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Financial Statement Analysis Of Maruti Suzuki Company Finance Essay

This assignment is based on financial analysis of Annual reports of MARUTI SUJUKI COMPANY LIMITED.

In this assignment we have done analysis and evaluation of downturn in the financial markets in India in reference to Maruti Suzuki Company Ltd and also showing the financial condition of Maruti Suzuki Company Limited in that period. It also shows how this company overcome from recession by using strategy and various measures.

We have done the detailed analysis of financial ratios and Balance sheet in order to analyse the financial statement of Company.

We have done a comparative ratio analysis of Maruti Suzuki and Mahindra and Mahindra Company ltd.

INTRODUCTION

Maruti Suzuki India Limited (MSIL), a minion of Suzuki Motor Corporation of Japan, is India's biggest passenger car company, accounting for mainstream of the domestic car market. MSIL basically focus in four wheeler vehicles and its growth rate in the field of automobile industrial is rise day by day in terms of company yearly revenue and maximum no. of selling vehicles. Maruti Suzuki is the first Indian company who manufacture mass volume of products and sold more than millions products in all over the world. Maruti Suzuki reduces the employment ratio, in Maruti more than 75000 well trained staff are working in a good environment. Maruti Suzuki provide safety environment to their employees at workplace.

In November 1970 Maruti Suzuki established and its name was Maruti Technical Service Private Limited. Then main goal of making this company is to provide the knowledge of how to manufacture Wholly Indigenous motor car. Later on in 1981 Maruti Udyog limited was established for the request of Indira Gandhi to the Indian government. In 2007 Maruti Suzuki signed a new deal with Suzuki (japan) to move their stake higher. Later on its name changed to Maruti Suzuki India Limited.

Maruti Suzuki launched many brands over 150 variants ranging from Maruti 800 (Family car) to the modish hatchback Ritz. Maruti launched many products like Eeco, Alto, A-star, Zen, WaganR, Maruti Gypsy, Swift, SX4, Grand Vitara.

VISION AND CORE VALUES

We believe our core values drive us in every endeavor

 

Company was started its operations in 1983, with the starting model which is Maruti 800 - the vehicle which came with uprising growth in the Indian car market.

Today, one in between each two cars in India is a creation of Maruti Suzuki. Range and development complexity have today moved to a different association from when it began. Now Company have reached a ability of one million cars annual manufacture this year.

This achievement is entirely based on the company's stable effort to meet objective of a large and varied demography, by providing the best through modern goods and services.

Today, Maruti Suzuki factories at Gurgaon, and Manesar, Haryana, North India are the real proof of Quality, manufacturing philosophy and effectiveness.

Exports

Maruti Suzuki has started exports of products with starting models across the globe in around 120 countries and the important point has been to recognize new markets. Some significant markets include Latin America, Africa, South East Asia and Ocean.

The Company achieved its highest exports at 147,575 units with a growth of 111% in the Fiscal Year 2009-10.

The Fifth Word Strategic Model A-Star by Suzuki is star performer of the year 2009-10.

The company was built-in in 1981 and now this company has good image in stock Exchange market as Maruti is listed on Indian Stock market (Bombay Stock Exchange and National Stock Exchange).

Analysis and Evaluation

Financial Analysis

For any business, financial analysis is use and change of financial data into a form for monitoring and estimates the company financial position, and preparing a plan for future financing, and the firm size and its growth rate. To prepare the Financial it require financial statement analysis and funds-flow-adequacy ratio.

Understand, Classify, Evaluate and Adjust

To know your company financial strong point is a primary aspect of responding to today’s increasingly rigorous financial reporting requirements.

Financial statement study is defined as the method of identify strong points and weak points of the company in monatory terms by making a relationship between the factors of the balance sheet and the loss and revenue account of the organization.

To evaluate financial statements, such as comparative statements, funds analysis, trend analysis, and ratios analysis lot of techniques and methods are used.

Financial Statement is useful for setting the agenda of managerial decisions. But the data provided in the financial statements is not complete in itself and also not provide any conclusion unless and until through examination and analysis of financial statement has not been done for decision making. Financial statement is also useful to see company financial stability in market and it comparisons with other companies in monitory terms.

 

Ratio Analysis

Ratios Analysis can be defined as analysis of financial ratios of an enterprise in order to evaluate a big business of company in different point of views. Financial Ratios can be used by managers by current and potential stakeholder or owner of company or by creditors of company. Also help top management of company in decision making.

