INTRODUCTION

India is the third largest manufacturer of two-wheelers in the world, and the largest manufacturer of
three-wheelers. The major players in the Two Wheeler sector are Bajaj Auto, Hero Honda, Kinetic,
LML and TVS Motors. Among two-wheelers, motorcycles have led the upsurge (88% growth) to
result in a y-o-y growth of 42% for the sector. The Indian two-wheelers industry can be broadly
classified into three major segments -- scooters, motorcycles & mopeds
With sales over 4.2 million (FY 2001-02), the industry is growing at the rate of nearly 16%. The
motorcycle segment is the fastest growing with its share in two wheeler sales increasing from
37.21% in FY1997- 98 to 68.65% in FY2001-02, to nearly 70% in FY 2002-03. In the last five to six
years, the two-wheeler market has witnessed a marked shift towards motorcycles at the expense of
scooters. In the rural areas, consumers have come to prefer sturdier bikes to withstand the bad road
conditions. In the process the share of motorcycle segment has grown from 48% to 70%, the share
of scooters declined drastically from 33% to 22%, while that of mopeds declined by 4% from 19% to
15% during (FY 2001-03). Sale of scooters and mopeds segment decreased 51.20% and 47.93%
respectively over the last five years. Scooters and mopeds are rapidly losing their place in the
market to the more fuel-efficient, stylish and sturdy motorcycles. The Euro emission norms effective
from April 2000 led to the existing players in the two- stroke segment to install catalytic converters.
4-stroke motorcycles are now replacing all the new models. Excise duty on motorcycles has been
reduced from 32% to 24%, resulting in price reduction, which has aided in propelling the demand for
motorcycles. Competition has intensified over the last couple of years. Recently, Honda Corporation
of Japan announced its intentions to set up a 100% subsidiary to manufacture scooters and
motorcycles. Other players in the two-wheeler industry include Bajaj Auto Ltd, Kinetic Motor Co Ltd,
LML, TVS Motors and Yamaha. Low – interest regime has helped in
 History of Bajaj Auto Ltd
“NAYE BHARAT KI NAYI TASWEER BULUND BHARAT KI BULUND TASWEER HAMARA BAJAJ” The company
came into existence on 29th November, 1945 as M/s Bach raj Trading Corporation Private Limited.
Initially, it used to import and sell two and threewheelers in the country. It was post 1959, the company
started to manufacture the two-wheelers and three-wheelers. The year 1960 one of the important years
for the company as it went public that year. The launches started the same year. The first launch was
that of the Vespa 150 in the year 1960. Then on in the year 1971, the company started to launch their
three-wheeler goods carrier. The turning point for the company just lays ahead. Just a year after, Bajaj
Auto launched its ever-famous Bajaj Chetak. The name was given after the legendary horse of Indian
warrior Rana Pratap Singh, the Chetak. The Chetak was an affordable means of transportation for
millions of Indian families for decades and thus the slogan ‘Hamara Bajaj.’ In the year 1990, the
teenagers were offered the Bajaj Sunny. Being a scooter Ette, it had a 60cc engine and attained a
maximum speed of 50 km/h. However, the model is no longer on the shelves. Then on every year, there
was a new launch by the company. 1991 saw the launch of the Kawasaki Bajaj 4S Champion. Starting
from 1993, the company launched the vehicles (Bajaj Stride, Classic and Super Excel respectively) in
succession every year till 1995. In 1999, Bajaj came up with yet another scooter Ette called the Spirit.
Ideal for college students, it was powered by a two-stroke, 60cc, single-cylinder and air-cooled engine. It
was one of the eighteen models Bajaj Auto launched in eighteen months. The same year, Caliber
motorcycle notched up 100,000 sales in record time of 12 months. In 2000, the y2k year, Bajaj Suffire
was introduced. Last year Bajaj Auto launched the Kawasaki Ninja 650R, while earlier this year, Bajaj
geared up again and unveiled the RE60, a mini 4-wheeler for intra-city urban transportation. Bajaj RE60
is expected to challenge the supremacy of Tata Nano. But the much eventful launch was that of the KTM
Duke 200. The orange colour was everywhere with great publicity measures being taken by the
company. In 1995, it rolled out its ten millionth vehicles and produced and sold one million vehicles in a
year. 4 With the launch of motorcycles in 1986, the company has changed its image from a scooter
manufacturer to a two-wheeler manufacturer. In 2017 it was announced that Bajaj Auto and Triumph
Motorcycles Ltd would form an alliance to build mid-capacity motorcycles. According to the authors of
Globality Competing with Everywhere for Everything, Bajaj has operations in 50 countries creating a line
of bikes targeted to the preferences of entry-level buyers.

