Reshma Rajendran-project (1)

Apollo Tyres Pvt. Ltd. Kalamassery

INTRODUCTION

Finance is an important function of any business as

money is required to meet the various activities of it.

Finance is considered to be the life blood of any business. It

is defined as the provision of money at the time it is needed.

The cost refers to something that must be sacrificed to

obtain a particular thing. Costing is to ascertain the cost of

each product, process, department, service or operation.

Cost analysis refers to the breakup of total cost into certain

elements or subdivisions. Such analysis is essential for the

purpose of accounting and control over the costs. The

primary objective of every business undertaking is to earn

profit. Profit earning is essential for the survival of the

business. Profit is the engine that drives the business

enterprise. A business needs profit not only for its existence

but also for expansion and diversification. Profits are the

useful measure of overall efficiency of the business.

The cost – profit relationship is of immense utility to

management as it assists in profit learning cost control and

decision making. Cost–Profit Analysis is a technique for

studying the relationship between cost and profit. Profits of

Institute in Management in Kerala, Kundara Page 1


an undertaking depend upon large number of factors. But

the most important of these factors are cost of manufacture,

the selling prices of the product etc. The cost-profit

relationship is an important tool used for the profit planning

of a business. In this analysis an attempt is made to analyse

the relationship between variations in cost with variations in

profit. So this study is an ample effort to analyse the cost-

profitability of the organization.

1.1 Statement of the Problem

The problem of the study is to analyze cost- profitability

of Apollo tyres pvt. Ltd (ATL) . The study also aims to

correlate the cost- profit. The cost is something that is to be

sacrificed to obtain a particular thing. Costing is to ascertain

the cost of each product, process, department, service or

operation. Cost analysis is essential for the purpose of

accounting and control over the costs. Profit earning is the

primary objective of every business enterprises. It is

essential for the survival of the business. A business needs

profit not only for its existence but also for expansion and

diversification. Profits are the useful measure of overall

efficiency of the business.



Cost–Profit Analysis is a technique for studying the

relationship between cost and profit. Profits of an

undertaking depend upon cost of manufacture, the selling

prices of the product etc. The cost-profit relationship is an

important tool used for the profit planning of a business. In

this analysis an attempt is made to analyse the relationship

between variations in cost with variations in profit. In every

firm cost, sales and profit are very important. When the cost

increases the profit will diminish. As far as ATL is concern,

the cost and profit is increasing. Here the study emphasis

“Why the profit increases with increase in cost”.

1.2 Theoretical Frame Work

1.2.1 Ratio Analysis

Ratio analysis is a concept or technique which is as old

as accounting concept. Ratio analysis is a widely – used tool

of financial analysis. It is defined as the systematic use of

ratio to interpret the financial statements so that the

strengths and weaknesses of a firm as well as its historical

performance and current financial condition can be

determined. The term ratio refers to the numerical or



quantitative relationship between two items/variables. Ratios

reveal the relationship in a more meaningful way so as to

enable us to draw conclusions from them.

Uses of Ratios

It is useful for inter firm comparison which implies that

company compares its performance with that of its

industry peers.

It is useful for intra firm comparison which means that

company will compare the performance of various

departments of the company so as to judge the best

department of the company.

It is useful in simplifying the accounting figures to

make them understandable to a layman, because it is

easier to understand ratios then plain figures.

It is also useful in forecasting and planning for the

future, also it helps in control by comparing the actual

performance with that of forecasted performance and

looking for the reason for it.

It is also used for analysis of financial statements by

various interested parties like bankers, creditors,



supplier etc…..for taking future decision about the

company.

Classification of Ratios

Ratios may be classified in a number of ways keeping in

view the particular purpose. Ratios indicating profitability are

calculated on the basis of the profit and loss account; those

indicating financial position are computed on the basis of the

balance sheet and those which show operating efficiency or

productivity or effective use of resources are calculated on

the basis of figures in the profit and loss account and

balance sheet. These classifications are rather crude and

unsuitable to determine the profitability and financial

position of the business. To achieve this purpose effectively,

ratios may be classified as:-

Profitability Ratios

Coverage Ratios

Turnover Ratios

Liquidity Ratios

Leverage Ratios



Liquidity Ratios:

Liquidity is the ability of the firm to meet its current

liabilities as they fall due. Since liquidity is basic to

continuous operations of the firm it is necessary to

determine the degree of liquidity of the firm. To measure the

liquidity of a firm, the following ratios can be calculated:

Current Ratio

Quick or Acid Test or Liquid Ratio

Absolute liquid Ratio

Current Ratio

The current ratio is the ratio of current assets to current

liabilities. It is calculated by dividing current assets by

current liabilities. The current ratio of a firm measures its

short term solvency, which is the firm’s liability to meet short

term obligations. The higher the current ratio, the larger is

the amount of rupees available per rupee of current liability,

the more is the firm’s ability to meet current obligations and

the greater is the safety of funds of short term creditors.

Thus current ratio, in a way, is a measure of margin of safety

to the creditors.



Quick Ratio/ Acid Test Ratio

The acid test ratio is the ratio between quick assets and

current liabilities and is calculated by dividing the quick

assets by the current liabilities. The term quick assets refers

to current assets which can be converted into cash

immediately or at a short notice without diminution of value.

It is often referred to as quick ratio because it is a

measurement of a firm’s liability to convert its current assets

quickly into cash in order to meet its current liabilities.

Cash Position/ Absolute Liquidity Ratio

Cash is the most liquid asset. A financial analyst may

examine cash ratio and its equivalent to current liabilities.

Trade investment or marketable securities are equivalent to

cash. Therefore, they may included in the computation of

cash ratio.

Profitability Ratios:

A business firm is basically a profit earning

organization. The income statement of a firm shows the

profit earned by the firm during the accounting year.

Profitability is an indication of the efficiency with which the



operations of the business are carried on. Poor operational

performance may indicate poor sales and hence poor profits.

The profit figure has, however different meanings to different

parties in interested in financial analysis. The following are

the important profitability ratios:

Gross Profit Ratio

Net Profit Ratio

Operating Ratio

Operating Profit Ratio

Cash Profit Ratio

Expenses Ratio

Gross Profit Ratio

Gross profit is defined as the difference between net

sales and cost of goods sold. This ratio shows the margin left

after meeting manufacturing cost. It measures the efficiency

of production as well as pricing. A high ratio of gross profits

to sales is a sign of good management as it implies that the

cost of production of the firm is relatively low. A relatively

low gross margin is definitely a danger signal, warranting a

careful and detailed analysis of the factors responsible for it.



A firm should have a reasonable gross margin to ensure

adequate coverage for operating expenses of the firm and

sufficient return to the owners of the business.

Net Profit Ratio

This ratio shows the earning left for shareholders as a

percentage of net sales. It measures the overall efficiency of

production, administration, selling, financing, pricing and tax

management. A high net profit margin would ensure

adequate return to the owners as well as enable a firm to

withstand adverse economic conditions when selling price is

declining, cost of production is rising and demand for the

product is falling A low net profit margin has the opposite

implications.

Operating Ratio

Operating ratio establish the relationship between the

cost of goods sold and other operating expenses. It is

computed by dividing operating expenses by sales. The term

‘operating expenses’ includes (a) cost of goods sold, (b)

administrative expenses, (c) selling and distribution

expenses, (d) financial expenses but excludes taxes ,



dividends and extraordinary losses due to theft of goods,

goods destroyed by fire and so on.


This ratio is calculated by dividing operating profit by

sales

Cash Profit Ratio

The net profits of the firm are affected by the amount

or method of depreciation charged. Further, depreciation

being a non cash expense, it is better to calculate cash profit

ratio. This ratio measures the relationship between cash

generated from operations and net sales.

Expenses Ratio

The following ratios will help in analyzing the expenses ratio:

(1) Material consumed Ratio

= Material Consumed×100Net Sales

(2) Conversion Cost Ratio

= Labour Expenses + Manufacturing Expenses ×100

Net Sales

(3) Administration expenses Ratio



= Administration Expenses ×100 Net Sales

(4) Selling & Distribution Expenses Ratio

= Selling & Distribution Expenses ×100

Net Sales



Limitations of Ratios:

There are no accepted standards or rules of thumb for

all ratios which can be accepted as norms. It renders

interpretation of the ratios difficult.

Ratios of the past are not necessarily true indicators of

the future.

Ratios are only means of financial analysis and not an

end in itself. Ratios have to be interpreted and different

people may interpret the same ratio in different ways.

While making ratio analysis, no consideration is to be

made to the changes in the price levels and this makes

the interpretation of ratios invalid.

Ratio analysis is only a beginning and gives just a

fraction of information needed for decision making.

Therefore to have a comprehensive financial

statements, ratios should be used along with other

methods of analysis.

1.2.2 Trend Analysis

The financial statements may be analyzed by

computing trends of series of information. This method



determines the direction upwards or downwards and

involves the computation of the percentage relationship that

each statement item bears to the same item in base year.

