CHAPTER-2

REVIEW OF LITERATURE AND

RESEARCH DESIGH

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2.1. REVIEW OF LITERATURE

For knowing the background of any topic must gone throw reviews about the related
topic. It helps in understanding about the tools and techniques which has already been applied
by previous researchers and provide a base of how to tackle the difficult problems, and which
type of methodology has been adopted for solving the current issue, after the application of
such of methodology author got the authentic and reliable findings so, on the basis conclusion
can be drawn and important suggestions can be find.

The main work of review of literature is to identify the RESEARCH GAP. The
researcher obviously cannot solve the whole problem he/she basically trying to solve only a
part of the problem. After the conclusion the author provide scope for further research that’s
become the research gap and, on that basis, further research can be conduct. In my sense
“Research without review is quite meaningless”. It is the back bone of the research.
Therefore, review of literature is very important part of the research.

A, Ashvin R Dave (2018)1 Under the study five IT (information Technologies)

companies are taken on the basis of market capitalization, the study shows that there is
the impressive financial performance of IT sector excepting the Tech Mahindra
Limited. The author suggests that the future study may be conducted with large set of
parameters. A comparative study may be conduct between develop and under develop
countries. Cross industry and across country study may be conducted.

Ahsan (2016)2 In the course of the research, the financial performance of three chosen
Islamic banks was assessed using the camel method and also examined over a period
of eight years, or from 2007 to 2014. The study's foundation was secondary data
gathered from the reputable, hand-picked institutions' financial statements. The data
were analyzed using a Camel model. The financial performance of all the chosen banks,
as determined by the Camel rating, was found to be solid in every way, including capital
sufficiency, asset quality, management quality, earning potential, and liquidity
situation.

Ajayi E. Olusuyi Araoye E. Felix (2017)3 for obtaining the result of capital structure
on financial performance of Nigerian manufacturing firms the researcher used
secondary data and applied penal data for knowing the relationship between the
variables. the author suggest that the management should be carefully manage its

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financial activities, use retained earnings and using of debt as a last option of finance,
find the weaknesses of the firm before any unforeseen, and a best debt equity mix
should be use.

Ajmal (2016)4 In his thesis, he assessed the financial success of the Cement
Corporation Limited during a ten-year span, from 2005 to 2015, for the research. The
dependent variables were return on capital employed, current ratio, gross profit ratio,
debt equity ratio, and total asset turnover ratio. The researcher used ratio analysis for
knowing the financial performance to determine the influence of an independent
variable on a dependent variable, the researcher employed regression analysis and
paired t-tests. A one-sample t-test was performed to compare the company's financial
performance to the industry average. It was discovered that the company's financial
performance was not sufficient.

Al Shahrani Saad M, Tu Zhengge (2016)5 The author develops a model for analyzing
the impact of organizational factors on the financial performance. The liquidity,
leverage, assets utilization, firm size, market share position are the independent
variables which will make organization factors and return on assets and return on equity
are the dependent variables which are the financial performance indicators. The result
explains that there is a positive linkage between firm size and financial performance,
large company have more power than small ones, managers should make appropriate
decision and consider employees as a critical asset. The further research may be
qualitative in nature.

Ally (2013)6 has examined the financial results of Tanzania's commercial banking
industry during a seven-year period, from 2006 to 2012. In accordance with the
availability of the data used for the study's time frame, a sample of 28 commercial banks
was selected. Financial ratios were used to assess the banks' liquidity and profitability,
and analysis of variance (ANOVA) was used to determine if there was a significant
difference between the profitability levels of the peer banks group. Overall financial
performance improved during the course of the first two years of the study, and there
were no appreciable differences in the profitability of peer banks' groups in relations of
return on assets. However, there were considerable variations amongst bank groupings
in terms of return on equity and net interest margin.

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Ansari and Rehman (2017)7 have made an effort to contrast the financial success of
conventional and Islamic banks. The research was conducted between 2006 and 2009,
a span of four years. Researchers utilized 18 financial parameters to assess the
profitability, liquidity, risk, solvency, capital sufficiency, deployment, and operational
effectiveness of both banks. The researchers also employed an independent sample t-
test and an ANOVA to assess the implication of mean differences in these chosen ratios
across and among banks. The study came to the conclusion that Islamic banks were
more operationally effective, more liquid, and less risky than conventional banks.

Azhagaiah and Gejalaksh (2013)8 investigated the financial performance of the Indian
banking industry and classified the banks according to their financial features in
empirical research titled "Financial performance of Private sector banks in India; An
empirical analysis." The research, which spanned five years from 2008 to 2012, was
conducted. For the study, a sample of 36 banks—17 from1the private sector and 19
from the public sector—was used. Regression analysis was used to examine how asset
management, operational effectiveness, and bank size affected the financial
performance of certain banks. Asset utilization, operational effectiveness, and interest
income were shown to have a favorable impact on private sector banks, whereas asset
management, return on assets, operational effectiveness, and interest income had a large
and beneficial impact on public sector banks. In addition, public sector banks
outperformed private sector banks by a wide margin. The outcome of the regression
analysis demonstrated that operational effectiveness, asset management, and interest
income volume had a significant and beneficial impact on the financial performance of
the banking sector.

Basman Al Dalayeen Faculty (2016)9 Examine the financial performance with the
help of multiple regression, it is used to analyze the influence of financial ratios on the
financial performance of selected companies. The data is collected from secondary
source like published articles, journals, newspapers, internet etc., but the reliability of
the data is depended upon the accuracy of the data. More accurate data gives a clear
picture of the company’s financial performance which helps to internal and external
users of financial information. The conclusion of the research is the financial ratio has
a significant impact on the financial performance of the selected companies.

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Baur, D. G., & Todorova, N. (2018)10 This study helps in understanding about the
sensitivity of fuel price which is compare with the electric vehicle and combustion
engine vehicle. After comparison the author found that there is a negative relationship
between fuel price sensitivity and combustion engine vehicle but on the other hand the
Tesla is the only one company which produce the electric vehicle and show the positive
fuel price sensitivity by replacing the fuel engine with electric engines and manufacture
the electric vehicles.

Bayaraa Batchimeg (2017)11 In the research Return on sales, return on equity and
return on Assets these three types of ratios are used as dependent variable for
determining the relationship between financial performance and variables are negative
or positive and the study help in how to improve the financial performance of particular
sector. So, the empirical study is conducted by the author and use the fixed and random
effect whichever is appropriate for the study. The author concludes that the capital
structure, cost structure and profitability are the determinants of financial performance
of Mongolian companies. The research has the various limitations, such as used only 4
years financial data, joint stock companies are taken for studies, not considering the
external factors of financial performance.

Bekel, K., & Pauliuk, S. (2019)12 This study shows the transparent comparison of
battery electric vehicles and fuel cell electric vehicles with regard of the impact on the
environment and identify the cost over their whole life cycle. Or we can say that this
study trying to know and provide the information about influence on the environment
of both the fuel cell electric vehicle and battery cell electric vehicle.

Brigham and Gapenski (1997)13 Financial misery can take several forms, including
economic failure, firm failure, technical insolvency, insolvency in bankruptcy, and
legal hardship. Financial difficulties occur before a bankruptcy petition is filed. A
situation or circumstance in which a corporation collapses or is no longer able to pay
the debtor's commitments owing to a lack of funds is known as bankruptcy.

Chauhan (2014)14 A Study on Fundamental Analysis of the Indian Automobile

Industry from 2009 to 2013, he discussed Tata Motors and Suzuki is two examples of
such firms. The study of the industry was based on GDP and industry analysis is two
types of economic analysis.