About the Company

The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range
of industries, spanning automobiles (two wheelers manufacturer and three wheelers manufacturer),
home appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship company,
Bajaj Auto, is ranked as the world's fourth largest three and two-wheeler manufacturer and the Bajaj
brand is well-known across several countries in Latin America, Africa, Middle East, South and South East
Asia. Founded in 1926, at the height of India's movement for independence from the British, the group
has an illustrious history. The integrity, dedication, resourcefulness and determination to succeed which
are characteristic of the group today, are often traced back to its birth during those days of relentless 5
devotion to a common cause. Jamnalal Bajaj, founder of the group, was a close confidant and disciple of
Mahatma Gandhi. In fact, Gandhiji had adopted him as his son. The present Chairman of the group,
Rahul Bajaj, took charge of the business in 1965. Under his leadership, the turnover of the Bajaj Auto the
flagship company has gone up from INR.72 million to INR. 120 billion, its product portfolio has expanded
and the brand has found a global market.

Vision
To attain world Class Excellency by demonstrating Value added products to the customers.

Mission
 Focus on value-based manufacturing  Fostering team work & enhancing the capability of the team 
Continual Improvement  Team elimination of wastes  Pollution free & safe environment

Products
Bajaj manufactures and sells motorcycles, scooters, auto-rickshaws and most recently, cars. Bajaj Auto
is India's largest exporter of motorcycles and three-wheelers. Bajaj Auto's exports accounted for approx.
35% of its total sales. 47% of its exports are made to Africa. Boxer motorcycle is the largest selling single
brand in Africa

Manufacturing
Bajaj is the first Indian two-wheeler manufacturer to deliver 4-stroke commuter motorcycles with sporty
performance for the Indian market, which was otherwise dominated mostly by mileage-based products
from Hero Honda and TVS Motors. Bajaj achieved this with the 150cc and 180cc Pulsar, giving Indians
the first taste of performance biking. This was also accompanied by innovative marketing techniques -
by featuring its flagship product Pulsar 220 DTS-i in Pulsar MTV Stunt mania, India's first stunt biking
reality show. Motorcycles in production include the Platina, Discover, Pulsar, Avenger, Domineer and CT
100. In FY 2012-13, it sold approximately 3.76 million motorcycles which accounted for 31% of the
market share in India. Of these, approximately 2.46 million motorcycles (66%) were sold in India and
remaining 34% were exported.

Present Scenario
The new 2019 Bajaj Domineer four hundred is ready to be launched in Republic of India within the
returning days. Ahead of the official launch, the book pictures of the bike have leaked on the web.
According to the leaked images, the new 2019 Bajaj Domineer 400 will come with an increased power
output of 39.9 PS as compared to 35 PS on the present-day model. The output, however, remains
identical on the new model at thirty-five Nm. Another change on the new model that you must have
already noticed is the inclusion of inverted forks up front as against conventional telescopic units on the
model currently on sale. The instrument cluster of the bike has additionally been revised and it'll show a
great deal of further info within the style of alert messages compared to the warning lights at present.
 Achievements of the company
 Bikes of the year 2010 by BBC – Top Gear  Hall of pride Awards by CNBC – Overdrive  Bike of the year
by Bike India  Bike India up to 150 cc by India  2011 Mc of the year up to 250 cc by NDTV Car & Bike
Awards  “Golden Steering Wheel” for Executive Motorcycle by Auto Build  Best Value for Money
Vehicle of the year by ET Zig Wheels

Swot Analysis of Bajaj Auto Ltd

Strength
 Brand Positioning – Bajaj Auto is the world’s fourth largest two and three-wheeler auto manufacturer
in the world. The company manufactures motorcycles, passenger carriers and goods carriers. The most
popular brand in the two-wheeler segment of Bajaj Auto’s portfolio is Bajaj Pulsar. In the three-wheeler
segment, it has a range of 2-stroke and 4-stroke passenger as well as goods carrier.  Sustainable
business – The Company’s extensive range of products allows them to cater to a wide range of
customers. Also, it helps the company to deliver sustainable business growth.  Strong Distribution –
Bajaj Auto has dealers throughout India and it has always maintained a smooth supply chain. Bajaj
motorcycles and three wheelers are 7 always in demand and are supplied to various small and large
cities. Hence, there are various Bajaj Auto service centres throughout the country.  Awards and
recognition – Bajaj Auto were ranked 96th in Forbes’ most innovative companies list in 2014. Bajaj Auto
was also named Company of the year in 2011 by Economic Times. Bajaj Pulsar has been received various
awards and recognition.  Market share in two-wheeler category – As can be seen from the graph
below, Bajaj auto has a 13% of market share in the two-wheeler category. It is 3rd in the two-wheeler
category.

Weaknesses
 Lack of Presence in the scooter market – Bajaj Auto was the leader in the scooter market till the
motorcycle momentum picked up in the 1990s. Bajaj shut down its scooter business post that, but the
scooter business is blooming and showed a growth of 12% in 2016. Today, Honda Activa and other such
models are the leders in scoothers. The company is losing out on a huge market by not reentering the
scooter market.  Labour issues – Bajaj Auto has been involved in Labour and wage issues in the recent
past. In February 2014, workers in its Chakan plant threatened to go for hunger strikes. In 2013, Chakan
and Pune plant workers went on strike. This damages Bajaj’s image and it also has an adverse effect on
the production.  Not a Global brand – Even after producing in high volume, Bajaj is not recognised as a
global brand. It has not entered other markets or not expanded internationally as fast as it could. It is
predominantly an Indian market player.

