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OBJECTIVES OF STUDY:

To know the Financial position of the Ashok Leyland.

To know the Liquidity and Profitability position

of the company.

To know the Financial strength and weakness of the company.

SCOPE OF THE STUDY

The study covers the Financial performance of the Ashok Leyland.

The study is made by making comparison of five year of it operation.

The study aims to reveal where the stands in respect to liquidity and

an effective use of asset.

PERIOD OF THE STUDY

The study covered a period of five years from 2005-06 to 2009-10

accounting year ends 31st march every year.

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RESEARCH METHODOLOGY:

The study is based on secondary data. Data pertaining behavior of

liquidity solvency and profitability position were collection from the

Balance Sheet and Profit & Loss account of ashokLeyland. The necessary

data were obtained from published annual report.

TOOLS AND TECHNIQUE:

RATIO ANALYSIS

• Liquid ratio

• Solvency ratio

• Profitability ratio

LIMITATION OF THE STUDY:

The study is based on secondary data

The time span was limited only a period of five years.

The study suffers all the limitation of ratio analysis, such as lack of

adequate change, income, price level change etc.

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CHAPTER SCHEME:

The study is divided into five chapters.

The first chapter deals with introduction objective of study, scope of

the study, period of the study, research methodology, limitation of the

study.

The second chapter deals with profile of the company.

The third chapter deals with analysis & interpretation of the ratios.

The fourth chapter deals with findings & suggestions.

Finally conclusion are given in the fifth chapter

AboutAshok Leylandi s a c o m m e r c i a l v e h i c l e m a n u f a c t u r i n g c o m p a n y b a s ed i n Chennai,India. F o u n d e d i n 1 9 4 8 , t h e company is one of India'sleading manufacturers of commercialvehicles, such as trucks and buses, as wellas emergencya n d m i l i t a r y v e h i c l e s . O p e r a t i n g s i x p l a n t s , A s h o k L e y l a n d a l so m a k e s s p a r e p a r t s a n d e n g i n e s f o r i n d u s t r i a l a n d m a r in e a p p l i ca t i o n s. I t se l l s a b o u t 6 0 ,0 0 0 ve h i c le s a n d a b o u t 7 ,0 0 0 en g ines annual ly . I t is the secon d l arges t c ommer c ia l veh ic lecompany in

India in the medium and heavy commercial vehicle(M&HCV) segment with a marketshare of 28% (2007–08). Withpassenger transportation options ranging from 19 seatersto80s e a t e r s , A s h o k L e y l a n d i s a m a r k e t l e a d e r i n t h e b u s s e g m e n t . T h e c o m p a n y c l a i m s t o c a r r y o v e r 6 0 m i l l i o n p a s s e n g e r s a d a y , m o r e p e o p l e t h an t h e e n t i r e I n d i a n r a i l n e t w o r k . I n t h e t r u c k s s e g m e nt A s h o k L e y l a n d p r i m a r i l y concentrates on the 16 ton to 25 tonrange of trucks. HoweverAshok Leyland has presence in the entire truck

http://en.wikipedia.org/wiki/Chennai

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Chennai

http://en.wikipedia.org/wiki/India

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range startingf r o m 7 . 5 t o n s t o 4 9 t o n s . T h e j o i n t v e n t u r ea n n o u n c e d w i t h Nissan Motorsof Japan would improve its presence in theLightCommercial Vehicle (LCV) segment (<7.5 tons).

VisionBe among the top Indian corporations acknowledged nationallyand internationally for:•

Excellence in quality of its products•Excellence in customer focus and service

MissionBe a leader in the business of commercial vehicals, excelling intechno logy, qua l i t yan d va lu e to cu st om er fu ll y su pp or te d by customer service of the highestorder and meeting national andinternational safety environments and safety standards.

http://en.wikipedia.org/wiki/Nissan_Motors

http://en.wikipedia.org/wiki/Nissan_Motors

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CHAPTER II

COMPANY PROFILE

INTRODUCTION

The Ashok Leyland is a Public Limited Company. Founded in 1948, it

is an automobile industry and the company is one of India's leading

manufacturers of commercial vehicles, such as trucks and buses, as well as

emergency and military vehicles. the company is based in Chennai, India.,

its also makes spare parts and engines for industrial and marine applications.

