financial performance analysis of ASHOK LEYLAND LIMITED

1. FINANCIAL PERFORMANCE ANALYSIS OF
ASHOK LEYLAND LTD
PROJECT REPORT
Submitted by
MUGESH.MK
12MBA030
Under the guidance of
Dr.T. AROCKIA SAGAYARAJ, Ph .D
(Associate Professor)
Submitted in the partial fulfillment of the requirements for the award
of the degree of
MASTER OF BUSINESS ADMINISTRATION
2012 - 2014
G.R.D. INISTITUTE OF MANAGEMENT
Dr.G.R.DAMODARAN COLLEGE OF SCIENCE,
(Autonomous and affiliated to Bharathiar University: recognized by UGC)
Accredited at the FIVE STAR level by the National Assessment and
Accreditation Council: An ISO 9001:2000 Certified Institution
Coimbatore- 641014.

2. CERTIFICATE
This is to certify that the project entitled “FINANCIAL PERFORMANCE
ANALYSIS OF ASHOK LEYLAND LTD” Is a bonafide record of project
work done by MUGESH.MK (12MBA030) submitted in partial fulfillment
of the requirement for the award of the degree of “MASTER OF
BUSINESS ADMINISTRATION” of BHARATHIAR UNIVERSITY,
Coimbatore and the project report has not formed the basis for the award of
any degree, fellowship or any other similar titles of any other institutions
Faculty Guide Director
Submitted for the viva-voce examination held on
Internal Examiner External Examiner

3. DECLARATION
I, MUGESH.MK hereby declare that the project work entitled as
“FINANCIAL PERFORMANCE ANALYSIS” submitted to
DR.G.R.Damadoran Institute of Management, Coimbatore is a record of an
original work done by me under the guidance of Dr.T.Arockia Sagayaraj
Associate professor of DR.G.R.Damadoran Institute of Management and
this project work is submitted in the partial fulfillment of the requirements
for the award of the degree of Masters of Business administration and the
project report has not formed the basis for the award of any degree,
fellowship or any other similar titles of any other institutions.
Date: Signature of the Candidate
Coimbatore MUGESH.MK

4. ACKNOWLEDGMENT
I express my deep sense of gratitude and reverence to the
Management of Dr.G.R.Damodaran Institute of Management for
providing the opportunity to do a project.
I owe my sincere gratitude to our beloved principal Dr.T.Santha
MSc, PGDCA, MPhil(CS) PhD, for providing all the facilities for
completing this project.
I extend my earnest gratitude to DR.K.K.Ramachandran,
M.com, MBA, MFT, M.Phil, PGDFT, PhD (Vice principal and
Director, Faculty of Commerce and International Business),
Dr.G.R.Damodaran Institute of Management and Dr.G.R.Damodaran
school of commerce and international business, Coimbatore, for the
immense help extended to help me completing this report.
I wish to express my sincere thanks to my guide Dr.
T.AROCKIA SAGAYARAJ, M. Com, B. Ed, M.B.A, M.Phil,
Ph.D, G.R.Damodaran Institute of Management, for his valuable
guidance and support throughout the project process.
I would also like to thank Mr. JOHN BOSCO finance assistant
manager ASHOK LEEYLAND for his kind support for the
completion of this project.

5. LIST OF CONTENTS
S.NO TITILE PG.NO
I
INTRODUCTION
II
INDUSTRY PROFILE
III
OBJECTIVE OF THE STUDY
IV
SCOPE OF THE STUDY
V
RESEARCH METHODOLOGY
VI
LIMITATION
VII
REVIEW OF LITERATURE
VIII
COMPANY PROFILE
IX
THEORITICAL CONCEPTS RELATED TO THE STUDY
X
DATA ANALYSIS AND INTERPRETATION
XI
FINDINGS
XII
SUGGESTIONS
XIII
CONCLUSION
XIV
BIBLIOGRAPHY

6. LIST OF TABLES
NO.
PARTICULARS
PAGE NO
1. Current Ratio 43
2. Liquid Ratio 46
3. Debt equity Ratio 48
4. Proprietary Ratio 50
5. Fixed Asset to Net worth Ratio 52
6. Current Asset to Net worth Ratio 54
7. Current Liabilities to Net worth Ratio 56
8. Gross Profit Ratio 58
9. Net Profit Ratio 60
10. Return on capital employed 62
11 Stock Turnover Ratio 64
12. Debtors Turnover Ratio 66
13. Average Collection Period 68
14. Creditors Turnover Ratio 69

7. 15. Average Payment Period 71
16. Working Capital Turnover Ratio 72
17. Fixed Asset Turnover Ratio 74
18 Current Asset Turnover Ratio 76
19. Total Asset Turnover Ratio 78
20. Sales to Net worth Ratio 80
21. Correlation between Sales and Profit 82
22. Correlation between Average collection
Period, Average Payment Period 83
23. Correlation between Fixed Asset and
Long Term Funds
84
24. Correlation between Profit and Dividend 85
25. Forecast for future Sales 87
LIST OF CHARTS
SL.NO. PARTICULARS PAGE NO
1. Current Ratio 45
2. Liquid Ratio 47
3. Debt-equity Ratio 49
4. Proprietary Ratio 51
5. Fixed Asset to Net worth Ratio 53

8. 6. Current Asset to Net worth Ratio 55
7. Current Liabilities to Net worth Ratio 57
8. Gross Profit Ratio 59
9. Net Profit Ratio 61
III10. Return on capital employed 63
11. Stock Turnover Ratio 65
12. Debtors Turnover Ratio 67
13. Creditors Turnover Ratio 70
14. Working Capital Turnover Ratio 73
15. Fixed Asset Turnover Ratio 75
16. Current Asset Turnover Ratio 77
17. Total Asset Turnover Ratio 79
I8. Sales to Net worth Ratio 81
CHAPTER-1
INTRODUCTION
Accounting process involves recording, classifying and summarizing of
various business transactions. The day-to-day transaction of a business is recorded
in different subsidiary books. The aim of maintaining various records is to
determine profitability of the enterprises from the operation of the business and
also to find out the financial position. Financial statements are the outcome of
summarizing process of accounting period more frequently a year.
According to John.N.Myer "The financial statements provide a summary
of the accounts of the business enterprises. The balance sheet reflecting the assets,
liabilities and capital as on a certain date and income statement showing the
results of operation during a certain period".
The financial statements generally refers to three basic statements:
1. The income statement.
2. The balance sheet.

9. 3. The statement of changes in financial positions in addition to the above two
statements.
4. The meaning and significance of each of the statements is as described below
l. The income statement
The income statement (also termed profit and loss account) is generally
considered to be the most useful of all financial statements. It explains what has
happened to a business as a result of operation between two balance sheet and
dates. For this purpose it matches the revenues and shows the net profit earned or
loss suffered during a particular period.
The nature of the "income" which in the focus of the income statement can
be well understood if a business is taken as an organization that uses "inputs" to"
produce" output. The outputs are the goods and services that the business provides
to its customers.
The value of these outputs is the amount paid by the customers. These
amounts are called "revenues" in accounting. The input is the economic
resources used by the business in providing these goods and services. These are
termed "expenses" in accounting.
2. Balance Sheet
It is a statement of financial position in the business at a specified moment
of time. It represents all assets owned by the business of a particular moment of
time and the claims (or equities) of the owners and the outsiders against these
assets or at the time. It is in the snapshots of the financial condition of the
business at a time.
The important distinction between an income statement and a balance
sheet is that the income statement is for a particular period while balance sheet is
on a particular date. Income statement is therefore a flow report, as contrasted
with the balance sheet, which is a static report. However both are complimentary
to each other.

10. 3. Statement of retained earnings
The term retained earnings means the accumulated earnings over losses
and dividends. The balance is shown by the income statements after making
necessary appropriations. It is a connecting link between the balance sheet and the
income statement. This statement is also termed as profit and loss appropriation
account in case of companies.
4. Statement of changes in financial positions
The balance sheet shows the financial condition of the business of a
particular moment of time while the income statement discloses the result of
operation of business over a period of time. However for a better understanding
of the business, it is essential to identify the movement of working
capital are cash in and out of the business. The information is
available in the statement of changes in financial position of business.
The statement may emphasis the following
1. Change in working capital position .
2. Changes in cash position
3. Change in overall financial position
Analysis is the process of critically examining in detail
accounting information given in the financial statement. For the
purpose of Analysis an individual items are studied.
Analyzing financial statement is a process of evaluating
relationship between component parts of financial statement to obtain
a better understanding of firm's position and performance. It is largely
a study of relationship among the various financial factors.

