A FINANCIAL

ANALYSIS MARUTI
UDOYOG

Chapter 1

1.1 Introduction about the topic

1.2 Objective of the study

Chapter 2

2.1 Profile of the company

2.2 Nature of the organization
2.3 Companys vision & mission
2.4 Size of the organization
2.5 Product range of the company
2.6 Capital size of the organisation
2.7 Organisation structure of the company
2.8 Market share of the company
2.9 Position of the company

Chapter 3
Research Methodology

Chapter 4
Data Analysis & Interpretation

Chapter 5

5.1 Findings & conclusion

5.2 Limitations
5.3 Suggestions

Chapter-1

1.1Introduction
Financial analysis is the starting point for making plans, before using any sophisticated
forecasting and planning procedures. Understanding the past is a prerequisite for
anticipating the future. Financial analysis is the process of identifying the financial
strength and weakness of the firm by properly establishing relationship between the items
of the balance sheet and the profit and loss account. Financial analysis can be undertaken
by management of the firm, or by parties outside the firm, viz. owners, creditors,
investors and others. The nature of analysis will differ depending on the purpose of the
analyst.
Investors: Who invested their money in the firms shares, are most concerned about the
firms earnings. They more confidence in those firms that show steady growth in
earnings. As such, they concentrate on the analysis of the firms present and future
profitability. They are also interested in the firms financial structure to that extent
influence the firms earning ability and risk.
Trade creditors and financial institution: They are interested in firms ability to meet
their claims over a very short period of time. Their analysis will, therefore, confine to the
evolution of the firms liquidity position. And the financial institutions are interested in
the financial statements of the borrowing concern to ascertain its short-term as well as
long-term solvency and also it profitability.
Suppliers: On the other hand, are concerned with the firms long-term solvency and
survival. They analysis the firms profitability over time, its ability to generate cash to be
able to pay interest and repay principal and the relationship between various sources of
funds (capital structure relationships). Long-term creditors do analysis the historical
Financial statements, but they place more emphasis on the firms projected, or pro forma,
financial statements to make analysis about its future solvency and profitability.

Management and employees: The firm would be interested in every aspect of the
financial analysis. It is their overall responsibility to see that the resources of the firms are
used to most effectively and efficiently, and that the firms financial condition is sound.

The foresaid features of financial statement analysis that really facilitates the organization
to determine their financial strengths and weakness. In connection with this the
researcher has opted a maruti ltd to analyze their financial abilities and suggests them for
a long-term growth prospective. And the employees of a concern are interested in the
financial statement of the firms to ascertain its profitability and ability to offer higher
wages, bonus, better working conditions, etc.
Government: The Government is interested in the financial statements of a concern for
purposes of taxation, and also for the purpose of regulating the activities of the concern.

1.2 Objectives of the financial analysis

To determine the profitability or earning capacity and progress of the concern

 To judge the financial position of the concern and also analyze the strength and
weakness of the firm
To find out the solution to the unfavorable financial conditions and financial
performance
To involve comparison for a useful interpretation of the financial statement
.
Various objectives of the analysis are:
To study the service offered by the Maruti to the customers and financial
activities, and also study the new planes and schemes of the company.
Study is mainly focused on the financial and commercial activities of the
company.
To indicate the trend progress of downfall of the company.
To evaluate the profitability of the company.
To show the relative strength and weakness of the company.
To determine the financial condition and financial performance of the company.
To involve comparison for a useful interpretation of the financial statement
To find out the solution to the unfavorable financial conditions and financial
performance
To analyze how the company as utilized its each financial resources and its
sources
To find out the market share of the company

Chapter 2

PROFILE OF
COMPANY

2.1 PROFILE

Maruti Udyog Limited (MUL) was established in February 1981, though the actual
production commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei car
which at the time was the only modern car available in India, its only competitors- the
Hindustan Ambassador and Premier Padmini were both around 25 years out of date at
that point. Through 2004, Maruti Suzuki has produced over 5 Million vehicles. Maruti
Suzukis are sold in India and various several other countries, depending upon export
orders. Models similar to Maruti Suzukis (but not manufactured by Maruti Udyog) are
sold by Suzuki Motor Corporation and manufactured in Pakistan and other South Asian
countries.The company exports more than 50,000 cars annually and has an extremely
large domestic market in India selling over 730,000 cars annually. Maruti 800, till 2004,
was the India's largest selling compact car ever since it was launched in 1983. More than
a million units of this car have been sold worldwide so far. Currently, Maruti Suzuki Alto
tops the sales charts.Due to the large number of Maruti 800s sold in the Indian market,
the term "Maruti" is commonly used to refer to this compact car model. Its manufacturing
facilities are located at two facilities Gurgaon and Manesar south of Delhi. Maruti
Suzukis Gurgaon facility has an installed capacity of 350,000 units per annum. The
Manesar facilities, launched in February 2007 comprise a vehicle assembly plant with a
capacity of 100,000 units per year and a Diesel Engine plant with an annual capacity of
100,000 engines and transmissions. Manesar and Gurgaon facilities have a combined
capability to produce over 700,000 units annually. More than half the cars sold in India
are Maruti Suzuki cars. The company is a subsidiary of Suzuki Motor Corporation, Japan,
which owns 54.2 per cent of Maruti Suzuki. The rest is owned by public and financial
institutions. It is listed on the Bombay Stock Exchange and National Stock Exchange in
India. During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported
in all over six million Maruti Suzuki cars are on Indian roads since the first car was rolled
out on 14 December 1983. Maruti Suzuki offers 14 models, Maruti 800, Alto, WagonR,
Estilo,, A-star, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Gypsy, Grand Vitara, Kizashi.
Swift, Swift DZire, A-star and SX4 are manufactured in Manesar, Grand Vitara and
Kizashi are imported from Japan as completely built units(CBU), remaining all models
are manufactured in Maruti Suzuki's Gurgaon Plant.[citation needed]Suzuki Motor Corporation,
the parent company, is a global leader in mini and compact cars for three decades.
Suzukis technical superiority lies in its ability to pack power and performance into a
compact, lightweight engine that is clean and fuel efficient. Nearly 75,000 people are
employed directly by Maruti Suzuki and its partners. It has been rated first in customer
satisfaction among all car makers in India from 1999 to 2009 by J D Power Asia

Name & type of organization

Type
Industry
Founded
Headquarters
Key people
Products
Revenue
Employees
Parent
Website

Public (BSEMARUTI,NSEMARUTI)
Automotive
1981(as Maruti Udyog Limited)
Delhi ,India
Mr. Shinzo Nakanishi,
Managing Director & CEO
Automobiles, Motorcycles
US $ 4.8 billion (2009)
6,903
Suzuki Motor Corporation
MarutiSuzuki.com

2.2 Nature of the organization

Authorized Service Stations

Maruti is one of the companies in India which has unparalleled service network.
To ensure the vehicles sold by them are serviced properly Maruti had 1545 listed
Authorized service stations and 30 Express Service Stations on 30 highways
across India. Service is a major revenue generator of the company. Most of the
service stations are managed on franchise basis, where Maruti trains the local
staff. Other automobile companies have not been able to match this benchmark set
by Maruti. The Express Service stations help many stranded vehicles on the
highways by sending across their repair man to the vehicle.
Maruti Insurance
Launched in 2002 Maruti provides vehicle insurance to its customers with the
help of the National Insurance Company, Bajaj Allianz, New India Assurance and
Royal Sundaram. The service was set up the company with the inception of two
subsidiaries Maruti Insurance Distributors Services Pvt. Ltd and Maruti Insurance
Brokers Pvt. Limited. This service started as a benefit or value addition to
customers and was able to ramp up easily. By December 2005 they were able to
sell more than two million insurance policies since its inception.
Maruti Finance
To promote its bottom line growth, Maruti launched Maruti Finance in January
2002. Prior to the start of this service Maruti had started two joint ventures
Citicorp Maruti and Maruti Countrywide with Citi Group and GE Countrywide
respectively to assist its client in securing loan. Maruti tied up with ABN Amro
Bank, HDFC Bank, ICICI Limited, Kotak Mahindra, Standard Chartered Bank,
and Sundaram to start this venture including its strategic partners in car finance.
Again the company entered into a strategic partnership with SBI in March 2003.
Since March 2003, Maruti has sold over 12,000 vehicles through SBI-Maruti
Finance. SBI-Maruti Finance is currently available in 166 cities across
Maruti True Value
Maruti True Value is a service offered by Maruti Udyog to its customers. It is a
market place for used Maruti Vehicles. one can Buy, Sell or Exchange used
Maruti Vehicles with the help of this service in India.
N2N Fleet Management
N2N is the short form of End to End Fleet Management and provides lease and
fleet management solution to corporate. Its impressive list of clients who have
signed up of this service include Gas Authority of India Ltd, DuPont, Reckitt
Benckiser, Sona Steering, Doordarshan, Singer India, National Stock Exchange
and Transworld. This fleet management service include end-to-end solutions
across the vehicle's life, which includes Leasing, Maintenance, Convenience
services and Remarketing.
Maruti Driving School
As part of its corporate social responsibility Maruti Udyog launched the Maruti Driving
School in Delhi. Later the services were extended to other cities of India as well. These