11500 employees are working in this company, it sells about 60,000 vehicles

and about 7,000 engines annually.

It is the second largest commercial vehicle company in India in the

medium and heavy commercial vehicle segment with a market share of 28%,

With passenger transportation options ranging from 19 seaters to 80 seaters,

Ashok Leyland is a market leader in the bus segment. The company claims

to carry over 60 million passengers a day, more people than the entire Indian

rail network. The company concentrates on the 16 ton to 25 ton range of

trucks. Entire truck range starting from 7.5 tons to 49 tons.

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HISTORY

The origin of Ashok Leyland can be traced to the urge for self-

reliance felt by independence of India, Pandit Jawaharlal Nehru, India’s first

Prime Minister, persuaded Mr. Raghunandan Saran, an industrialist, to enter

automotive manufacture. The company began in 1948 as Ashok Motors, to

assemble Austin cars. The company was renamed and started manufacturing

commercial vehicles in 1955 with equity participation by British Leyland.

Early products included the Leyland Comet bus which was a

passenger body built on a truck chassis, sold in large numbers to many

operators, it built a reputation for reliability and ruggedness. This was

mainly due to the product design legacy carried over from British Leyland.

The 5, 00,000 vehicle they have put on the road have considerably eased the

additional pressure placed on the road transportation in independent India.

The company long term plan to become a global player by benchmarking

global standards of technology and quality was soon firmed up.

Access to international technology and a US$200 million investment

programmed created a state-of-the-art manufacturing base to roll out

international class products. This resulted in Ashok Leyland launching the

'Cargo' range of trucks based on European Ford Cargo trucks.

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GOALS:

The company’s plans is to acquire smaller car manufacturers in China

and in other developing countries. Ashok Leyland bought a majority stake in

the Czech based- Avia. Called Avia Ashok Leyland Motors s.r.o., this will

give Ashok Leyland a channel into the competitive European market.

According to the company, the joint venture sold 518 LCVs in Europe

despite tough economic conditions. the company will expand its product

offers into construction equipment. The company says negotiation is

progressing on land acquisition, and the production plans are in place. Aside

from the full expansion planned for the company, Ashok Leyland is also

paying close attention to the environment. they are one of the companies

showing the strongest commitment to environmental protection, utilizing

eco-friendly processes in their various plants. Even as they thrust into

different directions, Ashok Leyland maintains an R&D group that aims to

uncover ways to make their vehicles more fuel efficient and reduce

emissions

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CURRENT STATUS

The company has also maintained its profitable track record for 60

years. The annual turnover of the company was USD 1.4 billion in 2008-09.

Selling 54,431 medium and heavy vehicles in 2008-09, Ashok Leyland is

India's largest exporter of medium and heavy duty trucks.

Ashok Leyland has also entered into some significant partnerships,

seizing growth opportunities offered by diversification and globalization –

with Continental Corporation for automotive infotronics; with Alteams in

Finland for high pressure die casting and recently, with John Deere for

construction equipment.

PARENT

Hinduja group

Ennore Foundaries Limited

Automotive Coaches and Components Limited

Gulf-Aashly Motors Limited

Ashley Holdings Limited

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SUBSIDIARIES

Ashley Investments Limited

Ashley Design and Engineering services (ADES)

Avia Ashok Leyland

Ashok Leyland Project Services Limited

Lanka Ashok Leyland

FACILITIES

The company has six manufacturing location in India:

Ennore and Hosur, Tamilnadu ( Hosur – 1, Hosur – 2,

CPPS)

Alwar, Rajasthan

Bhandara, Maharastra

The company has an Engine Research and Development facility in

Hosur

The company is setting up a new Plant in the North Indian state of

Uttarakhand at pant Nagar at an investment outlay of Rs. 1200crores.

This plant is expected to go on stream in the year 2010.

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The Plant will have a capacity to produce around 40,000 commercial

vehicles and is expected to cater mainly to the North Indian

market

taking advantage of the excise duty and other tax concessions.

ACHIEVEMENTS

• Ashok Leyland buses carry 60 million passengers a day, more people

than the entire Indian rail network

• Ashok Leyland has a near 85% market share in the Marine Diesel

engines markets in India

• In 2002, all the vehicle-manufacturing units of Ashok Leyland were

ISO 14001 certified for their Environmental Management System,

making it the first Indian commercial vehicle manufacture to do so.