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Chavali & Karthika (2012)15 In India, research was undertaken on the use of Z score
analysis in appraising the steel industry. The goal of this article is to conduct an
empirical analysis to determine the financial health of India's steel sector. Twenty big
and medium steel units, as specified, are used for this purpose. The study focused on
the years 2001-2010 as a sampling period. Altman's Z-score model, which has been
widely utilized by practitioners and scholars in the past, was used to monitor and
measure the financial performance of the Steel sector. This research looks at business
ratios, interest coverage ratios, total asset turnover, inventory or stock turnover ratios,
debtors’ turnover ratios, creditor turnover ratios, gross profit margins, net profit
margins, operating ratios, return on investment, and earnings per share.

Chuan Zhang, Fei Pan (2009)16 Use of descriptive statistics and 2 years financial data
from 78 state owned enterprises for knowing the impact of customer satisfaction on
profitability. The consequences of the study shows that the non-financial measures
customer satisfaction is significantly relate with current and future financial
performance. and the enterprise with high level of customer satisfaction will earn high
profit.

Claudio Zanotti, Fabiola Reyes, Brian Fernandez (2018)17 Investigate that the
operative and financial performance of firm with the competitive environment
surrounding the steeping European industry. 214 brewing companies distributed
among 12 European economies. Appling equations modeling for the desired
consequences. The result shows that competitiveness display significant relationship
with the financial performance of the firm, but the operative structure of the firm not
has the substantial relationship with the financial performance. The limitation is
segmented with the European brewing industry.

D. Guruswamy (2012)18 SBI and Its Associates' Profitability Performance was

investigated. The study is based on secondary data, and it employs statistical methods
such as mean, standard deviation, variance, CAGR, and ANOVA. In comparison to
SBI, associate banks scored better in terms of making profit in proportion to working
capital, according to the report.

Devi and Sabarinathan (2015)19 analyzed the production and sales in order to assess
the financial viability over the short and long term and to determine the variables that

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affected the profitability status of the chosen cement firms in Tamil Nadu. The study's
time frame covers the years 2004 through 2014. The financial strength and weaknesses
of an organization have been identified using a variety of analytical approaches. Several
regressions Only the variables Fixed asset ratio and interest coverage ratio were
determined to be statistically significant out of the nine variables investigated,
according to analysis in the research. Finally, researchers came to the conclusion that
there is no correlation between the financial parameters of certain cement businesses
and return on total assets.

Dewi Kartika (2018)20 for determine the effect of sale growth, current ratio and return
on assets on financial distress the logistic regression method was used for knowing the
association between dependent and independent variable applied with the nominal and
ordinal data. The outcomes show that logistic regression match test was significant and
logistic regression was able to know the financial distress of manufacturing companies.
The suggestion of the author was can add more independent variable and uses more
statistical data which will be helpful for prediction of financial distress.

Dhanabhakyam and Kavitha (2012)21 investigated the financial performance of a

selection of Indian public sector banks. For the research, a sample of six public sector
banks—Bank of India, India Bank, Indian Overseas Bank, Canara Bank, Union Bank
of India, and State Bank of India—was chosen. The investigation spanned ten years,
from 2001 to 2010. The research employed ratio analysis, correlation analysis, and
regression analysis as analytical tools. The study's findings demonstrated that the
chosen public sector banks had excelled in relations of growth rate and financial
competence, and that they should not only growth in their earnings but also generate
surplus from their banking activities because the Indian Banking System faces
numerous trials. As a result, the banks must refocus their strategies in light of their own
advantages and the type of market they are most likely to serve.

Dong (2010)22 has examined the company's working capital management-based

profitability and liquidity. The research was conducted from 2006 to 2008 during a
three-year span. For the study's analysis of the performance of the firms listed on the
Vietnam stock market, pooled data has been used. Profitability, conversion cycle, and
related factors are used as research variables along with their relationships. The

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researcher comes to the conclusion that there are very significant negative correlations
between the chosen variables.

Dr. D. Padma & Mr. K. Prabhakaran (2019)23 under the study data is collected from
the secondary source and electronic data base PROWESS and the sample consist of 58
Indian food product companies since 1991 to 2016, uses the financial performance
ratios in the study and found that the companies have the ability to pay the debts, the
growth rate was observed maximum in operating leverage ratio i.e., 1.39% and
minimum growth rate in fixed assets turnover ratio i.e., 0.12%. And 9 ratio growth rates
were found to have negative and highest return on capital employed ratio i.e., -3.27%
in the Indian food product industry during the study period.

Elangkumaran & Karthika (2013)24 A study of selected listed food, beverage, and
tobacco firms on the Colombo Stock Exchange in Sri Lanka was conducted to assess
liquidity, profitability, and risk. According to the research, there is a favorable
relationship between liquidity and profitability. The influence of liquidity on
profitability is important.

Eleonora Bartoloni Maurizio Baussola (2014)25 The analyst provides a

methodological investigation of credit risk in manufacturing firm through Appling two
different scoring approaches, The traditional discriminant approach for bankruptcy
prediction based on logistical regression model and the second one is Data Envelopment
Analyses for measuring firm efficiency. the analysis present in the study represent a
fundamental background for investigating the aforesaid relationship between financial
worth and investment of the firm’s performance, in particular, with respect to
investment and innovation decisions.

Endri Endril, Desi Susanti, Lamminar Hutabarat , Torang P. Simanjuntak, Susi

Handayani (2020)26 knowing the financial performance of pharmaceutical companies
which are listed in (IDX) INDONESIAN STOCK EXCHANGE. The use of liquidity
ratio, activity ratio, solvency ratio, profitability ratio and Du point Analysis are used for
the financial performance. Purposive sampling and secondary data are used for the data
collection of 9 companies for the last 4 years. The company who has the high ratio value
they can maintain and continuously improve the financial performance of the
companies.

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Etemadi, H., Zalghy, H. (2013)27 revealed that using the Beneish model with Audit
Standard No. 99 considerably aided in fraud identification and prevention in Nigeria
and benefited auditors. Additionally, this strategy may be utilized successfully to stop
the spread of fraud across businesses and organizations in Nigeria.

Gallizo and Salvador (2003)28 In order to comprehend the behavior and adjustment
process of the same, financial ratios were used to study on U.S. manufacturing
enterprises during an eight-year period between 1993 and 2000. A healthy ratio of sales
to assets indicates that the latter are well-managed and put to good use in the process of
generating sales. Profit maximization is the primary goal of the business, and
profitability ratios are useful in assessing the organization's overall effectiveness.

Goswami and Sarkar (2011)29 investigated the theoretical side of the trade-off
between liquidity and profitability and evaluated the liquidity and profitability status of
several airline firms, including Jet Airways, Air India, Indian Airlines, and Kingfisher.
The investigation spanned six years, from 2000-01 to 2005-06 The essay is divided into
two sections, philosophical viewpoints and case study, and researchers also make an
effort to quantify the relationship between profitability and liquidity. The study's
foundation was secondary data gathered from public annual reports of several carefully
chosen firms. To determine the significance of the study's findings, the student "t" test
was used to examine the data utilizing correlation. However, it was determined that,
with the exception of Kingfisher Airlines, there was a negative association between
return on capital employed and current ratio for all of the chosen enterprises.

GOWSALYA R S, MOHAMMED HASAN M (2017)30 In his study the comparison

of current financial performance with the last 5 years, identifying the estimating sales
and knowing the positive and negative points of business. The author collects the data
through secondary source and develops a trend analysis model for sales, working capital
and profit & loss account. After the analysis he suggest that the company can invest
more in current assets in working capital, can improve the net profit by reducing the
financial charges, increase the current assets for improve the short-term financial
position and reduce the cost of goods sold. The author conclude that the financial
performance helps the shareholder and creditors to take necessary decisions and help in
the development and growth of employees.

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Gupta (2014)31 was to evaluate and analyze ICICI Bank's financial performance across
a five-year period from 2009–10 to 2013–14. Liquidity ratios, profitability ratios, and
activity ratios were the four main categories used to classify financial ratios. The study's
findings included poor liquidity situations, steady EPS growth indicative of the bank's
ability to produce more money, and a high debt-to-equity ratio indicative of risky levels
of financial leverage. The researcher advised the bank to follow the necessary steps for
maintain a fast ratio and current ratio that are consistent with industry standards. Since
ICICI Bank's non-performing assets (NPAs) were over %, it was directed that the bank
regulate its NPAs to avoid long-term effects on asset quality. It was also advised that
effective control over leverage be implemented to increase DP ratio and limit ICICI
Bank's spread.

