFICATION OF RATIO

BASED ON FINANCIAL STATEMENT

BASED ON FUNCTION BASED ON USER

1]BALANCE SHEET RATIO 2]REVENUE STATEMENT RATIO 3]COMPOSITE RATIO 4] RATIO FOR LONG TERM CREDITORS

1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY RATIO 5] COVERAGE RATIO

1] RATIOS FOR SHORT TERM CREDITORS 2] RATIO FOR SHAREHOLDER 3] RATIOS FOR MANAGEMENT

THEORITICAL FRAMEWORK
Financial statements (or financial reports) are formal records of a business' financial activities. In British English, including United Kingdom company law, financial statements are often referred to as accounts, although the term financial statements is also used, particularly by accountants. Financial statements provide an overview of a business' financial condition in both short and long term. There are four basic financial statements: 1. Balance sheet: also referred to as statement of financial position or condition, reports on a company's assets, liabilities and net equity as of a given point in time. 2. Income statement: also referred to as Profit and Loss statement (or a "P&L"), reports on a company's results of operations over a period of time. 3. Statement of retained earnings: explains the changes in a company's retained earnings over the reporting period. 4. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities.

For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.

Purpose of financial statements The objective of financial statements is to provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis are then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's report to its stockholders, as it form part of its Annual Report. Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings. 2. External Users: are potential investors, banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons.

Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used

by investors and is prepared by professionals (financial analysts), thus providing them with the basis in making investment decisions.

Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures.

Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company.

Media and the general public are also interested in financial statements for a variety of reasons

BASED ON FINANCIAL STATEMENT Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio. 2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio. 3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios.

3] Activity ratios: It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios. 4] Profitability ratios: a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios b) It shows the relationship between profit & investment e.g. return on investment, return on equity capital. 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios. BASED ON USER: 1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund, return on equity capital

3] Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios 4] Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor ratios.

LIQUIDITY RATIO: -Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio,

Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

CURRENT RATIO Meaning: This ratio compares the current assests with the current liabilities. It is also known as working capital ratio or solvency ratio. It is expressed in the form of pure ratio. E.g. 2:1 Formula : Current assets Current ratio = Current liabilities The current assests of a firm represents those assets which can be, in the ordinary course of business, converted into cash within a short period time, normally not exceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met, as originally contemplated, with in a year. Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL).

Current assets include cash and bank balances; inventory of raw materials, for bad and semifinished and finished goods; marketable securities; debtors (net of provision

doubtful debts); bills receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its shortterm debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within approximately twelve months with liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is under utilizing its current assets. LIQUID RATIO: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1. The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value. Formula: Quick assets Liquid ratio =

Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments. CASH RATIO Meaning: This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities

Since cash and bank balances and short term marketable securities are the most liquid assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:Meaning: Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per share are determined by dividing net profit by the number of equity shares. EPS measures the profits available to the equity shareholders on each share held. Formula: NPAT Earning per share = Number of equity share The higher EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business

DIVIDEND PER SHARE:Meaning: DPS shows how much is paid as dividend to the shareholders on each share held. Formula: Dividend Paid to Ordinary Shareholders Dividend per Share Number of Ordinary Shares =

DIVIDEND PAYOUT RATIO:Meaning: Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders.

Formula: Dividend per share Dividend Pay out ratio = ___________________ *100 Earning per share D/P ratio shows the percentage share of net profits after taxes and after preference dividend has been paid to the preference equity holders. GEARING

CAPITAL GEARING RATIO:Meaning: Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio. Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus Capital gearing ratio indicates the proportion of debt & equity in the

financing of assets of a concern. PROFITABILITY These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin. GROSS PROFIT RATIO:- Meaning: This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit.

Formula: Gross profit Gross profit ratio Net sales NET PROFIT RATIO:Meaning: =* 100

Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage. Formula: NPAT Net profit ratio = ______ * 100 Net sales This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm.

RETURN ON CAPITAL EMPLOYED:Meaning: The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized.

Formula: NPAT Return on capital employed = Capital employed *100

FINANCIAL These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets. The important turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described below:

DEBTORS TURNOVER RATIO (DTO) Meaning: DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's credit sales are the gross credit Average debtors are the average of debtors DTO, the better it is for the organization. Formula: Credit sales Debtors turnover Average debtors ratio = debts. Net sales minus returns, if any, from customers. at the beginning and at the end collected. The higher the

of the year. This ratio shows how rapidly debts are

INVENTORY OR STOCK TURNOVER RATIO (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period. Formula: COGS Stock Turnover Ratio = Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. turnover may also result from a low level of outs and loss of sales and However, a high inventory

inventory, which may lead to frequent stock

customer goodwill. For calculating ITR, the average of

inventories at the be

beginning and the end of the year is taken. In general, averages may used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories). FIXED ASSETS TURNOVER (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. Formula: Net sales Fixed assets turnover = Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).