schools are modeled on international standards, where learners go through classroom and
practical sessions. Many international practices like road behavior and attitudes are also
taught in these schools. Before driving actual vehicles participants are trained on
simulators.

2.3 Companys vision & mission

Company vision

10

The leading Indian automobile industry, creating customer delight and shareholders
wealth ; a pride of india. We must be an internationally competitive company in terms of
our products and services. We must retain our leadership in india and should also aspire
to be among the global players.

Company mission
To provide a wide range of modern and high quality fuel efficient vehicles in order to
meet needs of different customers, both in domestic and export markets. To provide
maximum value for money to their customers through continuous improvement of
product and services.Maruti has a network of 391 sales outlets across 230 cities all over
india.The service network covers 1,113 towns and cities, bolstered by2,142 authorised
services outlets. The companys change in strategy and emphasis on developing effective
marketing communications was their highlights

2.4 Product of the organization

11

2.5 Product Range

Under Rs. 3 Lakhs
Rs. 3-5 Lakhs

Maruti 800, Alto, Omni

Reva

Ambassador
Fiat Palio

12

Hyundai Santro, Getz

Chevrolet Opel Corsa
Maruti Zen, Wagon R, Versa, Esteem, Gypsy
Ford Icon & Fiesta
Tata Indica, Indigo
Mahindra Bolero

Rs. 5-10 Lakhs

Chevrolet Swing, Optra, Tavera

Hyundai Accent, Elantra
Mahindra Scorpio
Maruti Baleno
Toyota Corolla, Innova
Tata Safari
Mitsubishi Lancer, Lancer Cedia
Honda City

Rs. 10-15 Lakhs

Ford Mondeo & Endeavour

Chevrolet Forester
Skoda Octavia Classic & Combi
Honda Civic & CR-V

Rs. 15-30 Lakh

Maruti Suzuki Grand Vitara

Hyundai Sonata Embera, Terracan & Tucson
Mitsubishi Pajero
Audi A4
Opel Vectra
Honda Accord
Mercedes C Class
Toyota Camry

Rs. 30-90 Lakhs

Audi A6, A8 & TT

BMW X5, 5 Series & 7 Series
Mercedes E Class, S Class, SLK, SL & CLS-Class
Porsche Boxster, Cayenne, 911 Carrera & Cayman S
Toyota Prado

Above Rs. 1 Crore

Bentley Arnage, Continental GT & Flying Spur

Rolls Royce Phantom
Maybach

2.6 Capital size of the organization (1993-2010)

13

From
Year
2010

To
Year
2011

2009

2010

2008

2009

2007

2008

2006

2007

2005

2006

2004

2005

2003

2004

2002

2003

2001

2002

2000

2001

1999

2000

1993

1999

Class Of
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share
Equity
Share

Authorized
Capital
372.00

Issued
Capital
144.46

Paid Up Shares
(Nos)
288910060

Paid Up Face
Value
5

Paid Up
Capital
144.46

372.00

144.46

288910060

144.46

372.00

144.46

288910060

144.46

372.00

144.46

288910060

144.46

372.00

144.46

288910060

144.46

155.00

144.46

288910060

144.46

155.00

144.46

288910060

144.46

155.00

144.46

288910060

144.46

155.00

144.46

288910060

144.46

135.00

132.29

13229162

100

132.29

135.00

132.29

13229162

100

132.29

135.00

132.29

13229162

100

132.29

135.00

132.29

13229162

100

132.29

2.7 Organisational structure

CHAIRMAN

MANAGING

JOINT MANAGING
DIRECTOR
14

DIRECTOR

PART TIME
DIRECTOR
DVM

DEPARTMENT
MANAGER
MANAGER

DEPUTY
MANAGER
SENIOR
EXECUTIVE

SUPERVISOR

ASSISTANT SUPERVISOR
TRAINEE
The company has a multi-tier management structure, comprising the board of directors at
WORKER
the top followed by five business vertical
heads reporting to the Managing Director.
These business verticals are Marketing & Sales, Engineering, Production, Administration
and Supply Chain. Each of these verticals is headed by a team of two members, one of
whom is a Japanese manager and the other, an Indian manager. The Japanese managers
are also the Executive Directors of the board. The Indian managers are designated as
Managing Executive Officers (MEOs) and Executive Officers (EOs) and attend all board
meetings. They are supported by divisional and departmental heads. This system has
ensured regular flow of strategic direction from the board to the operational management,
effective implementation of the strategy, clear delegation of decision making with
accountability, timely risk identification and mitigation, adequate controls and reporting
of the company's operations, and a healthy financial performance.

15

2.8 Market share of the organisation

Accounting to 79%, Cars rule the passenger automobile in India. The chief players in this
segment are Maruti Suzuki. While Maruti Suzuki enjoys full-fledged monopoly in multipurpose automobiles sector with 52% of market share
The automobile industry had a growth of 15.4 % during April-January 2007, with the
average annual growth of 10-15% over the last decade or so. With the incremental
investment of $35-40 billion, the growth is expected to double in the next 10 years.
Consistent growth and dedication have made the Indian automobile industry the secondlargest tractor and two-wheeler manufacturer in the world. It is also the fifth-largest
commercial vehicle manufacturer in the world. The Indian automobile market is among
the largest in Asia.

16

The key players like Hindustan Motors, Maruti Udyog, Fiat India Private Ltd, Tata
Motors, Bajaj Motors, Hero Motors, Ashok Leyland, Mahindra & Mahindra have been
dominating the vehicle industry. A few of the foreign players like Toyota Kirloskar Motor
Ltd., Skoda India Private Ltd., Honda Siel Cars India Ltd. have also entered the market
and have catered to the customers needs to a large extent.
Not only the Indian companies but also the international car manufacturing companies
are focusing on compact cars to be delivered in the Indian market at a much smaller
price. Moreover, the automobile companies are coming up with financial schemes such as
easy EMI repayment systems to boost sales.
There have been exhibitions like Auto-expo at Pragati Maidan, New Delhi to share the
technological advancements. Besides, there are many new projects coming up in the
automobile industry leading to the growth of the sector.
The Government of India has liberalized the foreign exchange and equity regulations and
has also reduced the tariff on imports, contributing significantly to the growth of the
sector. Having firmly established its presence in the domestic markets, the Indian
automobile sector is now penetrating the international arena. Vehicle exports from India
are at their highest levels. The leaders of the Indian automobile sector, such as Tata
Motors, Maruti and Mahindra and Mahindra are leading the exports to Europe, Middle
East and African and Asian markets.
The Ministry of Heavy Industries has released the Automotive Plan 2006-2016, with the
motive of making India the most popular manufacturing hub for automobiles and its
components in Asia. The plan focuses on the removal of all the bottlenecks that are
inhibiting its growth in the domestic as well as international arena

