CHAPTER 1 INTRODUCTION 1.1 HISTORY OF AUTOMOBILE INDUSTRY 1.2 CONTRIBUTION OF AUTOMOBILE SECTOR IN ECONOMIC SYSTEM 1.3 OVERVIEW OF INDIAN AUTOMOBILE INDUSTRY 1.4 PERFORMANCE OF AUTO INDUSTRY DURING 2015-16 1.5 SIAM REPORT-2017 1.6 EMISSION NORMS OF AUTOMOBILE INDUSTRY IN INDIA 1.7 KEY PLAYERS WHICH HOLD MAJOR PORTION OF THE MARKET 1.8 GROWTH DRIVERS OF AUTOMOBILE INDUSTRY IN INDIA 1.9 OPPORTUNITIES OF AUTOMOBILE INDUSTRY IN INDIA 1.10 INVESTMENT SCENARIO 1.11 PORTER’S FIVE FORCE FRAMEWORK ANALYSIS 1.12 IMPACT OF DEMONETIZATION ON AUTOMOBILE SECTOR 1.13 IMPACT OF GST ON AUTOMOBILE SECTOR 1.14 PROFILE OF TATA MOTORS 1.15 PROFILE OF MARUTI SUZUKI INDIA LTD. ? 1.1 HISTORY OF AUTOMOBILE INDUSTRY About 4000 years ago, wheel was used for commutation for the first time in Indian Territory. The first design for wind driven vehicle was recorded under Sir Guido da Vigevano in the year 1335. Later Sir Leonardo da Vinci designed clockwork driven tricycle with wheel steering having differential mechanism amid the back wheels. During 1678, a Catholic Priest father Ferdinand Varbiest is said to have developed a steam-powered car in the Chinese dynast Chien Lung era. It was during 1705, James Watt invented steam engine, so it was assumed that prior to this time junction all the models were mechanical only.
By mid of 15th Century thought of a self-driven motor was in circulation with the invention of experimental car was based on the means of springs-clock words, and also the wind. Also, these were not suitable for road-run because of the steam engines which made them bulky. Ignition time taken was also very high. Utmost speed that it could run on was around 3.2 km/h For building up a fresh head of steam it had to stop in after every twenty minutes in order to further run. Evans became first American to paten “a self-propelled carriage”. He tried to create a two-in-one motion of a steam wagon and a flat-bottomed boat that was not into the talk of the town.
The 1830’s witnessed great advancement in the steam but resulting too harsh rivalry from railway companies with crude laws in Britain the stream automobile was beyond the reach on streets. The earlier used steam powered automobiles were so heavy and bulky that they could only withstand flat surface like of iron. Therefore roads made by the usage of iron rails became a necessity for upcoming hundred years ahead. With the passage of time the size of automobiles has achieved giant levels and is turning into hulk size i.e.
bulky and heavy with the capacity of drawing a train of several cars having freight and passengers. By 1890 world begun manufacturing of automobiles consisting Daimler engine. Gottlieb Daimler himself was also introducing advance sorts to engine he developed. He built first V – Twin engine. However, the Frenchman Panhard and Levassor thought of a Discovered engine mounted in the front of car in a ‘bonnet’.
For decades after the creation of automobiles, their kinds of energy resources were mostly used; steam engines, gas or petrol engines/electric cars. This count number leads to the improvement of the car industry, and it started out within the assembly traces of the automobile manufacturing facility. The several techniques adapted by way of ford made the brand new invention (i.e., automobile) famous among the wealthy as well as the loads. ? 1.2 CONTRIBUTION OF AUTOMOBILE SECTOR IN ECONOMIC SYSTEM The industry gives important contribution in United States’ speedy improvement. It facilitates the development in electricity, rail, and street transport because of its broad onward and backward ties.
The automobile industry accommodates of automobile and automobile element sectors. It consists of passenger cars; light, medium and heavy business automobiles; multi-software motors which includes jeeps, scooters, bikes, 3 wheelers (autos) and car additives like engine components, electric, frame and chassis components; and so on. In India, locomotive is amongst the biggest industries showing mind-blowing increase over time and extensively making the growing contribution to common business improvement within the country. The arena has shown significant advances concerning improvement, spread, absorption of newer technologies and flexibility within the wake of changing enterprise situation. It is also finding increasing popularity worldwide, and a beginning has been made in exports in cars as well as components. 1.3 OVERVIEW OF INDIAN AUTOMOBILE INDUSTRY In the era of 1960’s and 70’s, choice in every category was between two major players.
For example: Scooters : Lamhrata or Vespa Motorcycle : Bullet or Java Cars : Ambassador Fiat Trucks : Ashok Leyland or Tata Tractors : Swaraj or Mahindra Overview of Indian Automobile Market Before 1982 Indian market was a closed economy. There were only five players in the market. Sector faced the challenges like long waiting periods and outdated models of the automobiles. 1983-1992 Indian Government and Suzuki collaborated and established Maruti Udyog and started production in year 1983.
Manufacturers of automobile component entered the Indian markets through Joint Ventures. Gradually the market turned into buyer’s market. 1992-2007 The automobile sector was de-licensed in India in the year 1993. Key Original Equipment Manufacturers (OEMs) initiated assembly operations in India. Imports in the sector were allowed from April 2001. Commencement of VAT in the year 2005.
2008 Onwards At present more than 35 players exists in the automobile market. It is estimated that GST will support the industry by lowering the input cost. Government started Automotive Mission Plan 2016-26 in the year 2015. This picture was a reflection of India in old age years; however these episodes witnessed the change pertaining to reforms and deregulations.
A new story with various characters, choices advanced models, growth and amazing experiences was seen within a few years. In the short span, India was counted amongst the fastest growing automobile market in India which was more or less the best motivating factor for managers and policy planners. This was just the beginning; new opportunities were on the path of journey of automobiles. The timeline from 1940 to 1950 was the curtain raiser for the industry. New companies were evenly spotted in the production sector.
Government’s imposition of licensing swiped out the private players. However, few strong companies survived the clauses. Courtesy to the positive socialize approach of government towards development automobile industry did not lack competition in initial stages. Because of absence of competition automobile industry had to face low purchase pertaining to limited models. Referring to the low economic status of the country, the growth rate of automobile industry was low. However, during 1970-80’s changes in growth rate was seen with the entry of few new industries with new models resulting in enhanced growth rate of industry.
It was during that time Telco (now owned by Tata Motors), Ashok Leyland and Bajaj Premier entered the market with new commercial vehicles. Growth rate took a rise; ration economy was on new perks. Thus the foundation of a growth oriented market, a fragment of profile generation in India was set. During 1980-90 automobile market was further developed. Japanese started to enter Indian National Market through the route of joint venture with Indian entities and started the production plant in India. The ‘Maruti Suzuki’ was born which shook the entire market.
Growth rate was rising. In GDP, automobile sector was playing a significance role. The then prime minister Dr. P.V. Rao and then finance minister Dr. Manmohan Singh accessed the growth opportunity of automobile sector.
Major economic reforms were introduced in 1991. Improvement in India The automotive enterprise in India commenced growing in the Nineteen Forties; distinct growth quotes started out only within the 1970s. Cars have been considered extremely-luxury products, manufacturing changed into strictly certified, growth turned into restrained, and there was a restrictive tariff structure. The last decade 1985 to 1995 noticed the access of Maruti Udyog inside the passenger automobile section in collaboration with Suzuki of Japan. The Indian automobile industry has diagnosed as a sunrise enterprise in our economic system.
After economic reforms came about in India in 1991, it’s miles simplest inside the mid-Nineties, that the car enterprise began beginning up. Thus, the mid-Nineteen Nineties are characterized through the entry of global car manufacturers via joint ventures in India. Until the Nineties, the car enterprise in India turned into mainly dominated via Maruti Suzuki, Tata Motors, and Hindustan Automobiles in the passenger automobile phase. Ashok Leyland, Tata Motors and Mahindra ; Mahindra ruled the industrial car segment while Bajaj car ruled the 2-wheeler section.
After the year 2000, further policy modifications had been delivered and recognition on exports inside the industry started out growing. The automobile enterprise is a critical driving force of any growing financial system. It performs an essential role in United States of America’s speedy business and monetary improvement. The automotive enterprise accommodates of the car and automobile issue sectors. In India, automobile is the biggest industries showing stunning increase over time India is the largest -wheeler manufacturer within the international. India is the largest tractor producer inside the international.
India is the biggest three-wheeler market inside the global. India is the 5th largest business automobile producer inside the global. The number one global bike manufacturer is India. India is the fourth biggest vehicle market place in Asia. A well-evolved transportation device performs a vital position in an economic system. Transportation has made the mobility throughout the globe.
Automobile sector plays a critical function in a rustic’s monetary development and growth. The flexibility has given common man various alternatives approximately wherein to head for livelihood than they had in the past. 1.4 PERFORMANCE OF AUTO INDUSTRY DURING 2015-16 Auto Component Industry: 2015-2016 Turnover-USD 39.0 billion Contribution to GDP -3.5% to 4% Foreign Exchange Earnings/ Exports- USD 10.81 billion Share of India’s Exports-4% Domestic Aftermarket-USD 6.8 billion Direct Employment-1.50 million Table 1.1 : Indian Automobile Industry Domestic Sales Trends (Number of Vehicles) Category 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Passenger Vehicles 26,29,839 26,65,015 25,03,509 26,01,236 27,89,208 30,46,727 Commercial Vehicles 8,09,499 7,93,211 6,32,851 6,14,948 6,85,704 7,14,232 Three Wheelers 5,13,281 5,38,290 4,80,085 5,32,626 5,38,208 5,11,658 Two Wheelers 1,34,09,150 1,37,97,185 1,48,06,778 1,59,75,561 1,64,55,851 1,75,89,511 Grand Total 1,73,61,769 1,77,93,701 1,84,23,223 1,97,24,371 2,04,68,971 2,18,62,128 Source : Siam Industry Statistics Graph 1.1 : Indian Automobile Industry Domestic Sales Trends Table 1.2 : Indian Automobile Industry Production Trends (Number of Vehicles) Category 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Passenger Vehicles 31,46,069 32,31,058 30,87,973 32,21,419 34,65,045 37,91,540 Commercial Vehicles 9,29,136 8,32,649 6,99,035 6,98,298 7,86,692 8,10,286 Three Wheelers 8,79,289 8,39,748 8,30,108 9,49,019 9,34,104 7,83,149 Two Wheelers 1,54,27,532 1,57,44,156 1,68,83,049 1,84,89,311 1,88,30,227 1,99,29,485 Grand Total 2,03,82,026 2,06,47,611 2,15,00,165 2,33,58,047 2,40,16,068 2,53,14,460 Source : Siam Industry Statistics Graph 1.2 : Indian Automobile Industry Production Trends Graph 1.3 : Tractor Production (Units of Vehicles Expressed in ‘000 Units) ? Graph 1.4 : Construction Vehicles Production (Units of Vehicles Expressed in ‘000 Units) Table 1.3 : Indian Automobile Industry Export Trends (Number of Vehicles) Category 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Passenger Vehicles 5,08,783 5,59,414 5,96,142 6,21,341 6,53,053 7,58,830 Commercial Vehicles 92258 80,027 77,050 86,939 1,03,124 1,08,271 Three Wheelers 3,61,753 3,03,088 3,53,392 4,07,600 4,04,441 2,71,894 Two Wheelers 19,75,111 19,56,378 20,84,000 24,57,466 24,82,876 23,39,273 Grand Total 29,37,905 28,98,907 31,10,584 35,73,346 36,43,494 34,78,268 Source : Siam Industry Statistics ? Graph 1.5 : Indian Automobile Industry Export Trends Graph 1.6 : Exports: Top 5 countries ? Graph 1.7 : Imports: Top 5 countries Table 1.4 : Segment Wise Domestic Market Share Passenger Vehicles 14% Commercial Vehicles 13% Three Wheelers 3% Two Wheelers 80% Grand Total 100 Source : Siam Industry Statistics ? Graph 1.8 : Segment Wise Domestic Market Share Production of PV, CV, 3-wheelers and 2-wheelers grew at 5.4% in 2016-17 to 25,316,044 vehicles from 24,016,599 vehicles in 2015-16.The sales of PV, CV and 2-wheelers rose by 9.2%, 4.2% and 6.9% respectively, during the period 2016-17. Sales of Electric Vehicles grew to 37.5%, to 22,000 units in 2015-16 and are on the edge to increase more on the back of low energy storage expense and by 2020 the Government expects to have six million electric and hybrid vehicles in India.
In 2016-17, there was decline the exports of automobiles by 4.50%. Individually Passenger Vehicles exports grew by 16.20% and Commercial Vehicles exports grew by 4.99% but the exports of Three Wheelers declined by 32.77% and exports of Two Wheelers declined by 5.78% 2016-17 over 2015-16. The automotive manufacturing industry comprises the production of commercial vehicles, passenger cars, three & two-wheelers. Two-wheelers are by far the most popular form of vehicle in India, taking an 80 per cent share in 2015-16.
25 million automobiles produced in FY17. Total production volume grew at a CAGR of 5.56 per cent between FY12-17 and increased 9.18 per cent year-on-year in April-September 2017. Automobile exports from India increased 10.71 per cent year-on-year in April-September 2017. During the same period, two and three-wheelers exports increased 15.22 per cent and 19.42 per cent, respectively. The automotive manufacturing industry comprises the manufacturing of commercial vehicles, passenger cars, three and two-wheelers.
Two-wheelers are by far the most popular form of vehicle in India, taking an 80 per cent share in 2015-16. India became the principal 2-wheeler market in the world after selling 17.7 million two-wheelers in 2016. 25 million automobiles produced in FY17. Total production volume grew at a CAGR of 5.56 per cent between FY12-17 and increased 9.36 per cent year-on-year in April-November 2017.
Automobile exports from India increased 11.94 per cent year-on-year in April-November 2017. During the same period, two and three-wheelers exports increased 17.48 per cent and 21.29 per cent, respectively. Two-wheelers and passenger vehicles dominate Indian auto market . Sales of two-wheelers are anticipated to grow 8-10 per cent in FY18 Overall automobile sales increased 24.05 per cent year-on-year to 19,39,671 units in November 2017.
Two-wheelers and passenger cars accounted for 79 per cent and 15 per cent of production volume in FY17 respectively. Domestic passenger car sales are dominated by small and mid-size cars. Over 67 per cent of export volumes comprised of two-wheelers, followed by 22 per cent for passenger cars. The compliance of the new tax system is thought to be the biggest issue as an impact of GST implementation on auto industry. Auto industry is to be benefited from GST largely by simplifying logistics and reducing the manufacturing and operational costs, however industry is skeptical about the compliance procedure. Benefits of GST are directly linked to compliance of GST by both the parties tone is linked to.
Be it supplier or a buyer of a car, two wheelers, all need to be acquainted to GST regime. Support of ASP and GST suvidha providers authorised by the government is available to share the details and address the queries on compliance and related concerns. Is began as one Single Nation Single Taxation drive which has primarily merged 17 different taxes for e.g. excise duties, service tax, VAT, octroi etc. But currently it is being looked upon as an additional tax as a myth.
To deal with anticipated impact of GST, the Automobile Industry presented many pre GST schemes on cars, scooters and bikes. Auto majors like Maruti Suzuki, Toyota, Hyundai, Honda and all other manufacturers announced big rate cuts to cut their inventory ahead of GST in June. ? Top Five Players in Each Segment in 2016-17 Table 1.5 : Leading Players in Passenger Vehicles Maruti Suzuki 47 % Hyundai Motors 17% Mahindra 8% Tata Motors 6% Honda Cars 5% Graph 1.9 : Leading Players in Passenger Vehicles Table 1.6 : Leading Players in Commercial Vehicles Tata Motors 43 % Mahindra & Mahindra 25% Ashok Leyland 19% VECVs – Eicher 7% Force Motors 3% Table 1.10 : Leading Players in Commercial Vehicles Table 1.7 : Leading Players in Two Wheelers: Hero MotoCorp 37 % Honda MSI 27% TVS Motors 14% Bajaj Auto 11% India Yamaha 5% Table 1.11 : Leading Players in Two Wheelers: Table 1.8 : Leading Players in Three Wheelers Bajaj Auto 50 % Piaggio Vehicles 30% Mahindra 10% Atul Auto 7% TVS Motors 2% Graph 1.12 : Leading Players in Three Wheelers Table 1.9 : Recent Trends in the Sector In INR ’00 Crs 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Turnover 204670 216094 211765 234869 255635 292184 Growth% 8.7% 5.6% -2.0% 11.1% 8.8% 14.3% Export 42729 52690 61487 68522 70916 73128 Growth% 40.7% 23.3% 11.4% 11.4% 3.5% 3.1% Imports 66736 74463 82931 82931 90662 9.571 Growth% 34.3% 11.6% 7.5% 7.5% 9.3% -0.1% Aftermarket 29585 31788 39875 39875 44660 56096 Growth% 20.1% 7.4% 12.0% 12.0% 12.0% 25.6% Source ACMA ? Luxury Cars The luxury car segment has been seeing high growth rates and expanded at 37 per cent CAGR between FY07-15. Sale of luxury cars stood at 33,279 units in 2016. The luxury car market in India is anticipated to grow at 25 per cent CAGR till 2020.
During January-September 2017, luxury carmakers Mercedes-Benz and BMW witnessed growth of 19.6 per cent and 17.3 per cent in India sales. With 12th largest population of high net worth individuals (HNIs), India still has huge room for this segment. New Financing Options Carmakers have initiated providing tailored finance to customers through NBFCs Many MNC and Indian companies rather than buying the cars are stirring towards the option of taking them on operating lease. Electric Cars The Indian government has shifted its focus on electric cars in order to meet the emission reduction targets. It has aims to sell only electric cars by 2030 under the National Electric Mobility Mission Plan which was launched in 2013. Mahindra has launched its new electric car and Tesla motors is also set to enter the Indian market.
Suzuki Motors is setting up a battery plant in Gujarat. Electric buses from Tata Motors are in testing phase. Suzuki Motors is setting up a new plant in Gujarat to manufacture lithium ion batteries. New Product Launches From financial year 2018 Ashok Leyland is scheduling to launch in each quarter a variants of light commercial vehicles. Maruti Suzuki brought Baleno RS in March 2017, a high performance hatchback car.
In September 2017, it brought Suzuki’s lubricant and car care brand Ecstar to India. SAIC motors is planning to enter the Indian market, the first Chinese automotive company to do so. ? Recent Strategies Adopted by Companies in Indian Automobiles Sector Capacity Addition Many big automobile companies are expanding their manufacturing capacity to tap the big market share considering the low cost of manufacturing. India is being considered as the hub for outsourcing by the automobile companies. Volvo has started local assembly of its cars in India from October 2017.
A new engine assembly line is being set up by the Volkswagen group in Aurangabad. Catering Indian Needs The majority of the big companies have modified themselves to accommodate the outsized Indian middle class through dipping their conventional structure and designs. This let them to contend unswervingly with domestic companies making the auto sector very competitive. Investments Gestamp, a Spanish automobile component manufacturing company, has invested Rs 260 crore (US$ 38.63 million) in a new hot stamping plant in Pune, in order to cater to the increasing demand for lighter vehicles in India.
Sundaram Clayton, part of the TVS group, plans to invest US$ 50 million in US and Rs 400 crore. Mercedes Benz India Private Limited has set up India’s largest spare parts warehouse in Pune, with an area of 16,500 square meters which can stock up to 44,000 parts. It will also include a vehicle preparation centre that can stock up to 5,700 cars to customise them before delivery. 1.5 SIAM REPORT-2017 The cachet of automobile sector and its ability for growth, future presumption and its vast connectivity with the market and employment creation is level-headed in Policy Paper. There are various primary functioning strategies as well as agendas or plans generated by the government.
These programmes and functioning policies are focused on enhancing and breeding sustainable development in the automotive segment and giving power to India in the confederacy of the Japan, Germany and USA. Taking into consideration of the downturn of the expansion of the segment has been relatively spectacular throughout the preceding decade (2006-2016), but the section is anticipated to execute the prognosis for the period of 2016-2026. The Indian automobile sector has an excellent ability for augmentation and promotes the expansion of other connected industries collaboratively. The Government of India has made it simple.
The functioning policy framework helps in not only forging the trade however also dedicated for less Government and more Governance for gaining elevated sustainable development. It also focuses on the opportunities, dares and approaches ahead on the foundation of consideration of conditions for mid-course improvements and taking the segment in high oriented growth. The effect of judicial intercessions on the recognized policies and automotive division is also thrust upon. Overview Before automobile production was not localized so cars were by and large bring in from England.
Localized production of cars happened in 1950 in India. This happened to owe to the trade and industry liberation and de-licensing of the manufacturing besides the approval for 100% FDI in1991. The net worth of vehicle export to various countries was nearly USD 8 billion in the year 2015-16. Many large industries of the auto sector have localized their growing base, operation and allowances in India. Some automobile manufacturers across the world like Acura, Kia Motors, Genesis, SAIC Motors, Changan Automobiles, etc. also want to initiate their built-up base in India.
The automobile is undoubtedly the extremely technology regulated industries globally. The Government in its ‘Make in India’ programme is also fetching all feasible methods, approaches and ideas to build India prior automobiles producing country with less Government and more Governance for preparing suitable production environment and relieve in carrying out business. India tops in the world in the manufacturing of Two Wheelers, Three Wheelers, and Tractor. It stands at Fourth in the manufacturing of Light Commercial Vehicles. At a fifth position as the manufacturer of Heavy Commercial Vehicles. India ranks fifth in the world and third in Asia as an exporter of Passenger Cars.
Profile of Automobile Industry The supremacy of Indian automobile, in numeral expression, by Two-Wheelers comprising nearly 80% market share and Passenger Vehicles encompassed 13%. At present, India is manufacturing various categories of vehicle required for multiple purposes. In the midst of the numerous efforts of the government, the industry has developed itself continuously, and it is anticipated that via 2020, India will be at a 3rd position after USA and China. As per the Automotive Mission Plan (AMP) 2016-26, the intensification of vehicles especially the passenger vehicles is anticipated to forge three times to 9.4 million units pa. by 2026.
In 2016-17, the overall yearly manufacturing of all vehicles was more than 25 million. The sales of Passenger Vehicles grew by 9.23%, Commercial Vehicles by 4.16% and 2 Wheelers by 6.89% in 2016-17. In 2016-17, the total export of vehicles was 34,78,268 adjacent to 36,43,494 in 2015-16 and as a result the export fall by 4.50% during the said period. Plans and Programmes Initiated by Government The Indian automobile industry has shown its ability to support the economic growth, and other allied industries like auto-parts, machine tools, electronics, etc. also helps the IT and software sector, banking and insurance sector, logistics, repair and maintenance, transport.
Along with the resolutions, the government of India has initiated Automotive Mission Plans for 2006-2016 in 2006 and Automotive Mission Plan 2016-2026 in 2016 for doing business efficiently. The government began many significant programmes. The primary plans are briefly given below: Automotive Mission Plan 2006-2016 In 2006, a ten-year plan for assisting growth, accomplishing technological proficiency and maturity in fulfilling a prominence of premier automotive manufacturing center with fine linked forward and backward connections for credible automotive expansion the Indian Government. The targets of AMP 2006-2016 were to attain the yearly revenue to USD 146 billion and the growth of exports with a better intent for fetching an essential automotive export center too. The Automotive Mission Plan 2006-2016 expected production was for nearly 11 percent of GDP.
Target Actual Aggregate Manufacturing of Commercial Vehicles 6.7 million 7.1 million Turnover in Passenger Vehicles 27.75 million 27.91 million The collective sale of three-wheelers was nearly 8 million, excelled by 9% in three-wheeler category while 25% dipped the sale of two-wheelers. In 2006, the quantum revenue procreation pinned in this sector was nearly USD 29 billion and while the targeted sale of AMP 2006-2016 was of Rs 5.6 lakh crore to Rs 7.3 lakh crore. The enactment of AMP-2006-2016 steered the sales to Rs 6 lakh crore in 2015-2016. At the conclusion of AMP 2006-2016, it created 32 million employments while the aim was to create 25 million jobs, directly and indirectly. The automobile sector contributed to 7.2 percent to GDP against a target of 10 percent decided in AMP 2006-2016. Automotive Mission Plan 2016-2026 On efficacious accomplishment of Automotive Mission Plan 2006-2016, the Indian Government has devised renewed AMP 2-2016-2026, an imitation to speed up growth of the automobile sector by specifying the targets standards and targets coming decade beginning from the year 2016.
The MoHI;PE is readying the final genre of AMP 2016-2026. Like the previous AMP, it focused on methods for augmented growth is automobile and bestowal to GDP, derogating carbon footprints, achieving high-level technological ability and maturity. The Automotive Mission Plan 2016-26 is rendered with more effective planning, time-targeted strategies in modulation with each and every stakeholders to fulfill the expansion goals. Table 1.10 : Automotive Mission Plan 2026: Aspirations for Vehicle Industry (Million units) Segment 2004-2005 2016-2017 2025-2026 Passenger Vehicles 1.2 3.7 9.4 – 13.4 Commercial Vehicles 0.39 0.8 2.0 – 3.9 Two Wheelers 7.6 18.5 50.6 – 55.5 Three Wheelers 0.43 0.95 2.8 – 3.0 Tractors 0.25 0.6 1.5 – 1.7 Total 9.87 24.55 66.3 – 77.5 The Automotive Mission Plan 2016-26 intending for maintaining the growth in auto-mobile sector with turnover of USD 261 to 300 billion in 2026. It concentrates on the fragmental growth in two-wheelers to 51 – 56 million, passenger vehicles to be 9.5-13.5 million units, and tractors to 1.6-1.8 million units.