11. Analysis and interpretation are closely related. Interpretation is
not possible without Analysis and without interpretation, Analysis has
no value. Interpretation is thus drawing of inference and stating.
Analysis and interpretation of financial statements are an
attempt to determine significance and meaning of the financial
statement. So that forecast may be made as the prospectus for future
earnings, ability to pay interest and debt maturities.
Scope of the study
1. The main scope is the study of financial performance analysis of ASHOK
LEYLAND LTD.
2. The study is based on the accounting information of the ASHOK LEYLAND.
The study covers the period of 2008-2009 to 2012-2013 for analyzing the
financial statement .
3. The scope of the study involves the various factors that affect the financial
efficiency of the company, to increase the profit and sales growth of the company.
4. This study finds out the operational efficiency of the organization and allocation
of resources to improve the efficiency of the organization.

12. 5. The data of the past five years are taken into account for the study. The
performance is compared within those periods. This study finds out the
performance analysis of the company.
Objectives
1. To trace out the financial performance of ASHOK LEYLAND Ltd. for five years.
2. To analyze the short-term solvency position of the company.
3. To analyze the long-term solvency of the company.
4. To study the efficiency of the management in utilizing the fixed asset of the
company.
Hypothesis
1. There is no direct relationship between sales and profit of the company.
2. There exist a relationship between average collection period and average payment
period of ASHOK LEYLAND Ltd.
3. There exist a relationship between fixed assets and long-term barrowings of the
company.
4. There exist a relationship between profit and payment of dividend in ASHOK
LEYLAND Ltd.

13. Research Methodology
This study is conducted to ascertain the performance of ASHOKLEYLAND
Ltd. in various areas [specified in objectives]. Since the company was started only
during 1948, the actual growth was witnessed during the past 5 years. So for
analysis purpose the five year balance sheet, profit and loss account [2008 - 2013]
was the source of information. The following tools are used in the study.
1. Ratio Analysis
2. Correlation analysis
3. Trend Analysis.
Research design
In this study the researcher is going to analyze the financial performance by
using relevant tools and techniques, analytical research design is used.
Source of data
This study heavily reveals on the secondary data. The annual reports
Published by ASHOK LEYLAND Ltd and the official records provided the
information required for the study.
Period of Study
The period is limited to a period of five years i.e. from 2008-2009 to 2012-2013
Limitations of the Study
The study has the following limitations.

14. 1 .The study is only for a particular company. Inter firm comparison is not
possible due to non-availability of data.
2. The period of study is limited to five years only.
3. Ratio analysis suffers from various drawbacks moreover; the standard norm
for the ratio also varies with industry to industry and hence interpretation
could not be done with high degree of accuracy.
4. The time allocated for this study is limited to five months.
REVIEW OF LITERATURE
Literature Review was done by referring previous studies, articles and books to
know the areas of study and analyze the gap or study not done so far. There are
various studies were conducted relating to operational performance of the
company from which most relevant literatures were reviewed
Susan Ward (2008), emphasis that financial analysis using ratios between key
values help investors cope with the massive amount of numbers in company
financial statements. For example, they can compute the percentage of net profit a
company is generating on the funds it has deployed. All other things remaining
the same, a company that earns a higher percentage of profit compared to other
companies is a better investment option.
M Y Khan & P K Jain (2011), have explained that the financial statements
provide a summarized view of the financial position and operations of a firm.
Therefore, much can be learnt about a firm from a careful examination of its

15. financial statements as invaluable documents / performance reports. The analysis
of financial statements is, thus, an important aid to financial analysis.
Elizabeth Duncan and Elliott (2004), had stated that the paper in the title of
efficiency, customer service and financing performance among Australian
financial institutions showed that all financial performance measures as interest
margin, return on assets, and capital adequacy are positively correlated with
customer service quality scores.
Jonas Elmerraji (2005), tries to say that ratios can be an invaluable tool for
making an investment decision. Even so, many new investors would rather leave
their decisions to fate than try to deal with the intimidation of financial ratios. The
truth is that ratios aren't that intimidating, even if you don't have a degree in
business or finance. Using ratios to make informed decisions about an investment
makes a lot of sense, once you know how use them.
Carlos Correia (2007), had explained that any analysis of the firm, whether by
management, investors, or other interested parties, must include an examination
of the company’s financial data. The most obvious and readily available source of
this information is the firm’s annual report. The financial statements shall, in
conformity with generally accepted accounting practice, fairly present the state of
the affairs of the company and the results of operations for the financial year.
Greninger et al.(1996), identified and refined financial ratios using a Delphi study
in the areas of liquidity, savings, asset allocation, inflation protection, tax burden,
housing expenses and, insolvency. Based on the Delphi findings, they proposed a
profile of financial well-being for the typical family and individual.
Rachchh Minaxi A (2011), have suggested that the financial statement analysis
involves analyzing the financial statements to extract information that can
facilitate decision making. It is the process of evaluating the relationship between

16. component parts of the financial statements to obtain a better understanding of an
entity’s position and performance.
Salmi, T. and T. Martikainen (1994), in his "A review of the theoretical and
empirical basis of financial ratio analysis", has suggested that A systematic
framework of financial statement analysis along with the observed separate
research trends might be useful for furthering the development of research. If the
research results in financial ratio analysis are to be useful for the decision makers,
the results must be theoretically consistent and empirically generalizable.
Kennedy and Muller (1999), has explained that “The analysis and interpretation
of financial statements are an attempt to determine the significance and meaning
of financial statements data so that the forecast may be made of the prospects for
future earnings, ability to pay interest and debt maturines (both current and long
term) and profitability and sound dividend policy.”
T.S.Reddy and Y. Hari Prasad Reddy (2009), have stated that “The statement
disclosing status of investments is known as balance sheet and the statement
showing the result is known as profit and loss account”
Peeler J. Patsula (2006), he define that a sound business analysis tells others a lot
about good sense and understanding of the difficulties that a company will face.
We have to make sure that people know exactly how we arrived to the final
financial positions. We have to show the calculation but we have to avoid
anything that is too mathematical. A business performance analysis indicates the
further growth and the expansion. It gives a physiological advantage to the
employees and also a planning advantage.
I.M.Pandey (2007), had stated that the financial statements contain information
about the financial consequences and sources and uses of financial resources, one
should be able to say whether the financial condition of a firm is good or bad;

17. whether it is improving or deteriorating. One can relate the financial variables
given in financial statements in a meaningful way which will suggest the actions
which one may have to initiate to improve the firm s financial condition.‟
Chidambaram Rameshkumar & Dr. N. Anbumani (2006), he argue that Ratio
Analysis enables the business owner/manager to spot trends in a business and to
compare its performance and condition with the average performance of similar
businesses in the same industry. To do this compare your ratios with the average
of businesses similar to yours and compare your own ratios for several successive
years, watching especially for any unfavourable trends that may be starting. Ratio
analysis may provide the all-important early warning indications that allow you to
solve your business problems before your business is destroyed by them.
Chapter Scheme
The project report is composed of the following five chapters.
Chapter l
The first chapter deals with a clear picture to the introduction of the study.
Chapter 2
The second chapter deals with profile of the company, growth, general
function of the ASHOK LEYLAND Ltd.
Chapter 3
This chapter deals with relevant literature based on previous study.
Chapter4
The fourth chapter deals with performance analysis of the company. Ratio
analysis, correlation analysis and trend analysis are covered in this chapter.

18. Chapter5
The fifth and final chapter deals with the findings, suggestions and
conclusions for the company.
INDUSTRY PROFILE
The automotive industry is a wide range of companies and organizations involved
in the design, development, manufacture, marketing, and selling of motor
vehicle. It is one of the world's most important economic sectors by revenue. The
automotive industry does not include industries dedicated to the maintenance of
automobiles following delivery to the end-user, such as automobile repair
shops and motor fuel filling stations.
The term automotive was created from Greek autos (self), and Latin motives (of
motion) to represent any form of self-powered vehicle.
The automotive industry began in the 1890s with hundreds of manufacturers that
pioneered the horseless carriage. For many decades, the United States led the world
in total automobile production.
In 1929 before the Great Depression, the world had 32,028,500 automobiles in use,
and the U.S. automobile industry produced over 90% of them. At that time the U.S.
had one car per 4.87 persons.

