Financial Analysis of Hero Honda

1. 2016
HERO MOTOCORP
By EPGP Indore Batch
of 2017
[HEROMOTOCORP ANALYSIS]
This is document written by EPGP Students as part of their assignment to analyze a annual report of Hero Moto
Corp .The students Samir Singh, Gourav Arora, Abhishek Chaturvedi belong to IIM Indore, EPGP -2017 Batch.

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Financial Risk and Analysis
Detailed Analysis on Annual Report of 2015
Hero Honda Motor Corps
Submitted By:
Abhishek Chaturvedi (EPGP-001)
Gourav Arora (EPGP-015)
Samir Singh (EPGP -030)

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About Hero MotoCorp :
Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two -
wheelers, based in India.
In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing
company in India and also, the 'World No.1' two-wheeler company in terms of unit volume sales in a
calendar year. Hero MotoCorp Ltd. continues to maintain this position till date.
Hero MotoCorp's key strategies are to build a robust product portfolio across categories, explore growth
opportunities globally, continuously improve its operational efficiency, aggressively expand its reach to
customers, continue to invest in brand building activities and ensure customer and shareholder delight.
Market Snapshot of Hero MotoCorp:
Significant Accounting Policies followed by Hero MotoCorp Ltd.
1. Accounting Convention: As per Generally Accepted Accounting Principles to comply with
Accounting Standards specified under Section 133 of Company Act 2013.
Financial statements have been made on accrual basis under the historical cost convention
2. Use of Estimates: Estimates have been taken judiciously.
3. Operating Cycle: 12 Months for classification of its assets and liabilities as current or non currents.
4. Assets and Depreciation/Amortization:
Valuation of Fixed Asset = Cost – Depreciation.

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Cost of Acquisition = Freight duties + Taxes + Other Incidental Expenses.
Differences due to exchange of foreign acquisitions are adjusted to the cost of the respective
assets and depreciated over the remaining useful like of such assets.
Depreciation is charged on the pro rata basis at the straight line method rates prescribed in
schedule II to the Companies Act 2013.
Useful Life: 5 Years.
Depreciation for Intangible Assets:
Technical Know-How for FY11-12, 12-13, 13-14 & June 2015 for 42 Months Charge.
Lease shall be depreciated over the time of lease.
5. Preoperative expense pending allocations have to go the fixed assets.
6. Investment:
Long term investments are stated at cost less provision. Premium paid on purchase o debt
securities shall be amortized over the prior of maturity.
7. Inventories:
Raw material and components, stores and spares, loose tools, finished goods and Work In
Progress are valued at a cost or not realizable value whichever is less.
The basis of determining cost for various categories of inventories is as follows:
1. Stores and Spares, Loose Tools, Raw Materials & Components are valued on Weighted
Average Tool.
2. Materials-in-Transit is valued on Actual Cost.
3. Work in Progress & Finished goods: Material cost appropriate share of labor +
manufacturing overheads + excise duty.
8. Employee Benefits:
a. Defined Contribution Plan: PF, ESIC, Super Annuation fund are defined contribution and
are charged to the statement of Profit and Loss of the year in which contribution has
been made.
b. Gratuity Liability and Long Term employee benefits are calculated on the basis of
Actuarial Valuation as per projected unit credit method. Actuarial gain/loss are charged
the same year as they appear. Actuarial Valuation is a type of valuation
which requires economic and demographic assumptions in order to estimate future
liabilities.
9. Employee Share Based payment:
a. In HMCL, Employee stock option scheme have been formulated in accordance with SEBI
(Employee stock option scheme or Employee purchase option scheme guidelines 1999).
b. Scheme provide for grant of options to employees to acquire equity shares in a graded manner
and that are to be exercised in a specific period.