Gupta (2015)32 evaluates "Financial Performance of Telecommunication with Special

Reference to BSNL." From 2004 to 2008, a five-year span is covered by the research.
Trend analysis, comparative balance sheets, liquidity and profitability ratios were used
for the study. From the analysis of the different financial ratios of BSNL, the researcher
found that the firm pursues an aggressive strategy of managing liquidity and that it has
enough liquid assets to cover its short-term commitments. After revising the five-year
balance sheet of BSNL, it was also discovered that BSNL was experiencing the capital
issue as a result of financial difficulties. Due to maintaining strong liquidity, the
company's earnings were declining yearly.

Hardman, S., Chandan, A., Tal, G., & Turrentine, T. (2017)33 Purchases of electric
vehicles can be understood with the help of related review of literature. After reviewing
it has been observed that the sales of electric vehicles can be increase by providing a
complete and full information to the customers provide discount on electric vehicles.
Provide more knowledge to the customer about ecofriendly environment and Zero
carbon emission vehicles.

Hassan Alaaraj, Ahmed Bakri (2019)34 To know the effect and relationship of lean
manufacturing on the financial performance of south Lebanon firm. For the fulfillment
of the objective the author used questioner and distribute 152 questioners randomly
among the managers, used descriptive statistic and testing of proposed hypothesis with
co-relation and regression, used random probability sampling, apply crown batch’s
alpha for reliability and validity, co-relation, regression, analysis of co-variance and

10
chi-square for identifying the desired results. The outcomes show that the lean
manufacturing has a positive effect on financial performance. after the reliable
outcomes the author suggest that use of just in time tools in production, and various
other improvement programs like quality control system which gives a positive and
significant in the financial performance of the manufacturing firms in Lebanon.

Hetalgaglani & Smita Rao (2015)35 Sun Pharmaceutical Industry Ltd.’s liquidity,
profitability,and financial health were investigated. Using Altman's Z-score test, the
study looked at the company's liquidity, profitability, trade-off between liquidity,
profitability, and risk, and financial health. It found that there is a modest correlation
between liquidity and risk, as well as profitability and risk, and that the company is in
a healthy zone.

Ibrahim (2015)36 compared the financial performance of two conventional and Islamic
banks with headquarters in the UAE during a five-year period, from 2002 to 2006. As
trustworthy indications of a bank's success, researchers utilize a variety of measures
with an emphasis on the liquidity, profitability, managerial ability, capital structure, and
share performances of banks. The study's findings displayed that both banks fared
rationally well during the study period, with Dubai Islamic Bank performing better in
terms of share indicator performance and general stability. Bank Sharjah benefited from
having a higher overall level of liquidity, profitability, management capacity, and
capital structure.

Islam (2017)37 sought to gauge Nationalized Bank Limited's financial performance.

The researcher studied two time periods—2008–2010 and 2011–2013—to see if there
was a relationship among a bank's years in business and its performance. The researcher
employed financial ratio analysis to assess the National Bank Limited's financial
performance in terms of profitability, liquidity, and credit performance. Additionally, a
student "t" test was performed to evaluate the hypothesis. It was discovered that overall
profitability, liquidity, and credit performance all increased from 2008 to 2011 but then
started to fall in 2012 and 2013. Additionally, throughout that time, Bank grew the
amount of their portfolio.

Jain.P & Mehta.M. (2013)38 For the period 2009 to 2013, we investigated the
profitability of selected five automobile companies, namely Tata Motors, Maruti
Suzuki, Ashok Leyland, Hero 61 Moto Corp, Mahindra and Mahindra, using

11
profitability ratios such as gross profit ratio, net profit ratio, operating profit ratio, return
on capital employed ratio, and return on net worth ratio. They discovered the average
position of organizations using the mean, standard deviation, and coefficient of
variation.

Jothi and Kalaiyani (2015)39 The liquidity, profitability, and solvency ratios of the
Honda and Toyota automobile businesses were contrasted and examined. The study's
methodology was convenience sampling. The study covered the five-year period from
2010 to12014, and the primary data were gathered from the annual reports of both
companies. Various financial ratios were estimated using statistical tools like mean,
standard deviation, and co-efficient of variation to determine the performance and
profitability of the automobile industries. The study's findings showed both Honda and
Toyota seemed to have excellent financial management practices, and it was discovered
that Honda Company had a high earning potential from a profitability standpoint.

K.R. Sivabagyam, Harshitha.B, Gowthami. D, Jayakrithika.R, Nivethitha. G

(2019)40 After analysis of financial performance Tata Steel perform well in gross profit
and Net profit, but the author suggest that the VISA steel adopt some strategies for
increasing its short the solvency, SAIL has to improve its Quick Ratio, JINDAL should
improve the sales, FACOR has to improve the Profitability, and the other companies
are performed well. The author collects financial data from secondary source and uses
mean standard deviation, co-variance and Analysis of co-variance for achieving the
objectives.

Khan (2017)41 NTPC's financial performance was assessed during a ten-year period,
from 2006–07 to 2015–16. The study's primary source of secondary data came from
financial statements and different public reports. Profitability was employed as an
independent variable, whereas liquidity, solvency, and management effectiveness were
used as dependent factors. To assess the influence of dependent factors on dependent
variables, multiple regression techniques were utilized. It was revealed that the current
ratio and inventory turnover ratio had no discernible effect on profitability.
Additionally, NTPC's profitability was significantly impacted by the debt-to-equity
ratio.

Khan and Saifuddin (2016)42 looked into the profitability and liquidity performance
study of several telecom firms. For the research, a sample of two businesses, Bharti

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Airtel and Vodafone India, was used. Secondary data was gathered over a five-year
period, from 2010–11 to 2015–16, from the annual reports of the chosen firms. The
study's primary goal was to examine the profitability and liquidity results of certain
firms. Financial ratios were used as a tool for analysis, and it was discovered that
Vodafone's current ratio was superior to Bharti Airtel's, indicating that the latter
performed better in terms of liquidity. On the other hand, the profitability ratios
revealed that Vodafone's ROA was higher than Bharti Airtel's, indicating higher profit,
and that Vodafone also performed significantly better in terms of ROE.

Kroes and Manikas (2014)43 carried out research on "Cash flow Management and
Manufacturing company Financial Performance: A Longitudinal Perspective." They
examined a longitudinal sample of eight quarters' worth of cash flow and financial
performance data from 1,233 manufacturing enterprises using the Generalized
Estimating Equation (GEE) approach. However, variations in the less used operational
cash cycle (OCC) measure were shown to be strongly linked with changes in Tobin's
q. The researchers observed that changes in the commonly used cash conversation cycle
(CCC) indicator do not connect to changes in businesses performance.

Kumar and Bhatia (2014)44 evaluate the financial success of two significant Indian-
born automakers, Tata Motors and Maruti Suzuki, after the deregulation programmed.
Different methods and methodologies were utilized to analyses profitability, liquidity,
leverage, and turnover ratios of both the units in the research, which spanned a period
of 21 years from 1992 to 2013. The „t “test was also employed to evaluate the
hypothesis. It was determined that while there were not many differences between the
companies' short-term solvency, liquidity, and profitability, both firms' long-term
solvency was different because their respective debt-to-equity ratios and equity ratios
had significant t values. This indicated that both companies' capability to meet their
long-term responsibilities and long-term solvency was different.