PROPRIETORS RATIO: Meaning: Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company. In other words, Proprietary ratio determines as to what extent the owners interest & expectations are fulfilled from the total investment made in the

business operation. Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the form of percentage. Total assets also know it as net worth. Formula: Proprietary fund Proprietary ratio = _________________ OR Total fund Shareholders fund Proprietary ratio = Fixed assets + current liabilities

STOCK WORKING CAPITAL RATIO: Meaning: This ratio shows the relationship between the closing stock & the working capital. It helps to judge the quantum of inventories in relation to the working capital of the business. The purpose of this ratio is to show the extent to which working capital is blocked in inventories. The ratio highlights the predominance of stocks in the current financial position of the company. It is expressed as a percentage. Formula: Stock Stock working capital ratio =

Working Capital Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of the working capital. This ratio also helps to study the solvency of a concern. It is a qualitative test of solvency. It shows the extent of funds blocked in stock. If investment in stock is higher it means that the amount of liquid assets is lower. DEBT EQUITY RATIO: MEANING: This ratio compares the long-term debts with shareholders fund. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1

Formula: Total long-term debt Debt equity ratio = Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the equity shareholders return through the use of debt. Leverage is also known as gearing or trading on equity. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity.

RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as return on proprietors equity or return on shareholders investment or investment ratio. This ratio indicates the relationship between net profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the concern is in managing the owners fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Formula: NPAT Return on proprietors fund = ____________________ * 100 Proprietors fund CREDITORS TURNOVER RATIO: It is same as debtors turnover ratio. It shows the speed at which payments are made to the supplier for purchase made from them. It is a relation between net credit purchase and average creditors Net credit purchase Credit turnover ratio Average creditors =

Months in a year

Average

age

of

accounts

payable = Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors.

IMPORTANCE OF RATIO ANALYSIS: As a tool of financial management, ratios are of crucial

significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: 1] Liquidity position, 2] Long-term solvency, 3] Operating efficiency, 4] Overall profitability, 5] Inter firm comparison 6] Trend analysis. 1] LIQUIDITY POSITION: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be

satisfactory if it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit analysis by bank & other suppliers of short term loans.

2] LONG TERM SOLVENCY: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The long-term solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power & operating efficiency. Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved. 3] OPERATING EFFICIENCY: Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets. The various activity ratios measures this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets- total as well as its components.

4] OVERALL PROFITABILITY: Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the management is constantly concerned about overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken & all the ratios are considered together. 5] INTER FIRM COMPARISON: Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to remedial measures. This is made possible due to inter firm comparison & comparison with the industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter firm comparison would demonstrate the firms position viceversa its competitors. If the results are at variance either with the industry average or with the those of the competitors, the firm can seek to identify the probable reasons & in light, take remedial measures. 6] TREND ANALYSIS: Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a

declining one. ADVANTAGES OF RATIO ANALYSIS Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows: > Ratios facilitate conducting trend analysis, which is important for decision making and forecasting. > Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and solvency of a firm. > Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. > The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm. LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. These limitations are

described below: 1] Information problems

Ratios require quantitative information for analysis but it is not decisive

about analytical output.

The figures in a set of accounts are likely to be at least several months

out of date, and so might not give a proper indication of the companys current financial position.

Where historical cost convention is used, asset valuations in the balance

sheet could be misleading. Ratios based on this information will not be very useful for decision-making.

When comparing performance over time, there is need to consider the

changes in price. The movement in performance should be in line with the changes in price.

When comparing performance over time, there is need to consider the

changes in technology. The movement in performance should be in line with the changes in technology.

Changes in accounting policy may affect the comparison of results

between different accounting years as misleading.

3] Inter-firm comparison

Companies may have different capital structures and to make

comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis.

Selective application of government incentives to various companies

may also distort intercompany comparison. Comparing the performance of two enterprises may be misleading.

Inter-firm comparison may not be useful unless the firms compared are

of the same size and age, and employ similar production methods and accounting practices.

Even within a company, comparisons can be distorted by changes in

the price level.

Ratios

provide

only

quantitative

information,

not

qualitative

information.

Ratios are calculated on the basis of past financial statements. They

do not indicate future trends and they do not consider economic conditions.