2.9 Position of the company

Structure : Maruti Suzuki India ltd. is Public Limited company and listed in Bombay
stock exchange and National Stock Exchange. Suzuki Motor Company(SMC) is Majority
shareholder 54.21% equity stake in a company. Share holding pattern of company:DEC2010
Promoter and Promoter
Group

Indian

SEP2010

JUN2010

MAR2010

DEC2009

54.21 %

54.21 %

54.21 %

54.21 %

54.21 %

--

--

--

--

--

17

Foreign

54.21 %

54.21 %

54.21 %

54.21 %

54.21 %

45.79 %

45.79 %

45.79 %

45.79 %

45.79 %

38.00 %

37.11 %

37.11 %

37.79 %

39.14 %

FII

21.00 %

20.09 %

20.09 %

21.12 %

22.82 %

DII

17.00 %

17.02 %

17.02 %

16.67 %

16.32 %

7.79 %

8.68 %

8.68 %

8.00 %

6.65 %

5.26 %

6.00 %

6.00 %

5.64 %

4.59 %

--

--

--

--

--

Public
Institutions

Non Institutions
Bodies Corporate
Custodians
Total

28,89,10,060 28,89,10,060 28,89,10,060 28,89,10,060 28,89,10,060

Chapter 3

18

RESEARCH
METHODOLOGY

19

RESEARCH METHODOLOGY
Research methodology is considered as the nerve of the project. Without a proper wellorganized research plan, it is impossible to complete the project and reach to any
conclusion. The project was based on the survey plan. The main objective of survey was
to collect appropriate data, which work as a base for drawing conclusion and getting
result.
Therefore, research methodology is the way to systematically solve the research
problem. Research methodology not only talks of the methods but also logic behind the
methods used in the context of a research study and it explains why a particular method
has been used in the preference of the other methods

RESEARCH DESIGN
A Research Design is the framework or plan for a study which is used as a guide in
collecting and analyzing the data collected. It is the blue print that is followed in
completing the study. The basic objective of research cannot be attained without a proper
research design. It specifies the methods and procedures for acquiring the information
needed to conduct the research effectively. It is the overall operational pattern of the
project that stipulates what information needs to be collected, from which sources and by
what methods.
TYPE OF DATA COLLECTED
There are two types of data used. They are primary and secondary data. Primary data is
defined as data that is collected from original sources for a specific purpose. Secondary
data is data collected from indirect sources. (Source: Research Methodology, By C. R.
Kothari)
PRIMARY SOURCES
These include the survey or questionnaire method, telephonic interview as well as the
personal interview methods of data collection.
SECONDARY SOURCES
20

These include books, the internet, company brochures, product brochures, the company
website, competitors websites etc, newspaper articles etc.
However most of study is conducted was based on secondary sources.

21

Chapter 4

FIANCIAL ANALYSIS
OF
MARUTI LTD.

22

Financial Analysis
Financial statement namely the statement of the profit & loss account and the balance
sheet are indication of two signify-cant factors profitability and financial soundness
analysis of statements means such a treatment of the information contained to afford a
diagnosis of the profitability and financial statements analysis as the process of
methodical classification comparison with other co-rising question and then seeking
answer for them.
Finance is the very typical aspect in course of management. The main objective behind
the study is to get precisely. It also helps us to study the present finance scenario. The
objective is such that companys profitability, liquidity and capacity by such analysis we
can interpret the position of the company. So it is very important to study.

Profit Trend for 7 years:

Particulars
Operating Profit
(EBDIT)
Gross Profit
(EBDT)
Profit Before
Tax (EBT)
Adjusted Net
Profit (EAT)

2009

PROFIT COMPARISION (IN x10M Rs)

2008
2007
2006
2005

2004

2003

2433.3

3130.8

2588.8

2055.8

1797.7

1308.1

656.9

2382.3

3071.2

2551.2

2035.4

1761.7

1264.7

604.2

1675.8

2503

2279.8

1750

1304.9

769.8

282.1

1072.63

1669.71

1535.29

1197.07

860.1

621.82

129.72

IMPORTANCE OF CASH PROFIT THEORY:

MEANING
Cash flow means inflows that is, sources of cash which are at the disposable at the firm
and outflows of the fire that is the use of the firm.
The difference between inflows and outflows is either net inflow or net outflow. A cash
outflow statement deals with the cash fund flow, which excludes working capital
movements. The Accounting standard (A53) classifies cash flows as under:
1) Cash from operating activities
2) Cash from investing activities
3) Cash from financing activities
The operating activities include receipts from sale of goods or Rendering of services
receipts from royalty, fees, commission etc. Outflow is the resulting from payment to
creditors for goods and services, payment for expenses such as lighting, power, rent,
wages salaries etc.

23

Only cash from operating activities is included in this report.

IMPORTANCE OF CASH PROFIT:

The cash profit is an important measure of profitability as well as liquidity. When the
cash profit differs from the profit is shown in the profit and loss account or profit and loss
statement. Adjusting depreciation arrives at the cash profit; amortize action of capital
expenses etc. The cash profit is much less or negative compared to the profit declared in
the profit and loss account. It indicates liquidity and signals for appropriate cash
management. The net cash from operations can be calculated through adjustment of noncash items like depreciation, changes in inventory and receivable and payables, and or
other items for which cash offers the investing and financing activities.

MEANING & IMPORTANCE OF RATIO:

The Balance Sheet and the Statement of Income are essential, but they are only the
starting point for successful financial management. Apply Ratio Analysis to Financial
Statements to analyze the success, failure, and progress of your business.
Ratio Analysis enables the business owner/manager to spot trends in a business and to
compare its performance and condition with the average performance of similar
businesses in the same industry. To do this compare your ratios with the average of
businesses similar to yours and compare your own ratios for several successive years,
watching especially for any unfavorable trends that may be starting. Ratio analysis may
provide the all-important early warning indications that allow you to solve your business
problems before your business is destroyed by them.
Ratio is a figure showing, logical relationship between any two items taken from
financial statement as prepared and presented annually are of little use for guidance of
prospective investors, creditors and even management. If relationships between various
related items in these financial statements are established, they can provide useful dues to
garage accurately the financial health and ability of business to make profit. The relation
between in two related items of financial statements is known ratio.
UTILITY OF RATIO ANALYSIS:
It is very important to find the ratio of liquidity, profitability etc. Because the ratio
analysis provides useful data to the management, important uses of it are given as below:
PROFITABLITY :
24

Useful information about the trend of profitability is from profitability ratio. The gross
profit ratio, net profit ratio and ratio of return on investment give a good idea of the
profitability of the business. On the basic of this ratio, investors get an idea about overall
efficiency of managers and bank as well as other creditors draw useful conclusion about
repaying capacity of the borrowers.

LIQUIDITY :
In fact the use of ratio was made initially to ascertain the Liquidity of business. The
current ratio, acid test ratio will tell whether the firm will be able to meet its current
liabilities and when they nature. Banks and other leaders will be able to conclude from
these ratios whether the firm will be able to pay regularly the interest and loan
installments.
EFFCIENCY :
The turnover ratios are excellent guide to measure the efficiency of managers. All such
ratio related to sales present a good picture of the success on the business.
INTER FIRM COMPARION :
The absolute ratios of a firm are not of much use, unless they are compared with similar
ratios of other firms belonging to the same industry. This is a inter firm compared to
other firms comparison, which shows the strength and weakness of the firm as
compared to other firms and will indicate corrective measures.
INDICATE TREND :
The ratio of the last 3 to 5 years will indicate the trend in the respective fields. A
particular ratio of a company, for one year may compare favorably with industry average,
but its trend shows a deteriorating position, it is not desirable only ratio analysis will
provide this information.
USEFUL FOR BUDGETARY CONTROL :
Regular budgetary reports are prepared in a business where the system of budgetary
control is in use. If various ratios are presented these reports, it will give a fairly good
idea about various aspects of financial position.
25

 USEFUL FOR DECISION MAKING :

Ratio guide the management in making some of the important decision, suppose, the
liquidity ratios shows an unsatisfactory position, the management may decide to get
additional liquid funds. Even for capital expenditure decision, the ratio of investment.
The efficiency of each department a thus be deter minded. Thus, the ratio are the most
useful I financial statement.

