Term paper assignment

Accounting for managers-31st batch

GROUP 10

Submitted by
Shubham jha 231246
Uday teja 231269
Bhanu Chandra 231293
Sai Kishore 231333
Srividhya 231297
Ratio analysis of hero
motocorp ltd
 Introduction to Ratio Analysis :
• Ratio analysis is referred to as the study or analysis of the
line items present in the financial statements of the
company. It can be used to check various factors of a
business such as profitability, liquidity, solvency and
efficiency of the company or the business. Ratio analysis is
the quantitative interpretation of the company’s financial
performance.
Ratios are grouped in following Categories:

• Liquidity Ratios
• Profitability Ratios
• Market Related Ratios.
• Solvency Ratios
• Turnover Ratios
1. Liquidity ratios - Liquidity ratios are helpful in determining the ability of
the company to meet its debt obligations by using the current assets.
2. Solvency ratios - Solvency ratios are used for determining the viability of
a company in the long term or in other words, it is used to determine the
long-term viability of an organization.
3. Profitability ratios - The purpose of profitability ratios is to determine the
ability of a company to earn profits when compared to their expenses. A
better profitability ratio shown by a business as compared to its previous
accounting period shows that business is performing well.
4. Turnover ratios - Turnover ratios are used to measure the
efficiency of the business activities. It determines how the
business is using its available resources to generate maximum
possible revenue.
5. Market Related Ratios - Market related ratios compare the
current stock price of the company which is being quoted on
the stock exchange to various balance sheet, income
statement and cash flow items.
 About the Company:
Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest
manufacturer of two - wheelers, based in India. In 2001, the company achieved the
coveted position of being the largest two-wheeler manufacturing company in India
and, the 'World No.1' two-wheeler company in terms of unit volume sales in a
calendar year. Hero MotoCorp Ltd. continues to maintain this feat.
• Over the past 10 years, the company has rapidly expanded its
capacity, geographic footprint, customer touch points and
R&D capabilities to emerge as a truly global brand.
• Guided
COURAGE
by its values - PASSION INTEGRITY RESPECT
RESPONSIBLE - Hero MotoCorp has a cumulative sale to date
of over 110 million
motorcycles and scooters.
• From the largest scooter and motorcycle company to a global
brand with footprint across
continents, Hero MotoCorp, with a well-defined Vision "Be the
Future Of Mobility", aims
to re-define mobility with its Mission to –
Create Collaborate Inspire
 Liquidity Ratios:
Current Assets Current Liabilities Ratio

2023 94,45,33,00,000 60,12,62,00,000 1.57:1

2022 1,05,72,22,00,000 55,17,63,00,000 1.92:1

2021 1,05,72,22,00,000 61,10,22,00,000 1.79:1

• A current ratio above 2 suggests that a company can cover its

short-term liabilities with its short-term assets. Generally, a
higher current ratio is considered better because it indicates a
stronger ability to meet short-term obligations.
 Quick Assets:
Quick Assets Current Liabilities Ratio

2023 64,19,61,00,000 60,12,62,00,000 1.07:1

2022 87,31,82,00,000 55,17,63,00,000 1.58:1

2021 87,87,47,00,000 61,10,22,00,000 1.43:1

• Comparing the quick ratios over the years, a decreasing trend

(from 2022 to 2023) suggests a potential liquidity concern. A
quick ratio above 1 is generally considered favorable, indicating
that a company can meet its short-term liabilities.
 Absolute Liquid Ratio:
Cash + Bank + Marketable Securities Current Liabilities Ratio

2023 2,57,15,00,000 60,12,62,00,000 0.07:1

2022 2,99,74,00,000 55,17,63,00,000 0.05:1

2021 4,22,80,00,000 61,10,22,00,000 0.04:1

• The Absolute liquid ratio indicates the company's ability to cover its
short-term liabilities with its most liquid assets. A higher ratio is
generally favorable as it suggests the company has a larger
proportion of highly liquid assets relative to its current liabilities. A
ratio of 1:1 or higher is often considered a good indication of a
company's ability to meet its short-term obligations without relying
 Solvency Ratios:
Debt Equity Ratio-
• From the data, it can be observed that the company's debt-equity ratio has
remained relatively stable over the three years, hovering around 0.038:1 in
2023 and 2022. A debt-equity ratio of 0.038:10.038:1 means that the
company has 0.0380.038 rupees in debt for every rupee in equity. A low
debt-equity ratio is generally considered favorable because it indicates that
the company is relying more on equity than debt for financing its assets,
which suggests a lower financial risk.
Long Term Debt Shareholder’s Funds Ratio