Trend signifies tendency. Therefore, review and appraisal of

tendency in accounting variables is simply called as Trend

Analysis. Trend ratios are also an important tool of horizontal

financial analysis. Under this technique of financial analysis,

the ratios of different items for varies periods are calculated

and then a comparison is made. An analysis of the ratios

over the past few years may well suggest the trend or

direction in which the concern is going upward or downward.

The method of trend percentages is a useful analytical

device for the management since by substituting

percentages for large amounts; the brevity and readability

are achieved.

Uses of Trend Analysis

It helps in easily knowing the direction of movement of

activity of the business, i.e, whether upward or

downward.

Trend analysis is helpful in forecasting and budgeting.



It helps in comparing one period with another period.

It makes data brief and easily understandable.

Procedures for Calculating Trends

1. One year is taken as a base year. Generally, the first

or the last is taken as base year.

2. The figures of base year are taken as 100

3. Trend percentages are calculated in relation to base

year. If a figure in other year is less than the figure in

base year, the trend percentage will be less than 100

and it will be more than 100 if figure is more than

base year figure. Each year’s figure is divided by the

base year’s figure.

The interpretation of trend analysis involves a cautious

study. An increase of 20% in current assets may be treated

favorable. If this increase in current assets is accompanied

by an equivalent increase in current liabilities, then this

increase will be unsatisfactory.

The base period should be carefully selected. The base

period should be a normal period. The price level changes in

subsequent years may reduce the utility of trend ratios. If



the figure of the base period is very small, then the ratios

calculated on this basis may not give a true idea about the

financial data.

Limitations:

Trend analysis becomes incomparable if the same

accounting practices are not followed.

Trend analysis does not take into consideration the

price level changes.

Trend analysis must always be read with absolute data

on which they are based, otherwise the conclusions

may be misleading.

1.2.3 Comparative Income Statement Analysis

The income statement gives the results of the

operations of a business. The comparative income statement

gives an idea of the progress of the business over a period of

time. The changes in absolute data in money values and

percentages can be determined to analyze the profitability of

the business. In comparative statement there have four

columns. First two columns give figures of various items for

two years. Third and four columns are used to show increase



or decrease in figures in absolute amounts and percentages

respectively.

The analysis and interpretation of income statement

will involve the following steps:

The increase or decrease in sales should be compared

with the increase or decrease in cost of goods sold. An

increase in sales will not always mean an increase in

profit. The profitability will improve if increase in sales is

more than the increase in cost of goods sold. The

amount of gross profit should be studied in the first step.

The second step of analysis should be the study of

operational profits. The operating expenses such as

office and administrative expenses, selling and

distribution expenses should be deducted from gross

profit to find out operating profits. An increase in

operating profit will result from increase in sales position

and control of operating expenses. A decrease in

operating profit may due to an increase in operating

expenses or decrease in sales.



The increase or decrease in net profit will give an idea

about the overall profitability of the concern. Non

operating expenses such as interest paid, loss from sale

of assets, writing off of deferred expenses, payment of

tax etc.. decrease the figure of net profit. Some non

operating incomes may also be there which will increase

net profit. An increase in net profit will gave us an idea

about the progress of the concern.

An opinion should be formed about profitability of the

concern and it should be given at the end. It should be

mentioned whether the overall profitability is good or

not.

1.2.4 Cost Sheet

Cost sheet is a statement which provides for the

assembly of the estimated detailed cost in respect of a cost

centre or a cost unit. It is a detailed statement of the

elements of cost arranged in a logical order under different

heads. It is prepared to show the detailed cost of the total

output for a certain period. It is only a memorandum

statement and does not form part of the double entry

system.



Advantages:

It discloses the total cost and cost per unit of the

units produced.

It enables a manufacturer to keep a close watch and

control over the cost of production.

It helps the management in fixing selling prices.

It acts as a guide to the management and helps in

formulating production policy.

It is a simple and useful medium of communication of

costs to various levels of management.

1.3 Objectives of the Study

General objective:

The general objectives of the study are to correlate the

Cost-Profitability of Apollo Tyres pvt. Ltd, Kalamassery.

Specific objectives:

To understand the current liquidity, position of Apollo

Tyres Pvt Ltd.

To know the profitability (net profit/ net loss) of the

organization from its operations.

To assess the current and future trends.

To analyse the cost-profitability of the company.



To compare the change in profitability of the past five

years with regard to the cost.

1.4 Methodology

The study aims to analyse the financial performance, to

explain the reasons if there is worse performance and also to

offer solutions for the same.

Primary data:

Interaction with the staff of accounts department.

Interaction with the accounts manager.

Secondary data:

Journals

Periodicals

Reports

5 years final accounts

1.4.1 Tools for Data Analysis

Ratio analysis

Trend analysis

Comparative financial statement

Cost Sheet

1.5 Scope of the Study



The study gives an opportunity to deal with the

financial problem of the organization. It gives an idea about

the financial climate of the company. It helps to describe

the various financial aspects of the company on the basis of

Profit and Loss accounts. The important areas include cost

and profitability of the organization by analyzing the figures

in Annual Financial Statements. The study exposes the

possibilities of the company against the hard facts of

unfavorable financial indices and tries to analyze the

problem that led to the present situation in detail and

suggests workable situations.

1.6 Limitations of the Study

The study is restricted to the registered office of the

company at Cochin.

The study is mainly based on the secondary data;

from the annual reports of Apollo Tyres Ltd as such it

is subject to the limitations of the secondary data.

Only little primary data are used.

The period of analysis is limited to 5 years, i.e., 2006-

2007 to 2009-2010.

This study holds significance only in the present

situation.



The conclusions drawn are subjective to researcher’s

knowledge.

1.7 Chapterisation

Chapter I - Includes introduction, statement of the

problem, Theoretical framework, objectives of

the study, Methodology, Tools for data

analysis, scope and limitations of the study.

Chapter II - Deals with industry profile.

Chapter III - Includes company profile of Apollo Tyres

Pvt. Ltd.

Chapter IV - Includes data analysis and

interpretations.

Chapter V - Deals with findings, conclusion and

suggestions.



TYRE INDUSTRY

2.1 History of Tyres

The key milestone in the history of tyres was the

invention of the wheel by Sumerians 5000 years ago and it

has been refined over ages. Centuries back pieces of rubber

placed at four corners of the vehicle were used as tyres. The

earliest tires were bands of iron (later steel), placed on

wooden wheels, used on carts and wagons. The tyre would

be heated in a forge fire, placed over the wheel and

quenched, causing the metal to contract and fit tightly on

the wheel. But the whole scenario started changing when

Charles Goodyear invented vulcanized rubber in 1844 which

was later used for the first tyres. The first practical



pneumatic tyre was made by the Scot, John Boyd Dunlop, in

1887

Pneumatic tyres are made of a flexible Elastomeric

material, such as rubber, with reinforcing materials such as

fabric and wire. Tire companies were first started in the early

20th century, and grew in tandem with the auto industry.

Today, over 1 billion tires are produced annually, in over 400

tire factories, with the three top tyre makers commanding a

60% global market share

During the last 20 years tyre has been virtually

reinvented with most modern technologies like steel

radial tyres, a milestone in the tyre technology. Tyre

sector is experiencing a rapid improvement with the

advent of newer technologies.

2.2 International Scenario

The world tyre industry is worth around US $70 billion.

The industry is marked by the presence of around half a

dozen major players who together occupy 70% of world

market share.

2.2.1 International Market Share

Table 2.1 showing the international market share of

companies



Company Market Share

Michelin

Bridgestone

Good Year

Continental

Sumittomo

Pireli

Yokhohamo

Kumho

Others

19.5%

19.4%

16.6%

7.1%

4.9%

3.9%

3.5%

1.7%

23.5%

2.3 Indian Tyre Industry

The Indian Tyre industry dates back to1930 when

multinationals like Fire Stone, Good Year and Dunlop entered

in the market. MRF, Premier, CEAT at various locations in the

country carried out the domestic production of the tyre.

The tyre industry in India are classified under three

heads:-

1. First Generation companies : - Dunlop and Fire

Stone

(New Bombay tyres

international Ltd)



2. Second Generation companies : - MRF, CEAT, Good

year, Premier

3. Third Generation companies : - J K Tyres, Vibrant,

Apollo and Modi -rubber

The first Indian Company Dunlop Rubber Company was

incorporated in 1926. Today the tyre industry is growing

rapidly and today its turnover is 1,00,000 million and earning

an income of Rs.1,000 crore per annum for export.

2.3.1 Salient features of Indian tyre industry

Adaptability and absorption.

Exports

Innovations

Indigenous and ready availability

Technology progression

Wide product range for diverse use

Self sufficiency and vibrant marketing setup

2.3.2 Ranking of Indian tyre companies on the basis

of production

1. MRF Tyres Limited

2. Apollo Tyres Limited



3. JK Tyres Limited

4. CEAT Tyres Limited

5. Modi Rubber Tyres Limited

6. Birla Tyres Limited

7. Good Year India Limited

8. Vikrant Tyres Limited

2.3.3 Highlights

The tyre industry is a Rs. 9,000 crore industry.

