HONDA THE POWER OF DREAMS

HISTORY
Honda Atlas Cars (Pakistan) Limited is a joint venture between Honda Motor Company Limited, Japan and Atlas Group of Companies, Pakistan signed on August 05, 1993. The agreements signed between the two sponsors are for technical collaborations for development parts and systems for manufacture of Honda Cars in Pakistan. Pakistani and Japanese cultures have blended exceptionally well to form a professional team of dedicated specialist. This team has done wonders since its inception and has created many records. It was on April 17, 1993 when the foundation laying ceremony was held in a record period of eleven months on March 31, 1994 the construction and plant and machinery installation was completed. Running a race against time the first car was rolled out of the assembly line on May 08, 1994 paving the way for a formal inauguration of the plant. No other persons than the President of Pakistan and the President of Honda Motor Co. graced the auspicious occasion of inauguration on July 13, 1994. The first booking of Civic made in Pakistan started with pomp and grandeur or July 14, 1994 at six dealerships in Karachi, Lahore and Islamabad. The response received from the customers was overwhelming and a morale booster for all concerned at HACPL. With the rapid increase in business new ware house facilities were constructed on June 22, 1995. Another ware house is under construction meet the requirements of the production line which has more than doubled since its start up. Keeping the spirits of associates high and alive 5,000 car roll out ceremony was held in July 1995 and 10,000 cars in August 1996. The deletion program for indigenization has become a success, which started with 23% in 1994 and has crossed 30% by now. The process of developing vendors to manufacture local parts according to our standards has been tedious but fruitful. The local parts quality is being checked thoroughly to maintain the standards and achieve customers satisfaction. Service department conducts two campaigns a year to evaluate the performance and solve the customer complaints on the spot. This has tremendously enhanced the customers confidence in Honda Cars, which is evident from the phenomenal sales volumes.

HONDA THE POWER OF DREAMS

COMPANY DESCRIPTION
The company was incorporated on November 4, 1992. The principal activity of the company is the assembly and progressive manufacture and sales of Honda vehicles and spare parts.

COMPANY ANALYSIS
The company maintained its growth from the previous year. The extensive marketing and promotion strategies continued. The sales rose to Rs 6.5 billion against Rs 4.5 billion last year ago. Accordingly cost of goods sold also increased from Rs 4.1 billion to Rs 5.7 billion against it period.

COMPETITORS
Honda is currently facing the three biggest competitors in its class. They compete with Honda because of their successful product in the market before the commencement of Honda Atlas in Pakistan. These three main competitors are

TOYOTA NISSAN SUZUKI

Toyota is considered to be the main competitor of Honda because it is only one company, which has enough market shares that will directly influence the share of Honda. This is because of the fact that Toyota has been manufacturing cars much before Honda in Pakistan and the cars they have been manufacturing since 1993 are much environmental friendly than any other car manufactured in Pakistan, before. Firstly Toyota introduced GLi in both transmission categories i.e. manual and automatic. This category car having 1600 horse power is the direct competitor of Honda Civic not only in the technique but also in luxury that they provide and the other facilities and add-ons. In 1.3 liter cars Toyota can be considered as the market leader before, as it is producing three different models in this category i.e. GL, XE and XEG. But now with the
2

HONDA THE POWER OF DREAMS introduction of new Honda City 2000, Toyota is no longer a leader in the market because of the Luxury and style provided by the Honda City 2000. Nissan is not a direct competitor of Honda because this company produces 1.4 liter and 2.0 liter fuel & Diesel cars respectively. But because of the big giants like Toyota and Honda in the market this company cannot compete in the market and loses its share. But now few months back they launched their new models in the market at low prices as compared to Honda and Toyota. Suzuki introduced its 1.6-liter car a few years back with the name of Baleno. They introduced two models GLi and GXi in the market having fuel injection system in the category of 1.3 liter in competition with Honda City. But Honda has no fear of them because of the fact that, Honda is already the market leader in 1.6-liter class & 1.3 liter class. According to the recent survey the graph of Baleno 1.6 & 1.3 is continuously declining because of their competitors like Toyota and Honda.

HONDA THE POWER OF DREAMS

COMPANY INFORMATION

The Board of Directors

Mr. Yosuf h. shirazi (Chairman) Mr. Satoshi okamoto (President / ceo) Mr. Amir h shirazi Mr. Motohide sudo

Mr. Hiromi mizutani

Mr. Jawad iqbal Ahmad

Mr. Takashi otsuki

Company secretary
Mr. Raffat iqbal

Auditors

HONDA THE POWER OF DREAMS

A. F. Ferguson & co. Chartered accountants accountants

Legal advisors
Cornelius lane & mufti

Bankers
Abn amro bank Habib bank ltd. Askari commercial bank Citibank N.A.

Deutsche bank Muslim commercial bank

The bank of Tokyo Mitsubishi LTD.