Opportunities
 Growth in motorcycle market – The global motorcycle manufacturing is expected to grow strongly in
the years to come. According to the market line, the global motorcycle industry generated about $75000
million in 2016. It showed a growth of about 6.3%. The market is expected to grow at 7% CAGR for the
2016-19 period to approximately reach $93450 million.  Growing India three-wheeler Industry – The
three-wheeler market registered a growth of 11.51% in FY2016 and is expected to grow at a CAGR of
4.4% to approximately reach $4.2 billion by 2017. 8  Launch new vehicles – Bajaj Auto should further
look to strengthen its product portfolio like it has done in the past with models of Avenger Pulsar,
Discover etc. By continuously encapsulating new technologies into its portfolio, Bajaj’s image of being an
innovative company will also be maintained.

Threats
 Intense competition in the 2-wheeler market – The 2-wheeler market in India is highly competitive
with various top brands such as Global and Indian giants such as Suzuki, Hero MotoCorp, TVS etc.
fighting to capture market share. Fuel efficiency and price being crucial for the Indian market, all the
brands are constantly innovating to achieve higher fuel efficiency in low price.  High Bank interest rates
– In comparison with other countries, India has a higher lending rate which is growing. The growth in
interest rates affects consumer decision on spending on vehicles etc. bought on interests. 
Environmental Regulations – Auto companies are subjected to strict environmental regulations in India.
The BS regulations are constantly updated in India and hence the companies have to constantly modify
their products in order to fall in line with the regulations and hence, this may adversely affect company’s
financial condition

History of Hero MotoCorp

The principal owner of the Hero two-wheeler manufacturing unit – Hero Cycles was founded in 1956 in
Ludhiana, Punjab, by the Munjal brothers. In 1975, Hero Cycles became the largest manufacturer of
bicycles in India. An agreement of collaboration and formation of a joint venture was signed between
Hero Group of India and Honda of Japan in 1983. A year later, Hero Honda Motors Limited came into
existence. In 2001, the company attained the status of being the largest manufacturer of twowheelers in
the world. The Japanese partner Honda walked out of the partnership in 2010, selling the 26 percent of
stakes it held to be the company was named Hero MotoCorp in August 2011. Hero Honda became the
first company in the country to introduce four–stroke motorcycles and set the standards for fuel
efficiency, pollution control and quality. It has an excellent distribution and service network spread
throughout the country. Hero Honda bikes currently roll out from its three globally benchmarked
manufacturing facilities. Two of are based at Dharuhera and Gurgaon in Haryana and the third state of
the art manufacturing facility was inaugurated at Haridwar, Uttarakhand in April this year. These plants
together are capable of producing out 4.4 million units per year. 10 The company has sold over 7 crore
2-wheelers since its inception in 1984 till March 2013. It sold 60.7 lakh 2-wheelers in 2012, out of which
55 lakhs were motorcycles. Hero MotoCorp sells more two wheelers than the second, third and fourth
placed twowheeler companies put together. Its most popular bike Hero Honda Splendour sells more
than ten lakh units per year. In 2013, Hero MotoCorp registered best ever calendar year performance of
more than 61 lakh unit sales. By selling 6,25,000 units in the month of October, it became the first-ever
manufacturer to cross landmark 6 lakh unit sales in a month. In the last quarter of the year or say in the
festive season, the company sold more than 16 lakh units, while in non-festive time in April–May 2013,
it managed to sell out quite good numbers of units 11 lakh

About the Company

With innovation at the core of its philosophy, the New Delhi (India) headquartered Hero MotoCorp has
been at the forefront of designing and developing technologically advanced motorcycles and scooters
for customers around the world. It became the 11 world’s largest two-wheeler manufacturer in 2001, in
terms of unit volume sales in a calendar year, and has maintained the coveted title for the past 18
consecutive years. With over 85 million satisfied customers across the globe, it continues to champion
socio-economic progress and empowerment through its range of products and services. Led by Dr
Pawan Munjal, Chairman, Hero MotoCorp, it has taken rapid strides to expand its presence to 37
countries across Asia, Africa, and South & Central America. Hero MotoCorp is a truly global enterprise
with a workforce that comprises of people from different nationalities including India, Bangladesh,
Colombia, Germany, Austria, Japan, and France. Hero MotoCorp is the dominant market leader in India
– the world’s largest twowheeler market – with over 50% share in the domestic motorcycle market.

Vision
The story of Hero Honda began with a simple vision – the vision of a mobile and an empowered India,
powered by its bikes. Hero MotoCorp Ltd.is Company’s new identity which reflects its commitment
towards providing world class mobility solutions with renewed focus on expanding company’s footprint
in the global area

Mission
Its mission is to become a global enterprise fulfilling its customer’s needs and aspirations for mobility,
setting benchmarks in technology, styling and quality so that it converts its customers into its brand
advocates. The company will provide an engaging environment for its people to perform to their true
potential. It will continue its focus on value creation and enduring relationship with its partners.