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c. Closing Market price on the day prior to the grant of the options under ESOS over the exercise
price is amortized on a straight line period over the vesting period.
10. Foreign currency Transactions:
As HMCL is also doing the business outside the country and has 3 subsidiary firm at Italy,
Netherlands and North America, it has to consider the profit or loss associated with foreign
exchange.
Accounting policy related to foreign currency transactions are as follows:
i. If there is a foreign transaction, the current foreign exchange rate will be charged to the
revenue.
ii. Monetary assets and Liabilities: Assessed on Year End on the rate prevailing at the year end
and resultant gain/ loss is recognized.
iii. In case of Forward contract, the forward discount / premium Profit or Loss is recognized as
income on expense over the life of contract on the exchange difference between the
exchange rate prevailing at the year end and the date of inception.
11. Sales:
i. Sales of goods are recognized on transfer of significant risk and reward of ownership to the
buyer which generally coincides with point of dispatch of finished goods to the customers.
So, HMCL follows the Delivery method of Accounting.
ii. Gross Sales are inclusive of excise duty and freight but are exclusive of Sales Tax.
iii. Sales of Services are recognized on rendering of services as per contractual terms.
iv. Scrap is accounted for on Sales Basis.
12. Warranty Claims:
HMCL takes the following steps to keep provisions of Warranty Claims:
Step 1: Estimated Liability for product warranties is recorded when products are sold.
Step 2: Estimates are based on historical information on the nature, frequency and average cost of
warranty claims.
Step 3: Timing of Outflow may vary as warranty claim arises being from 2-5 years.

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13. Lease Rentals:
Lease rentals can have risk and rewards which are added/charged to the profit and loss account.
14. Research and Development:
R& D expensed are expensed out under the respective heads of account in the year in which it has
occurred.
15. Earnings per Share = Profit after Taxes and Interest / No. of Shares.
16. Taxation:
i. Provision of Taxation is ascertained in accordance with provision of Income Tax Act 1961.
ii. Deferred Tax is recognized being the difference between taxable incomes and accounting
income that originates in that period.
17. Provision and Contingent Liabilities;
i. Provision is taken when company has a present liability as a result of past events and company
need to spend in order to meet this obligation.
ii. Provisions are not discounted. Discounting means to identify the present value of the future
value.
18. Derivatives:
Foreign Currency Derivatives are used to hedge risk associated with Foreign Currency Transactions.
All open positions as at the close of the year are valued by making them to the market and
provisions is made to loss if any.

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We considered following aspects for analyzing the Balance Sheet .
Aspects considered for reading Company Balance sheet, P&L, Cash flow statements
1 Balance sheet
Gives the information on company's assets and liabilities for the current
and non current cycle of operation
2 Profit & Loss account
It gives the income and expenses of the company during the particular
cycle of operation. Usually it is given quarterly and annually.
3 Cash flow
This will give the information on the fund flow is because of the
investment or operation or finance activities
4
Significant
accounting policies
This will give the method used for the calculating the inventory valuation,
accounting standards used for calcucla5ion.
5
Comments on
Financial
Performance
It gives the company's performance in terms of profits, sales, turnovers,
taxes over the years and their trends
6
Independent auditors
reports
Independent auditors give the qualified report about the performance of
current year and road map for the next year
7
Economic value
added
It gives the net of profit earned due to the operational activities and the
cost of capital employed
8
Corporate
governance
It is to be audited by the auditor for transparency of the company's
transactions.
9 Director's report
Director/Chairman report gives the snapshot of company's performance
highlighting the achievements and future guidance. This is very important
to understand where the company is focussing on to generate cash flows.
10 Secratarial report
Chief administrative officer has become mandatory to give the
undertaking that all the accounting standards are followed according to
ICWA. Sending the agenda of meeting and the notice of meeting is given
by the company secretary.