26

Classification of ratio
Profitability ratio

Gross Profit Ratio:

Meaning:

It is expresses relationship between Gross Profit earned to net sales. It is a

significant indicator of the profitability of business.
It expresses in percent. For example, a ratio shows that for a sale of every Rs.
1000 a margin of 250 rupees is available from which operating expenses of
business are recovered.
The ratio shows whether the mark up obtained on cost of production is sufficient
or not. There is no calibration against reasonability of gross profit ratio. However
it must be enough to cover its operating expenses. In many industries, there are
more or less recognized gross profit ratios and the business should strive to
maintain this standard.
If this ratio is low, it indicates that the cost of sales is high or that the purchasing
is inefficient.
Alternatively, it may also mean that due to depression, the selling price is reduced
but there are may be no corresponding reduction, the selling price is reduced but
there may be no corresponding reduction in cost of sales. In such a case, the
management must investigate the causes and try to bring up this ratio.

Implementation:

Gross profit is result of the relation between price, sales volume and costs. A
change in the gross margin can be brought about by changes in any of these
factors.
The gross profit ratio can also be used in determining the extent of loss caused by
theft, spoilage, damage and so on in the case of those firms which follow the
policy of fixed gross profit margin in pricing their product.
The gross margin represents the limit beyond which fall in sales price are outside
the tolerance limit.

27

Formula:
Gross profit

X 100

Sales

Particulars
Gross Profit (EBDT)
(In x10M Rs)
Net Sales (In x10M
Rs)
Gross Profit Ratio

2009

FOR GROSS PROFIT RATIO

2008
2007
2006

2005

2004

2003

1264.7

604.2

2382.3

3071.2

2551.2

1761.7

20530.1

17891.6

14696.3

12015.9

10923.8

9104.4

7180.1

11.603937

17.165597

17.359471

16.939222

16.1271
719

13.891
0856

8.41492
458

Interpretation
As mentioned above the gross profit ratio indicates the relationship between gross profit
and net sales. Here from the table we can judge the financial position of Maruti Suzuki
year wise.
Here 6 consecutive years from 2004 to 2009 are taken into consideration. The changes in
the gross profit ratio in percent are as follows.
Here, negative sign indicates that the percent is decreased compare to immediate previous
year, while positive sign indicates that the percent is decreased in the gross profit
compare to immediate previous year.
For consecutive four years the gross profit ratio is positive. It indicates better financial
position of the company.

Net Profit Ratio:

Meaning:

28

Net profit ratio is valuable for the purpose of ascertaining the over-all profitability of
business and shows the efficiency of operating the business.

Implementation:

The net profit ratio is indicative of managements ability to operate the business
with sufficient success not only to recover from revenue of the period the cost of
merchandise or services, the expenses of operating the business and the cost of the
borrowed funds, but also to leave a margin of reasonable compensation to the
owners for providing their capital at risk.
The ratio of net profit ratio to sales essentially expresses the cost price
effectiveness of the operation.
A high net profit margin would ensure adequate return to the owners as well as
enable a firm to withstand adverse economic conditions when selling price is
declaiming, cost of production raising and a low net profit margin has the
opposite implication.
It indicates the portion of sales revenue is left to the proprietors after all operating
expenses are paid.
The higher the ratio, the better will be the profitability. In order to have a better
idea of profitability, the gross profit ratio and net profit ratio may be
simultaneously considered. If the gross profitability increases over the five years
but net profit is declining, it indicates that administrative expenses are slowly
rising.

Formula

Net Profit
Sales

X 100

29

Particulars
Net Profit (In x10M
Rs)
Net Sales (In x10M Rs)
Net Profit Ratio

FOR NET PROFIT RATIO

2008
2007
2006

2005

2004

2003

1072.63

1669.71

1535.29

1197.07

860.1

621.82

129.72

20530.1
5.224670
1

17891.6

14696.3

12015.9

9.3323682

10.446779

9.9623831

10923.8
7.87363
372

9104.4
6.8298
8445

7180.1
1.80666
007

2009

Interpretation:

Here 6 consecutive years from 2004 to 2009 are taken into consideration. The
changes in the net profit ratio in percent are as follows.
Higher the net profit ratio shows better financial position of the company.
Due to various reasons this ratio goes down. If the administration department is
not sufficient then net profit ratio goes down or the control mechanism is not
efficient at all check points then also it affects net profit of the company.
Net profit is the profit that is available to the proprietors of the firm after clearing
all outstanding and expenses. Thus, higher the ratio yields higher profit.

30

 Expenses Ratio:
Meaning:

This ratio shows relationship between expanses to sales.

Above table shows that for the year 2004 05 it was 88.64 % the increase in 2005
06 up to 89.23% that indicates there is increase in operating expenses for the
year 2006 07 it is 92.03% and it is higher than previous year which shows
increase in operating expenses.
For the year 2008-09 there is 2.43 increases in the net profit ratio which gives
signal of better financial position of the company.
This operating expense may be due to growth in the organization or it may reflect
inefficacy of administrative control on expenses.
Here negative sign shows decrease in operating expenses.

Implementation:

Some accountants calculate expenses ratio in respected of raw material

consumed, direct wages and factory expenses.
It is closely related to the profit margin, gross as well as net.

Formula:

Expenses X 100
Sales

Particulars
Total Expenditure
(In x10M Rs)
Net Sales (In x10M
Rs)
Net Profit Ratio

2009

FOR EXPENSES RATIO

2008
2007
2006

2005

2004

2003

18738.7

15934.2

12462.8

10625.3

9671

8177.1

6704.8

20530.1

17891.6

14696.3

12015.9

10923.8

9104.4

7180.1

91.274275

89.059670

84.802297

88.427000

88.5314
634

89.814
8148

93.3803
15

Interpretation:

This ratio shows relationship between expanses to sales.

31

Above table shows that for the year 2004 05 it was 88.64 % the increase in 2005
06 up to 89.23% that indicates there is increase in operating expenses for the
year 2006 07 it is 92.03% and it is higher than previous year which shows
increase in operating expenses.
This operating expense may be due to growth in the organization or it may reflect
inefficacy of administrative control on expenses.
Here negative sign shows decrease in operating expenses.

Operating Ratio:
Meaning:
Operating Ratio is computed by dividing expenses by sales.
The term operating ratio includes (1) COGS (2) administrative expenses (3)
selling expenses and (4) financial expenses but excludes taxes, dividends and
extraordinary losses due to theft of goods, good destroyed by fire and so on.

Implementation:

Some accountants calculate expenses ratio in respected of raw material

consumed, direct wages and factory expenses.
It is closely related to the profit margin, gross as well as net.

Formula:

C O G S + Operating expenses

X 100

Net sales
Particulars
Operating
Expense

2009

OPERATION RATIO
2008
2007
2006

2114.8

1510.4

1244.21

900.15

COGS

3498.6

3744.5

3197.01

2506.35

Net Sales

20530.1

17891.6

14696.3

12015.9

Operating Ratio

27.3423

29.3708

30.22

28.3499

2005

2004

2003

801.54

786.54

840.88

2160.0
4
10923.
8

1673.6
4

1168.58

9104.4

7180.1

27.021
9

27.9865

27.1113

32

INTERPRETATION:

This ratio shows relationship between COGS + operating expanses to sales.

Above table shows that for the year 2004 05 it was 87.33 % the increase in 2005
06 up to 86.90 % that indicates there is increase in operating expenses for the
year 2006 07 it is 83.89 % and it is lower than previous year which shows
increase in operating expenses.
In the year 2008-09 there is 28% increase in the operating expenses. This is may
be due to inefficient operation management and also there may be some other
expenses for sales or promotion may incur during this year.

