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Financial Analysis

Financial Analysis of Ashok Leyland

Limited


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Table of ContentsCompany Profile ............................................................................................................................................ 3

Companys last 3 yrs Balance sheet .............................................................................................................. 4

Companys last 3 yrs Income statement ....................................................................................................... 5

Ratio Analysis ................................................................................................................................................ 6

Comments ..................................................................................................................................................... 7

Profitability ratios ..................................................................................................................................... 7

Turnover Ratios ......................................................................................................................................... 8

Liquidity Ratios ........................................................................................................................................ 10

Leverage Ratios ....................................................................................................................................... 11

Valuation Ratios ...................................................................................................................................... 15


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Company Profile

Ashok Leyland is an India-based company engaged in the manufacturing of commercial vehicles

and related components. The Companys products range from 18 seater to 82 seater double-

decker buses, from 7.5 tons to 49 tons in haulage vehicles, from special application vehicles to

diesel engines for industrial, marine and genset applications. Its product categories include buses,

trucks, engines, and defence and special vehicles. It offers bus models, such as compressed

natural gas (CNG), double decker and vestibule bus. It also offers trucks and tractor-trailers. In

addition, the Company offers diesel engines for industrial, genset and marine applications. It

offers logistic vehicles to the Indian army.


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. 2009 2008 200

Source of fundsShareholders' funds

Capital 13303.42 13303.42 13238.70

Reserves and Surplus 334086.5

201594.8

3

176218.10

347389.9 214898.25 189456.8

Loan funds

Secured loans 30441.33 19024 36021.60

Unsecured loans 165373.1 69726.12 28018.20

195814.39 88750.12 64039.8

Deferred tax liability - net 26343.69 25381.97 19692.90

Foreign currency monetary item

translation difference net 384.11

Total 569932.1 329030.3 273189.

Applicatsion of FundsFixed assets

Gross block 495327.2 294243.8 262019.7

Less Depreciation 155415.6

141688.7

8

131316.2

Net Block 339911.6

152555.0

2

130703.3

Capital WIP 99828.94 52924.47 23749.1

439740.57 205479.49 154452.

Investments 26355.71 60989.87 22109.

Current Assets, loans and advances

Inventories 133001.4

122391.4

4

107032.1

Sundry Debtors 95797.42 37583.51 52287.5

Cash and bank balances 8808.36 45137.01 43493.9

Loans and advances 78954.35 82413.85 66957.9

361561.6

287525.8

1

269771.4

Less Current Liabilities and provisions

Liabilities 186886.4

192670.8

4

165162.5

Provisions 26808.17 34523.09 10423.0

213694.6

227193.9

3

175585.5

Net current assets 102866.99 60331.88 94185.

Miscellaneous expenditure 968.82 2229.1 2441.

Total 569932.1 329030.3

273189.


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Companys last 3 yrs Income statement

2009 2008 20

Income

Sales and services 666664 894714.7 830471.7

Less Excise duty 68556.64 120456.7 113654.5

598107.4 774258 716817

Other income 4962.28 5760.52 7080

603069.7 780018.5 723897

Expenditure

Manufacturing and other expenses 551163.9 692219.7 646549.1

Depreciation, amortization and

impairment 17841.42 17736.12

15077.4

Financial expenses 11870.87 4974.01 533.2

580876.2 714929.8 662139

Profit before exceptional item 22193.5 65088.74 61758

Exceptional item

Voluntary retirement scheme

compensation amortized 1348.87 1273.72

1307

Profit before tax 20844.63 63815.02 60450

provision for taxation - current tax 10140 13505

- Deferred tax 1245 6044 2302

- Fringe benefit

tax 600 700

5

Profit after tax 18999.63 46931.02 44128

Excess provision written back Dividend 22.05 259

-

Corporate dividend tax thereon 3.75

36

Balance profit from last year 50227.38 36168.59 23037

Transfer from / (to) - Debenture

redemption reserve (2958.33) 500

1350

- General reserve (2500) (10000) (1000

63794.48 73599.61 58811

Dividede-Interim - - 19858

-Proposed final 1303.38 19977.12

Corporate dividend tax thereon 2260.91 3395.11 2785

Balance profit carried to balance sheet 48230.19 50227.38 36168.6

Earnings per share (F.V. Rs. 1) - Basic (in

Rs.) 1.43 3.53

3.


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Ratio Analysis

Sr.

