Financial Analysis of Hero

7/29/2019 Financial Analysis of Hero

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THE ORGANISATION HERO CYCLES LTD

The Beginning

We look over our shoulders, we see the past. We use it to make a better

present and a beautiful tomorrow, as tomorrow isnt just another day, its

another chance for us to better ourselves and to excel.

Hero Cycles is a product of this philosophy. The philosophy that instills

commitment, team work and foresight. Heros colossal journey started before

independence. The four Munjal brothers, hailing from a small town called

Kamalia, now in Pakistan, are the men who are behind the mission.

Brotherhood apart, what knit the men together was the wealth of will,

integrity, ambition & determination. In the year 1944, they decided to start a

business of bicycle spare parts in Amritsar. Its is modest beginning and the

next 3 years saw the business grow rapidly.But the dark clouds of partition

eclipsed their plans of the future. With renewed vigour and optimism, the

operational base was shifted to Ludhiana. By 1956, the brothers had began

manufacturing key components of bicycles and as a logical way forward,

began to assemble the entire cycle at their manufacturing plant in Ludhiana.

In the early days, the plant had a capacity for 25 cycles per day. Over the next

few years, the Bicycle Unit started growing in stature and size, attracting

skilled engineers, technocrats, administrators and entrepreneurs. From a modest beginning of

mere 639 bicycles in the year 1956, Hero Cycles products over 18500 cycles a day today, the

highest in global reckoning. With the 48% share of the Indian market, this volume has

catapulted Hero in the Guinness Books of World Records in 1986 and edge over global

players is being maintained since then.

A tiny acorn has now become a mighty Oak. From cycle to two - wheelers was a natural step,

and the Hero Group came into being. The Hero Group, today, is a vast conglomerate of

companies, either in the form of collaborations, joint ventures or fully owned subsidiaries,

with more than Rs. 10000 Crore turnover annually. Hero Group, besides being the worlds

largest manufacturers of bicycles, motorcycles and chains to this date, has diversified into

newer segments like Information Technology, IT Enabled Services and Financial Services.


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THE HERO GROUP

The Hero Group has done business differently right from the inception and that is what

has helped us to achieve break-through in whatever product category we have ventured.

The Groups low key, but focused, style of management has earned the plaudits amidst

investors, employees, vendors and dealers, as also worldwide recognition.

The growth of the Group through the years has been influenced by the number of factor:

The Hero Group through the Hero Cycles Division was the first to introduce the concept

of just-in-time inventory. The Group boasts of superb operational efficiencies. Everyassembly line worker operates two machines simultaneously to save time and improve

productivity. The fact that most of the machines are either developed or fabricated in-

house has resulted in low inventory levels.

In Hero cycles Limited, the just-in-time inventory principle has been working since the

beginning of production in the limit in the unit and is functional even till date. The

vendors bring in the raw material and by the end of the day the finished product is rolled

out of the factory. This is the Japanese style of production and in India; Hero is the first

company to have mastered the art of the just-in-time inventory principle

.


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HERO GROUP COMPANIES

Hero Group ranks amongst the Top 10 Indian Business Houses comprising 18companies, with an estimated turnover of US$1.8 billion during the fiscal year 2003-2004.

Hero Cycles Limited

Hero Honda Motors Limited

Hero Cold Rolling Division

Hero Motors Limited

Hero Exports

LO GO

Majestic Auto Limited

Rockman Cycle Industries

LOG O

Highway Cycle Industries

LOG O

Sunbeam Auto Limited

LOGO


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Munjal Showa Limited

Munjal Castings

Munjal Auto Components

Hero Global Design

Hero Corporate Services Limited

Hero ITES

Hero Mind mine

Hero Soft

Munjal e-systems

Munjal Auto Industries Limited


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Easy Bill Limited

The Driving Force: Chairman

Dr.Brijmohan Lall Munjal, patriarch of the US$ 3.19 billion Hero Groupwas born in 1923, in what is now Pakistan. After partition, the Munjal

brothers started a small business of manufacturingbicycle components in Ludhiana in North India in theface of the bottlenecks of industrial infrastructure andinvestments. Dr Lall led a small time manufacturer of60 cycles a day to become a manufacturing giant,which churns out not only over 17,000 cycles per day

but is also diversified into various domains.Undoubtedly, Dr.Lall is a first generation businessentrepreneur of the 1950s'.

Dr.Lall has enriched the Hero Group with his vision of sound businessgovernance and value driven management practices. His foresight hasmade the Hero Group a leader in its business. Dr Brijmohan Lall is arole model for Indian Industry in corporate governance and ethical andvalue-driven management practices. His principle-based leadership hasled the Group companies to receive the best industrial governance and

safety awards and acquire stringent value certifications.