5

HONDA THE POWER OF DREAMS

REGISTERED OFFICE
1 MCLEOD ROAD, LAHORE PH: (042) 7225015 17 FAX: (O42) 7233518

Factory
43 KM, MULTAN ROAD, MANGA MANDI, LAHORE. PH: (042) 5871100 - 09 FAX: (042) 5877711-12 E-MAIL: [email protected] Web site: www.honda.com.pk

HONDA THE POWER OF DREAMS

SWOT ANALYSIS
The overall evaluation of companys strengths, weaknesses, opportunities, and threats is called SWOT analysis. The first two factors i.e. strengths and weaknesses relate to companys internal operations, whereas the other two factors Opportunities and threats relate to companys external environment.

STRENGTHS:
These are the companys strong points, which help the company in achieving a respectable place in the market. Honda is a multinational company, which adds to its strengths. It is a market leader in petrol car industry. It is an environment friendly car. Has efficient fuel consumption. There is no power distance in the company. It is a sort of status symbol in Pakistan.

Weaknesses:
These are the internal factors, which go against a companys favor in achieving its target. Honda doesnt produce diesel cars. It only manufactures for upper middle class only, whereas it should also produce for cars for middle class. Compared to its competitors Honda has a less resale value.

HONDA THE POWER OF DREAMS

OPPORTUNITIES:
These are the areas of buyer willingness in which a company can perform profitably. In the near future it can also manufacture diesel-consuming cars, as petrol prices are fairly high as compared to diesel. Honda can make its cars available for middle class as well.

THREATS:
These are the challenges posed by unfavorable trends or developments that would lead, in absence of defensive marketing action, to deteriorate in sales or profits. As fuel prices are increasing on regular basis so Honda needs to see this Change and think for producing a car suitable for changing times. Honda is facing a fierce competition from its competitors and it has to keep a constant check on activities of its competitors like Toyota, Nissan etc.

HONDA THE POWER OF DREAMS

HONDA THE POWER OF DREAMS

10

HONDA THE POWER OF DREAMS

Balance Sheet of Honda Atlas Cars (Pakistan) Limited

1999
Share Capital &Reserves Issued Capital Reserves Unappropriate Profit 420,000 612,000 518 1,032,51 8 4,399 420,000 719,000 804 1,139,804 5,391 420,000 840,000 275 1,260,275 7,321 420,000 1,082,000 917 1,502,917 9,875

2000

2001

2002

Deferred Liabilities Current Liabilities Short term running finance and other credit facilities-secured Creditors, accrued and other liabilities Provision for taxation Proposed Dividend

57,371 320,572 30,820 84,000 492,763

528,642 32,185 84,000 644,827 1,790,021

654,025 31,230 84,000 769,25 5 2,036,851

701,079 49,655 189,000 939,734 2,452,526

Contingencies and commitments Total Liabilities and Equity Fixed Capital Expenditure Fixed assets -Tangible assets - Intangible assets

1,529,680

450,759 10,608 461,367

400,389 6,365 406,754 4,588 411,341 1,541 1,498

Capital work in progress

1,579 462,946 2,716 1,498

420,779 18,024 438,80 3 37,092 475,895 1,541 1,618

421,099 13,250 434,349 14,101 448,450 1,745

Deferred Taxation Long term Deposits Current Assets Stores and Spares Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and Bank balances

14,373 537,668 355 233,713 276,410 1,062,519 1,529,679

13,518 685,147 6,442 180,969 489,565 1,375,642 1,790,021

14,124 809,255 166,254 568,164 1,557,797 2,036,851

15,837 938,768 209,446 838,280 2,002,331 2,452,526 11

Total Assets

HONDA THE POWER OF DREAMS

Vertical Analysis of Balance Sheet

1999 Share Capital &Reserves Issued Capital Reserves Unappropriate Profit Total equity Deferred Liabilities Current Liabilities Short term running finance and other credit facilities-secured Creditors, accrued and other liabilities Provision for taxation Proposed Dividend 3.75% 0.00% 0.00% 0.00% 20.96% 29.53% 32.11% 28.59% 2.01% 1.80% 1.53% 2.02% 5.49% 4.69% 4.12% 7.71% 32.21% 36.02% 37.77% 38.32% Contingencies and commitments Total Liabilities and Equity Fixed Capital Expenditure Fixed assets -Tangible assets - Intangible assets Capital work in progress 29.47% 22.37% 20.66% 17.17% 0.69% 0.36% 0.88% 0.54% 30.16% 22.72% 21.54% 17.71% 0.10% 0.26% 1.82% 0.57% 30.26% 22.98% 23.36% 18.29% Deferred Taxation Long term Deposits Current Assets Stores and Spares Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and Bank balances Total current Assets 0.94% 0.76% 0.69% 0.65% 35.15% 38.28% 39.73% 38.28% 0.02% 0.36% 0.00% 0.00% 15.28% 10.11% 8.16% 8.54% 18.07% 27.35% 27.89% 34.18% 69.46% 76.85% 76.48% 81.64% 0.18% 0.09% 0.08% 0.00% 0.10% 0.08% 0.08% 0.07% 0 0 0 0 100% 27.46% 23.46% 20.62% 17.13% 40.01% 40.17% 41.24% 44.12% 0.03% 0.04% 0.01% 0.04% 67.50% 63.68% 61.87% 61.28% 0.29% 0.30% 0.36% 0.40% 2000 2001 2002