The fortune of this industry depends on the

agricultural and industrial performance of the

economy, the transportation needs and the production

of vehicles.

While the tyre industry is mainly dominated by the

organized sector, the unorganized sector holds sway

in bicycle tyres.

In the last five years (2002-03 to 2008-09), the

industry managed to achieve a compounded annual

growth of only 4.40 per cent. However in the last fiscal

the industry registered a growth of 7 per cent.



Natural rubber constitutes 25 per cent of the total raw

material cost of the tyres.

The ratio of natural rubber content to synthetic rubber

content is 80:20 in Indian tyres, whereas worldwide,

the ratio of natural rubber to synthetic rubber is 30:70

2.3.4 Domestic Rank

Table 2.2 showing the domestic rank for tyre

companies

Companies

Segment

Truck

Light

Commercial

Vehicle

Apollo

Tyres 1 2

JK Tyres 2 4

MRF 3 3

CEAT 4 1



Table 2.3 showing the segment wise market share of tyre

companies in India

Company

Truck Car Farm Lcv

Apollo 28 10 21 19

MRF 16 25 24 20

Ceat 17 18 15 19

JK 12 14 8 15

Vikrant 11 1 7 2

Goodyear

5 12 23 2

Chart 2.1 showing the market share of companies



22%

17%

17%

24%

6%14%

MARKET SHAREAPOLLO JK TYRES OTHERS MRF GOOD YEAR CEAT

COMPANY PROFILE

3.1 History of Apollo Tyres

Apollo Tyres Ltd. one of the leading manufacturing

companies in India was named after the sun god. Apollo has

created a remarkable identity. For itself has become

synonymous with the brand. In its constant pursuit for

excellence, Apollo has come a long way up the corporate

gradient. The history of Apollo tyres. The company can be



traced back to 70,s when hardnosed MNC, s and Indian tyre

majors dominated the tyre industry.

ATL is the flagship of the Apollo group. It was formed in

1972, where Raunag Singh as the founder and chairman.

Post restructuring in the group, the management of the

company had been handed over to Raunag Singh son onkar

s kanwar. Operation began in 1977 with setting up of the

plant to manufacture truck and tractor rear tyre at the

annual capacity of 0.42mm tyres. The plant was setting up

at Perambra near Kochi in Kerala was with a technical

collaboration of general tyre international company, the

fourth largest company in the world.

Kerala plant began its commercial production in the

year 1977.the company incurred heavy losses from 1977 to

1781.it was 1982 that Apollo formulated and put in to action

a serious of pragmatic profit generating policies geared

lower run around. The Kerala plant has been besieged but

lower problems in the past. In august/september1995 the

plant had to be shut down for a period of two weeks

following the go slow tactics and disruptive action by the



workers. In the financial year 1999 too, the plant faced labor

unrest for a prolonged period.

To reduce dependence on the single plant.ATL put up

its second plant in Baroda, Gujarat in 1991 at an annual

capacity of 0.68mm tres.ATL is entitled to certain fiscal

benefits till the year 2005 on its Baroda plant. In February

2000, continental increase in the growth of Germany picked

up by 15%stake in the company.

A plant was installed at limda in capacity of 65 lakhs

per annum commencing production in September 1977 in

the record time of 16 months. BIFR (Board of Industrial

Finance Reconstruction) handed over the premier tyres ltd to

ATL on 17th April 1995 with the manufacturing base to

emerge as no 1 tyre company in India

As a part of further expansion plans, the new tube plant

has been installed at Ranjangaon near Pune in the state of

Maharashtra, the commercial production of Ranjangaon near

Pune in the state of Maharashtra, the commercial production

of which began in April 1996. Recently the company

recognized itself using profit centre concept for all locations



and division. This has been done with a view to enhance the

efficiency and effectiveness of the organization by

monitoring the profitability of the units, especially in quality.

Apollo tyre has a clear vision to become a leader in tyre

industry globally and domestically.

Years ago, with a view to position itself in the premier

tyre segment, Apollo decided to price its brands reasonably

higher than its competitors. It has targeted a customer

segment for which price was almost a non-issue. The

criterion was the product benefit, premium branding lead to

the development of a niche that compromised those who

looked for the best tyre and not necessarily the best bargain.

Believing firmly in philosophy of always looking for new

answers, today’s tyre plant Apollo tyre has all along

envisioned action that would challenge the conventional

wisdom of tyre industry. Call it holistic thinking or innovative

marketing strategies, as a corporation. Apollo has always

thrived on huge challenges so as to turn them around to its

advantage.

3.2 Brief History of Premier Tyres



The premier tyre were incorporated in 19th October

1959.the foundation stone was laid by none other than

Jawaharlal Nehru, the prime minister of India, on 18th

January 1960.the company was established in collaboration

with the Uni Royal Inc.USA. The company started its

commercial production in May 1962 with production capacity

of 30 million tons per day. The company was owned by the

Desai Group, Mumbai. This is the first tyre company owned

by the Indian. During the seventies and eighties company

was running in a huge profit. The main reason for this lack of

competition was the tyre named “Lug Master” was a gigantic

success in the market.

But gradually the profit of the company declined. More and

more players entered in the market. The competition

became intense. It was declared a sick unit.

The government of Kerala requested Apollo tyres to

take over the unit and bring it back to form. In 1995 the

premier tyres was taken over by the Apollo tyres. At that

time the share capital of premier tyres was 3.25 crores.

Apollo tyres introduced another 10 crores. After the takeover

in 1995, Apollo tyres initiated their management practices in



the company. The ultimate aim was to make the company in

to a profit making one. Even with the existing machinery and

all, the production was increased from 35tonnes to 80tonnes

(daily production) many measures were taken to increase

the production and reduce the cost of production. According

to the agreement of lease, the goods produced with the

machines of premier tyres will be brought in to the market

and sold only in the name of Apollo tyres. The Premier tyres

had a debt of 42 crores taken as loan from the outsiders and

other financiers. Apollo tyres settled all the loans by 1998

and now the company is going on a profit.

3.3 Manufacturing Units of Apollo Tyres Ltd

Perambra at Kerala [1977]

Limda, Baroda at Gujarat [1991]

Premier Tyres, Kalamassery at Kerala [taken over at

1995]

Rangoan at Pune [1996- Manufacturing of tubes]

Conversion Facilities, TCIL in Calcutta

As the county’s leading tyre-manufacturing company,

Apollo takes pride in its manufacturing units spread across



the country, using state-of-art equipment and Cutting edge

technology. The units have the ability to utilize their

potential to the optimum and meet the growing and over

changing customer needs. In keeping the policy to move

with the times and use superior technology all the units are

digitalized. This ensures minimum errors and effective

quality control that helps to reduce re-manufacturing cost.

Apollo’s journey began in 1977 when Apollo set up its

first manufacturing unit Perambra in Kerala with the

production capacity of 188 tones. The company plans to

increase this capacity from 132 tons per day to 200 tons by

2002 with an investment of Rs.70 Crores.

The Limda plant was installed in 1991, following, which

Apollo brand products were manufactured there. Currently

the plant has a total capacity of 230 tones. The existing

plant is being modernized with an investment of rs.110

Crores.

In addition, Apollo also built a new plant at Ranjangaon

at Pune in 1997 to manufacture tyre tubes. The plant has a



production capacity of 34 ton

3.4 Products manufactured at Kalamassery unit

Apollo offers a smart choice for its consumers

capturing the essence of luxury style utility and safety

product for varying customer needs. Avilable for its customer

needs is a wide range of smart choice tyre, alloy wheels and

rethreading material which combine performance, safety

and design. Fine tunes to meet varying vehicle and customer

requirements.

Truck and bus tyres

Light truck tyres

Farm tyres

Retreading materials

3.5 Future plans

The main and primary plan of the company is to be an

US$2010million company by the year of 2010

The technology journey is moving ahead at full

throttle.ATL plans to launch a truck radial team which

team which will focus on making.ATL self reliant in

technology to become a global player, all efforts are



focused on high performance tyres and other niche

product.

A new performance and career enhancement system

will soon be launched

Quality journey goal is to be established at ATL as an

organization that is recognized worldwide for the

quality processes and practices. Its objective is to win

the “demand award within a stipulated time frame”

The application technology journey is working towards

giving business a cutting edge. Its initiative will

automate business and empower employees with right

information to make better decisions.

3.6 Objectives of the company

Objectives of the Apollo tyres are:

To enhance the company’s share holders value

Employee satisfaction

Revenue growth

Strengthen supply chain market share, cost

effectiveness in all segments



High quality technology and superior products

Consistent production through harmonious industrial

relation.

To become a significant global player providing

customer delight.

To widen the distribution networks and strengthen the

field service organization.