2023 6,37,99,00,000 1,66,55,57,00,000 0.038:1

2022 5,87,85,00,000 1,58,46,65,00,000 0.038:1

2021 2,75,85,00,000 1,51,98,43,00,000 0.018:1

 Proprietary Ratio-
Shareholder’s Funds Net Assets Ratio

2023 1,66,55,57,00,000 1,79,04,41,00,000 0.93:1

2022 1,58,46,65,00,000 1,69,60,76,00,000 0.93:1

2021 1,51,98,43,00,000 1,60,50,83,00,000 0.94:1

• From the data, it's evident that the company's proprietary ratio
has been relatively stable over the three years, hovering around
0.93:1 to 0.94:1. A proprietary ratio of less than 1 indicates
that the company's assets are partially financed by external
debt.
 Total Assets to Debt Ratio-
Total Assets Long Term Debt Ratio

2023 2,39,17,03,00,000 6,37,99,00,000 37.49:1

2022 2,24,78,39,00,000 5,87,85,00,000 38.24:1

2021 2,21,61,05,00,000 2,75,85,00,000 80.38:1

• The total assets to debt ratio has decreased from 80.38:1 in

2021 to 37.49:1 in 2023. This is a significant drop and
indicates a substantial change in the company's financial
structure. It might indicate that the company is taking on more
debt relative to its asset base, potentially increasing its
financial risk
 Profitability Ratios:
• Gross Profit Ratio-
Gross Profit Net Sales Ratio

2023 1,02,14,35,00,000 3,08,00,62,00,000 29.90%

2022 86,30,92,00,000 3,08,00,62,00,000 29.20%

2021 90,38,29,00,000 3,08,00,62,00,000 29.35%

The gross profit ratio has slightly increased from 29.35% in 2021
to 29.90% in 2023. This indicates that the company was able to
retain a larger portion of its sales revenue after covering the cost
of goods sold in 2023 compared to 2021. A stable or improving
gross profit ratio is generally a positive sign for investors and
stakeholders.
 Net Profit Ratio –
Net Profit Net Sales Ratio

2023 27,99,90,00,000 3,08,00,62,00,000 8.20%

2022 23,29,05,00,000 3,08,00,62,00,000 7.88%

2021 29,64,20,00,000 3,08,00,62,00,000 9.62%

• The company's net profit ratio has fluctuated over the years, it's
crucial for stakeholders to understand the factors influencing
these changes. A declining net profit ratio could indicate rising
costs, pricing pressures, or other operational challenges that
need to be addressed to ensure the long-term financial health
of the company.
Operating Ratio –
COGS + Operating Expense Net Sales Ratio

2023 37,47,59,00,000 3,08,00,62,00,000 12.17%

2022 32,70,93,00,000 3,08,00,62,00,000 10.62%

2021 38,89,12,00,000 3,08,00,62,00,000 12.63%

• The company's operating ratio has fluctuated over the years. A

rising operating ratio, as seen in 2023, could be a cause for
concern as it indicates higher operational costs cutting into the
revenue. It's essential for the company to analyze the reasons
behind this increase and take appropriate measures to control
costs and maintain profitability.
 Operating Profit Ratio-
Operating profit Net Sales Ratio

2023 38,63,62,00,000 3,08,00,62,00,000 11.31%

2022 30,58,11,00,000 3,08,00,62,00,000 10.35%

2021 39,00,38,00,000 3,08,00,62,00,000 12.66%

• Analyzing these trends over the three years, it's essential to

consider the company's overall financial health and market
conditions. A consistent or increasing operating profit ratio
suggests effective cost management and a healthy business
model.
 Return On capital Employed:
PBIT Capital Employed Ratio