100% 100% 100%

12

HONDA THE POWER OF DREAMS

Total Assets 100% 100% 100% 100%

13

HONDA THE POWER OF DREAMS

BALANCE SHEET
VERTICAL ANALYSIS
Asset Side:
The fixed assets are 30.26% of total assets. They are higher in year 1999-2000 but after that percentage of fixed asset in total asset has decreased in year 2000-2001. But after that the percentage remains almost same. The percentage of long term deposits is 10% in year 1999-2000. It remains almost same for years 2000-20001 and 2001-2002. But in year 2001-2002 it has decreased to 0%. The current assets are 69.4% in year 1999-2000 and they are gradually increasing over the year. In year 2001-2002 they are 81%. This is because of gradual increase in cash and inventory.

Liabilities Side:
The current liabilities are 32.21% of total liabilities and equity. And they are gradually increasing over the year. The creditors, accrued and other liabilities are 20% of total liabilities and equity side and they are also gradually increasing over the year. The deferred liabilities are 0.29% of total liabilities and equity side. And they are also gradually increasing over time.

Equity Side:
The total equity is equal to 67.50% in year 1999-2000. The %age of equity to total liabilities and equity is decreasing over time. The %age of issued capital is 27.46% in year 1999-2000 and is decreasing gradually over the time.

14

HONDA THE POWER OF DREAMS

Trend Analysis of Balance Sheet

1999 Share Capital &Reserves Issued Capital Reserves Unappropriate Profit 100 100 100 100 100 100 117 155 110 123 100 137 53 122 166 100 177 177 146 224 2000 2001 2002

Deferred Liabilities Current Liabilities Short term running finance and other credit facilities-secured Creditors, accrued and other liabilities Provision for taxation Proposed Dividend

100 100 100 100 100 0 100

165 104 100 131 0 117

204 101 100 156 0 133

219 161 225 191 0 160

Contingencies and commitments Total Liabilities and Equity Fixed Capital Expenditure Fixed assets -Tangible assets - Intangible assets Capital work in progress

100 100 100 100 100 100 100

89 60 88 290 89 57 100

93 170 95 2,348 103 57 108

93 125 94 893 97 117

Deferred Taxation Long term Deposits Current Assets Stores and Spares Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and Bank balances

100 100 100 100 100 100 100

94 127 1,817 77 177 129 117

98 151 71 206 147 133

110 175 90 303 188 160

Total Assets

15

HONDA THE POWER OF DREAMS

Trend Analysis
Balance Sheet Equity:
Trend shows that our reserves increased with the same ratio while our inappropriate profit firstly increased by 155% in (2000) then decreased to 53%in consistent increase in stockholders equity. (2001) then a tremendous increase in inappropriate profit that is of 177% in 2002, While there is

Liabilities:
Current liabilities have increased consistently over the years due to increase in
Creditors, accrued and other liabilities while dividend also increased in 2002 by 225%.

Total

liabilities increase with same ratio. This shows that company working in the same manner.

Assets:
Operating fixed assets tangible, expenditure decreased 92.3% in 2000 and little increase (93%) in 2001. Decrease in 2000 is higher because company sold fixed assets in 2000. Long-term deposits remains same during 2000 while slightly increased to 108% in 2001 and 117% in 2002. To build good relations with dealers and transporters company took their deposits because sale was higher in 2000. Current assets in 2000 increased to 129%, in 2001 increase to 147% and in 2002 increase to 188%. C.A is higher in 2000 because trade debts were high in 2000 and also cash and bank balances while Loans,
advances, deposits, prepayments and other receivables decreased.

Total assets increased by

117% in 2000, 133% in 2001 and 160% in 2002.