Lawrence Imeokparia & Sanusi Adebisi (2014)45 Determining the level of adoption
and implementation of target costing by manufacturing industry and determine the
impact of target costing on the entire performance of manufacturing industries. For the
fulfillment of the objectives the survey method was used and using structured
questioner. Ordinal least square, T-test and crown Bach Alpha (0.88 was obtained)
were also used. Result of the study shows that the level of acceptance and target costing

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by manufacturing industry in south west Nigeria was low and shows the positive
relationship between adoption in target market, improving in return on investment and
reduction of cost.

M. Thyigarajan & Mr. J. Uday Kumar (2015)46 Profitability study of chosen

aluminum firms in India was researched. Mean, standard deviation, co-efficient of
variation, and compound annual growth are among the instruments used in the
evaluation. The results of the study show that the factors chosen performed
satisfactorily in terms of profitability, with a high 62 degree. Inventory turnover and
average collection time, as well as debtor turnover and average collection period, were
used as dependent variables, whereas liquidity was used as an independent variable.
The impact of average changes in net trade credit and stick in relation to liquidity has
also been calculated.

Maha ALOmar, and Prof. Saleh K. Al-Okdeh (2020)47 Using descriptive analytical
approach and select 56 listed in Amman stock exchange companies, apply multiple
regression model for testing of hypothesis. The result show that there is an result of
weighted average cost of capital on the financial performance of public share holding
company. The recommendations are choosing the right mix of capital structure for the
growth and development of the firm. Increase government financial support for the
growth of the firms.

Maisuria and Allad (2016)48 did a comparison study titled "Profitability Analysis of
Selected IT Companies." Five IT businesses, TCS, Infosys, Wipro, Tech Mahindra, and
Oracle Financial Services, were chosen as a sample based on their annual revenue for
the research, which ran from April 2011 to March 2015. The research employed non-
probability sampling techniques. Ratio analysis and one-way ANOVA were employed
to examine the financial statements of a few Indian IT businesses. According to the
study, Oracle Financial Services' financial performance among the chosen firms was
quite excellent in relations of net profit ratio and EPS, but their net worth ratio and
return on invested capital were not very strong. when comparing the net worth,
earnings, and return on investment of certain firms. TCS outperformed the competition,
Tech Mahindra performed the worst, Infosys pays the highest EPS, and WIPRO pays
the lowest EPS.

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Majumder and Rahman (2011)49 shown in his research that the financial reliability
of pharmaceutical firms in Bangladesh is not outstanding and exhibiting lower-level
position of bankruptcy due to companies' senior management level's inefficiency, lack
of realistic objectives, severe government rules, rising cost of raw materials and
overheads, etc.

Malik (2011)50 examined the Pakistani insurance industry's financial performance.

Profitability was employed as a dependent variable by the researcher, whereas size, age,
capital volume, and leverage were used as independent variables. The performance of
the sector has been examined using multiple regression analysis. The study's findings
showed that although size and volume of capital had a clear link with age, there was no
such association for profitability.

Markus Hyvonen & Sean Langcake, March, (2012)51 Write an article for Steel
Industry Bulletin, Quarter, titled "Indian Steel Industry," indicating that Indian steel
output has increased dramatically in recent decades, and India is currently the world's
fourth largest steel producer. Nonetheless, India's steel consumption is quite low by
worldwide standards when compared to the size of its economy. Steel consumption is
projected to grow as the economy improves. Indeed, 60 Indian steelmakers have plans
to significantly boost production in order to meet the expected rise in demand. While
India has significant iron ore deposits, the majority of the coking coal it requires is
imported.

Mehta and Bhavani (2017)52 have used forensic technologies to discovered scam in the
financial records of the Japanese company Toshiba Corporation from 2008 to 2014.
The Beneish Model, the Altman Z-score model, and Benford's Law outcomes were
compared in this research. They come to the conclusion that although each of the three
methods is effective for identifying warning signs of fraud, none of them can precisely
pinpoint where the fraud is taking place.

Mohideen and Parveen (2015)53 Attempts were made to use a multiple regression
technique to assess the gross profit margin at selected pharmaceutical businesses. The
dependent variable for the study was gross profit margin, whereas the independent
variables were inventorying turnover ratio (ITR), debtor turnover ratio (DTR), creditors
velocity (CRSV), and total assets turnover ratio (TATR). a sampling of the top five
pharmaceutical businesses according to polls from 2013–2014. 10 years, or from 2004

15
to 2013, were covered by the research. Multiple regression modelling was used as a
method in the research to discover the influence of independent factors on the
dependent variable, the gross profit margin. It was discovered that just two of the five
chosen firms performed above average, while the other three did below average.

Mohsin Ali (2020)54 Studied about the influence of all three types of leverages on the
financial performance of food and fertilizers sector of Pakistan. For knowing the result,
the 9 years data were collected from the secondary source of 20 listed companies in
Pakistan Stock Exchange. The coefficient of correlation was used to know the
association among the variables and 3 different types of models were also used (Return
on assets, Tobin’s Q, and Economic Value Added). Result shows that the return On
Assets was significantly impact but inversely influence by the Degree of Leverage,
Degree of financial and operating leverage has insignificant impact on the financial
performance of the firm, Tobin’s Q show the insignificant impact between operating,
financial, and combined leverage and financial performance. but the study has some
drawbacks such as limited time period, small sample size and may use various other
techniques which will provide more accurate results.

Momodou Sailou Jallow, Massirah Masazing, Abdul Basit (2017)55 The merger and
acquisition use as an independent variable and the return on Assets, return on equity,
earning per share, net profit margin as dependent variables. The author selects 40
companies listed in LONDON STOCK EXCHANGE (LSE). The comparison is made
between 5 years pre and 5 years post-merger financial ratios. Descriptive statistics and
paired sample T-test were also used. The result show that there is a significant impact
between merger & acquisition and return on assets, return on equity, earning per share
but not influence the net profit margin. In further research the use of other financial
ratios, large sample size that will provides more cleared picture.

Muhammad Ahmed and Zahid Ahmed (2014)56 For knowing the effect of merger
and acquisition on the financial performance of manufacturing companies the author
collect the 12 merged company data from secondary source and applied T-test on
accounting ratios with the help of SPSS. 3 years before and after merger data were used
for testing the implication of the study. The study reveals that the financial performance
of companies is significantly improved after merger and acquisition. But the research
has the certain limitations: - use of only merger and acquisition firms as a corporate

16
expansion strategy, may use other strategy likewise retrenchment and re-organizing,
low rate of merger and acquisition.

Muhammadi and Malek (2012)57 In order to determine the link between different data
on the balance sheet and income statement, financial ratios were measured and
reviewed for the study's analysis of an investment company's financial performance
during a three-year period from 2009 to 2011. According to the study's results, the
company's operations were subpar in 2011 and its total financial performance—
including profitability, liquidity, and credit quality—declined as a result of the
company's operational environment being worse. The research focuses in particular on
how accounting data helps budgetary decision-makers assess the financial performance
of the organization, calculate its future obligations, and make wiser investment choices.

Mulchandani.et.al, (2016)58 In this essay, we sought to look into the financial standing
of twelve banks that were part of the bank nifty index. The study's foundation was
secondary data collected over a five-year period, from 2009–10 to 2013–14. The data
were analyzed using ratio analysis and the mean, and the study's findings showed that,
according to a comprehensive ranking, HDFC Bank ranks first, followed by Yes Bank
and Industrial Bank, which together make up the first quartile of banks. State Bank of
India ranks 12th, followed by Bank of India, which comes in at number 11, and Punjab
National Bank, which comes in at number 10, which makes up the bottom quartile of
the group.

Munaza Kanwal, Farida Khanam, Shagufta Nasreen, Shahid Hameed (2013)59

Analyzing the impact of CSR (Corporate Social Responsibility) on financial
performance of the firm. The co-relation is used in the collected date from secondary
source for knowing the cause-and-effect relationship between CSR and impact on
financial performance and s find the relationship also, the outcomes of the study shows
that there is optimistic relationship between CSR and financial performance of the firm.
Last but not least the author suggests CSR is an investment not the expenditure of the
firm.