19. After World War II, the U.S. produced about 75 percent of world's auto production.
In 1980, the U.S. was overtaken by Japan and became world's leader again in 1994.
In 2006, Japan narrowly passed the U.S. in production and held this rank until
2009, when China took the top spot with 13.8 million units.
With 19.3 million units manufactured in 2012, China almost doubled the U.S.
production, with 10.3 million units, while Japan was in third place with 9.9 million
units
CHAPTER-2
COMPANY PROFILE
ASHOK LEYLAND was established in 1948. Since, then it has grown to
a great extent with seven manufacturing units. It is the first automobile company
to get QS9000 certification. The sale turns over crossed 2600 crores. It has plants
at Alwar (Rajastan), Bandra (Maharastra), Hosur 1, Hosur 2, Ductron
(Hyderabad), Ambattur and Ennore. Ashok Leyland exports nearly 1500 - 2000
vehicles per annum to nearly 15 countries.
Ashok Leyland is also a joined venture with Lanka Ashok Leyland Ltd,
SriLanka. It has entered in to technical collaboration with Hino Motors of Japan
for the manufacture of fuel-efficient Hino engines. It has another agreement with
Iveco of Italy for the manufacture of cargo range of vehicles. Over a period of
time supplying to defense become an important activity of Ashok Leyland Ltd.

20. Ashok Leyland Ltd obtained ISO 14001 certification for environmental
management system (EMS). Ashok Leyland is one producer of CNG buses.
Ashok Leyland - A Perspective
1948 - Shri RAGHUNATHAN SARAN (Founder and Director)
secured certificate of Incorporation on September 7th and laid
the foundation of Ashok Motors Ltd in Ennore, Chennai.
1952 - Proposal submitted to Government of India for progressive manufacture land
establishment of Automobile Industry in India. First Leyland bus was demonstrated.
1963 - Introduction of heavy-duty vehicles.
1967 - 15/16-ton Hippo Dumper for off- The highway application introduces Turn
over crossed Rs. 25 crores.
1968 - Introduction of Marine Engines.
1972 - Government issued letter of Intent expanding capacity to 10000 per annum.
1973 - Silver jubilee year celebration's. Sales reached Rs. 49 crores and the employee
strength raised more than 5000. Successfully developed and supplied to Indian Army,
gun towing Tract chassis for which regular production also commenced.
1981 - Bhoomi Pujas performed for Alwar plant in April and Bhandara plant in June.
1985 - Ashok leasing and higher purchasing company started its operation.
1987 - Rover group's foreign holding of 39.04 % of Ashok Leyland and 50.09 % of
Ennore foundries was purchased by Hinduja / Iveco groups.
l990 - Ashok Leyland has acquired Ductron Casting Ltd (DCL), Hyderabad Financial
year was changed from 'January to December' to 'April to March' Panther - Asrtu ideal
buses introduced.
1991 - Special vehicle Alad 25 introduced.
1993 - Ashok Leyland Ennore plant gets the ISO9002 certification.
1994 - Obtained ISO9001 - 1994 certification.
2001 - Export turn over crossed Rs. 1.78 billion.
2011- employees( 15812 )

21. 2012- Revenue = 133.59 billion
2012- Net income =56.5 billion
IMPORTS:
Ashok Leyland is importing 250 crores of material every year. Indigenous
efforts are going for these items. These items are sent to Ennore unit and
dispatched to other manufacturing plants. Taking advantages on competitive
international prices strategies import is to reduce cost of materials.
ORGANISATIONAL STRUCTURE:
Organizational structure of a company procedures framework, which
indicates the pattern are made of its management. It shows the location of person
from top to bottom. A company organizational structure can be identified from its
organizational chart shows the designation of a person in hand and which makes
clear the rights, duties and responsibilities of the superior and the sub - ordinates
and the delegation of authorities from the superior and the sub - ordinates.
The Board of directors occupies the first position in an organization (The
area which consist of manager of assistance, superiors etc) who calls of front I
line manager now a days.
PRODUCT PROFILE:
Product Range:
Ashok Leyland products enjoy the market preference and the reputation
for the reliability, superior performance and durability.
From 7.5t GVW to 125t GVW for goods transport, 19 sweaters to 80
sweaters for passenger transport and a host of special application vehicles for
defense, fire fighting and other applications. Ashok Leyland vehicles constitute
the largest range of commercial vehicles in India. Besides, engines from 30 KVA

22. to 125 KVA for industrial, marine and genet applications are also made by Ashok
Leyland.
Ashok Leyland is determined to extent its technological leadership into the
next century through new products that employ appropriate modern technology
and answer in full customers ever - changing needs.
Passenger:
ICV - Stage
MDV - Viking, Cheetah, Viking super.
Rear Engine Buses - Panther, Cruiser.
CNG Buses - Viking and Viking super.
Double Decker - Vestibule Bus.
Goods:
Haulage - Comet gold, Comet turbo, Tusker turbo, Bison.
Tipper - Cornet gold, Bison, Taurus turbo.
Tractor - Comet gold, Tusker turbo.
Multi axle - Tusker super (6 x 2), Taurus (6 x 2), Taurus turbo
Cargo:
LCV / ICV Haulage - Cargo 759, Cargo 909, Cargo 100.12.
MDV Haulage - Cargo 1512, Cargo 1614.
Tripper - Cargo 759, Cargo 909, Cargo 1614.
Heavies:
Haulage - Beaver, Hippo
Tractor - Beaver, Hippo, Rhino
Dumber Tripper - ALRD 20 dumber, Hippo tripper.
Special Vehicles:

23. ` Defense - Stallion 4x4, Yak 4x4, Hmv 6 x 6, Fat 6 x 6, Lrv 4 x
4,Tiff 4 x 2. Fire fighter - Comet gold 4x2, Riv 4 x 4, Cft 6 x 6, Water sprinkler.
Engines:
I Hino 4 cylinder
Iveco 4 cylinder
Al 6 cylinder .
For,
Genset application: 30-125Kva
Industrial application: 40 - 200 hp
Marine application: 50 - 172 hp
Process of Manufacture
Ashok Leyland in Ennor manufactures range of vehicles like Comet,
Viking, Cheetah and engines for industrial and marine application. Based on the
marketing requirements, plants / schedules are drawn up by production planning
and control for execution by the manufacturing division.
Principal input materials used in manufacture are:
1) Raw materials like Bars, Tubes and Plates
2) Cast iron and Aluminium castings.
3) Steel bars, Steel stamping, Forging and casting.
4) Bought out parts like radiators, electrical goods, tyres, batteries, break
assembly etc.
5) Other miscellaneous parts in finished or semi finished condition
Manufacturing process for the End products:
The chassis is manufactured through the following production
departments.
1) Fabrication shop
2) Machine shop
3) Heat treatment

24. 4) Assembly shop
5) Engine and assembly
6) Chassis assembly
With independent quality assurance in each department:
1) Activities of fabrication shop
Most of the fabricated items such as center bearing, cross members, rear
cross members, etc., required for the chassis are processed in this section. During
the process of manufacture, quality is maintained through petrol inspection at
various stages. Thereafter the finished parts are sending to assembly area. The
operations in fabrication are Steering, Frame cutting, Block setting, Pressing, Arc
and gas welding, Riveting, Brazing, Grinding, Clearing, Pressing and painting, I
Printing etc.
2) Activities in Machine shop
The materials are supplied to machine shops for machining as per the
process sheets issued by the process-planning department. The following are the
sum of the item manufacture.
1) Crank case 7) Differential cage
2) Cylinder head 8) Axle arms
3) Gear box 9) Steering box
4) Casing 10) Gears
5) Flywheel
Differential casing
The general operation shop is milling, broaching, drilling etc. The quality
control procedure is same as in fabrication shop and the finished parts are sending
to respective assembly areas.
3) Activities of the Heat - treatment section
Those items requiring hest treatment are routed through this section. The
operations heat treatment is nit riding, continuous and intermittent gas
carburizing, case hardening, phosphate etc.