Dr.Lall was amongst the first Indian industrialists to

effectively implement backward integration and he is

acknowledged as the trend setter in the area. Apart

from the promotion of the Indian industry, he is the

actively involved in many national associations such

as CII, SIAM, ASSOCHAM and PHD and is a memberof the Regional Board of the Reserve Bank of India.

He is Honorary Fellow of the Indian Institute of

Industrial Engineering.


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Dr.Lall has received various accolades and awards for his immensecontribution to the Indian industry. He was adjudged Businessman ofthe Year in 1994 by a leading business magazine - Business India.

In 1995, Dr.Lall received the National Award for outstanding

contribution to the Development of Indian Small ScaleIndustry. (NSIC award - presented by the President of India)

In 1999, the Business Baron recognized him as the "Most AdmiredCEO."

The PHD Chamber of Commerce and Industry presented him with theDistinguished Entrepreneurship Award in 1997, in recognition ofhis outstanding exemplary entrepreneurship.

Xavier Labour Relations Institute (XLRI), a premier institution hasconferred on him the honor ofSir Jehangir Ghandy Medal forIndustrial Peace in 2000.

Ernst and Young has recognized him as the "Entrepreneur of theyear 2001."

All India Management Association conferred him with the LifetimeAchievement award for "Managment"(2003)

Banaras Hindu University, Varanasi one of the most prestigious

Universities of India conferred him with a Doctrate; degree of "Doctors of letters" Honoris Causa in October 2004

The Government Of India honoured him with the prestigious "Padma Bhushan"in March 2005 for his contribution to Trade andIndustry


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MILESTONES

Heros success saga contains the element of courage, great; determination,

enterprises and perseverance coupled with vision and meticulous planning:

1956

Hero Cycles Ltd. is established.

1961

Rockman Cycle Industries Ltd. established which is today the largest manufacturer of

bicycle chains & hubs in the world.

1963

Bicycle exports take off from Indiaa faray into the international market.

1971

Highway Cycles was set up. It is today the largest manufacturer of single speed & multi-

speed freewheels in the country.

1975

Hero Cycles Limited became the largest manufacturer of bicycles in India.

1978

Majestic Auto Limited was formed and Hero Majestic Moped was introduced.


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1981

Munjal Casting established.

1984

Hero Honda Motors Limited established in joint venture with Honda Motors, Japan to

manufacture Motorcycles. It is now the worlds largest producer oftwo-wheelers.

1985

- Munjal Showa Ltd. established to manufacture shock absorbers and struts and is

today one of the topmost shock absorber manufacturers companies in this country.

- 100cc Hero Honda Motorcycle was launched, which, later on in 1988,

became No.1 among all motorcycles in India.

1986

Hero Cycles Limited entered the Guinness Books of World Records as the Largest

bicycle manufacturer in the world.

1987

Hero Motors, a division of Majestic Auto Limited set up on collaboration with Steyr

Diamler Puch of Austria.

1987

Gujarat Cycles Limited, now known as Munjal Auto Centre Ltd. was established to

manufacture and export state-of-the-art bicycles and light products in its full automated

plant at Wagodia.

1987

Sunbeam Auto Limited, earlier a unit of Highway Cycle Ind. Ltd., established as an

ancillary to Hero Honda. It has the largest die casting plant in India.


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1988

Hero Puch was introduced by Hero Motors Ltd., which was a revolutionary machine to

set new records of petrol.

1989

Ranger bicycles (a generic name for Mountain Bikes today) was introduced by Hero

Cycles Limited.

1990

Hero Cold Rolling Division established which is one of the most modern steel cold

rolling plants in India.

1991

Hero Honda received National Productivity Council Award and also the Economic Times

Harvard Business School Association Award against 200 contenders.

1991

Hero Cycles introduced Kidthe first branded bike in childrens segment.

1992

Hero Cycles introduces Impact, the first citibike in India.

1992

Munjal Showa Ltd. received national safety award.

1993


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Hero Exports was established as International Trading Division for group & non-group

products.

1995

- Hero Corporate Services Ltd. was established.

- The first exerbike from Hero Group was introduced with the name

Allegro.

1996

Hero Winner, a large wheeled scooter with a choice of 50 cc & 75 cc engines was

launched by Hero Motors Ltd.

1998

Hero Briggs & Stratton Auto (P) Ltd. was set up to produce 4-stroke two wheeler engines

in various cubic capacities.

1998

Munjal Auto Components established to manufacture gear shaft & gear blanks for

motorcycles.

2000

The first fully automated bicycles by the name POWERBIKE was introduced by

Hero Cycles Limited. Hero Corporate diversified into I.T. and I.T. Enabled Services

through its services segment Hero Corporate Services Limited.