Strategy
Its key strategies are to build a robust product portfolio across categories, explore growth opportunities
globally, continuously improve its operational efficiency, aggressively expand its reach to customers,
continue to invest in brand building activities and ensure customer and shareholder delightment

Manufacturing
India's largest two-wheeler manufacturer Hero MotoCorp is planning to bring 15 new and updated two-
wheelers in the running financial year. The company officials announced that these products will be
launched in domestic as well as international markets.

Products
It’s offers wide range of two-wheeler products that include motorcycles and scooters, and has set the
industry standards across all the market segments.

Present Scenario
Hero MotoCorp sold a total of 38.9 million units until the end of July 2017, overtaking the cumulative
sales of 37.4 million two-wheelers registered by Hero Honda in its 27 years. Notably, in these six years,
the share price of Hero Moto-Corp has also doubled, with the market cap racing past 77,000 crores. The
overall two-wheeler market has increased by over 31% to add more than 4.2 million units in this period
(FY12-FY17). Total two-wheeler sales in the domestic market stood at 17,589,511units at the end of the
last financial year. Hero MotoCorp had a share of 36.9%, and its nearest competitor and erstwhile
partner Honda Motorcycle & Scooter India (HMSI) 26.9%.

Achievements
 Best launch - Two-wheeler at the CNB Auto Expo Awards for Excellence 2018  Highest Ranked
Executive Motorcycle in Initial Quality - Hero Super Splendor - by JD Power India  Bike sport award of
the year - Times Auto Awards  Hero Glamour - Commuter Motorcycle of The Year - NDTV Car and Bike
awards 2017  Creative Television Commercial of the Year - Hero MotoCorp - Play Inspire FIFA - NDTV
Car and Bike awards 2017  Indian MNC of the Year by All India Management Association (AIMA) 
Manufacturer of the year - NDTV Car and Bike awards 2017  Highest Ranked Executive Motorcycle in
Initial Quality - Hero Super Splendor - by JD Power  India The Brand Trust Report published by Trust
Research Advisory has ranked Hero Honda in the 7th position among the most trusted brands in India 
It received the 'Best value for Money Bike Maker' and 'Best Advertising' in Two Wheelers Category at
the Auto India Best Brand Awards 2012

Swot analysis of hero motocorp

Strength
 Huge Brand Equity – This is really one of the biggest strengths of Hero MotoCorp. This company is one
of the biggest players in the market of twowheelers.  Strong Brand Image – A Company can only grow
once it is popular by its brand name. Hero MotoCorp is really one of those companies who can play hard
on the popularity field.  Excellent Distribution – Hero MotoCorp has more than 3000 dealerships and
service centres which have made it the leading company in the industry.  Wide Variety of Products–
The more products a company launch successfully, the more popular it becomes. Hero MotoCorp is,
therefore, the real hero in the market.  Awards and Recognition – Customers can rely on a brand when
it is acknowledged with rewards and awards. Hero MotoCorp has received many in all these years. 
Sponsorships – Events, related to sports and racing provide sponsorships to the company that has made
it hugely popular of all its competitors.

Opportunities 
The demand for two-wheelers is increasing a lot, and that brings the opportunity for the company to
grow bigger.  Export of Hero Moto Corp bikes is limited i.e. untapped international markets. 
Introduction of bikes in the premium segment.

Threats
 Strong Competition – There are lots of other companies which are emerging rapidly and give tough
competition to the company.  Betterment of Public Transport– As other modes of transportation have
increased a lot, the use of two-wheelers is not in demand.  Dependence on government policies and
rising fuel prices can affect business margins for Hero Moto Corp
 Financial Statements
Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statements include the balance sheet, income statement, and cash
flow statement. Financial statements are often audited by government agencies, accountants, firms, etc.
to ensure accuracy and for tax, financing, or investing purposes.

Features of financial statements

The following are the features of financial statements.  They are always expressing in monetary terms.
They ignore the qualitative aspects. In other words, the non- monetary events do not come under the
scope of financial statements.  They are always prepared for a certain period of time. They generally
cover the period of one year.  They are historical in nature since they always present the past
performance. Hence, they do not carry the futuristic approach.

Objectives of financial statements

Financial statements of a company are the result of management's past actions and decision. They are
the end products of the accounting process. They give a picture of solvency and profitability of a
company. The major objectives of the financial statements can be listed as follows.  To provide the
financial information to the internal and external users.  To provide the information, which are useful in
the process of decision making.  To reveal the profitability and solvency of the company.  To facilitate
the intra company and inter comparison of the financial performance.  To show the financial health of
the company.  To help to evaluate the financial position and efficiency of the management.

