SYNOPSIS

ON
PROFITABILITY ANALYSIS USING FINANCIAL
RATIO: A COMPARATIVE STUDY OF
AUTOMOBILE COMPANIES (BAJAJ AUTO, TVS
MOTORS, TATA MOTORS & MARUTI UDYOG
LIMITED)

SUBMITTED BY:

VINITA SOMANI

MBA V SEMESTER

Enrollment No. : 070530811

PROJECT GUIDE:

MR. BRAJESH AGRAWAL

INDIRA GANDHI NATIONAL OPEN UNIVERSITY

YEAR: 2009
 SYNOPSIS
PROFITABILITY ANALYSIS USING FINANCIAL
RATIO: A COMPARATIVE STUDY OF
AUTOMOBILE COMPANIES (BAJAJ AUTO, TVS
MOTORS, TATA MOTORS & MARUTI UDYOG
LIMITED)

(A) RATIONALE BEHIND THE STUDY:

Profitability analysis is the process of identifying the financial

strengths and weaknesses of a firm with respect to profitability. In this study
profitability in day-to-day and long-term transaction will be studied. Ratio
analysis is a widely used tool of financial analysis. Ratio analysis is often
underrated but is extremely helpful in providing valuable insight into
corporation financial health.

Public is pouring lot of money in the stock market and new issues are
coming very rapidly. Public and the management of the companies need to
assess financial health of the company periodically. Analysis of financial
data is based on five parameters namely, sales, assets, net income,
stockholders equity and number of employees. Stockholders are concerned
whether income will be sufficient to cover interest and the management is
interested in the future success of operations under their leadership. For
these reasons, one must have various analytical tools to assist in interpreting
the key relationships and trends and to predict the potential future success.

Ratios normally pinpoint business strengths and weaknesses in two

ways:

Firstly: The ratio provide an easy way to compare today’s performance with
the past and

Secondly: Ratios depict the areas in which a particular business is

competitively advantageous or disadvantageous.

There are several different categories of ratios and each category focuses on
a different area. Some of the ratio which can b used in analyzing the
financial health of an establishment are as under:
(a) Profitability Ratio:
(1) Return on Investment or Net Profit to Capital
(2) Gross Profit Ratio
(3) Operating Ratio
(4) Net Profit Ratio
(5) Interest-coverage Ratio
(b) Liquidity Ratio
(c) Debt Ratio
(d) Activity Ratio
(e) Debt Coverage Ratio
(f) Turnover Ratio etc.

AUTOMOBILE COMPANIES:

(1) BAJAJ AUTO LIMITD: The Company’ main object is to

manufacture and marketing of ‘Bajaj’ scooters, motorcycles and
three-wheelers and spare parts thereof. The company is producing less
maintenance vehicles which are the best for Indian Markets. Bajaj
Auto Ltd. of India has been manufacturing scooters for four decades
and has become the largest scooter manufacturer in the world.
(2) TVS MOTORS COMPANY: TVS Motor Company Limited, part
of the TVS Group, is one of India’s leading two-wheelers
manufactures. With a turnover of over Rs. 2800 crores [USD 574.94
million], the Company manufactures a wide range of motorcycles,
scooters, mopeds and scooter TTS. Little wonder, it boasts of more
than 9.5 million happy customers
(3) TATA MOTORS: Tata Motors Limited is India’s largest automobile
company. It is the leader by far in commercial vehicles in each
segments, and the second largest in the passenger vehicles market
with wining products in the compact, midsize car and utility vehicle
segments. The company is the world’s fifth largest medium and heavy
bus manufacturer.
(4) MARUTI UDYOG LIMITD: Maruti Udyog Ltd (MUL), is the
largest car manufacturing in the county with a market share of over 80
percent in the car industry. It is a joint sectors corporation setup by
the Government of India and Suzuki Motor Corporation, Japan.
Although the company is a clear leader, it faces threats from new
entrants into car industry.
It has been noticed that the oval profit margin of the firm I satisfactory but
there appears to be a setback in the liquidity position of the firm which has
prompted me to take this project for an in-depth study.