PURPOSE OF RATIO ANLYSIS: 1] To identify aspects of a businesss performance to aid decision making 2] Quantitative process may need to be supplemented by qualitative Factors to get a complete picture. 3] 5 main areas: Liquidity the ability of the firm to pay its way Investment/shareholders investment Gearing information on the relationship between the exposure of the business to loans as opposed to share capital Profitability how effective the firm is at generating profits given sales and or its capital assets Financial the rate at which the company sells its stock and the efficiency with which it uses its assets information to enable decisions to be

made on the extent of the risk and the earning potential of a business

ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure & information, which is already appearing in the financial statement. At the same time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance, either individually or in relation to those of other

firms in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something, as the ratio all by them do not mean anything. This comparison may be in the form of intra firm comparison, inter firm comparison or comparison with standard ratios. Thus proper comparison of ratios may reveal where a firm is placed as compared with earlier period or in comparison with the other firms in the same industry. Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning & control. As the future is closely related to the immediate past, ratio calculated on the basis of historical financial statements may be of good assistance to predict the future. Ratio analysis also helps to locate & point out the various areas, which need the management attention in order to improve the situation. As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity, solvency, activity, profitability & overall performance, it enables the interested persons to know the financial & operational characteristics of an organisation & take the suitable decision. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form as has been done in the example below. Showing changes in dollar form helps the analyst focus on key factors t hat have affected profitability or financial position. Observe in the example that sales for 2002 were up $4 million over 2001, but that this increase in sales was more than negated by a $4.5million increase in cost of goods sold. Showing changes between years in percentage form helps the analyst to gain perspective and to gain a feel for the significance of the changes that are taking place. For example a $1 million increase in sales is much more significant if the prior year's sales were $2 million than if the prior year's sales were $20 million. In

the first situation, the increase would be 50% that is undoubtedly a significant increase for any firm. In the second situation, the increase would be 5% that is just a reflection of normal progress.

METHODOLOGY
Example of Horizontal or Trend Analysis: Balance Sheet: Maruti Udyog Limited, Published date: 2003 Comparative Balance Sheet (dollars in thousands) Increase 2002 Assets Current Assets: Cash Accounts receivable Inventory Prepaid Expenses Total current assets Property and equipment: Land Building Total property and equipment Total assets Liabilities and Stockholders' $1,200 6,000 8,000 300 ---------$15,500 ----------4,000 12,000 ----------16,000 ---------31,500 ====== 2001 $2,350 4,000 10,000 120 ----------$16,470 ----------4,000 8,500 ----------12,500 ----------28,970 ====== (Decrease) Amount Percent $(1,150)* 2000 (2000) 180 ---------(970) ---------0 3,500 ---------3,500 ---------2,530 ====== (48.9)% 50% (20.0)% 150.0% ---------(5.9)% --------0% 41.2% 28% --------8.7% ====== December 31, 2002, and 2001

Equity Current liabilities: Accounts payables Accrued payables Notes payables Total current liabilities Long term liabilities: Bonds payable 8% Total long term liabilities

$5,800 900 300 ---------7,000 ---------7,500 ---------7,500 ----------

$4,000 400 600 ---------5,000 ---------8,000 ---------8,000 ----------

1800 500 (300) ----------2,000 ---------(500) ---------(500) ----------

45% 125% (50%) --------40% ----------(6.3)% ---------6.3% ----------

Total Liabilities $14,500 Stock holders equity: Preferred stock, 100 par, 6%, $100 $2,000 liquidation value Common stock, $12 par 6,000 Additional paid in capital 1,000 ---------Total paid in capital 9,000 Retained earnings 8,000 ---------Total stockholders' equity 17,000 ---------Total liabilities and stockholders' $31,500 equity =====

13,000 $2,000 6,000 1,000 ---------9,000 6,970 ---------15,970 ---------$28,970

1,500 0 0 0 --------0 1,030 ---------1,030 ---------$2,530

(11.5)% 0% 0% 0% -------0% 14.8% ---------6.4% --------8.7%

====== ====== ======

*Since we are measuring the change between 2001 and 2002, the dollar amounts for 2001 become the base figure for expressing these changes in percentage form. For example, cash decreased by figures $1,150 between 2001 and 2002. This decrease expressed in percentage form is computed as follows: $1,150 $2,350 = 48.9% Other percentage figures in this example are computed by the same formula.