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Economic Value Added:
What is EVA?
Traditional approaches to measuring Shareholder’s Value Creation’ have used parameters such as earnings
capitalization, market capitalization and present value of estimated future cash flows. Extensive equity research has
established that it is not earnings per se, but VALUE that is important. A measure called ‘Economic Value Added’
(EVA) is increasingly being applied to understand and evaluate financial performance
*EVA = Net Operating Profit after Taxes (NOPAT) - Cost of Capital Employed (COCE), where,
NOPAT = Profits after depreciation and taxes but before interest costs. NOPAT thus represents the total pool of
profits available on an ungeared basis to provide a return to lenders and shareholders, and
COCE = Weighted Average Cost of Capital (WACC) x Average Capital Employed
*Cost of debt is taken at the effective rate of interest applicable to an “AAA” rated Company like Hero Corp for a
short term debt, net of taxes.
*Cost of Equity is the return expected by the investors to compensate them for the variability in returns caused by
fluctuating earnings and share prices.
Cost of Equity = Risk free return equivalent to yield on long term Government Bonds
Market risk premium (taken at 4.42%) (x) Beta variant for the Company, (taken at 0.719) where Beta is a relative
measure of risk associated with the Company’s shares as against the market as a whole.
What does EVA show?
EVA is residual income after charging the Company for the cost of capital provided by lenders and share holders.It
represents the value added to the shareholders by generating operating profits in excess of the cost of capital
employed in the business.
When will EVA increase?
EVA will increase if:
a. Operating profits can be made to grow without employing more capital, i.e. greater efficiency.
b. Additional capital’s invested in projects that return more than the cost of obtaining new capital, I.e. profitable
growth. c. Capital is curtailed in activities that do not cover the cost of capital, i.e liquidate unproductive capital

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EVA Analysis in Particular to Hero Motor Corp
A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5
EVA Analysis in Particular to Hero Motor Corp
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Debt Management Ratio:
It has two components:
1) Total Debt to Total Assets: Ratio of Liability to Assets.
The Company has been debt-free for the past 14 years and incur no borrowing costs.
2) Times Interest Earned:
It shows how easily can company make it’s interest payments. It is a ratio of Earning before Interest & Taxes divide
(EBIT) by the Interest. Generally, it should be higher so that companies have more space/capacity to pay the
interest.
Please note that EBIT here is excluded from Depreciation and amortization expenses.
The ratios are being compared with across the Industry standards and as we see from the below table, other two
big market players in the Two Wheeler Automobiles companies are closely maintaining the same Times Interest
Earned ratio.
Company TIE
Hero Motor Corp 96.68
Bajal Auto +35.23
TVS Motors 50.47
As it’s clear from above table that Bajal Auto has received interest than paying for the Debt. And hence the total
interest received is more than the interest paid.
The ratios are being compared with across the Industry standards and as we see from the below table, other two
big market players in the Two Wheeler Automobiles companies are closely maintaining the same Times Interest
Earned ratio.
Profitability Ratio:
Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time. For most of these
ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative
that the company is doing well.

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Gross Profit Margin: Gross profit margin is a financial metric used to assess
revealing the proportion of money left over from
profit margin serves as the source for paying additiona
Calculated as:
Where: COGS = Cost of Goods Sold
Operating margin: It is a margin
Operating margin is a measurement of what proportion of a company's
variable costs of production such as wages, raw materials, etc. It can be calculated by dividing a
company’s operating income (also known as "
same period. “Operating income” here refers to the
expenses (such as cost of goods sold
minus the value of returned goods, allowances for damaged and missing goods, and discount sales.
Operating margin is expressed as a percentage,
represented in the following way:
A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5
Gross profit margin is a financial metric used to assess a firm's
revealing the proportion of money left over from revenues after accounting for the cost of goods sold
serves as the source for paying additional expenses and future savings.
margin ratio used to measure a company's pricing strategy and operating efficiency.
Operating margin is a measurement of what proportion of a company's revenue is left over after paying for
such as wages, raw materials, etc. It can be calculated by dividing a
(also known as "operating profit") during a given period by its
same period. “Operating income” here refers to the profit that a company retains after removing
cost of goods sold and wages) and depreciation. “Net sales” here refers to the total value of sales
minus the value of returned goods, allowances for damaged and missing goods, and discount sales.
Operating margin is expressed as a percentage, and the formula for calculating operating margin can be
2 0 1 5
a firm's financial health by
cost of goods sold. Gross
l expenses and future savings.
ratio used to measure a company's pricing strategy and operating efficiency.
is left over after paying for
such as wages, raw materials, etc. It can be calculated by dividing a
") during a given period by its net sales during the
that a company retains after removing operating
. “Net sales” here refers to the total value of sales
minus the value of returned goods, allowances for damaged and missing goods, and discount sales.
and the formula for calculating operating margin can be

