Project Praveen

8/12/2019 Project Praveen

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INTRODUCTION TO THE SUBJECT STUDY

FINANCIAL ANALYSIS

Financial analysis(also referred to as financial statement analysisor accounting

analysisor Analysis of finance) refers to an assessment of the viability, stability and

profitability of a business, sub-business or project.

Definition of 'Financial Analysis'

According to John N. Myer The financial statements provides a summary of the accounts

of a business enterprise, the balance sheet reflecting the assets and liabilities and the income

statement showing the results of operations during a certain period

The process of evaluating businesses, projects, budgets and other finance-related entities to

determine their suitability for investment. Typically, financial analysis is used to analyze

whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking

at a specific company, the financial analyst will often focus on the income statement, balance

sheet, and cash flow statement. In addition, one key area of financial analysis involves

extrapolating the company's past performance into an estimate of the company's future

performance.

It is performed by professionals who prepare reports using ratios that make use of information

taken from financial statements and other reports. These reports are usually presented to top

management as one of their bases in making business decisions.

Continue or discontinue its main operation or part of its business;

Make or purchase certain materials in the manufacture of its product;

Acquire or rent/lease certain machineries and equipment in the production of its goods; Issue stocks or negotiate for a bank loan to increase its working capital; Make decisions regarding investing or lending capital; Other decisions that allow management to make an informed selection on

various alternatives in the conduct of its business.


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NATURE OF FINANCIAL STATEMENTS

Financial Statements are prepared for the purpose of presenting a periodical review or

report by the management and deal with the state of investment in the business and results

achieved during the period under review. They reflect a combination of recorded facts,

accounting conversations and personal judgments.

OBJECTIVES

To provide reliable financial information about economic resources and obligations of abusiness enterprise.

To provide reliable information about the net resources of an enterprise that results fromits activities.

To provide financial information that assist in estimating the earning potentials of abusiness.

To provide other needed information about changes in economic resources or obligations. To disclose, to the extent possible, other information related to the financial statements

that is relevant to the needs of the users of these statements.

To know the present and future earning capacity or profitability of the concern. The possibility of developments in the future by making forecast and preparing budgets. To have a comparative study in regard to one firm with another firm. To know the financial stability of the business concern.

GOALS

Financial analysts often assess the following elements of a firm:

1. Profitability- its ability to earn income and sustain growth in both the short- and long-term.

A company's degree of profitability is usually based on the incomestatement, which reports on

the company's results of operations;

2. Solvency- its ability to pay its obligation to creditors and other third parties in the long-term


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3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations;

Both solvency and liquidity are based on the company's balance sheet, which indicates the

financial condition of a business as of a given point in time.

4. Stability - the firm's ability to remain in business in the long run, without having to sustain

significant losses in the conduct of its business. Assessing a company's stability requires the use

of both the income statement and the balance sheet, as well as other financial and non-financial

indicators. ETC

METHODS

Financial analysts often compare financialratios (of solvency,profitability,growth, etc.):

Past Performance- Across historical time periods for the same firm (the last 5 years forexample),

Future Performance - Using historical figures and certain mathematical and statisticaltechniques, including present and future values, this extrapolation method is the main

source of errors in financial analysis as past statistics can be poor predictors of future

prospects.

Comparative Performance- Comparison between similar firms.These ratios are calculated by dividing a (group of) account balance(s), taken from the balancesheet and / or the income statement, by another, for example :

Net income / equity = return on equity (ROE)Net income / total assets = return on assets (ROA)Stock price / earnings per share = P/E ratio

Comparing financial ratios is merely one way of conducting financial analysis. Financial ratios

face several theoretical challenges:
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They say little about the firm's prospects in an absolute sense. Their insights about relativeperformance require a reference point from other time periods or similar firms.

One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least twoways. One can partially overcome this problem by combining several related ratios to paint a

more comprehensive picture of the firm's performance.

Seasonal factors may prevent year-end values from being representative. A ratio's values maybe distorted as account balances change from the beginning to the end of an accounting

period. Use average values for such accounts whenever possible.

Financial ratios are no more objective than the accounting methods employed. Changes inaccounting policies or choices can yield drastically different ratio values.

(fundamental analysis)

Financial analysts can also use percentage analysis which involves reducing a series of

figures as a percentage of some base amount. For example, a group of items can be expressed as

a percentage of net income. When proportionate changes in the same figure over a given time

period expressed as a percentage is known as horizontal analysis. Vertical or common-size

analysis reduces all items on a statement to a common size as a percentage of some base value

which assists in comparability with other companies of different sizes.

As a result, all IncomeStatement items are divided by Sales, and all Balance Sheet items are divided by Total Assets.