No.Ratio Formula 2009 2008 2007

Profitability Ratios

1 Return on equity PAT/Net worth 5.47 21.84 23.29

2 Gross profit margin Gross profit / Net sales 14.00 15.50 10.36

3 Operating profit margin Operating profit / Net sales 4.90 8.30 8.62

4 Net profit margin Net profit / Net sales 3.18 6.06 6.16

5 Return on Assets PAT / Total assets 2.43 8.47 9.89

6 Return on Investment PAT/Capital employed 3.50 15.57 16.15

Turnover Ratios

7 Capital turnover ratio Sales/Capital employed 1.10 2.57 2.62

8 Inventory turnover ratio Cost of goods sold/ Average inventory 3.87 5.35 6.559 Debtors turnover ratio Net sales / Debtors 6.24 20.60 13.71

10 Average collection

period 365/Debtors turnover ratio 58.46 17.72

26.62

Liquidity Ratios

11 Current Ratio Current assets / Current Liabilities 1.11 0.90 1.54

12 Acid Test ratio Quick assets / current liabilities 0.49 0.36 0.93

13 Inventory to working

capital ratio Inventory / Net current assets 1.29 2.03

1.14

14

Cash Flow margin

Cash flow from operating activities / net

sales (8.76) 13.72

6.98

Leverage Ratios

15 Debt equity ratio Total loan funds / total shareholder funds 0.56 0.41 0.34

16 Interest Coverage ratio EBIT/Interest charges 2.42 10.46 26.29

Valuation Ratios

17

Book value per share

(Equity capital + Reserves and

surplus)/No. of equity shares 15.85 15.98

14.13

18 Dividend yield ratio DPS/CMP*100 1.86 10.80 3.88

19 Earnings Per Share Profit available to equity/ No. of shares 1.43 3.53 3.38

20 Dividend Per Share Total profit distributed/No. of shares 1.00 1.50 1.49

21 Price Earnings ratio Price of the share/EPS 37.62 3.94 11.39


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Comments

Profitability ratios

Profitability is a result of a larger number of policies and decisions. The profitability ratios show

the combined effects of liquidity, asset management (activity) and debt management (gearing) on

operating results. The overall measure of success of a business is the profitability which results

from the effective use of its resources.

Sr.

No.Ratios

2009 2008 2007

1

Return on equity

5.47 21.84

23.29

This ratio shows the profit attributable to

the amount invested by the owners of the

business. It also shows potential investors

into the business what they might hope to

receive as a return. This ratio has

decreased as the net profit margin hasalmost halved and also the net worth has

increased by more than 50%.

2

Gross profit margin

14.00 15.50

10.36

The gross profit ratio indicates how much

of total sales are available to meet

operating and non-operating expenses and

earning profits after merely paying for the

goods that were sold. The ratio is quite

stable for the years 2008 and 2009.

3

Operating profit margin

4.90 8.30

8.62

Operating profit margin indicates how

effective a company is at controlling the

costs and expenses associated with their

normal business operations. The operating

profit margin has halved because of less

sales but relatively high operating

expenses.

4

Net profit margin

3.18 6.06

6.16

It is used to measure the overall

profitability and hence it is very useful to

proprietors. The net profit margin has

declined on account of slow down in the

economic activity

5

Return on Assets

2.43 8.47

9.89 ROA tells you what earnings were

generated from invested capital (assets).

The higher the ROA number, the better,because the company is earning more


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money on less investment. As the profits

of the company have reduced, the ROA

has gone down and the assets have

increased.

6

Return on Investment

3.50 15.57

16.15

ROI evaluates the efficiency of an

investment or to compare the efficiency of

a number of different investments. The

ratio again has gone down due to

reduction in profits and increase in

Reserves and Surplus.


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Turnover Ratios

If a business does not use its assets effectively, investors in the business would rather take their

money and place it somewhere else. In order for the assets to be used effectively, the business

needs a high turnover. Unless the business continues to generate high turnover, assets will be idle

as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios

are therefore used to assess how active various assets are in the business.

Turnover Ratios2009 2008

2007

7

Capital turnover ratio

1.10 2.57

2.62 This ratio indicates the firms ability of

generating sales per rupee of long term

investment. Higher the ratio, the more

efficient the utilization of owners and long

term creditors funds. On account of reduction

in sales, this ratio has reduced significantly

8

Inventory turnover ratio

3.87

5.35

6.55 This ratio establishes the relationship between

the cost of goods sold during the year and

average inventory held during the year.

Decrease in the ratio is on account of high

inventory and less sales.

9

Debtors turnover ratio

6.24 20.60

13.71 This ratio throws light on the collection and

credit policies of the firm. Similarly, this ratio

has been hit badly as the debtors have

increased but the sales have reduced.