The utter mission is to tote India at parity with the international players in this sector with the benefaction of nearly twelve percent to GDP. The Automotive Mission Plan 2016-26 moils to consummate employment generation above 60 million by the closure of 2026 and rising exports to 40% of entire output. Objectives of Automotive Mission Plan 2026 Automotive industry to be the engine of “Make in India” Achieve top-line of USD 260-300 billion Increase export intensity to 35 – 40% Attract investments of USD 70 – 90 billion over the next decade Contribute significantly to “Skill India” Provide incremental employment to 65 million persons Quality of employment a key feature of this industry Focus on promoting Mobility Focus on promoting safe, efficient and comfortable mobility for every person in the society. Promote India as a preferred destination for every segment of the automotive value chain Foster the promotion of “Brand India” by developing a sophisticated ecosystem of research, design, engineering and manufacturing that is conducive for a variety of players – both mass market and niche seekers. Define a Road map for Implementing policies and regulations India ; EU norms from current 6-7 years Harmonisation: Clear roadmap to adhere to 1998 Agreement of UN Global Technical Regulations (WP.29) Fuel Efficiency: Define clear roadmap for all categories of vehicles Road Safety: Reduction in accidents and fatalities as per norms specified in Road Transport ; Safety Bill. National Electric Mobility Mission Plan -2020 The promotion and enhancement of Electronic Vehicles and HEVs in the native production capacities is its main concern.
To enforce and materialize this plan, the Government of India is assisting and aiding the changing frame work and augmenting of domestic battery automation which has supersonic charging, immense capacity and huge variety of per charge run. The Government of India is encouraging automatic examining research ; development for novation to reduce the functional cost of these vehicles. Manufacturing of EV includes its various parts that comprise automated battery production and the management systems. The private sector is too stand is needed to invest in EV.
Key auto makers are ensuing diverse range of EVs. Mahindra ; Mahindra is in the lead and has been producing pure EVs from many years in India. New Green Urban Transport Scheme (GUTS), 2017 The main aim of the scheme is to cut short carbon emission and to encourage new financing of projects. The government strikes to increase the use of the public transport system and moving ahead with Intelligent Transport System (ITS).
The private sector participation will be encouraged in this area. The scheme is to be enforced by involving private sector along with the consultation from the state and central government in a seven year task with a total expenditure of Rs. 70000 crore in its first phase and one hundred and three cities have been chosen in this regard. It has been fixed that 10% of expenditure will be met by urban local bodies and 30% by the Centre Government.
30% by States, and remaining be founded by way of loan from multilateral agencies. Initially, the scheme is executed to be launched in the capital cities of cities comprising population of 5 lakhs ore more Rs. 25000 crores. This scheme insists the use of public urban transport and having low carbon content. encourages for HEVs and EVs and use of non-fossil fuels along with campaign of Non-Motorized Transport, public bike sharing, Intelligent Transport Systems (ITS).
The programme launched on validation by the cabinet. Smart Cities Programme This scheme was initiated by the government on 25-06-2015 to promote cities which would sender the basic foundation, safe environment, and low carbon emissions to enhance quality of life of the people. The NITI Ayog has carved a three year projection rendering confluence of major policies. From the proposed outlay a sum of Rs. 3205 crore for allocated development of 100 smart cities throughout the country by the end of the year 2020, and a sum of Rs. 4091 crore to be used in AMRUT.
In June 2016 the MoUD had provided the recommendations and mission statement in relation to the project concerning 100 cities for development. Transformation of Regulatory Policies Initiated By Government In India the administrative guidelines related to the auto sector are heading very fast. Contrary section like IT sector or may be Telecommunication sector, the auto sector is on its sum for a through revolution. The rules and guidelines for auto sector have been fabricated in series with passage with time.
Judicial Interventions The National Green Tribunal (NGT), and the Supreme Court at the time of adjudging suits pled by general public, NGOs, released the specifications and instructions. Compulsion of CNG in capital and heading towards Euro II emission laws. National Green Tribunal has banned the 15 or more year old vehicles whether petrol or diesel whi in Delhi. But no representation has been provided regarding deregistering or scrap of such vehicles which were conferred unusable.
It also banned the sale and registration in Delhi of new diesel vehicle and latter gave the classification to cut short registration period from to 10 years earlier being 15 years for diesel vehicles already registered. Not abiding by the order of National Green Tribunal regarding banning of sale of diesel car, the Supreme Court later in December 2015 banned the sale of diesel cars having of 2000 CC and above engine in NCR. Impact Analysis of Regulatory Policies It is very significant to adopt impact analysis to evaluate the effectualness and efficacy of policies, and strategies implemented by the Government. The impact analysis assist in interpretating the weakness and inconsistency in the agenda and specifies the ways and mean to correct them for desirable results. Impact analyses of a some government policies are as: With execution AMP-2006-16, the prosperity in automobile industry has been very much applicable regardless recession phase at the time of implementing this policy. The Indian automobile industry has vast capability to grow and augment the prosperity of other allied sectors.
The government has simplified and formalized the guidelines and policies to achieve sustained growth in the sector, easiness in carrying business. GST is anticipated to have favorable effect on the automobile industry, as the utmost/extremely eminent taxation reforms was introduced in 2017. Discrepancy in implementation of GST will adversely affect the long run strategies and policies of the business. So Government should minutely scrutinize it again in view to promote the Electronic vehicles for securing human health and concerning the climatic changes in the environment. In spite of the fact that the new launches particularly in the cars provides various safety precautions for avoidance a accidents and defensive system for accidents, the numbers of accidents in India are quite alarming touching nearly five lakhs accidents annually and about 1.5 lakh death due to accidents. A bill has been proposed in the parliament regarding safety in driving on roads.
The bill constants safety resolutions, stringent penalties, and conduct on roads for avoidance accidents on roads. At present the Bill is under Parliamentary Standing Committee for its detail study. Moreover, to present export advantage the compliance of universal technical guidelines is required else avoidance of these standards may be hindrance in the export which are often called Technical Barriers to Trade. So to enjoy the export advantage it is beneficial for the sector to manufacture technically graded vehicle and matching the universal standards. It is true to say that in India transportation system in quite unique that the transportation in India is unique seeing its diversity, complications and driving cycle. The sector is source of employment by way of three wheelers, tempos, e-rickshaws, mini busies, local taxi, which constitutes significant part of multidimensional transportation system for nearby jopurney mainly in small cities and overcrowded areas to reach the destinations such should be freed or given some liberty from universal standards considering it contribution to employment for general masses.
The belief and dependence only on EVs does not fulfill the zeal to stimulate innovations and creative thinking. The course of station making for the industry essentially be hi-tech and which have no carbon to at present also falling in line with regulatory norms. Presently government is taking necessary measures. Challenges The major initiatives have put us various questions concerning technological advancement funds, affordability, execution etc. In April 2010 for rolling out BS-III and BS-IV norms, the automobile makers had to undergo for huge for technological upgradation, which is a big challenges in 2010. For refineries there were funds and space issues in hi-teching the operations to fulfill the need of a specific type of fuel also logistics to ensure the supply of BS-IV specified fuel all over the country.
As per BS VI complaint after 1st April, 2020, vehicles that cannot be used on low grade quality of fuel. The suggestion for total electric vehicles is not a solution for every transport associated matters issues, and issues like conserving eco system, affordability and also trotting possible alternates which are cost effective and ecologically beneficial. There are other concerns in this regard so, rather than promoting any specific technology know how it should keep the technologies neutral as part of its policy and leaving it in the hands of market. Mechanism concerns arising from the judicial verdicts like recent ban was imposed on the automakers on the diesel vehicles by the Supreme Court in NCR and later on removing ban and imposing Environment protection.
There is ongoing confusion regarding BS VI vehicles whether to consider the date of manufacturing and registration date from 1st April 2020be stated that auto sector had bear up the financial load of Rs. 5000 crore due to direct official forbiddance on the registration of vehicles on account of the juristic decision for BS-III complain vehicles. Such arbitration significantly effects on financial grounds and also hampers the progression of the industry, FDI, state of technology and employment. To avoid any confusion a clarification is required from the movement regarding manufacturing or registration in respect to BS-VI. Today, the automobile sector is confronted with the challenges like increasing under utilization a capacity, price sensitive buyers.
The policy remarks in consistency and unreliability having no definite projections. Moreover the regulative policies directly imitated from the western countries may not be appropriate for our country. So while making the policies the policy makes shows take into the consideration the ground relates for better results. Opportunities and Way Forward As transportation policies are making an efficient and affordable shift, it opens up chances for making newer collaborations, investments and joint ventures. The flexible regulatory policies have given rise to a new array of possibilities to OEMs, auto components, and auxiliary entities. The new policy of low carbon transportation will bring out better Research and Development and advancements of technology at both the national and the international level.
Overall it will be a boon to everyone, the Government, people and also the automotive industries. India in the automobile industry sector has advantages such as low labor cost, a rising middle-class population, etc. this will lead to the production of small cost but robust vehicles which will lead to the automotive sectors growth. India has a broad spectrum of transportation facilities ranging from 3 wheelers to buses. So, India has different requisites that feel necessity for harmony of all means of transportation, all know-how’s and fuel varieties till they fulfill the legal requirements.
Many MNC’s are building as their built-up base in India due to the capacity for progression and encouraging infrastructure. The auto makers can attain greater heights by taking advantage of scope presented by the AMP 2016-2026 and schemes ensures appreciative business environment and will promote new avenues of growth establishing entirely new ventures and start-ups. This is where the proposal of a single body to look over the automobile industries sector comes into play. If an individual body authority is formed, then the automobile sector will grow more as only that particular authority will have to take care of the industry. It will also prevent the overlapping of jurisdiction in many cases within the industry.
A single authority system will make the industry’s growth much more predictable, consistent and systemic and all this will lead to India becoming a world leader as an automotive hub. 1.6 EMISSION NORMS OF AUTOMOBILE INDUSTRY IN INDIA The automobile industry while manufacturing the vehicles has to take care of the following key areas at various stages: Environmental Ethics Safety Perquisites Competitive Constrains Customer Satisfactions There is a great interdependence in all the above mentioned drivers of change impacting the automobile industry. These forces have to be ensured regularly and strategically for competing with the others. There are various sources causing pollution so, it requires a multidisciplinary and interspersed approach.
The various sources causing pollution needs attention for fulfilling and attaining the goal of clean environment and meets the standards of National Air. The criterion for ascertaining the emission from vehicles is: Inspection and Maintenance of In-Use Vehicles Vehicular Technology Fuel Quality Road and Traffic Management Inspection and Maintenance of In-use Vehicles It is observed that 8% of the vehicles are the new vehicles at any point of time. Only transport vehicles in India require timely certification on its fitness. Till now the personal vehicles which accounts major population does not require such fitness certificate.
The countries who have made the inspection and maintenance mandatory for all the types of vehicles are setting example for controlling the pollution caused by vehicles to a greater extent. Now developing countries of South-East Asia have initiated the inspection and maintenance system which were facing a serious problem of air pollution. Vehicular Technology In India, emission and safety norms notified as lay down by the Auto Fuel Policy enumerating the emission road map and safety norms as per the Safety Road map affirmed by the CMVR-TSC. Presently India is meeting the international standards in the area of technology of vehicles as the safety benchmarks in India are in accordance with Global Technical Regulations and United Nation Regulations.
Fuel Technology India is still to implement the system in regard to vehicle and fuel. Ministry of Environment and Forests laid down some specification for fuel for first time in the year 1996. Upper limit for decisive components such as level of benzene in petrol should be brought down continuously, and was specified from time to time. At present the limit prescribed is 1%, which is at par with the international standards. Road and Traffic Management Improper and low standard surfaces of roads results in increasing the operational cost of vehicle also leads to increase in pollution.
It is analyzed that if there are improvements in roads then the cost of operating the vehicles will fall by 15% which is a substantial figure. 1.7 KEY PLAYERS WHICH HOLD MAJOR PORTION OF THE MARKET Maruti Suzuki: Maruti Suzuki is the leader in the market in the segment of Passenger Vehicles by holding 47 % share in the market in this segment in 2016-17. It sold 135128 passenger vehicles in month of October 2017, a growth of 9.3% year on year. Tata Motors: Tata Motor is the leader in segment of commercial vehicles in 2016-17. Hero MotoCorp and Honda: Hero MotoCorp and Honda are the top two players in the two-wheelers segment, with almost equal market share of 31.5 per cent each in May 2017.
Bajaj Auto and Piaggio Vehicles: Bajaj auto is a leader in passenger carrier segment with a 59.9 per cent market share in 2016-17. List of Companies North West Ashok Leyland Force Motors Piaggio Swaraj Mazda Amtek Auto Eicher Honda SIEL Maruti Suzuki Tata Motors Bajaj Auto Hero Group Escorts ICML JCB Yamaha Mahindra Suzuki Motorcycles Ashok Leyland Bajaj Auto FIAT GM M&M Eicher Skoda Bharat Forge Tata Motors Volkswagen Renault-Nissan John Deere Mercedes Benz Tata Hitachi Volvo Eicher East South TataMotors Hindustan Motors Simpson & Co International Auto Forgings JMT Exide Ashok Leyland Ford M&M Toyota Kirloskar Volvo Sundaram Fasteners Enfield Hyundai BMW Bosch TVS Motor Company Renault-Nissan TAFE Daimler Caterpillar Hindustan Motors 1.8 GROWTH DRIVERS OF AUTOMOBILE INDUSTRY IN INDIA 1.9 OPPORTUNITIES OF AUTOMOBILE INDUSTRY IN INDIA 1.10 INVESTMENT SCENARIO ? 1.11 PORTER’S FIVE FORCE FRAMEWORK ANALYSIS 1.12 IMPACT OF DEMONETIZATION ON AUTOMOBILE SECTOR Outliner The de recognization of currency notes of denominations INR 1,000 and INR 500 has left nation dumbstruck. The prompt announcement by Prime Minister Narendra Modi on 8th Nov, 2016 left Indian population into a quandary and even understandable despite of this being having a short-term impact, its consequences has to be monitored in various sectors. The most powerful impacts of the current demonetization of the high-value denomination notes is on the ‘discretionary’ spend made, i.e.
expenditure is not essential in nature and can be parked. Even automotive industry being cyclical in nature and is driven by economic bulls and bearish trends that are cyclic and influenced by economic events, demonetization has led to prospective buyers to observe and await further clarity of demonetization impact. In short term, the devalued currency is not accepted as legal tender and the supply of new currency is not enough, thus people who depend on cash as common mode of transactions and are not familiar/ used to electronic ways of payments, more so in the villages and towns are left with no choice to put the optional spend on hold. Starting November month itself, the bookings went low by half.
Reports on December 2016 are even more shocking for the auto makers as vehicles sales in India were 16 year record low. For Dec 2016, vehicle sales declined by 18.66% to 1,221,929 units. This was worst hit after December 2000. Dealerships across India have reported steep drop in inquiries and walk-ins, both in metros and in rural India. North India sales have been most affected. Business in Gujarat, Punjab and NCR have crashed the most as buyers in these states use cash to make payments.
Cash is usual mode of payment even for cases where customers opt to use finance options also thus bringing down the sales extensively. Luxury car market is most hit segment. Cash crunch has led to drop of 40% in sales in rural areas, and are expected to go down further to 60% as the liquidity crunch continues and as most farmers prefer cash as payment method. The various schemes have been introduced by auto dealers to boost sales like on the spot discounts, hefty sales bonus to sales teams for converting inquires to sales. The sudden decline in sales has impelled auto manufacturers to topple production. Honda Motorcycle and Scooter India have confirmed that the manufacturing is being rationalized to maintain inventories whereas Honda Cars India is also to maintain production to balance out low sales.
Maruti Suzuki and Hyundai India have also confirmed cut in demand but have not confirmed future production plans. With automakers, component suppliers have also taken the hit by demonetization and keeping a close eye on production to handle the situation. Condition is even worse for the used car market and service stations. The impact of demonetization was largely expected to be in luxury car market however demonetization has impacted entire automobile segment from affordable two wheelers to expensive cars. At the same time, this is a welcomed policy by the government and a bold step to fight black money.
It may have adverse effects in the short run majorly attributable to inconvenience however shall be a big step towards cashless economy and Digital India and is expected to bring transparency and accountability into the economic system. Quantum of Impact As per FADA (Federation of Automobile Dealers Association) report, currently reduced footfall at car stores is reduced more than half and the car sales have declined by approximate 30%. Crunch in current flow of liquidity has forced people to wait to upgrade their cars with their existing cars awaiting enough cash infused in the system enabling high value purchases which may take many months. Second hand car dealers in Delhi have reported fifty percent fall in sales and inquiries. This becomes important driver as in India used cars are sold more than new ones and also people sell an old version to purchase an upgrade.
Drivers Moreover, other significant point is that majority people have tendency to buy new vehicles at later end of the year or start of the year owing to festive season, however because of demonetization, the sales has been badly impacted and the usual ‘peak season’ of car sales has not been the best. Most of the payments being in cash, the bookings for new vehicles have halted owing to non-availability of currency notes. The other noticeable impact is on the wedding business where spend is sharply cut and are deferring the high-value purchases like cars. A new car is one of the most obvious purchases as wedding gifts. Conclusion So, the demonetization has had huge negative impact on the automobile industry largely and the car industry substantially. If the indications are trusted, it shall take much time for car sales to normalize.
It is to be further noted that either the transactions for buying luxury cars are generally done via cash, which can indicate presence of black money while making car purchase but its impact on the high end car sales is almost undebatable. ? 1.13 IMPACT OF GST ON AUTOMOBILE SECTOR After 70 years of Independence the largest tax reform was implemented on July’17 post 14 years long journey of Goods and Service Tax (GST). Even with the intent of BJP government led by Prime Minister Narendra Modi of ‘Good and Simple Taxation System’ for the help of general population, however this has cited criticism from all sectors, be it small traders or industry as a whole have slammed the policy makers for implementing a half-baked GST regime. The compliance of the new tax system is thought to be the biggest issue as an impact of GST implementation on auto industry.
Auto industry is to be benefited from GST largely by simplifying logistics and reducing the manufacturing and operational costs, however industry is skeptical about the compliance procedure. Benefits of GST are directly linked to compliance of GST by both the parties tone is linked to. Be it supplier or a buyer of a car, two wheelers, all need to be acquainted to GST regime. Support of ASP and GST suvidha providers authorised by the government is available to share the details and address the queries on compliance and related concerns. Is began as one Single Nation Single Taxation drive which has primarily merged 17 different taxes for e.g. excise duties, service tax, VAT, octroi etc.
But currently it is being looked upon as an additional tax as a myth. To deal with anticipated impact of GST, the Automobile Industry presented many pre GST schemes on cars, scooters and bikes. Auto majors like Maruti Suzuki, Toyota, Hyundai, Honda and all other manufacturers announced big rate cuts to cut their inventory ahead of GST in June. Despite opposition and hesitations, GST was implemented in July’17 with a bang for the entire industry as Maruti Suzuki, Honda Cars and Ford India put the feet on accelerator with Maruti Suzuki recording overwhelming domestic growth of 22.4% in July ’17 YoY. Honda Cars also reported amazing rise of 21.74%, vis a vis July 2016.
With initial GST uncertainties settling down and the festive season ahead it shall be icing on the cake. The impact of GST on the industry can be estimated only after assessing its affect on various entire operational cycle i.e. production, procurement, pricing and sales strategy. Simplified Input Tax Credit GST is implemented to subsume the current indirect tax system which attracted many duties and taxes on the sale of vehicles, spare parts and accessories. The earlier taxes included: Central Excise Duty Additional Excise Duty Infrastructure Cess Countervailing Duty (CVD) and Additional Import Duty Value Added Tax ( VAT) on intra State sales Central Sales Tax (CST) on Interstate sales All these had cascading effect and inflated the product price. However, with GST it is expected that product cost shall come down drastically due to seamless input tax credit (ITC) across the supply chain– from manufacturer, to supplier, to agent, to final buyers.
All can now claim input credit for tax paid on purchases. Now the stakeholders will be able to avail ITC on several components across the supply chain like lease rentals, IT services and freight charges. The huddles of logistics and transportation of units across states shall be no longer there. The growth of sector is expected to be boosted from reduced cost which in effect shall reduce the final price. Indian market is highly price sensitive and companies try to use this as biggest tactic to bring sale and discounts to ignite sales.
Post-GST rollout, companies like Maruti Suzuki, Tata Motors, Toyota, Nissan and Renault India have also announced the discounts to pass GST benefit to the end buyer. Reduction in Operating Cost Now companies are not required to uphold warehouses and clear and forwarding agent (C&F agents) in multiple states with abolition of CST, the infrastructure like warehousing now can be clubbed which in turn shall directly lead to reduction on cost of operation. Impact on Auto Valuation after GST Industry being categorized as luxury segment base GST rate is set at 28% with a cess (1% to 15%) on different categories of vehicles. This shall have huge impact on end prices.
. Low Impact on Two Wheelers The impact of GST is marginal on two-wheelers sector as the levy is 28 % on engines below 350cc and 31% on engine above 350 cc is 31%. Earlier the segment was charged with 30.2 %. Largely the impact on prices of 81% of market would be broadly unaffected.
High Impact on Commercial Vehicles The commercial vehicle segment comprises commercial vehicles and three-wheelers. Earlier the segment was paying 12.5 % Excise Duty + 1 % NCCD + 12.5 % VAT and 2 % CST which totalled to overall 30.2 % of tax. Herein three-wheelers were excluded of 1% of NCCD. After GST, the overall impact on the segment is a slight dip of 2.2 % as the levy is 28%. So, the impact in valuation is again negligible. Similarly, there would be no change in the prices of tractors.
The maximum effect would be visible on a new category being introduced for minibuses ferrying up to 13 passengers. Besides the base rate, the passenger vehicle would invite a 15 % cess on them shooting up the total GST to 43%, which is a major cause of concern. Low Impact on Passenger Vehicles Small cars (both petrol and diesel variants; engine below 1200 cc) The economic car section would attract the base rate of 28% GST along with a cess of 1% and 3% which is smaller than current 31.4% to 33.5%. In effect, the price of this segment would be neutral or reduced marginally. Bigger sedans and SUVs (1,500cc or more engine size, Over 4,000 mm length and Over 170mm ground clearance).
In this segment, the buyer will enjoy the price cut. The current tax rate was 46.6% to 55.3% which was much higher than the new GST rate of 28 % (+15 % cess). Conclusion From the view point of single manufacturer it appears as a positive impact on the industry, but it is too early to say that. According to Moody’s Investors Service, the implementation of the GST is expected to lead to higher GDP growth and increased tax revenues for the Indian government. The success would largely depend on the integrated compliance by all the players alike 1.14 PROFILE OF TATA MOTORS Tata Motors Limited a public company founded in 1945.
It has a wide range of products 60,000 employees are working under Tata Motors as per database of 2016. Tata Motors: Milestones 1945 : Establishment of Tata Engineering and Locomotives 1982 : Launch of the First Indigenous Commercial Vehicle 2008 : Acquisition of Jaguar Land Rover 2009 : Launched Tata Nano, the cheapest car in the world 2017 : Consolidated Revenue for Financial Year 2017 in US$ 41.3 billion Tata Motors car is a division of TATA MOTORS a public company which is traded as- BSE: 500570 NSE: TATAMOTORS NYSE: TTM Mission of Tata Motors Mission: We innovate, with passion, mobility solutions to enhance quality of life. Subsidiaries of Tata Motors Jaguar Land Rover In 2008 it was acquired by Tata Motors. Products manufactured by it are Luxury vehicles and off-road vehicles. Tata Daewoo In 2004 it was acquired by Tata Motors. Its Headquarters are in Gunsan, South Korea.
Products manufactured by it are Commercial vehicles. Trucks are been sold globally across whole world in the name of TATA DAEWOO. Tata Hispano Tata Hispano is a subsidiary of Tata motors. In 2005 it acquired the company partially by 21% but in 2009 79% the remaining was acquired by Investalia SA.
Its headquarters are in Zaragoza, Spain. Products Manufactured by it are Bus and Coach. It has production capacity of 2,000 units per annum. Tata Motors Corporate Social Responsibility: Education Tata Motors took an important imitative in area education to improve the academic performance of secondary school students by providing them with the interesting audio visual to enhance their capabilities. The education programmers had helped 51,000 students. Employability Here unemployed youth are trained mainly as drivers and mechanics.
Their job is ready once their training is completed. 73,000 youth were trained during this year. Also help is given to women and farmers to earn supplementary income through its agriculture and allied programmes. Environment Awareness sessions are organized to educate people on the importance of environment in our life. Sessions has witnessed 12,600 participants.
And also more than 67,000 trees are planted in an attempt to increase the green cover. Trends in Tata Motors Sales operations in over 175 countries. The company employs over 60,000 people in India and other locations. Tata Motors has sold over 9 million vehicles in its operational history.
The company has been at the forefront of technology and innovation and launched the cheapest car in the world. Tata Motors posted consolidated revenues of US$ 9.10 billion in Q1 of FY18. The company posted 14 per cent year-on-year growth for September 2017 sales and sold a total of 116,419 units. Tata Motors -Way Forward Company unveiled its Transformation Strategy towards the end of May 2017, pursuant to which Company has initiated several programmes and actions for driving the top line growth and improving the profitability through major cost reduction. The initiatives have gained significant momentum with a clear focus to improve the financial performance in the coming quarters. Some of the key trends confirming the progress of these initiatives are as below:- Continued M-o-M improvement in the market share across all the segments in CV since April 2017, Filling up of the gaps in the key growing segments like 37T and 49T Series of product actions in FY 18- 6 New product launches in FY 18 –LPS 4923, LPK 2518, Signa on MAV 37, LPTK 2518, LPTK 3118, Signa Tippers 4 new products in ILCV in FY18, ramp-up of 5 launches from the last year.
Key launches include 1518 Ultra+, LPT 709 CNG, Ultra Narrow, 407 BS4 range, Ultra 13.5 T XL family in SCV (Ace Mega XL, Ace Zip XL and Ace XL) and Xenon Yodha range in Pick-ups 19 Tata Wide range of people transport solutions-Ultra BS4 range on 3.0L, Magna, Magic Express. Ramp of volumes of TIAGO, HEXA and TIGOR, Launch of recently introduced Tata NEXON in the compact SUV to a very favourable initial response Better than planned implementation of cost reduction ideas and time-bound actions for coming quarters. Infrastructure and rural spending, favorable GST impact and normal monsoon is expected to support the CV growth in FY 17-18. Volumes of LCV and Buses, are expected to grow by 10% in FY 17-18.