16

HONDA THE POWER OF DREAMS

Horizontal Analysis of Balance Sheet

1999-2000 2000-2001 2001-2002 Share Capital &Reserves Issued Capital Reserves Unappropriate Profit 17 55 10 23 17 (66) 11 36 29 233 19 35

Deferred Liabilities Current Liabilities Short term running finance and other credit facilities-secured Creditors, accrued and other liabilities Provision for taxation Proposed Dividend

(100) 65 4 31

24 (3) 19

7 59 125 22

Contingencies and commitments Total Liabilities and Equity Fixed Capital Expenditure Fixed assets -Tangible assets - Intangible assets Capital work in progress 17 14 20

(11) (40) (12) 190 (11) (43) -

5 183 8 709 16 0 8

0 (26) (1) (62) (6) (100) 8

Deferred Taxation Long term Deposits Current Assets Stores and Spares Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and Bank balances Total Assets

(6) 27 1,717 (23) 77 29 17

4 18 (100) (8) 16 13 14

12 16 26 48 29 20

Horizontal Analysis
17

HONDA THE POWER OF DREAMS

Balance Sheet
Asset Side:
1999-2000: The company has invested large amounts in capital work in progress. There was decreased in all other long-term assets such as Deferred taxation. The current assets of the company increased by 29% and this was due to mainly increase in trade debt. The increase in trade debt was 1717%. This might be due to the relaxation in company policy.

2000-2001
There was large investment in capital work in progress from year 2000-2002. There was also some comprehensive increase in the intangible assets. The current assets of the company increased by 14%. The trade debt has been decreased due to the collection of trade debt. The trade debt of the company has been decreased by 100%. The cash and bank balances of company also increased but the percentage, as compare to previous year was low.

2001-2002
The investment in capital work in progress decreased and this was due to the small scale of investment in Plant and machinery. There was also some comprehensive decrease in the deferred taxation. The decrease in deferred tax was due to the reason that company has utilized this asset. The current assets of the company increased by 29%. The cash and bank balances of company also increased. The percentage increase in cash and bank balances was 48%.

Liabilities Side:

18

HONDA THE POWER OF DREAMS 1999-2000 The current liabilities of the company increased by 31%. The short term running finance and other liabilities decreased by 100%. There was increase in other liabilities and it was due to mainly increase in liabilities of creditors. The deferred liabilities increased by 23%. 2000-2001 The current liabilities of the company increased by 19% and this increase was due to increase in other liabilities. The deferred liabilities increased by 36%. 2001-2002 The current liabilities of the company increased by 22% and this increase was due to increase in other liabilities. The deferred liabilities increased by 35%.

Equity Side:
The reserves of the company increased by 17% from year 1999-2000. the reserves of the company increased with same %age as the previous year from year 2000-20001. The reserves of the company increased from year 2001-2002 by 29% and this was due to large amount of profit earned.

19

HONDA THE POWER OF DREAMS

20

HONDA THE POWER OF DREAMS

Profit and Loss Account of Honda Atlas Cars (Pakistan) Limited

Sales Cost of goods sold Gross profits Administrative Expenses Operating Profits Other income 1999 2000 Rupees in Thousands 2,561,055 3,506,532 (2,217,837) (3,137,808) 343,168 368,724 (111,585) (107,626) 231,583 29,418 261,001 (3,684) (18,012) (21,696) 239,305 (31,613) 207,692 826 208,518 261,097 53,136 314,233 (2,494) (21,240) (23,735) 290,498 (99,213) 191,286 518 191,804 2001 4,485,438 (4,129,927) 355,511 (100,941) 254,570 63,049 317,619 (1,656) (21,235) (22,891) 294,728 (90,257) 204,471 804 205,275 2002 6,519,069 (5,747,659) 771,410 (133,337) 638,073 68,311 706,384 (1,252) (48,978) (50,230) 656,154 (224,512) 880,666 275 880,941

Financial charges Other charges

Profit Before Taxation Provision for Taxation Profit after Taxation Unappropriated Profit Brought forward Profit available for appropriation Appropriation Transferred to general reserves Proposed Dividend Unappropriated Profit carried forward Earning per share

84,000 518 4.95

107,000 84,000 191,000 804 4.55

121,000 84,000 205,000 275 4.87

242,000 189,000 431,000 917 10.48

21

HONDA THE POWER OF DREAMS

Vertical Analysis of Profit and Loss Account

1999 Sales Cost of goods sold Gross profits Administrative Expenses Operating Profits Other income 100.00% -86.60% 13.40% -4.36% 9.04% 1.15% 10.19% -0.14% -0.70% -0.85% 9.34% -1.23% 8.11% 0.03% 8.14% 2000 2001 2002 100.00% -88.17% 11.83% -2.05% 9.79% 1.05% 10.84% -0.02% -0.75% -0.77% 10.07% -3.44% 13.51% 0.00% 13.51% 100.00% 100.00% -89.48% -92.07% 10.52% 7.93% -3.07% -2.25% 7.45% 1.52% 8.96% -0.07% -0.61% -0.68% 8.28% -2.83% 5.46% 0.01% 5.47% 5.68% 1.41% 7.08% -0.04% -0.47% -0.51% 6.57% -2.01% 4.56% 0.02% 4.58%