3.7 About premier unit

Taken over by Apollo tyres in April 1995

Location : Kalamassery, Cochin

Year of establishment : 1962

Land area : 117908sq.m

Plant area : 38595sq.m

Power requirement : 6000 KW/day

Installed capacity : 60MT

Production : 86tone/day

Employee strength

Management staff : 140

General staff : 108



Workmen : 797

Trainees : 259

Total : 1304

3.8 Core Values Of The Company

C - CARE FOR CUSTOMER

R - RESPECT FOR ASSOCIATES

E - EXCELLENCE OF TEAM WORK

A - ALWAYS LEARNING

T - TRUST MUTUALLY

E - ETHICAL PRACTICES

3.9 VISION

“A Leader in the Indian tyre industry and a significant

player in the global tyre industry and a brand of choice,



providing customer delight and continuously enhancing

stakeholder value”

3.10 Quality Policy

Apollo tyre limited follows strict quality control

measurement to enhance customer quality control

measurement to enhance customer delight .Apollo tyres

limited gives much emphasis to retain the quality of the

products. The company’s quality policy is concentrates in

each state of the tyre manufacturing process and on all the

activities related to production.

3.11 Quality Pledge

“We the people of Apollo tyres ltd, will create an

enterprise committed to quality. It is our policy to design,

manufacture and service our products to provide the level of

quality and value that needs every customer need”

We will aim to generate customer enthusiasm through

continuous improvements in our products and services.

3.12 Corporate Goals

Creating Social Responsibility

Learning and Development

Family Focus



Hygienic Factors

Employee Involvement & Cultural Building

3.13 The three pillars of our company:

People: Happiness and development among whole 10000

employees and their families.

Quality: Not only in products, but also in every activity.

Technology: Not only in product bases technology but also

to incorporate technologies in all our walk of life.



3.14 Share Holding Pattern

Chart 3.1

Shows the share holding pattern of the Apollo Tyres pvt. Ltd.

15%

39%18%

26%2%

SHARE HOLDING PATTERNFIIs/NRIs/Foreign Bodies Corporate Promoters,Fls/Banks/Mutual Funds PublicGovt of Kerala &Others

3.15 Product Segment

Chart 3.2 shows the product segment of Apollo

Tyres pvt. Ltd.



46%

8%

33%

10%3%

PRODUCT SEGMENTTruck Light Truck PCR Agriculture Others

3.16 Future Focus

A formidable distribution network, strong brand equity

and the ever increasing demand for its products have

encouraged Apollo tyres Ltd to plan a new manufacturing

unit with 100 tons per day capacity for manufacturing cross

ply radial tyres involving a capacity outlay of Rs.450 crores.

The new facility would focus on creation of captures for

manufacturing track and bus radial tyres to meet the

merging demand for radial tyres in the segments

3.173.17 Departments in Apollo TyresDepartments in Apollo Tyres

Human Resource Department

Finance Department



Purchase Department

Production Department

Production Planning & Control Department

Engineering Department

Technical Department

Research & Development Department

Quality Assurance Department

Systems Department

Marketing Department

3.17.13.17.1 Finance Department Finance Department

Chart 3.3 showing the Organization structure of Finance Department:


DIVISIONAL HEADCOMMERCIAL

GROUP MANAGER(COMMERCIAL)

MANAGER(ACCOUNTS)

GROUP MANEGER(ENG.STORE&PURCHAS

E)

ASSO.MANAGER(COSTING)

EXECUTIVE(RMS)

ASSO.MGR./ EXECUTIVE

(FGS)

EXECUTIVE(COSTING)



EXECUTIVE(PAY ROLL)

EXECUTIVE(ACCOUNTS&EXCI

SE)

ENGG.STORESEXECUTIVE(PURCHASE)


3.17.2 Accounts section:

The finance department falls under the financial

controller. Under him comes the bill section where the

Accounts Officer is assisted by an Assistant. On the other

hand, falls the Deputy Manager of costing and his assistant.

The third division of C5 is the Deputy Financial Contoller I &

II. Under Deputy Financial Controller II there is an A.O(E),

where E stands for established ie.., payment of salaries and

wages and welfare measures expenses are accounted.

Under the Deputy Financial Controller-I falls the various

assistants who are divided into four major accounts function

i.e.., costing, marketing, general accounts and financial

accounts. The internal audit function is carried out in the

company by the internal audit section headed by Chartered

Accountant. Regular reports are given to the department

heads for taking corrective actions where ever necessary

which is then submitted to the Chairman and Managing

Director.

The company has an effective budgetary control

system. The budgets are reviewed and deviations are

analyzed and necessary corrective action is taken. Important



variations relating to raw materials, furnace oil, electricity

etc are analyzed and furnished to various level of

management for corrective actions. The key budget factor

test the availability of power is estimated and rough pictures

of anticipated power shortage are drawn up. The possible

production and the capacity required are taken into account

and the source of power is also found out. The main function

of bill section is concerned with passing of bills which is done

immediately after checking into quotation, order and

products received and the work achieved. Bills are passed

after seeing that the materials received are in conformity

with the purchase order. The MIS department is handled by

the finance department in Apollo under the costing and

budgetary control section.

Financial section of the ATL, which is included in the

commercial department, is concerned with the planning and

controlling of the firm’s financial resources .The divisional

head controls the functions. The duties include providing

information to formulate accounting and costing policies,

preparation of financial reports and the direction of internal



auditing budgeting. The company has to maintain records

including quantitative details and situation of fixed assets.

3.17.3 Payroll section

It involves the handling of wages, salaries; keeping

records of employees including information about their basic

allowances, maintaining their attendance etc for the

convenience of employee .Payments are dispersed through

banks or ATM’s.

3.17.4 Costing

The process of costing is based on the financial

accounts. The price of a single tyre is determined by taking

into consideration, the actual cost involved in making tyres.

The company follows the rule of having only 0.5 or less

percentage of scrap. This helps minimizing loss.

3.17.5 Control

It includes monitoring the electricity charges, wastages

scrap and other avoidable expenses .Distribution of payment

though is a step also taken under this function .This has

helped in reducing manpower security requirements and

also other risks to be taken by the company. It maintains the



minimum inventory of 6-7 days, as this is required for aging

time of tyres. A total of 1.32 hours is needed to make a tyre,

make it heat resistant, strong, load resistant etc.

3.17.6 Excise

This section deals with the duty that is being paid for

the tyres reach the market both nationally and

internationally .ATL has to pay 16% excise duty for dutiable

items for domestic purposes to the Central Government .For

exports no excise duty has to be paid.ATL gives about 2-3

crore excise duty in spite of all these measures.



DATA ANALYSIS AND INTERPRETATIONS

4.1 LIQUIDITY ANALYSIS

4.1.1 Current Ratio:

The current ratio of a firm measures its short term

solvency, which is the firm’s liability to meet short term

obligations. The higher the current ratio, the larger is the

amount of rupees available per rupee of current liability, the

more is the firm’s ability to meet current obligations and the

greater is the safety of funds of short term creditors.

Current Ratio = Current Asset / Current

Liability

Significance:

The current ratio of firm measures its short term

solvency, i.e. its ability to meet short term obligations. In a

sound business a current ratio of 2:1 is considered an ideal

one. It provides a margin of safety to the creditors.



Table 4.1.

Showing the Calculation of Current Ratio

YearCurrent Asset

(Rs. in crores)

Current Liability

(Rs. in crores)

Current Ratio

2006

2007

2008

2009

2010

1010.51

1034.63

1125.80

1040.70

1216.47

415.72

542.20

565.83

460.12

690.66

2.43

1.91

1.99

2.26

1.76

Source : Annual Report

Inference:

A Ratio is greater than one, means the firm has more

current assets then current liabilities. From the above chart

we can understand that the firm has attained the norms of

2:1 in 2006 &2009 the other three years have ratio nearly to

2. It is the normal situation. So the current ratio is favourable

for the company.



Chart 4.1.

Showing the relationship between Current asset and

Current liability

2006 2007 2008 2009 20100

200

400

600

800

1000

1200

1400

1010.51 1034.63

1125.8

1040.7

1216.47

415.72

542.2 565.83

460.12

690.66

CURRENT ASSET CURRENT LIABILITY

Inference: This chart shows that there were adequate

current assets to meet the current liabilities in all years. The

current assets and current liability is moving in the same

direction.



4.1.2 Quick Ratio:

The term quick assets refers to current assets which

can be converted into cash immediately or at a short notice

without diminution of value.

Quick Ratio = Quick Asset / Current Liability

Significance:

An Acid Test Ratio of 1:1 is considered satisfactory as a

firm can easily meet all its current liabilities. If the ratio is

less than1:1, then the financial position of the concern shall

be deemed to be unsound.

Table 4.2.