Income Statement: Maruti Udyog Limited, Published date: 2003 Comparative income statement and reconciliation of retained earnings For the year ended December 31, 2002, and 2001 (dollars in thousands) Increase 2002 $52,000 36,000 -----------16,000 -----------2001 $48,000 31,500 -----------16,500 -----------(Decrease) Amount Percent $4,000 8.3% 4,500 14.3% ------------ ----------(500) (3.0)% ------------ ------------

Sales Cost of goods sold Gross margin

Operating expenses: Selling expenses Administrative expense Total operating expenses Net operating income Interest expense Net income before taxes Less income taxes (30%) Net income Dividends to preferred stockholders,

7,000 5,860 -----------12,860 -----------3,140 640 -----------2,500 750 -----------1,750

6,500 6,100 -----------12,600 -----------3,900 700 -----------3,200 960 -----------2,240

500 (240) -----------260 -----------(760) (60) -----------(700) (210) -----------$ (490) ======

7.7% (3.9)% -----------2.1% -----------(19.5)% (8.6)% -----------(21.9)% (21.9)% -----------21.9%

$6 per share (see balance sheet120 above) -----------Net income remaining for common1,630 stockholders Dividend to common stockholders,600 $1.20 per share Net income added -----------to retained1,030

120 -----------2,120 600 -----------1,520 5,450 -----------$ 6,970 ====== =

earnings Retained earnings, beginning of year 6,970 -----------Retained earnings, end of year $ 8,000 ====== =

Horizontal analysis of financial statements can also be carried out by computing trend percentages. Items on income statement Operating section

Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or

other activities that constitute the entity's ongoing major operations. Usually presented as sales minus sales discounts, returns, and allowances.

Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.
o

General and administrative expenses (G & A) - represent expenses to manage the business (officer salaries, legal and professional fees, utilities, insurance, depreciation of office building and equipment, stationery, supplies) Selling expenses - represent expenses needed to sell products (e.g., sales salaries and commissions, advertising, freight, shipping, depreciation of sales equipment) R & D expenses - represent expenses included in research and development Depreciation - is the charge for a specific period (i.e. year, accounting period) with respect to fixed assets that have been capitalised on the balance sheet.

Non-operating section

Other revenues or gains - revenues and gains from other than primary business activities (e.g. rent, patents). It also includes unusual gains and losses that are either unusual or infrequent, but not both (e.g. sale of securities or fixed assets).

Other expenses or losses - expenses or losses not related to primary business operations.

Irregular items

They are reported separately because this way users can better predict future cash flows - irregular items most likely won't happen next year. These are reported net of taxes.

Discontinued operations is the most common type of irregular items. Shifting business location, stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations.

Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected nature disaster, expropriation, prohibitions under new regulations. Note: natural disaster might not qualify depending on location (e.g. frost damage would not qualify in Canada but would in the tropics).

Changes in accounting principle is, for example, deciding to depreciate an investment property that has previously not been depreciated. However, changes in estimates (e.g. estimated useful life of a fixed asset) do not qualify.

CASH FLOW Cash flow is a term that refers to the amount of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used to evaluate the state or performance of a business or project. to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable. to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value. Tto examine income or growth of a business when it is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to 'validate' the net income generated by accrual accounting.

Cash flow as a generic term may be used differently depending on context, and certain cash flow definitions may be adapted by analysts and users for their own uses. Common terms (with relatively standardized definitions) include operating cash flow and free cash flow. Classification Cash flows can be classified into: Operational cash flows: Cash received or expended as a result of the company's core business activities. Investment cash flows: Cash received or expended through capital expenditure, investments or acquisitions. Financing cash flows: Cash received or expended as a result of financial activities, such as receiving or paying loans, issuing or repurchasing stock, and paying dividends. All three together are necessary to reconcile the beginning cash balance to the ending cash balance. Benefits from using Cash flow The cash flow statement is one of the four main financial statements of a company. The cash flow statement can be examined to determine the shortterm sustainability of a company. If cash is increasing (and operational cash flow is positive), then a company will often be deemed to be healthy in the shortterm. Increasing or stable cash balances suggest that a company is able to meet its cash needs, and remain solvent. This information cannot always be seen in the income statement or the balance sheet of a company. For instance, a company may be generating profit, but still have difficulty in remaining solvent. The cash flow statement breaks the sources of cash generation into three sections: operational cash flows, investing, and financing. This breakdown allows the user of financial statements to determine where the company is deriving its