Return on investment / Capital employed:

Meaning:
The profitability ratio can be computed by relating the profits of a firm to its
investment.
Implementation:

Return on investment indicates the profitability of business and is very much in

use among financial analysis.
The ratio is an indicator of the measure of the success of a business from the
owners point of view. The ultimate interest of any business is the rate of return on
invested capital. It may be measured by the ratio of income to equality capital.
It determines whether a certain goal has been achieved or whether an alternative
use of capital is justified.
It is an index of profitability of business and is obtained by comparing net profit
with capital employed. Capital includes share capital, reserves and long term
loans such as debentures.

Formula:

EBIT
Capital employed

Particulars

X 100

FOR RETURN ON INVESTMENT / CAPITAL EMPLOYED

2009
2008
2007
2006
2005

2004

2003

33

Gross Profit (EBIT) (In

x10M Rs)
Capital Employed ( Share
capital + Reserves and
surplus) (In x10M Rs)
Return on Investment

2382.3

3071.2

2551.2

2035.4

1761.7

1264.7

604.2

9344.9

8415.4

6853.9

5452.6

4378.8

3591.2

3098

25.4930497

36.49499
73

37.222
6032

37.3289
807

40.232
4838

35.216
6407

19.502
9051

Interpretation :

This ratio shows relationship between E B I T to CAPITAL EMPLOYED.

Higher the ratio, it is better for the company.
In the year 2008- 09 there is decrease of 43.15 percent in the gross profit of the
company. This show slow- down in companys sale. It is due to recession during
that period where an overall sale was affected.

Return on shareholders fund:

Meaning:

It is carries the relationship of return to the sources of funds yet another step
further.
In order to judge the efficiency with which the proprietors funds are employed in
business, this ratio is ascertained. Proprietors equity or Proprietors funds include
share capital and reserves.
It is of great practical importance to the perspective of investors, as it enables the
profitability of a company to be compared with that of other.
It also indicates whether the return on proprietors fund is enough in relation to
the risk that they undertake.
This ratio shows what amount of dividend is likely to be received on shares.

Implementation:

It expresses the profitability of a firm in relation to the funds supplied by the

creditors and owners taken to gather, the return on shareholders equity measures
exclusively the return on the owners funds.

Formula:

Net profit
X 100
Share holders fund

34

Particulars
Net Profit (In x10M Rs)
Capital Employed ( Share
capital + Reserves and
surplus) (In x10M Rs)
Return on Investment

FOR RETURN ON SHAREHOLDER'S FUND

2009
2008
2007
2006
2005
1072.63 1669.71 1535.29 1197.07
860.1

2004
621.82

2003
129.72

9344.9

8415.4

6853.9

5452.6

4378.8

3591.2

3098

11.4782
395

19.84112
46

22.4002
393

21.9541
136

19.642
3678

17.315
1036

4.18721
756

Interpretation:

The ratio indicates relationship between Net profits to share holders fund
therefore higher the returns to shareholders.
For the year 2004 05 it is 21.90 % that increase in the year 2005 06 up to 23.70.
This ratio shows downward trend in the ratio in return on shareholders fund for
this company.
During the year 2008-09 there is 72.97% decrease in the ROI. This ratio shows
upward trend for that financial year for the company.

Return on Equity share capital:

Meaning:

It is obtained by dividing net profit after tax deduction of performance dividing by

his amount of ordinary share capital plus free reserve.

Implementation:

This is probably the single most important ratio to judge whether the firm has

earned a satisfactory return for its equity holders or not.

Its adequacy can be judge by: (1) comparing it with the past record of the same
form, (2) comparisons with the overall industry average.

Formula:
Net profit after tax Preference dividend

X 100

Equity capital

Particulars

FOR RETURN ON EQUITY SHARE CAPITAL

2009
2008
2007
2006
2005

2004

2003

35

Net Profit (In x10M

Rs)
Preference Dividend
(In Rs)
Share Capital (In
x10M Rs)
Return on Equity
Share Capital (In Rs)

1072.63

1669.71

1535.29

1197.07

860.1

621.82

129.72

144.5

144.5

144.5

144.5

144.5

144.5

144.5

55.73

8.13

22.03

28.14

27.73

79.12

11.46

Interpretation:

The ratio indicates relationship between Net profits to share holders fund
therefore higher the returns to shareholders.
For the year 2004 05 it is 19.49 % that increase in the year 2005 06 up to
21.81 %.
This ratio shows downward trend in the ratio in return on shareholders fund for
this company.

For the financial year 2008-09 there is 85% increase in the ratio in return on
shareholders fund. Here, year 2008-09 shows marked improvement that is
why it is taken into consideration.

Return on Equity share holders fund:

Meaning:

It is obtained by dividing net profit after tax deduction of performance dividing by

his amount of ordinary share capital plus free reserve.

Implementation:

This is probably the single most important ratio to judge whether the firm has

earned a satisfactory return for its equity holders or not.

Its adequacy can be judge by: (1) comparing it with the past record of the same
form, (2) comparisons with the overall industry average.

Formula:
Net profit after tax Preference dividend

Equity share holders funds

X 100
36

FOR RETURN ON EQUITY SHARE HOLDERS FUND

Particulars
2009
2008
2007
2006
2005
Net Profit (In x10M Rs)
1072.63 1669.71 1535.29 1197.07
860.1
Capital Employed ( Share
capital + Reserves and
9344.9
8415.4
6853.9
5452.6
4378.8
surplus) (In x10M Rs)
Preference Dividend (In Rs)
0
0
0
0
0
Return on Investment (In
11.4782 19.8411 22.4002 21.9541 19.6423
Rs)
395
246
393
136
678

2004
621.82

2003
129.72

3591.2

3098

0
17.315
1036

0
4.18721
756

INTERPRETATION:

For the year 2004 05 it is 19.64 % that increase in the year 2005 06 up to
21.95%.
These ratios shows downward trend in the ratio in return on shareholders fund for
this company.
Here in the year 2008-09 there is decrease of 69% compared to previous year in
the ROI which shows upward trend in the company.

Earning per share:

Meaning:

EPS measures the profit available to the equity shareholders on a per share basis,
that is, the amount that they can get on every share head.
This ratio shows the profitability of the firm from the owners point of view. By
comparing EPS of the current year with past years the path of the trend of
profitability can be ascertained.
It is essential that EPS of the company should be compared with the other
companies and also average of the company before giving final opinion.
The limitation of EPS is that it does not show how much dividend is actually paid
to shareholders and how much profit is retained in business.

Implementation:

Earning per share is a widely used ratio. EPS s a measure of profitability

Formula:
37

Profit after tax preference dividend X 100

No. of equity shareholders fund
FOR RETURN ON EARNING PER SHARE
Particulars
2009
2008
2007
2006
2005
Net Profit (In x10M Rs)
1072.63 1669.71 1535.29 1197.07
860.1
2889100 2889100 2889100 2889100 2889100
No. of Equity Shares
60
60
60
60
60
Preference Dividend (In Rs)
0
0
0
0
0
Return on Investment ( In
37.1267 57.7934 53.1407 41.4340 29.7705
Rs)
792
185
594
02
106

2004
621.82
288910
060
0
21.522
9612

2003
129.72
2889100
60
0
44.8997
865

Interpretation:
This ratio indicates the earning per share for shareholders of company.
In the year 2004 05 ratio is 29.77 % and 2005 06 it is 41.43 % and its increase on
2006-07 is 53.14 %.therefore it is good for company as well as shareholders.

Dividend per share:

Meaning:

DPS is the dividend paid to shareholders on a per share basis.

In the other words, DPS is the Net distributed profit belonging to the shareholders
divided by the No. of ordinary shares outstanding.

Implementation:

The DPS would be a better indicator than EPS as the former shows what exactly

is received by the owners.

Like the EPS, the DPS is also should not be taken at its face value as the increase
DPS may not be a reliable measure of profitability as the equality base may have
increase due to increase relation without any change in the number of outstanding
shares.

