AUTOMOBILE INDUSTRY

A. Profitability Ratio

The Profitability Ratios are calculated to measure the operating efficiency of the company. Beside management of the company, creditors and owner are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly. Owner wants to get a required rate of return on their investment.
1. Gross Profit Margin

Force Motors Eicher Motors Hindustan Motors Volkswagon

0.07 0.06 0.05 0.04 0.03 0.02 0.01 0

2011 0.062285329 0.013031375 0.023842078 0.017230246

2010 0.049374523 0.018335075 0.028642408 0.012855737

2009 0.045230204 0.021488152 0.032688839 0.008543475

2011 2010 2009

The Gross Profit Margin (GPM) reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue. A high GPM is a sign of good management, it may be because of high sales or low cost of production. In Automobile sector we can see that in 2009, 2010 and 2011 the GPM of Force Motors was highest which means that Force motors had higher sales than others and has efficiently managed its production of product.
2. Net Profit Margin

Force Motors Eicher Motors Hindustan Motors Volkswagen

2011 -0.000830621 0.026820072 0.000882311 0.068563918

2010 -0.17706487 0.015687582 -0.06934643 -0.14690811

2009 -0.067280955 0.00273189 -0.050421695 -0.440815764

0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5

2011 2010 2009

Net Profit Margin (NPM) ratio establishes a relationship between net profit and sales and indicates managements efficiency in manufacturing, administering and selling the products. This ratio is overall measure of the firms ability to turn each rupee sales into net profit. This ratio also indicates the firms ability to withstand adverse economic conditions. In Automobile sector we can see that in 2009 and 2010 Eicher Motors and in 2011 Volkswagon was having highest NPM among others and which mean that these firms were in a good condition and could withstand the adverse economic conditions.
3. Operating Expense Ratio

Force Motors Eicher Motors Hindustan Motors Volkswagon

0.4 0.2 0 -0.2 -0.4 -0.6

2011 0.196239758 0.110179938 0.057169715 0.103001618

2010 -0.06823292 0.085026016 -0.00745287 -0.11737569

2009 -0.006895349 0.061499569 -0.015062814 -0.428482844

2011 2010 2009

Operating Expense Ratio explains the changes in the profit margin (EBIT to sales) ratio. This ratio is computed by dividing operating expenses, viz., cost of goods sold plus selling expenses and general and administrative expenses (excluding interest) by sales. A higher operating expenses ratio is unfavourable since it will leave a small amount of operating income to meet interest, dividends, etc.

In Automobile sector we can see that in 2009, 2010 Eicher Motors and in 2011 Force Motors was having higher Operating Expense Ratio, which is unfavourable because higher Operating Expense ratio will leave a small amount of operating income to meet interest, dividends, etc.

B. EARNINGS RATIO:
1. RETURN ON TOTAL ASSETS:

2011 Force motors Eicher motors Hindustan motors Volkswagon

0.19 0.22 0.26 0.97

2010
-0.27 0.12 -0.27 -0.75

2009
-0.11 0.02 -0.2 -0.45

Graph:
1.5 1 0.5 0 -0.5 -1
2011 2010 2009

Analysis: ROTA and RONA are both Return on Investment ratios. The term investments refer to either total assets or net assets. The conventional approach to calculate ROI is to divide PAT by investment. Investment is defined as the pool of funds supplied by the shareholders and lenders. The figures for both ROTA and RONA are similar to each other for all the companies and all the three years. This implies that the current liabilities are very small and in turn do not have any effect on the overall profit of the company.

2.