25. 4) Activities in Engine and Unit assembly
All the materials required for the assembly like engine, rear axle, front
axle. Gearbox, steering assembly etc, are drawn from the finished parts stores,
depending on the production schedule and assembled. Engine, gearbox etc after
assembling or tested for quality before they are transferred to chasis assembly.
5) Activities in chasis assembly
All the unit assemblies transferred from engine and unit assemblies are
assembled on a chain conveyor, together with each other chasis components.
During the process painting and inspection are carried out before the chasis is
finally off-tracked.
CHAPTER-3
THEORITICAL CONCEPTS RELATED TO THE
STUDY
RATIO ANALYSIS
Introduction
Financial Statements are prepared primarily for decision-making. They
play a dominant role in setting the framework of managerial decisions. But the
information provided in the financial statements is not an end in itself as no
meaningful conclusions can be drawn from these statements alone. However, the
information provided in the financial statement is of immense use in making
decisions through analysis and interpretation of financial statements. Financial
analysis is the process of identifying the financial strengths and weakness of the
firm by properly establishing the relationship between the items of the Balance
sheet and the Profit and Loss accounts. These are various methods or technique
used in analyzing financial statements, such as comparative statements, schedule
of changes in working capital, common-size percentage, funds analysis, trend
analysis and ratio analysis. The ratio analysis is the most powerful tool of

26. financial analysis.
Various tools are employed by the interested parties in analyzing the
financial information contain in this financial statements and the ratio analysis is
one of them. Ratio analysis is the process of determining and interpreting
numerical relationship of different items of financial statements. The relationship
can be expressed as percent or as quotient.
Meaning and Definition
The information given in the basic financial statements serves no useful
purpose unless it is interpreted and analyzed in some comparable terms. The ratio
analysis is one of the tools in the hands of those who want to know something f
more from the financial statements.
According to Account's Handbook by Wixon, Kell and Bedford, a ratio "is
an expression of the quantitative relationship between two numbers".
According to Myres, the ratio analysis "is the process of determining and
interpreting numerical relationship of different items of financial statements".
According to Kennedy ratio may be defined as "the indicated quotient of
two mathematical expression and as the relationship between two or more things".
Thus the relationship between two accounting figures expressed
mathematically is known as financial ratio. The ratio can be calculated by
dividing one figure by another. The quotient so obtained is the ratio of the figure.
Nature of ratio analysis
Ratio analysis is a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. It involves four steps:
1. Selection of relevant data from the financial statements depending upon the
objective of the analysis.

27. 2. Calculation of appropriate ratios from the above data.
3. Comparison of the calculated ratio with the ratio of the same firm in the past,
or the ratios developed from the projected financial statements or the ratios of
some other firms or the comparison with the ratios of the Industry to which the
firm belongs.
4. Interpretation of ratios.
Significance of ratio analysis:
The person interested in the analysis of the financial statements can be
grouped into three.
i) Owners or Investors:
They are concerned with the earning capacity of the company.
ii) Creditors:
Creditors including bankers and financial institutions are interested in
knowing the ability of enterprise to meet its financial obligations timely.
iii) Financial Executives:
The financial executives are concerned with evolving Analytical tools that
will measure and compare costs, efficiency, liquidity and profitability with a view
to making intelligent decisions.
The significance of financial ratio analysis can be judged from the
following facts:
1. Useful tool in the hands of analyst - Ratios are exceptionally useful tools with
which one can infer the financial performance of the enterprise over the period of
time with the help of ratio analysis conclusions can be drawn regarding several
aspects such as financial health profitability and operational efficiency of the
undertaking.
2. Useful in information comparison - Ratio analysis provides inter firm comparison
by comparing the firms ratios with the other competitive and progressive

28. firms.
3. Useful in Trend Analysis - Ratio analysis enables a firm to know whether the
firm's financial position is improving or deteriorating or it constant over the year
by setting a trend with the help of ratios.
4. Useful in locating the weak spots of the business - Accounting ratios are of great
assistance in locating the weak spot in the business, even though the overall
performance may be efficient. Weakness in financial structure due to incorrect
policies in the past or present are revealed through accounting ratios.
5. Useful in simplifying accounting figures - Accounting ratio simplify, summarize
and systematize accounting figure in order to make them more understandable for
the highlight the inter relationship which exists between various segments of the
business as expressed by accounting statements.
Uses of Ratio analysis
The ratio analysis is one of the more powerful tools of the financial
analysis. It is used as a device to analyze and interpret the financial health of
enterprise.
The use of ratios is not confined to financial managers only. As discussed
earlier, there are different parties interested in the ratio analysis for knowing the
financial position of the firm for different purposes. The supplier of goods on
credit, bank, financial institutions, investors, shareholders and management all
make use of ratio analysis as a tool in evaluating the financial position and
performance of a firm for granting credit, providing loans or making investments
in the firm. With the use of ratio analysis one can measure the financial condition
of the firm and can point out whether the condition is good or poor. The
conclusion can also be drawn as to whether the performance of the firm is
improving or deteriorating. Thus ratios have a wide application and are of great
use today.
Limitations of Ratio Analysis
The ratio analysis is one of the most powerful tools of the financial

29. management. Though ratios are simple to calculate and easy to understand, they
suffer from serious limitations.
i. Limited use of a single Ratio: A single ratio usually does not convey much of
sense. To make a better interpretation a number of ratios have to be calculated
which is likely to confuse the analyst than help him in making any meaningful
conclusion.
ii. Lack of Adequate standards: there are no well-accepted standard or rules
of them for al ratios, which can be accepted as norms. It renders
interpretation of all the ratios difficult.
iii. Inherent Limitation of Accounting: like financial statements ratio also suffer from
the inherent weakness of accounting records such as their historical
nature. Ratios of the past are not necessarily true indicators of the future.
iv. Change of Accounting procedure: Change in accounting procedure by a firm
often makes ratio analysis misleading. E.g.: a change in the valuation method of
inventories from FIFO and LIFO increase the cost of sales and reduce
considerably the value of closing stocks which makes stock turnover ratio to be
lucrative an unfavorable gross profit.
v. Window Dressing: Financial statements can easily be window-dressed to present
a better picture of its financial and profitability position to the outsiders. Hence,
one has to be very careful in making a decision from ratios calculated from such
financial statements. But it may be very difficult for an outsider to know about the
window dressing made by a firm.
vi. Absolute figures Distrotive: Ratios devoid of absolute figures may prove
Distrotive as ratio analysis is primarily a quantitative analysis and not a
qualitative analysis
vii. Price level change: While making ratio analysis, no consideration is made to the
changes in price levels and this makes the interpretation of ratio invalid.
viii. Ratio no substitutes: ratio analysis is merely a tool of financial statements. Hence,
ratios become useless if separate from the statements from which they were
computed.

30. Types of Ratios
Ratio Analysis is based on different ratios, which are calculated from the
accounting data contained in the financial statement. Different ratios are used for
the different purposes. These ratios can be grouped into the various classes
according to the financial activity or function to be evaluated. We may classify
different ratios into the following six broad categories.

31. 1. Current Ratio:
An indication of a company's ability to meet short-term debt obligations; the higher the
ratio, the more liquid the company is. Current ratio is equal to current assets divided by
current liabilities. If the current assets of a company are more than twice the current
liabilities, then that company is generally considered to have good short-term financial
strength. If current liabilities exceed current assets, then the company may have problems
meeting its short-term obligations.
A ratio of 2:1 is considered as standard for current ratio.
Current Ratio = Current assets / Current liability
2. Quick Ratio:
Liquid ratio is also known as quick or acid test ratio. Liquid assets refer to assets which
are quickly convertible into cash. Current Assets other stock and prepaid expenses are
considered as quick assets. The ideal liquid ratio accepted norm for liquid ratio
A ratio of 1:1 is considered as ideal for liquid ratio.
Quick Ratio = Total Quick Assets / Total Current Liabilities
Quick Assets = Total Current Assets (minus) Inventory
3. Return on investment:
It is also called as Return on Capital Employed´. It indicates the percentage of return on
the total capital employed in the business. The term µoperating profit µ means µprofit before
interest and tax and the term capital employed means sum-total of long term funds
employed in the business. I.e. Share capital +Reserve and surplus + long term loans ± [non
businessassets+fictitiousassets]

32. 4. Net Profit Ratio:
This ratio indicates the Net margin on a sale of Rs.100.This ratio helps in determining
the efficiency with which affairs of the business are being managed. An increase in the
ratio over the previous period indicates improvement in the operational efficiency of the
business. The ratio is thus on effective measure to check the profitability of business.
However, constant increase in the above ratio after year is a definite indication of
improving conditions of the business.
Net Profit Ratio =Net Operating Profit /Net Sales *100
5. Gross Profit Ratio:
Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between
gross profit and total net sales revenue. It is a popular tool to evaluate the operational
performance of the business. The ratio is computed by dividing the gross profit figure by
net sales.
The following formula/equation is used to compute gross profit ratio:
When gross profit ratio is expressed in percentage form, it is known as gross profit
margin or gross profit percentage. The formula of gross profit margin or percentage is
given below:

33. The basic components of the formula of gross profit ratio (GP ratio) are gross profit
and net sales. Gross profit is equal to net sales minus cost of goods sold. Net sales are
equal to total gross sales less returns inwards and discount allowed. The information
about gross profit and net sales is normally available from income statement of the
company
6. Debt –Equity Ratio
Debt Equity ratio also known as External- Internal Equity Ratio is calculated to measure
the relative claims of outsiders and the owners against the firm’s assets. The ratio is
calculated as:
A ratio of 2:1 is considered as ideal for debt equity ratio.
Debt equity ratio = Outsiders funds / Shareholders funds
Outsiders fund includes all debts/liabilities to outsiders, whether long term or short term
or whatever in the form of debentures bonds, mortgages or bills. The shareholders fund
consist of equity share capital, preference share capital , capital reserves, revenue
reserves, and reserves representing accumulated profits and surpluses.
7. Operating Ratio:
This ratio is a complementary of Net Profit ratio. In case the net profit ratio is20%. It
means that the operating profit ratio is 80%.It is calculated as follows
Operating Ratio = Operating Cost /Net Sales *100
The operating cost include the cost of direct materials, direct labor and other overheads,
viz., factory, office or selling.

