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FINANCIAL ACCOUNTING AND ANALYSIS

ASSIGNMENT: 1

TOPIC: CALCULATIONS OF VARIOUS RATIOS AND

THEIR INFERENCE

MARUTI SUZUKI

INTRODUCTION

The Maruti story began in the year when scooters had a waiting

period and the Indian car customer had limited options. The Government of India

identified the need for a small car for the Indian masses, a car that would be

economical, environment friendly yet contemporary in technology. In short 'A

people's car'. The result, Maruti Suzuki India Limited (MSIL) was born in

February 1981. Maruti Suzuki started as a government company, with Suzuki as

a minor partner, to make a people's car for middle class India. Over the years, the

company's product range has widened and ownership has changed hands. The

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product portfolio of the company consist 11 models with around 100 variants

including Maruti 800, Omni, Alto, WagonR, Swift, Zen, Gypsy, Dzire, Versa,

SX4 and Grand Vitara.

The company set up a network of component vendors, dealers

and service stations and facilitated around 60 technical collaborations for Indian

vendors from Japanese, European and even American partners to upgrade

technology and quality levels. MSIL have a sales network of 600 outlets in 393

towns and cities, and provide maintenance support to customers at 2628

workshops in over 1200 towns and cities (as on March 31,2008). The Company

planned about proposed investments till 2010 amounted Rs. 9000 Crores .

R C Bhargava is the chairman. The Company Secretary is Mr. S

Ravi Aiyar .Maruti has 2628 listed Authorized service stations and 30 Express

Service Stations on 30 highways across India. In the same year 2007, the

company name was changed from Maruti Udyog Limited to Maruti Suzuki India

Limited and Joined hands with Gujarat Government to set up Driving and

Technical Training Institute for tribal youth. The biggest draw even the year 2007

was the award for highest Automotive Customer Satisfaction Index. Maruti

Suzuki scored the highest in customer satisfaction index for the eighth

consecutive year. In the Initial Quality Study, Maruti Swift walked away with the

highest IQS in the Premium Compact car segment during the year 2007.

SALIENT FINANCIAL PERFORMANCE INDICATORS

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ESTIMATION OF VARIOUS COMPUTATIONS

Receivable/Debtors as a percentage of sales

PARTICULARS 2009 2008 2007

Debtors 918.9 655.5 747.4

Sales 23182.2 21025.2 17205.9

Debtors to Sales Ratio 3.76 3.11 4.3

Days Debtors 12.39 12.17 14.78

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Key Ratios

Debt-Equity Ratio 0.09 0.1 0.06 0.04 0.08

Long Term Debt-Equity Ratio 0.06 0.07 0.06 0.04 0.08

Current Ratio 1.22 1.13 1.52 1.73 1.42

Turnover Ratios

Fixed Assets 2.9 3.13 3.1 2.95 2.77

Inventory 23.9 24.18 21.74 19.06 24.11

Debtors 29.45 29.97 24.69 23.69 20.69

Interest Cover Ratio 29.91 43 61.63 86.78 37.25

PBIDTM (%) 9.63 14.89 15.05 13.93 13.48

PBITM (%) 6.58 12.19 13.47 12 10.05

PBDTM (%) 9.41 14.61 14.83 13.8 13.21

CPM (%) 7.67 10.93 10.66 9.99 9.83

APATM (%) 4.63 8.23 9.08 8.06 6.4

ROCE (%) 15.76 30.51 35.63 34.68 31.28

RONW (%) 12.08 22.67 25.38 24.19 21.42

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Debtors to Sales Rati

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2009 2008 2007

Debtors to Sales Rati

Days Debtors

0

2

4

6

8

10

12

14

16

2009 2008 2007

Days Debtors

COMPUTATION PROCESS

• Debtors to Sales Ratio: For each Year Debtors are divided by the sales of the

same year and multiplied by 100 for finding the percentage of each year.

• Formula : Debtors/sales*100

• To compute days Receivables: To find the days debtors we need to first find outDebtors Turnover Ratio(DTR) and then find the days receivables by dividingthe DTR value with 360

• formula: 360/DTR of each year

INFERENCE

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• The company is maintaining 12.17 days of debtors and debtors to sales ratio is3.11to 3.96 from past two years.

• The company has shown decrease in its trend from 2007 to 2008 but from2008to 2009 it has maintained 12 days.

• It is showing consistency in days which is a good sign for the company

Break-up of Product sales

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Passenger cars Vehicle spares Service Charges Moulds and dies

2007

2008

2009

COMPUTATION PROCESS

• To find break-up of product sales we need to divide the product quantity andtheir respective prices from current year to previous year.