Showing the calculation of Quick Ratio

Year

Quick Asset

(Rs. in crores)

Current Liability

(Rs.in crores)

Quick Ratio

2006

2007

2008

2009

2010

406.6

375.16

421.13

428.03

396.53

415.72

542.20

565.83

460.12

690.66

0.98

0.69

0.74

0.93

0.57

(Source: Annual Report)



Inference: The general norm for quick ratio is 1:1. It

means that a firm can meet all its current claims. Apollo

tyres has not secured liquid asset to meet current liability.

From this table we could understand that company’s liquid

position is not satisfactory.

Chart 4.2.

Showing the relation between quick asset and current liability

2006 2007 2008 2009 20100

100

200

300

400

500

600

700

800

406.6375.16

421.13 428.03396.53

415.72

542.2565.83

460.12

690.66

QUICK ASSET CURRENT LIABILITY

Inference : This figure shows that there is no adequate

quick asset to meet the current obligations in any of the



years. As compared to other years, in 2010 the variation

between the quick asset and current liability is vast.



4.1.3 Absolute Liquidity Ratio

Cash is the most liquid asset. A financial analyst may

examine cash ratio and its equivalent to current liabilities.

Absolute Liquidity Ratio = Absolute liquid asset /

Current Liability

Significance:

Acceptable norm for this ratio is 50% or 0.5:1 i.e, Re.1

worth absolute liquid asset are considered adequate to pay

rs.2 worth current liabilities in time as all the creditors are

not expected to demand cash at the same time and then

cash may also be realized from debtors.

Table 4.3.

Showing the calculation of Absolute liquid ratio

Year

Absolute Liquid Asset (Rs.in

Crores)

Current Liability

(Rs.in Crores)

Absolute Liquidity

Ratio200620072008200

407.41124.70260.28455.52276.26

415.72542.20565.83460.12690.66

0.980.230.460.990.40



92010




Inference: Above table shows the liquid cash available to

meet its current liability is favourable in 2006 and 2009.

In2007 the firm has only 0.23 paise to meet its current

liability for every one rupee. In 2008 & 2010 ratio is lightly

low as it is 0.46 & 4.40. this ratio shows a fluctuating trend.

Chart 4.3.

showing the relationship of absolute liquid asset and current liability

2006 2007 2008 2009 20100

100

200

300

400

500

600

700

800

407.41

124.7

260.28

455.52

276.26

415.72

542.2565.83

460.12

690.66

ABSOLUTE LIQUIDITY ASSET CURRENT LIABILITY

Inference: In 2006 and 2009 the absolute liquid asset

and current liability are having only slight changes. In 2007



and 2010 there is no sufficient absolute liquid asset to meet

its current liability. In 2008 the two variables are nearby to

the ratio 0.5:1

4.2 PROFITABILITY ANALYSIS

4.2.1 Gross Profit Ratio:

Gross profit is defined as the difference between net

sales and cost of goods sold.

Gross Profit Ratio = (Gross profit / Net Sales) X

100

Significance:

A high ratio of gross profits to sales is a sign of good

management as it implies that the cost of production of the

firm is relatively low. A relatively low gross margin is

definitely a danger signal, warranting a careful and detailed

analysis of the factors responsible for it.

Table 4.4

Showing the calculation of Gross Profit Ratio

YEAR Gross Profit

(Rs.in

Net Sales

(Rs.in Crores)

Gross Profit Ratio



Crores)

2006

2007

2008

2009

2010

173.36

259.65

421.26

269.17

720.98

2625.52

3292.33

3693.93

4070.44

5036.56

6.60

7.89

11.40

6.61

14.31


Inference: The table shows the year 2006, 2007, 2008, the

gross profit ratio is increasing in 6.6%, 7.89%, and11.4%

respectively. But the year 2009 it decreased to 6.61. In the

year 2010 the gross profit increased as compared to

previous years. Therefore the gross profit ratio in all the

years is favorable to the firm and also it shows a fluctuating

trend.

Chart 4.4

Showing the relation between gross profit and net sales



2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

173.36 259.65421.26

269.17

720.98

2625.52

3292.33

3693.93

4070.44

5036.56

GROSS PROFIT SALES

Inference: This indicates that the gross profit is

increasing with the increase in sales. But in 2009 the profit

decreases even if there is increase in sales. This may be due

to the increase in the manufacturing expenses.

4.2.2 Net Profit Ratio:

This ratio is used to measure the overall profitability

and hence it is very important to proprietors. It is an index of

efficiency and profitability of business.

Net Profit Ratio = (Net Profit after Tax / Net

Sales) X 100



Significance:

Higher the ratio better is the operational efficiency of

the concern. A low net profit margin has the opposite

implications.

Table 4.5.

showing the calculation of net profit ratio

Year Net Profit

(Rs.in Crores)

Net Sales

(Rs.in Crores)

Net Profit Ratio

2006

2007

2008

2009

2010

72.37

113.42

219.30

108.11

414.99

2625.52

3292.33

3693.93

4070.44

5036.56

2.76

3.45

5.94

2.66

8.24

Source: Annual Report

Inference: In the year 2006- 2008 the company was

able to acquire profit in an increasing trend. In 2009 the ratio

declined to 2.66. but the firm was able to recover that loss

by increasing the net profit to 8.24 in the year 2010.

Chart 4.5.

showing the net profit and sales



2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

72.37 113.42 219.3108.11

414.989999999999

2625.52

3292.33

3693.93

4070.44

5036.56

NET PROFIT SALES

Inference: This chart shows that net profit increases with

the increase in net sales. This will happen when the cost of

sales decreases. A reverse of this takes place in the year

2009 only.

4.2.3 Operating Ratio:



Operating ratio establish the relationship between the

cost of goods sold and other operating expenses. It is

computed by dividing operating expenses by sales.

Operating Ratio = (Operating Cost / Net

Sales) X 100

Significance:

Lower the ratio, better it is. Higher the ratio, the less

favourable it is because it would have a smaller margin of

operating profit for the payment of dividends and the

creation of reserves.

Table 4.6.

Showing the calculation of operating ratio

Year Operating Cost

Rs.in Crores

Net Sales

Rs.in Crores

Operating Ratio

2006

2007

2008

2009

2010

2474.29

3054.30

3308.28

3832.32

4364.68

2625.52

3292.33

3693.93

4070.44

5036.56

94.24

92.77

89.56

94.15

86.66




Inference: The table shows the operating ratio has the

declining position up to the year 2008. In the year 2009 it is

increased to 94.15.But in 2010 it highly declined to 86.66. So

it is favorable to the firm. This shows that the operating ratio

have an fluctuating trend.

Chart 4.6.

Showing the relation of operating cost and sales

2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

2474.29

3054.33308.28

3832.32

4364.68

2625.52

3292.33

3693.93

4070.44

5036.56

OPERATING COST NET SALES



Inference: This chart shows that the operating cost is

increasing with the increase in sales. In 2010 the percentage

of increase in net sales is higher than other years. But the

operating cost is having only a change which is likely to be

constant.

4.2.4 Operating Profit Ratio:

This ratio is calculated by dividing operating profit by sales

Operating Profit Ratio = (Operating Profit / Net Sales)

X 100

Significance:

This ratio indicates the portion remaining out of every

rupee worth of sales after all operating costs and expenses

have been met. Higher the ratio, the better it is.

Table 4.7.

Showing the operating profit ratio

Year Operating Profit

Rs.in Crores

Net Sales

Rs.in Crores




2006

2007

2008

2009

2010

151.23

238.04

385.65

238.12

672.38

2625.52

3292.33

3693.93

4070.44

5036.56

5.76

7.23

10.44

5.85

13.35




Inference: This shows the operating profit is increasing for

three years, and decreased in 2009. But the firm is able to

attain a high profit in the next year as compared to previous

year. It is a favourable situation.

Chart 4.7.

Showing the relation between operating profit and net sales

2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

151.23 238.04 385.65 238.12

672.38

2625.52

3292.33

3693.93

4070.44

5036.56

OPERATING PROFIT SALES

Inference : The operating profit is increasing with the

increase in sales. But in the year 2009 the operating profit is

decreased, even there is an increase in sales. This is due to

the increase in manufacturing expenses.



4.2.5 Cash Profit Ratio:

This ratio measures the relationship between cash

generated from operations and net sales.

Cash Profit Ratio = (Cash Profit /Net Sales) X

100

Table 4.8.

Showing the cash profit ratio

Year Cash Profit

Rs.in Crores

Net Sales

Rs.in Crores

Cash Profit Ratio

2006

2007

2008

2009

2010

151.11

187.80

307.11

279.29

537.77

2625.52

3292.33

3693.93

4070.44

5036.56

5.76

5.70

8.31

6.86

10.68


Inference: This shows that the cash profit has increased for

three years, and decreased in the year 2009. But the firm is



able to increase it in the year 2010 as compared to previous

year. It is a favourable situation.

Chart 4.8.