Muntari Mahama, (2015)60 apply Z- score for knowing the financial soundness of the
10 listed companies in Ganah Stock Exchange. The data is collected from the secondary
source and the 10 companies’ data, are collected. As per the study, the author found
that 6 companies are financially sound, 2 are in the financial distress and the remaining

17
2 are in the moderate zone. The companies which are in the distress and moderate zone
should take the necessary steps for the financial soundness and make an effective
financial strategy.

Muthusamy & M. Muthu Meena (2015)61 Selected Private Airlines' Financial

Performance in India was investigated. Various financial ratios and statistical methods
such as mean, standard deviation, co-variance, ANOVA, simple correlation co-
efficient, and t-test were used to assess the study. According to the survey, Jet Airways
and Spice Jet have more profitability than other Indian private airline businesses.

N. C. Shilpa and M. Amulya (2017)62 The goal of the research is to analyses the
financial health of India's automobile sector, which includes makers of passenger cars,
commercial vehicles, motorcycles, mopeds/scooters, and three-wheelers. Over the last
ten years, the Altman z-score has been utilized to collect data. Commercial vehicle
manufacturers, according to the report, are in the grey zone, which is a time of financial
turmoil between the two extremes. As a result, the Z score can assist managers in
predicting company problems and avoiding bankruptcy.

Nirajini, A, Priya, K B (2013)63 in the research paper the author knows how the capital
structure affect the financial performance of the firm, so for the fulfillment of objective
the researcher has been selected the trading sector from the listed companies in
Columbia Stock Exchange (CSI), date collected from the annual reports of the
companies. After the amplification of various techniques, the researcher found that
there is a positive relationship between capital structure and financial performance and
suggest that each firm should make good capital structure decision to get profit and run
the business successfully.

Padachi (2006)64 To demonstrate the link between corporate profitability and working
capital management, 58 small manufacturing companies were studied. Financial ratios
are used to explain why higher investments in inventory and receivables are linked to
poorer profitability.

Pal, S, (2012)65 assessed the financial performance of Indian steel businesses in the
context of globalization. The study's area was to look at the financial performance of
Indian steel businesses and see whether there was a linear link between liquidity,
leverage, efficiency, and profitability. During the study, Indian steel firms were chosen

18
based on their market share in 2008-09 for a period of twenty years, from 1991-92 to
2010-2011. Steel Authority of India, Tata Steel Limited, JSW Steel Limited, Essar Steel
Limited, JSW Ispat and Steel Limited, Rashtriya Ispat Nigam Limited, Jindal Steel and
Power Limited, Bhushan Steel Limited, Llyods Steel Industries Limited, and National
Steel and Agro Industries Limited have the largest market share.

Pervez (2016)66 In his thesis, he examined the steel authority of India's poor financial
performance. The study's ten-year time frame was from 2005 to 2015. Current ratio,
debt to equity ratio, inventory turnover ratio, earnings per share, economic value added,
book value to book value ratio, and return on equity were all used by the researcher as
independent variables, while return on capital employed, return on asset, return on
equity, economic value added, and market value added were used as dependent
variables. To assess the influence of an independent variable on a dependent variable
and to compare the company's financial performance to the industry average, one
sample t-tests and multiple regression analysis were utilized.

Peters, A. & Dütschke, E. (2014)67 The consumers are characterized into 4 types of
groups, likelihood for purchase an electric vehicle with the regard of socio-
demographic character, willingness to pay and the perception of the customer for
electric vehicles. After the survey author found that men belong to the middle age group
have the high willingness to pay for electric vehicles. The main feature of electric
vehicle is, it is ecofriendly in nature due to this reason the electric vehicle has the great
advantage but on the basis of performance convention vehicle are better than the electric
vehicle in the last for the promotion of electric vehicle the electric vehicle should
provide the best advantage to the general public.

Pinches et al. (1973)68 used it for the first time to create an empirically based on the
classification of financial ratios. Since then, scholars have utilized this programmed for
a variety of research projects. Factor analysis is used in the research study to help shrink
a big amount of data into a digestible amount.

Ramaratnam and Jayaraman (2010)69 measured the financial performance of the

Indian steel sector over a five-year period, from 2005 to 2010, using financial
parameters in relations of liquidity, profitability, variability, and sustainability. Their
research shows that the severe condition the Indian steel sector is in is caused by
overcapacity and a downturn in demand, which has led to price reductions. Due to the

19
market's imbalance between supply and demand, the United States and several
European nations enacted anti-dumping penalties.

Regina M. Lizares Carlos C. Bautista, (2021)70 The financial distress of 263

businesses listed on the Philippine stock exchange was determined using the mixed
Logit model and industry related factors from 1995 to 2018. The data, as well as the
data set and explanatory variables, were acquired from the Thomson Return and World
Scope databases. Financial distress among firms assists financial institutions in funding
and policymaking, according to the study's findings.

Rehman, Khan and Khokhar (2014)71 makes an effort to assess the profitability of
Saudi Arabia's listed petrochemical firms for the five years between 2008 and 2009.
They chose six parameters: total assets turnover ratios (TATR), long-term loan to equity
ratios (LTDER), inventory turnover ratios (ITR), creditors velocity (CRSV), and debtor
turnover ratios (DTR) (NPM). NPM displays profitability as a dependent variable, with
the chosen ratios (CRSV, DTR, ITR, LTDER, TATR) chosen as the dependent
variables. Multiple regression analysis and Pearson's correlation were employed as
analytical tools. The study's conclusions showed a substantial correlation between the
four chosen measures and the net profit margin of Saudi petrochemical enterprises.

Repousis (2016)72 employed the Beneish model to spot fraud in Greek enterprises with
the intention of looking at the model's eight variables to spot fraud or accounting
manipulation. The findings demonstrated the 99% confidence level and dependability
of the M-Score Model's indicators for detecting fraud.

Riesz, J., Sotiriadis, C., Ambach, D., & Donovan, S. (2016)73 This study has tried to
made an attempt and find out the effective cost between the electric vehicles and
internal combustion engine vehicles. The study is future oriented and after a
comparative study between electric vehicle and internal combustion engine vehicle
author found that electric vehicle is more cost effective as compare to the internal
combustion engine vehicle.

Safarzadeh (2010)74 He came to the conclusion that his study pattern may identify
financial reporting fraud, and that this suggested model can be utilized by a variety of
user groups, including auditors, tax authorities, banking systems, etc.

20
Singhal PK (2020)75 They assessed the financial performance of the two main banks
operating in northern India. Mean and standard deviation were employed as statistical
tools to analyze the data, and CAMEL (capital adequacy, asset quality, management
competency, earning capacity, and liquidity) criteria were utilized to evaluate the
results. The research's findings indicate that the banks under consideration were in a
solid and favorable condition.

Sathya and Umarani (2015)76 carried out research on the financial performance of
spinning mills. The research examined the financial performance of the firms during a
five-year period, from 2010 to 2014. Five businesses were chosen as a sample for the
study: Lakshmi Mills, Bannari Amman, Spinning Mills, Sri Ramakrishna Spinning
Mill, Kpr Spinning Mills, and Super Spinning Mill. The study's foundation was
secondary data gathered from the organization's public webpages. Comparative ratio
analysis of the balance sheet was utilized by researchers as an analytical technique to
determine the company's financial performance. The study's findings showed that, with
the exception of Kpr spinning mills, all other companies' current ratios were too low,
while those for Lakmi Mills were high. Additionally, all companies' quick ratios fell
below the established norms, while their debt-to-equity ratios, interest coverage ratios,
and returns on assets all fluctuated over the study's time period (2009–10 to 2013–14).
The biggest profit was made by KPR Mill compared to other mills in the industry, and
operational profit fluctuated between positive and negative signs from 2009–10 to
2013–14. In addition, KPR Mill generated high profit compared to other enterprises in
the sector. Last but not least, during the research period, all of the organizations’ debtor
turnover ratios and inventory turnover ratios had varying trends.