Formula:
Total dividend declared
No. of equity shares
38

Particulars
No. of Equity Shares

FOR DIVIDEND PER SHARE

2009
2008
2007
2006
2889100 2889100 2889100 2889100
60
60
60
60

2005
2889100
60

2004
288910
060

2003
2889100
60

Total Dividend (In x10M

Rs)

101.1

144.5

130

101.1

57.8

43.3

42.7

Dividend per Share ( In Rs)

3.49935
894

5.00155
654

4.49967
024

3.49935
894

2.00062
262

1.4987
3632

1.47796
861

Interpretation:

This ratio indicates the total dividend declared to no. of shares. For the year 2004

05 it is 2 % and 2005 06 is3.50 % and increase on 4.50 % in the year 2006

07.
For the year 2007-08 is 96% increased compared to previous year while for the
year 2008-09 it is decreased to 26.84%. Thus for the current year it is decreased.
It indicates slow-down in the financial position of the company.

Price earnings ratio:

Meaning:

It is closely related to the earning yield leanings price ratio. It is actually the
reciprocal of the latter. Thus ratio is computed by dividing the market price of the
shares by the EPS.
Implementation:

The price earning ratio reflects the price currently being paid by the market for
each Rupee of currently reported EPS. In other words, the PIE ratio measures
investors expectations and the market appraisal of the earnings. Therefore, only
normally sustainable earning associated with the assets are taken into account.

Formula:
Market value per share
Earning per share
39

Particulars
Market Value of Share (In
Rs)
Earning Per Share (In Rs)
Price Earning Ration

FOR PRICE EARNING RATIO

2009
2008
2007
2006

2005

2004

2003

1559.65

520.1

990.05

927.35

636.5

461.25

376.3

41.57
37.5186
433

59.03
8.81077
418

53.29
18.5785
326

40.65
22.8130
381

29.25
21.7606
838

18.56
24.851
8319

4.88
77.1106
557

Interpretation:

This ratio indicates the earning per share for shareholders of company.
In the year 2004 05 ratio is 17.58% and 2005 06 it is 21.95% and its increase
on 29.55%.
Therefore it is good for company as well as shareholders.

Dividend yield ratio:

Meaning:

Dividend yield ratio is closely related to the EPS and DPS.

While the EPS and DPS are based on the book value per share, the yield is
expressed in terms of the market value per share.
The earnings yield may be defined as the ratio of earnings per share to the market
value per ordinary share.

Implementation:

The dividend yield ratio is calculated by dividing the cash dividends per share by
the market value per share.
Formula:
Dividend per share
Market value share
40

Particulars
Market Value of Share (In Rs)
Dividend Per Share (In Rs)
Dividend Yield Ratio

FOR DIVIDEND YIELD RATIO

2009
2008
2007
2006

2005

2004

2003

1559.65

520.1

990.05

927.35

636.5

461.25

376.3

3.4993589
4
0.0022436
8

5.001555
65
0.009616
53

4.49967
024
0.00454
489

3.499358
94
0.003773
5

2.00062
262
0.00314
316

1.4987
3632
0.0032
4929

1.4779
6861
0.0039
2763

Interpretation:

This ratio indicates the earning per share for shareholders of company.
In the year 2004 05 ratio is 17.58% and 2005 06 it is 21.95%.
For the year 2007-08 the ratio is decreased by 109.9% and for 2008-09 it is
increased by 76.51%. So for current situation is good for company as well as
shareholders.

Interest coverage ratio:

Meaning:

It is also known as time interest earned ratio.

This ratio measures the debt servicing capacity of a firm insofar as fixed interest
on long term loan is concerned. It is determined by dividing the operating profit
or earning before interest and taxes (EBIT) by the fixed interest changes on loans.

Implementation:

This ratio uses the concept of net profits before taxes because tax is calculated

after paying interest on long term loan.

This ratio as the name suggests, show how many times the interest changes are
covered by EBIT out of which they will be paid.

41

Formula:

EBITD
Interest

FOR INTEREST COVERING RATIO

Particulars

2009

2008

2007

2006

2005

2004

2003

Operating Profit (EBDIT) (In

x10M Rs)

2433.
3

3130.8

2588.8

2055.8

1797.7

1308.1

656.9

Interest (In x10M Rs)

51

59.6

37.6

20.4

36

43.4

52.7

Interest Covering Ratio

47.71
1764
7

52.53020
13

68.85106
38

100.774
51

49.9361
111

30.1405
53

12.464
8956

INTERPRETATION:

This ratio indicates the EBDIT to interest. In the year 2004 05 ratio is 49.93 and
2005 06 it is 100.8 and its decrease on 68.85.therefore it is good for company as
well as shareholders.
For the year 2008-09 the interest covering ratio is 47.71 while for the year 200708 it is 52.53.It is decreasing for the last 2 financial years due to the fluctuation in
for-ex.

Activity / Turn over Ratio:

Overall turnover ratio:

42

Meaning:

The amount invested in business is invested in all capital employed and sales are
affected through them to earn profits so in order to find relation between net sales
to capital employed.

Implementation:

The usefulness of the Du Pont analysis lies in the fact that it presents the overall
picture of the performance of a firm as also enables the management to identify
the factors which have a bearing on profitability.

Formula:
Net sales
Capital employed

Particulars
Net Sales (In x10M Rs)
Capital Employed
( Share capital +
Reserves and surplus)
(In x10M Rs)
OVERALL TURNOVER
RATIO

FOR OVERALL TURNOVER RATIO

2009
2008
2007
2006
20530.1 17891.6
14696.3
12015.9

2005
10923.8

2004
9104.4

2003
7180.1

9344.9

8415.4

6853.9

5452.6

4378.8

3591.2

3098

2.19693
0946

2.126054
614

2.144224
456

2.203700
987

2.49470
174

2.5351
97149

2.31765
6553

Interpretation:

This ratio indicates net sales to capital employed. In the year 2004 05 ratio is

2.49 and 2005 06 it is 2.20 and its decrease on 2.14 in the year 2006 07.
Therefore it is bad for company.
In the year 2008-09 the ratio is 2.19 while in the year 2007-08 the ratio is
decreased to 2.12 which shows slow down in the company.

Fixed assets turnover ratio:

43

Meaning:

It is based on the relationship between the sales and assets of the firm.
A reference to this was made while working out the overall profitability of a form
as reflected in its earning power.
Implementation:

To ascertain efficiency and profitability of the business. The higher the turnover
ratio, the more efficiency is the management and utilization of the assets while
low turnover ratios are indicative of underutilization of available resources.

Formula:

Particulars
Net Sales (In x10M
Rs)
Total Fixed Asset (In
x10M Rs)
Fixed Asset Turnover
Ratio

Sales
Fixed assets
FOR FIXED ASSETS TURNOVER RATIO
2009
2008
2007
2006
2005

2004

2003

20530.1

17891.6

14696.3

12015.9

10923.8

9104.4

7180.1

7079.34
4828

5716.166
134

4740.7419
35

4073.186
441

3943.61
011

3554.50
495

2.9

3.13

3.1

2.95

2.77

3746.6
6667
2.4299
99998

2.02

Interpretation:

Fixed turn over ratio indicates the turnover of the company in one year.
In the year 2004 05 ratio is 2.77 and 2005 06 it is 2.95 and it increase on 3.1

in the year 2006 - 07. Therefore, it is good for company.

In the year 2008-09 there is decrease of 7% in the fixed turnover ratio compare to
last year while during year 2007-08 there is very minor change in the ratio. Year
2007-08 and 2006-07 shows almost similar financial position of the company
while year 2008-09 shows slight slow down in the financial position of the
company

44

 Debtor turn over ratio:

Meaning:

It is allied and closely related to this is the average collection period. It is the test
of the liquidity of the debtors of a firm.
Implementation:

This figure should be measured, as in the case of average inventory, on the basis
of the monthly average. It suggests that number of times the amount of credit sale
is collected during the year.

Formula:
Credit sales
Avg. Debtors

FOR DEBTOR TURN OVER RATIO

Particulars

2009

2008

2007

2006

2005

2004

2003

Net Sales (In x10M Rs)

20530.1

17891.6

14696.3

12015.9

10923.8

9104.4

7180.1

Sundry Debtors (In

x10M Rs)

697.117
1477

596.9836
503

595.23288
78

507.2140
144

527.974
867

560.61
57635

603.877
2077

Debtor Turnover Ratio

29.45

29.97

24.69

23.69

20.69

16.24

11.89

Interpretation:

Debtor turnover ratio indicates credit sales to avg. debtors.

