The document analyzes various profitability and liquidity ratios for automobile companies in India from 2009-2011. For profitability ratios, Force Motors had the highest gross profit margin each year, indicating efficient production. Eicher Motors and Volkswagen had the highest net profit margins in some years. Force Motors and Hindustan Motors had negative earnings per share and return on equity in some years due to economic recession. For liquidity ratios, current and quick ratios decreased for some companies due to higher inventory levels. Debtor turnover was highest for Hindustan Motors, while creditor turnover was lowest for Force Motors. Inventory turnover was highest for Volkswagen in 2011. Asset turnover was lowest for Force Motors each year

1. AUTOMOBILE INDUSTRY
A. Profitability Ratio
The Profitability Ratios are calculated to measure the operating efficiency of the company.
Beside management of the company, creditors and owner are also interested in the profitability
of the firm. Creditors want to get interest and repayment of principal regularly. Owner wants to
get a required rate of return on their investment.
1. Gross Profit Margin
2011 2010 2009
Force Motors 0.062285329 0.049374523 0.045230204
Eicher Motors 0.013031375 0.018335075 0.021488152
Hindustan Motors 0.023842078 0.028642408 0.032688839
Volkswagon 0.017230246 0.012855737 0.008543475
0.07
0.06
0.05
0.04
0.03
0.02 2011
0.01
0 2010
2009
The Gross Profit Margin (GPM) reflects the efficiency with which management produces each
unit of product. This ratio indicates the average spread between the cost of goods sold and the
sales revenue. A high GPM is a sign of good management, it may be because of high sales or
low cost of production.
In Automobile sector we can see that in 2009, 2010 and 2011 the GPM of Force Motors was
highest which means that Force motors had higher sales than others and has efficiently managed
its production of product.
2. Net Profit Margin
2011 2010 2009
Force Motors -0.000830621 -0.17706487 -0.067280955
Eicher Motors 0.026820072 0.015687582 0.00273189
Hindustan Motors 0.000882311 -0.06934643 -0.050421695
Volkswagen 0.068563918 -0.14690811 -0.440815764

2. 0.1
0
-0.1 2011
-0.2 2010
2009
-0.3
-0.4
-0.5
Net Profit Margin (NPM) ratio establishes a relationship between net profit and sales and
indicates management’s efficiency in manufacturing, administering and selling the products.
This ratio is overall measure of the firm’s ability to turn each rupee sales into net profit. This
ratio also indicates the firm’s ability to withstand adverse economic conditions.
In Automobile sector we can see that in 2009 and 2010 Eicher Motors and in 2011 Volkswagon
was having highest NPM among others and which mean that these firms were in a good
condition and could withstand the adverse economic conditions.
3. Operating Expense Ratio
2011 2010 2009
Force Motors 0.196239758 -0.06823292 -0.006895349
Eicher Motors 0.110179938 0.085026016 0.061499569
Hindustan Motors 0.057169715 -0.00745287 -0.015062814
Volkswagon 0.103001618 -0.11737569 -0.428482844
0.4
0.2
2011
0
2010
-0.2
2009
-0.4
-0.6
Operating Expense Ratio explains the changes in the profit margin (EBIT to sales) ratio. This
ratio is computed by dividing operating expenses, viz., cost of goods sold plus selling expenses
and general and administrative expenses (excluding interest) by sales. A higher operating
expenses ratio is unfavourable since it will leave a small amount of operating income to meet
interest, dividends, etc.

3. In Automobile sector we can see that in 2009, 2010 Eicher Motors and in 2011 Force Motors
was having higher Operating Expense Ratio, which is unfavourable because higher Operating
Expense ratio will leave a small amount of operating income to meet interest, dividends, etc.
B. EARNINGS RATIO:
1. RETURN ON TOTAL ASSETS:
2011 2010 2009
Force motors 0.19 -0.27 -0.11
Eicher motors 0.22 0.12 0.02
Hindustan
motors 0.26 -0.27 -0.2
Volkswagon 0.97 -0.75 -0.45
Graph:
1.5
1
0.5 2011
0 2010
-0.5 2009
-1
Analysis:
ROTA and RONA are both Return on Investment ratios. The term investments refer to either total
assets or net assets. The conventional approach to calculate ROI is to divide PAT by investment.
Investment is defined as the pool of funds supplied by the shareholders and lenders. The figures for
both ROTA and RONA are similar to each other for all the companies and all the three years. This
implies that the current liabilities are very small and in turn do not have any effect on the overall
profit of the company.