Selvaraj & Rajangam (2013)77 By using ratio analysis to examine the overall
performance of seshasayee paper boards Limited, it was discovered that profitability
was good under the study period, the company's market is increasing, it was earning an
acceptable return on invested capital, and it has promising upcoming growth prospects.

Sharma, R., Manzie, C., Bessede, M., Brear, M. J., & Crawford, R. H. (2012)78 The
author trying to quantify the economic and green house performance convention hybrid,
commercial and fully electric conventional vehicles. By applying simulation model for
gathering the result of both fuel consumption and electric consumption, and the total

21
operating cost is calculated by decomposing the vehicle the production in their
continental state.

Sheela Christina (2017)79 conducted research on the Chennai-based Wheels India

Limited's financial performance. The study uses a secondary data gathering strategy to
tackle an analytical research design. Before beginning the study, the researcher
collected data from the previous five years for this purpose and verified its authenticity
and dependability. The researcher employed statistical methods including trend
analysis and correlation as well as the following financial tools: ratio analysis,
comparative balance sheet analysis, and DuPont analysis. According to profitability
measures, the certain number of profits, the use of fixed assets, and working capital
decreased in the most recent fiscal year. As a result, the business may take the required
actions to increase sales and profit. The investigation concludes by showing that the
financial performance is acceptable.

Song, Y., Yang, Y., & Hu, Z. (2011)80 The basic aim of this study is to know the
growth and development of electric vehicles by currently using three types of batteries
namely, lead acid battery, MI MH batter and lithium-ion battery. For identifying the
chemical properties of cell, the engineers are working and manufacturing a latest
technology and ecofriendly cell batter for the growth and development of electric
vehicles.

Sorana Vătavu (2015)81 For the fulfillment of the study the author uses return on
assets, return on equity, as dependent variable and total assets to total debt as
independent variable. One sector was chosen for clear picture of capital structure. The
result of the study was that the most profitable companies were those who have a good
capital mix (debt and equity mix), shareholder equity have a positive impact mean while
total debt and long-term debt have a negative relationship with return on assets and
return on equity. In future other variables may be identified for the better description.

Suba and Jogi (2015)82 investigated the differences between HDFC and ICICI, two
private sector banks. For the aim of profitability analysis, researchers used just two
CAMEL parameters: capital adequacy and earning from capital adequacy, asset quality,
management quality, earning quality, and liquidity. Additionally, the two private sector
banks' performance efficiency was evaluated using the "t" test. However, it was
discovered that the null hypothesis for Net Profit and Return on Assets was accepted,

22
indicating that there was no significant difference between the two selected banks. In
contrast, the null hypothesis for Capital Adequacy Ratio, Return on Net Worth, and
Return on Long-Term Fund was rejected, indicating that here was a substantial
difference between the two particular samples.

Sudana (2011; 249)83 Economic concerns, administrative failings, and natural

disasters, he believes, are the sources of financial suffering in his work. The company's
financial problems will be influenced by the collapse of its activities. The bulk of the
causes of financial problems, whether directly or indirectly, are the fault of
management, which happens all too often. The firm's bankruptcy was caused by a
combination of common circumstances, internal business challenges, and external
corporate concerns.

T. Venkatesan & S. K. Nagarajan (2012)84 Selected Steel Companies in India: An

Empirical Study of Profitability Analysis It has been noted that the Sail, Tata, Bhushan,
and JSW Company's total earning power is favorable. The financial status of Visa has
deteriorated throughout the research period.

T.G. Saji, (2018)85 assessing the potential financial distress and stock market failure of
Indian with the help of Z- score model, 10 years firm specific data is collected from the
secondary source. The result of the study is Z-score of reality firm have the sufficient
information that aware their stock market failure within 2 to 5 years in advance. This
provides a valuable guide for the investor in investment decision.

Tariq Zafar & Khalid (2012)86 A Comparative Evaluation of Financial Performance

and Market Value of Maruti and Tata Companies has been explored. They chose two
of the most chosen firms, Maruti Suzuki Ltd. and Tata Motors Ltd., for the purpose of
analysis, and for the time period 2006-2010. They attempted to study both companies'
qualitative and quantitative performance, as well as their risk and return factors, market
position, and collective impact on profitability, in order to identify the best and worst
performing companies using modern performance evaluating techniques, and then rank
them based on their attained performance. They determined from the ratio analysis that
there was a lack of validity in the data and calculations, which might lead to the
promoters distorting the presentation.

23
Tarjo and Nurul Herawati (2015)87 discovered that the M-score Beneish model,
together with data mining, has the capacity to identify fraud.

Thananusak, T., Rakthin, S., Tavewatanaphan, T., & Punnakitikashem, P.

(2017)88 Author under this study uses partial least square structure equation modeling
for testing the relationship of five variables (financial, infrastructure, performance,
environment and premium price).and also knowing the intention of Thai people for
buying of electric vehicles. The author found that most of the people are in the favor of
buying the electric vehicles on the basis of performance and other factors are
moderately affect but if the premium price of the electric vehicles will increase than the
people will not willing to buy the electric vehicles.

Thangam and Salini (2016)89 attempted a study tried to investigate the financial
position in terms of liquidity, profitability, solvency of the company The study was
based on bothprimary as well as on secondary data and covered a period of five years
i.e., from 2010-11to 2014-15. The data were analyzed by using comparative balance
sheet. It was concluded that the company was witnessed a lot of risks in the form of
competition, less profitability etc. Further, it was recommended that company should
look forward on modernization and diversification programmers and it should
concentrate more on chitty based business, accepting deposits, liberalize loans and
advances.

Timothy Lwiki, Patrick Boniface Ojera, Nebat Galo Mugenda, Virginia Kirigo
Wachira (2013)90 Questioner technique, crown batch alpha, multiple linear regression
analysis and sample t-test were used to identify the impact of profitability and financial
performance on improving the productivity efficiency. The study concludes that there
is a significant impact between the profitability, financial performance and efficiency
and productivity. The authors recommend that the firm should focus on strengths for
earning more profit and increase the productivity and efficiency with the help of
truthfulness and reliability of the financial data.

Titman and Wessels (1988)91 used the factor analytical approach in the capital
structure research to calculate the influence of unnoticed characteristics on the selection
of corporate debt ratios for the years 1974–1982.

Vijay H. Vyas (2015)92 studied the research of the financial health of the Indian oil and
gas industry was conducted utilizing various ratios, mean, standard deviation, and

24
Altman's Z-score technique to investigate the financial health of chosen oil and gas
enterprises. According to the findings, all of the sampled firms were capable throughout
the research period.

Wang, S., Wang, J., Li, J., Wang, J., & Liang, L. (2018)93 The electric vehicles are
ecofriendly in nature. The researcher used extended technology acceptance model for
knowing the customer intention towards the adoption of EVs (Electric Vehicles),
through survey on 320 customers in China the outcomes reflect that there is a negative
relationship or the customers are not so much aware about the Electric Vehicles.

Yeboah and Mensah (2014)94 examined the financial performance of banks over a
seven-year period, from 2006 to 2012, finding regions of poor and high performance.
The researchers created the PELARI model in their study, which was akin to the
CAMEL rating in terms of profitability, efficiency, liquidity, asset quality, risk
measurements, and investor analysis. For the years 2011 and 2012, the analytical
technique used was the study of financial ratios, and the Altman Z score was also
produced. Finally, it was determined from the analysis's findings that the bank's
liquidity exhibited a declining trend and further declined in 2010, supporting the Ghana
Banking Survey's (2011) judgement that the bank was illiquid. The ADB's emphasis on
agricultural lending was reduced in the year 2012. The bank was classified as being in
a crisis zone as a consequence of the Altman Z score.