Financial charges Other charges

Profit Before Taxation Provision for Taxation Profit after Taxation Unappropriated Profit Brought forward Profit available for appropriation Appropriation Transferred to general reserves Proposed Dividend Unappropriated Profit carried forward

0.00% 3.28% 0.00% 0.02%

3.05% 2.40% 5.45% 0.02%

2.70% 1.87% 4.57% 0.01%

3.71% 2.90% 6.61% 0.01%

22

HONDA THE POWER OF DREAMS

PROFIT AND LOSS ACCOUNT VERTICAL ANALYSIS

Cost of good sold and Operating Profit:
In 1999-2000 the cost of good sold was 86% of total sales. There continuous increase In COGS up to year 2001. But after that in year 2002 it has decreased. However the increase in cost of good sold was less as compare to sales because of favourable exchange rate prevailed in market. The operating profit in year 2002 has increased because of decline in cost of good sold.

Admn. Expenses:
The admn. Expenses have 4.36 %age of total sales in year 1999. The percentage of admn. Expenses to total sales have decreased.

Financial Charges:
The financial charges are .14% of total sales in year 1999. But they are decreasing over time and it is because of decrease of short term running finances.

23

HONDA THE POWER OF DREAMS

Trend Analysis of Profit And Loss Account

1999 Sales Cost of goods sold Gross profits Administrative Expenses Operating Profits Other income 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2000 136.92 141.48 107.45 96.45 112.74 180.62 120.40 67.70 117.92 109.39 121.39 313.84 92.10 62.72 91.98 2001 175.14 186.21 103.60 90.46 109.93 214.32 121.69 44.95 117.89 105.51 123.16 285.51 98.45 97.36 98.44 2002 254.55 259.16 224.79 119.49 275.53 232.21 270.64 33.98 271.92 231.51 274.19 710.20 424.02 33.30 422.48

Financial charges Other charges

Profit Before Taxation Provision for Taxation Profit after Taxation Unappropriated Profit Brought forward Profit available for appropriation Appropriation Transferred to general reserves Proposed Dividend Unappropriated Profit carried forward

100 100

100 100 100 155.13

113.08 100 107.33 53.09

226.17 225 210.24 177.03

24

HONDA THE POWER OF DREAMS

PROFIT AND LOSS ACCOUNT

TREND ANALYSIS
SALES:
The sales of Honda Atlas are increasing over the year. This may be attributed to the upsurge in demand of cars that resulted in the boom of car industry. COST OF GOOD SOLD: The cost of goods sold is increasing over the period. The increase in COGS is more in year 2002. This may be attributed to the more usage of raw material, which have increased over the years. Due to the high demand of cars. ADMN. & SELLING EXPENSE: The admin and selling expenses decreased in year 2000 & 2001. But in year 2002 the admn and selling expense increased. This is because of slight increase in all expenses. OPERATING PROFIT: The operating profit of the company has increased through out the year. But in year 2001 they slightly decreased because of more increase in cost of goods sold as compare to sales. OTHER INCOME:
The other income is increasing over the year and this mainly because of increase in scrap sales and increase on return of deposits.

FINANCIAL CHARGES: The financial charges are decreasing over the time. This may be attributed to the decrease in markup on short term running finances. OTHER CHARGES: The other charges increased over the year. But the %age increase in other charges in year 2002 is more as compare.

25

HONDA THE POWER OF DREAMS PROFIT BEFORE TAXATION: The profit before is increasing over time and it may be because of increase in sales over time. TAXES: The taxes have increased over the year because of higher profits earned by the company.

26

HONDA THE POWER OF DREAMS

Horizental Analysis Of Profit And Loss Account

1999-2000 2000-2001 Sales Cost of goods sold Gross profits Administrative Expenses Operating Profits Other income 37% 41% 7% -4% 13% 81% 20% -32% 18% 9% 21% 214% -8% -37% -8% 2001-2002 45% 39% 117% 32% 151% 8% 122% -24% 131% 119% 123% 149% 331% -66% 329% 28% 32% -4% -6% -3% 19% 1% -34% 0% -4% 1% -9% 7% 55% 7%

Financial charges Other charges

Profit Before Taxation Provision for Taxation Profit after Taxation Inappropriate Profit Brought forward Profit available for appropriation Appropriation Transferred to general reserves Proposed Dividend Inappropriate Profit carried forward