Another method is comparative analysis. This provides a better way to determine trends.

Comparative analysis presents the same information for two or more time periods and is

presented side-by-side to allow for easy analysis.

TOOLS OR TECHNIQUES OF ANALYSING AND INTERPRETATION

1. Comparative financial statement analysis: It can be prepared for both income statement aswell as position statement. Such statement shows the operating results for number of

accounting periods and different dates can be used for comparing assets and liabilities and to

find out any increase or decrease in the items.


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2. Common size or measurement statement analysis: Are those in which figures reported areconverted to same common base. Vertical analysis is required for an interpretation of

underlying causes of changes over a period of time. It is used for balance sheet as well as

income statements.

3. Trend analysis: This analysis is an important tool of horizontal financial analysis. It enablesto know the changes in the financial functions and operating efficiency between the time

period chosen. Trend percentages are calculated for each item of the financial statements

taking the figures of the base year as 100.

4.

Fund flow statement or analysis:FFS is prepared to indicate in summary form, changes

occurring in items of financial position between two different balance sheet dates.

5. Cash flow statement or analysis: Cash flow means inflow and outflow of cash. An inflowthat is source of cash increase, the total cash available at the disposal of the firm while an

outflow that is use of cash decrease it.

6. Ratio analysis: It is one of the powerful tools of the financial sanalysis; a ratio can bedefined as, the indicated quotient of two mathematical expressions and as the relationship

between two or more things. A ratio can be used as yard stick for evaluating the financial

position and performance of a concern.

7. Working capital analysis: This statement is prepared to know the net changes in workingcapital of the between two specified dates. It is prepared from current assets and current

liabilities to show the net increase or decrease in working capital.

8. DuPont analysis: This analysis shows the performance of the company in the form of chart.The return on investment which are comprises of earning before and after tax and the capital

employed is clearly depicted in the chart.


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ATTRIBUTES OF FINANCIAL STATEMENTS

i. Relevance: Financial statements prepared should be relevant for the purpose they aresupposed to serve. As far as possible, relevant and material information should be disclosed

properly but confusing and irrelevant disclosures should be avoided.

ii. Accuracy: Financial statements should be prepared accurately so that these may convey afull and correct idea about the progress, position and prospects of an enterprise.

iii. Comparability: It is the foundation of financial analysis as it increases the utility offinancial statements.

iv. Analytical presentation: Financial statements should be presented in analytical andclassical form so that a better and meaning analysis can be made.

v. Promptness: Financial statements should be prepared after the end of the accounting periodwithout any delay may present difficulty in tracing the cause of the results as disclosed by

these statements.

vi. Generally accepted principal: Financial statements must be prepared in accordance withthe generally accepted accounting principles to have wider acceptability and

understandability by the clients.

vii. Consistency: Financial statements must be prepared on consistent basis following the samerules, procedures and principles in successive periods, unless the situation demands

otherwise. It also affects the comparability of these statements.

viii. Authenticity: Financial statements prepared must be authenticated by an independent andcapable person (called auditor) in order to make them more reliable and acceptable by the

users.

ix. Compliance with law: Financial statements must meet the requirements of law, if any, inmatter of form, contents and disclosures, procedures and methods.


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IMPORTANCE OF FINANCIAL STATEMENTS

Owners-provides funds for the business operations Creditors-suppliers of goods and services on credit, bankers and other lenders of money

Investors-Prospective investors, analyze financial statements of that firm to know how safe

proposed investment will be.

Employee-They serve particularly when payment of bonus depends upon the size of theprofits earned.

Government-Financial statements reflect the earnings for a particularly period for thepurpose of taxation.

Research Scholars-who wants to make a study into financial operations of a particular firm. Consumers-Interested in establishment of good accounting control so that cost of Production

may be reduced.

Managers-Financial statements serve the manager is appraising the performance of thesubordinates.


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1. INDUSTRY PROFILE OF NEXTEER COMPANY

Starting its journey from the day when the first car rolled on the streets of Mumbai in 1898, the

Indian automobile industry has demonstrated a phenomenal growth to this day. Today, the Indian

automobile industry presents a galaxy of varieties and models meeting all possible expectations and

globally established industry standards. Some of the leading names echoing in the Indian automobile

industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hero Honda and

Hindustan Motors in addition to a number of others.

The Automotive industry in India is one of the largest in the world and one of the fastest growing

globally. India manufactures over 11 million vehicles (including 2 wheeled and 4 wheeled) and exports

about 1.5 million every year.It is the world's second largest manufacturer of motorcycles, with annual

sales exceeding 8.5 million in 2010. India's passenger car and commercial vehicle manufacturing

industry is the seventh largest in the world, with an annual production of more than 2.6 million units in

2010. In 2010, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South

Korea and Thailand.