cash for operations. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares, or raising additional debt finance. Companies that have announced significant writedowns of assets, particularly goodwill, may have substantially higher cash flows than the announced earnings would indicate. For example, telecoms firms that paid substantial sums for 3G licenses or for acquisitions have subsequently had to write-off goodwill, that is, indicate that these investments were now worth much less. These write-downs have frequently resulted in large announced annual losses, such as Vodafone's announcement in May 2006 that it had lost 21.9 billion due to a writedown of its German acquisition, Mannesmann, one of the largest annual losses in European history. Despite this large "loss", which represented a sunk cost, Vodafone's operating cash flows were solid: "Strong cash flow is one of the most attractive aspects of the cellphone business, allowing operators like Vodafone to return money to shareholders even as they rack up huge paper losses. In certain cases, cash flow statements may allow careful analysts to detect problems that would not be evident from the other financial statements alone. For example, WorldCom committed an accounting fraud that was discovered in 2002; the fraud consisted primarily of treating ongoing expenses as capital investments, thereby fraudulently boosting net income. Use of one measure of cash flow (free cash flow) would potentially have detected that there was no change in overall cash flow (including capital investments Balance Sheet In financial accounting, a balance sheet or statement of financial position is a summary of the value of all assets, liabilities and Ownership equity for an organization or individual on a specific date, such as the end of its financial year.

A balance sheet is often described as a "snapshot" of a company's financial condition on a given date.[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time, instead of a period of time. A company balance sheet has three parts: assets, liabilities and shareholders' equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the net assets or the net worth of the company. According to the accounting equation, net worth must equal assets minus liabilities. Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A simple business operating entirely in cash could measure its profits by simply withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, real businesses are not paid immediately; they build up inventories of goods to sell and they acquire buildings and equipment. In other words: businesses have assets and so they could not, even if they wanted to, immediately turn these into cash at the end of each period. Real businesses also owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities. Types of balance sheets A balance sheet summarizes an organization or individual's asset, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report. Large businesses also may prepare balance sheets for segments of their businesses. A balance sheet is often presented alongside one for a different

point in time (typically the previous year) for comparison. Personal balance sheet A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due or overdue, and long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and total liabilities. Small business balance sheet A small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.

Corporate balance sheet structure Guidelines for corporate balance sheets are given by the International Accounting Standards Committee and numerous country-specific organizations. Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses. If applicable to the business, summary values for the following items should be included on the balance sheet: Assets Current assets inventories accounts receivable

cash and cash equivalents Long-term assets property, plant and equipment investment property, such as real estate held for investment purposes intangible assets financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents) investments accounted for using the equity method Biological Assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.

Liabilities accounts payable provisions for warranties or court decisions financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds liabilities and assets for current tax deferred tax liabilities and deferred tax assets minority interest in equity issued capital and reserves attributable to equity holders of the parent company

Equity The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance

of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual. numbers of shares authorised, issued and fully paid, and issued but not fully paid 1. par value of shares 2. reconciliation of shares outstanding at the beginning and the end of the period 3. description of rights, preferences, and restrictions of shares 4. treasury shares, including shares held by subsidiaries and associates 5. shares reserved for issuance under options and contracts 6. a description of the nature and purpose of each reserve within owners' equity

COMPANY PROFILE
"Count on Us" - Maruti Suzuki Maruti Udyog Ltd. (MUL) is the first automobile company in the world to be honoured with an ISO 9000:2000 certificate. The company has a joint venture with Suzuki Motor Corporation of Japan. It is said that the company takes only 14 hours to make a car. Few of the popular models of MUL are Alto, Baleno, Swift, Wagon-R and Zen. Quick facts Year of Establishment Vision Industry Listings & its codes February 1981 "The Leader in The Indian Automobile Industry, Creating Customer Delight and Shareholder's Wealth; A pride of India." Automotive - Four Wheelers BSE - Code: 532500 NSE - Code: MARUTI Bloomberg: MUL@IN Joint Venture Registered & Corporate Office Reuters: MRTI.BO With Suzuki Motor Company, now Suzuki Motor Corporation, of Japan in October 1982. 11th Floor, Jeevan Prakash 25, Kasturba Gandhi Marg New Delhi - 110001, India Tel.: +(91)-(11)-23316831 (10 lines) Fax: +(91)-(11)-23318754, 23713575 Works Telex: 031-65029 MUL IN Palam Gurgaon Road Gurgaon -122015 Haryana, India Website Tel.: +(91)-(124)-2340341-5, 2341341-5 www.marutiudyog.com

Milestones 1981 1982 1983 1984 1985 1986 1987 1988 1992 1994 1995 1996 1997 1998 1999 2000