Importance of financial statement

Financial statements are the importance sources of information to all the users of accounting
information like; management, owners, debtors, creditors, employees, government agencies, financial
analysis, etc. the following are the points which highlight the importance of financial statement; 
Financial statements are the summary of information relating to profitability, and resources owned by
the firm.  Financial statements provide the information which can be compared with those of other
firms.  Employees can use them to demand for increment in salary and other benefits. 16  Bankers and
other financial institutions can use them to make the lending decisions.  Government calculate the tax
revenue of the firms based on financial statements of the companies.  Financial statements can be
used as the basis for management decision-making purpose like planning, promotion, research and
development decision, etc.  Existing investors can use them to assess how efficiently the firm is using
their funds.  Potential investors can obtain information which can be useful to take the investment
decisions.  Financial statements reveal the history of the firm.  They can be used to assess the firm's
liquidity and solvency position. The financial statements suffer from the following limitations-  They
include the quantitative information which is expressed in monetary units. They do not provide any
qualitative information which may have greater impact upon the decision makers.  They record and
reveal only the historical date in nature. They do not include any future possible result.  Financial
statements are strictly confined within the boundary of some accounting principles. They are uses as the
guidelines in recording and reporting the financial transactions.  Financial statements are just the
summary reports of the company’s financial transactions. All the detailed information regarding to such
transaction cannot be disclosed in the financial stalemates.  Financial statements show the information
on cost basis i.e. the price paid on the transaction's date. The effect of price level changes (inflation) is
not shown in the financial statements. In another words, the information is not given in the currents
value.

Financial statement analysis

Meaning of financial statement analysis
Financial statement analysis is an analysis that highlights the important relationships in the financial
statements. It focuses on evaluation of past performance of the business firms in terms of profitability,
liquidity, solvency, operational efficiency and 17 growth potentiality. Financial statement analysis
includes the methods used in assessing and interpreting the result of past performance and current
financial position as they relate to particular factors of interest in investment decisions. Thus, it is an
important means of assessing past performance and in forecasting and planning future performance. 
Assessment of past performance – Past performance is often a good indicator of future performance.
Therefore, an investor or creditor is interested in the trend of past sales, cost of goods sold, operating
expenses, net income, cash flows and return on investment. These trends offer a means for judging
management's past performance and are possible indicator of future performance.  Assessment of
current position – The analysis of current position indicates where the business stands today. Financial
statement analysis shows the current position of the firm in terms of the types of assets owned by a
business firm and the different liabilities due against the enterprises.  Prediction of profitability and
growth prospects – The financial statement analysis help in assessing and predicting the earning
prospects and growth rates in earnings which are used by investors while comparing investment
alternatives and other users in judging the earnings potential of business entries. Investors also consider
the risk or uncertainty associate with the expected return. The decision makes are futuristic are always
concerned with the future. Financial statements which contain the information on past performance are
analyzed interpreted and used as the basis for forecasting the future return and risk.  Predication of
bankruptcy and failure – Financial statement analysis is a significant tool in assessing and predicting the
bankruptcy and probability of business failure. Through the analysis of the solvency position, the
probability of business failure can be predicated to the greater extent. After such prediction managers
and investors both can take some preventive measures to avoid or minimize losses.  Loan decision by
banks and financial institutions – Financial statement analysis is used by banks, finance companies,
lending agencies, and other to make sound loan or credit decision. With the help different borrowers.
Because it helps in determining credit risks, deciding terms and condition of loans, interest rates,
maturity date, etc. 18  Assessment of the operational, efficiency – Financial statement analysis is the
tool that helps to assess the operational efficiency of the management of a company. The actual
performance of the firm which are revealed in the financial statements can be compared performance
can be used as the indicator of efficiency of the management.  Simplifying the information – basically,
the financial statement analysis further interprets the information disclosed in the financial statements.
It attempts the tools that make the information readable and understandable even the average types of
users. For this purpose, the information is analyzed in rations, trend percentages, graphs, diagrams, etc.
 Techniques of financial statement analysis
Various techniques are used in the analysis of financial date to emphasize the comparative and relative
importance of date presented and to evaluate the position of the firm. These techniques of analysis are
intended to show relationships and change. Among several techniques; the following are some of the
most widely used techniques.

 Horizontal analysis – The percentage analysis of increases or decreases in corresponding items in

comparative financial statements is called horizontal analysis. It involves the computation of amount
charges and percentage changes from the previous to the current year. The amount of each item in the
most recent statement is compared with the corresponding item on the earlier statements. The increase
or decrease in the amount of the item is the listen together with the percent of increase or decrease.
When the comparison is made between two statements, the earlier statement is used as the base.

 Vertical analysis – Vertical analysis uses percentage to show the relationship of the different part to
the total in a signal statement. Vertical analysis sets a total figure in the statement equal to 100
percentages and computes the percentages of each component of that figure. The figure to use as 100
percent will be total assets or total liabilities and equity capital in the case of balance sheet and revenue
or sales in the case of the profit and loss account.

 Trend analysis – Using the previous year's data of a business enterprise, trend analysis can be done to
observe percentage changes over time in selected data. In trend analysis, percentage changes are
calculated for several successive years 19 instead of between two years. Trend analysis is important
because with its long run view, it may point to basis changes in the nature of business. By looking at a
trend in a particular ratio, one may find whether that ration is falling, rising or remaining relatively
constant.

 Ratio analysis – Ratio analysis is an important measure of expressing the relationship between two
numbers. A ratio can be computed from any pair of numbers. To be useful a ration must represent a
meaningful relationship. Ratios are useful in evaluating the financial position an operation of company
and in comparing them to previous years or to other companies.