4. 2. RETURN ON NET ASSETS:
2011 2010 2009
-
Force motors 0.187687494 -0.271063859 0.114955803
Eicher motors 0.217880481 0.115758847 0.020670368
Hindustan -
motors 0.263071126 -0.269384299 0.196953542
-
Volkswagon 0.968401168 -0.751783375 0.452296064
Graph:
1.5
1
0.5 2011
0
2010
-0.5
2009
-1
3. RETURN ON EQUITY:
2011 2010 2009
-
Force motors -0.002144555 -12.63392226 0.400256379
Eicher motors 0.249038259 0.121127367 0.060968207
Hindustan -
motors 0.018382353 -1.272093602 0.421064037
Volkswagon 0.174673245 -0.054193038 0.003921848
Graph:
5
0 2011
-5 2010
-10 2009
-15

5. Analysis:
ROE calculates the profitability on the owner's investment. ROE is an indication of how well the
firm has used the resources of its owners.. This ratio of ROE reflects the extent to which a
satisfactory earning has taken place. It also presents great interest to the prospective
shareholders. The figures for ROE for Force Motors, Hindustan Motors and Volkswagen are
negative. This fact can be attributed to the presence of an economic recession wherein the
profits for the companies had gone down.
4. EARNINGS PER SHARE:
2011 2010 2009
-
Force motors -0.561456753 -135.6373293 49.74962064
Eicher motors 113.9012621 48.51629824 23.95514418
Hindustan -
motors 0.092971365 -3.168795734 2.409773037
Volkswagon 0.988150034 -0.067084517 0.02693174
Graph:
200
100 2011
0 2010
-100 2009
-200
Analysis:
The profitability of shareholders can also be measured through other ratios called the EPS. EPS
simply shows the profitability of a firm on a per share basis. It does not reflect how much of the
profit is distributed as a dividend to the shareholders. Since the profits for the company for both
Force Motors, Hindustan Motors and Volkswagen are in the negative as these companies could
not translate their operations into substantial profits due to the recessionary economic
conditions.
On the other hand the dividends per share measure how
much of the profits that the company has made have actually translated into returns for the
shareholders in the form of dividends. Here as you can see only Eicher Motors has given out
dividends to its shareholders whereas all the other companies have not paid dividends as they
did not make any profits.

6. 5. DIVIDENDS PER SHARE:
2011 2010 2009
force motors 0 0 0
eicher motors 10.99851522 7.002622705 5.001779993
hindustan motors 0 0 0
volkswagon 0 0 0
Graph:
15
10
5 2011
0 2010
2009
6. PRICE PER EARNINGS RATIO:
2011 2010 2009
-
Force motors -112.03 -1.089670526 6.271404606
Eicher motors 5.682114388 4.522191675 10.4549569
Hindustan -
motors 164.5668 -6.611344423 5.465244982
Volkswagon 71.7704777 -3566.098584 7032.222873
Graph:
8000
6000
4000
2000 2011
0
eicher…
hindustan…
force…
2010
-2000
volkswagon
-4000 2009
-6000
Analysis:
This ratio indicates the investors' expectations about the growth in the firms' earnings. This ratio
acts as a market appraisal for all the firms’ performance. Here most of the firms have negative
P/E ratio as their EPS is negative. This can be attributed to recession due to which the market
prices of all the securities dropped and also profit margins of the companies were affected
severely.

7. LIQUIDITY RATIOS:
1. CURRENT RATIO:
2011 2010 2009
Force motors 1.16121276 1.004981259 1.181115173
Eicher motors 2.196740284 2.59710498 3.778221639
Hindustan motors 0.813771858 0.749129542 0.865193895
Volkswagen 1.128814298 1.675793537 3.046586345
4
3.5
3 2011
2.5
2 2010
1.5 2009
1
0.5
0
Current ratio shows the liquidity position of any company i.e. how much current assets the company has
for every rupee of a current liability. For Force motors it has been increasing, for Eicher motor,
Hindustan motor, Volkswagen it has decreased. For Eicher motor and Volkswagen decrease is good
because they have started using the unused cash. Decrease for Hindustan motors is not good because
their current assets are not able to meet the current liability and so low liquidity. For Force motor it is
good because they were just above the level of meeting the CL, so their liquidity position was
strengthening with the increase in this ratio.
2. QUICK RATIO:
2011 2010 2009
Force motors 0.396946691 0.383014401 0.529759767
Eicher motors 1.846851191 2.28329631 3.106328007
Hindustan motors 0.398359873 0.427908222 0.420274363
Volkswagen 1.001985857 1.376537032 2.605943775