Maruti Udyog Ltd. was incorporated. Steped into a JV with SMC of Japan. Maruti 800, a 796 cc hatchback, India's first affordable car was produced. Installed capacity reached 40,000 units. Omni, a 796 cc MUV was in production. Launch of Maruti Gypsy (970cc, 4WD off-road vehicle). Produced 100,000 vehicles (cumulative production). Exported first lot of 500 cars to Hungary. Installed capacity increased to 100,000 units. SMC increases its stake to 50 per cent. Produced the 1 millionth vehicle since the commencement of production. Second plant launched, the installed capacity reached 200,000 units. Launch of 24-hour emergency on-road vehicle service. Produced the 2 millionth vehicle since the commencement of production. Launch of website as part of CRM initiatives. Launch of Maruti - Suzuki innovative traffic beat in Delhi and Chennai as social initiatives. IDTR (Institute of Driving Training and Research) launched jointly with Delhi government to promote safe driving habits. Launch of customer information centers in Hyderabad, Bangalore, and Chennai. SMC increases its stake to 54.2 per cent. Launch of Maruti Finance with 10 finance companies in Mumbai.

2001 2002

2003

Start of Maruti True value in Mumbai. Production of 4 millionth vehicle.

Listed on BSE and NSE after a public issue oversubscribed 10 times. Maruti closed the financial year 2003-04 with an annual sale of 472122 units, the highest ever since the company began operations 20 years ago.

2004

2005

The fiftieth lakh car rolls out in April, 2005.

Profile Maruti Udyog Limited (MUL), established in 1981, had a prime objective to meet the growing demand of a personal mode of transport, which is caused due to lack of efficient public transport system. The incorporation of the company was through an Act of Parliament.

Suzuki Motor Company of Japan was chosen from seven other prospective partners worldwide. Suzuki was due not only to its undisputed leadership in small cars but also to commitments to actively bring to MUL contemporary technology and Japanese managementpractices.

A license and a Joint Venture agreement were signed between Government of India and Suzuki Motor Company (now Suzuki Motor Corporation of Japan) in Oct 1982. The objectives of MUL then are as cited below:

Modernization of the Indian Automobile Industry. Production of fuel-efficient vehicles to conserve scarce resources. Production of large number of motor vehicles which was necessary

for economic growth. In 2001, MUL became one of the first automobile companies, globally, to be honoured with an ISO 9000:2000 certificate. The production/ R&D is spread across 297 acres with 3 fully-integrated production facilities. The MUL plant has already rolled out 4.3 million vehicles. The fact says that, on an average two vehicles roll out of the factory in every single minute. The company takes approximately 14 hours to make a car. Not only this, with range of 11 models in 50 variants, Maruti Suzuki fits every car-buyer's budget and any dream.

FINANCIAL SUMMARY OF MARUTI UDYOG LTD.

Profit & Loss account (Rs. m) Year-end March Total revenues YoY growth (%) Operating expenses Raw material expenses Excise and taxes Trading purchases Salaries and wages Manufactur ing expenses Managerial remunarati on Mar03 110,474 23.0 101,169 70,265 Mar04 133,357 20.7 119,295 85,174 Mar05 147,531 10.6 131,265 92,170 Mar06 169,996 15.2 150,548 105,529 Mar07 192,764 13.4 170,278 119,376

19,384 0 2,975 8,545

23,807 0 1,960 8,354

27,009 0 2,287 9,799

31,187 0 2,766 11,065

35,372 0 3,137 12,393

Operating profit YoY growth (%) Operating margin (%) Treasury income EBDITA EBDITA margin (%) Depreciatio n EBIT EBIT margin (%) Interest Pre-tax profit Pre-tax margin (%) Tax provision Effective tax rate (%) Adjusted net profit YoY growth (%)

9,305 145.2 8.4 3,777 13,081 11.4 4,949 8,132 7.1 434 7,698 6.7 2,277 29.6 5,421 270.4

14,062 51.1 10.5 3,914 17,976 13.1 4,568 13,408 9.8 360 13,047 9.5 4,513 34.6 8,535 57.4

16,266 15.7 11.0 4,292 20,558 13.5 2,854 17,704 11.7 204 17,500 11.5 5,609 32.1 11,890 39.3

19,448 19.6 11.4 4,500 23,948 13.7 3,487 20,461 11.7 376 20,387 11.7 6,524 32.0 13,863 16.6

22,486 15.6 11.7 4,700 27,186 13.8 4,525 22,661

344 22,617 11.5 7,237 32.0 15,380 10.9

+(-) Extraordinary Inc/(Exp) Reported net profit

5,421

8,535

11,890

13,863

15,380

BALANCE SHEET
Year-end March Equity capital Reserves and surplus Shareholder s funds Secured loans Unsecured loans Long term loans Net deferred tax liability Minority interest Capital employed Mar03 1,445 34,467 35,912 3,119 0 3,119 1,833 0 40,864 Mar04 1,445 42,343 43,788 3,076 0 3,076 1,100 0 47,964 Mar05 1,445 53,081 54,526 717 0 717 779 0 56,022 Mar06 1,445 65,781 67,226 17 0 17 779 0 68,022 Mar07 1,445 79,997 81,442 17 0 17 779 0 82,238