Financial Ratios helpful in evaluating the strengths and week points of various companies and also helpful in comparative analysis between two and more companies.

Financial Ratios are always expressed as a decimal value, such as 0.10, or the alike percent value, such as 10%.

Financial ratios enumerate many aspects of a business in order to build a complete financial analysis.

A financial ratio is helpful in doing comparisons between two and more companies and between companies and also between company in itself.

NOW WE ARE ANALYSING RATIOS OF MARUTI SUZUKI IN REFERECE TO ABOVE MENTION BALANCE SHEET AND P&L A/C

LIQUIDITY RATIOS

Liquidity ratio can be categorized in three categories as below in reference to Maruti Suzuki Ltd.

Ratio Analysis

As on

31-Mar-10

31-Mar-09

Liquidity

Current Ratio (x)

0.67

0.63

Quick Ratio (x)

0.29

0.36

Current Ratio

It can be defined as the measure of the capability of a company to fulfill its financial obligations that are outstanding.

It is also called as “liquidity ratio” ,”current asset ratio” and “cash ratio”.

Higher is the current ratio more good it is because it shows that the company has higher degree of ability to fulfill its short-term debt obligation that are falling due.

Formula- current assets/current liabilities

As per balance sheet mentioned above, current ratio of company in 2009 was 0.63 (2060.20/3250.90) and in 2010 it is 0.67(2116.90/3160) which is increasing in 2010 and this is a good indication in reference to company ability.

Quick Ratio

This ratio can be derived by deducting stock from the current assets and then dividing by current liabilities. Quick ratio is an indicator of the financial strength and weakness of a company(more is the value of this ratio means more stronger the firm is and lower value signifies that the company is weak).

FORMULA:- QUICK ASSETS/CURRENT LIABILITY(QUICK ASSETS= C.ASSETS-STOCK)

As per balance sheet Quick ratio of company in 2009 was 0.36 and in 2010 it is 0.28.

Quick ratio has also shown a reducing trend and negative indications regarding financial ability of Company. One of the Reason for this s financial crises.

PROFITABILITY RATIOS

As the name suggests , profitability ratios are concerned with the efficiency of a business in achieving its targets and generating profits or returns on the invested capital.

So profitability ratios is one of the financial analytical tool by means of which we can judge the ability of a businesss to generate profits or earnings with respect to the expense met with the business.

Ratio Analysis

As on

31-Mar-10

31-Mar-09

Profitability

Gross Profit Margin(%)

13.04

9.53

Net profit margin (%)

8.51

5.87

Operating Margin (%)

15.30

11.91

NET PROFIT MARGIN

It can be defined as the amount of profit a company makes from every pound of the total revenue it produce or sales it makes.its good for the company to have more net profit margin as compared to its rivals.

Formula :- net profit margin= [profit before interest and tax/sales or turnover]x100

2009= 1218.7/20729.40*100=5.87

2010=2497.60/29317.70*100=8.51

The above data shows that net profit shows an increase from 2009 to 2010, its shows irrespective of financial crises company has recorded profit on upper trend in 2010.

GROSS PROFIT MARGIN

The gross profit margin ratio can be defined as the amount of profit, a firm can produce with respect to the cost of sales..

Gross profit is the amount of profit we get before we deduct any cost of administration, sales etc. thus its good if net profit margin is lower then the gross profit margin.

Formula- [gross profit/sales or turnover]x100

2009=1976.60/20729.40=9.53

2010=3824.60/29317.70=13.04

We have seen that the gross profit margin in higher than the net profit margin for Maruti Sazuki over the years 2009 to 2010 which is good for the financial condition of the company.

OPERATING PROFIT MARGIN

This is a part of net profit margin ration. This ratio helps company in order to identify Earning before Taxes and Interest in comparison to Net Sales.

Formula:- {Earning before interest and taxes/Net Sales}*100

2009 = 2468.30/ 20729.40= 11.91

2010=4486.60/29317.70=15.30

For Maruti Suzuki Opearating Profit Margin was 11.91 in 2009 and 15.30 in 2010. This shows a positive and strong financial condition of company.

ACTIVITY RATIOS:-

Activity ratios- it can be defined as how actively or quickly a company is able to change the assets into sales or cash.