Showing the relationship between cash profit and net sales

2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

151.11 187.8307.11 279.289999999999

537.770000000001

2625.52

3292.33

3693.93

4070.44

5036.56

CASH PROFIT NET SALES



Inference: This chart reveals that cash profit increases with

the increase in sales. But the situation was reversed only in

2009.

4.2.5 Comparative Income Statement Analysis

The comparative income statement gives an idea of the

progress of the business over a period of time. The changes

in absolute data in money values and percentages can be

determined to analyze the profitability of the business.

Table 4.9

Showing comparative income statement for the years 2005- 2006

Particulars 2005

(Rs.in Crores)

2006

(Rs.in Crores)

Increase/

Decrease

Percentage of

Increase and

decrease

Net Sales

Less:

Cost of goods sold

2225.49

1777.17

2625.52

2148.26

(+)400.03

(+)371.

17.98

20.88



Gross Profit (A)

Operating Expenses:

Administration expenses

Selling Expenses

Total Operating Expenses (B)

Operating Profit (A)- (B)

Less:

Interest paid

Net profit before tax

Less:

Income tax

09

448.32 477.26 (+)28.94

6.46

155.41

165.06

177.95

148.18

(+)22.54

(-)16.88

14.50

(-)10.23

320.47 326.13 (+)5.66 1.77

127.85

42.94

151.13

50.56

(+)23.28

(+)7.62

18.21

17.75

84.91

17.28

100.57

28.20

(+)15.66

(+)10.92

18.44

63.19

Net profit after tax

67.63 72.37 (+)4.74 7.01




Inference: The above comparative income statement

reveals that there has been an increase in net sales of

17.98% while the cost of goods sold has increased nearly by

20.88% thereby resulting in an increase in the gross profit of

6.46%. Although the operating expenses have increased by

1.77% the increase in gross profit is sufficient to compensate

for the increase in operating expenses and hence there has

been an overall increase in operational profits. There is an

increase in net profit after tax by 7.01%. So it may be

concluded that there is a sufficient progresses in the

company and the overall profitability of the company is good

in the year 2006 compared to 2005.

Table 4.10

showing comparative income statement for the years 2006- 2007

Particulars 2006(Rs.in Crore

s)

2007(Rs.i

n Crore

s)

Increase/

Decrease

Percentage of Increase /Decrease



Net SalesLess:Cost of goods sold

Gross Profit (A)

Operating Expenses:


Selling Expenses


Operating Profit

(A) - (B)

Less:Interest paid


Less: Income tax

2625.52

2148.26

3292.33

2641.03

(+)666.81

(+)492.77

25.40

22.94

477.26

651.30

(+)174.04

36.46

177.95

148.18

221.23

192

(+)43.28

(+)43.82

24.32

29.57

326.13

413.23

(+)87.1 26.71

151.13

50.56

238.07

52.65

(+)86.97

(+)2.09

57.53

4.13

100.57

28.20

185.42

71.80

(+)84.85

(+)43.2

84.37

154.61


72.37 113.42

(+)41.08

56.79




Inference: The comparative income statement given above





26.71% the increase in gross profit is sufficient to

compensate for the increase in operating expenses and

hence there has been an overall increase in operational

profits. There is an increase in net profit after tax by 56.79%.

So it may be concluded that there is a sufficient progresses

in the company and the overall profitability of the company

is good than 2006.



Table 4.11


Particulars 2007(Rs.in

Crores)

2008(Rs.in

Crores)

Increase/

Decrease

Percentage Of

Increase/Decrease

Net SalesLess:Cost of goods sold

Gross Profit (A)

Operating Expenses:


Selling Expenses


3292.33

2641.03

3693.93

2780.22

(+)401.6

(+)139.19

12.20

5.27

651.30 913.71 (+)262.41

40.29

221.23

192

258.5

269.72

(+)37.27

(+)77.72

16.85

40.48

413.23 528.22 (+)114.99

27.83



Operating Profit

(A) - (B)Less:Interest paid

Net profit before taxLess:Income tax

238.07

52.65

385.49

52.04

(+)147.42

(-)0.61

61.92

(-)1.16

185.42

71.80

333.44

114.14

(+)148.03

(+)42.15

79.84

58.84


113.42 219.30 (+)105.88

93.35


Inference : The comparative income statement given above








profits. There is an increase in net profit after tax by 93.35%.

So it may be concluded that there is a sufficient progresses



in the company and the overall profitability of the company

is good when compared to 2007.

Table 4.12


Particulars 2008

(Rs.in Crores)

2009

(Rs.in Crores)

Increase/

Decrease

Percentage of

Increase/Decrease

Net Sales

Less:

Cost of goods

3693.93

2780.22

4070.44

3316.82

(+)376.51

10.19

17.30



sold

Gross Profit (A)

Operating Expenses:


Selling Expenses


Operating Profit

(A)- (B)

Less:

Interest paid


Less:

Income tax

(+)536.6

913.71 783.62 (-)160.09

(-)17.52

258.5

269.72

234

281.62

(-)24.5

(+)11.9

(-)9.48

4.41

528.22 515.62 (-)12.6 (-)2.39

385.49

52.04

238

66.84

(-)147.49

(+)14.8

(-)38.26

28.44

333.44

114.14

121.16

63.04

(-)162.29

(-)51.1

(-)48.67

(-)44.77


219.30 108.12 (-)111.18

(-)50.70


Inference : The comparative income statement given above





17.30% thereby resulting in an decrease in the gross profit

of 17.52%. The operating expenses have decreased by

2.39%. even if the operating expenses decreased the net

profit goes done because of the declining in operating profit

and gross profit and also increase in cost of goods sold which

is comparatively higher than 2008.



Table 4.13


Particulars 2009(Rs.in

Crores)

2010(Rs.in

Crores)

Increase/Decrease

Percentage Of

Increase/Decrease

Net Sales

Less:

Cost of goods sold

Gross Profit (A)

Operating Expenses:


Selling Expenses


Operating Profit

(A) - (B)

Less:

Interest paid

4070.44

3316.82

5036.56

3625.62

(+)966.12

(+)308.8

23.74

9.31

783.62 1410.94

(+)657.32 87.22

234

281.62

351.52

387.28

(+)117.52

(+)105.66

50.22

37.52

515.62 738.8 (+)223.18 43.28

238

66.84

672.14

73.95

(+) 434.14

(+)7.11

182.41

10.64

121.16 598.19 (+)427.03 249.49




Less:

Income tax

63.04 183.20 (+)120.16 190.61


108.12 414.99 (+)360.87 283.82


The comparative income statement given above








profits. There is an increase in net profit after tax by

283.82%. it may be concluded there is a sufficient

progresses in the company and the overall profitability of the

company is good.

Chart 4.9

Showing the percentage of increase/ decrease of net profits for 5 years



2005-2006 2006-2007 2007-2008 2008-2009 2009-20100

50

100

150

200

250

300

7.01

56.79

93.35

50.7

283.82

percentage of increase or decrese in net profit

Inference : The net profit of Apollo is increasing from 2006-

2008. In 2009 it decreased by 50.7%. But it was able to be

recovered in 2010.

4.3 COST ANALYSIS

4.3.1 Expenses Ratios:

The expenses ratios are the ratios which imply the

expenses incurred by the firm. By analyzing this, the firm

could understand the areas where the expenses are

increased and can take necessary steps.

Material Consumed Ratio = (Material Consumed / Net

Sales) X 100



Table 4.14

showing the material consumed ratio

Year Material

Consumed

(Rs.in Crores)

Net Sales

(Rs.in

Crores)

Material

Consumed

Ratio

2006

2007

2008

2009

2010

1850.34

2264.70

2393.02

2804.26

3057.90

2625.5

2

3292.3

3

3693.9

3

4070.4

4

5036.5

6

70.48

68.79

64.78

68.89

60.71


Inference: The materials consumed were decreasing in all

years except in the year 2009. The firm is able to decline it

in 2010. This is favourable condition.

Chart 4.10



Showing the relation of material consumed and net sales

2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

1850.34

2264.72393.02

2804.263057.9

2625.52

3292.33

3693.93

4070.44

5036.56

MATERIAL CONSUMED NET SALES

Inference : The above figure clearly shows a direct relation

with material consumed and net sales. When the material

consumed increases the net sales will also increases.

4.3.2 Conversion Cost Ratio



Conversion Cost Ratio = (Labour Expenses + Manufacturing

Expenses) /Net sales X 100

Table 4.15

Showing the conversion cost ratio

Year Conversion Cost

(Rs.in Crores)

Net Sales

(Rs.in Crores)

Conversion Cost Ratio

2006

2007

2008

2009

2010

2544.58

3096.34

3377.94

3801.81

4394.22

2625.52

3292.33

3693.93

4070.44

5036.56

96.88

94.05

91.45

93.40

87.25


Inference : The conversion cost were decreasing in all years

excepting in the year 2009. The firm is able to

decrease it in 2010. This is favourable condition, but this

ratio shows a fluctuating trend.



Chart 4.11.