M;HCV growth in FY 17-18 will be impacted by weak start in H1, post BS4 introduction and post GST. Tiago, Hexa ,Tigor and upcoming Nexon to support the continued growth of the passenger vehicles Channel strategy to build customer centricity and brand perception improvement. Company will continue to explore capital optimization through better operating efficiency JLR’s strategy is to achieve sustainable profitable growth by investing proportionally more in new products, technology and manufacturing capacity. Consistent with this, FY18 investment spending is expected to be in the region of £4- £4.35b, including investment in the new Slovakia plant Despite increased geo-political uncertainty (e.g Brexit in the UK), economic growth in most major economies is continuing, although competitive conditions and incentive levels in the automotive sector have increased in key markets such as North America As previously indicated, JLR expects margin pressures seen in FY17 including higher incentive levels and launch and growth costs to continue in FY18.
We also expect seasonality in volume and profit by Quarter to continue. The launch of the versatile new Discovery (US and China in May), the stunning Range Rover Velar, the Jaguar E-PACE, XF Sport brake and other exciting new models in FY18. ? 1.15 PROFILE OF MARUTI SUZUKI INDIA LTD. Maruti was established in India in 1981 by Sanjay Gandhi.
In 1982 Joint Venture agreement was signed.. Wide range of products manufactured by it is Ciaz, Ertiga, WagonR, Alto, Swift, Omni etc. Its headquarters are in New Delhi. Earlier it was an importer of cars because of this local manufactures were upset as Indian market was too small to absorb comparatively large production planned by Maruti Suzuki.
Then in 1983 Maruti 800 (796 CC hatchback) was released. MARUTI SUZUKI: MILESTONES 1983 : The first lot of Maruti Cars assembled. 1990 : India’s first luxury sedan, Maruti 1000, launched. 1999 : Expansion with launch of 3rd manufacturing plant. 2016 : Consolidated Revenue for FY17 in US$ 10.3 billion Manufacturing Plants Maruti Suzuki has three manufacturing plants in India those are in Gurgaon, Gujarat and Manesar. having combined production facility of 1,700,000 vehicles annually.
Gurgaon Plant It is spread over 300 acres. It also manufactures 240,000 K-Sereis engines per annum. Products manufactured in Gurgaon Plant are Alto 800, WagonR, Omni, Gypsy King, Ertiga, etc. ? Manesar Plant It is spread over 600 acres. Products manufactured here achre Swift, Swift DZire, Ciaz, Baleno, etc. Gujarat Plant Current capacity of plant is 250,000 units per annum but now with more investments it has plan to take it upto 450,000 units per annum.
Maruti Suzuki has 1820 outlets all over India. It also have 3145 service stations all over India. The main revenue generation of company is services provided by it. The express service stations also helped stranded vehicles on highways.
It trains the local staff at service stations. Franchises are given to manage service stations. It is difficult for other companies to match with the Benchmark given by Maruti Suzuki. In comparison with other companies like Hyundai, Tata, Toyota, Mahindra, etc Maruti has the largest dealership network. New cars introduced in the Indian market: In 1983 Maruti 800 was released. In 1985 Suzuki SJ410-GYPSY a 970 cc 4WD off-road vehicle was released.
In 1986 796cc hatchback Suzuki Alto was released which replaced Maruti 800 and company produces its 100,000 units. In 1989 Maruti 1000 was released. After liberalization of Indian Economy in 1991 Suzuki increased its stake in Maruti to 50%. In 1993 Zen 993 cc was released.
In 1994 1298 cc Esteem was released. In 1999 Maruti Baleno and WagonR were released. IN 2000 Maruti was the first company to launch its call centre for internal and customer service. Some new launches by Maruti Suzuki up to DEC 2017 Hatchback PRODUCT EXPECTED PRICE EXPECTED LAUNCH DATE WAGON R DIESEL ? 4.20 – 5.30 LAKH OCT 2017 – DEC 2017 CELERIO X ? 4.50 – 5.50 LAKH OCT 2017 – DEC 2017 SWIFT 2017 HYBRID ? 7.00 – 8.00 LAKH OCT 2017 – DEC 2017 MR WAGON ? 3.00 – 5.50 LAKH NOV 2017 – DEC 2017 CERVO ? 2.50 – 5.00 LAKH DEC2017 SUV PRODUCT EXPECTED PRICE EXPECTED LAUNCH DATE JIMNY ? 5.50 – 10.00 LAKH JUL 2017 – SEP 2017 VITARA ? 15 LAKH OCT 2017 – DEC 2017 Maruti Suzuki Corporate Social Responsibility Maruti Driving School Maruti Suzuki has launched Maruti Driving School in Delhi.
A collaboration with Delhi government in 2000 set up the Institute of Driving and Traffic Research (ITDR). Maruti feels that it is part of its social responsibility to teach people about road behavior and attitudes. Here learners go through classrooms and practical sessions. These schools are modeled on International standards. This PPP models are extended to different cities of India. Presently ITDR are operational at 6 locations in 4 states- Delhi, Haryana, Gujarat and Uttrakhand.
The example of this PPP model is, Maruti Suzuki has set up Road Safety Knowledge Centers (RSKC) in partnership with local police in Haryana at Gurgaon, Karnal, Faridabad and Sonipat. The company started in Gurgaon, Haryana as a partnership between the Indian Government and was known as Maruti Udyog Limited. New models are being launched each year to hold the position of the leader in its home market. The company posted total income of US$ 3.17 billion in Q1 2017-18 and US$ 3.5 billion in Q2. The company posted 9.3 per cent year-on-year growth for September 2017 sales and sold a total of 163,071 units.
SWOT ANALYSIS OF MARUTI SUZUKI STRENGTHS Strong Brand Image Diversified Product Range Well Distribution Network Almost all vehicles follow ELV Better value for money WEEKNESS Lower Interior Quality Inability to capture market share in SUV’s Inability to penetrate to international markets Models failing in crash test OPPORTUNITIES Developing Hybrid cars Increase in purchasing power Greater growth in two wheeler market Consumer’s preference for safer products Make in India Campaign Rise of economy Infrastructural development plans of Government THREATS Substitute mode of transport Competition from Global Players Consumer willingness to try new products Competitors spending too much on advertising ? REFERENCES: Aggarwal M.R. “Financial Management” published by Ramesh Book Depot, Jaipur(2014) Chandra Prashan “Financial management Theory & Practice” published by Tata McGraw, New Delhi(2008) Chaudhary S.B. ” Analysis of Company Financial Management” published by Asia Publishing House, Mumbai (1964) Choudhary “Project Management” published by Tata McGraw Hill, New Delhi(2007) Cooper ; Schindler “Business Research Methods” published by Tata McGraw Hill New Delhi(2003) Gupta R.L. ; P.L. Radhaswami “Financial Statement Analysis” published by Sultanchand ; Sons,New Delhi(1985) Gupta S.C.
“Modern Management Accounting” published by Shree Publisher, Jaipur(1997) Hingorani N L ; Ramanathan A R ” Management Accountancy” S. Chand ; Company Ltd., Delhi(1973) Johnson R W “Financial Management” published by Allyn and Becon- Boston(1971) Khan Jain “Cost Accounting & Financial Management” published by Tata McGraw, New Delhi(2008) Khan M.Y ; Jain P.K “Financial Management” published by Tata McGraw, New Delhi(1984) Kishore Ravi “Student Work Book On Cost Accounting & Financial Management” published by Taxman, Delhi(2007) Kothari C. R. “Research Methodology” Third Edition published by New Age International, Publishers(2014) CHAPTER 2 RESEARCH METHODOLOGY 3.1 MEANING OF LIQUIDITY 3.2 MEASUREMENT OF LIQUIDITY 3.3 TECHNICAL LIQUIDITY 3.4 OPERATIONAL LIQUIDITY 3.5 DETERMINANTS OF LIQUIDITY 3.6 EFFECTS OF LIQUIDITY 3.7 ANALYSIS OF LIQUIDITY 3.8 CONCLUSION ? 2.1 INTRODUCTION Report contains the research on “AN EVALUATIVE STUDY OF LIQUIDITY AND PROFITABILITY OF AUTOMOBILE COMPANIES IN INDIA” (Specific Study of Tata Motors and Maruti Suzuki Ltd.)”. The Automatic industry is the backbone of Indian Economy. Automobile is the key component as many other sectors of economy are dependent on it.
Infrastructural growth of a country includes urban, rural and industrial development. To fulfill this prosperity and growth interconnectivity between different regions is mandatory. This is facilitated by the automobile industry. The Auto industry is playing a prominent role in moulding country’s economy and growth. The producers of heavy commercial vehicle have started setting up and initiating small manufacturing units in India. Therefore, it is recommended to dispel the impediments that are hampering the prosperity of Automobile Industry so that it comes out with flying colors that is better results in form of high profits.
2.2 PROBLEM IDENTIFICATION Automobile is a booming Economy, which contributes profoundly in the growth of Economy. The exponential growth in automobile sector recorded, since 1897 the unforgettable year as the 1st car hit the streets of Bombay. Indian market has never looked back since then. Now it proclaims to be one of the largest markets in Asia. Profitability in this sector can be escalated if cost of production is reduced.
Cost of production is dependent on multiple parameters like cost of raw material, taxes and duties, interest on borrowed funds, power and fuel, administrative overheads, selling and distribution overheads etc. To attain optimum profit various techniques are to be opted by company to cut expenditures. The expenses and the financial position of an industry depend on electricity supply, high cost of electric units, taxation policies, duties and taxes, raw material, transportation cost etc. All these factors influence the cost of production. The basis for financial exploration, preparation and assessment making is financial statements but these statements do not reveal all the essential and significant data. For the intention of chalking out material and suitable information required for obtaining the financial strengths and weaknesses of a venture, it is essential to depict the information in the accounts. Scrutiny of financial statement plays a very significant role. Normally, external user analyzes information as per their objective. Financier is keen to find the profitability. Management would like to analyze the functional efficiency and profitability. The different stakeholders of business like it’s management, shareholders, government, employees, customers, creditors, prospective investors, bankers etc seeks for good financial position of the business concern. Since the Automobile companies face threats to their viability, this theory bears a relevance to present problems. This study is made to know the liquidity, profitability, solvency position under this environment. 2.3 REVIEW OF LITERATURE Enormous literature is available on the analysis of monetary performance of various companies that confirms immense value and importance of the intuitive nature of companies. Vast literature is present at high levels on the size and technology, problems related to profitability, productivity, liquidity, financial performance. A researcher has probed into this literature and gained insight into the existing problem which is dipped below: Chakarvarty and Reddy (1975) wrote an article on company’s performance in financial sphere from 1967 to 1971. Ratio analysis was the key tool used by them to assess different ratios of profitability, liquidity, proprietary, leverage, liquidity and turnover. Kaura and Subramaniam (1980) had written an article on the basis of their observation particularly in liquidity, profitability and financial structure of 10 units. To study the financial performance of those 10 units in the period 1972 to 1979 they evaluated that the financial strength have ebbed over the years. Rao and Chander (1980) have endeavored to evaluate the financial competency of cement companies from 1970-71 to 1977-78 time span. They observed that the profitability showed diminishing trend from 1970-71 to 1974-75 due to different reasons like inflationary pressure in nation, persistent downfall in utilization of capacity, because of intense power cuts and shortage of natural resources. Increase in profitability 1975-76 was merely due to the increase in the sales. Daniel Moses (1984) in his abstraction on “Financial Standing of Tata Motors Ltd” revealed that company has consistent and stable growth. He suggested to cut short the expenditure so that there increase in profitability. He further suggested that working capital should be efficiently. Ahindra Chakrabati (1988-89) in the study on “Performance of Public Sector Enterprise” with special reference to fertilizer companies in India analyzed the trend in the consumption pattern and production pattern and suggestions were provided for the overall improvement of these public enterprises. Sidhu and Bhatia (1996) in their study on “Factors Affecting Profitability of Indian Textile Industry” in which they identified the key factors that influence the profitability of the companies. For this the statistical technique Regression Analysis was used. The study revealed that there was no definite correlation between profitability and intensity of capital. The age of the companies was indirectly related to the profitability which was an indication that companies in the textile industries needed to modernize themselves. M. Aggarwal (1998) in his study on “Prosperity and Growth of Indian Automobile Industry” examined whether firms were earning abnormal profits when control on prices were removed in 1975. It used the Tobin’s square method to determine profitability of the automobile industry. The study revealed that firms were not earning abnormal profits. Industrial policy, retained profits, diversification and expansion of capacities were considered as the main factors for the growth of automobile industry. S.J. Parmar (1998) made his study on the topic “The Profitability Scrutiny of Cement Industry in Gujarat State” his study period for the same was for 1988¬-89 to 1994-95. The study was to find out the financial position and strength, liquidity and profitability, sales, trends in social welfare and cost trend through various financial techniques. Concrete suggestions were made for improving the profitability and liquidity of industry. The study gave that profitability and profits are different phrase profits pertain to the entire amount of profits. Contrary the profitability pertains to the potency to returns profit. Profitability is a comparative measure which connotes the most lucrative alternative. Profits are absolute measure which connotes the total amount of profit procured by enterprise. Towering profits doses not eternally connotes robust organizational effectualness and shallow profitability internally indicates organizational ineffectualness Rajeshwari (2000) in pondering on “Liquidity Management of Cement Corporation Limited Tamil Nadu” used liquidity ratios for ascertaining the liquidity. The study analyzed that if we have sufficient liquid funds, we might be competent to acquire assistance of cash discount on purchases and consequently to facilitate increase in profits. If we cannot shell out the creditors for merchandise in the agreed time, we have to give interest on the sum of purchases. So, scarcity of liquid funds will upshot in squat of cash discount and payment of interest. If we are not capable to maintain adequate stock owing to scarcity of liquid funds, in that case the manufacturing rotation might not be sustained and that might result in grave losses S. J. Parmar (2001) in the year 2001 published a book on techniques that would facilitate them to plan and control the corporate activities smoothly. In the booming era of globalization corporate bodies need to excel in guarding their finances as the involvement of general public and financial institution is at its heights. The book incorporates the techniques of financial competency that depends on various facts. Dr. Miss Kailash P. Domar (2002) has initiated research on “A comparative analysis of profitability trends in co-operative sugar industry of India” in the year 2002. Profit according to her is when Income is at par over expenses. Profitability means “it is a potential to make profit”. Word profit is used as per its literal meaning. Profitability also reflects our potential of how much we can return to stakeholders on their investments. Sugan C Jain (2002), in his a book “Performance Appraisal Automobile Industry” studied the relative study of companies dealing in automobile and revealed the efficacy of Indian automobile industry. The study brought that review of profitability notify by virtue of what the profit stands in respect to aggregate translations contrived throughout ,alike review is explicitly alluring to the stake holders who can interpret their endowment and nod suitably. Additionally profit ratios in the same manner are pragmatic to the management since these ratio exhibit the effectualness of the establishment all together. Thus profitability is the potency of an establishment to realize profits. The functional efficacy and profitability was analyzed through the approach of composite index. Suggestions were offered for refining the fiscal position and strength, liquidity, profitability of the companies. Sanjay Bhayani (2003) in his analysis on “Practical Financial Statement Analysis” of cement companies in India analyzed the profitability position, working capital requirement needs, composition of capital structure and level of activities of these private companies. The study viewed that profitability is recommended to ascertain the extent of functional effectualness of management, governing operations and its efficiency .It is further used to draw comparative efficiency with the competitors. The study highlighted the key issues and gave remedial measures for those problems. Further the study suggested the ways for bringing improvement in profitability and reducing the cost of production through cost control techniques. Dr. Rasik N. Bavaria (2004) has completed his research on “A Comparative Analysis of Profitability vis-a-vis Liquidty performance in Cement Industry of India” in the year 2004.According to him profitability and liquidity are key features. Liquidity is referred as firm’s capacity to repay debt, and meet the claims of suppliers, who are supplying raw material, goods etc. If profitability and liquidity are abscessed for a shorter period of time and if management is inclined towards liquidity then the ratio of profitability would lower and if it seeks profitability then liquidity would reduce. But in the long run both profitability and liquidity go hand in hand. Sanitomy Patra (2005) made the study on “Liquidity and Profitability of Tata Iron and Steel Company Ltd.” It was study of liquidity and profitability ratios and also effect of liquidity and profitability. From the study it was revealed that current ratio, liquidity ratio, inventory turnover ratio and current asset to turn over ratio had inverse relation with profitability while receivable turnover ratio, cash turnover ratio and working capital turnover ratio had positive relationship with profitability. Dr. Harish P. Desai (2006) did his research on “Financial performance appraisal of selected co-operative district dairies in Gujarat”. To evaluate the financial health of co-operative dairies in 9 districts of Gujarat state he applied accounting tools and techniques, like ratios, common size statement, Ratio analysis, and statistical tools like mean, regression, F-test, T-test, diagrammatic and graphic presentation of data. Dr. Deepak M. Sharma (2007) studied the profitability and productivity of various banks. To analyze and assess the private and public sector banks he used common size financial statement. He entitled his research work as “Critical Evolution of Indian Banking Sector.” Dr. Kanak N. Atkotia (2007) “An analysis on profitability performance of tea industry in India” a research was conducted to examine the financial efficacy of the tea industry in India. Intense and modest attempts were made to analyze the working capital, finance structure, profitability of the industry. After brief analyses suggestions were given. Dr. Kripal Singh (2008) in his book on “Automobile Engineering” emphasized on the basic aspect of automobile like the wheels, types, external and internal. The functioning p of an automobile has been discussed in very lucid and simple language. The research paper presented in International Journal of Research in Commerce and Management on “Comparative Financial Performance Evaluation of Maruti and Hyundai’ by prof (Dr.) S.C. Chitkara, in this paper, ratio analysis is used mainly. Statistical techniques like average, standard deviation and coefficient of variation are also analyzed for drawing conclusion. Dr. Shivubhai C. Vala (2011) has done his research on “A comparative study of the profitability vis-à-vis liquidity of co-operative milk producers unions of Gujarat state” in February 2011.Under this study he has made a modest attempt to evaluate the financial health of co-operative dairies he applied accounting tools and tech, like ratios, common size statement. He also used some statistical techniques like, mean, regression, F-test, T-test, diagrammatic and graphic presentation of data. Vipul A Pandaya (2011) made a study on “A Comparative Analysis of Liquidity and Profitability of Indian Car Industry”. The study was on the companies engaged in production of cars particularly. The study explored the liquidity and profitability performance of car industry in the country. The analysis was done to analyze liquidity and profitability of Maruti Suzuki Ltd, Tata Motors, Hindustan Motors and Mahindra and Mahindra. For this analysis various techniques like ratio analysis, trend analysis, Anova test, value added analysis we used. The study also gave concrete suggestions for improving the liquidity and profitability and for cost control to bring financial soundness. Gopal Sharma (2011) made his study on “Financial Performance Appraisal of Some Selected Textile Companies”. The study was mainly for comparing the financial positions of various companies engaged in the textile sector. It also diagnosed the profitability position and prospects of textile companies and also laid down the factors that were responsible for higher or lower profitability position. The study was conducted on Arvind Mills Ltd, Century Textiles and Industries Ltd, Pentaloon Industries Ltd, Pioneer Embroideries Ltd and Bombay Dyeing and Manufacturing Ltd. it also laid down the suggestions for improvement of financial performance. Rakhi Hotwani (2012) analyzed in her article “Profitability Analysis of Tata Motors” using key ratios, statistical tools and techniques and growth charts that it has generated sufficient wealth and given significant returns fluctuations were observed in Companies’ return on equity was less than 10% in concerned years. However inner strength was commendable. The ratios used for analyzing the profitability from the year 2001-02 to 2010-11 were EBIDT ratio, PBT ratio, Net Profit ratio, return on Net worth ratio. During the period of study the company had robust financial position; the company had significant growth in its net worth which was good for its investors. Pioneering books were written by Poddar in 1962 and 1966 respectively, in which an attempt has been made to enumerate all the historical facts regarding various aspects of the industry. Some institution like C.M.A. association of Trade and Industry, Tariff Commission, Commerce Research Bureau, Economics Times, National Productivity Council etc. have made attempts to study the general problems in historical perspectives. Nidhi Aggarwal (2014) in her study on “Financial Appraisal of Automobile Industries in India” analyzed the performance of automobile industry by studying the sales trend, production and profitability trend, capital structure. The study analyzed the trends of production, utilization of capacity, sales and market share of Honda Cars India Ltd. The study also presented the comparative financial strength and also suggested the measures for improvement in profitability, liquidity, efficiency and solvency. Sumesh Kumar (2014) in his study on “The Financial Performance Automobile Companies in India after Liberalization: A relative study of Maruti Suzuki Ltd and Tata Motors”. The study was mainly conducted to measure the performance of these two companies and also for comparative study of the economic accomplishment of the companies by means of liquidity, profitability and proper use of assets. The objective was to compare the ability of companies to pay off its short term debts, requirement of working capital, long term and short term solvency and potency in the use of its financial resources for the period 1992 to 2013. On studying it was concluded that there was not significant difference in the in short term solvency, liquidity and profitability efficacy of both the companies but there was significant difference in the the long term solvency position of both the firms. The efficacy in using the assets also showed significant difference. Pavitra Yadav (2014) in her study on “A Relative of Selected Automobile Companies of India” reviewed about the financial position of the selected automobile companies using the significant ratios. The study analyzed the financial performance of the companies including Tata Motors, Mahindra and Mahindra, Maruti Suzuki Ltd and Bajaj Auto Ltd for the period 2010 to 2013. The significant ratios used in the study were current ratio, quick ratio, debt-equity ratio, net profit margin ratio, return on capital employed. Result depicted that liquidity and profitability efficacy of Tata Motors was not satisfactory and Auto Bajaj profitability position was best among the selected companies. Anubha Srivastava (2014) in her study on “A Comprehensive study of Performance of Indian Automobile Industry- A stock Market Perspective” for determining the financial performance in the Indian automobile industry for comparing the proficiency of the index securities of the leading companies in the automobiles and to establish and analyze relationships between automobile sector index with the market index from 2008-09 to 2012-13. The study concluded that in 2009 experienced the significant fall in terms of GDP growth rate. The companies had shown recovery from the recession of 2008 but the return had been very low and fluctuating. In 2010 there were extra ordinary returns and the stock had risen significantly and lead to abnormal price faction in the stock of the selected companies. In 2011 GDP was at its peak and the FDI inflow was also significant and the returns were growing. In 2012 there was decline in GDP and the stocks showed a slight dip. In 2013 the GDP growth was very low but the stocks had not shown decline. The returns were consistent. Patel Vivek (2015) revealed in his paper on “Financial Performance of Tata Motors Ltd” that the company has gone for issue of equity shares but not on performance share that the dividend of company is not fixed. In spite that the company had handsome returns for the shares holders. Dharamraj Arumugam (2015) made an analysis on “Factors Determining Profitability in Indian Automobile Industry” analyzed the financial performance of the Indian Automobile Industry and the studied the effects of various factors on the profitability. The period of the study was from year 2000 to 2014 and included the 16 companies under automobile industry. The syudy viewed that profitability is the outcome of the Operational Profit Margin and the Rapidness of Turnover of Capital Employed these determinants and, consequently higher profits can be generated only by optimizing these two. Its connotation does not only dwell in its applicability as a cogent instrument. It is also appropriate in elucidating the two forces dependent upon extreme results and hence, certify the range of business affairs should be accurately managed if deserved objective are to be accomplished. Multiple correlation technique was used in which coefficient correlation of the selected variables with automobile profitability was worked out. The test of significance was also used to identify the variables which had significant correlation. The study revealed that Indian Automobile Industry was highly dependent on operating profit ratio. Book on ‘Research Methodology’ by C.R. Kothari in contains various statistical techniques that are used in data analysis are well explained. The book incorporates the qualitative techniques used for the research. Sathya and Saranya (2016) in the study “An Exploratory Study on Profitability Analysis of Tata Motors Ltd” examined the profitability position for the period of five years from 2009-10 to 2013-14. The study covered the financial strength and made the comparison of its operation during the period of study. For this current ratio, gross profit ratio, fixed asset turnover ratio, ROI ratio, combined leverage ratios were used. The study analyzed that the efficacy of an establishment can be appraised or determined from zillion prospects .And there are distinctive quantifiable as and non quantifiable paradigm that can be bestowed for this prospect. Productivity and profitability is distinct gimmick for the appraisal of comprehensive proficiency of a business.The study revealed that the overall financial and operating performance of the company was satisfactory. Shivam and Krati (2016) made their study on “Financial Analysis of Automobile Industries (A comparative study of Tata Motors and Maruti Suzuki)”. The objective of the research was to establish the financial strength of the selected companies for the period 2012 to 2014. Financial position was analyzed with the help of different ratios. And also compared the financial strength of both the companies with the help inter firm and intra firm comparisons. For this liquidity, debt, profitability, efficiency, value, graph and table tools were analyzed. It accomplished that the net sales and gross profit of Maruti Suzuki were high than that of net sales of Tata Motors. This implied Maruti Suzuki had generated more sales. In Maruti Suzuki the proportion of debt was lower in comparison to Tata Motors. The Earning per share of Maruti Suzuki was also higher than Tata Motors which chalked out the fact that Maruti Suzuki had better earnings. Considering all these aspects it was viewed that Maruti Suzuki had batter financial position in comparison to Tata Motors. The study suggested that Tata Motors should become more versatile and should diversify to increase its sales and should try to reduce its direct expenses to improve its gross profit. Sanjay Hiran (2016) in his study on “Financial Performance Analysis of Indian Automobile Companies Belongs with particular indication to Liquidity and Leverage” a25 companies were analyzed from the year 2010-11 to 2014-15. To analyze the mark of liquidity ratios (current ratio, quick ratio and inventory turnover ratio) on the profitability (operating profit ratio, net profit ratio and return on net worth) and also analyzed the mark of leverage ratios on the measures of profitability. 