• In 2005, received the BS7799 Certification for its Information

Security Management System (ISMS), making it the first auto

manufacturer in India to do so.

• In 2006, received the ISO/TS 16949 Corporate Certification, making

it the first auto manufacturer in India to do so.

• It is one of the leading suppliers of defense vehicles in the world and

also the leading supplier of logistics vehicles to the Indian Army.

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PRODUCTS

LuxuraViking BS-I - city busViking BS-II - city busViking BS-III -city busCheetah BS-ICheetah BS-IIPanther 12M busStag MiniStag CNG

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CHAPTER –III

RATIO ANALYSIS

MEANING:

Ratios are relationship expressed in mathematical items between figures

which are connected with each other in some manner.

CLASSIFICATION:

Short term solvency ratio:

I. Liquidity ratio

3.1 Current ratio.

3.2 Liquid ratio.

3.3 Absolute liquidity ratio.

II. Activity ratio

3.4 Inventory turnover ratio

3.5 Inventory conversion period

3.6 Debtor turnover ratio

3.7Average collection period

3.8 Working capital turnover ratio.

Long term solvency ratio:

3.9 Deb Equity ratio

3.10 Proprietary ratio

3.11 Fixed asset to net worth ratio

3.12 fixed asset ratio.

3.13 Current asset to proprietary fund

3.14 Fixed asset turn over ratio.

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Profitability ratio

3.15 Gross profit ratio

3.16 Net profit ratio

3.17 Operating profit ratio

3.18 Selling & administration expenses

ANALYSIS AND INTERPRETATION:

The financial performed of a firm can be evaluated by constructing

ratio for the various items appearing in the financial statement. A ratio isa simple artificial expression of the relationship between two

mathematical variables. Ratio analysis is a technique of analysis and

interpretation of financial statement by establishing and interpreting

various ratios useful for decision making.

In this chapter I have applied various ratios for analyzing financial

position of the company. The result and interpretation are given below.

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SHORT-TERM SOLVENCY RATIO

I.LIQUIDITY RATIO:

3.1. CURRENT RATIO

Current ratio may be defined as the relationship between current

asset and current liabilities. The current ratio is the index of the concern

financial stability since it shows extent of the working capital, which is

the amount by which the current asset exceeds the current liabilities. The

rule of the thumb is 2:1

Current AssetCurrent ratio= ______________

Current Liability

Current asset= Inventories + Sundry debtors+ Cash & Bank balance.

Current liabilities= Bills payable + Bank O/D.

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TABLE: I

CURRENT RATIO

* Rs .in . Cr

Year Current Asset* Current

liabilities*

Ratio

2005-06 1492.88 1344.19 1.112006-07 1681.75 1865.97 0.90

2007-08 1644.30 2196.40 0.74

2008-09 2374.91 2207.29 1.07

2009-10 2849.22 3002.68 0.94

INTERPRETATION:

The rule of thumb of current ratio is 2:1 the ratio shows a fluctuating

trend. In the year 2005-2006 the ratio was 1.11 and it was decreased from

0.90 to 0.74 in 2006-2007 and 2007-2008. In 2008-2009 the ratio was

decreased to 1.07 and 2009-2010 the ratio was again decreased to 0.94.

So it was not satisfactory.

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CHART : 1

1.11

0.9

0.74

1.070.94

0

0.8

1.6

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10years

Current ratio

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3.2. LIQUID RATIO:

This ratio also termed as acid test or quick ratio. This is ascertaining

by comparing the liquid asset and current liability. It is the test of liquidity to

the ability of the current ratio .the term “liquidity” refers to the ability of a

firm to pay its short term obligation. The rule of thumb is 1:1.

Liquid AssetLiquid ratio = _______________

Current Liability

Liquid Asset = Current Asset – Inventories.

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TABLE: I

LIQUID RATIO

*Rs .in. Cr

Year Liquid asset* Current

liabilities*

Ratio

2005-06 590.32 1334.19 0.44

2006-07 611.43 1865.97 0.32

2007-08 420.39 2196.49 0.19

2008-09 1044.91 2207.29 0.47

2009-10 1210.98 3002.68 0.40

INTERPRETATION:

The rule of thumb of liquid ratio is 1:1. The liquid ratio in the year

2005-2006 and it was decreased from 0.32 to 0.19 in 2006-2007 and 2007-

2008. The ratio was again increased to 0.47 in 2008-2009 and 2009-2010.

The ratio was again decreased to 0.40 in the year 2005-2006 to 2009-2010.