2001

Hero Honda emerges as the market leader in motorcycles with the sales of over a million

motorcycles and a market share of 47%.

2002


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Hero Cycles Limited ties up with National Bicycle Industries, a part of Matsushita

Group, Japan, to manufacture high-end bicycles.

Fastener World established.

2002

Easy Bills Limited established to offer utility bill collection and retail services.

2003

Tie-up with Live Bridge Inc., U.S.A., Aprilia Scooters, Haly & Bombardier Rotax GmbH

of Germany.

2003

Super Starter Series Launched by Hero Cycles Limited.

2003

Hero Honda continues to be the worlds largest manufacturer of two-wheelers with the

market of more than 48%.

2004

Hero Retail Insurance Business established.

Super Smart Series introduced by Hero Cycles Limited.

2005

Hero ITES strengthens its relationship with ACS, USA USD 5 BILLION-market cap and

fortune 500 companies.


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2006

Hero Honda crosses a unit sales threshold of 3 MILLION motorcycles.

2006

Hero Honda enters the scooters segment, launches 100 cc pleasure.

2006

Hero group celebrates GOLDEN JUBILLEE YEAR since inception. It was

commemorated by sales of over 15 million motorcycles & over 100 million bicycles.

2007

Hero group has made 13 models of e-bikes.


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GLOBAL GEARING: EXPORTS

As

early as

in the

1960s'

very

few

Indian

bicycle manufacturers were interested in exports. However, the Hero Group's foray into

the overseas markets in 1963 pioneered Indian exports in the bicycle segment. It was a

move prompted essentially by the need to remain attuned to the global marketplace.

While initial exports were restricted to Africa and the Middle East, today more than 50

percent of the exports from Hero Cycles

HERO CYCLES

HERO HONDA MOTORS

HERO MOTORS

HERO CORPORATE SERVICE LIMITED

(Hero Mindmine, Munjal eSystems,

NsurePlus)

HERO MANAGMENT SERVICELIMITED(HERO ITES)

MUNJAL SHOWA LIMITED
http://www.herocycles.com/http://www.herocycles.com/http://www.herohonda.com/http://www.herohonda.com/http://www.heromotors.com/http://www.heromotors.com/http://www.herocorp.com/http://www.heromindmine.com/http://www.munjal-esystems.com/http://www.nsureplus.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.munjalshowa.net/http://www.munjalshowa.net/http://www.munjalshowa.net/http://www.heroites.com/http://www.heroites.com/http://www.nsureplus.com/http://www.nsureplus.com/http://www.munjal-esystems.com/http://www.heromindmine.com/http://www.herocorp.com/http://www.heromotors.com/http://www.herohonda.com/http://www.herocycles.com/


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Limited meet the demands of sophisticated markets in Europe and America. This is

primarily because of appropriate product development and excellent quality that Hero

offers.

The Group has been continuously upgrading technology and has set up special units - like

Gujarat Cycles Limited (now Munjal Auto Industries Limited), to meet international

quality standards. Munjal Auto Industries Limited has state-of-the-art equipments

imported from Europe and Taiwan. The unit is designed to match international standards

and is an Export Oriented Unit (EOU). Its products are supplied to the International

Markets of developed countries like United Kingdom, Germany, France etc.

The Group's exports have gone beyond cycles and their components. The success of the

Hero Majestic moped did not remain confined to Indian shores. Finding enthusiastic

buyers across the world, it became the largest exported moped from India.

Hero Puch is perhaps the first Indian two-wheeler to be homologated abroad (in Spain)

and has assembly plants in Mauritius and Egypt. Today Hero Puch mini-motorcycles can

also be seen in Paraguay, Mexico, Argentina, Turkey and Holland.

Group Company, Munjal Showa Limited is one of the largest suppliers of shock

absorbers to major auto giants in Japan, United States and the United Kingdom, amongst

other developed markets.

In 1993 Hero Exports was established as the International Trading Division for Group

and non-Group products. The Government of India recognizes Hero Exports as a Trading

House.

And the latest diversification for the Group in the export market is in the area of Software

exports and providing Business Processing and Contact Center Services through Hero

Corporate Service limited. The company exports services to many Fortune 1000

corporations in the USA, UK and Australia and has offices in UK & USA to manage

client relationships.


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VISION AND MISSION

The Vision

We, at the Hero Group are continuously striving for synergy between

technology, systems and human resources to provide products and services that meet the

quality, performance, and price aspirations of the customers. While doing so, we maintain

the highest standards of ethics and societal responsibilities, constantly innovate products

and processes, and develop teams that keep the momentum going to take the group to

excellence in everything we do.