Ratio Analysis

As on

31-Mar-10

31-Mar-09

Activity Ratios

Inventory Turnover Ratio

13.71

14.09

Fixed Assets Turnover Ratio

18.50

6.66

Total Assets Turnover Ratio

2.54

2.33

Different types of activity ratios are as follows:

INVENTORY TURNOVER RATIO

It can be defined as the measure of the amount of time a company needs to convert its stock into sales. The lesser is the stock days or stock turnover, lower is the cost incurred by the company in holding stock.

Formula- [stock or inventory/cost of sales]x365

2009:-902.3/23381.50*365=14.09

2010=1208.80/32174.10*365=13.71

In 2010 stock turnover ratio is comparatively less then 2009, it means company is taking care of cost part in holding stock.

FIXED ASSETS TURNOVER RATIO

it can be defined as the sales produced from the fixed assets of a company.

Formula- sales or turnover/fixed assets

2009=23381.50/3509.9=6.66

2010=32174.10/1739.10=18.50

TOTAL ASSETS TURNOVER RATIO

It can be defined as sales produced from total assets of company.

Formula- sales or turnover/total assets

2009= 23381.50/10043.80=2.33

2010=32174.10/12656.50=2.54

Total assets turnover ratio is increasing in 2010 comparative to 2009 which is a positive sign for company and also showing capacity of company for producing sales out of total assets

 

 

 

RATIO ANALYSIS OF MAHINDRA AND MAHINDRA CO LTD:

LIQUIDITY RATIOS

Liquidity ratio can be categorized in three category as below in reference to Mahindra and Mahindra Co Ltd.

Ratio Analysis

As on

31-Mar-10

31-Mar-09

Liquidity

Current Ratio (x)

1.11

1.06

Quick Ratio

0.90

0.84

Current Ratio

It can be defined as the measure of the capability of a company to fulfil its financial obligations that are outstanding.

It is also called as “liquidity ratio”,” current asset ratio” and “cash ratio”.

Higher is the current ratio better it is because it shows that the company has higher degree of ability to fulfil their short-term debt obligations that are falling due.

Formula- current assets/current liabilities

As per balance sheet of company, current ratio of company in 2009 was 1.06 (5081.2/4797.76) and in 2010 it was 1.11 (6224.56/5619.04) which is increasing in 2010 and this is a good indication in reference to company ability.

Quick Ratio

This ratio can be derived by lessening stock from the current assets and then dividing by current liabilities. Quick ratio is an indicator of the financial strength and weakness of a company (more is the value of this ratio means more stronger the firm is and lower value signifies that the company is weak).

FORMULA: - QUICK ASSETS/CURRENT LIABILITY (QUICK ASSETS= C.ASSETS-STOCK)

As per balance sheet Quick ratio of company in 2009 was 0.84 and in 2010 it is 0.90.

Quick ratio is also showing a upward trend in 2010 which is positive sign for company.

PROFITABILITY RATIOS

Ratio Analysis

As on

31-Mar-10

31-Mar-09

Profitability

Gross Profit Margin(%)

14.84

8.75

Net profit margin (%)

13.65

6.76

Operating Margin (%)

16.25

9.66

NET PROFIT MARGIN

it can be defined as the amount of profit a company makes from every pound of the total revenue it produce or sales it makes. It’s good for the company to have more net profit margin as compared to its rivals.

Formula: - net profit margin= [profit before interest and tax/sales or turnover] x100

2009= 991.57/14668.13*100=6.76

2010=2774.26*20323.63*100=13.65

The above data shows that net profit shows an increase from 2009 to 2010, its shows irrespective of financial crises company has recorded profit on upper trend in 2010.

GROSS PROFIT MARGIN

The gross profit margin ratio can be defined as the amount of profit a firm can produce with respect to the cost of sales.

Gross profit is the amount of profit we get before we deduct any cost of administration, sales etc. thus its good if net profit margin is lower then the gross profit margin.

Formula- [gross profit/sales or turnover]x100

2009=1417.20/14668.13*100=8.75

2010=3016.80/20323.63*100=14.84

Gross profit is always higher then net profit so gross profit margin % is also on higher side.

OPERATING PROFIT MARGIN

This is a part of net profit margin ration. This ratio helps company in order to identify Earning before Taxes and Interest in comparison to Net Sales.

Formula:- {Earning before interest and taxes/Net Sales}*100

2009 = 1417.20/ 14668.13*100= 9.66

2010=3301.89/20323.63=16.25

Operating Profit Margin was 9.66 in 2009 and 16.25 in 2010. This shows a positive and strong financial condition of company.