The liquid ratio was not satisfactory of the company

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CHART :2

0.44

0.32

0.19

0.47

0.4

0

0.32

0.64

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Liquid ratio

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3.3. ABSOLUTE LIQUID RATIO OR CASH RATIO:

The ratio measures the relationship between cash and near cash item

on the hand and immediately maturing obligation on the other. The

inventory and debtor are excluded from current asset to calculate this ratio.

The rule of thumb is 0.5:1.

Absolute Liquid Asset

Absolute ratio= ___________________

Current Liability

Absolute liquid asset = Cash & Bank balance

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TABLE: 3

ABSOLUTE LIQUID RATIO

* Rs. In. Cr

Year Absolute liquid asset* Current

liabilities*

Ratio

2005-06 165.98 1334.19 0.12

2006-07 88.5 1865.97 0.04

2007-08 44.55 2196.49 0.02

2008-09 86.93 22.7.29 0.03

2009-10 188.92 3002.68 0.06

INTERPRETATION:

The rule of thumb of absoluter liquid ratio is 0.5:1. In the year 2005-

2006 the ratio was 0.10 and next year onwards it was decreasing trend. In

the year 2006-2007 to 2008-2009, the ratio was decreased from 0.04 to 0.02.

In 2009-2010 the ratio was decreased to 0.06.

So it was not satisfactory in 2005-2006 to 2009-2010.

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CHART :3

0.12

0.04

0.02

0.03

0.06

0

0.04

0.08

0.12

0.16

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Absolute liquid ratio

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II.ACTIVITY RATIO

3.4. INVENTORY TURNOVER RATIO:

Every firm has to maintain a certain level of inventory to finishedgoods. It was able to meet the requirements of the business, inventory

turnover indicates the number of times stock has been turned during the

period and evaluate the efficiency with which a firm is able to manage.

Net Sales

Inventory turnover ratio= ____________

Inventory

Net sales = Sales – Excise duty.

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TABLE: 4

INVENTORY TURNOVER RATIO

* Rs. in . Cr

Year Net sales* Inventory* Ratio

2005-06 5359.94 902.56 5.93

2006-07 7358.88 1070.32 6.87

2007-08 7972.52 1223.91 6.51

2008-09 6168.99 1330.01 4.63

2009-10 7436.18 1638.24 4.53

INTERPRETATION:

The inventory turnover ratio in the year 2005-2006 was 5.95 but it

was increased to 6.87 in 2006-2007. In 2007-2008 to 2009-2010 the ratio

was decreased from 6.51 to 4.53.

This stock turnover ratio implies over investment in stock.

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CHART :4

5.93

6.876.51

4.63 4.53

0

4

8

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

inventory turnover ratio

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3.5. INVENTORY CONVERSION PERIOD:

It may be of interest to see average time taken for clearing the stock.

This can be possible by calculating inventory conversion period. This period

is calculated by dividing the number of days by inventory turnover ratio.

No. of days in a year

Inventory conversion period= ________________________

Inventory turnover ratio

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TABLE: 5

INVENTORY CONVERSION PERIOD

* Rs. In. Cr

Year Days in a year* Stock turn over

ratio*

Ratio

2005-06 365 5.93 61

2006-07 365 6.87 53

2007-08 365 6.51 562008-09 365 4.63 78

2009-10 365 4.63 80

INTERPRETATION:

In the year 2005-2006 the conversion period was 61 days and it was

decreased to 56 days in 2006-2007. In 2007-2008 the days slightly increased

to 56 days. In 2008-09 and 2009-10 the days was increased from 78 to 80days.

It indicates more days to clear stock compared to previous year.

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CHART :5

61

53

56

7880

50

60

70

80

90

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Inventory conversion period

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3.6. DEBTOR TURNOVER RATIO:

It established the relationship between the net credit sales and average

debtor. It indicates the number of times the collection debtor has turnover

during the year. The higher the ratio is better result with ratio is better result

with efficient management.

Net credit salesDebtor turnover ratio= ______________

Average debtor

Average debtor= Opening debtor + Closing debtor+ Opening bills receivable

+ Closing bills receivable.