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Operating margin is also often known as “operating profit margin,” “operating income margin,” “return on sales” or
as “net profit margin.” However, “net profit margin” may be misleading in this case because it is more frequently
used to refer to another ratio, net margin.
Profit Before Tax Margin (PBT Margin): This measure combines all of the continuing operations. PBT
exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes
in a company's profits or earnings from year to year.
Net Profit Margin: This measure combines all of the company's profits before tax, including operating, non-
operating, continuing operations and non-continuing operations. PBT exists because tax expense is constantly
changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from
year to year.
Company
Gross Profit
Margin
Operating Profit
Margin
PBT Margin
Net Profit
Margin
Hero Motor
Corp
10.88 8.64 10.69 8.64
Bajal Auto 17.81 13.01 17.34 13.01
TVS Motors 4.46 3.44 4.45 3.44
Return on Investments (ROI)
Return on equity (ROE): The amount of net income returned as a percentage of shareholders equity. Return
on equity measures a corporation's profitability by revealing how much profit a company generates with the money
shareholders have invested.
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
Return on assets (ROA): is an indicator of how profitable a company is relative to its total assets. ROA gives
an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a
company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as
"return on investment".
The formula for return on assets is: Net Income / Total Assets

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Note: Some investors add interest expense back into net income when performing this calculation because they'd
like to use operating returns before cost of borrowing.
Company ROA ROE
Hero Motor
Corp
327.58 36.47
Bajal Auto 369.50 26.31
TVS Motors 34.63 21.14
Directors Speak
Director/Chairman report gives the snapshot of company's performance highlighting the achievements
and future guidance. This is very important to understand where the company is focusing on to generate
cash flows
Directors Speak of Hero
The Indian two-wheeler industry swung wildly during FY 2014-15: there was cheerful growth of 16%
during the first half of the year, but just one per cent growth during the second. Meagre and unseasonal
rains, moderation in the growth of farm support prices, and a decline in rural wages caused distress; all
adversely affected sales.

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Directors Speak of Bajaj
Over the last couple of years, there has been little or no growth across many segments of industry and the
annual
Financial results of corporate for 2014-15 (FY2015) show this quite clearly. There has been little
or no uptick of either consumer or industrial demand; and despite soft energy prices from the second
Half of FY2015, companies have struggled with their revenues and profits. Some sectors have suffered
less; others more. But the sense on the street is that it has been a difficult year — quite removed
from what one expects out of 7.5% growth.
Bajaj fared a little better in terms of growth by 7.5%
Market Ratios for Hero
Price/Earnings Ratio
EPS is most often derived from the last four quarters. The price-earnings ratio is also
sometimes known as the price multiple or the earnings multiple.
= (Market Price/Earnings Per Share) =25.00209275
Limitations :
One primary limitation of using P/E ratios emerges when comparing P/E ratios of different
companies. Valuations and growth rates of companies may often vary wildly between

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sectors due both to the differing ways companies earn money and to the differing timelines
during which companies earn that money. As such, one should only use P/E as a comparative
tool when considering companies within the same sector, as this kind of comparison is the
only kind that will yield productive insight. Comparing the P/E ratios of a telecommunications
company and an energy company, for example, may lead one to believe that one is clearly
the superior investment, but this is not a reliable assumption.
For Bajaj