• It is given by the formula: Quantity current yr/Quantity previous yr

• For computing rupees: Rupees current yr/Rupees previous yr

Solution To The Given Table•

Commodity 2009 2008 2007

QTY Rupees QTY Rupees QTY Rupees

Passenger cars 792167 21659 76482 19799 674942 16136

Vehicle spares N/A 1409 N/A 1102.6 N/A 930

Service Charges N/AA 97 N/A 75.9 N/A 77.2

Moulds and dies N/A 19.5 N/A 47.7 N/A 61.7

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Commodity 2008 TO 2007 2009 TO 2008

QTY Rupees QTY Rupees

Passenger cars 1.04% 1.09% N/A 0.07%

Vehicle spares N/A 1.28% N/A 1.19%

Service Charges N/A 1.28% N/A 0.98%

Moulds and dies N/A 0.41% N/A 0.77%

Solution to the Given Table (Pricing the Trend)

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

Passenger

cars

Vehicle spares Service

Charges

Moulds and

dies

2008 TO 2007

2009 TO 2008

INFERENCE

• PASSENGER CARS: From the above table we can see that the value of the product has come down in 2008 to 2009 when compared to previousyear that is from 1.09% to 0.07% this shows that demand for the product isdecreasing from year to year which is a bad sign for the company.

o Suggestions: The Company should use new strategies to attaincustomer satisfaction and thus increasing the demand for theproduct which in turn effects product value.

• VEHICLE SPARES: The sales of the product is satisfactory as the valueof the product is more then 1% and there is increase in the value from1.19% to 1.28% from 2007-08 to 2008-09 which shows that there isincrease in demand as well as sales hence the company is in good salesposition.

o Suggestion: The company is performing well has maintained to

increase its value from year to year and should try to keep this trend

by increasing its quality so that it can gradually attract morecustomers and hence increasing its product value.

• SERVICE CHARGES: From the above data we can say that there is

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major increase in the value of the product as compared to other products of the company. There is increase in value from 0.98% to 1.28% in 2009which shows that customers are happy with the service provided by thecompany. Hence the income from product has increased which is a goodsign for the company.

o Suggestion: The Company is showing increasing trend in the value

of the product and it should try to maintain this trend. Company cangive more value added services so that it can build customer loyaltyand new techniques in its services.

• MOULDS AND DIES: The income from the product has gone down from0.77% to 0.41% which is not a good sign for the company. As the value of the product is less then 1% the demand is going down so there is no muchincome from this product which is a negative factor for the company.

o Suggestion: The Company can try to use new techniques and waste

management strategies so that it can produce better quality productin lower price. The company should try to increase product value to

earn more incomes

Export As Percentage Of Sales


EXPORT 15022.1 7413.3 5781.2

SALES 23182.2 2105.2 17205.9

EXPORT AS A % OF SALES 64.7% 35.2% 33.6%

EXPORT AS A % OF SALES

2009

49%

2008

26%

2007

25%

COMPUTATION PROCESS

• To find out export as a percentage of sales we need to divide the

export for the given year with the sales of given year.• Formula: Export/Sales*100

INFERENCE

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• The export value of the company has increased from 2007 to2009.

• In 2007 the export value is 33.6% which is not satisfactory. In2009 the export value has increased to 64.7%. Hence thecompany is growing and increasing its exports sales.

• This shows that the company is not much affected by economiccrisis.

Provision for Bad Debts to Sales.

Particulars 2009 2008 2007

Provisions for Bad Debts 266 266 273

Sales 23182.2 21025.2 17295.9

Bad Debts as % of Sales 1.14 1,26 1.58

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2009 2008 2007

Bad Debts as % of Sales

Bad Debts as % of Sales

COMPUTATION PROCESS

• To find out the provisions for bad debts as a % of sales: we find out

these values by dividing provisions for bad debts by sales for thegiven year and then multiplying the value by 100 to find thepercentage change.

• Formula : provisions for bad debts/Sales*100

INFERENCE

• There is a decline in the trend of provision for bad debts. In 2007 itis 1.58% and it has gradually decreased to 1.14 % in 2009 which isgood sign for the company as it is reducing bad debts .Hence

company should maintain this trend for it's profitability.

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Receivables Greater Than 6 Months As Percentage Of Tangible Net Worth


Debtors greater than 6months 120.5 139.4 129

Tangible net worth 9344.9 8415.4 1290

DRS as % of TNW 1.28% 1.65% 1.88%

0.00%

0.50%

1.00%

1.50%

2.00%

DRS as % of TNW

DRS as % of TNW 1.28% 1.65% 1.88%

2009 2008 2007

COMPUTATION PROCESS

• This computation is done by: considering the DRS greater than 6months and dividing them by the tangible net worth of thecompany(Share Capital + Reserves & Surplus - MISCL EXPS )and then multiplying by 100

• Formula : DRS greater than 6months/TNW*100

INFERENCE

• From the above table we can see that the company had been able tomaintain it's consistency in it's value from 2007 to 2009. This

means that the company had been able to realize its money on timeso that it can meet its obligation which is a very good sign for thecompany.