Importance of financial statement analysis

Financial statement analysis is equally important to the management, shareholders creditors, debtors,
potential investors, government agencies, bankers, general public, etc. the importance of financial
statement analysis can be summarized as follows-  Helpful in planning and decision making.  Helps in
the evaluation of performance.  Helps in the diagnosis of managerial and operating problems.  Helpful
to the bankers for credit decision.  Basis for tax calculations.  Helps the government to formulate
polices.  Basis of controlling.

Limitations of financial statement analysis

following are the limitations of financial statement analysis

 It ignores the qualitative aspects of the business.  Accurate comparison may not be possible if the
companies have followed different accounting principles.  Financial statement analysis only identifies/
diagnoses the problems but cannot suggest the solutions.  There is the change of wrong analysis and
misleading to the users.

Parties interested in financial statement analysis

The users of accounting information can be divided into two parties' namely internal and external
parties. 20  Internal parties – The internal parties of the accounting information are concerned with the
management of the concern. They need financial statement so as to perform the different
organizational activities properly and smoothly and achieve the objectives. Such activities are planning,
policy making, implementing, controlling etc. the internal uses of accounting information might
Directors Partners Managers Officers Etc.

 External parties – The external parties are not directly involved in the management and operation of a
concern and they are external to the organization. They are closely associated with the concern. They
are - a. Present as well as potential stockholder: a present stockholder needs accounting information so
that he/ she can decide whether to continue to hold the stock or sell it. On the other hand a potential
stockholder needs the financial information to choose among competing alternative investments. b.
Bondholders, bankers and other creditors – A potential bondholder wants to be ensured that the
company will be able to pay back the amount owed at maturity and the periodic interest payments.
Similarly, a bank needs financial information that will help it to determine the company's ability to pay
the principle as well as interest. Other creditors also want the assurance of their claims on due date and
make them interested on the financial information. c. Government agencies – The government needs
financial information to decide on permitting contraction or expansion of business, import/ export etc.
in many cases, it becomes mandatory for the business to submit its financial information to different
government agencies as prescribed by law. d. Other external users: many other individuals and groups
rely on financial information provides by business. They are -  Public – The public needs financial
information to know about the employment opportunities, discharge of responsibility towards the
society etc.  Employees – The employees are interested in financial information since their present as
well as future is associated with the concern. 21  Suppliers – When the suppliers sell the goods in
credit, they want the payment on time.  Customers – The customers want to know whether the
concern is able to supply goods continually or not.

CHAPTER - 2 RESEARCH METHODOLOGY

Research Methodology provides information about the manner in which research has been carried out.
Research Methodology describes the procedure followed by the researcher. Research Methodology is a
systematic way to solve the research problem. It deals with all the necessary steps that a researcher has
to take to carry out the research or steps taken towards problem-solving. The attempt of evaluation of
the Indian companies from different sectors has been done in the said research work. A thorough
analysis of impact of Ratio Analysis on the Financial Performance has been carried out. The ‘financial
performance’ has been defined using four important pillars of performance. The pillars are Profitability,
Liquidity, Solvency and Efficiency.
 Objective of study
The main objective of the study is to apply ratio analysis to measure overall performance of the
organization. The following are the specific objectives for this analytical study.  To analyse the
comparative financial soundness of both companies.  To ascertain the optimum utilization of funds. 
To get the current scenario of Bajaj ltd as well as Hero moto corp ltd.  To know the earning capacity or
profitability in the form of ratio.  To make the comparative study of ratio analysis between Bajaj Auto
Ltd and Hero MotoCorp Ltd.  To know the capability of paying interest and dividend.  To know the
practice of presenting financial statement.  To analyse financial and non-financial activities of the
companies.

Hypothesis

. Scope of study
The scope of the study is limited to collecting financial data published in the annual reports of the
company every year. The analysis is done to suggest the possible solutions. The study is carried out for 2
years (2016-2017) & (2017-2018) of Bajaj Auto Ltd and Hero MotoCorp Ltd.

Sources of Data
Every research is based on sound facts and data that are collected data by the researcher. The kind of
data collected and the methods used to collect the data has a very important aspect of the research.

Secondary Data
Secondary data refers to that data which is already in existence and someone has obtained for specific
purpose but reutilize by the researcher. The said research work is based on the secondary Data of
published financial statement of selected Indian industries and the selected companies within them. The
data of various financial parameters have been obtained from the Annual Reports of the companies
directly from the official web sites of the company or stock exchange website.

Limitation of the study

 The study was confined only to one particular company.  Ratio may be misleading in the absence of
absolute data.  Lack of proper standards.