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For Hero MotoCorp :
As with most ratios, it varies a fair amount by industry. Industries that require more infrastructure capital
(for each dollar of profit) will usually trade at P/B ratios much lower than, for example, consulting firms.
P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are
constantly valued at market values.
A higher P/B ratio implies that investors expect management to create more value from a given set of
assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their
accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm
to generate profits or cash for shareholders.
Dividend Yield:
Dividend Yield = (Dividends per Share/Market Price) -------------------- 2%
The formula for calculating dividend yield may be represented as follows:
When companies pay high dividends to their shareholders, it can indicate a variety of things about the
company, such as that the company might currently be undervalued or that it is attempting to attract
investors. On the other hand, if a company pays little or no dividends, it may indicate that the company is

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overvalued or that the company is attempting to grow its capital. Certain companies in particular
industries, when they are well established and steady-earning, often have good dividend yields even
though they are not undervalued. Banks and utilities often fall into this category.
While a company may pay high dividends to its shareholders for a time, this may not always be so.
Companies often trim their dividend payments or stop them altogether during hard economic times or
when the company is experiencing hard times of its own, so one can rarely rely on consistent dividends on
a permanent basis.
Key Liquidity Ratios:
1. Current Ratio / Working Capital Ratio.
It is a measure of company’s liquidity in meeting the short term debt obligation. It is the first check to
know about financial flexibility of a company.
Formula is as follows:
Current Ratio / Working Capital Ratio = Current Assets / Current Liabilities.
Calculating the Current Ratio for HMCL, BAL and TVS for Fy 14-15 we observe that:
Name of the
Company
Current Assets (
Cr )
Current
Liabilities ( Cr )
Current Ratio Remarks
HMCL 5282.13 3883.42 1.36
BAL 9526.27 4476.79 2.12 Highly Liquid
TVS 2029.02 2243.38 0.90
General perception about Current Ratio
1. If the value of Current Ratio lies between 1 and 2, then it is acceptable.
2. If Current Ratio >= 2, then there is possibility that a company is not using its assets in an
appropriate way.

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3. If Current Ratio <= 1, then company might be having problem with its operations and hence we
need to refer to Profit and Loss Statement and analyze its profit from Operations.
2. Quick Ratio / Acid Test Ratio
Quick Ratio is company’s ability to meet its short term obligation using its most liquid assets.
What is most liquid assets?
Let us have a look at the assets of HMCL for FY 14-15!
We observe that apart from inventories, every other asset can be converted into Cash in short term and
hence Quick Ratio / Acid Test Ratio is calculated as follows:
Quick Ratio / Acid Test Ratio = (Current Assets – Inventories) / Current Liabilities.
Comparing the values of Quick Ratio for HMCL, BAL and TVS we get as follows:
Name of the
Company
Current Assets -
Inventories ( Cr )
Current
Liabilities ( Cr )
Quick Ratio Remarks
HMCL 4466.64 3883.42 1.15
BAL 8712.12 4476.79 1.94 Quicker than
other two
competitors
TVS 1209.34 2243.38 0.53
3. Cash Ratio
It is company’s agility to deal with immediate requirement on building new assets or making expense. It
can be termed as Super Quick Ratio.

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It is calculated as follows:
Cash Ratio = Cash and Cash Equivalents ( As per Profit and Loss Statement ) / Current Liabilities
Observing the Cash Ratio for HMCL, BAL and TVS as on Mar 31,2015
Name of the
Company
Cash and Cash
Equivalents ( Cr )
Current
Liabilities ( Cr )
Quick Ratio Remarks
HMCL 159.25 3883.42 0.04
BAL 586.15 4476.79 0.13 Most Agile
TVS 5.39 2243.38 0.0024
4 Net Working Capital
It is calculated as follows:
Net Working Capital = Current Assets – Current Liabilities
Calculating the Net Working Capital for HMCL, BAL and TVS as on Mar 31, 2015
Name of the
Company
Current Assets (
Cr )
Current
Liabilities ( Cr )
Net Working
Capital
Remarks
HMCL 5282.13 3883.42 1398.71
BAL 9526.27 4476.79 5049.46
TVS 2029.02 2243.38 -214.36 Negative Net
Working Capital
Negative Working Capital on any day can bring bad name to the company.