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TABLE: 6

DEBTOR TURNOVER RATIO

*Rs. In. Cr

Year Net credit sales* Average

debtor*

times

2005-06 5359.94 424.34 12.60

2006-07 7358.88 522.88 14.07

2007-08 7972.52 375.84 21.21

2008-09 6168.99 957.97 6.43

2009-10 7436.18 1022.06 7.27

INTERPRETATION:

In this year 2005-2006 the ratio was 12.60 times and it decreased to

14.07 in 2006-2007. In 2007-2008 the ratio again increased to 21.21 and it

was decreased to 6.43 in 2008-2009. In 2009-2010 it was slightly increased

to 7.27.

It implies in efficient management of debtor or sales.

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CHART :6

12.614.07

21.21

6.437.27

0

6

12

18

24

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Debtor turnover ratio

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3.7. AVERAGE COLLECTION PERIOD:

The number of days taken by a firm for collecting of its receivable or

debtors during the year. It indicates the relationship between average debtor

and net credit sales.

No. of days in a year

Average collection period = _____________________ Debtor turnover ratio

TABLE: 7

AVERAGE COLLECTION PERIOD Rs .in cores

Year Days in a year Debtor turnover ratio

Days

2005-06 365 12.60 28

2006-07 365 14.07 25

2007-08 365 21.21 17

2008-09 365 6.43 56

2009-10 365 7.27 50

INTERPRETATION:

The collection period in the year 2005-2006 the days was 28. In 2006-

07 and 2007-2008 it was reduced from 25 days to 17 days. In 2008-2009 it

was increased to 56 days and it was decreased to 50 days in 2009-2010.

It indicates the debt was collected in 50 days.

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CHART :7

28

25

17

56

50

15

30

45

60

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Average collection period

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3.8. WORKING CAPITAL TURNOVER RATIO:

This ratio indicates the number of time the working capital is turned

over in the course of a year. . The higher ratio indicates efficient utilization

of working capital. The higher may be the result of high turnover of

inventories of receivable

Net salesWorking capital turnover ratio= ____________________

Net working capital

Net working capital = Current Assets – Current Liabilities.

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TABLE-8

WORKING CAPITAL TURNOVER RATIO *Rs. in. Cr

Year Net sales* Workingcapital* Ratio

2005-06 5359.94 587.32 9.12

2006-07 7358.88 574.72 12.80

2007-08 7972.52 217.66 36.62

2008-09 6168.99 720.32 8.56

2009-10 7436.18 736.17 10.10

INTERPRETATION:

The ratio shows fluctuating trend from 2005-2006 to 2009-2010. The

ratio was 9.12 in 2005-2006 and it was increased from 12.80 to 36.62 in

2007-2008. But it was decreased to 8.56 in 2008-09and in the year 2009-

2010 it was again slightly increased to 10.10.

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CHART :8

9.12

12.8

36.62

8.5610.1

0

19

38

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

working capital turnover ratio

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LONG TERM SOLVENCY RATIO

3.9. DEBT EQUITY RATIO

This ratio is also known as internal and external equality ratio .it is

mainly calculated to assess the soundness of long term financial policies and

to determine the relative’s stakes of outsiders and owners. It indicates the

relationship between debt and equity.

Long term fund

Debt equity ratio= _________________________

Shareholders fund

Long term debt = Secure loan + Un secured loan.

Shareholder fund= Share capital, Reserve & Surplus.

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TABLE: 9

DEBT EQUITY RATIO

* Rs. In. Cr

Year Long term

debt*

Shareholders

fund*

Ratio

2005-06 691.93 1412.46 0.482006-07 640.40 1894.58 0.33

2007-08 887.50 2148.98 0.41

2008-09 1961.98 3478.89 0.56

2009-10 2280.45 3656.30 0.62

INTERPRETATION:

The rule of thumb is 2:1. The debt equity in the year 2005-06 was0.48 but and 2006-2007 it was decreased to 0.33 and next three year it was

slightly increased from 0.41 to 0.62 in the year 2007-2008 to 2009-2010.

The ratio shows that the long term debt is very low, so the company

can make use of the law cost of fund, and it was satisfactory.

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CHART : 9

0.48

0.33

0.41

0.56

0.62

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Debt equity ratio

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3.10. PROPRIETARY RATIO:

This ratio is also called as equity ratio or owner’s fund ratio. This ratio

points out relationship between the shareholders fund and total asset of the

company. It indicates the proportion of total asset financed by shareholders.