55%

13% 0% 7% -66%

100% 125% 110% 233%

27

HONDA THE POWER OF DREAMS

PROFIT AND LOSS ACCOUNT

HORIZONTAL ANALYSIS
SALES:
1999-2000 The sales of Honda Atlas are increasing through the year 1999-2000. The percentage increase in sale in 1999-2000 was 37%. 2000-2001 The percentage of sale of the cars increase in year 2000-2001 but the increase in sale was less as compare to increase in cost of spare parts and commission paid to the dealers. This increase is low as compare to previous year increase. The percentage increase in sale in 2000-2001 was 28%. 2001-2002 The percentage of sale of the cars increases in year 2001-2002. This may be attributed to the upsurge in demand of cars that resulted in the boom of car industry. The percentage increase in sale in 2001-2002 was 45%. COST OF GOOD SOLD: 1999-2000 The cost of goods sold increased over in the period 1999-2000 because of more usage of raw material. The percentage increase in cost of good sold was 37%. 2000-2001 The percentage of the COGS increased in year 2000-2001 but the increase in COGS was less as compare to increase in COGS of previous year. The percentage increase in COGS in 2000-2001 was 32%. 2001-2002 The increase in COGS was more in year 2002. This may be attributed to the more usage of raw material, which has increased over the years and due to the high demand of cars. The percentage increase in COGS in 2001-2002 was 39%.
28

HONDA THE POWER OF DREAMS ADMN. & SELLING EXPENSE: 1999-2000 The admin and selling expenses decreased in year 1999-2000. This is because of slight decrease in warranty expenses. 2000-2001 The admin and selling expenses increased in year 2000-2001. This is because of slight increase in all expenses. 2001-2002 In year 2002 the admn and selling expense increased. This is because of slight increase in all expenses. OPERATING PROFIT: 1999-2000 The operating profit of the company has increased in the year 1999-2000. 2000-2001 In year 2000-2001 they slightly decreased because of more increase in cost of goods sold as compare to sales. 2001-2002 The operating profit of the company has increased in the year 2001-2002. OTHER INCOME: 1999-2000 The other income is increasing in year 1999-2000 and this mainly because of increase in scrap sales and increase on return of deposits.

29

HONDA THE POWER OF DREAMS 2000-2001 The other income is increasing in year 2000-2001 and this mainly because of increase in scrap sales and increase on return of deposits. 2001-2002 The other income is increasing in year 2001-2002 and this mainly because of increase in scrap sales and increase on return of deposits. FINANCIAL CHARGES: 1999-2000 The financial charges are decreasing in year 1999-2000 and this may be attributed to the decrease in markup on short term running finances.

2000-2001 The financial charges are decreasing in year 2000-2001 and this may be attributed to the decrease on interest on workers participation fund. 2001-2002 The financial charges are decreasing in year 2001-2002 and this may be attributed to the decrease in interest on workers participation fund. OTHER CHARGES: 1999-2000 The other charges increased in the year1999-2000. 2000-2001 The other charges remained same in the year 2000-2001. 2001-2002
30

HONDA THE POWER OF DREAMS The %age increase in other charges in year 2002 was 131%. And this was mainly due to 130% increase in workers profit participation fund. PROFIT BEFORE TAXATION:

1999-2000: The profit before taxation increased by 21% in year 1999-2000and it may be because of increase in sales. 2000-2001 The profit before taxation increased by 1% in year 2000-2001 and it because of more increase in cost of goods sold as compare to sales. 2001-2002 The profit before taxation increased in year 2001-2002 by 123% and this was because of higher sales. TAXES: 1999-2000: The taxes have increased in the year 1999-2000 because of higher profits earned by the company and future taxes are paid in that financial year. The tax rate increased by 214% in year 1999-2000. 2000-2001 The taxes have decreased in the year 2000-2002 because of higher profits earned by the company. That was because of the prior payment of taxes in previous year. 2001-2002 The taxes increased by 149% in year 2001-2002 and it was because of higher profits earned by the company.

31

HONDA THE POWER OF DREAMS

32

HONDA THE POWER OF DREAMS

RATIO ANALYSIS
1999 LIQUIDITY RATIOS N W-C CASH RATIO Q.R C.R ACTIVITY RATIOS A/R TUR OVER AVG COL PERIOD INV TUR OVER AVG AGE OF INV OPERATING CYC FIXED ASSET TURNOVER TOT ASSET TUR LEVERAGE RATIO DEBT TO TOTAL ASSETS F.C RATIO DEBT TO EQUITY TIME INT EARNED PROFITABILITY RATIOS GROSS MARGIN OPERATING MARGIN PRETAX MARGIN PROFIT MARGIN ROTA RET ON COM EQU EPS PRICE 2 EARN B.V DIVIDENT RATIOS DIVIDENT YIELD DIVIDENT PAYOUT 2000 2001 2002

569,756 730,815 788,542 1,062,597 0.56 0.76 0.74 0.89 0.56 0.77 0.74 0.89 2.16 2.13 2.03 2.13 10.94 33.36 4.02 90.85 124.21 5.55 1.67 0.33 12.03 0.48 64.95 0.13 0.09 0.09 0.08 0.17 0.20 4.95 24.58
16.64 25.37 34.70

21.94
5.02

14.39
5.43

10.52
6.47

72.74 94.68 8.62

2.11

67.26 81.65 10.22

2.34

56.45 66.97 15.01

2.90

0.36 13.24 0.57 116.46 0.11 0.07 0.08 0.05 0.18 0.17 4.55 27.14

0.38 13.88 0.62 177.98 0.08 0.06 0.07 0.05 0.16 0.16 4.87 30.01

0.39 14.06 0.63 524.08 0.12 0.10 0.10 0.14 0.29 0.59 20.97 35.78

0.40

0.44

0.41

0.21

33

HONDA THE POWER OF DREAMS

LIQUIDITY RATIOS:
These ratios determine the company ability to meet its maturing short-term obligations. Through these ratios we are expected the future cash flows. The company appears to have a good liquidity position and can meet its short term obligation.