In the year 2004 05 ratio is 20.69 and 2005 06 it is 23.69 and its increase on

24.69 in the year 2006 07. Therefore, it is good position for company.
In the year 2008-09 there is 1% decrease in the Debtors turnover ratio compare
to previous year and 2007-08 there is 17.91% increase in the debtors turn over
ratio.
How efficiently the amount is collected from the customers from the credit sales.
As compare to previous year the no. of days collection period increase which
indicate inefficiency of collection department.

45

 Lower the collection period and higher debtor turnover ratio is advisable.
Creditor ratio:
Meaning:

It is the no. of days within which we make payment to our creditors for credit
purchases it obtained from creditor ratio.

Implementation:

The generally the longer credit period achieved means the operation of the
payment being financial interest feels by supper funds.

Formula:
Creditor + B / P
Credit Purchases

Particulars
Creditor (In x10M
Rs)
Bills Payable (In
x10M Rs)
Credit Purchase
(In x10M Rs)
Creditor Ratio

X 365

FOR CREDITOR RATIO

2008
2007

2006

2005

854.9

909.6

555.1

463.7

13938.8

10836.4

9392.8

8621.3

22.38632
45

30.637850
21

21.570937
31

19.631668
1

Interpretation:
Creditor ratio indicates creditor to credit purchase.
In the year 2004 05 ratio is 19.63 and 2005 06 it is 21.57 and its increase on 30.63 in
the year 2006 07.
In the year 2007-08 there is decrease on 22.38 times i.e. decrease of 36.36% in the
creditor ratio compare to previous year.
Thus it indicates slight slow down in the financial condition of the company.

46

 Creditor turns over ratio:

Meaning:

It is the no. of days within which we make payment to our creditors for credit
purchases it obtained from creditor ratio.
Implementation:

The generally the longer credit period achieved means the operation of the
payment being financial interest feels by supper funds.
Formula:
No. of days in a year
Creditors ratio

Particulars
NO. Of
Days in
Year
Creditor's
Ratio
Creditors
Turnover
Ratio

FOR CREDITOR TURN OVER RATIO

2008
2007
2006
365

2005

365

365

365

22.3863245

30.6378502
1

21.57093731

19.6316681

16.30459703

11.9133685
1

16.92091515

18.5924089

Interpretation:

Creditor ratio indicates creditor to credit purchase. In the year 2004 05 ratio is

18.59 and 2005 06 it is 16.92 and its increase on 11.91 in the year 2006 07.
Therefore, it is good position for company.
During the year 2007-08 ratio is 16.30. It increases in compare to previous
financial year thus it indicates good position of the company.

47

 Stock Turnover Ratio:

Meaning:

It is the no. of times the average stock is turned over during the year is known as

stock turnover ratio. It measures the relationship between COGS and inventory
level.
Higher the turnover ratio, the more profitable business would be. Such firms will
be able to trade on a smaller margin of a gross profit.
Lower stock turn over ratio indicates accumulation of slow moving, obsolete and
low quality goods, which is a danger signal for management.

Implementation:

This approach has the advantage of being free from bias as it smoothens out the

fluctuations in the inventory level at different period.

It is measures how quickly inventory is sold. It is a test of efficient inventory
management.
To judge whether the ratio of a firm is satisfactory or not.

Formula:
Cost of good sold
Average stock
Particulars
Sales Turnover (In
x10M Rs)
Gross Profit (EBDT)
(In x10M Rs)
Cost Of Good Sold
(COGS) (In x10M Rs)
Inventories (In x10M
Rs)
Stock Turn over Ratio

2009

FOR STOCK TURN OVER RATIO

2008
2007
2006

2005

2004

2003

23182.2

21025.2

17205.9

14753.1

13335.7

11047.4

8981.5

2382.3

3071.2

2551.2

2035.4

1761.7

1264.7

604.2

20799.9

17954

14654.7

12717.7

11574

9782.7

8377.3

902.3

1038

701.4

881.2

666.6

439.8

487

23.052089
11

17.29672
447

20.893498
72

14.4322514
8

17.362736
3

22.243519
78

17.2018480
5

Interpretation:

Stock turnover ratio indicates cost of goods sold to average stock.

In the year 2004 05 ratio is 17.36 times and 2005 06 it is 14.43 times and its
increase on 20.80 times in the year 2006 07.

48

 For the year 2008-09 and 2007-08 the ratio are 23.05 times and 17.3 times

respectively. It is more in 2008-09 compare to 2007-08. It indicates better position

of the company.
Therefore, it is good for company. How efficiently stock rate in the year Higher
the ratio, better position of the company as well as efficiency.

Liquidity Ratio:
Current Ratio:
Meaning:
The current ratio is the ratio of total current assets to total current liability. It is
calculated by dividing current assets by current liability.
It is also known as a working capital ratio, as it is measure of working capital
available at a particular time. It is a measure of short term financial strength of the
business and shows whether the business will be able to meet its current
liabilities, as and when they mature.
Implementation:
The current ratio of a firm measures its short term solvency. That is a measure of
margin of safety to the creditors. The fact that a firm can rarely count on such an
even flow requires that the size of the C.A. should be sufficiently larger than C.L.
so that the firm would be assured of being able to pay its current maturing debts
as and when it becomes due.

Formula:
Current Assets
Current liability

Particulars
Total Current
Assets (In
x10M Rs)
Total Current
Liabilities (In

2009

FOR CURRENT RATIO

2008
2007
2006

2005

2004

2003

5491.1

3097.9

4405

3740.9

2972

2018.9

2782.8

3397.6

2825.7

3072.4

1977.1

1608

1531.8

1478.6

49

x10M Rs)
Current Ratio

1.6162

1.096330

1.433732

1.892114

1.848258

1.31799

1.882050

Interpretation:

Current ratio indicates current assets to current liability. In the year 2004 05

ratio is 1.84: 1 and 2005 06 it is 1.89: 1 and its decrease on 1.43: 1 in the year
2006 07.
Therefore, it is good for company.
For the year 2008-09 the ratio is 1.61:1 and for the year 2007-08 it is 1.61:1. So
for the year 2008-09 it is good as ideal is 2:1 and 1.61:1 closer to ideal one.
Mainly 2: 1 is good. It indicates, repaying condition of the company to the current
liabilities. The standard current ratio must be 2:1.

Liquid Ratio:
Meaning:

It is obtained by dividing the liquid assets by liquid liabilities.

It liquid ratio is designed to show the amount of cash available to meet immediate
payments.
If the liquid assets are equal to or more than liquid liabilities, the condition may
be considered as satisfactory.

Implementation:

The importance of adequate liquidity in the sense of the ability of a firm to meet

short term obligations when they become due for payment can hardly be
overstressed.
In fact liquidity is a prerequisite for the very survival of a firm. It measures ability
of a firm to meet its short term obligations and reflect the short term finance
strength of a firm.

Formula:
Liquid assets
Liquid liability

50

Particulars
Total
Current
Assets (In
x10M Rs)
Inventories
(In x10M
Rs)
Prepaid
Expenses
(In x10M
Rs)
Quick Asset
(In x10M
Rs)
Total
Current
Liabilities
(In x10M
Rs)
Bank Over
Draff (In
x10M Rs)
Liquidity
Ratio

2009

FOR LIQUIDITY RATIO

2008
2007
2006

2005

2004

2003

5491.1

3097.9

4405

3740.9

2972

2018.9

2782.8

902.3

1038

701.4

881.2

666.6

439.8

487

4588.8

2059.9

3703.6

2859.7

2305.4

1579.1

2295.8

3397.6

2825.7

3072.4

1977.1

1608

1531.8

1478.6

1.350600
42

0.728987
51

1.2054
42

1.446411
41

1.433706
47

1.03087
87

1.552684
97

Interpretation:
Liquid ratio indicates liquid assets to liquid liability. In the year 2004 05 ratio is 1.43: 1
and 2005 06 it is 1.44: 1 and its decrease on 1.21: 1 in the year 2006 07. Therefore, it
is good for company. How effectively the liability paid off.
For the year 2008-09 the ratio is 1.35:1 which shows slight better condition compare to
FY 2004-05.
The standard liquidation must be 1:1.