34. 8. Fixed Assets Turnover Ratio
Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the value of your fixed
assets (on your balance sheet). It indicates how well your business is using its fixed assets
to generate sales. Generally speaking, the higher the ratio, the better, because a high ratio
indicates the business has less money tied up in fixed assets for each dollar of sales
revenue. A declining ratio may indicatethatyou've over-investedinplant,equipment,orotherfixed
assets.
Fixed Assets Turnover ratio = Gross Sales/ Net Fixed Assets
9. Working Capital Turnover Ratio
Working capital refers to investment in current assets. This is also known as gross
concept of working capital. There is another concept of working capital known as net
working capital. Net working capital is the difference between current assets and current
liabilities. Analysts intend to establish a relationship between working capital and salsas
the two are closely related. Through this ratio we are attempting to see that one rupee
blocked by the organization in net working capital is generating how much sales. Higher the ratio
better it is. So, the working capital can be defined either as a gross working capital, which
include funds invested in all current assets, or as net working capital, which denotes the
difference between the current assets current liabilities of an organization.
Working Capital Turnover Ratio = Net Sales/ Net Working Capital
10. Debtors Turnover Ratio
Debtor’s turnover ratio measures the efficiency with which the debtors are converted into
cash. This ratio indicates both the quality of debtors and the collection efforts of the
business enterprise. The numerator of this ratio should preferably be credit sales. This is
so because the denominator is logically related to credit sales as it arises from credit sales

35. only. Cash sales do not generate debtors. However, as the information related to credit
sales is not separately available in corporate accounts, so total sales could be taken in
the numerator. Average debtors are calculated by dividing the sum of beginning-of-year
and end-of-year balance of debtorsby2.
Debtors Turnover Ratio = Credit sales / Averageaccounts receivables
Debt collection period:
The ratio indicates the extent to which the debt has been collected in time. It gives the
average debt collection period. The ratio is very helpful to lenders because it explains to them whether
their borrowers arecollecting moneywithin areasonabletime. Anincrease inthe period will result in
greater blockage of funds in debtors.
Debt collection period = Months or Days in a year/ Debtors turnover ratio
11. Operating profit ratio:
Operating profit ratio or return on sales ratio is the ratio of operating income of a business
to its revenue. It is profitability ratio showing operating income as a percentage of
revenue. Operating margin ratio is calculated by the following formula:
Operating Profit Ratio = Operating Profit / Net Sales *100
Operating income is same as earnings before interest and tax (EBIT). Both operating
income and revenue figures can be obtained from the income statement of a business.
12. Capital turnover ratio:
A companys annual sales divided by its average stockholders' equity. Capital turnover is
used to calculate the rate of return on common equity, and is a measure of how well a

36. company uses its stockholders' equity to generate revenue. The higher the ratio is, the
more efficiently a company is using its capital also called equity turnover.
Capital Turnover Ratio = Net Sales / Capital Employed
13. Current asset turnover ratio
Current assets turnover ratio shows the relationship between net sales and current assets.
When we divide the net sales with current assets and multiply with 100, we find that
value net sale which has been possible due to $ 100 investment of current assets
Current Assets Turnover Ratio = Net Sales / Current Assets
14. Current asset to fixed asset ratio:
This ratio differs from industry to industry. The increase in the ratio means that trading is
slack or mechanization has been used. A decline in the ratio means that debtors and
stocks are increased too much or fixed assets are more intensively used. If the current
asset increases with the corresponding increase in profit, it will show that the business is
expanding
Current Assets to Fixed Assets Ratio = Current Asset / Fixed Asset
15. Earnings ratio:
The portion of a company's profit allocated to each outstanding share of common stock.
Earnings per share serve as an indicator of a company's profitability.
Earnings Ratio = Net Profit / Shareholders Fund

37. CORRELATION ANALYSIS
If there exist relationship between two variables and if you study it then the
statistical analysis of such data is called bivariate analysis. Sometimes it may happen that
the values of the variables so collected are inter-related. We may be interested to find that
if there is any relation between the two variables under study for e.g., the profit and sales.
So when sales increasing profit is bound to increase. Therefore we can conclude that
there is some relationship between sales and profit.
Thus correlation refers to the relationship of two or more variables. We can find
some relationship between two variables, for e.g.: there exists some relationship between
profit and sales. Correlation is the statistical analysis which measures and analysis the
degree or extend to which two variables fluctuate with reference to each other. The work
relationship is of important and indicates that there is some connection between the
variable under observation.
According to L. R. Cannon, "if two or more quantities vary in sympathy, so that
movements in one tend to be accompanied by corresponding movements in the others.
They are said to be correlated".
Regression Analysis
Regression or Trend is a statistical tool, which is very commonly used in day- to-
day parlance. For e.g., rising trend of population, price, etc. Trend is also called secular or
long-term trend. It is the basic tendency of production/sales, income, employment etc. to
grow or decline over a period of time.
Secular trend movements are attributable to factors such as population change,
technological progress and large-scale shifts in consumer tastes. Technological changes,

38. discovery and exhaustion of natural resources, mass production methods, and
improvements in business organization and government intervention in the economy are
other major causes for the growth or decline of many economic time series. In some
cases, growth in one series involves decline in another.
Uses of trend analysis:
1) It helps in understanding past behavior.
2) It helps in planning future operations.
3) It helps in evaluating current accomplishments.
In this study an attempt is made to forecast sales of "The ASHOK LEYLAND
LTD", by using trend analysis. In trends analysis the method of least square is one of the
best method for sales forecasting. This method gives the sales of the company with
existing capacity

39. CHAPTER-4
ANALYSIS AND INTERPRETATION OF DATA
I. LIQUIDITY RATIOS
By liquidity of the company it means its ability to pay current obligatior and
indicates the short-term viability of the company. To express in absolute term or amount
this is known as working capital and when expressed in relative figure it is known as
liquidity ratio.
Basically there are two ratios, which are to assess the liquidity of the company.
1) Current ratio
2) Quick ratio
1) Current Ratio
Current ratio is a ratio of current assets to current liabilities. It is expressed as
Current assets
Current ratio = ---------------------
Current liabilities
Table 4.1
TABLE SHOWING CURRENT RATIO
Rupees in Millions
Year
Current assets
[Rs]
Current liabilities
[Rs]
Ratios
2008-2009 18488.85 4574.36 4.04
2009-2010 14642.38 4294.96 3.40
2010-2011 15634.00 5411.96 2.88
2011-2012 15551.76 5727.01 2.71

40. 2012-2013 13404.76 5926.00 2.26
The above table reveals the current ratio of the company. In the year 2008-2009
the current ratio is maximum by 4.04 and least in the year 2012-2013 by 2.26. The
overall current ratio of the company is 3.05. So the current ratio of the company is
satisfactory.

42. 2. Liquid [or Acid Test or Quick] Ratio
This is a ratio of liquid asset to liquid liabilities. Liquid assets are the assets,
which are readily convertible into cash. Liquid liabilities include all items of current
liabilities except bank overdraft. It is calculated by using the following formula.
Liquid Assets
Liquid ratio = -----------------------
Current Liabilities
Table 4.2
TABLE SHOWING LIQUID RATIO
Rupees in Millions
Year
Current assets
[Rs]
Current liabilities
[Rs]
Ratios
2008-2009 11912.81 4574.36 2.60
2009-2010 10064.44 4294.96 2.34
2010-2011 10457.26 5411.15 1.93
2011-2012 9598.38 5727.01 1.67
2012-2013 9300.2 5926.68 1.56
From the table above it is inferred that in the year 2008-2009 the Liquid ratio is
2.60 again during the year 2012-2013 it went to minimum level of 1.56. The average
quick ratio is 2.02. During the period of study the actual of quick ratio prevailing in the
company is above the standard ratio. So the short term liquidity is very sound I the
organization.