As of 2010, India is home to 40 million passenger vehicles and more than 2.6 million cars were

sold in India in 2010(an increase of 26%), making the country the second fastest growing automo bile

market in the world. According to the Society of Indian Automobile Manufacturers, annual car sales are

projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, the

country is expected to top the world in car volumes with approximately 611 million vehicles on the

nation's roads.

A chunk of India's car manufacturing industry is based in and around the city of Chennai, also known

as the "Detroit of India",with the Indian city accounting for 60 per cent of the country's automotive

exports. Gurgaon and Manesar near New Delhi are hubs where all of the Maruti Suzuki cars in India are

manufactured.The Chakan corridor near Pune, Maharashtra is another vehicular production hub with

General Motors, Volkswagen/Skoda, Mahindra and Mahindra in the process of setting up or al ready

set up facilities. Ahmedabad with Tata Motors Nano plant and Halol with General Motors in Gujarat,

Aurangabad in Maharashtra, Kolkata in West Bengal are some of the other automotive manufacturing

regions around the country.


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India has emerged as one of the world's largest manufacturers of small carsAccording to New York

Times, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars

has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai

Motors, Nissan. Toyota, Volkswagen and Suzuki In 2008, Hyundai Motors alone exported 240,000 carsmade in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011.

Similarly, General Motors announced its plans to export about 50,000 cars manufactured in India by

2011.

According to Bloomberg L P, in 2009 India surpassed China as Asia's fourth largest exporter of cars.

In recent years, India has emerged as a leading center for the manufacture of small cars. Hyundai,

the biggest exporter from the country, now ships more than 250,000 cars annually from India. Apart

from shipments to its parent Suzuki, Maruti Suzuki also manufactures small cars for Nissan, which sells

them in Europe. Nissan will also export small cars from its new Indian assembly line. Tata Motors

exports its passenger vehicles to Asian and African markets, and is in preparation to launch electric

vehicles in Europe in 2010. The firm is also planning to launch an electric version of its low-cost car

Nano in Europe and the U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and small

SUV models in the U.S. market. Bajaj Auto is designing a low-cost car for the Nissan-Renault alliance,

which will market the product worldwide. Nissan Renault may also join domestic commercial vehicle

manufacturer Ashok Leyland in another small car project. While the possibilities are impressive, there

are challenges that could thwart future growth of the Indian automobile industry. Since the demand for

automobiles in recent years is directly linked to overall economic expansion and rising personal

incomes, industry growth will slow if the economy weakens.

In September 2009, Ford Motors announced its plans to setup a plant in India with an annual

capacity of 250,000 cars for US$500 million. The cars will be manufactured both for the Indian market

and for export. The company said that the plant was a part of its plan to make India the hub for its globalproduction business. Fiat Motors also announced that it would source more than US$1 billion worth

auto components from India.


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COMPANY PROFILE:

Opens New Channels for Growth in China

Largest Chinese Investment in a U.S. Based Automotive Supplier

SAGINAW, Mich.PCM, an entity formed by PCAS and Beijing E-Town International Investment &

Development

Co., Ltd. (E-Town) an affiliate of the Beijing Municipal Government, today announced the

completion of its acquisition of Nexteer Automotive, a global leading supplier in advanced steering and

driveline systems, from General Motors. The transaction marks the single largest Chinese investment in

the global automotive supplier industry. The transaction is effective on Tuesday, November 30. Saginaw

will remain the worldwide headquarters for Nexteer and the key center for engineering, research and

development. The current management team will remain in place under the leadership of Robert J.

Remenar, CEO. According to Moelis & Company, the investment banker of PCM, the Nexteer business

includes global steering and half shaft operations in 22 manufacturing facilities, six engineering

facilities and 14 customer support centers in North and South America, Europe and Asia. Under the

terms of the agreement, PCM will support the recently approved 5-year labor agreement with the UAW.

We are committed to building on thehard work and success of the management team and everyone atNexteer, said Mr. Zhao Guangyi, Chairman of the Board of E-Town and PCM. As the new ownership,

PCM is proud to provide access to continued capital investment that will allow Nexteer to continue its

global growth in technology and manufacturing, particularly in the China market.

With a well-capitalized owner committed to growing the business, we can focus all of our

resources on our industry-leading engineering and product development, said Robert J. Remenar. This

sale was an important move for us to strengthen a diverse, global customer base and build on our current

growth trajectory. While we will continue to build in high growth regions around the world, our owner's

relationships will open new channels to the dynamic and rapidly growing Chinese automotive market,

particularly among Asia-Pacific OEMs and manufacturers globally.

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Project Praveen