Gross fixed assets Less accumulated depreciation Add capital work in progress Net fixed assets Investments Current assets loans/Advan ces Inventory Sundry debtors Cash and bank Loans and advances Other current assets Current liabilities and provisions Current liabilities

45,667 27,359

50,531 31,794

49,546 32,594

65,796 36,081

83,796 40,606

749

421

920

19,057 16,773 20,189

19,158 15,166 29,720

17,872 20,512 37,496

29,715 20,512 39,942

43,190 28,032 35,440

4,398 6,894 2,402 5,744 751

6,666 5,995 10,294 6,082 683

8,812 6,548 14,016 7,662 458

8,963 7,579 16,578 6,423 400

10,139 8,595 9,806 6,500 400

15,318

16,080

19,858

22,147

24,423

12,114

12,188

15,058

17,347

19,623

Provisions Net current assets Miscellaneou s expenditure Capital deployed

3,204 4,871 163

3,892 13,640 0

4,800 17,638 0

4,800 17,795 0

4,800 11,016 0

40,864

47,964

56,022

68,022

82,238

CASH FLOW STATEMENT

Year-end March Net profit before tax extraordinary items Depreciatio n Interest expense Interest income Dividend Mar03 7,698 Mar04 13,049 Mar05 17,500 Mar06 20,387 Mar07 22,617

4,949 457 (761) (723)

4,568 339 (633) (792)

2,854 204 (1,069) (720)

3,487 376 0 0

4,525 344 0 0

income Provisions no longer required written back Provisions for contingenci es Provisions for doubtful debts and advances Deferred revenue expenditur e incurred Others Operating cash flow (Inc)/Dec in inventory (Inc)/Dec in debtors (Inc)/Dec in loans and advances/O CA Inc/(Dec) in trade and payables (826) (562) (54) 0 0

32

10

724

163

9 11,527 473 (204) (232)

108 16,272 (2,267) 899 (215)

120 18,845 (2,146) (553) (1,301)

0 23,948 (151) (1,031) 1297

0 27,186 (1,176) (1,017) (77)

1,130

1,052

3,185

2,289

2,276

Operating free cash flow Direct taxes (Inc)/Dec in capex Investment Others Free cash flow Inc/(Dec) in equity capital Proceeds of short term borrowings Repayment of short term borrowings Repayment of long term borrowings Interest paid Dividend Paid Net change in cash and cash

12,694

15,741

18,030

26,353

27,193

(2,335) (1,401) (15,708) 1,598 8,958 0

(4,994) (4,825 1,514 1,374 5,922 0

(5,804) (2,103) (5,247) 2,043 10,123 0

(6,524) (15,330) 0 4,499 0

(7,237) (18,000) (7,520) 0 1,955 0

119

76

17

(133)

(119)

(2,376)

(1,427)

(700)

(472) (427) (7,492)

(443) (432) 7,892

(260) (578) 3,722

(74) (1,163) 2,562

(44) (1,163) (6,772)

equivalents Add total cash generation Closing cash and bank 9,894 2,402 10,294 14,016 16,578

2,402

10,294

14,016

16,578

9,806

KEY RATIOS
Year-end March Valuation ratios (x) P/E P/CF P/BV Mcap/Sal es EV/Sales EV/EBDIT A EV/Capita l employed Growth ratios (%) Earnings growth Revenue growth Gross profit growth EBITDA growth Efficiency ratios 270.4 23.0 19.2 57.4 20.7 19.8 39.3 10.6 14.9 16.6 15.2 16.4 10.9 13.4 13.8 2.6 1.04 1.0 7.3 2.4 2.8 1.12 0.9 5.6 2.3 3.0 1.36 1.1 6.4 2.5 4.2 2.03 1.8 11.0 4.2 3.4 1.79 1.7 9.9 3.6 FYO3 FY04 FY05 FY06 FY07

17.4

14.3

13.7

20.3

18.3

99.4

37.4

14.4

16.5

13. 5

Gross margin (%) EBDITA margin (%) EBIT margin (%) Pre-tax margin (%) Net margin (%) Profitabili ty ratios Return on equity (%) Return on capital employed (%) Operatio nal RoCE (%) Average collection period (Days) Inventory turnover