2.4 RESEARCH GAP Many research have been conducted on the various aspects of automobile business, but this study deals with liquidity and profitability of automobiles companies from 2011-12 to 2015-16 ? 2.5 OBJECTIVES OF THE STUDY Following are the main objectives and purpose of this study: To analyze the growth of Indian automobile industry. To have relative study of liquidity position of Maruti Suzuki Ltd and Tata Motors. To have the relative study of profitability position of Maruti Suzuki Ltd and Tata Motors. To compare liquidity and profitability of Maruti Suzuki Ltd and Tata Motors. To make suggestions for improving the profitability and liquidity. 2.6 HYPOTHESIS It is pertinent to say that every single exploration is targeted at some related results which means, that is we expect some detailed results from the research. Expectations are hypothesized and hypothesis is scientifically appropriately predicted. They are recurrently asked in some logical forms, if in context of the sentence, hypothetically, in the research problem selected. Dependent on procurable data and temporary explanation interrelated to the issue, the estimated or proposed solution hypothesis is constituted. The hypothesis of research study can be two types of null (H0) and alternate (H1). (A) H0: There is no significant difference in liquidity position of selected automobile companies. H1: There is significant difference in liquidity position of selected automobile companies. (B) H0: There is no significant difference in profitability position of selected automobile companies. H1: There is significant difference in profitability position of selected automobile companies. 2.7 RESEARCH DESIGN Research is an Exploratory Research. Exploratory Research means to explore new dimension of an existing problem and providing appropriate solution. The time period for the study will be two years. The data for the research work will be from 2011-12 to 2015-16 depending upon the data availability. 2.7.1 UNIVERSE Universe is whole Automobile companies working in India. The study will make an evaluative study of liquidity and prosperity of automobile companies in India with special emphasis on selected companies of India. 2.7.2 SAMPLE DESIGN For the purpose of the analysis the following two major players in the Automobile Industry are considered, name of the companies are: Maruti Suzuki Ltd. Tata Motors 2.7.3 DATA COLLECTION The study has mainly used the secondary data from the yearly profit and loss description and balance sheet available in the yearly information of the selected companies. So, the secondary data used for this study has been taken from: Journals Newspapers Other published books Websites Accounting Literatures Magazines Annual report 2.7.4 TOOLS AND TECHNIQUES FOR ANALYSIS OF FINANCIAL STATEMENTS Statistical contrivance used for the investigation of the study has been briefly listed below: Ratio Analysis Measures of Central Tendency (Mean) Standard Deviation Trend Analysis Graphs and Tables ANOVA Test 2.7.5 DATA ANALYSIS AND DATA INERTPRETATION For accomplishing the objectives of investigation are the mixed approach, analyze the relation between liquidity and profitability. After collection of data, the first step is ‘Editing’ which means examining the data and to look that it is free from incompleteness and inconsistency. For secondary data, the major aspect to look is that it provides adequate information for analyzing the parameters. The data coding is not possible. The data must be classified properly. In case of primary data necessary steps for ‘Editing’, ‘Coding’, ‘Tabulation’ and ‘Analysis’ will be done. 2.8 EXTENT OF THE STUDY The extent of the study has been restricted to the selected 2 companies of the Automobile Industry sector. Automobile companies under study: Maruti Suzuki Ltd Tata Motors Time Period of the Study Keeping in mind the longitudinal purpose of the work the time period instituted for the in progress study is 2011-12 to 2015-16 (5 years). Researchers consider 5years as sufficient and appropriate time to study the changes and their impact on the efficacy and consistency of any firm or an industry and drawing the conclusion. 2.9 LIMITATIONS OF THE STUDY There are firm limits of the study which are inherent in all such studies. The important limitations are as under: The investigation is limited to 2 companies of automobile sector. The study is utterly reliant on the secondary information published in various reports, journals, magazines, annual reports. So, its accuracy depends on how accurate is the data published it these sources. There are various ways to reckon liquidity and profitability therefore the views may vary from one exploration to another. Profitability is affected by bountiful determinants but the study has considered only the key determinants relevant for this study. The research is mainly based on analysis through ratio which has its own limitations. Non availability of the entire information as being external analyst has no access to internal information. Moreover the financial statements do not keep the pace with fluctuation in the prices. ? REFERENCE (Aggarwal M.R. “Financial Management” published by Ramesh Book Depot, Jaipur(2014) Chandra Prashan “Financial management Theory & Practice” published by Tata McGraw, New Delhi(2008) Chaudhary S.B. ” Analysis of Company Financial Management” published by Asia Publishing House, Mumbai (1964) Choudhary “Project Management” published by Tata McGraw Hill, New Delhi(2007) Cooper ; Schindler “Business Research Methods” published by Tata McGraw Hill New Delhi(2003) Gupta R.L. ; P.L. Radhaswami “Financial Statement Analysis” published by Sultanchand ; Sons, New Delhi(1985) Gupta S.C. “Modern Management Accounting” published by Shree Publisher, Jaipur(1997) Hingorani N L ; Ramanathan A R ” Management Accountancy” S. Chand ; Company Ltd., Delhi(1973) Johnson R W “Financial Management” published by Allyn and Becon- Boston(1971) Khan Jain “Cost Accounting & Financial Management” published by Tata McGraw, New Delhi(2008) Khan M.Y ; Jain P.K “Financial Management” published by Tata McGraw, New Delhi(1984) Kishore Ravi “Student Work Book On Cost Accounting & Financial Management” published by Taxman, Delhi(2007) Kothari C. R. “Research Methodology” Third Edition published by New Age International, Publishers(2014) CHAPTER – 3 ANALYSIS OF LIQUIDITY 2.1 INTRODUCTION 2.2 PROBLEM IDENTIFICATION 2.3 REVIEW OF LITERATURE 2.4 RESEARCH GAP 2.5 OBJECTIVES OF THE STUDY 2.6 HYPOTHESIS 2.7 RESEARCH DESIGN 2.8 EXTENT OF THE STUDY 2.9 LIMITATIONS OF THE STUDY ? 3.1 MEANING OF LIQUIDITY The term ‘liquidity’ means the competency of any organization to repay its debt. It implies the potential of the organization to pay off the claims of the creditors which may be of capital or of goods and services. Liquidity implies cash and availability of cash out of current operations of the organization and accumulations of cash in the previous years, and to pay off claims of short-term and the long-term capital suppliers. It is of two types; the short-term and the long-term liquidity. The short-term liquidity is the competency of an organization to pay off its short-term debt which implies the same as the capacity of the organization in fulfilling the current maturing liabilities out of its current assets. The aim of studying the short-term analysis is to examine the capability of the organization to meet out the short-term obligations but from its short-term resources only, that is, to interpret the risk associated with the supply of short-term capital to the organization. Exploration of the organization’s long-term financial position depends upon the competency of that organization to repay its long-term financial obligations like ability to pay interest and dividend on time and principal repayment. Long-term liquidity implies capability of the organization to redeem the long period debt, to pay the interest and to repay other long period commitments or obligations. While establishing such relations it is often assumed long-term assets can be easily sold to repay the financial obligations of the entity. Liquidity ratios measure the capability to meet its current obligations when they fall due for payment. An organization should ensure adequate liquidity that is it should neither face the liquidity crises nor have excess liquidity. If liquidity is not adequate then the organization cannot pay off the creditors on their due date. If organization has sufficient liquidity then there will not be any difficulty to pay out its obligations. However if the organization maintains high liquidity then funds will be unnecessarily in tacked in the liquid assets. So, both less and high liquidity are not desirable. It is essential for the organization to strike a balance between high and less liquidity. Short term liquidity is referred for the study as it is associated to the short-term assets and liabilities of the organization. Moreover, the long-term stability and the growth of the organization depend upon its capability to withstand in the immediate future. Also, the organization may have innumerous capability for future profitability but may be lacking due to lack of liquidity. That is why; short-term liquidity is an important indicator for studying the very existence of an organization. 3.2 MEASUREMENT OF LIQUIDITY Liquidity of any organization can be studied in respect of: Technical liquidity Operational liquidity The distinction in the liquidity measurements methods is of the assumption undertaken like ‘liquidation concept’ in the business is used technical liquidity and the ‘going concern concept’ of business as in the operational liquidity. The first method of estimating liquidity assumes that the organization may be insolvent at any time and even when current assets to repay the current liabilities. While, calculating the ‘operational liquidity’ the net cash flows from its operations are considered to examine the organization’s potential to repay the current liabilities are taken into consideration. In short this approach assumes that organizations are going concern and so the liabilities should be met out from the net cash flows arising from their operations. 3.3 TECHNICAL LIQUIDITY Technical liquidity is generally analyzed by means of following ratios: Current Ratio Current Ratio is solitary the finest acknowledged procedures of ascertaining the short term solvency position. It is the most common measure of short term liquidity. The major issue this ratio addresses is “do the company encompass adequate current assets to congregate the imbursement schedule of its current amount outstanding with a edge of protection for probable losses in current assets?” It is the measurement of the organization’s capability to pay out its current obligations. It is computed as: Current Ratio = Current Assets / Current Liabilities Current Assets of every company includes: cash in hand and bank, receivables, inventories work-in progress, marketable securities, short-term investments, sundry debtors, prepaid expenses etc, which are capable of being realized into cash within span of one year or within its normal operating cycle period. Current Liabilities includes: Outstanding or accrued expenses, Bank overdraft, Bills payable, Short term advances, Sundry creditors, Dividend payable, Income tax payable etc which are to be payable during normal operating cycle period. It is the availability of one rupee of current assets for every one rupee of current liabilities. Higher current ratio implies more investment in current assets and lower of this ratio implies business does not encompass sufficient current assets to congregate the imbursement schedule of its current debts. A normally up to standard current ratio is 2 to 1. However whether or not a explicit ratio is acceptable depends upon the character of the trade and the distinctiveness of its current assets and liabilities. Current ratio is very of great significance for the outsiders and the management. An outsider, can measure the competency of the company to meet the schedule of its short term debts. Generally, higher the ratio, greater is the liquidity but, the management considers larger ratio as more investment in low profits generating assets and a declining trend in this ratio points out inefficiency in the management of its working capital. In short it is a simple measure that estimates whether the business can pay short term debts. Ideal ratio is 2 to 1. Quick Ratio or Liquid Ratio or Acid-Test Ratio Sometimes inventory are not considered very liquid or easily realizable or slow moving while quick ratio takes only fast moving assets counter to current liabilities. Quick Ratio = Current Assets – Inventories / Current liabilities. Quick assets are the assets that are easily and quickly convertible into cash without detriment in value. Cash is weighed as the principally liquid asset. Quick Assets includes: cash in hand, cash at bank, bills receivable, Marketable Securities, Temporary Investments etc. Inventory and prepaid expenses are not considered as liquid assets. Current Liabilities includes: Outstanding or accrued expenses, Bank overdraft, Bills payable, Short-term advances, Sundry creditors, Dividend Payable, Income Tax Payable etc. A quick ratio of 1:1 is taken as standard benchmark for measuring the liquidity arrangement of any organization. This ratio presents healthier depiction of the organization’s competency to meet out the current obligations from its short-term assets. Absolute Liquidity Ratio or Cash Ratio The ratio measures the ultimate liquidity of the company. The ratio considers barely the ultimate liquidity accessible with the firm. It is reckoned as: Absolute Liquidity Ratio= Cash+ Bank+ Marketable Securities/Current Liabilities Cash is well thought-out to be the principal liquid asset. Debtors and bills receivable are doubtful in the realization so they are not incorporated in absolute liquid assets. Current Liabilities includes: Outstanding or accrued expenses, Bank overdraft, Bills payable, Short-term advances, Sundry creditors, Dividend Payable, Income Tax Payable etc. It is assumed that all the suppliers will not demand at the same time and moreover cash can be realized from inventories and debtors. Also drawing power from the bank is also available since the sanctioned limit may not always utilized. 3.4 OPERATIONAL LIQUIDITY Operational Liquidity measures the liquidity taking into the assumption of going concern of the entity and is evaluated by determining the cash flows as the percentage of current liabilities. It analyzes whether competency of any organization in meeting the current liabilities out of its net cash flows generated from the normal operations. 3.5 DETERMINANTS OF LIQUIDITY There are various determinants that effect the liquidity situation which are as follow; Firstly, the nature and volume of business affect the liquidity of any concern. Some organizations require more working capital than others depending upon its nature. While the organizations providing public utility requires less working capital. Also amplify in the volume of business increases the requirement of the funds to finance current assets. In such a condition, the liquidity will be adversely affected if the concern is not diverting some funds as of the long-term sources. Secondly, the magnitude and the composition of organization’s current assets and current liabilities are the key determinants that influence the liquidity situation. High investment in the current assets in comparison to current liabilities, leading to hike in the current ratio so raises the working capital requirement. The quick and other ratios are dependent on the composition of the current assets. Thirdly, the adjustment of financing current assets also influences the liquidity of the entity. If long term sources finance greater proportion of current assets then it would result in higher current ratio but if organization is more dependent on outside sources to finance its current assets then current ratio falls. Fourthly, the assimilation of funds by fixed assets also leads to lower liquidity of the concern. If more of organization’s fund is utilized in fixed assets afterward it is left with little to finance the short term obligations and resolve to fall in the liquidity. Hence, the liquidity position is influenced by the management’s decision in the utilization of its funds in fixed and current assets. Finally, stringent control on the current items can lead to deviation in the liquidity ratios. A proper care is required while investing in current assets as it may direct to accumulation of excess liquidity, which may have adverse effect on the profitability. 3.6 EFFECTS OF LIQUIDITY Liquidity of an enterprise is an important aspect in determining its capability to succeed or fail. An organization should ensure adequate liquidity that is it should neither face the liquidity crises nor have excess liquidity. If liquidity is not adequate then the organization would not be in situation to pay off the creditors on their due date. If organization has sufficient liquidity then there will not be any difficulty to meet the obligations. However if the organization maintains high liquidity then funds will be unnecessarily in tacked in the liquid assets. So, both less and high liquidity are not desirable. It is necessitous for the organization to strike a balance between high and less liquidity. So, both higher and lower liquidity affects the interest of the organization. Higher liquidity implies higher current assets than required in the production. Hence, it indicates the locking up the funds without any return in current assets rather the organization needs incur costs. Moreover, as they are left idle the worth of these assets would fall during inflation. Also organization may have to borrow supplementary funds at high rate of interest. Furthermore, insufficient liquidity may unfavorably affect the organization. The losses arising owing to lack of liquidity would be much higher than greater liquidity. Shortage of funds may even lead to stoppage of production. The credit worthiness of the association is adversely affected as it will not be in the position to repay the debts. In general, the lower the value of default more would be the damage in the goodwill of the concern. Moreover, the association will not be competent to make up the funds from outside sources, and the creditors may force the organization to be bankrupt. Further, shortage of funds in the organization will not allow it to initiate any profitable venture or will not be capable to earn lucrative rate of return on the existing investments. Both high and low liquidity adversely affects the profitability of the organization. Considering both the situations lack of liquidity is considered to be worse, as it endangers the very existence of the business. But liquidity is also influenced by the low profitability. If the organization’s rate of return is very low or incurring losses then there would be insufficiency of funds to repay the debts out of its ordinary course of operations. In fact, there is a close relation between liquidity and profitability. From the liquidity and profitability, profits can be earned in subsequent years, once the goodwill the concern is built. But, if the company’s face in the market fades on account of liquidity, it would require great efforts to recreate its position. 3.7 ANALYSIS OF LIQUIDITY The perception of liquidity within a business is vital to the understanding of financial management as it is the basic criteria of testing the capability of the company to meet the payment schedules of its current debts. For analyzing of liquidity of selected automobile companies following ratio have been computed: Current Ratio Current ratio constitutes the affiliation between current assets and current liabilities of the institute and it is measurement of the organization’s competence to meet its short term obligations. It is reckoned as follows: Current Ratio = Current Assets/Current Liabilities Normally Current Assets are assets which are proficient of converting into cash in a span of one year or through the regular working cycle of the. Current Assets includes: Cash In hand, Cash at bank, Bills receivable, Inventories Work-in Progress, Marketable securities, Short-term investments, Sundry debtors, Prepaid expenses etc. Current Liabilities includes: Outstanding or accrued expenses, Bank overdraft, Bills payable, Short term advances, Sundry creditors, Dividend payable, Income tax payable etc which are to be payable during normal operating cycle period. In short it is a simple measure that estimates whether the business can pay short term debts. For banking finance Tendon committee has taken 1.33 to 1 as principle current ratio. ? TABLE NO. 3.1 CURRENT RATIO FOR THE PERIOD OF 2011-12-06 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 1.13 1.04 0.77 0.68 0.63 0.85 0.22 26.19 Tata Motors 0.50 0.42 0.43 0.42 0.53 0.46 0.05 11.19 Average 0.82 0.73 0.60 0.55 0.58 0.66 In Maruti Suzuki Ltd the current ratio ranged flanked by 0.63 times in 2015-2016 and 1.13 times in 2011-2012 with an average ratio of 0.85 times. The ratio showed decreasing trend through the years of the study. Moreover the company was not able to maintain the standard current ratio of 2:1 in whole years of research period. The standard deviation was 0.22. It has been observed that during the entire study phase the current ratio of Tata Motors Ltd. was below the standard. It varied from 0.53 times in 2015-2016 to 0.50 in 2011-2012. The average current ratio of the company was 0.46 times. This reflects that company was not in position to meet its current liabilities and the standard deviation was 0.05. Liquidity situation of the company was not reasonable. The current ratio in both the companies was on the diminishing trend all through the period covered by the study. Current ratio of Maruti Suzuki was higher than Tata Motors that implied the Mrauti Suzuki still efficiently met its short term obligations but does not satisfy the standard of current ratio. So, the performance of Maruti Suzuki was still better. Tata Motors had the average current ratio below the average ratio of both the companies implied that it was not able to meet the short term obligations efficiently. GRAPH NO. 3.1 CURRENT RATIO FOR THE PERIOD OF 2011-2012 TO 2015-16 Anova Test on Current Ratio Level of Significance: 5% level ? TABLE NO. : 3.2 ANALYSIS OF VARIANCE TEST (ANOVA) ON CURRENT RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS Df MS F P- value F crit Between Groups 0.38025 1 0.38025 14.56897 0.005111979 5.317655 Within Groups 0.2088 8 0.0261 Total 0.58905 9 Current Ratio: Calculated F Value : 14.56897 Table F Value : 5.317655 Result : Significant Liquid Ratio (Quick Ratio) (Acid Test Ratio) Sometimes inventory are not considered very liquid or easily realizable or slow moving while quick ratio takes only fast moving assets counter to current liabilities. Quick Ratio is more reliable and refined for analyzing the liquidity of the organization as it brings out relation between quick assets and current liabilities. Quick assets are the assets that are easily and quickly convertible into cash without detriment in value. Cash is weighed as the most liquid asset. Quick Assets includes: Cash in Hand, Cash at bank, Bills receivable, Marketable Securities, Temporary Investments etc. Inventory and prepaid expenses are not considered as liquid assets. Current Liabilities includes: Outstanding or accrued expenses, Bank overdraft, Bills payable, Short-term advances, Sundry creditors, Dividend Payable, Income Tax Payable etc. It enables to measure the ability of the org to pay off its obligation without waiting much to liquidate the assets. Ideal Quick is 1:1. So, an organization is assets must be equivalent to its current liabilities. However, the result of quick ratio is to be used carefully considering the composition of liquid assets. The quick ratio is a greatly more conservative measure of short term liquidity than the current ratio. ? TABLE NO. : – 3.3 QUICK RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 1.03 0.90 0.67 0.41 0.37 0.676 0.29 43.12 Tata Motors 0.43 0.40 0.36 0.42 0.41 0.404 0.03 6.69 Average 0.73 0.65 0.52 0.42 0.39 0.54 The ratio in Maruti Suzuki Ltd. fluctuated from 0.37 times in 2015-16 to 1.03 times in 2011-12. The company faced the diminishing trend in the quick ratio in the phase of study. First year reflected that the ratio was higher than the standard which showed the good liquidity position. The average ratio of the company was 0.67 times. The standard deviation of the quick ratio was 0.29. On an average the company was not able to maintain the standard quick ratio of 1:1. Quick Ratio of Tata Motors ltd. varied from 0.43 times in 2011-12 to 0.41 times in 2015-16. The average quick ratio of the company was 0.404 times. The trend was decreasing during first three years and then rose marginally in 2014-2015 and then fall in 2015-2016. The company was not able to maintain the standard norm of 1:1. The standard deviation was 0.03. The liquidity situation of the company was not acceptable. On the basis of the above analysis it can be seen that the quick ratio of Maruti Suzuki ltd was still higher than Tata Motors ltd. Both the selected companies under the study were not able to maintain the standard norms. So the liquidity situation was not satisfactory implied that the companies were not able to pay its current obligations immediately out of its liquid assets. CHART NO. : 3.2 QUICK RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-2012 TO 2015-16 Anova Test on Quick Ratio Level of significance: – 5% Level TABLE NO. : 3.4 ANALYSIS OF VARIANCE TEST (ANOVA) OF QUICK RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS Df MS F P-value F-crit Between Groups 0.18496 1 0.18496 4.315949 0.071393599 5.317655 Within Groups 0.34284 8 0.042855 Total 0.5278 9 QUICK RATIO Calculated F value : 4.315949 Table F value : 5.317655 Result : Insignificant Inventory Turnover Ratio The ratio is also called as Stock Velocity Ratio. It establishes the affiliation among cost of goods sold throughout the year and average stock held.throughout the year. The quantity of stock should be sufficient to meet the demand of the business, but it should not be too large to indicate unnecessary locking-up of capital in stock, danger of stock-items becoming obsolete and resulting in waste by passing of time. Inventory Turnover Ratio = Cost of Goods Sold/Average inventory It helps in measuring the liquidity of the inventory. It tells the velocity with which the goods move, so it is a yardstick for inventory management. This ratio reflects how quickly stock is utilized or sold; a high ratio is good from the outlook of liquidity and vice versa. A lower ratio would point to that stock is not utilized /sold/lost and remains in the storehouse for elongated time. In short, the higher this ratio, the better it is. A higher of this ratio implies quick sales. But a lower of this ratio signifies a needs to analyze carefully as it may lead to lower inventory investment and frequent stock outs. A low ratio indicates slow movement or obsolete quality of goods due to which there may be a problem in selling those goods. It is a test of effectualness in inventory management. To ascertain whether the inventory management is efficient or not, the ITR should be compared over a period of time and can also be compared with the ITR of other firms and with industry average. A low inventory turnover ratio reflects accumulation of slow moving, obsolete and low quality goods, which is sign of inefficient inventory managemen TABLE NO. : 3.5 INVENTORY TURNOVER RATIo FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 21.98 26.67 28.65 21.08 20.84 23.844 3.58 15.01 Tata Motors 12.91 11.07 9.78 8.23 9.52 10.302 1.77 17.21 Average 17.45 18.87 19.22 14.66 15.18 17.07 The table shows the inventory turnover ratio of Marti Suzuki Ltd showed increasing trend from 21.98 times in 2011-2012 to 28.65 times in 2013-2014, then it declined in 2014-15 and 2015-16. The average ratio was 23.844 times, which was above the average of both the companies. The standard deviation (?) was 3.58. A high ratio signifies that inventory management was good. The inventory turnover ratio of Tata Motors showed decreasing trend from 12.91 times in 2011-12 to 8.23 times in 2014-15 and rose marginally in 2015-2016. The average inventory turnover ratio of the company was 10.302 times. The standard deviation (?) was 1.77. Constant falling trend of this ratio was not a good sign in term of inventory management. So, during the time of study out of two Maruti Suzuki Ltd showed higher inventory turnover ratio which implied that the company was efficient in converting its finished goods into turnover (sales) Tata Motors was straggling to move inventory faster to compare with Maruti Suzuki due to poor production and inefficient marketing. CHART NO. 3.3 INVENTORY TURNOVER RATIO FOR THE PERIOD OF 2011-12 TO 2015-16 Anova Test on Inventory Turnover Ratio Level of significance: – 5% level TABLE NO. : – 3.6 ANALYSIS OF VARIANCE TEST (ANOVA) ON INVENTORY TURNOVER RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS df MS F P-value F crit Between Groups 458.4644 1 458.4644 57.49599 0.000064 5.317655 Within Groups 63.7908 8 7.97385 Total 522.2552 9 Inventory Turnover Ratio Calculated F value: 57.49599 Table F Value: 5.317655 Result: Significant ? Fixed Assets Turnover Ratio It measures the efficiency with which the firm uses its fixed assets or it shows the efficiency of the fixed assets towards contribution to its sales. It helps to analyze whether the outlay in fixed assets by the organization is justified or not. This ratio reveals the proficiency with which the organization is employing its funds in fixed assets like land and building, plants and machinery etc. It judges the potency of the management, how prudently it engages its investments in fixed assets. Fixed Assets Turnover Ratio = Cost of Sale/Total Fixed Assets Higher the fixed asset turnover