Quick / acid test ratio:

Meaning:

The measure of absolute liquidity may be obtain by comparing only cash and
bank balance as well as readily marketable securities with liquid liabilities.
This is exacting standard of liquidity and it is satisfactory if the ratio is 0.5:1.
51

Quick assets here do not include both stock and debtors, because payment from
debtors would not generally be received immediately when liquid liabilities are to
be paid.

Implementation:

This ratio is the most rigorous and conservative test of a firms liquidity position.
Further, it is suggested that it would be useful for the management.

Formula:
Quick assets
Liquid liability

Particulars
Quick Assets
(In x10M Rs)
Current
Liability (In
x10M Rs)
Quick Acid
Test Ratio

FOR QUICK ACID TEST RATIO

2008
2007
2006
2005

2009

2004

2003

5491.1

3097.9

4405

3740.9

2972

2018.9

2782.8

3397.6

2825.7

3072.4

1977.1

1608

1531.8

1478.6

1.616170
24

1.096330
11

1.433732
59

1.892114
71

1.848258
71

1.31799
19

1.882050
59

Interpretation:

Quick acid test ratio is indicates quick assets and liquid liability. In the year 2004
05 ratio is 1.84: 1 and 2005 06 it is 1.89: 1 and its decrease on 1.4: 1 in the
year 2006 07. Therefore, it is good for company.

Leverage Ratio:
Proprietary ratio:
Meaning:
The ratio shows the proportion of proprietors funds to the total assets employed in
known in the proprietary ratio.
Implementation:
52

 Proprietary ratio helps to known how many proprietary funds to total assets.
The higher the ratio, the stronger the financial position of the enterprise, as it

signifies that the proprietors have provided larger funds to purchase assets. This
ratio can not exceed 100%; it means that the business does not use any outside
funds. There are no outside liabilities. Purchases are made for cash only and firm
carries business entirely from own funs only. A very high ratio therefore is not
desired as it shows insufficient use of out side fund is made.
Generally it is said that proprietors fund should be enough to cover fixed assets.
And also reasonable proportion must be maintained between owned funds and
borrowed funds, so the benefit of trading on equity is obtained. Which inture
increase the rate of equity dividend.

Formula:
Proprietary fund
Net asset

Particulars
Total Proprietary
Funds (In x10M Rs)
Total Assets (In x10M
Rs)
Proprietary Ratio

2009

FOR PROPEIETARY RATIO

2008
2007
2006

2005

2004

2003

9344.9

8415.4

6853.9

5452.6

4378.8

3591.2

3098

10043.8

9315.6

7484.7

5524.3

4686.4

3903.1

3554

93.041478
32

90.3366
3962

91.57214
05

98.702098

93.43632
639

92.0089
1599

87.1693
8661

Interpretation:
This ratio indicates the proprietary funds to total assets. For the year 2006 07 it is 91.57
% and 2007 08 is 90.33 % and increase in 2008 09 it is 93.04 %. This is a good for
company.

Debt equity ratio:

Meaning:

53

The relationship between borrowed funds and owners capital is a popular

measure of the long term financial solvency of a firm. This relationship is shown
by the debt equity ratio.

Implementation:

This ratio reflects the relative claims of creditors and shareholders against the

assets of the firm. Alternatively this ratio indicates the relative proportions of
debts and equity in financing the assets of a firm.
The D/E ratio is an important tool of financial analysis to appraise the financial
structure of a firm. It has important implication from view point of the creditors,
owners and the firm itself.
A higher ratio means that outside creditors have a larger claim than the owners of
business. The pressure from creditors would increase and their interference will
also increase. The company with high debt position will have to accept strict
conditions from the lenders, while borrowing money.
A lower ratio is not profitable from the view point of equity share holders, as
benefit of trading on equity is not availed of and the rate of equity dividend will
be comparatively lower.

Particulars
Long term
Liabilities (In
x10M Rs)
Total Shareholders
Funds (In x10M
Rs)
Debt-Equity Ratio

2009
841.041

FOR DEBT EQUITY RATIO

2008
2007
2006
841.54 411.234
218.104

2005
350.304

2004
395.032

2003
588.62

9344.9

8415.4

6853.9

5452.6

4378.8

3591.2

3098

9%

10%

6%

4%

8%

11%

19%

Interpretation:

This ratio indicates the debt to equity ratio. For the year 2004 05 it is 8 %and
2005 06 is 4 % and increase in 2006 07 it is 6%.
This is a bad for company as compare to 2005-06 year is more debt ratio which
indicate the more realize on debt fund rather owned fund. The good impact is
interest burden will be more indirectly.
For the year 2008-09 and 2007-08 the debt equity ratio is 9% and 10%
respectively. As the higher debt equity ratio it shows the weaker financial
condition of the company. But, still it again varies for company to company.
54

Chapter 5

FINDINGS
55

AND
CONCLUSION

56

5.1 FINDINGS & CONCLUSION

The study is entitle A Study of Financial Statement Analysis of the Maruti Limited has
been undertaken with the objective to analyze and interpret the companys financial
performance.
Maruti was listed in 2003, and has been a consistent and strong performer on the stock
exchange, giving handsome returns to investors.
They are practically debt free and have a healthy cash balance. They have financed all
growth from internal resources.
Their continuous efforts at cost cutting and improving productivity, even in good times,
have helped them in making reasonable profits despite the impact of higher commodity
prices and weaker rupee.

Maruti Suzuki India LTD. company has a trend of growth from 2003 to 2007.During the
financial year 2008-09 the there is downfall in the growth of the company. The main
reason behind this downfall is because of the global recession and the price of
commodities of Maruti was quite high in the commodity market. The downfall of net
profit during the financial year 2008-09 is 29.6% over the financial year 2007-2008.The
total sales numbers in 2009-10 mark a growth of 29% over last financial year. The export
sales of 147,575 units in the year2009-10 are the highest ever annual export by the
company.
Maruti has crossed sale of 1million cars and by achieving this now it has become
landmark for Maruti where other companies will take time to reach and of course they
have raise their bar for themselves also.

5.2LIMITATION OF THE STUDY

The main limitation of the study is time constraints some other limitation as follows,
The financial statements are prepared on the basis of historical costs or original
costs. The value of assets decreases with the passage of time current price
changes are not taken into account.
57

The financial statements are expressed in monetary values, so they appear to give
final and accurate position, but sometimes it does not give exact position.
The precision of financial statement data is not possible because the statements
deal with natters which cannot be precisely stated.
The company wanted not to disclose some of the analysis carried on. Hence some
of them are not included in this report.
The study had to be fully dependent upon past financial statements as such it may
fail to reflect the financial stand and capacity of the company a near future.
More emphasis has been laid on the accounting ratios as they reveal the trend over
a period.
A conclusion from this analysis is not real indications of the efficiency of the
management and hence requires further investigation.
The balance sheet ratio cannot be fully relied upon as the balance sheet show the
financial position as particular data.
For the industrial average comparisons analysis the data were not available.
Difference in definitions of basic concepts renders the comparison
inaccurate. Hence ratio value might vary significantly.
In spite of all these limitation, study was grand success as it helped to improve the
knowledge and give better experience and exposes to factory practice and surrounding all
the attempts have been made to make right type of interpretation and suggestion.

5.3 SUGGESTIONS

58

BIBLIOGRAPHY
Books

1. Marketing management: analysis, planning, implementation, and control by

Philip Kotler - Business & Economics - 1988

2. Marketing Management by Philip Kotler, Kevin Keller - Business &

Economics - 2008

3. Research methodology: a step-by-step guide for beginners by Ranjit Kumar Social Science - 2005

4. Research methodology by Douglas K. Detterman - Psychology - 1985

Web sources

1. www.managementparadise.com
2. www.wikipedia.org
59

3. www.google.co

60