Zamrad and Ilyas (2014)95 analyzed the financial performance of Pakistan's

commercial banks during a six-year period, from 2007 to 2012. For the research, a
sample of the top seven banks was chosen. Secondary data served as the study's
foundation. To evaluate the commercial banks' financial performance, many financial
ratios were utilized. Other financial measures, such as investment to total assets, ratio
of advances to assets, ratio of advances to total assets, and ratio of capital to deposits,
were used as an independent variable under the study. Return on equity, return on
assets, and return on fixed assets were used as dependent variables to measure financial
performance. The study's findings showed that banks with higher average assets—
including equity, advances, fixed deposits, and fixed assets—perform better.

25
2.2. Research Gap: -

According to the research mentioned above, the following gaps have been found:

• The majority of research on the financial performance analysis of the automobile

industry concentrated solely on a small number of carefully chosen factors. The other
factors that are more important and closely related to the effectiveness and performance
of certain automobile enterprises have seldom been discussed in the research.
• In most of the study the author took only few companies which mainly manufacturing
the light motor vehicle but under my study I am considering all those company which
are listed in both BSE (Bombay stock Exchange) and NSE (National Stock Exchange).
The companies which manufacture both light motor vehicle and heavy motor vehicle
are taken into consideration.
• It has been noted that although there was no explicit weighting assigned to the research,
many studies concentrated on the fundamental comparability of the firms, influence on
the economy, competitive environment, future expansion of the industry, and future
prospects of the sector.

focuses on detailed financial performance analysis including Beneish M-score analysis,

profitability analysis, financial structure analysis, and liquidity analysis.

In order to bridge this gap, the current research is being conducted to assess the financial
situation of the Indian Automobile industry, specific with respect to a chosen group of
automobile businesses, applying the M-Score model and ratios for liquidity, profitability,
solvency, and efficiency.

2.3. Importance of the Study

As we know that Indian is a developing country in Asia, in the developing face most
of the sectors are trying to operate in the country and want to survive for a long period of time
in the market. One of the most growing sectors in the economy is Automobile sector. To know
the effectiveness and efficiency of the organization there is a particular yardstick like financial
performance for knowing the financial efficiency and effectiveness.

The government looks to rise contribution of automobile sector to India's GDP to 12

per cent from the current 7.1per cent and produce employment generation to 50 million from
the present 37 million.

26
 Finance is the life blood of every business and it is the internal factor of business
organization. It means that it can be controlled by the business, and ever business want to know
its financial performance because for making a sound financial plans and policies which will
provide help to the internal management, investors, lenders, banks, customers, suppliers, and
government.

Financial performance of an organization helps in the assessment of strength,

weaknesses, opportunities and threats in future. It helps in forecasting the opportunities and
alert from the threats which will be face by the company in the future. But on the other hand,
operating efficiency of the firm results in optimum use of resources at minimum cost. financial
performance also provides a complete picture of finance, it may include the financial health of
a business.

Financial health can be judge with the help of various different model, one of the most
popular models is M-score.

2.4. STATEMENT OF THE PROBLEM: -

The global problem of pollution management has been a problem for the auto industry. The
industry's capacity to meet the steadily increasing demand and maintain a sustainable pattern
of improved functioning are the two biggest challenges it faces globally.

Economists, specialists, engineers, and policy makers worldwide are working extremely hard
to uncover the potential solutions and problems in the automobile industry since it is seen to
be essential for the development of the economy, society, and industry. The scenario is the
same in India as well. Exercises for identifying the problems and coming up with solutions are
considered seriously. Numerous research has previously been conducted by both professional
organizations and subject matter specialists. These investigations were effective at delving
deeply into the issues and coming up with answers.

Few investigations seem to have been made from a commercial point of view, despite that the
majority of research were technical in character. Such research may provide information on the
industry's financial, managerial, and commercial performance. At this stage of the reform
process, the research may provide important findings to those who formulate policy.

27
2.5. Objectives of the study: -

1) To examine the liquidity and profitability position of select automobile companies.

2) To analyze the efficiency and solvency position of select automobile companies.

3) To measure the financial health of automobile industry by using Beneish M-score

model.

4) To study the impact of liquidity, profitability, efficiency and solvency on Beinish M-

score Model of select automobile companies.

2.6. Hypothesis: -

H01: The variation arose that the impact of liquidity on the profitability of select automobile
companies are insignificant.

H02: The variation arose that the impact of efficiency on the profitability of select automobile
companies is not significant.

H03: There variation arose that the impact of Solvency on the profitability of select automobile
companies is significant.

H04: The variation arose that the impact of liquidity and Profitability on the Beinish M-
score of select automobile companies is insignificant.

H05: The variation arose that the impact of solvency and efficiency on the Beinish M-score
of select automobile companies is insignificant.

H06: The variation arose that the Impact of Days sales receivable index on M-score is
insignificant.

H07: The variation arose that the Impact of Gross Margin index on M-score is insignificant.

H08: The variation arose that the Impact of Assets Quality index on M-score is insignificant.

28
H09: The variation arose that the Impact of Sales growth index on M-score is insignificant.

H010: The variation arose that the Impact of Depreciation index on M-score is insignificant.

H011: The variation arose that the Impact of Sales, General and Administrative index on M-
score is insignificant.

H012: The variation arose that the Impact of Leverage index on M-score is insignificant.

H013: The variation arose that the Impact of Total Accrual to Total Assets index on M-score
is insignificant.

2.7. Scope of the study

➢ This study focused on the financial performance of automobile companies in India.
➢ The Data for this study will be obtained from the official secondary sources such as
prowess database and companies official web sites.
Every nation's economic development is reliant on its transportation infrastructure. As a result,
the rise of the Indian auto industry is also a key factor in the economy. Therefore, the current
analysis solely includes the Selected Automobile Companies. The information gathered is
based on the firms' annual financial reports during the ten-year period from 2011–12 to 2020–
21.

2.8. Limitations of the study

➢ The study mainly depends on the secondary source of information.
➢ The reliability of the result is depended on the reliability of the information.
➢ The study considers the companies which are listed in stock exchange of India.
➢ The study based on limited number of companies.
➢ The time and resources are constraint.

29
2.9. RESEARCH METHODOLOGY
The Automobile companies whose market Capitalization was more than 1000 crore and listed
in BSE and NSE dated as on 10 Feb 2022 are selected for the study. The research uses
secondary data and is empirical in nature. The research focuses on the auto industry. Data for
the research was taken from the Companies' annual reports. The Beneish M-Score model and
a Ratios were used for financial measures, including those measuring liquidity, profitability,
solvency, and efficiency, are used in the research to assess the financial performance of a
select automobiles Companies.

2.10. DATA COLLECTION: -

Secondary data alone are used in this investigation. Data for the research was taken from
books, journals, periodicals, websites, and annual financial reports of automobile companies.

2.11. PERIOD OF THE STUDY

The current analysis includes a ten-year period from 2011–12 to 2020–21. To examine the
corporation's financial health, 10 yearly financial reports have been collected.

2.12. TOOLS USED FOR ANALYSIS

The tools used for analyzing the financial performance of Select Automobile
Companies are discussed in detail below.

2.13. ACCOUNTING TOOLS USED FOR ANALYSIS

2.13.1 Beneis M-Score Model: -

Professor M. Daniel Beneish of the Kelley School of Business at Indiana University formed
the model. While he had been working on the model for years, Beneish's paper, "The
Detection of Earnings Manipulation" was published in 1999.
The Beneish model is a mathematical model that uses financial ratios and eight “variables to
identify whether a company has manipulated its earnings. The variables are constructed from
the data in the company's financial statements to create an M-Score that serves to describe
how much the earnings have been manipulated”
“The eight variables required for calculating the M-Score using the data from the company’s

30
income statement, balance sheet, and cash flows. Then, calculated the M-Score to know the
company’s degree of manipulation in earnings”.
The Beneish model's eight variables are:
1.DSRI: Days' sales in a receivable index.
2.GMI: Gross margin index.
3.AQI: Asset quality index.
4.SGI: Sales growth index.
5.DEPI: Depreciation index.
6.SGAI: Sales and General and Administrative expenses index.
7.LVGI: Leverage index.
8.TATA: Total Accruals to total assets.