ratio the more proficient the management is in use of the fixed assets, while low fixed asset turnover ratio implies that the fixed assets are not efficiently engaged and there is under employment of available resources and capacity of the firm is not fully utilized. TABLE NO. : 3.7 FIXED ASSETS TURNOVER RATIO OF THE SELECTED AUTOMOBILE COMPANIES UNDER THE STUDY FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 2.46 2.25 1.96 1.94 2.02 2.126 0.22 10.53 Tata Motors 2.66 2.03 1.49 1.48 1.65 1.862 0.50 26.78 Average 2.56 2.14 1.73 1.71 1.84 1.99 The table showed the fixed assets turnover ratio of Maruti Suzuki Ltd. was falling, it was 2.46 in 2011-12to1.94 in 2014-15 expect 2015-16. The average ratio of the company was 2.126 times. The standard deviation was 0.22. Compared with the other selected company this ratio was found to be higher; it implied the company was using its fixed assets effectively to earn profits in the company. The fixed assets turnover ratio of the Tata Motors Co. was falling throughout the study period. The fixed assets turnover ratio of the company ranged from 2.66 times in 2011-2012 to 1.48 times in 2014-2015 and marginally increased to 1.65 times in 2015-16. The standard deviation was 0.50. The average ratio of the company was 1.862 times which was the lower than the average of both the companies which indicates inefficiency in using fixed assets. Among the selected companies Maruti Suzuki had higher Fixed Asset Turnover Ratio throughout the study period. A high of this ratio suggests that management was able to make good use of investments in fixed assets. GRAPH NO. : 3.4 FIXED ASSETS TURNOVER RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 ? Anova Test on Fixed Assets Turnover Ratio Level of Significance: – 5% level TABLE NO. : 3.8 ANALYSIS OF VARIANCE TEST (ANOVA) ON FIXED ASSETS TURNOVER RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS Df MS F P-value F crit Between Groups 0.17424 1 0.17424 1.166851 0.311535449 5.317655 Within Groups 1.1946 8 0.149325 Total 1.36884 9 Fixed Assets Turnover Ratio:- Calculated F Value : 1.166851 Table F Value : 5.317655 Result : Insignificant Above table indicated that the computed value of F was 1.166851 while its table value was 5.317655 signifies that null hypothesis got accepted and alternative hypothesis got rejected at 5% level of significance. On the basis of F value test, it indicated there were significant difference of fixed assets turnover the selected car units of India. It signifies that some car units were better in utilizing its fixed assets. The ratio suggests management ability to make a good use its investments in fixed assets. Financial Charges Coverage Ratio It judges the capability of the company to cover its financial charges. It is widely used coverage ratios. This ratio brings out the ratio of earnings before interest and taxes (EBIT) to the value of interest charges for the period. Financial Charges Coverage Ratio = Earnings before Interest and Taxes (EBIT)/Interest Expense The ratio serves as an important indicator of the organization’s capability to meet its interest obligations. Generally higher the ratio the greater is the capability of company to cover its interest obligations. It also provides insight on the organization’s ability to take up fresh debt. Study of this is considered more substantial than simply calculating the ratio as this will help in analyzing whether the concern is in position to repay its long term debts. The ratio is very significant from the lenders’ perspective. It gives an idea of the number of times the interest obligation is recovered by net earnings of the company out of which they will be paid. Too high a ratio may only indicate the unused capacity of the company will lead to fall in profits from trading on equity. Thus, shareholders’ income would be reduced. While, the low ratio signifies that the company is employing too much debt. The investors can estimate the fiscal risk by comparing this ratio with standard ratio of the industry. The standard for this ratio should be about 6 or 7 times. This ratio signifies the level to which income might drop without causing any awkwardness to the company concerning the payment of interest obligations. A higher of this ratio implies that the companies can without difficulty pay off its interest obligation even if EBIT experience a substantial fall. A lower ratio signifies too much use of debt or unproductive operations. In short, it reckons the capability of the company to pay out interest expense. TABLE NO. : 3.9 FINANCIAL CHARGES COVERAGE RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 60.50 26.56 33.65 36.62 115.83 54.632 36.51 66.83 Tata Motors 3.90 2.74 2.18 0.40 3.00 2.444 1.30 53.21 Average 32.20 14.65 17.92 18.51 59.42 28.54 The above table showed the financial charge coverage ratio of Maruti Suzuki Ltd. ratio showed decreasing trend in concerned study period, except in the last year of study period in 2015-2016. The average ratio was 54.632 percent which was the highest average ratio among the selected automobile companies. That means that the company could cover its interest payments without difficulty. The standard deviation was 36.51. The financial charge coverage ratio of Tata Motor Ltd showed diminishing trend in the study period. Ratio ranged from 3.90 percent in 2011-12 to 3.00 percent in 2015-16. The standard deviation was 1.30. The average ratio was 2.444 percent; it was not good sign as it signified inability to cover annual interest. CHART NO. : 3.5 FINANCIAL CHARGES COVERAGE RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-2012 TO 2015-16 Anova Test of Financial Charges Coverage Ratio:- Level of significance: – 5 % Level TABLE NO. : 3.10 ANALYSIS OF VARIANCE TEST (ANOVA) ON FINANCIAL CHARGES COVERAGE RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS df MS F P-value F crit Between Groups 6808.968 1 6808.968 10.20241 0.012724299 5.317655 Within Groups 5339.107 8 667.3883 Total 12148.07 9 Financial Charges Coverage Ratio:- Calculated F value : 10.20241 Table F value : 5.317655 Result : Significant Above table indicated that the calculated value of F was 10.20241 and its table value was 5.317655 implies that the computed value of F was more than the table value of F. ? 3.8 CONCLUSION The current ratio of both the selected companies was decreasing trend throughout the period covered by the study. But the performance of Maruti Suzuki was still better. The other company under the study has the average current ratio below the average ratio of the both the companies taken together. On the basis of the analysis it is seen that the quick ratio of Maruti Suzuki ltd higher than the Tata Motors. Both the companies could not maintain the standard norms of the ratio so the liquidity position was not satisfactory. Maruti Suzuki had maintained a good inventory turnover ratio throughout the study period. Tata Motors was struggling to move inventory faster as compare with other Maruti Suzuki due to poor production and marketing straggling. Amongst the chosen companies Maruti Suzuki had higher Fixed Asset Turnover Rario throughout the study period. High Fixed Asset Turnover Ratio reflects that the management is using its fixed assets efficiently, suggests management ability to make a good use its investments in fixed assets. Tata Motors also had satisfactory ratio but little below the average of two companies. Financial Charges Coverage Ratio of Maruti Suzuki Ltd was much higher than the Tata Motors, implied that Maruti Suzuki could cover its interest obligations without any difficulty. ? REFERENCE Aggarwal M.R. “Financial Management” published by Ramesh Book Depot, Jaipur(2014) Chandra Prashan “Financial management Theory & Practice” published by Tata McGraw, New Delhi(2008) Chaudhary S.B. ” Analysis of Company Financial Management” published by Asia Publishing House, Mumbai (1964) Choudhary “Project Management” published by Tata McGraw Hill, New Delhi(2007) Cooper ; Schindler “Business Research Methods” published by Tata McGraw Hill New Delhi(2003) Gupta R.L. ; P.L. Radhaswami “Financial Statement Analysis” published by Sultanchand ; Sons,New Delhi(1985) Gupta S.C. “Modern Management Accounting” published by Shree Publisher, Jaipur(1997) Hingorani N L ; Ramanathan A R ” Management Accountancy” S. Chand ; Company Ltd., Delhi(1973) Johnson R W “Financial Management” published by Allyn and Becon- Boston(1971) Khan Jain “Cost Accounting & Financial Management” published by Tata McGraw, New Delhi(2008) Khan M.Y ; Jain P.K “Financial Management” published by Tata McGraw, New Delhi(1984) Kishore Ravi “Student Work Book On Cost Accounting & Financial Management” published by Taxman, Delhi(2007) Kothari C. R. “Research Methodology” Third Edition published by New Age International, Publishers(2014) CHAPTER – 4 ANALYSIS OF PROFITABILITY 4.1 INTRODUCTION 4.2 PRODUCTIVITY AND PROFITABILITY 4.3 PROFITABILITY AND EFFICIENCY 4.4 FACTORS AFFECTING THE PROFITABILITY 4.5 THE DU-PONT CHART 4.6 IMPORTANCE OF PROFITABILITY 4.7 TECHNIQUES TO MEASURE PROFITABILITY 4.8 PROFITABILITY ANALYSIS OF SELECTED AUTOMOBILE COMPANIES 4.9 CONCLUSION 4.1 INTRODUCTION Profits are acknowledged purpose of our community and evidential purpose of any establishment. It is beacon of the performance of the venture; profit is the axle encompassing diverse endeavors of the organization. The substantial argument for maintaining accounts and its management which accommodates the method of scaling the success of an enterprise, examining its pulse and to cannot curative measures if required. The persistence of any institution is connected with its earning competency. So if an institution miss to secure equity invested corrodes and if this plight persists the business will eventually abandon. Indeed, profit is the conscience of business will eventually abandon. Indeed, profit is the conscience of business devoid of which it is listless. In fact the potency an enterprise is reckoned by the extent of profits secured. Prominent are the profit the more effectual and pragmatic the venture. The profit is the decisive yard stick of performance. A profitable establishment is pre disposed to accord the surety of job, enrichment more employment and the zealous motivation that confederate with success. Profitability purpose the profit realizing competency of an establishment and the potentiality of management to hatch surplus in the course of action of the enterprise. It is absolute benchmark of efficiency. Profitability and profits are different phrase profits pertain to the entire amount of profits. Contrary the profitability pertains to the potency to returns profit. Profitability is a comparative measure which connotes the most lucrative alternative. Profits are absolute measure which connotes the whole amount of profit procured by enterprises. Towering profits doses not eternally connotes robust organizational effectualness and shallow profitability internally indicates organizational in effectualness. In bountiful situations it befalls that although an enterprise endowing enlargement intents but it concedes in momentary losses, consequently it can be afore said that profit is not the elementary determinant on which the functional effectualness and financial effectualness of an establishment can be equated. Profitability is recommended to ascertain the extent of functional effectualness of management, governing operations and its efficiency .It is further used to draw comparative efficiency with the competitors. Review of profitability notify by virtue of what the profit stands in respect to aggregate translations contrived throughout ,alike review is explicitly alluring to the stake holders who can interpret their endowment and nod suitably. Additionally profit ratios in the same manner are pragmatic to the management since these ratio exhibit the effectualness of the establishment all together. Thus profitability is the potency of an establishment to realize profits. 4.2 PRODUCTIVITY AND PROFITABILITY The efficacy of an establishment can be appraised or determined from zillion prospects. And there are distinctive quantifiable as and non quantifiable paradigm that can be bestowed for this prospect. Productivity and profitability is distinct gimmick for the appraisal of comprehensive proficiency of a business. Productivity is elucidated as the relation between outputs and inputs .Outputs in manifestation of goods and services and input are the means which are used in to transform inputs into outputs. It is the phase of being productive. It is an abstraction that phases the management about production system and reckon its performance .It is the essence that connotes how proficiently the inputs can be engaged, ganging and determining the productivity area for curative measures required in planning if required. Capital and labour befall to be the substantial factor of production and prudence of the establishment depends largely on how proficiently it engages these factors of production. The productivity of capital can determine by establishing the relation of output with capital employed. Towering the ratio, the finer will be the productivity of capital. If productivity of establishment improves, the profitability will also improve. So profitability of the endeavor is connected with the productivity. However both are distinct abstraction of reckoning the success of establishment. Their determination is as follows. Profitability = Operating Income / Operating Assets Productivity = Output / Input Where operating income signifies, income from occupying capital employed in the company and operating assets represents capital employed. Chen and Mc Garrach pointed out that with the acceptance of transitory currency fluctuations, variation in commodity or its price, there is high direct co- relation interpolated in time series data determining productivity, profitability and potency. Earnings may be high or shallow due to variation in selling price of goods and services, change in, Governmental policy, market condition, business cycle etc. 4.3 PROFITABILITY AND EFFICIENCY Profitability and efficiency are also not synonymous rather it is basis of proficiency .It is deemed as a benchmark of measuring efficiency and steer the management to greater potency. Un-doubtfully profitability is barometer of efficiency but the magnitude of profitability cannot regards as a definitive test of efficiency. Many times substantial profits can lead to inefficiency and also a fine extent of efficiency do not generate yield. The net profit only reflects an acceptable poise between the value receive and value given. The turnaround in operational effectualness particularly the key determinate on which prudence of an enterprise is based on. In addition to it other, there are countless factors which perturb the properness of the enterprise. 4.4 FACTORS AFFECTING THE PROFITABILITY The trailing are the key determinants which perhaps the profitability of an establishment:- The Operational Profit Margin. The Rapidness of Turnover of Capital Employed. Profitability is the outcome of these determinants and, consequently higher profits can be generated only by optimizing these two. Its connotation does not only dwell in its applicability as a cogent instrument. It is also appropriate in elucidating the two forces dependent upon extreme results and hence, certify the range of business affairs should be accurately managed if deserved objective have to be accomplished. Profitability = Sales/?(Operating @Assets) x ?(Operating@Income)/Sales x ?(Operating@Income)/?(Operating@Assets) Both the constituents are end result of series of co-related determinants. These constituents are beneficial in reviewing the financial structure, determining current financial strength and contriving the financial fortune. Additionally, the co-relation can furthermore, connoted with the support of Du-Pont Model. 4.5 THE DU-PONT CHART A system of management control designed by an American company named Du-Pont Company is popularly called Du-Point Control Chart. This system uses the ratio inter-relationship to provide charts for managerial attention. The standard ratios of the company are compared to present ratios and changes in performance are judged. The chart is based on two elements i.e. net profit and capital employed. Net profit is related to operating expenses. If the expenses are under control then profit margin will increase. The earnings as a percentage of sales or earnings divided by sales give us percentage of profitability. Earnings can be calculated by deducting cost of sales from sales. Cost of sales includes cost of goods sold plus office and administrative expenses and selling and distributive expenses. Capital employed, on the other hand consists of current assets and net fixed assets. Current assets include debtors, stock, bills receivables, cash, etc. Fixed assets are taken after deducting depreciation. So profit margin is divided by capital employed and, is multiplied by 100. The co-related constituents are presented as profit path. The logistics of profit path are based on the Du Pont chart. It is very helpful in measuring profitability. Du-Pont chart states that the rate of return on investment is affected by a number of factors. It may be noted that the analytical chain in this chart is developed along with tiers. ? DU-PONT CHART SHOWING INTER-RELATIONSHIP OF FACTORS AFFECTING RETURN ON INVESTMENT Profitability/ Net Profit Margin: The net profit margin is basically the after tax profit of a business earned for each rupee of proceeds. Net profit margin differs athwart industries, creating it significant to evaluate a probable investment in opposition to its competitors. Though the general rule of thumb is that a greater is the net profit margin more preferable it will be. Profitability or Net Profit Margin= Profit (Net Income)/ Sales (Revenue) Asset Turnover Ratio: The asset turnover ratio measures how efficiently a company converts its assets into sales. Asset Turnover Ratio = Sales (Revenue)/ Assets The asset turnover ratio is negatively correlated to the net profit margin; that is more the net profit margin, lesser will be the asset turnover. Calculation of Return on Equity: to estimate the return on equity with du Pont model, just multiply the two components Return on Equity = Net Profit Margin* Asset Turnover 4.6 IMPORTANCE OF PROFITABILITY Profit is deemed as key connote of business efficacy, although the true benchmark for ascertaining the efficacy of business cannot be adjudicated by the consummate extent of its return. For this, profitability is a fitting mechanism, which depicts the returns of an enterprise. Modern management is engrossed in the job of optimizing the profit and wealth of the investors. A study of the profitability manifests as to how the footing of profit stays as a consequence of all the proceedings carried out during the year. In general profitability is determined with the help of profit ratios. Profitability of an organization is very usable to the management, creditors and share holders. The management has to opt some vital managerial call such as further expansion, perk up additional finance and decision relating to bonus and payment of dividend etc. and for this object the management to a great extent hangs on the profitability. Moreover, management can appraise the operational potency of the company. The suppliers of the company are also concerned in the profitability of business. On the keynote of profitability they draw their policy concerning the business. The share holders are also keen in knowing the profitability position of the company. The share holders cannot judge profitability by exact extent of its periodic returns. 4.7 TECHNIQUES TO MEASURE PROFITABILITY The determination of profitability is as necessitous as the realization of profit for a business. The profitability of an establishment can be judged and reckoned from bountiful aspects, and there are distinctive quantifiable and non quantifiable methods which can be used for this purpose. The trailing key techniques can be applied to reckon profitability. Ratio Analysis Ratio analysis has come out as the major procedure of investigating the financial statements. It is an attempt to represent the information of the financial statements in simplified, systematized and summarized. The system of analysis of financial statements by means of ratios was first made in 1919 by Alexander Wall. A number of ratios are calculated in this technique. Before, we attempt the study of the method of ratio analysis in detail, it appears meaningful to understand, what is a ratio and how is it expressed? Meaning of Ratio Ratios are basically a way of representing, in numerical terms, the correlation among numbers drained from financial statements; that is ratio analysis is the procedure of finding and presenting the relationship of items or group of items. The relationship may be of two types- (i) associate relationship; and (ii) cause/effect relationship. Normally, the ratios may be expressed in any of the following ways: 1. As Ratio or Proportion: In this form, the relationship between two figures is stated in a common denominator. It is obtained by the simple division of one number by another so that the proportionate relationship becomes clear. 2. As Ratio or Turnover : In this form, a ratio is calculated between two numerical facts for which one item is divided by another and the quotient so obtained is taken as unit of expression: When ratio is presented in this form, it is called as `turnover’ and is written in ‘times’ 3. As Percentage: In this form, the link between the variables is expressed in percentage for which one item is divided by another and the quotient is multiplied by one hundred. In financial analysis, these ratios highlight the financial position of the business and hence known as financial ratios. These are also called accounting ratios, because they are based on the data taken from financial accounts. Similarly, they measure the relative importance of the items expressed in financial statements, hence called structural ratios. Objectives or Significance of Ratio Analysis Ratio analysis is a significant instrument of financial investigation. The relation that exists amongst various matters in the financial statements is discovered by accounting ratios. In accounting and financial management, ratios are considered as the true test of earning capability, financial reliability and operating effectiveness of a business concern. That is why, a number of parties such as shareholders, creditors, financial executives are interested in ratio analysis with a view to take judicious actions. Precautions for Use of Ratios Ratio analysis is a widely used technique in analyzing the financial activities of a firm. If ratios are used in a wrong way or carelessly, there is a possibility of conclusions being misleading. Therefore, while using ratios, following precautions should be taken into consideration: Ability to Understand Accounting Data: The user must be capable to understand the nature of accounting, data, used in preparing financial statements, from which ratios are calculated. It is more essential when efficiency of one firm is compared with that of another firm. In such, a case, the figures must have conceptual uniformity and be comparable. Speedy Compilation: Speedy compilation of ratios is desirable as the utility of these ratios depends upon the timely availability to the person concerned. How speedy these should be made available, depends upon the nature and urgency of ratios. Cost-Benefit: There is a cost of calculating ratios. Therefore, undesired or useless ratios should not be computed and a equilibrium between cost and benefit be maintained. Presentation: The utility of ratios, to a great extent, depends upon their presentation. Only those ratios should be presented before the concerned person which are to be considered. For example, ratios of productivity should be presented before the production manager. Incorporation of Changes: Ratios should be revised as per changing business conditions and assumptions. In the beginning, a few ratios are computed, but as business grows or expands, new ratios should be incorporated. Importance of Ratio Analysis An accepted method of analyzing the performance of a company is financial ratio analysis. As an instrument of financial management, these are of fundamental importance. The significance of ratio analysis lies in the reality that it represents data on a relative base and enables portrayal of inferences concerning the performance of a company. It helps in evaluating liquidity position and long term solvency. It is useful in drawing conclusion on various aspects like financial health, profitability, liquidity and operational efficiency of the organization. Ratio helps in bringing out the functional effectiveness of the organization i.e. whether the management is competent to utilize the assets correctly for increasing the investor’s wealth. Government can analyze the financial statements to determine taxations and other details payable to the government. Production mangers can know various data regarding input output, production quantities etc. Investors can know the overall financial health of the organization particularly future perspective of the organizations. Meaningful conclusions can be drawn for future from these ratios. Thus, ratio analysis is used in forecasting and planning. The financial strength along with the limitations of a firm are communicated in a more easy and understandable manner. It is an essential part of the budgetary control and standard costing. It ensures a fair return and secures optimum utilization of assets. It helps to draw the inter-firm comparisons. Limitations of Financial Ratios Ratio analysis is a valuable instrument of financial evaluation of business firms. But, it should be kept in view that ratios are only guide in analyzing the fiscal statements, and not conclusive end in them. If these ratios are misused, the results will be incorrect and misleading. Therefore, the analyst ought to be conscious of the weaknesses and limitations of ratio analysis while analyzing financial statements on the basis of these ratios. The important limitations are as follows: Need for Comparative Analysis: A particular ratio cannot convey anything, as the single ratio in itself is meaningless, it does not furnish a complete picture. Neither it can be explained, nor can any decision be taken on this basis. Hence, it is essential to ponder over all relating ratios while drawing inferences. For example, current ratio alone is not a proper measure of liquidity unless it is supported by all liquidity ratios i.e. acid test ratio, inventory turnover ratio etc. Qualitative Factors Ignored: Ratios are arithmetical expressions, so that qualitative aspects cannot be presented through ratios. Normally, qualitative factors that may influence the conclusions drawn are ignored while computing ratios. For instance, a high current ratio may not necessarily mean sound liquid position when current assets include large inventories consisting obsolete items or major part of debtors is bad. Therefore, in making decisions with the help of ratios, utmost care should be taken. Possibility of Window-dressing: Window-dressing means manipulation of accounts in a way so as to present a better picture than what it actually is. By doing so, it is possible to cover up bad financial position. For instance, better liquid position by postponing purchase of desired fixed asset for some time; acceptance of deposits by banks from their customers for a weak at the closure of the year to show better deposit position etc. Hence, ratios based on such figures are not reliable. Inherent Limitations of Accounting: Ratios are calculated from accounting records which are subject to accounting principles, conventions, concepts and personal judgments. Any ratio based on the facts and figures of such financial statements suffers from inherent limitations. For example, ratio based on under recorded purchase by directors will provide misleading information about the profit and financial reliability of the business. Difference in Accounting Methods and Systems: Comparability of financial statements is affected when various differences are traced out in accounting methods and systems followed by different firms. Lack of standard formulae for calculating ratios makes it not easy to compare, because ratios are worked out on the basis of different items in different industries. No Substitute for Sound Judgment: Ratio analysis is the method of interpretation and drawing inferences. It. only provides little information for decision-making. Conclusions drawn from ratio analysis are not sure indicators of bad or good management. They merely convey certain observations which need further investigations, otherwise, wrong conclusions may be drawn. That is why; Bierman and Drebin have aptly said, “Ratio analysis is not a substitute for sound judgment, rather a accommodating instrument to assist in judgment.” Therefore; computation of ratios is not useful unless they are interpreted. Lack of Standard Ratios: In practice, there is no uniformity in the definition of various terms used o in ratio analysis. For example, some companies treat net current assets (current assets-current liabilities) as working capital, while others only current assets. As such, the ratios of one firm cannot be compared with the ratios of other firm or whole industry. Comparison requires ideal ratios. But, in a dynamic financial and economic, scenario, it is very difficult to evolve a-standard ratio acceptable to all for all times. Personal Bias: Ratios needs to be interpreted, but distinct populace might infer the same ratio in distinct ways. It should be clearly noted that ratios are only tools and the individual opinion of the forecaster is more important. If the forecaster do not hold required credentials or is prejudiced in inferring the ratio, the findings will be misleading. Types of Ratios To have the true picture of the prosperity and financial wellness of an organization and to draw a systematic analysis, Ratios are categorized as under: (A) Liquidity Ratio Liquidity ratios measure the ability to meet its current obligations when they fall due for payment. An organization should ensure adequate liquidity that is it should neither face the liquidity crises nor have excess liquidity. Various liquidity ratios are: Current Ratio, Quick Ratio, Cash Ratio or Absolute Liquidity. (B) Leverage Ratio Or Structural Ratio The leverage ratios can be defined as those fiscal ratios which determine the long period constancy and composition of the company. These ratios indicates the blend of funds invested by owners and lenders and promise the lenders of the long tenure funds with view to cyclic imbursement of interest during the period of loan and reimbursement of principal. The ratios are capable of ascertaining the long term fiscal strength of the entity. This ratio exhibit the funds provided by the long term creditors and owners. Leverage ratio is computed from balance sheet items. (C) Activity Ratio These ratios are in use to assess the effectiveness by way of which the company administer and utilizes its assets. On this basis, they are commonly called Asset management ratios. These ratios generally point out the incidence of sales with regard to its assets. These assets could be capital assets or working capital or average stock. Some of the activity turnover ratios are; total assets turnover ratio, fixed assets turnover ratio, Capital turnover ratio and working capital turnover ratio. (D) Coverage Ratio The coverage ratios determine the company’s capability to meet its fixed liabilities. These ratios set up the correlation between fixed obligations and what usually exists out of which these obligations are to be met. The fixed obligations comprise interest on loan, preference dividend and amortization installment on loans or redemption of preference shares. The main coverage ratios are: debt service coverage ratio, interest coverage ratio, preference dividend coverage ratio and fixed charges coverage ratio. (D) Profitability Ratios The main objective of every business firm is to earn profit. Each firm wants to earn maximum profits not only in absolute terms but also in relative terms. Profits are necessary, but it would not be correct if each and every action undertaken by the management aims at maximization of profits, not considering social consequences as business has its social objectives as well. The profitability ratios assess the prosperity or the operational effectiveness of the company. These ratios replicate the financial outcome of business transactions. They are one of the strictly analyzed and extensively quoted ratios. The outcome of the company can be evaluated in stipulations of its income with citation to a given asset or sale or owner’s interest etc. Value Added Analysis In this technique two statements are prepared to exhibit the generation of value added and the application of value added. Value generated is calculated by subtracting the total cost of purchasing materials and services from the amount of sales plus income from services, which is known as Gross Value Added. Other Techniques of Measurements Different statistical techniques are undertaken to draw a more relative and scientific measurement of profitability. Some of the techniques are moving average, range, standard deviation, index numbers, regression, correlation, chi-square test, ‘F’ test and analysis of time service. Diagrams and graphs are also often used in profitability analysis. 