RETURN ON NET ASSETS:

2011 Force motors Eicher motors Hindustan motors Volkswagon Graph:

1.5 1 0.5 0 -0.5 -1 0.187687494 0.217880481 0.263071126 0.968401168

2010
-0.271063859 0.115758847 -0.269384299 -0.751783375

2009
0.114955803 0.020670368 0.196953542 0.452296064

2011 2010 2009

3. RETURN ON EQUITY: 2011 Force motors Eicher motors Hindustan motors Volkswagon
-0.002144555 0.249038259 0.018382353 0.174673245

2010
-12.63392226 0.121127367 -1.272093602 -0.054193038

2009
0.400256379 0.060968207 0.421064037 0.003921848

Graph:
5 0 -5 -10 -15
2011 2010 2009

Analysis: ROE calculates the profitability on the owner's investment. ROE is an indication of how well the firm has used the resources of its owners.. This ratio of ROE reflects the extent to which a satisfactory earning has taken place. It also presents great interest to the prospective shareholders. The figures for ROE for Force Motors, Hindustan Motors and Volkswagen are negative. This fact can be attributed to the presence of an economic recession wherein the profits for the companies had gone down. 4. EARNINGS PER SHARE: 2011 Force motors Eicher motors Hindustan motors Volkswagon Graph:
200 100 0 -100 -200
2011 2010 2009

2010
-135.6373293 48.51629824 -3.168795734 -0.067084517

2009
49.74962064 23.95514418 2.409773037 0.02693174

-0.561456753 113.9012621 0.092971365 0.988150034

Analysis: The profitability of shareholders can also be measured through other ratios called the EPS. EPS simply shows the profitability of a firm on a per share basis. It does not reflect how much of the profit is distributed as a dividend to the shareholders. Since the profits for the company for both Force Motors, Hindustan Motors and Volkswagen are in the negative as these companies could not translate their operations into substantial profits due to the recessionary economic conditions. On the other hand the dividends per share measure how much of the profits that the company has made have actually translated into returns for the shareholders in the form of dividends. Here as you can see only Eicher Motors has given out dividends to its shareholders whereas all the other companies have not paid dividends as they did not make any profits.

5. DIVIDENDS PER SHARE: 2011 force motors eicher motors hindustan motors volkswagon Graph:
15 10 5 0 0 10.99851522 0 0

2010
0 7.002622705 0 0

2009
0 5.001779993 0 0

2011 2010 2009

6. PRICE PER EARNINGS RATIO: 2011 Force motors Eicher motors Hindustan motors Volkswagon Graph:
8000 6000 4000 2000 0 -2000 -4000 -6000 -112.03 5.682114388 164.5668 71.7704777

2010
-1.089670526 4.522191675 -6.611344423 -3566.098584

2009
6.271404606 10.4549569 5.465244982 7032.222873

2011

hindustan

eicher

force

2010

volkswagon

2009

Analysis: This ratio indicates the investors' expectations about the growth in the firms' earnings. This ratio acts as a market appraisal for all the firms performance. Here most of the firms have negative P/E ratio as their EPS is negative. This can be attributed to recession due to which the market prices of all the securities dropped and also profit margins of the companies were affected severely.

LIQUIDITY RATIOS:
1. CURRENT RATIO:

2011 Force motors Eicher motors Hindustan motors Volkswagen

4 3.5 3 2.5 2 1.5 1 0.5 0 1.16121276 2.196740284 0.813771858 1.128814298

2010
1.004981259 2.59710498 0.749129542 1.675793537

2009
1.181115173 3.778221639 0.865193895 3.046586345

2011 2010 2009

Current ratio shows the liquidity position of any company i.e. how much current assets the company has for every rupee of a current liability. For Force motors it has been increasing, for Eicher motor, Hindustan motor, Volkswagen it has decreased. For Eicher motor and Volkswagen decrease is good because they have started using the unused cash. Decrease for Hindustan motors is not good because their current assets are not able to meet the current liability and so low liquidity. For Force motor it is good because they were just above the level of meeting the CL, so their liquidity position was strengthening with the increase in this ratio.
2. QUICK RATIO:

2011 Force motors Eicher motors Hindustan motors Volkswagen

0.396946691 1.846851191 0.398359873 1.001985857

2010
0.383014401 2.28329631 0.427908222 1.376537032

2009
0.529759767 3.106328007 0.420274363 2.605943775

3.5 3 2.5 2 1.5 1 0.5 0

2011 2010 2009

The difference between CR and QR is high so the inventory in all the selected companies is high. For Force motors, Eicher, Volkswagen, Hindustan motor the inventory has increased, hence the quick ratio is decreasing. There is large amount of funds unutilized because of large inventory.