NET WORKING CAPITAL:

Net working capital = current assets current liabilities

The networking capital shows the liquidity position of the company. The company has excessive cash to meet its short-term obligation. The networking capital of the company is increasing over the period. The networking capital in the year 1999 was 569756 and in year 2002 it was 1062597. This shows that company maintains excessive cash on hand and lot of its cash remain idle.

CASH RATIO:
Cash ratio = Cash+M/S Current liabilities

The cash ratio is the more precise measure of the liquidity position of company. The cash ratios of company over the year show favourable increase. The current ratio in year 1999 was .56 and in year 2002 it was 0.89. There was decrease in cash ratio in year 2001 as compare to previous year and that was because of relative increase in current liabilities was more as compare to cash and bank balances.

34

HONDA THE POWER OF DREAMS

QUICK RATIO:
Quick ratio = quick assets Current liabilities

It is used to test the most current assets against current liabilities. The company quick ratio shows as increase trend with a decrease rate, as it was .56 in 1999, which is increase to 0.89 in 2002. There was decrease in quick ratio in year 2001 as compare to previous year because of relative more increase in current liabilities as compare to current asset. The increase in current liabilities was mainly due to the increase in creditors and other liabilities.

CURRENT RATIO:
Current ratio = Current Assets Current Liabilities A high current ratio is required when the firm is going to borrowing short-term loans. So short-term creditors are always interested in current ratio. As the company current ratio is good it indicates that company can pay its short tern obligations as they come due. The company current ratio shows a favorable trend as it was 2.16 in year 1999 and in year 2002 it was 2.13. It shows that company has maintained its current ratio. This shows that company maintains excessive cash on hand and lot of its cash remain idle. There was decrease in current ratio in year 2001 as compare to previous year because of relative more increase in current liabilities as compare to current asset. The increase in current liabilities was mainly due to the increase in creditors and other liabilities.

35

HONDA THE POWER OF DREAMS

ACTIVITY RATIOS:
Activity ratios are used to determine how quickly various accounts are converted into sales or cash. The companys activity ratios are exceptionally high and have increased during the period.

Accounts receivable turnover ratio

A/R turnover ratio = net sales Avg. A/R

It measures the effectiveness of the firms credit policies and indicates the level of investment in receivables needed to maintain the sales level. The A/R turnover ratio has increased over the period. In year in 1999 it was 10.94 and in year 2002 it was 34.7. This shows firm collecting its receivables early and it has tighten its policy. This might be attributed to the increase in sales and decrease in accounts receivable. This is good sign because company can collect its cash early while it has not badly affected the sales.

Average collection period

Avg. collection period = 365 A/R turnover ratio

It measures the effectiveness of the firms credit policies and indicates the level of investment in receivables needed to maintain the sales level. The Average collection period ratio has decreased over the period. In year 1999 it was 33.36 days and in year 2002 it has decreased to 10.52 days. The low the Average collection period ratio shows that firm have strict policy and it might hamper its sales. But in case of Honda Atlas company decrease in sale has not badly affected its sales. This decrease in the Average collection period ratio is due to the increase in A/R turnover ratio.

36

HONDA THE POWER OF DREAMS

Inventory turnover ratio

.

Inventory Turnover = COGS Average inventory

The inventory turnover shows increasing trend. As it was 10.94 times in 1999

which quickly increase in 2002 to 6.47. But there was slight relative decrease in 2001 in inventory turnover as compare to previous year increase in inventory turnover. The decline in inventory turnover show the stock whether it is not selling well or there is obsolete goods on hand. The increase in inventory turnover shows that there is no stockpile up. The inventory is turned into Finished good. In case of the company, which we have selected there is gradual increase in inventory turnover it means the inventory is turning to sale quickly. This is a positive sign for a company. Because company can save its carrying cost. But shorter time period sometime is very dangerous because in that case it can result into shortage of inventory. When company struck into such type of situation it can be very dangerous for the company.

Average age of Inventory:

365 / Inventory Turnover

As the length of period is greater it shows the market of obsolescence. In 1999 this ratio was 90.95, which decreased in 2001 to 56.45. This is a positive sign for a company. Because company can save its carrying cost. But shorter time period sometime is very dangerous because in that case it can result into shortage of inventory. When company struck into such type of situation it can be very dangerous for the company.