4.8 PROFITABILITY ANALYSIS OF SELECTED AUTOMOBILE COMPANIES The profitability ratio explains the prosperity and the functional effectiveness of the organization. Lack of profits may be due to insufficient sales, lack of control over the expenses. Measuring the operational efficiency or profitability is useful for both the shareholders (owners) and the management of the concern. The prospective investors and also the creditors analyze the profitability prospects of the entity. EARNINGS PER SHARE (E.P.S.) The rate of dividend on shares depends upon the amount of profits earned by the firm. Whatever profits remains, after meeting all expenses and paying preference share dividend, belongs to equity shareholders. The availability to the equity shareholders is represented by the net profit after taxes and preference share dividend. The prosperity of the company with regard to the equity shareholders is ascertained in terms of number of ordinary shares of the company. This is recognized as EPS. EPS is determined as: Net profit available to equity shareholders Earnings per share (EPS) = ——————————————————– No. of Ordinary shares Outstanding Bonus and rights issue, if any made in the year should be adjusted. The comparison of the EPS with the industry average and the EPS of other company helps in analyzing the profitability on per share basis. It is useful as it helps in determination of the share and measuring the capacity in paying dividend to its shareholders. ? TABLE NO. 4.1 EARNINGS PER SHARE RATIO OF THE SELECTED AUTOMOBILE COMPANIESIN UNDER THE STUDY FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 56.00 79.19 92.13 123.00 151.33 100.33 37.40 37.27 Tata Motors 0.93 1.03 -15 -14.72 0.68 -5.416 8.62 -159.21 Average 28.47 40.11 38.57 54.14 76.01 47.46 The above table is showing increasing trend from 79.19 Rs in 2011-12 to 151.33 Rs. in 2015-16, the mean ratio of Maruti Suzuki was 100.33 which was quite above than the average of two companies. The ratio of EPS was satisfactory in the company. The Standard Deviation is 37.40 which are more than the average of industry it means there is a more fluctuating in the EPS of Maruti Suzuki. The EPS of Tata Motor Ltd showed decreasing trend from 2011-12 to 2014-15 and increased marginally to 0.68 Rs in 2015-16.the standard deviation is 8.62. The average ratio was minus 5.416 Rs which shows unsatisfactory (negative) return. On the basis of the above analysis it can be stated that the EPS of Maruti Suzuki Ltd was the better but of Tata Motors Ltd it was not satisfactory. GRAPH NO. 4.1 EARNING PER SHARE RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Anova Test on EPS Ratio ? TABLE NO. : 4.2 ANALYSIS OF VARIANCE TEST (ANOVA) ON EARNING PER SHARE RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS df MS F P-value F crit Between Groups 27953.43 1 27953.43 37.95142 0.000270872 5.317655 Within Groups 5892.465 8 736.5581 Total 33845.89 9 Earnings per share ratio Calculated F Value : 37.95142 Table F Value : 5.317655 Result : Significant The above analysis show that the table value of F is lower than that of calculated value of F. The calculated value of F was 37.95142 while the table value of F was 5.317655 at 5% significance. That means there is major disparity in EPS ratio of chosen automobile companies during the study period. (2) DIVIDENDS PER SHARE RATIO The profit after paying off taxes preference dividend is of equity shareholders. Dividends are earnings which is distributed to equity shareholders per share is known as dividend per share. Profits after interest and Preference Dividend DPS Ratio = ——————————————————- No. of ordinary shares outstanding For shareholders there is always inclination towards dividends in comparison to retention by company. The Dividends per share ratio as a beacon to measure profitability would give better indication than EPS Ratio because DPS reckons the actual realization of shareholder. This ratio represents to what extent the profits have been received by the owners as dividend- An investor, desiring more income would like to invest in the shares of a high dividend paying company. It should be noted that dividend per share is not a gauge of profitability of a company, since retained earnings might have been utilized for payment of dividend. This increases the distributable amount without increasing the number of shares. TABLE NO. 4.3 DIVIDEND PER SHARE RATIO FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 7.50 8.00 12.00 25.00 35.00 17.50 12.07 68.99 Tata Motors 4.00 2.00 2.00 0 0.50 1.70 1.57 92.07 Average 5.75 5.00 7.00 12.50 17.75 9.60 Dividend per share (DPS) Table shows that the DPS showed increasing trend from Rs. 7.50 in 2011-12 to Rs. 35 in 2015-16. The average of Maruti Suzuki was Rs. 17.5 which was upper than the average of both the car companies. The standard deviation is 12.07. The DPS ratio was satisfactory in the company. The ratio of DPS of Tata Motors co Ltd. Shows that DPS was Rs. 4 in 2011-12, then it diminished but remained stable at Rs. 2 in 2012-13 and 2013-14. In 2014-15 the company was not in position to pay dividend to its share holders. The average was Rs. 1.70, which was much below than the average of both the companies. The Standard Deviation was 1.57. The DPS ratio in the Maruti Suzuki ltd. in the whole depicts growing trend during the study period while The Tata Motors was not able to pay dividend to the shareholders in 2014-15 due to negative earnings after tax. CHART NO. 4.2 DIVIDEND PER SHARE RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Anova Test on Dividend Per Share (DPS) Ratio: Level of significance: – 5 % level. TABLE NO. 4.4 ANALYSIS OF VARIANCE TEST (ANOVA) ON DIVIDEND PER SHARE RATIO Source of Variation SS Df MS F P-value F crit Between Groups 624.1 1 624.1 8.422402 0.019826617 5.317655 Within Groups 592.8 8 74.1 Total 1216.9 9 Dividend Per Share Ratio (DPS). Calculated F Value : 8.422402 Table F Value : 5.317655 Result : Significant The computed F being more than the table value of F means the difference in the DPS ratio of selected company is significant. 3) OPERATING MARGIN/PROFIT RATIO Operating profit ratio is ascertained to assess working performance of the concern. It establishes the association between the operating profit and net sales. In other words, it measure the cost of operations per rupee of sales. The operating profit is profit is, profit from operating activities of the organization. It is calculated as follows: Operation Profit Operating Profit Ratio = ———————–x 100 Net Sales Operation profit = Sales- (Cost of goods sold + operational expenditure) (Or) Net Operating Profit = Net Sales- Operating Cost (Or) Net Operating Profit =Net Profit (After taxes) + Non-Operating Expenses -Non operating Income Operating Cost = Cost of Goods Sold + Operating Expenses Non-operating Expenses includes interest payments, loss on sale of fixed tax liability. Non operating income includes two dividend, interest received on long-term investment, profit on sale of fixed assets. This Ratio measure the efficiency of the organization in the managing the business. There is no standard for its evaluation. However, the comparison of the operating profit with the past and the industry averages tells about the management operation and state of the business. Operating profit ratio ascertains the proportion of each sales in rupees that relics after the imbursement of each and every costs and operating expense apart from for interest and taxes. The ratio is minutely studies by analysts as it focuses on operating outcome. TABLE NO. 4.5 OPERATING MARGIN RATIO OF THE SELECTED AUTOMOBILE COMPANIES UNDER THE STUDY FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 7.06 9.70 11.66 13.43 15.54 11.478 3.28 28.57 Tata Motors 7.69 3.81 -2.65 -3.40 5.46 2.182 4.96 227.12 Average 7.38 6.76 4.51 5.02 10.50 6.83 OPERATING MARGIN RATIO The operating ration of Maruti Suzuki Company showed the increasing trend in the years of study period. The operating ratio of the company ranged from 7.06 percent in 2011-12 to 15.54 percent in 2015-16. The average operating ratio was 11.478%. The standard deviation is 3.28. The average operating ration of Maruti Suzuki Company was much higher than the average of two companies and was satisfactory in years of study period. The operating ratio of Tata Motors Company was marking decreasing trend from 2011-12 to 2014-15. The average ratio was 2.182 percent the ratio rose to 5.46 percent in 2015-16 and the standard deviation is 4.96. It can be said that the position of operating ratio was not good as the operating ratio of the company was even negative in 2013-14 and 2014-15 which is not good sign for the management. Management has to think about this. From the above analysis it can be said that the operating ratio of Maruti Suzuki Ltd was the satisfactory followed by Maruti Suzuki Ltd has maintained the standard norms of the ratio while Tata Motors companies did not hold a reasonable and satisfactory position of profitability. CHART NO. 4.3 OPERATING MARGIN RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 ANOVA TEST ON OPERATING MARGIN RATIO:- Level of significance: – 5 % level. TABLE NO. 4.6 ANALYSIS OF VARIANCE TEST (ANOVA) ON DIVIDEND PER SHARE RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS Df MS F P-value F crit Between Groups 216.039 1 216.039 12.23463 0.008105134 5.317655 Within Groups 141.264 8 17.658 Total 357.303 9 OPERATING MARGIN RATIO Calculated F Value : 12.23463 Table F Value : 5.317655 Result : Significant The above table indicated the calculated value of F is 12.23463 while its table value is 5.317655 it means that the alternate hypothesis is accepted and null hypothesis is rejected at 5% level of significance. (4) NET PROFIT MARGIN It measures the relationship between net profit and sales of the business. Depending on the concept of net profit it reflects the potency in managing and operating the enterprise. It is measured as: Net Profit Net Profit Ratio = ————— x 100 Net Sales The ratio is ascertained by considering net profit earned from operation. While calculating non-operating expenses and non operating incomes are not considered. The ratio reveals the proportion of sales revenue for the owner after meeting its operating expenses. Higher not profit margin ratio implies better profitability position of the endeavor. Gross Profit Ratio and Net Profit Ratio must be studied together to judge the prosperity of the business. Like rise in Gross Profit Ratio but decline in the net profit ratio reveals that company is increasing heavy administrative expenses The ratio reveals the net profit on turnover after covering all the expense and provisions. Study of ratio over a period of time helps in trend analysis .Rise in the ratio is comparison of to last year is indication of profecency in operation of business. Approaches of calculating Net Profit Margin Ratio are:- Net Profit before interest and tax (a) Net Profit Margin = x 100 Sales Net Profit after interest and tax (b) Net Profit Margin = x 100 Sales Net Profit before int. and after tax (c) Net Profit Margin= x100 Sales ? TABLE NO. 4.7 NET PROFIT MARGIN RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 4.59 5.48 6.36 7.42 7.91 6.352 1.36 21.46 Tata Motors 2.28 0.67 0.97 -13.05 0.55 -1.716 6.37 -371.40 Average 3.44 3.08 3.67 -2.82 4.23 2.32 The table shows that net profit ratio of Maruti Suzuki Co Ltd increased during the study period. The net profit ratio of the company ranged from 4.59 percent in 2011-12 to 7.91 percent in 2015-16. The average net profit ratio of Maruti Suzuki Company was 6.352 percent. The standard deviation was 1.36. The ratio shows a better profitability position of the company. Net profit ratio determines the percentage of proceeds to profits. A high net profit ratio will ensure positive returns of the business. The Net Profit Ratio of Tata Motors showed declining trend throughout the analysis period except in 2015-16.The standard deviation was 6.37. Ratio shows decreasing trend during the first three years of study period than declined to minus 13.05 percent in 2014-15. The average ratio was minus 1.716 percent which showed unsatisfactory return on net sale. ? GRAPH NO. 4.4 NET PROFIT MARGIN RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Anova Test of Net Profit Margin Ratio Level of significance: – 5 % level. ? TABLE NO. 4.8 ANALYSIS OF VARIANCE TEST (ANOVA) ON NET PROFIT MARGIN RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS df MS F P-value F crit Between Groups 162.7316 1 162.7316 7.662328 0.024368397 5.317655 Within Groups 169.903 8 21.23788 Total 332.6346 9 Profit Margin Ratio Calculated F Value : 7.662328 Table F Value : 5.317655 Result : Significant The above table indicated the calculated value of F was 7.66232 while its table value was 5.317655 it means that the alternate hypothesis was accepted and null hypothesis was rejected at 5% level of significance. (5) RETURN ON NET WORTH RATIO It is significant barometer for analysing the profitability position of enterprise. It is helpful for the shareholders to analyze the yield on that investment as share holders always wants to know the yield on investment. This ratio brings out what the business has earned on the account of investment done by shareholders. Return on net worth is important when the book value of the owner’s equity is nearer to its market value as fresh capital is issued at the market value instead at book value and performance is generally studied in respect to earnings relative to its market price. Net Profit (After Interest and Tax) Return on Owner’s Equity = ————————————- x 100 Owner’s Equity It is calculated for analyzing the pro efficiency with which the owner’s funds are utilized. Owner funds comprises of share capital and reserves. It is extremely significant for prospective investors, because help to know it prosperity of the company in comparison to other company. It even helps in explaining whether the return on owner’s funds is sufficient in comparison with it. The ratio even helps in estimating what the dividend company can pay. This ratio discloses how gainfully the owner’s money has been utilized by the company. It also ascertains the proportion yield generated to equity shareholders. It is one of the most significant pointers of company’s prosperity and probable growth. Companies that possess a significant yield on equity with modest or no debt is capable to grow with no large capital expenditures, permitting the owner of the company to extract cash and plow it somewhere else. A lot of investors not succeed to comprehend, that two companies be capable of having the identical yield on equity, however one can be much better business. If return on total shareholders is calculated then net profit after taxes shall be divided by total shareholder’s fund includes preference share capital. ? TABLE NO. 4.9 RETURN ON NET WORTH RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 10.76 12.87 13.26 15.65 16.92 13.892 2.42 17.45 Tata Motors 6.33 1.57 1.74 -31.93 1.04 -4.25 15.62 -367.51 Average 8.55 7.22 7.50 -8.14 8.98 4.82 Return on Net worth Ratio It indicates that yield on net worth of Maruti Suzuki Company had increasing trend throughout the year s research period. The ratio was satisfactory; it ranged from 10.76 percent in 2011-12 to 16.92 percent in 2015-16. The standard deviation was 2.42. The yield on net worth of Tata Motor Ltd showed a declining trend in the first four years of the research period than in the last year somewhat increased. The average ratio of the company was minus 4.25 percent which was not good sign for the management has to think about this. On the basis of the above analysis it is visible that the return on net worth ratio of Maruti Suzuki was still better but the ratio of Tata Motors Ltd had shown negative average which was not reasonable. GRAPH NO. 4.5 RETURN ON NET WORTH RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 ANOVA TEST ON RETURN ON NET WORTH: Level of significance: – 5 % level. ? TABLE NO. 4.10 ANALYSIS OF VARIANCE TEST (ANOVA) ON RETURN ON NETWORTH RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS df MS F P-value F crit Between Groups 822.8304 1 822.8304 6.586806 0.033309599 5.317655 Within Groups 999.3681 8 124.921 Total 1822.198 9 Return on net worth Calculated F Value : 6.586806 Table F Value : 5.317655 Result : Significant The analysis showed the significant result. From the table, that the calculated value of F was 6.586806 while the table value of F was 5.317655, at 5% level of significance. (6) RETURN ON LONG TERM FUND RATIO The yield on long term fund is the variant of return on investment. This brings out relation between profit and capital employed. The formula for derivation of this ratio is:- Operating profit before Interest and tax Return on net capital emp = ———————————-X 100 Net capital employed Capital employed implies long term funds supplied by the lenders and owners of the company. Capital employed=Long Term Liabilities + Owner’s Equity Or =Total Assets – Current Liabilities =Fixed Assets + Working Capital A relative study provides the analysis of, how efficiently the long term funds are being utilized higher ratio, entail efficient utilization of capital employed. The ratio is very significant for analyzing the internal efficiency of the management. Ahigh ratio is indicator of better performance. Yield on long term funds should be more than the rate at which company borrows the fund. Intangible assets like trademarks, good will and patent should be included. But Fictious Assets should not be considered while calculating capital employed. ? TABLE NO. 4.11 RETURN ON LONG TURN RATIO OF THE SELECTED AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 Year ? 2011-12 2012-13 2013-14 2014-15 2015-16 Average Standard Deviation Co-Efficient of Variance Company ? Maruti Suzuki 14.49 16.63 17.88 21.27 22.49 18.552 3.30 17.78 Tata Motors 11.39 7.28 2.94 -7.21 6.03 4.086 7.00 171.42 Average 12.94 11.96 10.41 7.03 14.26 11.32 Return on Long term fund Ratio Table shows return on long term fund of Maruti Suzuki company ratio showed increasing trend during the study period. The average ratio of the company was 18.552 percent which was the above than the average of both the companies. The standard deviation is 3.30. The ratio suggests a satisfactory position of the company. The yield on long term fund of Tata Motor Ltd shows diminishing trend throughout the study period except in 2015-16 from 11.39 percent in 2011-12 to 2.94 percent in 2013-14 and then minus 7.12 percent in 2014-15. The average ratio of the company was 4.086 percent. The standard deviation was 7. The ratio was not satisfactory during the study period. It was revealed from the above analysis that the yield on long term fund ratio of Maruti Suzuki Ltd Company was the better during study period among selected companies. The ratio of Tata Motors Ltd was also minus in 2014-15 which shows unsatisfactory return. GRAPH NO. 4.6 RETURN ON LONG TERM FUND RATIO OF THE SELECTED CAR INDUSTRY UNDER THE AUTOMOBILE COMPANIES FOR THE PERIOD OF 2011-12 TO 2015-16 ANOVA TEST ON RETURN ON LONG TERM FUND RATIO:- Level of significance: – 5 % level TABLE NO. 4.12 ANALYSIS OF VARIANCE TEST (ANOVA) ON RETURN ON LONG TERM FUND RATIO AMONG THE GROUPS OF SELECTED AUTOMOBILE COPMANIES Source of Variation SS df MS F P-value F crit Between Groups 523.1629 1 523.1629 17.45454 0.003088642 5.317655 Within Groups 239.783 8 29.97288 Total 762.9459 9 Return on long term fund: Calculated F Value : 17.45454 Table F Value : 5.317655 Result : Significant The analysis showed the significant result. It is clear from the table that the calculated value of F was found as 17.45454, so the alternate hypothesis stood accepted and the null hypothesis got rejected at 5% level of significance. ? 4.9 CONCLUSION From the above study it can concluded that the Earning Per Share Ratio of Maruti Suzuki ltd was quite high. But earning per share of Tata Motors ltd. was in minus it indicates negative returns. The DPS ratio in Maruti Suzuki showed an increasing trend during the whole study period. Tata Motors in 2014-15 was not able to pay any dividend to the shareholders due to negative earnings after tax. In remaining years also dividend per share of TATA Motors was quite low. The operating ratio of Maruti Suzuki ltd as quite high and its average was also higher than the average of both companies but Tata Motors did not hold a reasonable and satisfactory profitability position. It was revealed that the net profit ratio of Maruti was above the average of both companies implied profitability position was better and had done good job while Tata Motors had negative average which revealed unsatisfactory returns on net sale. ? REFERENCE Aggarwal M.R. “Financial Management” published by Ramesh Book Depot, Jaipur(2014) Chandra Prashan “Financial management Theory & Practice” published by Tata McGraw, New Delhi(2008) Chaudhary S.B. ” Analysis of Company Financial Management” published by Asia Publishing House, Mumbai (1964) Choudhary “Project Management” published by Tata McGraw Hill, New Delhi(2007) Cooper & Schindler “Business Research Methods” published by Tata McGraw Hill New Delhi(2003) Gupta R.L. & P.L. Radhaswami “Financial Statement Analysis” published by Sultanchand & Sons,New Delhi(1985) Gupta S.C. “Modern Management Accounting” published by Shree Publisher, Jaipur(1997) Hingorani N L & Ramanathan A R ” Management Accountancy” S. Chand & Company Ltd., Delhi(1973) Johnson R W “Financial Management” published by Allyn and Becon- Boston(1971) Khan Jain “Cost Accounting & Financial Management” published by Tata McGraw, New Delhi(2008) Khan M.Y & Jain P.K “Financial Management” published by Tata McGraw, New Delhi(1984) Kishore Ravi “Student Work Book On Cost Accounting & Financial Management” published by Taxman, Delhi(2007) Kothari C. R. “Research Methodology” Third Edition published by New Age International, Publishers(2014) CHAPTER – 5 COMPARATIVE ANALYSIS OF LIQUIDITY AND PROFITABILITY 5.1 INTRODUCTION 5.2 LIQUIDITY AND PROFITABILITY 5.3 CONCLUSION ? 5.1 INTRODUCTION Liquidity and Profitability are considered as basic elements of business life. Insufficient spare working capital is the aceme in study of management of liquidity. Insufficient working capital carries the risk of inefficacy in payment of obligations. While spare working capital has adverse impact on the prosperity of an enterprise. An analytical and logical approach for managing working capital can conciliate between two. Managerial decisions in regard to cash and bank receivable stock and short term securities are emulated in liquidity and profitability and consecutively in the firm. Every single intent secure maximal profit out of its capital invested. The efficacy of any enterprise normally relies on the profits earned, considering and maintaining the liquidity prospects. Normally it’s too hard to conciliate liquidity and profitability, due to the adoption policy of working capacity. If company maintains sound liquidity then the profitability in endangered contrary. If aggressive policy of working capital is ensured then it may lead to high profit does not promise liquidity. While deciding working capital investment of firm the management needs to scrutinize the anticipated profit obligation. Liquidity profitability is closely related. If has suffered liquid funds, then it may get advantage like discount from its suppliers and which will result in high profits. Firm is not able to pay to its suppliers on the due date, and then interest obligation will increase. So lack of liquidity leads to no cash discount rather increases interest payments. If firm is not in position to maintain stock due to lack of liquidity then production cycle will be affected and may lead to losses. 