COMPARISIONS

Comparisons of Ratios of Maruti Suzuki and Mahindra and Mahindra

Maruti Suzuki

Mahindra and Mahindra

Maruti Suzuki

Mahindra and Mahindra

Maruti Suzuki

Mahindra and Mahindra

 

2008

2009

2010

Operating Profit Margin(%)

14.12

10.23

9.18

9.81

15.3

16.29

Gross Profit Margin(%)

10.97

8.12

5.77

7.59

13.04

14.29

Net Profit Margin(%)

9.34

9.45

5.72

6.25

8.51

11.08

Current Ratio

0.91

0.86

1.51

0.9

0.67

1.11

Quick Ratio

0.66

0.74

1.26

0.83

0.29

0.86

Debt Equity Ratio

0.11

0.6

0.07

0.77

0.07

0.37

Long Term Debt Equity Ratio

0.06

0.63

0.07

0.83

0.04

0.46

Inventory Turnover Ratio

22.93

12.49

30.46

14.56

13.71

17.91

Fixed Assets Turnover Ratio

2.48

3.22

2.38

2.84

18.5

3.85

Total Assets Turnover Ratio

1.94

1.64

2.06

1.42

2.54

1.74

Earnings Per Share

59.91

46.15

42.18

30.69

86.45

36.89

 

 

 

 

 

 

 

In above mention table we have compared some financial ratios of Maruti Suzuki and Mahindra and Mahindra for the financial year of 2007-08, 2008-10 and 2009-2010

As per profitability ratios, In 2008, Mahindra and Mahindra profits ratios(Operating Profit, Gross Profit and Net Profit) is less then ratios of Maruti Suzuki but in 2009 and 2010 Profit of Mahindra and Mahindra is comparatively is more then Maruti Suzuki.

Current ratio measures the ability of the firm to meet its current liabilities and provide funds for clearing the current liabilities. If we be specific we see that, the current ratios of Maruti Suzuki in 2008 and 2009 is higher then Mahindra and Mahindra it means Maruti Suzuki is having more ability to meet its current liability while in 2010 current ratio of Maruti Suzuki is showing week in comparative to Mahindra and Mahindra.

In 2009, Quick ratio of both companies is less then 1:1 in all years expect in 2009 when Quick Ratio of Maruti Suzuki is 1.26

Further if we go the D/E ratio speaks for the comparison of the borrowed fund with the equity fund. Dept Equity ratio of Maruti Suzuki is higher than Mahindra and Mahindra.

Inventory turnover ratio of Maruti Suzuki is less then Mahindra and Mahindra only in 2010 it means Maruti Suzuki has improved its ability to take less time in selling of stock and convert it in to capital.

FINANCIAL CRISES

Year 2009-10 started with big backdrop of mixed economic signals in India. There was an unexpected slump the previous year with quarterly back move.

By end of 2008-2009 overall situation of every industry was very cautious, while certain sectors had started to cover up from this situation. At end of year 2009, Automobile industries also recover up to some extent.

Government has taken a various steps in order to recover from this situation. Various steps taken by government at that time is given below:-

Reduction in Fuel Prices

Steps taken to improve Liquidity and reduction of interest rates.

Improved facility of car loans by public sectors banks.

Various Marketing efforts help to take back the faith of customers on industry.

After a certain efforts, economy shows a remarkable recovery and grown up by 7.4% and between this period various model launches by Indian Car Industry, which increased customers response.

EFFECT OF FINANCIAL CRISES ON MARUTI SUZUKI

Consolidated sales were ¥3,004,888 million (85.8% year on year, y-oy) for this fiscal year, below consolidated sales of the previous year, on account of the overseas sales reduction and yen appreciation.

As for consolidated profits, operating income, ordinary income and net income declined to ¥76,926 million (51.5% y-o-y), ¥79,675 million (50.8% y-o-y) and ¥27,429 million (34.2% y-o-y), respectively, because the reduced costs, reduced depreciation and operating expenses, etc were unable to cover the reduced profits on account of the reduced sales, increased raw material costs, exchange influences and increased research and development expenses.

In addition, non-consolidated sales declined to ¥1,685,777 million (83.0% y-o-y) for this fiscal year. As for non-consolidated profits, operating income, ordinary income and net income declined to ¥11,422 million (16.9% y-o-y), ¥4,133 million (6.7% y-o-y) and ¥3,287 million (8.0% y-o-y), respectively, because the reduced costs, reduced depreciation/amortization and operating expenses, etc were unable to cover the reduced profits on account of the reduced sales, exchange influences and increased research and development expenses.