The Mission Statement

Its our mission to strive for synergy between technology, systems and human

resources, to produce products and services that meet the quality, performance and price

aspirations of our customers. While doing so, we maintain the highest standards of ethics

and societal responsibilities.

This mission is what drives us to new heights in excellence and helps us forge a

unique and mutually beneficial relationship with all our stakeholders. We are committed

to move ahead resolutely on this path, shown to us by visionaries like Mr. Satyanand

Munjal, Mr. Om Prakash Munjal, the late Mr. Dayanand Munjal and late Mr. Raman

Kant Munjal. Mr. Brijmohan Lall Munjal, Chairman & MDTHE HERO GROUP.


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Quality: The Driving Force

At Hero Cycles, quality is a tradition, be it in the form of well trained labour, technically

superb machines or world class quality. The conformance to quality at Hero begins on

shop floor, with every worker ensuring at each stage manufacturing, that only perfect

product passes through his hands. Heros production department too believes in following

the zero-defect approach and continuous upgradation of its manufacturing systems. The

marketing and operations teams are also constantly creating new and effective strategies

using modern management techniques. And finally, every Hero cycle goes through a

series of rigorous quality checks before it leaves the factory. No wonder, Hero is in proud

possession of ISO-9001, ISO-9002 & BVQI certifications and also ISO 14001,

environmental compliance endorsement from the Ministry of Environment.

Constant quality upgradation ensures that the company stays in the global mainstream

and maintains its edge, through excellence. A technology tie-up with National Bicycle

Industries of Japan led to the launch of the World 1 series of cycles, besides

introduction of new frame designing and features like- A-frame, D-frame, Y-frame, Swan

shaped frame, speedometers & indicators among other


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Promotions

Until 1986, the company had no need for mass communication. But as competition

started growing, Hero Cycles begun to feel the need for creating lasting impression on the

customers mind. In the mid 1980s Hero was perceived to be the manufacturer of the

basic black bicycles. The company required an image change. It needed to communicate

to customers the vast portfolio of products that it had, particularly in the recreational

segment. The launch of innovative products and their use as image builders happened

simultaneously. Since 1986, the communication strategy has been to build each product

separately and create a unique positioning for them. In this way the Ranger waspositioned as the bike for outdoor fun, Impact was the preferred choice among city riders

and Jet was projected as the lightest running roadster while Hawk was the racers edge.

Each of these launches and their promotion, gave the Hero brand a new meaning. The

brand has also used celebraties - including film stars Sanjay Dutt, Rani Mukherjee,

Hrithik Roshan and Ameesha Patel. The latest is Indias new bowling sensation, Irfan

Pathan who has also been a real life Hero cycle user.


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MAJOR PRODUCTS

The Hero Cycles Ltd. Manufactures cycles, rims , free wheels ,hubs & chains and

cold rolled strips as a main product. Company has long portfolio of different range of

cycles. Company has 132models in the list , covers all the three section-gents, ladies and

kids. It also manufactures cycles parts for its own requirements. After fulfilling the

requirements of company ,it can export its remaining quantity.

The main products are:-

i) Cycles

ii) Rims

iii) Free wheels

iv) Hubs and Chains

v) Cold Rolled strips

vi) E-Bikes

COMPETITORS

IN CYCLE MARKET:

AVON

OPERA

TI

ATLAS

OTHERS (NEELAM,KW,BS)


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OWNERSHIP OF MANAGEMENT

BOARD OF DIRECTORS

SH. BRIJMOHAN LAL MUNJAL (CHAIRMAN)

SH. SATYANAND MUNJAL (CO-CHAIRMAN CUM M.D. WORKS)

SH. OM PARKASH MUNJAL (CO-CHAIRMAN CUM M.D. MKTG. & ADMN.)

SH. VIJAY KUMAR MUNJAL (M.D. INTNL MARKETING)

SH. SURESH CHANDRA MUNJAL (M.D. DOMESTIC MKTG.)

ASHISH KUMAR MUNJAL (M.D. UNIT TO SAHIBABAD)

SH. SUNIL KANT MUNJAL (M.D. C.R.DIVISION)

SH. PANKAJ MUNJAL (M.D. NEW HERO AUTO RIM DIV.)

SH. S.K. RAI (M.D. WORKS)

DR. M.A. ZAHIR (DIRECTOR)

DR. D.R. SINGH (DIRECTOR)


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Meaning of financial analysis

The term financial analysis also known as analysis and interpretation of financial

statements refers to the process of determining financial strength and weaknesses of the

firm by establishing strategic relationship between the items the balance sheet, profit and

loss account and other operative data.

Acc. To Myers- Financial statement analysis is largely a study of relationship among

the various financial factors in a business is disclosed by a single set of statements, and a

study of the trend of these factors as shown in a series of statement.