5.2 LIQUIDITY AND PROFITABILITY Working capital depends upon liquidity and profitability which are basis elements of business life. A company can still operate if it’s not earning profits but will not be able to work if it does not have liquidity. A firm with continuous losses is regarded as sick unit, but firm without liquidity will sooner or later close down. So, one should minutely study relationship between two, but they needs to be separately. A 2X matrix of liquidity and profitability brings out the interaction between them. Cell – 1 Companies having both high profitability and liquidity will be placed in Cell-1, indicating good performance of the company. Cell – 2 The company having high profitability but low liquidity will be located in Cell-2. Company faces problem of shortage of funds in meeting its payment. So a proper working capital management is required. Cell – 3 The companies whose liquidity is high and profitability is low will be located in Cell -3, their financial condition is still better. Cell – 4 The companies having low liquidity and low profitability are placed in Cell-4 and are those who can’t survive and are unsuccessful. In short it’s corporate failure. The strongest firm are placed in Cell -1, having high profitability and liquidity while firms Cell -4 cannot survive due to worse profitability and liquidity .Ambiguity arises in choice of Cell – 2 and Cell- 3. On considering both aspects of a firm position in Cell- 2 is serious .So if company has high liquidity but low profitability can change its strategy can be in better position .But if the company has high profitability but low liquidity then firm is compelled to close the business, before it gets opportunity to correct itself . Therefore management of working capital is very essential and critical indicator measuring the efficiency of business. ? (I) ANALYSIS OF EPS AND CURRENT RATIO TABLE NO. 5.1 Company Name Average of EPS (in Rs.) Average of Current Ratio (in times) Maruti Suzuki 100.33 0.85 Tata Motors -5.46 0.46 Yearly Average 47.46 0.66 Above table 5.1 indicates the relationship between EPS and current ratio. It shows the relationship between profit on number of shares and short term liquidity position. The average of EPS which ascertains the on the whole profit for each share in continuation over a particular period for the selected companies is Rs. 47.46. The average of Maruti Suzuki, Tata Motors is above the average of the companies while Tata Motors, average is in minus. The Average of Current Ratio which simply estimates that whether the business can pay short term debts is 0.66 times of the selected companies while looking at the individual companies Maruti Suzuki and Tata Motors both are below the average. ? (II) ANALYSIS OF EPS AND QUICK RATIO TABLE NO. 5.2 Company Name Average of EPS (in Rs.) Average of Quick Ratio (in times) Maruti Suzuki 100.83 0.676 Tata Motors -5.46 0.404 Yearly Average 47.46 0.54 Above table 5.2 indicates the relationship between EPS and Quick ratio that is it reflects the relationship between profit on number of shares and company’s ability to service short term liabilities. The average of EPS which ascertains the whole profit generated for share in continuation over a particular period of the selected companies is Rs. 47.46. The average of Maruti Suzuki, is above the average of the companies while Tata Motors average is in minus. The average of Quick Ratio which ascertains the capability to meet current debt immediately is 0.54 times of the selected companies while looking at the individual companies, Maruti Suzuki and is the above the average of the selected companies. While Tata Motors and is below the average. ? (III) ANALYSIS OF EPS AND INVENTORY TURNOVER RATIO TABLE NO. 5.3 Company Name Average of EPS (in Rs.) Average of Inventory Turnover Ratio (in times) Maruti Suzuki 100.83 23.844 Tata Motors -5.46 10.302 Yearly Average 47.46 17.07 Table shows average of EPS (in rupees) which ascertains the whole profit generated for share in continuation over a particular period and average inventory turnover ratio (in times) which measures the efficiency of the firm to manage its inventory of selected companies when we compare them both it is exhibiting the direct relation, if there is increase or decrease in EPS. there is similar change in inventory turnover ratio. In the Maruti Suzuki the average EPS shown as Rs. 100.83. as against its inventory turnover ratio was 23.844 times. The average EPS of the Tata Motors ltd is minus Rs.5.46 and its inventory turnover ratio was 10.302 times. ? (IV) ANALYSIS OF EPS AND FIXED ASSETS TURNOVER RATIO TABLE 5.4 Company Name Average of EPS (in Rs.) Average of Fixed Asset Turnover Ratio (in times) Maruti Suzuki 100.83 2.16 Tata Motors -5.46 1.862 Yearly Average 47.46 1.99 Table is showing average of EPS (in rupees) which measures the overall profit generated for each share in existence over a particular period and average of fixed assets turnover ratio is shown (in times) which ascertains the effectiveness by which the company uses its fixed assets. From the table it can be said that, there is positive relation between EPS and fixed assets turnover ratio. The mean EPS of the selected companies is Rs. 47.46, whereas the average of fixed assets turnover ratio is 1.99 times for the chosen companies. Maruti Suzuki, is the above the average of the selected companies while Tata Motors is below the mean. A dipping sale or income being generated from each rupee invested in fixed assets indicates overcapacity or poorer performing equipment. ? (V) ANALYSIS OF EPS AND FINANCIAL CHARGES COVERAGE RATIO TABLE 5.5 Company Name Average of EPS (in Rs.) Average of Financial Charges Coverage Ratio (in %) Maruti Suzuki 100.83 54.632 Tata Motors -5.46 2.444 Yearly Average 47.46 28.54 Table reveals the comparative view of average EPS which ascertains the whole profit generated for share in continuation over a particular period and average financial charges coverage ratio which tells whether cash flow before interest and taxes cover all fixed financing charges. It shows the relationship between profit on numbers of shares and the debt servicing. The average of EPS companies is 47.46 Rs. the financial charges average ratio is 28.54 percent. Comparative to Tata Motors, Maruti Suzuki is above the average, while; Tata Motors is below the average. ? (VI) ANALYSIS OF DPS AND CURRENT RATIO TABLE 5.6 Company Name Average of DPS (in Rs.) Average of Current Ratio (in times) Maruti Suzuki 17.50 0.85 Tata Motors 1.70 0.46 Yearly Average 9.60 0.66 Above table 5.6 reveals the relationship between dividend per share which shows the proportion of profit distributed per equity share and current ratio which measures whether the business can pay short term debts. It set up the correlation between dividends paid to the share holders (per share basis) and the short term liquid financial position. The average DPS companies was Rs. 9.60 as against its average current ratio was 0.66 times. Maruti Suzuki and is the above than the average while Tata Motors is below it. ? (VII) ANALYSIS OF DPS AND QUICK RATIO TABLE 5.7 Company Name Average of DPS (in Rs.) Average of Quick Ratio (in times) Maruti Suzuki 17.50 0.676 Tata Motors 1.70 0.404 Yearly Average 9.60 0.54 Above table 5.7 shows a comparative analysis for DPS which shows the proportion of profit distributed per equity share with its quick ratio which ascertains the capability to meet current debt immediately. The average DPS of Maruti Suzuki company is Rs. 17.5 as against it average quick ratio ascertained was 0.676 times. In the Tata Motors 0.404 average DPS was Rs. 1.7 while the average quick ratio ascertained was 0.404 times. From the table it can be analyzed that, there is positive relation between DPS and quick ratio that is if quick ratio is high than DPS is also high. (VIII) ANALYSIS OF DPS AND INVENTORY TURNOVER RATIO TABLE 5.8 Company Name Average of DPS (in Rs.) Average of Inventory Turnover Ratio (in times) Maruti Suzuki 17.50 23.844 Tata Motors 1.70 10.302 Yearly Average 9.60 17.07 The table 5.8 shows the comparative analysis between DPS which shows the portion of profit distributed per equity share and inventory turnover ratio which measures the effectiveness of the company to manage its inventory. The average dividend per share of the selected companies was Rs. 9.60. The average of Maruti Suzuki is above the average of the companies while Tata Motors was below that. The average Inventory turnover ratio of the selected companies was 17.07 times. Maruti Suzuki is the above the average of the selected companies while Tata Motors, was below the average. ? (IX) ANALYSIS OF DPS AND FIXED ASSETS TURNOVER RATIO. TABLE 5.9 Company Name Average of DPS (in Rs.) Average of Fixed Asset Turnover Ratio (in times) Maruti Suzuki 17.50 2.126 Tata Motors 1.70 1.862 Yearly Average 9.60 1.99 The table 5.9 gives a comparative analysis for average dividend per share which shows the portion of profit distributed per equity share with average of fixed assets turnover ratio which ascertains the effectiveness with which firm uses its fixed assets. The DPS of Maruti Suzuki Ltd was Rs. 17.5, whereas against it average of fixed assets turnover ratio was 2.126 times and was above the average of the selected companies. In the Tata Motors Ltd average DPS was Rs 1.7, as against its average of fixed assets turnover ratio was 1.862 Times and is below the mean. A dipping sales or profit being generated from each rupee invested in fixed assets indicates overcapacity or poorer performing equipment. ? (X) ANALYSIS OF DPS AND FINANCIAL CHARGE COVERAGE RATIO TABLE 5.10 Company Name Average of DPS (in Rs.) Average of Financial Charge Coverage Ratio (in %) Maruti Suzuki 17.50 54.632 Tata Motors 1.70 2.444 Yearly Average 9.60 28.54 The table 5.10 gives the relationship between average dividend per share which shows the portion of profit distributed per equity share and average of financial charges coverage ratio which ascertains the capability of the business to meet interest. The average of DPS of the companies was Rs. 9.60, while looking at the average of Maruti Suzuki it was above the average of the companies while Tata Motors was below that average. The average of financial charges coverage ratio of the companies was 28.54 percent. Maruti Suzuki was the above the average of companies while Tata Motors was below that average. ? (XI) ANALYSIS OF OPERATING MARGIN RATIO AND CURRENT RATIO TABLE 5.11 Company Name Average of Operating Margin Ratio (in %) Average of Current Ratio (in times) Maruti Suzuki 11.478 0.85 Tata Motors 2.182 0.46 Yearly Average 6.83 0.66 The table 5.11 shows a comparative study of average operating margin ratio which measures the operating performance of the business with current ratio which measures whether the business can pay short term debts. The operating margin of Maruti Suzuki was 11.478 percent as against it current ratio was 0.85 times. The Tata Motors average Operating Margin ratio was 2.182 percent and its current ratio was 0.46 times. ? (XII) ANALYSIS OF OPERATING MARGIN RATIO AND QUICK RATIO TABLE 5.12 Company Name Average of Operating Margin Ratio (in %) Average of Quick Ratio (in times) Maruti Suzuki 11.478 0.67 Tata Motors 2.182 0.404 Yearly Average 6.83 0.54 The table 5.12 shows the comparative view of average operating margin ratio (percentage) and quick ratio (times). The average of operating margin of the selected companies is 6.83 percent; whereas quick ratio is 0.54 times. Table indicates that if the operating margin ratio is high then the quick ratio is also high. So, it can be said that, there is positive relation between operating margin ratio and quick ratio (XIII) ANALYSIS OF OPERATING MARGIN RATIO AND INVENTORY TURNOVER RATIO TABLE 5.13 Company Name Average of Operating Margin Ratio (in %) Average of Inventory Turnover Ratio (in times) Maruti Suzuki 11.478 23.844 Tata Motors 2.182 10.302 Yearly Average 6.83 17.07 The table 5.13 gives the relationship between operating margin ratio and average inventory turnover ratio. The average of operating margin ratio of the selected companies is 6.83 percent. The average of Maruti Suzuki is above the average of the companies. Tata Motors average is below the average of companies. The average of inventory turnover ratio is 17.07 times of the selected companies. Maruti Suzuki is the above the average of the selected companies, while Tata Motors is below the average. On comparing both the ratios it shows the positive relation. (XIV) ANALYSIS OF OPERATING MARGIN RATIO AND FIXED ASSETS TURNOVER RATIO TABLE 5.14 Company Name Average of Operating Margin Ratio (in %) Average of Fixed Asset Turnover Ratio (in times) Maruti Suzuki 11.478 2.126 Tata Motors 2.182 1.862 Yearly Average 6.83 1.99 The table No. 5.14 gives a comparative analysis of operating margin ratio and average of fixed assets turnover ratio. It is significant indicator to judge the operational efficiency of any enterprise and short term liquidity. The average operating margin ratio of Maruti Suzuki Ltd. Is 11.478 percent, as against it FATR is 2.126 times. In the Tata Motors the average operating margin ratio is 2.182 percent, where as it’s average FATR is 1.862 times. ? (XV) ANALYSIS OF OPERATING MARGIN RATIO OF FINANCIAL CHARGES COVERAGE RATIO TABLE 5.15 Company Name Average of Operating Margin Ratio (in %) Average of Financial Charge Coverage Ratio (in %) Maruti Suzuki 11.478 54.632 Tata Motors 2.182 2.444 Yearly Average 6.83 28.54 The table 5.15 establishes the relationship between operating margin ratio and average of financial charges coverage ratio. The average operating margin ratio of the selected companies is 6.83 percent. The average of Maruti Suzuki, is above the average of the companies while Tata Motors average is below the average of companies. The average financial charges coverage ratio is 28.54 percent for the selected companies. Maruti Suzuki is the above the average of the selected companies while Tata Motors and is below the Industry average. ? (XVI) ANALYSIS OF NET PROFIT MARGIN RATIO AND CURRENT RATIO TABLE 5.16 Company Name Average of Net Profit Margin Ratio (in %) Average of Current Ratio (in times) Maruti Suzuki 6.352 0.85 Tata Motors -1.716 0.46 Yearly Average 2.32 0.66 Table shows a comparative analysis for net profits margin ratio with the current ratio. The net profit margin ratio of Maruti Suzuki company is 6.352 percent as against its current ratio is 0.85 times. In the Tata Motors its average Net Profit Margin ratio was minus 1.716 percent and its current ratio is 0.46 times. ? (XVII) ANALYSIS OF NET PROFIT MARGIN AND QUICK RATIO. TABLE 5.17 Company Name Average of Net Profit Margin Ratio (in %) Average of Quick Ratio (in times) Maruti Suzuki 6.352 0.676 Tata Motors -1.716 0.404 Yearly Average 2.32 0.54 The table 5.17 gives the relationship between average of Net profit margin ratio and Quick Ratio. The average of net profit margin ratio of the selected companies is 2.32 percent. The average of Maruti Suzuki, Tata Motors and Mahindra and Mahindra is above the average of the companies while Tata Motor’s average is in minus. The average of quick ratio of the selected companies is 0.54 times. Maruti Suzuki is the above than the average of the selected companies. While Tata Motors is below that average. (XVIII) ANALYSIS OF NET PROFIT MARGIN RATIO AND INVENTORY TURNOVER RATIO TABLE 5.18 Company Name Average of Net Profit Margin Ratio (in %) Average of Inventory Turnover Ratio (in times) Maruti Suzuki 6.352 23.844 Tata Motors -1.716 10.302 Yearly Average 2.32 17.07 The table 5.18 gives a comparative analysis of average net profit margin ratio which measures the operating efficiency and performance of business and inventory turnover ratio which measures the effectiveness of the firm to manage its inventory. Maruti Suzuki has average net profit margin of 6.352 percent, where as its inventory turnover ratio was 23.844 times. In the Tata Motors average net profit margin ratio was minus 1.716 percent, while its average Inventory turnover ratio was 10.302 times. ? (XIX) ANALYSIS OF NET PROFIT MARGIN RATIO AND FIXED ASSETS TURN OVER RATIO. TABLE 5.19 Company Name Average of Net Profit Margin Ratio (in %) Average of Fixed Asset Turnover Ratio (in times) Maruti Suzuki 6.352 2.126 Tata Motors -1.716 1.862 Yearly Average 2.32 1.99 The table shows the relationship between average of net profit margin ratio which measures the operating performance of business and average of fixed assets turnover ratio which ascertains the effectiveness with which the company utilizes its fixed assets. So it shows earning of the company and its efficiency in managing and utilizing its fixed assets. The average net profit margin ratio of the selected companies was 2.32 percent. The average of Maruti Suzuki, was above the average of the companies, while Tata Motors average is in minus. The average of Fixed Assets Turnover Ratio computed was 1.99 times of the selected companies Maruti Suzuki was the above the average of the selected companies Tata Motors was below that average. ? (XX) ANALYSIS OF NET PROFIT MARGIN RATIO AND FINANCIAL CHARGES COVERAGE RATIO. TABLE 5.20 Company Name Average of Net Profit Margin Ratio (in %) Average of Financial Charge Coverage Ratio (in %) Maruti Suzuki 6.352 54.632 Tata Motors -1.716 2.444 Yearly Average 2.32 28.54 The table 5.20 shows comparative analysis of the average net profit margin ratio which measures the operating performance of business and the average financial charges coverage ratio which measures the ability of the business to meet interest. The net profit margin ratio of Maruti Suzuki Company is 6.352 percent, and its average financial charges coverage ratio is 54.632 percent. In the Tata Motors average net profit margin ratio is in minus and average financial charges coverage ratio is 2.444 percent. (XXI) ANALYSIS OF RETURN ON NET WORTH RATIO AND CURRENT RATIO TABLE 5.21 Company Name Average of Return On Net Worth Ratio (in %) Average of Current Ratio (in times) Maruti Suzuki 13.892 0.85 Tata Motors -4.25 0.46 Yearly Average 4.82 0.66 Table no. 5.21 gives comparative analysis of average of return on net worth which indicates income accessible to shareholders in comparison to net worth and average of current ratio which measures whether the business can pay short term debts. It gives the relationship between profitability of the company from the owners view and short term liquidity position. The average return on net worth of the selected companies is 4.82 percent. The average of Maruti Suzuki is above the average of the companies. While Tata Motors is below the average and is in negative. The average current ratio of the selected companies is 0.66 times. Maruti Suzuki is the above the average of the selected companies while Tata Motors is below the average of both companies taken together. But both the companies could not reach the standard norms. ? (XXII) ANALYSIS OF RETURN ON NET WORTH RATIO AND QUICK RATIO TABLE 5.22 Company Name Average of Return On Net Worth Ratio (in %) Average of Quick Ratio (in times) Maruti Suzuki 13.892 0.676 Tata Motors -4.25 0.404 Yearly Average 4.82 0.54 The table 5.22 establishes the relationship between the average return on net worth which measures the income accessible to shareholders in comparison to net worth and quick ratio which measures the ability to meet current debt immediately. The average return on net worth ratio of Maruti Suzuki Company was 13.892 percent, while its average quick ratio was 0.676 times. In the Tata Motors Company the average return on net worth ratio was minus 4.25 percent, while quick ratio was 0.404 times. ? (XXIII) ANALYSIS OF RETURN ON NET WORTH RATIO AND INVENTORY TURNOVER RATIO. TABLE 5.23 Company Name Average of Return On Net Worth Ratio (in %) Average of Inventory Turnover Ratio (in times) Maruti Suzuki 13.892 23.844 Tata Motors -4.25 10.302 Yearly Average 4.82 17.07 The table 5.23 gives a comparative analysis of average return on net worth which ascertains the income accessible to shareholders in relationship to net worth and average inventory turnover ratio which reckons the effectiveness of the of firm to manage its inventory. The average return on net worth of Maruti Suzuki Ltd. was 13.892 percent, while its average inventory turnover ratio computed was 23.844 times. For Tata Motor average yield on net worth was minus 4.25 percent, while its average inventory turnover ratio was 10.302 times ? (XXIV) ANALYSIS OF RETURN ON NET WORTH RATIO AND FIXED ASSETS TURNOVER RATIO. TABLE 5.24 Company Name Average of Return On Net Worth Ratio (in %) Average of Fixed Asset Turnover Ratio (in times) Maruti Suzuki 13.892 2.126 Tata Motors -4.25 1.862 Yearly Average 4.82 1.99 The table 5.24 gives a comparative analysis of average return on net worth which ascertains the income accessible to shareholders in association to net worth and average fixed assets turnover ratio which measures the efficiency with which the firm uses its fixed assets. The average yield on net worth of Maruti Suzuki Ltd was 13.892 percent, while its average fixed assets turnover ratio was 2.126 times. In Tata Motors the average yield on net worth was minus 4.25 percent, while its average fixed assets turnover ratio was 1.862 times. ? (XXV) ANALYSIS OF RETURN ON NET WORTH RATIO AND FINANCIAL CHARGES COVERAGE RATIO. TABLE 5.25 Company Name Average of Return On Net Worth Ratio (in %) Average of Financial Charges Coverage Ratio (in %) Maruti Suzuki 13.892 54.632 Tata Motors -4.25 2.444 Yearly Average 4.82 28.54 The table 5.25 gives the relationship between the average return on net worth which ascertains the income accessible to shareholders in association to net worth and financial charges coverage ratio which measures the ability of the business to meet interest. The average yield on net worth ratio of the selected companies was 4.82 percent. The average of Maruti Suzuki was above the average of the companies while Tata Motor was below than the average of selected companies. The average Financial Charges coverage ratio of the selected companies was 28.54 percent. Maruti Suzuki was above the average of the selected companies while Tata Motors was below the industry average. (XXVI) ANALYSIS OF RETURN ON LONG TERM FUND RATIO AND CURRENT RATIO TABLE 5.26 Company Name Average of Return On Long Term Funds Ratio (in %) Average of Current Ratio (in times) Maruti Suzuki 18.552 0.85 Tata Motors 4.086 0.46 Yearly Average 11.32 0.66 The table 5.26 gives relationship between average yields on long term fund which measures overall earnings on total capital employed and mean current ratio which measures whether the business can pay short term debts. The Maruti Suzuki has yield on long term fund of 18.552 percent while its current ratio was 0.85 times. Tata Motors has average yield on long term fund of 4.086 percent while its average current ratio was 0.46 times. ? (XXVII) ANALYSIS OF RETURN ON LONG TERM FUND RATIO AND QUICK RATIO TABLE 5.27 Company Name Average of Return On Long Term Funds Ratio (in %) Average of Quick Ratio (in times) Maruti Suzuki 18.552 0.676 Tata Motors 4.086 0.404 Yearly Average 11.32 0.54 The table 5.27 gives comparative analysis of yield on long term fund ratio which measures overall earnings on total capital employed and average of quick ratio which measures the ability to meet current debt immediately. The average yield on long term fund ratio of the selected companies was 11.32 percent. The average of Maruti Suzuki is above the average of companies while Tata Motors average was below it. The average quick ratio of the selected companies was 0.54 times. Maruti Suzuki is above the average of the selected Companies. Tata Motors was below the Industry average. (XXVIII) ANALYSIS OF RETURN ON LONG TERM FUND RATIO AND INVENTORY TURNOVER RATIO TABLE 5.28 Company Name Average of Return On Long Term Funds Ratio (in %) Average of Inventory Turnover Ratio (in times) Maruti Suzuki 18.552 23.844 Tata Motors 4.086 10.302 Yearly Average 11.32 17.07 The table 5.28 gives comparative analysis of yield on long term fund which measures overall earnings on total capital employed and average inventory turnover ratio which ascertains the effectiveness of the firm to manage its inventory. The average yield on long term fund ratio of Maruti Suzuki Company was 18.552 percent while its average inventory turnover ratio was 23.844 times. In Tata Motors the average return on long term fund ratio was 4.086 percent while its inventory turnover ratio was 10.302 times. (XXIX) ANALYSIS OF RETURN ON LONG TERM FUND RATIO AND FIXED ASSETS TURNOVER RATIO TABLE 5.29 Company Name Average of Return On Long Term Funds Ratio (in %) Average of Fixed Asset Turnover Ratio (in times) Maruti Suzuki 18.552 2.126 Tata Motors 4.086 1.862 Yearly Average 11.32 1.99 The table 5.29 signifies relative study of yield on long term fund ratio which measures overall earnings on total capital employed and average fixed assets turnover ratio which measures the efficiency with which the firm uses its fixed assets. The average yield on long term fund ratio of the chosen companies was 11.32 percent. The average of Maruti Suzuki was above the standard of the companies while Tata Motors average was below it. The average of fixed assets turnover ratio of the chosen companies was 1.99 times. Maruti Suzuki was above the average of the companies while Tata Motors was below the industry average. ? (XXX) ANALYSIS OF RETURN ON LONG TERM FUND RATIO AND FINANCIAL CHARGES COVERAGE RATIO. TABLE 5.30 Company Name Average of Return On Long Term Funds Ratio (in %) Average of Financial Charges Coverage Ratio (in times) Maruti Suzuki 18.552 54.632 Tata Motors 4.086 2.444 Yearly Average 11.32 28.54 The table 5.30 gives the link among yield on long term funds which measures overall earnings on total capital employed and the average financial charges coverage ratio which measures the ability of the firm to meet interest. The average Return on long term fund of Maruti Suzuki was18.552 percent, while its average financial charges coverage ratio was 54.632 percent. In Tata Motors Ltd the average return on long term fund was 4.086 percent while the average financial charges coverage ratio was 2.444 percent. ? 5.3 CONCLUSION From the selected automobile companies overall performance of Maruti Suzuki ltd is good. While evaluating of prosperity in relation to the sales or in relation to its investment Maruti Suzuki’s performance is satisfactory than Tata Motors. Considering liquidity Maruti Suzuki is in healthier position than Tata Motors in selected units in the period of study. Economies of scale suffered liquid funds enables economies of scale thus generating high profits. Tata Motors performance is not satisfactory throughout the study period. Company’s position was quite low which was due to the poor management. ? REFERENCE Aggarwal M.R. “Financial Management” published by Ramesh Book Depot, Jaipur(2014) Chandra Prashan “Financial management Theory & Practice” published by Tata McGraw, New Delhi(2008) Chaudhary S.B. ” Analysis of Company Financial Management” published by Asia Publishing House, Mumbai (1964) Choudhary “Project Management” published by Tata McGraw Hill, New Delhi(2007) Cooper ; Schindler “Business Research Methods” published by Tata McGraw Hill New Delhi(2003) Gupta R.L. ; P.L. Radhaswami “Financial Statement Analysis” published by Sultanchand ; Sons,New Delhi(1985) Gupta S.C. “Modern Management Accounting” published by Shree Publisher, Jaipur(1997) Hingorani N L ; Ramanathan A R ” Management Accountancy” S. Chand ; Company Ltd., Delhi(1973) Johnson R W “Financial Management” published by Allyn and Becon- Boston(1971) Khan Jain “Cost Accounting & Financial Management” published by Tata McGraw, New Delhi(2008) Khan M.Y ; Jain P.K “Financial Management” published by Tata McGraw, New Delhi(1984) Kishore Ravi “Student Work Book On Cost Accounting & Financial Management” published by Taxman, Delhi(2007) Kothari C. R. “Research Methodology” Third Edition published by New Age International, Publishers(2014) CHAPTER 6 SUMMARY, FINDINGS AND SUGGESTIONS 6.1 INTRODUCTION 6.2 OVERVIEW 6.3 PROFILE OF AUTOMOBILE INDUSTRY 6.4 RESEARCH METHODOLOGY 6.5 ANALYSIS OF LIQUIDITY 6.6 ANALYSIS OF PROFITABILITY 6.7 LIQUIDITY AND PROFITABILITY 6.8 SUGGESTIONS 6.9 SUMMARY CHARTS ? 6.1 INTRODUCTION Automobile industry occupies a very pivotal position in the Indian Economy. Its connectivity with other sectors of economy has resulted in making it a noteworthy component of the economy. The Indian Automobile industry comprises two-wheelers (Scooters, Bikes) trucks, cars, buses-four wheelers and three-wheelers .The cachet of automobile sector and its ability for growth, future presumption and its vast connectivity with the market and employment creation is level-headed in Policy Paper. There are various primary functioning strategies as well as agendas or plans generated by the government.. These programmes and functioning policies are focused on enhancing and breeding sustainable development in the automotive segment and giving power to India in the confederacy of the Japan, Germany and USA. Taking into consideration of the downturn of the expansion of the segment has been relatively spectacular throughout the preceding decade (2006-2016), but the section is anticipated to execute the prognosis for the period of 2016-2026. The Indian automobile sector has an excellent ability for augmentation and promotes the expansion of other connected industries collaboratively. The Government of India has made it simple. The functioning policy framework helps in not only forging the trade however also dedicated for less Government and more Governance for gaining elevated sustainable development. It also focuses on the opportunities, dares and approaches ahead on the foundation of consideration of conditions for mid-course improvements and taking the segment in high oriented growth. The effect of judicial intercessions on the recognized policies and automotive division is also thrust upon. 6.2 OVERVIEW Before automobile production was not localized so cars were by and large bring in from England. Localized production of cars happened in 1950 in India. This happened to owe to the trade and industry liberation and de-licensing of the manufacturing besides the approval for 100% FDI (Foreign Direct Investment) in1991. Due to this, the sector got an incredible boost. Since then the automakers have attained the standing of crucial auto producers in India. The net worth of vehicle export to various countries was nearly USD 8 billion in the year 2015-16. Many large industries of the auto sector have localized their growing base, operation and allowances in India. Some automobile manufacturers across the world like Acura, Kia Motors, Genesis, SAIC Motors, Changan Automobiles, etc. also want to initiate their built-up base in India. The automobile is undoubtedly the extremely technology regulated industries globally. The Government in its ‘Make in India’ programme is also fetching all feasible methods, approaches and ideas to build India prior automobiles producing country with less Government and more Governance for preparing suitable production environment and relieve in carrying out business. India tops in the world in the manufacturing of Two Wheelers, Three Wheelers, and Tractor. It stands at Fourth in the manufacturing of Light Commercial Vehicles. At a fifth position as the manufacturer of Heavy Commercial Vehicles. India ranks fifth in the world and third in Asia as an exporter of Passenger Cars. 6.3 PROFILE OF AUTOMOBILE INDUSTRY The supremacy of Indian automobile, in numeral expression, by Two-Wheelers comprising nearly 80% market share and Passenger Vehicles encompassed 13%. At present, India is manufacturing various categories of vehicle required for multiple purposes. In the midst of the numerous efforts of the government, the industry has developed itself continuously, and it is anticipated that via 2020, India will be at a 3rd position after USA and China. As per the Automotive Mission Plan (AMP) 2016-26, the intensification of vehicles especially the passenger vehicles is anticipated to forge three times to 9.4 million units pa. By 2026. In 2016-17, the overall yearly manufacturing of all vehicles was more than 25 million. The sales of Passenger Vehicles grew by 9.23%, Commercial Vehicles by 4.16% and 2 Wheelers by 6.89% in 2016-17. In 2016-17, the total export of vehicles was 34,78,268 adjacent to 36,43,494 in 2015-16 and as a result the export fall by 4.50% during the said period. The automobile sector accords 7.1 % of total GDP, 26% of Industrial GDP and nearly 49% of the country’s Manufacturing Gross Domestic Product. The automotive sector offered employment to more than 32 million in 2016. As per the decadal Automotive Mission Plan 2016-26, the automobile sector can generate revenue of USD 300 billion, nearly 12% of total GDP and producing approximately 65 million employments by 2026. As transportation policies are making an efficient and affordable shift, it opens up chances for making newer collaborations, investments and joint ventures. The flexible regulatory policies have given rise to a new array of possibilities to OEMs, auto components, and auxiliary entities. The new policy of low carbon transportation will bring out better R and D and advancements of technology at both the national and the international level. Overall it will be a boon to everyone, the Government, people and also the automotive industries. India in the automobile industry sector has advantages such as low labor cost, a rising middle-class population, etc. this will lead to the production of small cost but robust vehicles which will lead to the automotive sectors growth. India has a broad spectrum of transportation facilities ranging from 3 wheelers to buses. So, India has different requisites that feel necessity for harmony of all means of transportation, all know-how’s and fuel varieties till they fulfill the legal requirements. Many MNC’s are building as their built-up base in India due to the capacity for progression and encouraging infrastructure. The auto makers can attain greater heights by taking advantage of scope presented by the AMP 2016-2026 and schemes ensures appreciative business environment and will promote new avenues of growth establishing entirely new ventures and start-ups. This is where the proposal of a single body to look over the automobile industries sector comes into play. If an individual body authority is formed, then the automobile sector will grow more as only that particular authority will have to take care of the industry. It will also prevent the overlapping of jurisdiction in many cases within the industry. A single authority system will make the industry’s growth much more predictable, consistent and systemic and all this will lead to India becoming a world leader as an automotive hub. 6.4 RESEARCH METHODOLOGY Report contains the research on “AN EVALUATIVE STUDY OF LIQUIDITY AND PROFITABILITY OF AUTOMOBILE COMPANIES IN INDIA” (Specific Study of Tata Motors and Maruti Suzuki Ltd.)”