Showing the conversion cost & net sales

2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

2544.58

3096.343377.94

3801.81

4394.22

2625.52

3292.33

3693.93

4070.44

5036.56

CONVERSION COST SALES

Inference: This study shows that when the conversion

charges increased the sales also increased. Both the

conversion cost and the sales are showing an increasing

trend.



4.3.3 Administration Expenses Ratio

Administration Expenses Ratio = (Administration Expenses /

Net Sales) X 100

Table 4.16.

Showing the administration expenses ratio

Year Administration Expenses

(Rs.in Crores)

Net Sales

(Rs.in Crores)

Administration

Expenses Ratio

2006

2007

2008

2009

2010

117.95

221.23

258.50

234

351.52

2625.52

3292.33

3693.93

4070.44

5036.56

6.78

6.72

6.80

5.75

6.98


Inference: This shows that the year 2010 is having the

highest ratio and 2009 shows the lowest. The other three

years ratios are 6.78%, 6.72%, 6.80% respectively. Hence

the ratio is increased from 2009, it is unfavourable situation

for the company.



Chart 4.12.

Showing the administration expenses and net sales

2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

117.95 221.23 258.5 234351.52

2625.52

3292.33

3693.93

4070.44

5036.56

ADMINISTRATION EXPENSES NET SALES



INFRENCE: In this chart the net sales is increasing. The

sales goes on increasing even if there is upward or

downward movement in the administration expenses.

4.3.4 Selling and Distribution Expenses

Selling & distribution Expenses Ratio = (Selling

Expenses / Net sales) X 100

Table 4.17.

Showing the selling expenses ratio

Year Selling & Distribution

Expenses

(Rs.in Crores)

Net Sales

(Rs.in Crores)

Selling Expenses

Ratio

2006

2007

2008

2009

2010

148.18

192

269.72

281.62

387.28

2625.52

3292.33

3693.93

4070.44

5036.56

5.64

5.83

7.30

6.92

7.69


Inference : This ratio is increasing in all years except in the

year 2009 as it decreases from 7.3% to 6.92%. It shows a



fluctuating trend. From the above table we could understand

that the selling expenses ratio tends to increase, which is not

favourable for the firm.

Chart 4.13.

Showing the relation between selling expenses and net sales



2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

148.18 192 269.72 281.62387.28

2625.52

3292.33

3693.93

4070.44

5036.56

SELLING EXPENSES RATIO NET SALES

INFERENCE: Here the selling expenses and net sales

are increasing which shows that the net sales will increase

with the increase in salling expenses.

4.3.5 Cost Sheet



It is a detailed statement of the elements of cost

arranged in a logical order under different heads. It is

prepared to show the detailed cost of the total output for a

certain period.

Table 4.18

Cost sheet for the year ending 31 March 2006

PARTICULARS AMOUNT

(In Crores)

Materials Consumed:

Factory Overhead:

Stores & spares consumed

Power & fuel

Repairs & maintenance:

Machinery

Building

Others

Rent

Insurance

Rates & Taxes

Add: Opening work in progress

Less: Closing work in progress

Factory Cost

24.75

121.82

4.95

0.97

8.77

7.67

7.50

9.79

186.22

23.35

209.57

29.41

1850.34

180.16

2030.50



Administration & Office Overhead:

Salaries & Bonus

Directors sitting fee

Postage, Telex, Phone

Research & development

Bank charges

Legal & professional expenses

Miscellaneous expenses

Cost of production

Add: Opening finished goods

Purchase of finished goods

Less: Closing of finished goods

Cost of goods sold

Selling & distribution expenses:

Travelling conveyance

Freight & forward

Commission to selling agent

Sales promotion expenses

Advertisement & publicity

Cost of sales

Net profit

Sales

129.99

0.10

6.59

8.33

3.88

4.44

24.62

26.21

62.15

5.85

43.89

10.08

177.95

2208.45

87.98

78.77

2375.20

170.66

2204.54

148.18

2352.72

72.37

2430.89




Inference : The above statement reveals the costs incurred

by the firm in the year 2006. The factory cost for this year is

2030.50. the administration and selling cost were 177.95

and 148.18 respectively. The cost of production was

2208.45. The company was able to attain a net profit of

72.37 from the sales 2430.89.



Table 4.19


PARTICULARSAMOUNT

(in Crores)

Materials Consumed:Factory Overhead:Stores & spares consumedPower & fuelRepairs & maintenance: Machinery Building OthersRentInsuranceRates & Taxes



Factory CostAdministration & Office Overhead:Salaries & BonusDirectors sitting feePostage, Telex, PhoneResearch & developmentBank chargesLegal & professional expensesMiscellaneous expenses

25.94132.68

6.301.71

10.899.248.699.31

204.7629.41

234.1727.05

163.940.136.218.255.366.86

30.48

2264.70

207.122471.82

221.232693.05



Cost of production

Add: Opening finished goods Purchase of finished goods

Less: Closing of finished goods Cost of goods soldSelling & distribution expenses:Travelling conveyanceFreight & forwardCommission to selling agentSales promotion expensesAdvertisement & publicity Cost of

sales

Net profit

Sales

34.9174.999.74

51.7620.60

170.6685.17

2948.88212.44

2736.44

1922928.44113.42

3041.86

Inference: The above statement reveals the costs incurred


2471.82. The administration and selling cost were 221.23

and 192 respectively. The cost of production was 2693.05.

The company was able to attain a net profit of 113.42 from

the sales 3041.86. All the costs were increased from 2006.



Table 4.20


PARTICULARS AMOUNT

(in Crores)

Materials Consumed:

Factory Overhead:


Power & fuel


Machinery

Building

Others

Rent

Insurance

Rates & Taxes



27.08

134.82

6.63

2.10

12.26

9.38

6.56

7.49

206.32

27.05

233.37

24.09

2393.02

209.28



Factory Cost


Salaries & Bonus




Bank charges



Cost of production




Cost of goods sold



Freight & forward




Cost of sales

Net profit

185.58

0.09

6.39

10.74

4.86

6.86

40.72

39.40

85.12

49.25

71.43

24.52

2602.3

258.5

2860.79

212.44

103.51

3176.74

266.72

2910.02

269.72

3179.74

219.30

3399.04



Sales


Inference: The above statement reveals the costs incurred





219.30 from the sales 3399.04. All the costs were increased

from 2007

Table 4.21


PARTICULARS AMOUNT

(in Crores)

Materials Consumed:

Factory Overhead:


Power & fuel


Machinery

Building

Others

27.17

149.29

5.95

2.76

12.69

2804.26

Institute in Management in Kerala, KundaraPage 100


Rent

Insurance

Rates & Taxes



Factory Cost


Salaries, Wages & Bonus




Bank charges



Cost of production




Cost of goods sold



Freight & forward

10.30

6.03

7.41

221.60

24.09

245.69

28.93

165.43

0.10

6.46

19.58

6.11

14.01

22.31

43.40

87.94

58.91

64.58

26.79

216.76

3021.02

234

3255.02

266.72

116.20

3637.94

224.47

3413.47

281.62

3695.09






Cost of sales

Net profit

Sales

108.12

3803.21



3021.02. The administration and selling cost were 234 and

281.62 respectively. The cost of production was 3255.02.

The company was able to attain a net profit of 108.12 from

the sales 3803.21. All the costs were increased from 2008

except the administration cost and the net profit decreased.

Table 4.22


PARTICULARS AMOUNT(in

Crores)



Materials Consumed:Factory Overhead:Stores & spares consumedPower & fuelRepairs & maintenance: Machinery Building OthersRentInsuranceRates & Taxes



Factory CostAdministration & Office Overhead:Salaries, Wages & BonusDirectors sitting feePostage, Telex, PhoneResearch & developmentBank chargesLegal & professional expensesMiscellaneous expenses

Cost of production

Add: Opening finished goods Purchase of finished goods

34.37163.47

7.282.72

18.3213.485.329.09

254.0528.93

282.9841.52

237.430.098.06

22.937.37

26.2149.43

3057.90

241.463299.36

351.523650.88

224.47151.68

4027.03238.05

3788.98



Less: Closing of finished goods Cost of goods soldSelling & distribution expenses:Travelling conveyanceFreight & forwardCommission to selling agentSales promotion expensesAdvertisement & publicity

Cost of sales

Net profit

Sales

45.47112.4475.22

113.1241.03 387.28

4176.26414.99

4591.25







414.99 from the sales 4591.25. All the costs were increased

from 2009.



4.4. TREND ANALYSIS

The financial statements may be analyzed by

computing trends of series of information. This method

determines the direction upwards or downwards and

involves the computation of the percentage relationship that

each statement item bears to the same item in base year.

4.4.1 Profit Trend

Table 4.23

Showing the profit trend

YEAR PROFIT

(Rs. in Crores)

TREND

PERCENTAGE

2006

2007

2008

2009

2010

72.37

113.42

219.30

108.12

414.99

100

156.72

303.03

149.40

573.43

(Base year: 2006)



Inference : The profit have increased(upward trend) for

three years from 2006-2008. There was a drastic decrease

(downward trend) by 149.40 % in 2009. But in 2010 it

increased to 573.43i.e. a percentage increase of 424.03.