22.6

20.7

19.5

23.7

23.9

14.4

16.5

17.1

17.3

17.3

9.0

12.3

14.7

14.8

14.4

8.5

12.0

14.6

14.7

14.4

6.0

7.8

9.9

10.0

9.8

16.2

21.4

24.2

22.8

20.7

14.9

20.0

23.3

22.5

20.5

27.7

20.1

19.9

20.0

20.0

24

24

31

31

31

(Days) Creditors (Days) Fixed assets turnover (x) Liquidity ratios Current Ratio Quick Ratio Absolute Current Ratio Solvency Ratios Debt Equity Ratio Interest Coverage Ratio 0.08 0.07 0.013 0.00025 0.00087 1.32 1.03 0.58 1.85 1.43 1.06 1.88 1.44 1.11 1.80 1.40 1.05 1.45 1.03 0.68 63 2.3 52 2.5 60 2.3 60 2.3 60 2.2

18.73

37.24

86.78

54.41

65.87

ANALYSIS AND INTERPRETATION OF KEY RATIOS

Liquidity Ratios 1. Current Ratio: Current ratio tells us the short- term financial position of the company. Current Ratio of Maruti Suzuki has been increasing from 2003 till 2006 but has decreased in the year 2007.This is because current liabilities have increased more as compared to current assets in 2007. 2. Quick Ratio: This ratio indicates the working capital limit of the company. The quick ratio of the company under observation is quite comfortable and healthy .It is increasing from 2003 till 2006 but has diminished in the year 2007. 3. Absolute Cash Ratio: This ratio tests the liquidity on an immediate basis as it tests for liquidity with the cash and near cash items only. The ratio has shown a considerable increase till 2006 but has declined in the year 2007.

Solvency Ratios 1. Debt-Equity Ratio: It is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. As can be observed, the Equity ratio has been almost constant over the years. This implies that the net worth of the company as a part of the total assets has remained almost same. However the

debt ratio has first decreased and then increased. This is responsible for the trend of the Debt Equity Ratio as well. 2. Interest Coverage Ratio: The interest coverage ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and taxes; the lower the ratio, the higher the companys debt burden. The Interest Coverage Ratio has increased till 2005 but has diminished since then.

Profitability Ratios 1. Return on Capital Employed (ROCE) It is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should ideally be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce shareholders' earnings. ROCE has increased till 2005 but has diminished since then. 2. Return on equity: This ratio indicates the returns on investment made by the shareholder of the company. Put another way, Return on Net Worth indicates how well a company leverages the investment in it. It may appear higher for startups and sole proprietorships due to owner compensation draws accounted as net profit. The ratio has risen considerably from 2003 to 2005 but has declined through 2006 and 2007.

Efficiency Ratios: 3. Net Profit Margin Ratio:

The profit margin ratios state how much profit the company makes for every dollar of sales. The net profit margin ratio is the most commonly used profit margin ratio. The ratio has shown a considerable rise since 2003 but has decreased in the financial year 2006-2007. 4. Gross Profit Margin Ratio: A low profit margin ratio indicates that low amount of earnings, required to pay fixed costs and profits, is generated from revenues. A low profit margin ratio indicates that the business is unable to control its production costs. Gross profit ratio has been more or less same in the concerned period.

CONCLUSION
Financial statements are useful, because they show the financial condition of a company at a given period. There are many types of financial statements uses and purposes, measuring different financial aspects of the company. They can be used for both internal-, and external uses. When they are used internally, the management and sometimes the employees use it for their own information. Managers use it to plan ahead and set goals for upcoming periods. When they use the financial statements that were published, the management can compare them with their internally used financial statements. They can also use their own and other enterprises financial statements for comparison with macroeconomical datas and forecasts, as well as to the market and industry in which they operate in

REFERENCES
WEB 1. http://www.surfindia.com/automobile/maruti-udyog-ltd.html 2. http://www.indiainfoline.com/sect/maud.pdf 3. http://www.marutisuzuki.com/knowing-maruti-suzuki.aspx 4. www.pearsoned.co.in/pkotler 5. http://www.genmills.com/corporate/company/india.aspx 6. www.wikipedia.com 7. 8. http://iegd.institut.com http://www.rotman.utoronto.com

BOOKS 1. Kishore M. Ravi, (2007), Financial Management, Taxmann Allied Services Pvt Ltd 2. Pandey I.M, (2006), Financial Management 3. Philip Kotler, Kevin Keller, Marketing Management (Twelth Edition) 4. [Marketing Management, The McGraw.Hill company, 5. Rajan Saxena (Third Edition)