Operating Cycle:
Operating cycle = Average collection product + Average age of inventory It is number of days that company takes to convert inventory and receivables to cash. It is desirable when the operating cycle is short because company can quickly convert

37

HONDA THE POWER OF DREAMS its inventory into cash. The operating cycle show a desirable trend in 2001, as it was 66.97 as compare to 124.21 days in year 1999.

Total Assets Turnover:

Total asset T/O = Sales Avg. total asset It is used in evaluating a company is ability to use its asset to generate revenue. The total assets turnover shows increase in year 2001, as it was 2.90 as compare to1.67 in 1999. This is mainly because relative increase in sale is more as compare to total asset.

38

HONDA THE POWER OF DREAMS

LEVERAGE RATIOS:
Solvency is a companys ability to meet its long-term obligations as they become due. When debt is excessive, additional financing should be obtained primarily from equity sources.

Debt Ratio:

(T.L/T.A)

The companys debt ratio increased from 0.4 in year 1999 to 0.63 in year 20002.this show reliance on debt due to which the company may face the difficulty in meeting its interest and principal payments on time. On the other hand, the increased reliance on leverage may increase favourable leverage.

Debt/ Equity Ratio

The debt to equity ratio has increased

Debt / Equity Ratio = Total Liabilities Stockholder equity

over time. It was .48 in year 1999 and increased to 0.63 in year 2002. This is a good sign from the point of view of company, because reliance on debt may increase favourable leverage.

Times Interest Earned / Interest Coverage Ratio

Times Interest Earned = EBIT

Interest expenses It shows how much a decline in earning a company can absorb. The time interest earned ratio increased from 64.95 in 1999 and increased to 524.06 in 2002.

39

HONDA THE POWER OF DREAMS

Profitability Ratio:
It shows the financial position of the company is whether the company earns satisfactory profit and return on investment.

Gross Profit Margin

Gross profit / Net sales

The gross profit margin remained stable, which is a true sign. There was slight decrease in the gross profit margin in year 2000& 2001.

Profit Margin
Profit margin = Net Income Net sale It produce the cost structure, production efficiency and pricing the company. The net profit margin has increased from 8% in 1999 to 14% in 2002, which is a true sign. This indicates that the companys profitability from sales has increased which was due to the more relative increase in sales as compare to the increase in cost of goods sold. There was slight decrease in profit margin in year 2000 & 2001.

Return on Total Assets

Return on Total Assets = Net income Average Total Assets

The return on total asset shows increasing trend over the period of time. The ROA has increased from 17% in year 1999 to 29% in year 2002. The increases in ROA show a good trend because it shows increase in the efficiency of assets to generate income.

40

HONDA THE POWER OF DREAMS

Return on Common Equity

Return on Common Equity = Earning available to common stockholder

Average stockholder equity

ROE shows the same trend as that other profitability ratios. It has increased over the year. In year 1999 it was 20% and in year 2002 it was 59%. This is a favourable sign for stockholders because the profitability on the capital supplied by them has increased.

41

HONDA THE POWER OF DREAMS

MARKET VALUE RATIOS Dividend payout Ratio:

The dividend payout shows the dividend declared by the company. The dividend payout ratio remains same throughout the year. This is a good sign because investor in country like Pakistan are more attracted by dividend as compare to the price appreciation. So, the stable dividend policy will attract more investors.

42

HONDA THE POWER OF DREAMS

OVERALL ANALYSIS
The Honda Atlas Pakistan ltd. was incorporated in 1992 and its started working from 1994. The company is enjoying a good position from its start. The conditions in like Pakistan where conditions are volatile and its not possible for any company to maintain its stable policies. But the Honda Atlas Pakistan ltd. has maintained its policies and profits over the number of years. This might be due to the growth in the industry. But this is one factor. There are some other factors also that result in increase in profit. These factors are extensive marketing and promotion activities and good management practices. The sales in year 2002 rose to Rs 6.5 billion against Rs 4.5 billion in previous year. The cost of goods sold also increases but the relative increase of cost of goods sold was less than the increase in sales. The company has strong liquidity position. Over the year the company has strengthen its position. This is a true sign and short-term creditors feel confident while investing in it. The company has also show high increase in profitability. This was due to the extensive demand of cars. All the profit ratios show improvement in year 2002. And it is good from companys future prospects. The efficiency of assets is increasing over the time. It might because of relative extensive increase in sale. This is also a good sign and shows that company is performing. In the end we can say that Honda Atlas Pakistan ltd. has maintained its growth throughout the year. This can be attributed to the good management policies and good market. This increase in future trend might continue because the prevailing market conditions are helping to grow the business.

43