2023 38,63,62,00,000 1,79,04,41,00,000 21.58%

2022 30,58,11,00, 1,69,60,76,00,000 18.03%

2021 39,00,38,000 1,60,50,83,00,000 24.30%

• There has been fluctuations in the ROCE over the years. It was lowest
in 2022 and highest in 2021. A declining ROCE might raise concerns
about capital allocation and efficiency, while an increasing ROCE can
be a positive sign.
 Turnover Ratios:
Stock Turnover Ratio:
Cost of Goods Sold Average Inventory Ratio

2023 32,91,50,00,000 17,56,39,00,000 1.87:1

2022 27,02,15,00,000 14,72,41,00,000 1.83:1

2021 33,20,53,00,000 14,69,55,00,000 2.26:1

Comparing these ratios, a higher stock turnover ratio in 2021 suggests

the company was more efficient in managing its inventory that year.
However, in 2023, the ratio decreased slightly, indicating a slightly
slower turnover of inventory. This change could be due to various
factors such as changes in market demand, production issues, or
different business strategies implemented by the company.
Capital Turnover Ratio:
Net sales Capital Employed Ratio

2023 3,41,58,38,00,000 1,79,04,41,00,000 1.91:1

2022 2,95,51,28,00,000 1,69,60,76,00,000 1.74:1

2021 3,08,00,62,00,000 1,60,50,83,00,000 1.92:1

• The capital turnover ratio for 2023 shows an improvement

in efficiency compared to 2022. A higher capital turnover
ratio generally indicates effective management of resources
and increased profitability.
 Working Capital Turnover Ratio:
Net sales Capital Employed Ratio

2023 3,41,58,38,00,000 34,22,71,00,000 9.98:1

2022 2,95,51,28,00,000 50,24,59,00,000 5.85:1

2021 3,08,00,62,00,000 48,42,57,00,000 6.36:1

• The increasing trend in the working capital turnover ratio from 2021 to
2023 is a positive sign. It suggests that the company has been able to
generate more sales revenue relative to its working capital, indicating
improved operational efficiency and potentially better management of
inventory.
Fixed Asset Turnover Ratio
Net sales Fixed Assets Ratio

2023 3,41,58,38,00,000 98,81,89,00,000 3.46:1

2022 2,95,51,28,00,000 79,58,52,00,000 3.71:1

2021 3,08,00,62,00,000 1,00,69,70,00,000 3.06:1

• In 2022 the company’s Fixed asset turnover ratio increased but declined
in 2023. A declining fixed asset turnover ratio over time may raise
concerns about the company's ability to efficiently use its fixed assets for
revenue generation. It could imply that the company is not making the
best use of its assets or may have invested heavily in new fixed assets
that have yet to generate significant revenue.
 Market Related Ratios:
Earnings Per Share-
Profit available for Equity Shareholders or Number of Equity Shares Ratio
Earnings

2023 1,40,62,00,000 19,98,39,718 7 times

2022 1,23,78,00,000 19,98,11,941 6.19 times

2021 1,48,39,00,000 19,97,80,217 7.43 times

The company's earnings per share have been consistent over the years,
fluctuating between ₹6.19 and ₹7.43. Investors often consider EPS when
making investment decisions, as it provides insight into a company's
profitability on a per-share basis. A higher EPS generally indicates a
more profitable company.
 Book Value Per Share
Equity Shareholder’s Funds Number of Equity Shares Ratio

2023 39,95,00,000 19,98,39,718 2 Times

2022 39,96,00,000 19,98,11,941 2 Times

2021 39,97,00,000 19,97,80,217 2 Times

• From the given data, the book value per share remains constant at
approximately 2.00 throughout the years 2021, 2022, and 2023. This
indicates that the company's equity has been stable. A consistent or
increasing book value per share is generally considered a positive sign,
indicating that the company is creating value for shareholders .
 Price Earnings Ratio
Market Value Per Share Earnings Per Share Ratio

2023 3298 7 471 times

2022 3098 6.19 500 times

2021 2697 7.43 363 times

• The P/E ratio provides valuable information about investor sentiment

and market expectations.