Shareholders fundProprietary ratio= _________________

Total asset.

Total asset= Current asset +Fixed asset.

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TABLE: 10

PROPRIETARY RATIO

*Rs. in. Cr

Year Shareholders

fund total asset*

Total asset* Ratio

2005-06 1412.46 2104.40 0.67

2006-07 1894.58 2534.97 0.74

2007-08 2148.98 3036.48 0.74

2008-09 3473.89 5435.87 0.63

2009-10 3656.30 5936.76 0.61

INTERPRETATION:

The rule of thumb is above 50% of the ratio is satisfactory. The ratio

shows in the year 2005-2006 was 0.67 and it was increased to 0.74 in 2006-

2007 and 2007-2008. In 2008-2009 the ratio was decreased to 0.63 and

again decreased to 0.61 in 2009-2010.

It shows the shareholders are financed to total asset so it was

satisfactory.

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CHART :10

0.67

0.74 0.74

0.63 0.61

0

0.2

0.4

0.6

0.8

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

proprietory ratio

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3.11. FIXED ASSET TO NET WORTH RATIO:

This ratio indicates as to what extends the shareholders fund have

been invested in fixed assets. If the ratio is high, it implied that much of

shareholders are invested in fixed asset. But too high indicates what the high

amount is tied up in fixed capital.

Fixed asset

Fixed asset to net worth ratio= _______________

Shareholders fund

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TABLE: 11

FIXED ASSET TO NETWORTH RATIO

* Rs. In. Cr

Year Fixed asset* Shareholders

fund*

Ratio

2005-06 943.27 1412.46 0.66

2006-07 1307.04 1894.58 0.68

2007-08 1525.55 2148.98 0.63

2008-09 3399.11 3473.89 0.97

2009-10 4249.56 3656.30 1.16

INTERPRETATION:

There is no rule of thumb but 60 plus 0.65 is said to be satisfactory.

The ratio was 0.66 in the year 2005-2006. In 2006-2007 it was increased to

0.68 but in 2007-2008 it was increased to 0.63 in 2008-2009 the ratio was

increased to 0.97 and 2009-2010 again the ratio was increased to 1.16.

The shareholders fund is properly utilized.

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CHART :11

0.66 0.68 0.63

0.97

1.16

0

0.2

0.4

0.6

0.8

1

1.2

1.4

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

fixed asset to networth ratio

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3.12. FIXED ASSET RATIO:

The ratio indicates the extend to which the total of fixed asset are

financed by long term fund of the firm. Generally the total fixed asset should

be equal to the total long term fund. But if fixed assets exceeds, it implies

that firm has financial asset, which not good the financial policy.

Fixed asset before depreciationFixed asset ratio= ______________________________

Total long term

Fixed assets = Long term investment.

Fixed term funds = Share capital, Reserve & Surplus

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TABLE: 12

FIXED ASSET RATIO

*Rs. In. Cr

Year Fixed asset* Long term

funds*

Ratio

2005-06 2138.50 1412.46 1.51

2006-07 2620.20 1894.58 1.38

2007-08 2942.44 2148.98 1.36

2008-09 4953.27 3473.89 1.42

2009-10 6018.63 3656.30 1.64

INTERPRETATION:

In the year 2005-2006 the fixed asset ratio was 1.51 and it was

decreased from 1.38 to 1.36 in 2006-2007 and 2007-2008. In 2008-2009 the

ratio was slightly increased from 1.42 to 1.64 in 2008-2009 and 20092010.

It implies the company has financed a part of fixed out of current

asset.

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CHART :12

1.51

1.38 1.361.42

1.64

0

0.8

1.6

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

fixed asset ratio

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3.13. CURRENT ASSET TO PROPRIETOR’S FUND:

The ratio is calculated by dividing the total of current asset by the

amount of shareholder’s fund. The ratio indicates the extent to which

proprietors fund are invested in current assets.

current asset

Current asset to proprietor’s fund= __________________

Shares holders fund

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TABLE: 13

CURRENT ASSET TO PROPRIETORY FUND

*Rs. in. Cr

Year Current asset* Share holders

fund*

Ratio

2005-06 1492.88 1412.46 1.05

2006-07 1681.75 1894.58 0.88

2007-08 1644.30 2148.98 0.76

2008-09 2374.91 3478.89 0.68

2009-10 2849.22 3656.30 0.77

INTERPRETATION:

The ratio shows fluctuating trend. In the year 2005-2006 the ratio was

1.05 and it was reduced from 0.88 to 0.68 in 2006-2007 to 2008-2009. But it

was slightly increased to 0.77.