(B) OBJECTIVES OF THE STUDY

(1) To evaluate financial health, Profitability, liquidity and

operational efficiency of the establishment.
(2) To have an inter-firm (Bajaj Auto, TVS Motor, Tata Motors
and Maruti Udyog Limited) comparison measure efficiency and
help the management to take remedial measures.
(3) To establish trend analysis for planning and forecasting for a 5
years period.
(4) To help the investers in taking investment decisions and to help
the banks and financial institution in taking lending decision.
(5) To assess the ability of the firm to meet its short-tm as well as
long-term obligations to its creditors and also to ensure a
reasonable return to its owners and secure optimum utilization
of the assets of the firm.
(6) To develop a software programmes to visually see the liquidity
status of the firm on day-to-day.

(C) RESEARCH METHODOLOGY TO BE USED FOR

CARRYING OUT THE STUDY:

(1) SOURCES OF DATA:

(a) Primary data:

Primary data required for study will be collected through direct
interaction with financial executives of the establishment. Since
a good rapport has been maintained the management has
assured timely guidance and assistance and availability of
relevant information through ledger and files etc.

(b) Secondary data:

Secondary data will consist of annual reports, publications,
audited financial statement issued, day-to-day working files and
budgets for different years. Which will be obtain from
following sites?
• www.bajajauto.com
 • www.tvsmotors.com
• www.tatamotors.com
• www.marutiudyoglimited.com
• www.automartindia.com

(c) Interview with key Personnel:

Data will also be collected by interviewing the key personnel of
the firm. The problems of the firm relating to the liquidity will
be discussed with them along with sources of finances and
future prospects.

(2) METHODOLOGY:

The Profitability ratios and the elements of profitability ratios

will be plotted to analyze the tend over a five-year period and to have
a comparison with firms of similar nature to find areas that need
improvement.

In the process of Ratio Analysis, four types of comparisons will

be made:

(1) Trend Ratios i.e. comparison of the same firm over time
suitable graphs will be plotted.
(2) Inter-firm comparison (Bajaj Auto, TVS Motor, Tata Motors
and Maruti Udyog Limited).
(3) Comparison of items in the financial statement of the firm.
(4) Comparison with standards or plans.

Classifications of the types of ratios to be calculated are:

(1) Profitability Ratios.

(2) Liquidity Ratios.
(3) Leverage Ratios.
(4) Activity Ratios.

Bar graphs will be plotted show in year-wise various elements of

current assets and current liabilities.
 Pie diagram showing composition of elements of current assets to the
total current assets – comparison of the same with the earliest year and the
latest year.

The study, comparisons and the calculation of the ratios will be done
from the data collected from the above mentioned methods for last five
years.

(D) EXPECTED CONTRIBUTION FOM THE STUDY:

The company is facing liquidity problem due to shortage of working

capital finances.

From this study we will com to know the strengths of the company
and weak points of the company. The study can provide many solutions to
overcome the Profitability problems and increase their profits. My project
analysis will go a long way in improving the liquidity of the firm. Necessary
comments and recommendations will be included in the project report.

(E) LIMITATIONS OF THE STUDY:

Ratio Analysis is subject to certain limitations. For e.g. in the matte of

inter-firm comparison the procedure adopted by various firms may vary. The
Second limitation comes from price level variation caused by inflation.
Therefore Ratio Analysis fails to yield strictly comparable/dependable
results. Thirdly, ratios are only a post mortem result of what ha happened
between two balance sheet dates. Additionally the trend analysis fails to
provide an empirical forecast about the future in view of the ever-changing
social, economic and international scenario. Fourth, financial analysis is
based upon only monetary information and non-monetary factors are
ignored. Fifth, it does not consider changes in the price level. And last one,
as the financial statement are prepared on the basis of the Going Concern
Concept, it does not give exact position. Thus accounting concept and
conventions cause serious limitations to financial analysis.

(F) SCOPE FOR FUTURE WORK:

The study can be extended to other firms in the same industry.

 Vinita somani Mr. Brajesh agrawal
MBA V SEMESTER Project Guide
Enrollment No.070530811