Purpose of financial statement analysis:

The purpose of financial statement analysis depends upon the need of person who is

analyzing these statements. These varying needs may be:-

To know the earning capacity or profitability of the firm.

To know the solvency position of firm.

To know the financial strength of the business.

To make comparative study with other firms. To know the capability of payment of interest and dividend.

To know the trend of the business.

To know the efficiency of the management.

To provide useful information to the management.


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Tools of financial Analysis:

The analysis and interpretation of financial statement is used to determine the

financial position and results of operations as well. A number of methods or devices are

used to study the relationship between different statements. A financial analyst may use

following methods:-

Comparative statements

Ratio analysis

Fund Flow analysis

Common size statement


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COMPARATIVE STATEMENTS

The comparative financial statements are statements of the financial position at different

period; of time. The elements of financial position are shown in a comparative form so as

to give an idea of financial position at two or more periods. From practical point of view,

generally, two financial statements (balance sheet and income statement) are prepared in

comparative form for financial analysis purpose. Not only the comparison of the figure of

two periods but also be relationship between balance sheet and income statement may

show:

i. Absolute figures (rupee amounts)

ii. Changes in absolute figures (increase or decrease in absolute figures)

iii. Absolute data in term of percentages

iv. Increase or decrease in terms of percentages

1. COMPARATIVE BALANCE SHEET

The comparative balance sheet analysis is the study of the trend of the same

items, groups of items and computed items in two or more balance sheets of the same

business enterprise on different dates. The changes can be observed by comparison of the

balance sheet at the beginning and at the end of a period and changes can help in forming

an opinion about the progress of an enterprise.

The comparative balance sheet has two columns for the data of original balance

sheets. A third column is used to show increase in figures. The fourth column may be

added for giving percentages of increases or decreases.

2. COMPARATIVE INCOME STATEMENT

The comparative income statement gives an idea of a 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. It has also four columns. First two columns give

figures of various items for two years. Third and fourth columns are used to show

increase or decrease in figures in absolute amounts and percentages respectively.


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HERO CYCLE LTD.

I) COMPARATIVE STATEMENT

A) Comparative Balance Sheet

Particulars 2006 2007 Increase/Decrease %age

Assets

Fixed Assets 1968881237 1893341411 - 75539826 -3.84

Investments 2851504001 3843437861 +991933860 +34.79

Deferred Tax Assets (Net) 4892714 19845655 +14952941 +305.62

Current Assets

- Inventories 766521142 805661034 +39139892 +5.11

- Sundry Debtors 1860512457 2228592486 +368080029 +19.78

- Cash & Bank Balance 69481654 22134657 - 47346997 -68.14

Loan and advances 337661837 457780835 +120118998 +35.57

Total Assets 7859455042 9270793939 +1411338897 +17.95

Liabilities

Shareholder Fund 4427446105 5364231022 +936784917 +21.16

Loan Funds 1567876432 1732223697 +164347265 +10.48

Current Liabilities

- Liabilities 1640425867 1978589143 +338163276 +20.61- Provisions 223706638 19575007 -27956561 -14.28

Total Liabilities 7859455042 9270793939 +1411338897 +17.95

Interpretation

1. Comparative Balance Sheet reveals that total Assets of Hero cycle increased

during a year by 17.95%.

2. There has been increase in shareholder funds by 21.16%.


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HERO CYCLE LTD

B) Comparative Income Statement

Particulars 2006 2007 Increase/

Decrease(Rs).

%age

Net Sales 11369337410 13308705116 +1939367706 +17.06

Less : Cost of Goods Sold(Material consumed,manufacturing expenses &personal expenses)

9756380835 11733069767 +1976688932 +20.26

Gross Profit 1612956575 1575635349 -37321226 -2.31

Less : Operating expenses(Administrative expenses,financial expenses, sellingexpenses & depreciation)

1147615431 1139418653 -8196778 -1.76

Operating profit/loss 465341144 313168939 -29124448 -6.25

Add: Other income 1077448184 898158858 -179289326 -16.64

Less:non operating exp. 906615865 123047757 -783568108 -86.43

Net profit Before Tax 636173463 121132797 +575154334 +90.41

Less : Taxprovision forwealth tax, taxation, fringebenefit tax & deferred tax

-28757839 185742059 +214499898 +745.88

Net profit After tax 664931302 1025585738 +360654436 +54.24

Interpretation

There has been decrease in the gross profit by 2.31% because the rate of increase

in sales is less than the rate of increase in cost of goods sold. But the non operating

expenses decreases by 86.43% so net profit increases.