44. II. LEVERAGE RATIOS
The leverage ratios related to the borrowing of a company. To judge the long-term
financial position of a firm financial leverage or capital structure ratios are calculated.
l. Debt Equity Ratio
This ratio is calculated to measure the relative proportions of outsider's funds and
shareholders fund invested in the company.
Outsider's Fund
Debt Equity Ratio = ------------------------
Shareholders fund
Table 4.3
TABLE SHOWING DEBT EQUITY RATIO
Rupees in Millions
Years Outsider's fund [Rs]
Share holders fund
[Rs]
Ratio
2008-2009 12473.44 11028.25 1.13
2009-2010 9656.91 11401.47 0.84
2010-2011 9330.08 11787.6 0.79
2011-2012 8884.49 10369.53 0.85
2012-2013 7172.31 9594.86 0.74
The above shows the debt equity ratio. It reflects an increasing trend in the year
2008-2009 by 1.13 and a drastic decrease to 0.74 in the year 2012-2013. The average
debt equity ratios prevails to 0.87 thus fluctuating.

46. 2. Proprietary Ratio
Proprietary ratio is also called as equity ratio. This ratio establishes the
relationship between shareholders fund and total assets of the firm. This is calculated as
Shareholders fund
Proprietary ratio = -----------------------
Total assets
Table 4.4
TABLE SHOWING PROPRIETORS RATIO
Rupees in Millions
Year Shareholders
fund [Rs]
Total assets
[Rs]
Ratio
2008-2009 11028.25 27999.74 0.39
2009-2010 11401.47 25304.50 0.45
2010-2011 11787.6 26426.59 0.44
2011-2012 10369.86 26823.48 0.38
2012-2013 9594.86 24378.84 0.39
The above table shows the proprietary ratio of the company. The year 2008-2009
ratios are 0.39 the highest proprietary ratio involved in the year 2009-2010 by
0.45.generally fluctuation trend is involved from the beginning itself.

48. 3. Fixed Asset To Networth Ratio
The ratio establishes the relationship between fixed assets and networth the ratio
can be calculated as follows
Net fixed assets
Fixed asset to networth = ---------------------------------
Networth
Table 4.5
TABLE SHOWING FIXED ASSET TO NETWORTH
Rupees in
Millions
Year Net fixed asset [Rs] Net worth [Rs] Ratio
2008-2009 9026.09 11028.25 0.81
2009-2010 9458.34 11401.47 0.82
2010-2011 9612.95 11787.6 0.81
2011-2012 10098.34 10369.53 0.97
2012-2013 9398.38 9594.86 0.98
The above table shows the fixed asset to networth ratio of the ASHOK LEYLAND Ltd is
said to be satisfactory during the period of study. It was maximum in the year 2012-2013
by 0.98 and it was minimum in the year 2008-2009, 2010-2011 by 0.81 the average ratio
is 0.88 and thus it is satisfactory.

50. 4. Current Asset to Networth
This ratio exhibits the relationship between current asset and the networth. It can
be calculated as follows.
Current Asset
Current asset to net worth ratio =-----------------------
Networth
Table 4.6
TABLE SHOWING CURRENT ASSET TO NETWORTH
Rupees in Millions
Year
Current Assets
[Rs]
Net worth [Rs] Ratio
2008-2009 18488.85 11028.25 1.67
2009-2010 14642.38 11401.47 1.28
2010-2011 15634 11787.6 1.32
2011-2012 15551.76 10369.53 1.49
2012-2013 13404.7 9594.86 1.39
The above table deals with the current assets to net worth. There was a drastic
increase in the year 2008-2009 by 1.67 and it minimized to 1.28 in the year 2009-2010.
The average Current Assets to networth ratio of Ashok Leyland Ltd is 1.43 and it is
fluctuating.

52. 5. Current liabilities to Networth ratio
The ratio establishes relationship between the current liabilities and networth.
That is share capital reserves and surplus and retained earnings.
Current liabilities
Current liabilities to Networth ratio = ---------------------
Net worth
Table 4.7
TABLE SHOWING CURRENT LIABILITIES TO NETWORTH
RATIO
Rupees in Millions
Years
Current
Liabilities [Rs]
Networth [Rs] Ratio
2008-2009 4574.36 11028.25 0.41
2009-2010 4294.96 11401.47 0.38
2010-2011 5411.15 11787.6 0.46
2011-2012 5727.01 10369.53 0.55
2012-2013 5926.68 9594.86 0.61
The above table clearly defines that the current liabilities to networth ratio was
maximum in the year 2012-2013 by 0.61 and minimum in the year 2009-2010 by 0.38
thus the current liabilities to net worth ratio of the organization in the final year is high.

54. III. Profitability Ratios
Probability ratios are of utmost important for a concern. These ratios are
calculated to enlighten the end results of business activates.
1. Gross Profit Ratio:
Gross Profit Ratio measures the relationship of Gross Profit to net ratio and is
usually represented as a percentage.
Gross Profit
Gross Profit Ratio = ----------------------- X 100
Net Sales
Table 4.8
TABLE SHOWING GROSS PROFIT RATIO
Rupees in Millions
Years Gross Profit [Rs] Net Sales [Rs] Ratio %
2008-2009 206.59 20142.74 1.02
2009-2010 932.86 25987.18 3.58
2010-2011 1019.41 26066.63 3.791
2011-2012 1322.06 26304.48 5.02
2012-2013 1701.02 30739.95 5.53
The above table shows the probability ratio of the Ashok Leyland Company. It is
minimum in the year 2008-2009 by 1.02 percentage and minimum in the year 2012-2013
by 5.53 percentage. It increased during the years 2011-2012, 2012-2013 by 5.02 and 5.53
respectively. The average gross profit ratio is 3.81 during the current years.

56. 2. Net Profit Ratio
The ratio is very helpful to proprietor and prospective investors because it reveals
the overall profitability of the concern. This is the ratio of net profit of I taxes to net sales.
Net profit
Net Profit Ratio =----------------- X 100
Sales
Table 4.9
TABLE SHOWING NET PROFIT RATIO
Rupees in Millions
Years Net profit [Rs] Sales [Rs] Ratio %
2008-2009 184.09 20142.74 0.91
2009-2010 784.86 25984.18 3.02
2010-2011 916.81 26066.63 3.52
2011-2012 922.56 26304.46 3.51
2012-2013 102.12 30739.95 3.91
The table above reveals the net profit ratio of the firm. It is maximum percentage
in the year 2012-2013 was 3.91% minimum in the year 2008-2009 by 0.91%. The
average net profit ratio of the firm is 2.97 during the period of study. This ratio reveals
the profitability of the firm in its final year.

58. 3. Return on Capital employed
This ratio is an indicator of the earning capacity of the capital employed in the
business the ratio reveals the overall efficiency of the firm.
Net Profit
Return on Capital employed = ---------------------------- X 100
Capital employed
Table 4.10
TABLE SHOWING THE RETURN ON CAPITAL EMPLOYED
Rupees in Millions
Years
Net profit
[Rs]
Capital
employed [Rs]
Ratios %
2008-2009 184.09 23425.38 0.07
2009-2010 784.86 2100.6 0.03
2010-2011 916.81 21015.44 0.04
2011-2012 922.56 21096.47 0.04
2012-2013 1202.12 18452.16 0.06
From the above table it is inferred that the return on capital employed of ASHOK
LEYLAND Ltd increased in the year 2008-2009 by 0.07% and decreases to 0.03% in the
year 2009-2010. .The average return on capital employed ratio is 0.05%. It reveals the
return on capital employed of the organization.

60. IV. ACTIVITY OR TURNOVER RATIOS
Activity ratios are very important for a concern to judge how well facilities at the
disposal of the concern are being used effectiveness with which a concern uses its
resources as its disposal.
l. Stock Turnover Ratio
This ratio establishes the relationship between net sales during the given period
and the average amount of inventory heals during the period.
Net sales
Stock turnover ratio = ---------------------
Average inventory
Table 4.11
TABLE SHOWING STOCK TURNOVER RATIO
Rupees in Millions
Years
Net sales
[Rs]
Average inventory
[Rs]
Ratios
2008-2009 19936.15 3028.32 6.58
2009-2010 25054.32 1913.35 13.09
2010-2011 25047.22 2455.15 10.20
2011-2012 24982.42 3375.68 7.40
2012-2013 29038.93 3095.73 9.38
The above table reveals that the activity ratio of the company in the year 2009-2010 was
maximum growth shows by 13.09 and minimum in the year 2008-2009 by 6.58.the
average stock turnover ratio prevailed during the period of study was 9.33.this indicates
stock turnover ratio in ASHOK LEYLAND Ltd is satisfactory.