ADVANCES REDUCED FROM DEBTORS AND RECOMPUTED DRS DAYS


ADVANCES FROM CUSTOMERS 150 200 440

DEBTORS 918.9 655.5 747.4

DRS (LESS) ADVANCES 768.9 415.5 307.4

DTR 30.1 46.1 6.5

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DAYS DRS RECOMPUTED 12.12 7.9 56.1

0

10

20

30

40

50

60

2009 2008 2007

DAYS DRS RECOMPUTED

DAYS DRS RECOMPUTED

COMPUTATION PROCESS

• This calculation is computed as follows here the advance is 1st

reduced form the debtors and then recalculated debtors is used tofind out DTR and then DTR is used to calculate DRS days for 360days period.

•

Formula : Advances to customers – Debtors• Second step: recomputed Debtors to calculate DTR = SALES/DRS

• Third step: calculation of DRS DAYS = 360/DTR

INFERENCE

• We can see from the above table that there is a decrease inadvance from customer and days debtors but there is slightly increasein the value in 2008.

• The advances which are been given to customers have beenrealized fast which is a very good sign for the company, as the

company is able to sell its products on advance payments.• The cash sales have increased and this had led to the reduction insundry debtors from 56.1 days in 2007 to 12.12 in 2009 which issatisfactory.

Analysis of Directors Report, Auditors Report & Notes to Accounts

2009:

The gross revenue (net of excise) of the Company for the year was Rs. 214,538 million asagainst Rs. 187,733 million in the previous year showing growth of 14.3%. Sales of vehicles in the domestic market increased to 722,144 as compared to 711,818 in the

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previous year showing a growth of 1.5%.Exports of vehicles grew at an impressive rate of 32% from 53,024 to 70,023 in the current year. The overall growth was 3.6% which wasachieved in spite of the difficult economic and market conditions prevailing particularlyin the later half of the year due to the global financial and economic crisis which did notspare the Indian economy. Earnings before depreciation, interest, tax and amortization(EBDITA) stood at Rs. 24,333 million against Rs. 31,308 million in the previous year.

2008:

The Company for the year was Rs. 188,238 million as against Rs. 152,523 million in theprevious year showing an impressive growth of 23.4%. Earnings before depreciation,interest, tax and amortization (EBDITA) stood at Rs. 31,308 million against Rs. 25,888million in the previous year, recording a jump of 20.9%.Profit after Tax (PAT) stood atRs. 17,308 million against Rs. 15,620 million in the previous year showing a growth of 10.8%.

2007:

The gross revenue (net of excise) of the Company for the year was Rs. 152,523million asagainst Rs. 124,814 million in the previous year. Earnings before depreciation, interest,tax and amortization (EBDITA) Rs. 25,888 million. Profit after Tax (PAT) stood at Rs.15,620million against Rs. 11,891 million. 2006-07, the passenger car industry growth is11.8%.

Conclusions Drawn From the Study Conducted

After conducting the study and computing the various ratios we can come to the followingconclusion:

• The company has maintained credit sales limit approximately 12 days in 2008 and2009 and it has reduced as compared to 2007 which is good sign to the company.

• We can see that the value of the passenger cars, moulds and dies has come down in2008 to 2009 when compared to previous year. The other product vehicle spares andservice charges managed to maintain a steady growing trend in its value. The companyneeds to work to establish itself as the market leader in these products to earn moreprofit.

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• Export sales value of the company has increased from 2007 to 2009 this shows thatthere is more demand for the products which is a good sign for the company. Companyhas tried to maintain its exports sales even during the crisis.

• The provisions for bad debts has reduced from 2007 to 2009 bad debts as percentageof sales has reduced which shows that company is reducing its bad debts which is apositive sign for the company.

•

Debtors greater than 6 months has increased from 2007 to 2008 and then again it hasreduced in 2009 this shows that company has taken measures to realise the debts whichis good for the company.

• The cash sales have increased and this had led to the reduction in sundry debtors from56.1 days in 2007 to 12.12 in 2009 which is satisfactory.

From the above analysis we can conclude that there is satisfactory debtor turn over ratio and there has been proper cash management as bad debts are reducing. The companiessome products are doing extremely well in the market. Hence maintaining its goodprofitability and debtor’s relationship. The company’s financial position is good in 2009 ascompared to previous year this shows that company is not much affected by economic crisis.

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