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II) COMMON SIZE STATEMENT

A) Common Size Balance Sheet

Particulars 2006 2007

Amount (Rs.) %age Amount (Rs.) %ageAssets

Fixed Assets 1968881237 25.05 1893341411 20.42

Investments 2851504001 36.28 3843437861 41.46

Deferred Tax Assets (Net) 4892714 0.06 19845655 0.22

Current Assets

- Inventories 766521142 9.76 805661034 8.69

- Sundry Debtors 1860512457 23.67 2228592486 24.04

- Cash & Bank Balance 69481654 0.88 22134657 0.24

Loan and advances 337661837 4.30 457780835 4.93

Total Assets 7859455042 100.00 9270793939 100.00

Liabilities

Shareholder Fund 4427446105 56.33 5364231022 57.86Loan Funds 1567876432 19.95 1732223697 18.69

Current Liabilities

- Liabilities 1640425867 20.87 1978589143 21.34

- Provisions 223706638 2.85 19575007 2.11

Total Liabilities 7859455042 100.00 9270793939 100.00

Interpretation

The investment in fixed assets, current assets and investment are same in both the years.

The ratio of shareholders funds and the loan funds are do not change much.


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II) COMMON SIZE STATEMENT

B) Common Size Income Statement

Particulars 2006 2007

Amount (Rs.) %age Amount (Rs.) %ageNet Sales 11369337410 100.00 13308705116 100.00

Less : Cost of Goods Sold

(Material consumed,manufacturing expenses &personal expenses)

9756380835 85.81 11733069767 88.16

Gross Profit 1612956575 14.19 1575635349 11.84

Less : Operating expenses(Administrative expenses,

financial expenses, sellingexpenses & depreciation)

1147615431 10.09 1139418653 8.56

Operating profit/loss 1147615431 4.09 1139418653 3.28

Add: Other income 1077448184 9.48 898158858 6.75

Less:non operating exp. 906615865 7.97 123047757 0.92

Net profit Before Tax 636173463 5.60 121132797 9.10

Less : Taxprovision for

wealth tax, taxation, fringebenefit tax & deferred tax

-28757839 -2.53 185742059 1.40

Net profit After tax 664931302 5.85 1025585738 7.71

Interpretation

In 2006 the cost of goods sold is 85.81% of sales which increase to 88.16% in

year 2007 resulting the decrease in gross profit from 14.19% to 11.84% but the company

is successful in controlling non operating expenses i.e. 7.97% to 0.92% so net profit

increases in 2007.


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HERO CYCLES LTD.

Cash Flow Statement

Particulars 2006 2007 Increase/Decrease %age

Profit Before Tax 6361.73 12113.28 +5751.55 90.41

Net Cash Flow Operating Activity 8382.83 2996.85 -5385.98 -64.25

Net Cash used in InvestingActivity

-4988.22 -3143.35 -1844.87 -36.98

Net Cash used in FinancingActivity

-3471.47 -326.97 -3144.50 -90.58

Net Inc/Dec in Cash &Equivalent

-76.86 -473.47 +396.61 +516.02

Cash and Equivalent at theBegin of the Year

771.68 694.82 -76.86 -9.96

Cash and Equivalent at theEnd of the Year

694.82 221.35 -473.47 -68.14


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FUND FLOW ANALYSIS

Definition of Fund

A question arises as to the definition of FUND. It means:

Funds may mean change in cash only;

Funds may mean change in working capital (the difference between current assets

and current liabilities) only.

A more comprehensive definition of funds may be given as follows:

Funds may mean change in financial resources, arising from changes in working

capital items and from financing and investing activities of the enterprise, which

may involve only non-current items.

The funds flow statement analyses only the causes of changes in the firms

working capital position. The cash flow statement is prepared to analyze changes in the

flow of cash only. These statements fail to consider the changes in the firms total

financial resources. They do not reveal some significant items that do not affect the

firms cash or working capital position, but considerably influence the financing position

and asset mix of the firm.

The statement of changes in financial position is an extension of the funds flow

statement or the cash flow statement. Therefore, to get better insights, a firm may preparea comprehensive, all inclusive, statement of changes in financial position incorporating

changes in the firms cash and working capital positions involving:

Changes in the firms working capital position,

Changes in the firms cash position, and

Changes in the firms total financial resources.


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Statement of Changes in Working Capital

Particulars 2006 2007 Effect on Working

Capital

Increase Decrease

Current Assets

- Inventories 766521142 805661034 39139892 -

- Sundry Debtors 1860512457 2228592486 368080029 -

- Cash & Bank Balance 69481654 22134657 - 47346997

(A) 2696515253 3056388177

Current Liabilities

- Liabilities 1640425867 1978589143 - 338163276

- Provisions 223706638 195750077 27956561 -

(B) 1864132505 2174339220

Working capital (A-B) 832382748 882048957 - -

Net increase in workingcapital

4966209 - - 49666209

Total 882048957 882048957 435176482 435176482

Note : Provision should be taken as current liability

FUND FLOW STATEMENT

Sources Amount

(Rs.)