10

Average collection period

58.46 17.72

26.62 Average collection period is the credit period

that the firm allows to its debtors. It thus

indicates the speed of collection. The increase

in the average collection period signifies that

the company has been comparatively

unsuccessful to collect its debt as compared to

the previous year.


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Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as

they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet

their short-term maturing obligations. Failure to do this will result in the total failure of the

business, as it would be forced into liquidation.

Liquidity Ratios 2009 2008 2007

11Current Ratio

1.11 0.90

1.54 It indicates the availability of current asse

to meet its current liabilities. Higher theratio better is the coverage. Traditionally,

is also called 2:1 ratio. The current ratio

has increased, which shows that the

liquidity of the firm has improved.

However, it is majorly due to decrease in

current liabilities rather than increase in

current assets

12Acid Test ratio

0.49 0.36

0.93 Measures assets that are quickly converte

into cash and they are compared withcurrent liabilities. The quick ratio, also

referred to as acid test ratio, examines the

ability of the business to cover its short-

term obligations from its quick assets

only. The increase in the quick ratio

indicates that the company is in a better

position cover its short term obligations.

13

Inventory to working capital

ratio

1.29 2.03

1.14 It indicates how much of the funds are tie

up in the inventory of the business.Inventory is considered not near cash

assets. The composition of the inventory

in the working capital of the company is

seen to be decreasing. However, this is

majorly due to reduction in the current

liabilities rather than better management o

inventories.

14Cash Flow margin

-8.76 13.72

6.98 It expresses relationship between cash

generated from operating activities andsales. Knowing that a company is

continually improving its Cash Flow

Margin is extremely valuable and is a key

indicator of performance. The cash flow

margin has become negative for 2009. Th

is majorly due to the increase in working

capital as a result of tremendous increase i

the debtors.


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Leverage Ratios

The ratios indicate the degree to which the activities of a firm are supported by creditors funds

as opposed to owners. The relationship of owners equity to borrowed funds is an important

indicator of financial strength. The debt requires fixed interest payments and repayment of the

loan and legal action can be taken if any amounts due are not paid at the appointed time. A

relatively high proportion of funds contributed by the owners indicate a cushion (surplus) which

shields creditors against possible losses from default in payment.

Note: The greater the proportion of equity funds, the greater the degree of financial strength.

Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of

earnings on capital employed is greater than the rate payable on borrowed funds

Leverage Ratios 2009 2008 2007

15

Debt equity ratio0.56 0.41

0.34 This ratio indicates the extent to whic

debt is covered by shareholders funds.

reflects the relative position of the equit

holders and the lenders and indicates th

companys policy on the mix of capita

funds. The increase in debt equity ratio i

spite of increase in the Reserves an

surplus of the company indicates heav

borrowings by the company.

16

Interest Coverage ratio2.42 10.46

26.29 This ratio measure the extent to whic

earnings can decline without causin

financial losses to the firm and creatin

an inability to meet the interest cost. Th

sharp decline in interest coverage ratio i

because of the lower profits and hig

borrowing during the year.


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Valuation Ratios

A valuation ratio is a measure of how cheap or expensive a security or business is, compared to

some measure of profit or value. Investment valuation ratios attempt to simplify this evaluation

process by comparing relevant data that help users gain an estimate of valuation. Valuation ratios

are important, in particular to a stockholder of the company as these ratios deal with the returns

that a shareholder of the company would get.

Valuation Ratios 2009 2008 2007

17

Book value per share

15.85 15.98

14.13 Book value per share represents the intrins

value of the share. The ratio is more or le

constant indication that the intrinsic value

the company has not suffered even thoug

other operations of the company have be

impacted considerably. This is due to t

revaluation reserve created for land a

building during the year.

18

Dividend yield ratio1.86 10.80

3.88 It represents how much dividend is paid

relation to the market price of the sha

rather than the face value of the share. T

ratio is impacted because of the low sha

price prevalent in 2008. The share was pric

at Rs 14/- in 2008 and is currently priced

Rs. 53/-

19

Earnings Per Share1.43 3.53

3.38 It represents the earnings which are availab

for distribution among the shareholders aftmaking all other payments such as intere

preference dividend etc. Earnings per sha

have reduced due to reduction in PAT

20

Dividend Per Share1.00 1.50

1.49 It is the rate of dividend declared by t

company.

21

Price Earnings ratio37.62 3.94

11.39 It represents how a share of particul

company is perceived in the market. It is th

times at which the share is priced comparison to the earnings that a share earn

When seen in context of the industry, it hel

us to determine which share is undervalu

or overvalued. The increase in the price

the share by almost 4 times is the reason f

such a significant change in this ratio.


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