Financial Ratios Analysis

Financial ratios analysis is the most common form of financial statements analysis. Financial ratios
illustrate relationships between different aspects of a company’s operations and provide relative
measures of the firm conditions and performance. Financial ratios may provide clues and symptoms of
the financial condition and indications of potential problem areas. Financial ratios generally hold no
meaning unless they are compared against something else, like past performance, another
company/competitor or industry average. Thus, the ratios of firms in different industries, which face
 different conditions, are usually hard to compare. Financial ratios can be an important tool for small
business owners and managers to measure their progress toward reaching company goals, as well as
toward competing with larger companies within an industry. In addition, tracking various ratios over
time is a powerful way to identify trends. Ratio analysis, when performed regularly over time, can also
give help small businesses recognize and adapt to trends affecting their operations.

Financial ratios are categorized according to the financial aspect of the business which the ratio
Measures -  Liquidity ratios examine the availability of company’s cash to pay debt.  Profitability ratios
measure the company’s use of its assets and control of its expenses to generate an acceptable rate of
return.  Leverage ratios examine the company’s methods of financing and measure its ability to meet
financial obligations.

Different ratios used in the study

 Current Ratio – The current ratio is a popular financial ratio used to test a company's liquidity (Also
referred to as its current or working capital position) by deriving the Proportion of current assets
available to cover current liabilities.

 Quick Ratio – The quick ratio or the acid-test ratio is a liquidity indicator that further refines the
current ratio by measuring the amount of the most liquid current assets there are to cover current
liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and
other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more
liquid current position.

 Inventory Turnover Ratio – The inventory turnover ratio is an efficiency ratio that shows how
effectively inventory is managed by comparing cost of goods sold with average inventory for a period.
This measures how many times average inventory is “turned” or sold during a period.

 Debtors Turnover Ratio – The Debtors turnover ratio is an accounting measure used to quantify a
company's effectiveness in collecting its receivables or money owed by clients. The ratio shows how well
a company uses and manages the credit it extends to customers and how quickly that short-term debt is
collected or is paid. The Debtors turnover ratio is also called the accounts receivable turnover ratio.

 Debtor’s velocity Ratio – Debtor’s turnover ratio or accounts receivable turnover ratio or velocity ratio
indicates the velocity of debt collection of a firm. In simple words, it indicates the speed of collection of
credit sales.

 Creditors Turnover Ratio – The accounts payable turnover ratio is a short-term liquidity measure used
to quantify the rate at which a company pays off its 25 suppliers. Accounts payable turnover shows how
many times a company pays off its accounts payable during a period.

 Working capital Turnover Ratio – Working capital turnover is a ratio that measures how efficiently a
company is using its working capital to support a given level of sales. Also referred to as net sales to
working capital, work capital turnover shows the relationship between the funds used to finance a
company's operations and the revenues a company generates as a result.

 Dividend Pay-out Ratio – The dividend pay-out ratio is the ratio of the total amount of dividends paid
out to shareholders relative to the net income of the company. It is the percentage of earnings paid to
 shareholders in dividends. The amount that is not paid to shareholders is retained by the company to
pay off debt or to reinvest in core operations. It is sometimes simply referred to as the 'pay-out ratio.'

 EBIT Margin – EBIT Margin is the ratio of Earnings before Interest and Taxes to net revenue - earned. It
is a measure of a company's profitability on sales over a specific time period.

 EBT Margin – EBT margin shows company’s earnings before tax as a percentage of net sales
(revenues). This ratio is very close to the net income margin as it also shows “bottom line” profit, except
for the fact that the deducted income taxes are not excluded, and that’s why this ratio is sometimes
called pre-tax profit margin.

 Cash Ratio – The cash ratio is the ratio of a company's total cash and cash equivalents to its current
liabilities. The metric calculates a company's ability to repay its short-term debt with readily-liquidated
cash resources.

 Stock to Working Capital Ratio – Stock to working capital ratio is defined as a method to show what
portion of a company’s inventories is financed from its available cash. This is essential to businesses
which hold inventory and survive on cash supplies. In general, the lower the ratio, the higher the
liquidity of a company is. However, the value of inventory to working capital ratio varies from industry
and company.

 Interest Coverage Ratio – The interest coverage ratio is a debt ratio and profitability ratio used to
determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio
may be calculated by dividing a 26 company's earnings before interest and taxes (EBIT) during a given
period by the company's interest payments due within the same period.

 Proprietary Ratio – The proprietary ratio (also known as the equity ratio) is the proportion of
shareholders' equity to total assets, and as such provides a rough estimate of the amount of
capitalization currently used to support a business. Thus, the equity ratio is a general indicator of
financial stability. It should be used in conjunction with the net profit ratio and an examination of the
statement of cash flows to gain a better overview of the financial circumstances of a business.

 Working Capital Ratio – The working capital turnover ratio measures how well a company is utilizing its
working capital to support a given level of sales. Working capital is current assets minus current
liabilities. A high turnover ratio indicates that management is being extremely efficient in using a firm's
short-term assets and liabilities to support sales. Conversely, a low ratio indicates that a business is
investing in too many accounts receivable and inventory assets to support its sales, which could
eventually lead to an excessive amount of bad debts and obsolete inventory.