C. TURNOVER RATIOS:
1. DEBTOR TURNOVER RATIOS:

2011 force motors eicher motors hindustan motors volkswagon

60 40 20 0
2011 2010 2009

2010
11.04567584 14.2403082 42.51777701 55.99499106

2009
8.07833223 9.52749875 39.4027431 30.8152866

13.84998057 17.82142423 40.60844419 15.96470588

It is low in force motors, eicher motors, volkswagen compared to the hindustan motors i.e. higher value means the more effecient is the management of credits. it was high for volkswagen in 2009 and 2010 but decreased in 2011 rather the reverse is the case for force and eicher motors,i.e. the effeciency is increasing for the eicher and force motors during the recovery period.

3.

CREDITOR TURNOVER RATIO:

2011 force motors eicher motors hindustan motors volkswagon

1.336722611 4.861976069 2.437109277 4.011327434

2010
1.571763944 4.140178676 2.427824518 7.202201258

2009
1.629423068 3.298337666 2.883716547 2.687254735

8 6 4 2 0

2011 2010 2009

creditors turnover is lowest for force motors showing that the credit purchases is less or average creditors is high. the lower the creditors turnover the better it is.it has decreased for force motors, incresed for eicher motors, almost constant for hindustan motor. for volkswagen it incresed in 2010 and decreased significantly in 2011. 4. INVENTORY TURNOVER RATIO: 2011 force motors eicher motors hindustan motors volkswagon
2.251329535 14.72853267 7.762671437 28.50153879

2010
2.956059481 9.389943091 8.510757081 22.93866359

2009
3.110483976 5.158339989 8.452482648 3.605905942

30 20 10 0

2011 2010 2009

inventory turnover shows how rapidly the inventory is turning into receivables through sales. higher the inventory turnover higher is the effeciency of inventory management. the inventory turnover is highest for volkswagen in 2011 and it is least for force motors.
5. ASSET TURNOVER RATIOS:

2011 force motors eicher motors hindustan motors volkswagon

0.774318593 1.806227407 2.226196138 2.486474744

2010
0.964685311 1.350690598 2.008118947 2.822368896

2009
1.055243354 0.769754335 2.108912543 0.716776137

3 2 1 0

2011 2010 2009

asset turnover is one of the important ratios. it states the firms ability to produce amount of sale for a given amount of assets. unutilized assets increase the firms need for costly financing as well as expenses for maintenance. the higher the value of asset of asset turnover better is the return on assets employed. the value is consistently higher for hindustan motors. for force motors it has decreased showing the return is decreasing from the assets employed. for eicher and volkswagen the value has increased showing the improvement of the company by increase in sales.

SOLVENCY RATIOS:
2011 force motors eicher motors hindustan motors volkswagon
0.060076371 0.353938864 0.047621641 0.102917517

2010
-0.117848165 0.222504004 -0.103777681 0.034065073

2009
0.026399843 0.155778519 0.061837456 0.02875502

0.4 0.3 0.2 0.1 0 -0.1 -0.2

2011 2010 2009

Solvency ratio indicates the ability of a firm to meet its long term fixed obligations. These long term fixed obligations include the instalments paid for repayment of loan. It is the company's ability to service its long term fixed obligations. Usually a solvency ratio of 20% is desirable. But in the case of all the four automobile companies this ratio is way below the benchmark. The reason for this fact can be attributed to huge capital investments in the automobile industry and as a result these firms have a huge portion of long term liabilities. Also fuel costs required are very high and therefore greater working capital requirements translate into higher short term liabilities and in turn lower solvency ratios