62. 2. Debtor's Turnover Ratio
This ratio measures the accounts receivable in terms of times of credit sales
during a particular period.
Total sales
Debtors turnover ratio = -----------------------------
Average Trade Debtors
Table 4.12
TABLE SHOWING DEBTORS TURNOVER RATIO
Rupees in Millions
Years Total sales [Rs] Debtors [Rs] Ratios
2008-2009 20142.74 8033.88 2.51
2009-2010 25987.18 7398.25 3.51
2010-2011 26066.63 7075.53 3.68
2011-2012 26304.48 5750.29 4.57
2012-2013 30739.95 4960.12 67.9
The above table shows the debtor turnover ratio of ASHOK LEYLAND Ltd. It is
increased by 6.19 in the year 2012-2013 and decreased by 2.51 in the year 2008-2009.the
average ratio lead to 4.09.

64. 3. Average Collection Period
This shows the average collection period. It is expressed in terms of relationship
between the balance of debtors and sales multiplied by number or working days.
Total trade debtors
Average collection period = -----------------------------
Net credit sales per day
Table 4.13
TABLE SHOWING AVERAGE COLLECTION PERIOD
Years
Total trade debtors
[Rs]
Net credit sales per
day [Rs]
Days
2008-2009 9011.99 55.189 163
2009-2010 7561.83 71.19 106
2010-2011 6679.52 71.41 93
2011-2012 4928.46 72.06 68
2012-2013 5181.50 84.2 61
From the above table it is clearly identified that the average daily sales is
increasing in the year 2012-2013 i.e. 84.2 and decreases in the year 2008-2009 i.e. 55.18.
So it is interpreted that the amount received from debtors between 5 to two months.

65. 4. Creditors Turnover Ratio
This ratio gives the average credit period enjoyed from the creditors and it is
calculated by the formula
Net purchases
Creditors turnover ratio =-----------------------------
Average Trade Creditors
Table 4.14
TABLE SHOWING CREDITORS TURNOVER RATIO
Rupees in Millions
Years Net purchases [Rs] Creditors [Rs] Ratios
2008-2009 12254.06 3309.78 3.70
2009-2010 15191.80 3050.79 4.97
2010-2011 15180.59 3431.45 4.42
2011-2012 15363.93 3139.89 4.89
2012-2013 16122.62 3255.61 4.95
The above table no 4.14 deals with the creditors turnover ratio of the company
reveals that the average prevailed during the period of study by 4.59. It was minimum in
the year 2008-2009 by 3.70 and maximum in the year 2009-2010 by 4.95 and it is further
decreased to 4.42,4.89 respectively. The Trent shown is exhibited in 4.14.

67. 5. Average Payment Period
This shows the average payment period. It express in terms of relationship
between creditors balance and purchases of the concern.
Total trade creditors
Average payment period = ——------------------------------
Average daily purchases
Table 4.15
TABLE SHOWING AVERAGE PAYMENT PERIOD
Years
Total trade creditors
[Rs]
Average daily
purchases [Rs]
Days
2008-2009 4283.74 36.14 118
2009-2010 3637.03 43.56 83
2010-2011 4670.80 43.50 107
2011-2012 4938.81 43.70 113
2012-2013 4931.51 45.76 107
From the table above it is clearly identified that average daily purchases are in
increasing Trent i.e. in 2008-2009 it is 36.14 and in 2012-2013 it is 45.76. In the year
2010-2011 there is a slight decrease. So it is interpreted that the payments was made
between two months and three months.

68. 6. Working Capital Turnover Ratio
Working capital turnover ratio indicates the velocity of the utilization of net
working capital. The ratio indicates the number of times the working capital is being used
by the firm.
Net sales
Working capital turnover ratio = -------------------
Working capital
Table 4.16
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Rupees in Millions
Years
Net sales [Rs]
Working capital
[Rs]
Ratios
2008-2009 20142.74 13914.49 1.44
2009-2010 25987.18 10347.42 2.51
2010-2011 26066.63 10222.85 2.54
2011-2012 26304.48 9824.75 2.07
2012-2013 30739.95 7478.02 4.11
The above table shows that the working capital turnover ratio a bilateral increase
in the year 2012-2013 by 4.11 and decreases drastically in the year 2008-2009 by 1.44.
The average working capital turnover ratio is 2.65. During the period of study it is
increased in the year 2012-2013 by 4.11 and decrease in the previous following years.

70. 7. Fixed Asset Turnover Ratio
This ratio express the number of times fixed assets is being turned over in a stated
period.
Net Sales
Fixed Asset Turnover Ratio = -----------------------
Fixed Asset
Table 4.17
TABLE SHOWING FIXED ASSET TURNOVER RATIO
Rupees in Millions
Year Net Sales [Rs] Fixed Assets [Rs] Ratio
2008-2009 20142.74 9026.09 2.23
2009-2010 25987.18 9458.34 2.74
2010-2011 26066.63 9612.95 2.71
2011-2012 26304.48 10098.34 2.60
2012-2013 30739.95 9398.38 3.27
From the above table it is clear that the fixed asset turnover ratio of ASHOK
LEYLAND Ltd it is increased in the year 2012-2013 by 3.27 and decreased in the year
2008-2009 by 2.23.The average fixed asset turnover ratio in ASHOK LEYLAND Ltd is
1.17. The table reveals the fluctuating trend in the following years.

72. 8. Current Asset Turnover Ratio
This ratio exhibits the relationship between the sales and current assets of the
company.
Net Sales
Current Asset Turnover Ratio =-------------------
Current Assets
Table 4.18
TABLE SHOWING CURRENT ASSET TURNOVER RATIO
Rupees in Millions
Year Net Sales [Rs] Current Assets [Rs] Ratio
2008-2009 20142.74 1848.85 1.08
2009-2010 25987.18 14042.38 1.77
2010-2011 26066.63 15634 1.66
2011-2012 26304.48 15551.76 1.69
2012-2013 30739.95 13404.7 2.29
Table above table deals with Current Asset Turnover Ratio from that the ratio is
increased by 2.29 in the year 2012-2013 and decreased in the year 2008-2009 by
1.08. ASHOK LEYLAND Ltd had an average of 1.70 which prevailing during the period
of study.

74. 9. Total Asset Turn Over Ratio
This ratio establishes the relationship between sales with the total assets of
ASHOK LEYLAND Ltd.
Net Sales
Total Asset Turn Over Ratio = --------------------
Total Assets
Table 4.19
TABLE SHOWING TOTAL ASSET TURNOVER RATIO
Rupees in Millions
Year Net Sales [Rs] Total Assets [Rs] Ratio
2008-2009 20142.74 27999.74 0.73
2009-2010 25987.18 25304.56 1.02
2010-2011 26066.63 26426.59 0.98
2011-2012 26304.48 26823.48 0.98
2012-2013 30739.95 24378.84 1.26
The above table shows that the Total Asset Turn Over Ratio of prevailed an
increase in the year 2012-2013 by 1.26 and decreased in the year 2008-2009 by 0.75. The
average Total Asset Turn over Ratio is 0.99. The following exhibits reveal the trend
during the period of study.

76. 10. Sales to Net worth Ratio
Sales to Net worth Ratio is a relationship between sales and net worth
Net Sales
Sales to Net worth Ratio =-----------------------
Net worth
Table 4.20
TABLE SHOWING SALES TO NETWORTH RATIO
Rupees in Millions
Year Net Sales [Rs] Net worth [Rs] Ratio
2008-2009 20142.74 11028.25 1.82
2009-2010 25987.18 11401.47 2.27
2010-2011 26066.63 11787.6 2.21
2011-2012 26304.48 10369.93 2.53
2012-2013 30739.95 9594.86 3.20
The above table reveals that the sales to net worth ratio have an increase in the
year 2012-2013 by 3.20 and decrease in the year 2008-2009 by 1.82. The Average sales
to net worth ratio of ASHOK LEYLAND Ltd specify 2.41. The following exhibit has a
fluctuating trend of ASHOK LEYLAND Ltd during the period of study.