Applications Amount

(Rs.)

Raising of Loans 164347265 Net Increase in Working Capital 49666209

Funds from operation 1135177199 Purchase of Investment 991933860

Purchase of Fixed Assets 137805397

Loan of Advances given 120118998

1299524464 1299524464


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WORKING NOTES

Adjusted Profit and Loss Account

Particulars Amount

(Rs.)

Particulars Amount

(Rs.)

To Dep. on fixedAssets

213345223 By Balance b/d 4029233305

To Balance c/d 4966018222 By Deferred Tax 14952941

By Fund from Operation(Bal. Figure)

1135177199

5179363445 5179363445

FIXED ASSETS

Particulars Amount

(Rs.)

Particulars Amount

(Rs.)

To Balance b/d 1968881237 By Adjusted P & L A/c(Dep.)

213345223

To purchase on FixedAssets (Bal. figure)

137805397 By Balance c/d 1893341411

2106686634 2106686634

Interpretation : As seen from the above analysis that there is increase in working capital

which, indicate that company is having sufficient current assets to pay back the current

liabilities in time. There is increase in amount of loans by 10.48% and it is being utilized

in financing the fixed assets & investments.


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1. Current Ratio

It is also known as Working capital ratio. It is a measure of liquidity and used in making

analysis of short term financial position.

Current Ratio = Current Assets / Current Liabilities.

TABLE 1.1 (Current Ratio)

FIGURE 1.1

Interpretation : It is decreasing in the year 2007 because current liabilities are increased

this year as compare to 2006. Overall this ratio is satisfactory as it is nearest to the thumbrule i.e. 2:1

Current Ratio

0

0.5

1

1.5

2

2006 2007

Years

Year 2006 2007

Current assets 2696515253 3056388177

Current liabilities 1640425867 1978589143

Current Ratio 1.64 1.54


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2. Liquid Ratio

Liquid Ratio is more rigors test of liquidity than the current ratio. It is the ratio

between quick ratio & current liabilities. Quick ratio refers to all current assets except

Inventory & prepaid expenses.

Liquid Ratio = Liquid assets / Current Liabilities

Liquid assets = Current Assets- Prepaid ExpInventories

Year 2006 2007

Liquid assets 1929994111 2250727143

Current liabilities 1640425867 1978589143

Liquid Ratio 1.18 1.14

TABLE 1.2(Liquid Ratio)

FIGURE 1.2

Interpretation: As seen from the analysis this ratio is almost same in both the years

quite satisfactory with a thumb rule i.e. 1.5 : 1. Companys current assets involved large

amount of debtors in it.

Liquid Ratio

0

0.5

1

1.5

2006 2007

Years


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3. Working Capital Turnover Ratio

It indicates the velocity of utilization of net working capital. It indicates the

efficiency with which working capital is being used by the company.

Working Capital Turnover Ratio = Net Sales /Average working capital

Year 2006 2007

Net sales 11369337410 13308705116

Average working capital 1170612956.5 1066944210

Working Capital Turnover Ratio 9.71 12.47

TABLE 1.3 (Working Capital Turnover Ratio)

FIGURE 1.3

Interpretation : Working capital turnover ratio is increasing as we can see from the

above table becomes 12.47 in 2007 from 9.71 in 2006 due to increase in sales

Working Capital Turnover Ratio

0

5

10

15

2006 2007

Years

Times


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4. Debt Equity Ratio

It shows the relationship between external and internal equities & it is calculated

to measure the claim of outsiders and owners against companys assets

The outsider's funds include all debts/ liabilities to outsiders, whether in form of

debentures, bonds, mortgage or bills.

The shareholders funds include equity + preference share capital included capital

reserve, revenue reserve and reserves representing accumulated profits and surpluses.

Debt Equity Ratio = Long term Debts / Shareholders Funds*100

Year 2006 2007

Long term Debts 1567876432 1732223697

Shareholders Funds 4427446105 5364231022

Debt Equity Ratio 35.41 32.29

TABLE 1.4(Debt Equity Ratio)

FIGURE 1.4

Interpretation : There has been a slight decrease in this ratio due to the fact that now the

company is relying more on own funds then on outsiders funds. As such ratio has been

improved and that amount is blocked in inventories.