. The Automatic industry is the backbone of Indian Economy. Automobile is the key component as many other sectors of economy are dependent on it. Infrastructural growth of a country includes urban, rural and industrial development. To fulfill this prosperity and growth interconnectivity between different regions is mandatory. This is facilitated by the automobile industry. The Auto industry is playing a prominent role in moulding country’s economy and growth. The producers of heavy commercial vehicle have started setting up and initiating small manufacturing units in India. Automobile is a booming Economy, which contributes profoundly in the growth of Economy. The exponential growth in automobile sector recorded, since 1897 the unforgettable year as the 1st car hit the streets of Bombay. Indian market has never looked back since then. Now it proclaims to be one of the largest markets in Asia. Profitability in this sector can be escalated if cost of production is reduced. Cost of production is dependent on multiple parameters like cost of raw material, taxes and duties, interest on borrowed funds, power and fuel, administrative overheads, selling and distribution overheads etc. To attain optimum profit various techniques are to be opted by company to cut expenditures. The expenses and the fiscal standing of an industry depend on electricity supply, high cost of electric units, taxation policies, duties and taxes, raw material, transportation cost etc. All these factors influence the cost of production. The basis for fiscal investigation, scheduling and assessment is fiscal statements but these statements do not unveil all the essential and pertinent information. For the rationale of acquiring material and pertinent information essential for finding the fiscal strength and weakness of the company, it is essential to information revealed in the financial statement. Problem Identification Study of financial statement plays a very significant role. Normally, external user analyzes information as per their objective. Financier is keen to find the profitability. Management would like to analyze the functional efficiency and profitability. The different stakeholders of business like it’s management, shareholders, government, employees, customers, creditors, prospective investors, bankers etc seeks for good financial position of the business concern. Since the Automobile companies face threats to their viability, this theory bears a relevance to present problems. This study is made to know the liquidity, profitability, solvency position under this environment. Objectives of the Study Following are the main objectives and purpose of this study: To analyze the growth of Indian automobile industry. To analyze the comparative study of liquidity position of Maruti Suzuki Ltd and Tata Motors. To analyze the comparative study of profitability position of Maruti Suzuki Ltd and Tata Motors. To compare liquidity and profitability of Maruti Suzuki Ltd and Tata Motors. To make suggestions for improving the profitability and liquidity. Hypothesis (A) H0: There is no significant difference in liquidity position of selected automobile companies. H1: There is significant difference in liquidity position of selected automobile companies. (B) H0: There is no significant difference in profitability position of selected automobile companies. H1: There is significant difference in profitability position of selected automobile companies. Data Collection The secondary data that have been used for this study are: Journals Newspapers Other published books Websites Accounting Literatures Magazines Annual report Period of the Study Taking into account the study’s longitudinal objective the time period established for this study is from 2011-12 to 2015-16 (5 years). ? Universe of the Study Universe is whole Automobile companies working in India and listed on the stock exchanges of India. The study will make an evaluative study of liquidity and profitability of automobile companies in India with special emphasis on selected companies of India. Sampling Design For the purpose of this study the following two major players in the Automobile Industry. Name of the companies are: Maruti Suzuki Ltd. Tata Motors Tools and Techniques for Analysis of Financial Statements Statistical tool used for the analysis of the study has been briefly listed below: Ratio Analysis Measures of Central Tendency (Mean) Standard Deviation Trend Analysis Graphs and Tables ANOVA Test Limitations of the Study The study is limited to 2 companies of automobile sector. The study is entirely dependent on the secondary data published in various reports, journals, magazines, annual reports. So, its accuracy depends on how accurate is the data published it these sources. There are various ways to reckon liquidity and profitability therefore the views may vary from one research to another. Profitability is affected by bountiful determinants but the study has considered some of the key determinants relevant for this study. The research is mainly based on analysis through ratio which has its own limitations. Non availability of the entire information as being external analyst there is no access to internal information. Moreover the financial statements do not keep the pace with fluctuation in the prices. 6.5 ANALYSIS OF LIQUIDITY The term ‘liquidity’ means the competency of any organization to repay its debt. It implies the potential of the organization to pay off the claims of the creditors which may be of capital or of goods and services. Liquidity implies cash and availability of cash out of current operations of the organization and accumulations of cash in the previous years, and to pay off claims of short-term and the long-term capital suppliers. It is of two types; the short-term and the long-term liquidity. The short-term liquidity is the competency of an organization to pay off its short-term debt which implies the same as the capacity of the organization in fulfilling the current maturing liabilities out of its current assets. The aim of studying the short-term analysis is to examine the capability of the organization to meet out the short-term obligations but from its short-term resources only, that is, to interpret the risk associated with the supply of short-term capital to the organization. Study of the organization’s long-term financial position depends upon the competency of that organization to repay its long-term financial obligations like ability to pay interest and dividend on time and principal repayment. Long-term liquidity implies capability of the organization to redeem the long period debt, to pay the interest and to repay other long period commitments or obligations. While establishing such relations it is often assumed long-term assets can be easily sold to repay the financial obligations of the entity. But often the concept of liquidity is used in regard to short term liquidity position`. In this exploration, liquidity is considered to be short-term liquidity which is the capability of the organization to repay its current liabilities out of its current assets. Liquidity ratios measure the ability to meet its current obligations when they fall due for payment. An organization should ensure adequate liquidity that is it should neither face the liquidity crises nor have excess liquidity. If liquidity is not adequate then the organization would not be in position to pay off the creditors on their due date. If organization has sufficient liquidity then there will not be any difficulty to pay out its obligations. However if the organization maintains high liquidity then funds will be unnecessarily in tacked in the liquid assets. So, both less and high liquidity are not desirable. It is essential for the organization to strike a balance between high and less liquidity. Short term liquidity is referred for the study as it is related to the short-term assets and liabilities of the organization. Moreover, the long-term stability as well as growth of an organization depends upon its capability to withstand in the immediate future. Also, the organization may have innumerous capability for future profitability but may be lacking due to lack of liquidity. That is why; short-term liquidity is an important indicator for studying the very existence of an organization. Current ratio constitutes the relationship connecting current assets and current liabilities of the organization. The current ratio in both the companies was on the diminishing trend during the period covered by the study. Current ratio of Maruti Suzuki was higher than Tata Motors that implied the Mrauti Suzuki still efficiently met its short term obligations but does not satisfy the standard of current ratio. So, the performance of Maruti Suzuki was still better. Tata Motors had the average current ratio below the average ratio of both the companies implied that it was not competent to congregate the short term obligations efficiently. Quick Ratio is more reliable and refined for analyzing the liquidity of the organization as it brings out relation between quick assets and current liabilities. Quick assets are the assets that are easily and quickly convertible into cash without detriment in value. Ideal Quick is 1:1. So, an organization is assets must be equivalent to its current liabilities. The ratio in Maruti Suzuki Ltd. fluctuated from 0.37 times in 2015-16 to 1.03 times in 2011-12. The average ratio of the company was 0.67 times. Quick Ratio of Tata Motors ltd. varied from 0.43 times in 2011-12 to 0.41 times in 2015-16. The average quick ratio of the company was 0.404 times. On the basis of the above analysis it can be seen that the quick ratio of Maruti Suzuki ltd was still higher than Tata Motors ltd. Both the selected companies under the study were not able to retain the standard norms. So the liquidity position was not satisfactory implied that the companies were not able to pay its current obligations immediately out of its liquid assets. Inventory Turnover Ratio measures the efficiency with which a firm utilizes or manages its inventory. It helps in measuring the liquidity of the inventory. It tells the velocity with which the goods move, so it is a yardstick for inventory management. Marti Suzuki Ltd showed increasing trend from 21.98 times in 2011-2012 to 28.65 times in 2013-2014, then it declined in 2014-15 and 2015-16. The average ratio was 23.844 times. The inventory turnover ratio of Tata Motors showed decreasing trend from 12.91 times in 2011-12 to 8.23 times in 2014-15 and rose marginally in 2015-2016. The average inventory turnover ratio of the company was 10.302 times. Constant falling trend of this ratio was not a good sign in term of inventory management. Tata Motors was straggling to move inventory faster to compare with Maruti Suzuki due to poor production and inefficient marketing. Fixed assets turnover ratio ascertains the effectiveness with which the firm uses its fixed assets or it shows the efficiency of the fixed assets towards contribution to its sales. Financial Charges Coverage Ratio serves as an important indicator of the organization’s capability to meet its interest obligations. Generally higher the ratio the greater is the ability of company to cover its interest obligations. Maruti Suzuki Ltd. ratio showed decreasing trend during the study period, except in the last year of study period in 2015-2016. The average ratio of the company was 54.632 percent. The ratio of financial charge coverage of Tata Motor Ltd showed diminishing trend in the study period. Ratio ranged from 3.90 percent in 2011-12 to 3.00 percent in 2015-16. The average ratio of the company was 2.444 percent. 6.6 ANALYSIS OF PROFITABILITY Profits are acknowledged purpose of our community and evidential purpose of any establishment. It is beacon of the performance of the venture; profit is the axle encompassing diverse endeavors of the organization. The substantial argument for maintaining accounts and its management which accommodates the method of scaling the success of an enterprise, examining its pulse and to cannot curative measures if required. The persistence of any institution is connected with its earning competency. So if an institution miss to secure equity invested corrodes and if this plight persists the business will eventually abandon. Indeed, profit is the conscience of business will eventually abandon. Indeed, profit is the conscience of business devoid of which it is listless. In fact the potency an enterprise is reckoned by the extent of profits secured. Prominent are the profit the more effectual and pragmatic the venture. The profit is the decisive yard stick of performance. A profitable establishment is pre disposed to accord the surety of job, enrichment more employment and the zealous motivation that confederate with success. The profitability ratio explains the prosperity and the functional effectiveness of the organization. Lack of profits may be due to insufficient sales, lack of control over the expenses. Measuring the operational efficiency or profitability is useful for both the shareholders (owners) and the management of the concern. The prospective investors and also the creditors analyze the profitability prospects of the entity. The shareholders profitability or investment can be measured by computing the earnings per share. Earnings per share (in Rupees) of Maruti Suzuki ranged from 79.19 Rs in 2011-12 to 151.33 Rs. in 2015-16, the average ratio of the company was 100.33. The EPS of Tata Motor Ltd showed decreasing trend from 2011-12 to 2014-15 and increased marginally to 0.68 Rs in 2015-16.the standard deviation is 8.62. The average ratio was minus 5.416 Rs which shows unsatisfactory (negative) return. Dividends are earnings which of shareholders receive are the earnings which is distributed to equity shareholders per share is known as dividend per share The DPS of Maruti Suzuki showed increasing trend from Rs. 7.50 in 2011-12 to Rs. 35 in 2015-16. The average ratio of the company was 17.5. The ratio of DPS of Tata Motors co Ltd. shows that DPS was Rs. 4 in 2011-12, then it decreased but remained stable at Rs. 2 in 2012-13 and 2013-14. In 2014-15 the company was not in position to pay dividend to its share holders. The average of the company was 1.70. Operating profit ratio is ascertained to assess operating performance of the company. It establishes the relationship between the operating profit and net sales. The operating profit means earnings before interest and taxes. The operating ration of Maruti Suzuki Company showed the increasing trend in the years of study period. The operating ratio of the company ranged from 7.06 percent in 2011-12 to 15.54 percent in 2015-16. The average operating ratio was 11.478%. The operating ratio of Tata Motors Company was marking decreasing trend from 2011-12 to 2014-15. The average ratio was 2.182 percent the ratio rose to 5.46 percent in 2015-16. Net Profit Margin Ratio is significant for the measuring the over-all profitability of concern and reflects the potency in managing and operating the enterprise. Net Profit Ratio of Maruti Suzuki Co Ltd increased throughout the investigation period. The net profit ratio of the company ranged from 4.59 percent in 2011-12 to 7.91 percent in 2015-16. The average net profit ratio of Maruti Suzuki Company was 6.352 percent while the Net Profit Ratio of Tata Motors was dipping throughout the study period except in 2015-16. The ratio of yield on net worth is significant barometer for analyzing the profitability position of enterprise. Maruti Suzuki Company showed increasing trend throughout the period of investigation. The ratio was satisfactory; it ranged from 10.76 percent in 2011-12 to 16.92 percent in 2015-16. The yield on net worth of Tata Motor Ltd was dipping in the first four years of the investigation period than in the last year of the investigation period ratio slightly increased. The mean ratio of the company was minus 4.25 percent. The return on long term fund is the variant of Return On Investment. This brings out relation between profit and capital employed. The return on long term fund of Maruti Suzuki company ratio showed mounting trend throughout the investigation period. The mean ratio of the company was 18.552 percent. The return on long term fund of Tata Motor Ltd shows diminishing trend throughout the investigation period except in 2015-16 from 11.39 percent in 2011-12 to 2.94 percent in 2013-14 and then minus 7.12 percent in 2014-15. The mean ratio of the company was 4.086 percent. 6.7 LIQUIDITY AND PROFITABILITY Liquidity and Profitability are considered as basic elements of business life. Insufficient spare working capital is the acme in study of management of liquidity. Insufficient working capital carries the risk of inefficacy in payment of obligations. While spare working capital has adverse impact on the prosperity of an enterprise. An analytical and logical approach for managing working capital can conciliate between two. Managerial decisions in regard to cash and bank receivable stock and short term securities are emulated in liquidity and profitability and consecutively in the firm. Every single intent secure maximal profit out of its capital invested. The efficacy of any enterprise normally relies on the profits earned, considering and maintaining the liquidity prospects. Normally it’s too hard to conciliate liquidity and profitability, due to the adoption policy of working capacity. If company maintains sound liquidity then the profitability in endangered contrary. If aggressive policy of working capital is ensured then it may lead to high profit does not promise liquidity. While deciding working capital investment of firm the management needs to scrutinize the anticipated profit obligation. Liquidity profitability is closely related. If has suffered liquid funds, then it may get advantage like discount from its suppliers and which will result in high profits. Firm is not able to pay to its suppliers on the due date, and then interest obligation will increase. So lack of liquidity leads to no cash discount rather increases interest payments. If firm is not in position to maintain stock due to lack of liquidity then production cycle will be affected and may lead to losses. From the selected automobile companies overall performance of Maruti Suzuki ltd is good. While evaluating of prosperity in relation to the sales or in relation to its investment Maruti Suzuki’s performance is satisfactory than Tata Motors. Considering liquidity Maruti Suzuki is in healthier position than Tata Motors in selected units in the period of study. Economies of scale suffered liquid funds enables economies of scale thus generating high profits. Tata Motors performance is not satisfactory throughout the study period. Company’s position was quite low which was due to the poor management. Table 6.1: Average Liquidity Ratio of Selected Companies (From 2011-12 to 2015-16) Ratios Maruti Suzuki Ltd. Tata Motors AVERAGE LIQUIDITY RATIOS Current Ratio (in times) 0.85 0.46 Quick Ratio (in times) 0.676 0.404 Inventory Turnover Ratio (in times) 23.844 10.302 Fixed Asset Turnover Ratio (in times) 2.126 1.862 Financial Charges Coverage Ratio (%) 54.632 2.444 Table 6.2 : Average Profitability Ratio of Selected Companies (April, 2011 to March, 2016) Ratios Maruti Suzuki Ltd. Tata Motors AVERAGE PROFITABILITY RATIOS Earning Per Share (In Rs.) 100.33 -5.416 Dividend Per Share (In Rs.) 17.50 1.70 Operating Margin Ratio (%) 11.478 2.182 Net Profit Margin Ratio (%) 6.352 -1.716 Return On Net Worth (%) 13.892 -4.25 Return on Long Term Fund Ratio (%) 18.552 4.086 Table 6.3 : Assignment of Ranks to Selected Companies on the basis of their Average Performance Ratios Maruti Suzuki Ltd. Tata Motors LIQUIDITY RATIOS Current Ratio 1 2 Quick Ratio 1 2 Inventory Turnover Ratio 1 2 Fixed Asset Turnover Ratio 1 2 Financial Charges Coverage Ratio 1 2 Composite Score 5 10 Rank on the basis of Liquidity I II AVERAGE LIQUIDITY RATIOS Earning Per Share 1 2 Dividend Per Share 1 2 Operating Margin Ratio 1 2 Net Profit Margin Ratio 1 2 Return On Net Worth 1 2 Return On Long Term Fund Ratio 1 2 Composite Score 6 12 Rank on the basis of Profitability I II ? 6.8 SUGGESTIONS Suggestion Based on Ratio These suggestions are based on ratio analysis and this through company may improve their financial stability, liquidity position, operating efficiency and may restructure finance. As current ratio was less than standard ratio 2:1 in all the selected automobile companies. Therefore these companies need to increase current ratio by investing in current assets or by decreasing current liabilities and try to maintain standard norm of this ratio. As liquid ratio found that liquidity ratio was less than the standard ratio 1:1 in all the selected automobile companies. Hence these companies should increase liquid ratio by investing in liquid assets or by decreasing liquid liability. All the companies should try to maintain standard noun (1:1) of this ratio as know well without liquid assets very difficult meet with cvaeat obligation. For the trust of creditors and investor,, companies need to made proper planning about short-term funds and its utilization. Operating margin is used to measure company’s pricing strategy operating efficiency. It gives an idea of how much a company makes (before interest and taxes) on each rupees of sales. All the selected companies should try to maintain this ratio at high level. For the maintaining high level of this companies need to increase operating income by net sales or increase, operating efficiency and also reduce the external funds. Companies should try to sustain net profit ratio at higher level because this ratio reflects the operating efficiency and performance of the company. As we know this ratio is very useful for the investors. Return on assets ratio should to be maintained at higher level because it’s beneficial for the company. Companies should- have to maintain interest coverage ratio at higher level because it indicates greater ability of the company to handle fixed charge liabilities. Also try to obtain funds at low interest or less use of external funds. From the analysis, it is found that all the selected ratios are fluctuating trend during the period of study. Hence, all the selected companies should have to maintain these ratios at particular level or as per standard norm otherwise create problems for the automobile companies. For the improvement of the theses ratios, need to study of previous sales, invested fund records and also observed the marketing strategy of the product. All the selected automobile company should maintain the consistency in financial performance. Overall Suggestions These are general suggestions which may be useful for the companies to attain better financial position and performance: The companies must strive to boost the manufacturing so as to enjoy economies of scale. It will help out in increasing the yield on capital employed. To raise the profitability the companies, should try to have a control on its cost of goods sold and its operating cost. The management must strive to take on cost effective technique in their company. Also to cut short its power as well as fuel expenses it must look for the cheap and reliable sources of energy. To improve the return of assets and capital employed the companies should try to increase its sales volume. The companies should try to maintain adequate amount of working capital to improve its profitability. If adequate working capital is not maintained the company should strive to build requisite working capital in case of deficiency in working capital and in case of an excessive working capital, the surplus can be invested in trade securities or can be used to repay borrowings. The companies should try to fully utilize its production capacity so that it can have a control on its factory overheads and can properly utilize its fixed assets. The increasing interest and financial charges is having an adverse affect on the profit percentage so companies should make an effort to reduce its financial burden and maintaining adequate debt-equity ratio. Companies should wisely use the borrowed funds as it carries the burden of interest obligation along with the repayment amount. So in order to cut short its interest expense should try to issue fresh equity and reduce borrowed funds. To ensure regular and timely availability and supply of raw material and finished goods there should be adequate infrastructure facilities. Cost accounting should be done and cost audit should be timely carried rather should be made mandatory. There has been excessive government intervention in course of action, normal working and decisions of the automobile sector. So these are to be dealt smartly without hampering its normal course of action. Planning is an essential function of management. So has to be done taking utmost care as faulty planning can lead to increase in the cost of projects. The recruitments should be wisely done as over staffing increases the office and administrative overheads and reduces the profitability. To standardize and optimal the employ of cash suitable practice can be implemented for control of cash. The investments in stock must be lowered and must initiate a method of quick collection of debts. The companies must make a proper use of its operating assets and try to cut short its avoidable non operating expenditure. 6.9 SUMMARY CHARTS Main Objective: The objective of the study is to evaluate, analyze and interpret the Financial Performance Analysis of Selected Companies of Indian Automobile Industry. Objective of Liquidity Analysis: To assess the liquidity position of the Selected Automobile companies. S.No. Name of the Ratio Objectives of Ratio Average of Ratio Result Result of ANOVA Suggestions Maruti Suzuki Tata Motors 1 Current Ratio To measures short-term solvency 0.85 0.46 Fluctuating Trend H0 Rejected Try to maintain the standard level (2:1) 2 Quick Ratio To assess the relation between liquid assets and liquid liabilities 0.676 0.404 Fluctuating Trend H1 Accepted Try to maintain the standard level (1:1) 3 Inventory Turnover Ratio To measure the efficiency in inventory management. 23.844 10.302 Fluctuating Trend H0 Rejected Inventory should be managed efficiently and try to cover through sales 4 Fixed Asset Turnover Ratio To measure the use of fixed assets for generating sales. 2.126 1.862 Fluctuating Trend H1 Accepted Try to maintain this ratio higher as it signifies that fixed assets are to be covered by sales. 5 Financial Charges Coverage Ratio To assess the debt serving capacity of the firm. 54.632 2.444 Higher Fluctuation H0 Rejected Profit through company should cover their interest expenses, so should try to increase the operating profit, Objective of Profitability Analysis: To examine the profitability of the Selected Automobile Companies. S.No. Name of the Ratio Objectives of Ratio Average of Ratio Result Result of ANOVA Suggestions Maruti Suzuki Tata Motors 1 Earnings Per Share To measure the profit available to equity shareholders on per share basis. 100.33 -5.416 Negative and high fluctuating trend H0 Rejected Higher is Better 2 Dividend Per Share It measures the net profit distributed to shareholders on per share basis. 17.5 1.7 Higher Fluctuation H0 Rejected Higher is Better 3 Operating Margin Ratio To measure the company’s operating efficiency. 11.478 2.182 Negative and fluctuating trend H0 Rejected Try to increase its sales and operating income. 4 Net Profit Margin To measure the overall profitability of the firm. 6.352 -1.716 Negative and fluctuating trend H0 Rejected To change the strategy of sales and control the expenses. 5 Return on Net Worth To assess the return on investment made by the shareholders. 13.892 -4.25 Negative and fluctuating trend H0 Rejected Try to use net worth efficiently and also increase the profit. 6 Return on Long Term Funds To measure proficient use of capital employed. 18.552 4.086 Negative and fluctuating trend H0 Rejected Try to increase the net profit through sales. REFERENCES BOOKS Aggarwal M.R. “Financial Management” published by Ramesh Book Depot, Jaipur(2014) Chandra Prashan “Financial management Theory ; Practice” published by Tata McGraw, New Delhi(2008) Chaudhary S.B. ” Analysis of Company Financial Management” published by Asia Publishing House, Mumbai (1964) Choudhary “Project Management” published by Tata McGraw Hill, New Delhi(2007) Cooper & Schindler “Business Research Methods” published by Tata McGraw Hill New Delhi(2003) Gupta R.L. & P.L. Radhaswami “Financial Statement Analysis” published by Sultanchand & Sons,New Delhi(1985) Gupta S.C. “Modern Management Accounting” published by Shree Publisher, Jaipur(1997) Hingorani N L & Ramanathan A R ” Management Accountancy” S. Chand & Company Ltd., Delhi(1973) Johnson R W “Financial Management” published by Allyn and Becon- Boston(1971) Khan Jain “Cost Accounting ; Financial Management” published by Tata McGraw, New Delhi(2008) Khan M.Y & Jain P.K “Financial Management” published by Tata McGraw, New Delhi(1984) Kishore Ravi “Student Work Book On Cost Accounting ; Financial Management” published by Taxman, Delhi(2007) Kothari C. R. “Research Methodology” Third Edition published by New Age International, Publishers(2014) Mahaeshwari S.N. “Management Accounting ; Financial Analysis” published by Sultanchand & Sons,New Delhi(2005) Myer John N. “Financial Statement Analysis” published by Prentice Halls, New Jersey(1962) Prashar S.P. “Liquidity Management” published by Vision Book Pvt Ltd., New Delhi(1986) REPORTS, JOUNRNALS & MAGAZINES Commerce Fortune India Indian Management News Digest RBI Bulletin WEBSITES www.marutisuzuki.com www.tatamotrs.com www.moneycontrol.com www.wikipedia.com www.auto.indiamart.com www.google.com www.hindustanmotors.com www.tradingeconomics.com NEWSPAPERS Business Standards Financial Express The Economic Times The Times of India ?