 Return on Capital Employed – The return on capital employed (ROCE) measures the proportion of
adjusted earnings to the amount of capital and debt required for a business to function. For a company
to remain in business over the long term, its return on capital employed should be higher than its cost of
capital; otherwise, continuing operations gradually reduce the earnings available to shareholders. It is
commonly used to compare the efficiency of capital usage of businesses within the same industry.  EPS
– Earnings per share is a measure of how much profit a company has generated. Companies usually
report their earnings per share on a quarterly or yearly basis.
  DPS – Dividend per share (DPS) is the sum of declared dividends issued by a company for every
ordinary share outstanding. The figure is calculated by dividing the total dividends paid out by a
business, including interim dividends, over a period of time by the number of outstanding ordinary
shares issued. A company's DPS is often derived using the dividend paid in the most recent quarter,
which is also used to calculate the dividend yield. 27

 Book Value Per Share – Book value per share is a market value financial ratio, and the purpose of
calculating it is to relate shareholders' equity to the number of shares of common stock outstanding.
The number of shares of preferred stock is not considered, making book value more directly relevant to
common shares outstanding.

 Return on Net Worth – Return on Net worth is a ratio developed from the perspective of the investor
and not the company. By looking at this, the investor sees if entire net profit was passed on to him, how
much return would be getting. It explains the efficiency of the shareholders’ capital to generate profit.

 Dividend Coverage Ratio – Dividend coverage ratio essentially calculates the capacity of the firm to pay
a dividend. Generally, this ratio is calculated specifically for preference equity shareholders. Preference
shareholders have the right to receive dividends. The dividends of preference shares may be postponed
but payment is compulsory and therefore they are considered as a fixed liability.

 Earnings Yield – The earnings yield refers to the earnings per share for the most recent 12-month
period divided by the current market price per share. The earnings yield (which is the inverse of the P/E
ratio) shows the percentage of each dollar invested in the stock that was earned by the company. This
yield is used by many investment managers to determine optimal asset allocations.

 Price Earnings Ratio – ‘The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that
measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is
also sometimes known as the price multiple or the earnings multiple.

CHAPTER-3 REVIEW OF LITERATURE

Pai, Vadivel & Kamala (1995) have studied about the diversified companies and financial
performance. Main purpose of research was found out the relationship between diversified firms and
their financial performance. For the purpose of research, they have selected seven large firms and
analysed those firm which having different products-both related and otherwise-in their portfolio and
operating in diverse industries. In this study, a set of performance measures / ratios was employed to
determine the level of financial performance and variation in performance from one firm to another has
been observed and statistically established. They revealed that the diversified firms studied have been
healthy financial performance.

According to Lesakova (2007) ratios reveals much more about the company and its operation though
it is only the mathematical calculation dividing one number by another number but cautioned for taking
into other related considerations to get the real picture of the concern, otherwise the inferences may be
misleading. GM-Marketing, Bajaj Auto Ltd, Milind Bade (2011) has mentioned that Bajaj Auto Limited is
currently trying to move the industry from a commuter to a biker mindset and at present the focus of
the company is on keeping the sub brands and the mother brand different and the main motive behind
establishing individual brand is to create differentiation which would help Bajaj auto, as an organization
to develop relationship easily with its customers.

Pawan Chhabra (2011) has quoted that the dominant position of Bajaj auto limited can be seen
through the sales of premium segment where in every second bike sold is pulsar., one major reason for
this was the company’s ability to constantly focus on R&D with regular alterations to make the
motorbike look fresh at all times as a result and as a result of this today Bajaj has almost more than fifty
percent market in the premium segment (for FY 2010-2011) which is followed by Honda Motorcycle &
scooter India with a nineteen percent market share.

Bhunia, Mukhuti & Roy (2011) have discussed about “Financial Performance Analysis-A Case Study”.
The main aim of study was to identify the financial strengths and weaknesses by covering two public
sector drug & pharmaceutical enterprises listed on BSE. For study purpose, they have been selected
twelve years from 1997- 98 to 2008-09. They analysed the data by using ratios, and statistical tools like
A.M., 29 S.D., C.V., linear multiple regression analysis and test of hypothesis t-test. They used SWOT
analysis to overcome the weakness and grab the opportunities available in public sector drug &
pharmaceutical enterprises in consideration of strengths and threats. They concluded that growth
during last decade was noteworthy and market trend was growing at a faster rate. They suggested that
the opportunities can be grabbed through the diversification of export basket in untouched foreign
destinations. They also revealed that strict quality standards, services and use of latest technology can
provide an edge over competitors across the globe

Amrit Raj (2012) has reported that Hero Moto Corp Ltd is a focusing on technology revamp by having
tie ups with US based EBR racing and with Austria based engine maker AVL these moves are with an
ultimate aim to extend arm in R&D as the company has decided not to run the existing brands on Honda
engines. According to Arvind Saxena (2010), no company in automobile sector can fight competition on
price. Companies need to have the right product, distribution, CRM and after sales service network to
grow.

Mahantesh Sabarad (2012) has argued in context to Hero moto corps move to replace all Honda
products and not brand names, that Indian consumers tend to be quick in noticing any difference
between the current and past variants of motorcycles they buy and any product shortcoming would be
at the Hero moto-corps disadvantage. The researcher agrees the same.