78. Testing of Hypothesis
In order to test the effective of present study of ASHOK LEYLAND Ltd.,
Chennai the researcher has tested the hypothesis with Karl Pearson correlation technique,
among the many statistical technique, the researcher has used only Pearson's correlation
for the entire hypothesis framed in the first chapter of study.
1) The first hypothesis was framed, as "There is no direct relationship between Sales and
Profit of the company". The results are given in the table 4.21.
Table 4.21
X Y U V uv u2
V2
20142.74 184.09 -0.225 -0.816 0.184 0.050 0.665
25987.18 784.86 0.000 -0.150 0.000 0.000 0.022
26066.63 916.81 0.002 -0.003 0.000 0.000 0.000
26304.00 922.56 0.011 0.025 0.000 0.000 0.000
30739.95 1202.12 0.182 0.313 0.056 0.033 0.097
-0.032 -0.631 024 083 0.784
n ∑ uv - (∑u) (∑v)
γ = __________________________________________________
= 0.981
n √ ∑u2
-(∑u)2
√ n∑v2
- (∑v)2
X = Sales Y = Profit
It is signify cant from the above table that there exist high relationship between
Sales and Profit of the company. Hence based on the hypothesis it is said to be null and is
rejected.
2) The second hypothesis is formulated as "there exist a relationship between Average
Collection Period and Average Payment Period". The result is given in the table 4.22
Table 4.22
X Y U V uv u2
V2

79. 61.53 83.49 -0.33 -0.22 0.07 0.1l 0.05
68.39 107.37 -0.26 0.02 -0.00 0.07 0.00
93.53 107.77 -0.01 0.03 -0.00 0.00 0.00
106.22 113.01 0.11 0.08 0.00 0.01 0.00
163.31 118.53 0.68 0.14 0.09 0.46 0.02
0.19 0.05 0.16 0.65 0.07
n ∑ uv - (∑u) (∑v)
γ = __________________________________________________
= 0.754
n √ ∑u2
-(∑u)2
√ n∑v2
- (∑v)2
X = Average Collection Period
Y = Average Payment Period
It is evident from the result that there exist moderate relationship between
Average Collection Period and Average Payment Period of Ashok Leyland Ltd, and
therefore the hypothesis is accepted.

80. 3) The third hypothesis is " there exist a relationship between Fixed Assets and Long
Term Borrowings of the company".
Table 4.23
X Y u V uv u2
v2
9026.01 7271.31 -4.73 -21.2 100.29 22.37 449.44
9398.38 8884.49 -1.01 –4.16 4.20 1.02 17.31
9458.34 9330.08 -0.42 0.30 -0.13 0.18 0.03
9612.95 9656.91 1.13 3.57 4.03 1.28 12.74
10098.34 12473.44 5.98 31.73 189.75 35.76 1006.79
095 10.24 298.13 60.67 1486.31
n ∑ uv - (∑u) (∑v)
γ = __________________________________________________
= 0.955
n √ ∑u2
-(∑u)2
√ n∑v2
- (∑v)2
X = fixed Asset
Y = Long Term Borrowings
It is found from above table that the relationship between Fixed Assets and Long
Term Borrowings has high relationship among them. Therefore this hypothesis is said to
be satisfactory and accepted.

81. 4) The fourth hypothesis is formulated as" There exist relationship between Profit and
Payment of Dividend in Ashok Leyland Ltd."
Table 4.24
X Y u V uv u2
v2
184.09 42.86 -0.72 -0.32 023 052 0.10
784.86 48.51 -0.1.2 -0.26 0.03 0.01 0.07
916.81 72.47 0.01 -0.03 0.00 0.00 0.00
922.56 92.06 0.02 0.17 0.00 0.00 0.03
1202.12 134.12 0.30 0.59 0.18 0.09 0.35
-0.51 0.15 0.44 0.61 0.55
n ∑ uv - (∑u) (∑v)
γ = __________________________________________________
= 0.817
n √ ∑u2
-(∑u)2
√ n∑v2
- (∑v)2
X = Profit
Y = Dividend
The last and final hypothesis is accepted as it has high relationship between Profit
and Dividend of the company therefore, there exist a significant hypothesis and it is
accepted.

82. Regression Analysis
Regression is statistical tool with the help of which we are in a position to
estimate the unknown values of one variable from unknown values of another variable.
Regression thus reveals average relationship between two variables and this makes
possible estimation or prediction.
Sir first used the term "regression". Francis Galton in 1877 while studying the
relationship between the height of father and sons.
In this study an attempt is made to find out the sales for the year 2006 using the
regression equation.
Y = a + b (X)
Where Y = required tread value
X unit of time
a and b are constants

83. Forecast of future sales using regression
From the data available for five years that is from 2008-2009 to 2012-2013 the
sales for the year 2016 would be projected by the regression equation.
Y = a + b (X)
Table 4.25
Year Sales [y] X XY x2
Trend Value
2008 20,142.74 -2 -40258.48 4 21542.26
2009 25,978.18 -1 -25978.18 1 23694.33
2010 26066.63 0 0 0 25846.40
2011 26304.48 1 26,304.48 1 27998.47
2012 30,739.95 2 61,479.90 4 30150.54
The regression equation is Y =a + b(X) .
Where
ΣY 129231.98
a = ----------------- =------------------- = 25846.40
N 5
ΣXY 21520.72
b = ------------ = ------------------ = 2152.07
X2
10
CHAPTER-5
FINDINGS, SUGGESTION AND CONCLUSIONS

84. FINDINGS
Liquid Ratio:
1. Current ratio of ASHOK LEYLAND Ltd shows the satisfactory position.
2. Quick ratios of the company is sufficient.
Leverage Ratio:
1. Debt-equity ratio of the company was not adequate.
2. Proprietary ratio shows fluctuation in the beginning years even though it
is sufficient.
3. Fixed asset to networth ratio has increased in the last two years. It has
good networth as well as fixed asset. Hence it is good enough.
4. Current asset to networth ratio of the company has increased in the first
year. The last year it has come down.
5. Current liability to networth ratio of ASHOK LEYLAND Ltd was fine.
Profitability Ratio:
1. Gross profit ratio of the company is very low in the first year. After that it had some
rapid growth. At the end of the year 2012-2013 the gross profit ratio is 5.53. Hence,
the gross profit ratio is passable.
2. Net profit ratio of ASHOK LEYLAND Ltd has increased from beginning itself. It
has increased from 0.91 to 3.91.so net profit ratio position is satisfactory.
3. Return on capital employed of ASHOK LEYLAND Ltd has some fluctuation from
the beginning itself. In 2008-2009 it was 0.07 and 2012-2013 it shows as
0.06.hence it is acceptable.
Activity Ratio:
1. Stock turnover ratio gives good position from the beginning year 2008-2009
itself. The highest shows 13.00 in 2009-2010. Though it is fine.

85. 2. Debtors turnover ratio shows very strong position from 2009-2010 to 2012-2013.in
the beginning it was 2.51 at the end the ratio is 6.19. So it shows good growth.
3. Creditor turnover ratio seems to be very good position from creditors as well as net
purchases, it is clear that the ratio is acceptable.
4. Working capital turnover ratio have fluctuation in the year 2011-2012. But it adjusted
in the next year with 4.11 .so its position was fine.
5. Fixed asset turnover ratio of the company is in fine position. It has increased for the
last five years.
6. Current asset turnover ratio of ASHOK LEYLAND Ltd also good. It is good for first
two years i.e. 2008-2010.but the ratio is decreased in the year 2010-2012 and it is
increased to 2.29 in the current year.
7. The total asset turn over ratio in the year 2008-2009 to 2009-2010 as increased from
0.73 to 1.02.but it fluctuates in the year 2010 -2011 and it remains the same in the
year 2011-2012.finnaly it has increased to 1.26 in the current year. So this ratio is said
to be competent.
8. Sales to networth ratio shows very strong position for the five years, so sales to
networth ratio is satisfactory position.
CORRELATION ANALYSIS:
There was a high degree of relationship between sales and profit, indicating that
the need for indicating that the need for profit increases or decreases with the increase or

86. decrease in sales. There was a moderate relation ship between average collection period
and average payment period. There was a high degree of positive relation ship between
fixed assets and long-term borrowing and for profit and payment of dividend
REGRESSION ANALYSIS
The projected future sales of the company for the year 2013-2014 is 32302.61
millions. The year 2014-2015 and 2015-2016 sales were 3.4454.68 millions and
36606.75 millions respectively.
.

87. SUGGESTIONS
1. Necessary care should be taken to increase the liquidity position of the company.
2. The company should take necessary steps to reduce inventory by finding out the slow
moving items in the inventory.
3. The company debt should be increased, as it is the cheaper source of finance for the
company.
4. They should try to sell out the current assets in order to increase the networth.
5. The company should improve the capital employed position.
6. The debtor's turnover has to reduce as it may lead to delay in the receivable and the
company will have to meet the problems.
7. The creditor payment should be improved to get a high credit period.

88. CONCLUSION
The study reveals the financial performance of Ashok Leyland Ltd. The
company's liquidity and profitability position is highly satisfactory; the overall financial
performance is very good. Above all, the company follows the suggestions given by the
researcher, which will definitely be more helpful to the development of the organization.

89. BIBLIOGRAPHY
1) Financial Management, Theory and Practice - CHANDRA PRASATH
2) Financial Management - I. M. PANDEY
3) Financial Management - P. K. SHARMA, K. GUTASHASH!
4) Financial Management, Text and Practice - S. N. MAHESWARI
5) Management Accounting - R. FC. SHARMA, SHASHI. K. GUPTA
6) Statistical Methods - S.P. GUPTA
7) Annual Reports of ASHOKLELAND Ltd