This shows more than 50% of share holders are invested in currentasset.

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CHART :13

1.05

0.88

0.79

0.68

0.77

0

0.24

0.48

0.72

0.96

1.2

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Current asset to proprietory fund

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3.14. FIXED ASSET TURNOVER RATIO:

This ratio measures the efficiency in utilization of fixed asset. A high

ratio reflects overtrading on the other hand a lower ratio indicates idle

capacity and excessive investment in fixed asset.

Net sales

Fixed asset turnover ratio= ________________

Net fixed asset.

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TABLE: 14

FIXED ASSET TURNOVER RATIO

*Rs. In. Cr

Year Net sales* Net fixed asset* Ratio

2005-06 5359.94 943.27 5.68

2006-07 7358.88 1307.04 5.63

2007-08 7972.52 1525.5 5.22

2008-09 6168.99 3399.11 1.81

2009-10 7436.18 4249.56 1.75

INTERPRETATION:

The fixed asset turnover ratio. The ratio was decreasing trend was

5.68 in the year 2005-2006. And it easy slightly reduced from 5.63 to 5.22 in

2006.2007 and 2007-2008. In 2008-2009 and 2009-2010 the ratio was again

decreased from 1.81 to 1.75.

The ratio implies the company utilizes the fixed asset to achieve the

highest sales.

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CHART : 14

5.68 5.635.22

1.811.75

0

2

4

6

R a t i

o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

fixed asset turnover ratio

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PROFITABILITY RATIO

3.15. GROSS PROFIT RATIO:

It indicates the margin of profit on sale. It measures the relationship of gross profit to net sales and it is represented in percentage. The high gross

profit ratio is sign of good management. The relatively low profit ratio is not

good for the company. There are no standard norms.

Gross profit

Gross profit ratio= ________________ X 100

Net profit

Gross profit = Sales- Cost of goods sold

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TABLE: 15

GROSS PROFIT RATIO

*Rs. In. Cr

Year Gross profit* Net sales* Ratio

2005-06 556.59 5359.94 10

2006-07 768.16 7358.88 10

2007-08 828.25 7972.52 10

2008-09 400.35 6168.99 6

2009-10 752.16 7436.18 10

INTERPRETATION:

This ratio represent in percentage. The ratio shows in the year 2005-

2006, 2006-2007and 2007-2008 was 10 % and the ratio was decreased to 6%

in the year 2008-2009. In 2009-2010 the ratio again increased to 10%.

The Gross profit ratio was increasing trend, so overall ratio was

satisfactory.

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CHART :15

10 10 10

6

10

0

4

8

12

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

gross profit ratio

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3.16. NET PROFIT RATIO:

Net profit ratio indicate the relationship between net profit and sales

the efficiency of the manufacturing, welling and other activities of the firm

Net profit (after tax) Net profit ratio= _______________________ X 100

Net sales

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TABLE: 16

NET PROFIT RATIO

*Rs. In. Cr

Year Net profit (after

tax)*

Net

sales*

Ratio in %

2005-06 327.32 5359.94 6

2006-07 441.29 7358.88 5

2007-08 469.31 7972.52 5

2008-09 190.00 6168.99 3

2009-10 423.67 7436.18 5

INTERPRETATION:

The ratio shows in the year 2005-2006 was 6% and the ratio was

decreased to 5% in 2006-2007 and 2007-2008. Again the ratio was

decreased to 3% in 2008-2009 and it was increased again 5% in 2009-2010.

Because the company has been increased the net sales and overall net

profit was increased trend.

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CHART :16

6

5 5

3

5

0

3

6

9

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Net profit ratio

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3.17. OPERATING PROFIT RATIO:

Operating profit ratio is calculated for analyzing profitability of a

concern. Increase in operate profit indicates improvement of firm working

by cost reduction or increase sales.