Debt Equity Ratio

0

10

20

30

40

2006 2007

Years

Percentage


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1. Net Profit Ratio

Net profit ratio established a relationship between net profit and sales. This ratio

is the overall measure of firms profitability and is calculated as:

Net Profit Ratio = Net profit after tax / Net Sales *100

TABLE 1.5(Net Profit Ratio)

FIGURE 1.5

Interpretation : There has been decrease in the Gross Profit by 2.31% because the rate

of increase in sales is less than the rate of increase in cost of goods sold. The non-

operating expenses decrease by 86.43% so net profit increases.

Year 2006 2007

Net profit after tax 664931302 1025585738

Net sales 11369337410 13308705116

Net Profit Ratio 5.84 7.71

Net Profit Ratio

0

2

4

6

8

10

2006 2007

Years

Percentage


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(6) Equity Ratio

Establish the relationship between shareholders funds and total assets of the

company, the components of this ratio are

Equity Ratio = Shareholders Funds / Total Assets *100

Year 2006 2007

Shareholders Funds 4427446105 5367231022

Total Assets 7516900491 8793167449

Equity Ratio 59 61

TABLE 1.6(Equity Ratio)

FIGURE 1.6

Interpretation : Companyis relying more shareholder funds than on loan funds. This is

favourable point for the creditors as companys equity ratio in 2006 is 59% and in 2007 is

61% .

Equity Ratio

0

10

2030

40

50

60

70

2006 2007

Years

Percentage


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FINDINGS

1. Companys is utilizing long term loans to finance fixed assets and investments but

it has started relying on own funds.

2. There is decrease in gross profit of the company due to increase in cost of goods

sold but there is increase in net profits due to decrease in non operating expense.

3. Debtors are also increasing which is not good sign for the company in long run.

4. Current liabilities are increasing by 20.61%. Where as cash decreases very much

by 68.14%

5. There is stability in equity share capital.


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SUGGESTIONS

1. The Company is enjoying a good current position. It should take steps to further

improve its position by repositioning the composition of current assets as large

amount has been block in debtors and inventories.

2. Large amounts of funds are blocked in debtors. Company should reduce its

debtors so that the blocked amount is properly utilized.

3. Inventory control is not proper. The Company has not defined the minimum and

the maximum stock level scientifically. Therefore there is blockage of funds.

Moreover, the safety stock level is also not defined. So the company should apply

the proper Inventory Control System so that there is no wastage of funds.


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BIBLIOGRAPHY

Sites: -

www.herocycles.com

www.google.com

Book Author

Management Accounting R.K.Sharma

Annual Reports of HERO CYCLES LIMITED at ending year 31ST

MARCH 2006 AND

2007.
http://www.herocycles.com/http://www.herocycles.com/


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FINANCIAL ANALYSIS OF

HERO CYCLE LTD.

Submitted To Submitted ByMrs. Pooja Jain Inderjeet Kaur

B.Com 3rd year

Roll No. 629

SRI AUROBINDO COLLEGE OF COMMERCE &

MANAGEMENT

FEROZPUR ROAD, LUDHIANA


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ACKNOWLEDGEMENT

Behind this successful undertaking is the blessing and guidance of many. This

formal piece of acknowledgement may not be sufficient to express my feelings of

gratitude and deep respect that have experienced during my learning process at Hero

Cycles. This endeavor would not have been successful without the help and

encouragement from a lot of people with whom I had good fortunate of interacting during

course of journey. I am indebted to Mrs. Pooja Jain for the knowledge and experience

that I gained from her during course of study which I can easily look at as my most

rewarding phase the course of my study. Without his immaculate and intellectual

guidance, sustained efforts and friendly approach, it would have been difficult to achieve

the result in a short span of period.

Not leaving behind the contribution of all other staff members at college for

sharing with us the wealth of their experience and knowledge.

Inderjeet Kaur


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ABSTRACT

The term Financial Analysis also known as analysis and interpretation of

financial statements refers to the process of determining financial strength and

weaknesses of the firm by establishing strategic relationship between the items the

balance sheet, profit and loss account and other operative data. Myers- Financial

statement analysis is largely a study of relationship among the various financial factors in

a business is disclosed by a single set of statements, and a study of the trend of these

factors as shown in a series of statement. The Hero Group has done business differently

right from the inception and that is what has helped us to achieve break-through in

whatever product category we have ventured. The Groups low key, but focused , style of

management has earned the plaudits amidst investors, employees, vendors and dealers, as

also worldwide recognition.


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TABLE OF CONTENTS

S.No. Particulars Page No.

2. Company Profile 120

3. Financial Analysis 2122

4. Comparative Statement 2326

5. Common Size Statement 2729

6. Cash Flow Statement 3031

7. Fund Flow Statement 3235

8. Ratio Analysis 3642

9. Findings & Suggestions 4345

10. Bibliography 4647

11. Annexure 4858

Financial Analysis of Hero

Documents