Automobile sales have dropped in various parts of the world, however, on account of the world financial crisis, and we are faced with unprecedented crisis with the prospect of more than 30% fall in expected sales for the next year compared to previous fiscal year.

MEASURES TO OVERCOME FROM THIS SITUATION:

The management environment drastically changed in the latter half of this year, and the situation has become severer, but the Company recorded profits for the full year.

STRETEGIES IMPLEMENTED IN MARUTI SUJUKI

Company has stopped acting in a self-styled manner and get back to the basics” as basic policy in promoting the growth strategy, reviewed every aspect of business to strengthen our management practices.

To overcome this crisis, Company has been making concerted efforts as a group with the slogan of “Try our ingenuity to overcome difficulties.”

Facing the fact of a large reduction in sales squarely, Co promoted the establishment of system to ensure profits in the declining sales by cost reduction by “reduction of a gram and cost reduction of 1 yen per part,” squeezing of fixed expenses by “internal cost reduction activities” and further reviewing of organizations and systems.

Co has made efforts to reinforce the sales force by increasing and training sales persons, also to build and enhance “Suzuki Arena Shops”, for further expansion of market share. In overseas markets, Co has tried to improve SUZUKI brand image by using the slogan of “Way of life” and increase the level of overseas bases through promotion of local procurement of parts, cost reduction activities, further improvement of quality and further progress in productivity, as well as sales enhancement.

Company has done efforts for the development of high-mileage and low-emission technologies such as diesel engine cars, hybrid cars and electric cars mainly with the product development abilities for small cars, the strength of our Group, based on the alliance with each company

CONCLUSION & FUTURE PROSPECTS

The customer vehicle market size in India is now similar to some of the developed economies and positioned 7th globally. A uncomplicated evaluation of the past growth rates suggests that India will pick up its ranking from this stage. The existence of a number of global companies, the beginning of expertise, features, styling and instruction indicate that the market is on a regular basis attaining maturity. While all indicators advise a good expansion path for the market, a number of new comers are keeping a watch in market.

The Company has in the past has done a very commendable efforts and built a place in terms of a sizeable collection of significant products, a wide set-up with good systems and processes, strong customer equity, R&D potential, cost leadership, and a cost-effective business representation with healthy practices for its vendors, dealers and itself. There is a well-defined roadmap for structure on strengths like commodities, total cost of ownership, sales and service net work and systems and processes for customer pleasure. They all promise well for the future, but the risks to organizations at such position are more internal than external. The Company has to observe out for signs of complacence, self satisfaction or listlessness. The only benchmark has to be a sharper perceptive and devotion of the known and unspoken need of the customer. The Company, therefore has to keep aggressive itself, keep testing its own levels of past accomplishment, keep setting high benchmark for development and continue dedicating itself to under standing and serving its customers

We expect Maruti will be able to protect its domestic market share over the next 3 years. The company has a comprehensive plan to raise production capabilities and improve product portfolio.

Various futures plan of company is given as below:-

Production capacity to be raised by 10% from H2 through debottlenecking.

Expansion plans now include another unit in Manesar, for 250,000 units

Upgrade portfolio through complete makeover including new generation engines.

Introduce variants using alternative fuels e.g., CNG, ensuring early mover advantage in segments with future growth potential

Foray into segments yet to be addressed, although sizeable e.g., premium cars, utility vehicles.

Maruti’s entire portfolio has been replaced with next-generation engines (M-series, K-series), which deliver superior fuel efficiency with increased power.

Maruti has introduced factory fitted CNG vehicles on popular models Zen Estilo, Wagon-R, Swift, Eeco and SX4. Initially, the models will be available in Mumbai, Delhi and Gujarat, but with roll out of the CNG infrastructure in the country, we expect Maruti’s early mover advantage will help it achieve meaningful sales over longer term.

Maruti will Launch a premium model(KIZASHI SEDAN) approximately in Apr-11.

In India “Business world” is one of the famous business magazines, it researched on Automobile sector and published the top rated companies in automobile sector. Business world ranked Maruti Udyog as first as compare to their competitors like ford, Tata Motors etc. According to Business world survey they mentioned in their article, that from the 1.2 million indian market Maruti holds 55 % share as compared to its competitors starting from 2 lakhs to 5 lakhs range of vehicles.

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