Operating profitOperating profit ratio = _______________ X 100

Net sales

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TABLE: 17

OPERATING PROFIT RATIO

*Rs. in. Cr

Year Operating profit* Net sales* Ratio

2005-06 540.36 5359.94 10

2006-07 686.16 7358.88 9

2007-08 804.49 7972.52 10

2008-09 473.09 6168.99 7

2009-10 761.40 7436.18 10

INTERPRETATION:

The ratio was 10% in the year 2005-2006 and slightly decreased to

9% in 2006-2007. In 2007-2008 again reached 10% and it was decreased to

7% in 2008-2009. In 2009-2010 the ratio was increased to 10%.

The overall operating profit and sales are increased and reduce the

expenses.

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CHART :17

10

9

10

7

10

0

5

10

15

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Operating profit ratio

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3.18. SELLING AND ADMINISTRATION EXPENSES:

Selling and administrative ratio indicates the relationship between the

expenses and sales .the changes in the selling and administrative expenses

will be impact on sales.

Selling & Administration expensesSelling and administration expenses= ___________________________ X100

Net sales

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TABLE: 18

SELLING AND ADMINISTRATION EXPENSES

*Rs. in. Cr

Year Selling &Administration

expenses*

Net sales* Ratio

2005-06 199.36 5359.94 3

2006-07 259.50 7358.88 3

2007-08 263.5 7972.52 3

2008-09 495.68 6168.99 8

2009-10 445.89 7436.18 5

INTERPRETATION:

The expenses ratio was 3% in three year that is 2005-2006, 2006-2007

and 2007-2008. In the year 2008-2009 it was increased to 8% but in the year

2009-2010. It decreased to 5%. Because the expenses are slightly decreased

compared to previous year.

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CHART : 18

3 3 3

8

5

0

5

10

R a t i o

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

years

Selling and administration expences

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CHAPTER-V

FINDINGS:

The current ratio was a fluctuating trend from 2005-2006 to 2009-

2010. In last year the ratio was decreased 0.94. Because this is due to

increased in debtor and cash & bank balances.

The liquid ratio was declining trend in 2009-2010. Because increase

the debtor and cash & bank balances in last year.

The absolute liquid ratio implies in last year was slightly increased

because the company should keep cash to meet day to day expenses.

Inventor’s turnover ratio implies the company has made low sales

because more days are taken to clear the stock, and high investment in

stocks.

The debtor’s turnover ratio indicates the last two year decreased.

Because the company marked inefficient management of debtor or

sales and debts was collected in 50 days in last years.

The working capital was increased trend 2008-2009 and 2009-2010.

This two year the working capital implies less utilization.

Debt equity ratio helps to measure the extend to which debt financing

to the business. The ratio is very low expected last year, the company

can make use low cost fund in future.

The proprietary ratio was fluctuating trend. It indicates the

shareholders are more than 50% are investment in total asset. Because

increase the value of asset in future. So it was satisfactory.

The fixed asset ratio are measure the utilization of fixed asset. The

fixed asset is increasing trend. So the company was making high

sales.

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The gross profit ratio was 10% in four year; the company has making

the sales in proportionally. Because the cost of goods sold is slightly

variation.

The net profit ratio implies the profitability position of the company

has increased in 2009-2010 and sales are growing up.

Operating profit ratio also implies the profit has been increased

compared to previous year. Because the company was make low

amount of cost of goods sold.

The exp4ences ratio of the company was decreasing, because to make

the high sales.

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SUGGESTION

The current ratio and absolute ratio was maintained lower cash

than ideal ratio. So, the company cab take step to increase the cash position to meet its expenses.

The company is allowed credit period for 50 days. The debt

collection period can be reduced with in 30days.

The company should increase the long term debt.

To reduce the investor cost of the company must follow average

inventory system,

Otherwise, the company was making investment in current asset

and reducing cost of sales at the same time increasing sales and

profit was good in earlier days.

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CONCLUSION:

The project entitled “A STUDY OF FINANCIAL

PERFORMANCE ANALYSIS OF ASHOK LEYLAND COMPANY

LIMITED “was undertaken with the objective of financial

performance and to examine profitability performance of the

company.

From the study gross profit and net profit position was good.

The liquidity position should be increase the company. Long term

solvency position of company was satisfactory.In over all performance of “ASHOK LEYLAND LIMITED”

was good.

50631292-ashok-leyland-3

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