8. 3.5
3
2.5 2011
2
1.5 2010
1
0.5 2009
0
The difference between CR and QR is high so the inventory in all the selected companies is high.
For Force motors, Eicher, Volkswagen, Hindustan motor the inventory has increased, hence the
quick ratio is decreasing. There is large amount of funds unutilized because of large inventory.
C. TURNOVER RATIOS:
1. DEBTOR TURNOVER
RATIOS:
2011 2010 2009
force motors 13.84998057 11.04567584 8.07833223
eicher motors 17.82142423 14.2403082 9.52749875
hindustan
motors 40.60844419 42.51777701 39.4027431
volkswagon 15.96470588 55.99499106 30.8152866
60
40
2011
20
0 2010
2009
It is low in force motors, eicher motors, volkswagen compared to the hindustan motors i.e. higher
value means the more effecient is the management of credits. it was high for volkswagen in 2009
and 2010 but decreased in 2011 rather the reverse is the case for force and eicher motors,i.e. the
effeciency is increasing for the eicher and force motors during the recovery period.

9. 3. CREDITOR TURNOVER RATIO:
2011 2010 2009
force motors 1.336722611 1.571763944 1.629423068
eicher motors 4.861976069 4.140178676 3.298337666
hindustan
motors 2.437109277 2.427824518 2.883716547
volkswagon 4.011327434 7.202201258 2.687254735
8
6
4 2011
2
0 2010
2009
creditors turnover is lowest for force motors showing that the credit purchases is less or average
creditors is high. the lower the creditors turnover the better it is.it has decreased for force
motors, incresed for eicher motors, almost constant for hindustan motor. for volkswagen it
incresed in 2010 and decreased significantly in 2011.
4. INVENTORY TURNOVER RATIO:
2011 2010 2009
force motors 2.251329535 2.956059481 3.110483976
eicher motors 14.72853267 9.389943091 5.158339989
hindustan
motors 7.762671437 8.510757081 8.452482648
volkswagon 28.50153879 22.93866359 3.605905942
30
20
10 2011
0 2010
2009
inventory turnover shows how rapidly the inventory is turning into receivables through sales.
higher the inventory turnover higher is the effeciency of inventory management. the inventory
turnover is highest for volkswagen in 2011 and it is least for force motors.
5. ASSET TURNOVER RATIOS:

10. 2011 2010 2009
force motors 0.774318593 0.964685311 1.055243354
eicher motors 1.806227407 1.350690598 0.769754335
hindustan
motors 2.226196138 2.008118947 2.108912543
volkswagon 2.486474744 2.822368896 0.716776137
3
2
1 2011
0
2010
2009
asset turnover is one of the important ratios. it states the firms ability to produce amount of sale
for a given amount of assets. unutilized assets increase the firms need for costly financing as
well as expenses for maintenance. the higher the value of asset of asset turnover better is the
return on assets employed. the value is consistently higher for hindustan motors. for force
motors it has decreased showing the return is decreasing from the assets employed. for eicher
and volkswagen the value has increased showing the improvement of the company by
increase in sales.
SOLVENCY RATIOS:
2011 2010 2009
-
force motors 0.060076371 -0.117848165 0.026399843
eicher motors 0.353938864 0.222504004 0.155778519
-
hindustan motors 0.047621641 -0.103777681 0.061837456
volkswagon 0.102917517 0.034065073 0.02875502

11. 0.4
0.3
0.2
0.1 2011
0 2010
-0.1 2009
-0.2
Solvency ratio indicates the ability of a firm to meet its long term fixed obligations. These long term fixed
obligations include the instalments paid for repayment of loan. It is the company's ability to service its long term
fixed obligations. Usually a solvency ratio of 20% is desirable. But in the case of all the four automobile companies
this ratio is way below the benchmark. The reason for this fact can be attributed to huge capital investments in the
automobile industry and as a result these firms have a huge portion of long term liabilities. Also fuel costs required
are very high and therefore greater working capital requirements translate into higher short term liabilities and in
turn lower solvency ratios