Chart 4.14

Showing the expected profit in the year 2011

Inference : Profit is increasing till 2008 and decreased in 2009. Hence in the year 2010 the firm was able to raise the profit. Thus the profit is showing a fluctuating trend in all the years. It is expected that the profit will decrease approximately to 435.


2006 2007 2008 2009 2010 2011

PROFIT TREND 100 145.09 280.54 138.31 530.88 435

50

150

250

350

450

550

PROFIT TREND


4.4.2 Cost Trend

Table 4.24

showing the cost trend

YEAR COST(Rs.in Crores)

TREND PERCENTAGE

2006

2007

2008

2009

2010

2208.45

2693.05

2860.79

3255.02

3650.88

100

121.94

129.54

147.39

165.31

Base Year (2006)

Inference:

The cost have increased continuously in all years upto

2010. The percentage in 2010 is 165.31 as compared to 100

in 2006. The percentage of increase in these years were

21.94, 7.6, 17.85, 17.92 respectively. Hence it shows an

upward trend.



Chart 4.15

showing the expected cost for the year 2011

2006 2007 2008 2009 2010 2011

COST TREND

100 121.94 129.54 147.39 165.31 179

10

30

50

70

90

110

130

150

170

190COST TREND

Inference

The cost trend is showing an upward trend in all the

years. It is expected that cost will increase to 179 in the year

2011.



Table 4.25

Showing comparision between sales, cost, profit trends.

Year Sales trend Profit trend Cost trend

2006

2007

2008

2009

2010

100

125.40

140.69

155.03

191.83

100

145.09

280.54

138.31

530.88

100

121.94

129.54

147.39

165.31

Inference:

The sales and cost trend is increasing continuously for

all the five years from 2006 to 2010. Hence this shows an

upward trend. But in the case of profit trend it is increasing

for three years and shows a downward trend in the year

2009 and moves upward in 2010 by 329.57 %.



Chart 4.16

Showing the comparision between sales, profit, cost trends

2006 2007 2008 2009 20100

100

200

300

400

500

600

sales trend profit trend cost trend



4.5 CORRELATION OF PROFIT AND COST

x- Cost of goods sold

y- Profit

Table4.26

Showing the calculation of correlation between cost and profit

YEAR X Y XY X2 Y2

2006

2007

2008

2009

2010

2208.45

2693.05

2860.79

3255.02

3650.88

72.37

113.42

219.30

108.12

414.99

159825.53

305445.73

637371.25

351932.76

1515078.69

4877251.40

7252518.30

8184119.42

10595155.2

13328924.77

5237.42

12864.10

48092.49

11689.93

172216.70

Total 14668.19

928.2 2969653.96

44237969.09

250100.64



Correlation Coefficient =

n∑ xy−∑ x .∑ y

√n∑ x2−(∑ x )2−√n∑ y2−(∑ y )2

= 5 x 2969653.96 – 14668.19 x 928.2

√5 x44237969 . 09−(14668 .19 )2√5x 250100 .64−(928 .2 )2

= 1233255.85 = 0.81

1531977.134

Inference:

As the limited degree of correlation lies between 0 and

1. The correlation coefficient between profit and cost is

0.81. So it is having a limited degree of correlation which is

positive. Hence when cost increases profit also increases and

vice versa.

Chart 4.17 showing the correlation between cost and

profit



2006 2007 2008 2009 20100

500

1000

1500

2000

2500

3000

3500

4000

cost profit

FINDINGS

As per the rule of thumb, a current ratio of 2:1 is

satisfactory. The analysis reveals that the firm has

attained the norms of 2:1 in 2006 &2009 & the

other three years have ratio nearly to 2. It is the

normal situation. And also there is enough current

assets to meet the current liabilities



The analysis shows that the quick ratio is lower

than the normal standard of 1:1. Therefore, the

Apollo tyres has not secured liquid asset to meet

the current liability.

Absolute liquid ratio of 0.5:1 is considered good.

The study shows that the immediate cash

available to meet its current liability is favourable

in 2006 and 2009. In2007 the firm has only 0.23

rupees of cash available. In other two years

i.e,2008 & 2010 ratio is lightly low because it is

0.46 & 4.40. but it can be considered as

satisfactory.

The gross profit & the net profit of the company is

satisfactory.

In the case of operating profit it is favourable to

the firm. The firm was able to raise the profit from

5.76 to 13.35.

The operating cost is increasing with the increase

in sales. In 2010 the percentage of increase in

operating cost is less compared with other years.



This is favourable for the company to get more

profit.

The study shows that cash profit is increasing for

three years, and decreased in 2009. But the firm is

able to increase it in the next year as compared to

previous year. It is a favourable situation.

The analysis shows that the administration

expenses in the year 2010 are having the highest

ratio and 2009 shows the lowest. The other three

years ratios are 6.78%, 6.72%, 6.80% respectively.

Hence the ratio is increasing from 2009, it is

unfavorable situation.

Selling expenses ratio is increasing in all years

except in the year 2009 as it decreases from 7.3%

to 6.92%. Hence it is not a favourable situation.

The cost sheet reveals that the cost is increasing

in all the years.

The sales trend is moving upward. It reveals a

satisfactory situation in the firm.



The cost trend is moving upward. It is expected

that cost will increase to 179 in 2011. But the

increasing trend in cost is not satisfactory.

Profit trend shows upward trend till 2008 and

decreasing trend in2009. This is because the

manufacturing expenses were increased in 2009.

But the firm’s profit increased by 424.03% in 2010

and is expected to decrease approximately to 435

crores. Hence the profit trend shows a fluctuating

trend.

From the comparative statement analysis we

could understand that the net profit is increasing

in all the years except in the ear 2008-2009. In

that year the cost of goods sold is greater than the

net sales. Hence a decrease in the profit by

50.70%.

While correlating the cost and profit we came to a

conclusion that the two variables are positively

correlated i.e., when cost increases profit also

increases.



The reason for increasing profit with the increase

in cost is the upward trend in sales of Apollo tyres

ltd.

SUGGESTIONS

In 2010 the current ratio of Apollo tyres is 1.76

which is less than the standard norm of 2:1.

Therefore the firm must take effective measures

to improve the current ratio.

Quick ratio is less than the ideal norms, so it is not

favourable. That means the company has to try to

keep its liquidity position better in the future.

Absolute liquidity ratio decreased in 2010 as 0.40

which is less than the standard norms. Company



must take quick and effective measures to rectify

the absolute liquid ratio as early as possible.

Management should take necessary steps to

monitor the constant increase in the current

liabilities.

Apollo tyres have to give a noticeable preference

on selling and administration expenses. These two

expenses are increasing which will affect the profit

of the firm.

From the trend analysis we could understand that

cost is moving upward. And the profit is expected

to decrease by the year 2011, so the firm must

take consideration to control the cost.

The manufacturing expenses and the cost of

goods sold were increasing in all the 5 years.

Therefore the firm must take steps to control the

increase in these expenses.





CONCLUSION

Apollo Tyres pvt. Ltd. is one of the leading tyre

manufacturers in India. They have been able to capture the

majority of market share in the industry. As in the case of

any other field they also have competitors even if there is

stiff competition. The main goal of Apollo tyres is to become

number one in the industry and they are well confident. They

also introduced Enterprise Resource Planning (ERP) system

to integrate all the activities of their units as a whole. This

system will help to integrate information for better decision

making, faster response to customer queries improved

customer satisfaction and so on. We can expect that every

decision taken by the company will help them to be market

leader in the tyre manufacturing industry.

The study reveals that the liquidity position of Apollo

tyres Ltd. is not strong enough. So have to take care of the

quick and absolute liquid asset. The profitability of the firm is

also satisfactory. In 2009 the profit has decreased due to the

increase in the expenses. Even the company was able to

recover it in the next year itself with a high percentage of

increase. The cost is also showing an upward trend. From

this study we could understand that the cost and profit of

the firm is having limited degree of correlation which is

positive. It is due to the increasing sales trend. Therefore the



current position of the firm is good but the profit is expected

to decrease in 2011 and the cost is showing an upward

trend. So the firm must try to reduce the cost and increase

the sales.

BIBLIOGRAPHY

BOOKS:

Gupta K Shashi, Sharma R K, “Financial

Management”, Sixth edition, 2008, Kalyani

Publishers.

Jain S P, Narang K L, “Cost and Management

Accounting”, Second edition, 2008, Kalyani

Publishers.

Nair K G C, Dipa, Thulasi, “Management

Accounting”, Chand Books.

Annual Report of Apollo Tyres.

WEBSITES:



www.apollotyres.com

www.financeindia.org


http://www.financeindia.org/

http://www.apollotyres.com/

Documents

Reshma Rajendran-project (1)