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Asset Management Ratio
Asset Management Ratios are a measure to company’s efficiency to generate revenues utilizing its assets.
As a manager, we should always focus to improve the revenues from the company’s core operations.
1. Asset Turnover Ratio
It is calculated as Asset Turnover Ratio = Revenue / Average Total Assets.
Calculating Asset Turn Over Ratio for HMCL, BAL and TVS for FY 14-15
Name of the
Company
Total Revenue (
Cr )
Total Assets ( Cr ) Asset Turnover
Ration
Remarks
HMCL 28078 10521 2.66 Although the total assets of
HMCl are lesser than BAL,
Asset TurnOver ratio is the
best among all of them
BAL 22194 15562 1.426
TVS 10131 4604 2.20
This is the first check on Efficiency of the asset management of the company. The limitation of this ratio is
that it does not let us know about the profit of the company.
2. Fixed Asset Turnover Ratio
It is a refined version of Asset Turnover Ratio.
It is calculate as Fixed Asset Turnover = Revenue / Average Fixed Assets
Calculating Asset Turn Over Ratio for HMCL, BAL and TVS for FY 14-15.
Name of the
Company
Total Revenue (
Cr )
Total Fixed
Assets ( Cr )
Fixed Asset
TurnOver Ration
Remarks
HMCL 28078.04 3625.24 7.745

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BAL 22194.43 2172.18 10.21 Highest
TVS 10131.83 1418.99 7.140
The trend in this Ratio is also very important as the increasing trend of Fixed asset turnover ratio is
desirable. If the value is less than last year’s value then the efficiency of a company to utilize its fixed asset
is decreasing.
Calculating it for the FY 13-14 we get.
Name of the
Company
Total Revenue (
Cr )
Total Fixed
Assets ( Cr )
Fixed Asset
TurnOver Ration
Remarks
HMCL 25721.85 3097.36 8.30
BAL 20855.92 2150.10 9.69 Highest
TVS 7996.15 1173.79 6.81
As we can observe that out of HMCL, BAL, TVS, HMCL’s Fixed Asset TurnOver Ratio is increasing.
The decreasing trend of Fixed Asset TurnOver Ratio tells us that a company might be over investing in
Property, Plant and Equipment.
7.745
10.21
7.14
8.3
9.69
6.81
0
2
4
6
8
10
12
HMCL BAL TVS
Fixed Asset TurnOver Ratio
FY 13-14
Fixed Asset TurnOver
Ration FY 14-15

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3,Inventory Turnover
It is a very important ratio in terms of Managing Inventory of finished goods as it tells us how fast the
company has been able to see its inventory in terms of Cost of Materials consumed.
It is calculated as: Cost of Goods Consumed / Average Inventory over the year
Calculating the Inventory TurnOver ratio of HMCL, BAL and TVS we get,
FY 14-15
Name of the
Company
Cost of Good
Consumed ( Cr )
Average
Inventory ( Cr )
Inventory
Turnover
No. of Days of Inventory kept
HMCL 19790.40 861.39 22.97 16 Days
BAL 13752.79 814.15 16.89 22 Days
TVS 7162.32 819.68 8.73 42 Days
FY 13-14
Name of the
Company
Cost of Good
Consumed ( Cr )
Average
Inventory ( Cr )
Inventory
Turnover
No. of Days of Inventory kept
HMCL 18222.53 669.55 27.21 14 Days
BAL 12936.47 639.72 20.22 18 Days
TVS 5418.82 548.15 9.88 37 Days
It can be seen that the No. of days of Inventory has increased in all of three major players of the industry
where TVS has kept the highest number of inventory of 40 Days in order to supply well to the market.
4 . Accounts Payable Turnover Ratio:
It is a measure of how fast company pays its vendors for purchase of raw material, etc.
It is calculated in the following way:
Accounts Payable Turnover Ratio = Cost of Goods (Cost of Raw Material Consumed) + Change in Inventory
/ Accounts Payable

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Calculating the Accounts Payable Turnover ratio for HMCL, BAL and TVS for FY 13-14 and FY 14-15
respectively, we get
FY 14-15
Name of
the
Company
Cost of Good
Consumed ( Cr )
Change in
Inventory (
Cr )
Accounts
Payable
Accounts
Payable
Turnover
Ratio
No. of Days of
Paying a
Vendor
HMCL 19783.88 29.97 2841.87 6.97 52 Days
BAL 13752.79 57.56 1799.75 7.67 48 Days
TVS 7162.32 92.07 1263.82 5.74 64 Days
FY 13-14
Name of
the
Company
Cost of Good
Consumed ( Cr )
Change in
Inventory ( Cr )
Accounts
Payable
Accounts
Payable
Turnover Ratio
No. of Days of
Paying a Vendor
HMCL 18222.53 -8.36 2290.59 7.95 46 Days
BAL 12936.47 18.90 2111.40 6.135 59 Days
TVS 5418.82 9.65 998.09 5.41 67 Days
5 . Account Receivable Turnover Ratio
It is a measure of how many days of the credit does a company gives it to its Authorized dealers, its first
customers.
Also it can be interpreted as the number of days in which the company collects its money from its
customers.
It is calculated as follows:
Account Receivable Turnover Ratio = Cash Received from Sales / Average Trade Receivable
Calculating the account receivable turnover ratio for HMCL, BAL, TVS for FY13-14 and FY 14-15 , we get:

24. 24 | P a g e A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5
Name of
the
Company
Sales
Revenue
( Cr )
Net Cash
Received
from
Sales
Trade
Receivable
from
Balance
Sheet
Account
Receivable
Turnover
Ratio
No. of
Days in
collecting
the
money
HMCL 28078.04 27608 1389.59 19.87 18 Days
BAL 22194.43 22118.06 716.96 30.84 12 Days
TVS 10130.83 10300.57 503.86 20.44 18 Days
Name of
the
Company
Sales
Revenue
( Cr )
Net Cash
Received
from
Sales
Trade
Receivable
from
Balance
Sheet
Account
Receivable
Turnover
Ratio
No. of
Days in
collecting
the
money
HMCL 25721.85 25462.39 920.58 27.65 13 Days
BAL 20855.92 20584.23 796.21 26.229 14 Days
TVS 10130.83 8013.4 334.12 23.98 15 Days
6. Cash Conversion Cycle or Operating Cycle:
It is a measure of the no. of days in which a company turns its purchases into cash receipts from
customers. CCC represents the no. of days the cash remains tied up with the business.
It is calculated by the following formula;
CCC = Days of Inventory + Days of receiving Sales Outstanding – Days of Paying to the vendors.
Calculating the CCC for HMCL, BAL, and TVS for FY 14-15 and FY 13-14, we get:
FY 14-15
Name of the
Company
Days of
Inventory
Days of receiving
Sales
Outstanding
Days of Paying to
the vendors.
Cash Conversion Cycle
HMCL 15 18 52 -19
BAL 22 12 48 -14
TVS 42 18 64 -4

25. 25 | P a g e A n a l y s i s o f A n n u a l R e p o r t - 2 0 1 5
Where all values in No. of Days.
FY 13-14
Name of the
Company
Days of
Inventory
Days of receiving
Sales
Outstanding
Days of Paying to
the vendors.
Cash Conversion Cycle
HMCL 13 13 46 -20
BAL 18 14 59 -27
TVS 37 15 67 -15
Where all values in No. of Days.
As we observe that Cash Conversion Cycle is negative for all of the three competitors in the Indian Two
Wheeler industry which is possible. It means that the companies have strong market positions and can
dictate purchasing terms to the suppliers.