1. 2.13.2 Financial Ratio Analysis:

Another approach for analyzing financial performance is ratio analysis, which involves
calculating several ratios, such as liquidity ratios, profitability ratios, solvency or leverage
ratios, efficiency of turnover ratios, and earnings ratios, to determine the financial health of an
organization.
Liquidity ratios, profitability ratios, solvency ratios, and efficiency ratios are the commonly
applied financial ratios that were chosen for the current research.

1. Liquidity Ratio: Liquidity is a company's ability to fulfil its short-term debt obligations,
and liquidity ratios assess a company's capacity to do so. The current ratio, quick ratio, and
cash ratio were chosen as the liquidity ratios for this research; they are also covered in more
depth below.

a. Current Ratio:
The current ratio demonstrates a company's ability to use its current assets to pay its financial
commitments. It may be computed using the formula shown below.

[Current Ratio = Current Assets / Current Liabilities]

b. Quick Ratio:
A liquidity ratio that shows the company's current available liquidity is the quick ratio,
sometimes called the acid test ratio. Marketable assets that are readily convertible into cash as

31
well as existing cash holdings are considered when calculating the quick ratio. As a
consequence, inventories are not included in the acid test ratio calculation. The quick ratio's
formula is shown below.

[Quick ratio = (Current Assets – Inventory) / Current Liabilities]

c. Cash Ratio: The cash or cash equivalent ratio compares a company's total current obligation
to its most liquid assets, such as cash and cash equivalents. As cash is the most liquid kind of
asset, this ratio shows how quickly and how much a company can pay off its debts using its
current assets. It may be calculated using the formula below.
[Cash ratio = Cash and Equivalent / Current liabilities]

2. Profitability Ratio: Forecasters and investors use profitability ratios for evaluate a
company's propensity to create income (profit) over time in amount to sales, operating
expenses, balance sheet assets, and shareholders' equity. The return on equity, gross profit,
and net profit ratios were chosen as the profitability measures for the current research. These
profitability ratios are explained in more depth below.

a. Return on Assets: -

The return on assets ratio (ROA), which compares a company's net profits to its total assets,
is a calculation. A company's profit after taxes per rupee of current assets is gauged by the
ROA ratio.

[Return on Assets = Net Profit / Total Assets]

b. Return on Equity (ROE): The return on equity ratio (ROE), also known as the rate of
return on equity investors' money invested in the firm, measures the ratio of net income to
stockholders' equity.

[Return on Equity = Profit after Tax /Net worth]

Where:

Net worth = Equity shares capital & reserve and surplus.

c. Gross Profit (GPR): This ratio may be used to determine a company's marginal profit. This
ratio is also used to compute the section revenue. A high ratio is desirable since it indicates that
the firm will have a higher profit margin.
[ Gross Profit Ratio = Gross Profit / Sales × 100]

32
 Where:

Gross Profit= Sales + Closing Stock – opening stock – Purchases – DirectExpenses.

d. Net Profit: This ratio accounts for all direct and indirect expenses to determine the overall
profitability of the business. A high ratio shows that the business is successful and making
money.

[ Net Profit Ratio = Net Profit / Sales × 100]

Where:

Net Profit = Gross Profit + Indirect Income – Indirect Expenses.

3. Solvency Ratio: Solvency ratios, sometimes called leverage ratios, are used for assess a
company's tendency to pay down its debt. As a consequence, these ratios are used to assess a
company's ability to pay down its long-term debt.

a. Debt to Equity Ratio: This ratio assesses how much long-term debt a business has in
relation to its total equity. Due to the fact that both of these numbers are drawn from the balance
sheet, this ratio is a balance sheet ratio.

[Debt to Equity Ratio = Long-Term Debt /Shareholders Funds]

Where:

Long Term Debt = debentures + Long Term Loans.

Shareholders’ Funds = Equity Share Capital + Preference Share Capital +

Reserves – Fictitious Assets.

b. Debt Ratio: A company's long-term debt is calculated using the debt ratio and compared to
its total capital employed.

[ Debt Ratio = Long-Term Debt /Capital Employed]

OR

[Long-Term Debt /Net Assets]

33
Where:

Capital Employed = Long Term Debt + Shareholders Funds.

Net Assets = Non-Fictitious Assets – Current Liabilities.

4. Efficiency Ratio: Efficiency ratios are considered as a crucial marker of the immediate and
short-term success of an organization. The efficiency ratios used in this research are the
inventory turnover ratio and asset turnover ratio.

a. Inventory Turnover Ratio:

The inventory turnover ratio measures how often a company's stock runs out over a certain
period of time. Calculating the ratio involves dividing the cost of goods sold by the average
inventory during a certain time period (i.e.,1 year).

[ Inventory Turnover Ratio = COGS/ Average Inventory]

b. Ratio of Asset Turnover (ATR)

The asset turnover ratio calculates the efficiency with which a company's assets produce
revenue. It computes an annual percentage by dividing the dollar sales of a corporation by the
entire value of its assets.

[ Asset Turnover Ratio = Net Sales / Average Total Assets]

Where:

Net Sales = Sales minus Sales returns, Sales discounts, & Sales allowances

“Average Total Assets = (Total assets at the end of the period + Total assets at the
beginning of the period) / 2”.

2.14. STATISTICAL ANALYSIS TOOLS

For data analysis, statistical tools are also crucial. There are many different kinds of
tools available. Following is a detailed discussion of the tools were introduced in the
current study:

1. Descriptive Statistics: "Descriptive statistics explain the attributes of a group or

data," offering concise summaries of the sample and measurements or highlighting

34
characteristics of gathered data The organization, summarization, and presentation of
data in an accessible and instructive way are all topics covered by descriptive statistics.
In order to display the financial data in this research in an intelligible way, certain
descriptive statistics methods were applied. The following descriptive statistics
methods were used in this research to list the features of the data: (All the statistical
analysis was done using IBM SPSS 20).

a. Mean: The most widely recognized and utilized metric for calculating central
tendency is the mean.
[ x̄ = (Σ xi) / n]

b. Standard deviation: The most generally used and acknowledged method for measuring
dispersion is the standard deviation, which offers the best indication of how widely distributed
the data are. Each data point's distance from the mean is evaluated. The square root of variance
is used to calculate the standard deviation.

Figure 2.1 Formula of Standard Deviation

Source: Cuemath.com

2. Regression: Regression analysis is a collection of statistical techniques used to

estimate the connections among variables in statistics. Regression is a statistical technique
used in the domains of finance, investment, and other industries to calculate the strength of a
connection among a single dependent variable (usually denoted by Y) and a group of dynamic
independent variables (known as independent variables).

35
 a. Linear Regression: Regression is a technique for modelling and identifying the
connections between variables and how they interact to create a certain result. Linear
regression is a kind of regression that uses variables that have a straight line. Simple linear
regression is a statistical technique for defining and investigating connections between two
continuous (quantitative) variables. The link between a single input independent variable
(feature variable) and an outcomes of dependent variable is demonstrated using a linear model,
or a line.

b. Multivariable linear regression Model; A single dependent variable is compared to a

number of independent input variables using a multi-variable linear regression model.
Because the output is a linear combination of the input variables, the model stays linear.

[Y = a + bX (Simile Linear Regression)]

[Y = a + b1X1 + b2X2 + ... + bpXp (Multiple Linear Regression]

In this scenario, Y is the dependent variable and X is the explanatory variable. The regression
models developed from the investigation will be submitted to a 5% level of a significance test.
The slope of the line is b, and a is the intercept.

2.15. ORGANIZATIONAL STRUCTURE OF THE STUDY

The study is divided into the following six chapters, which are discussed indetail
below:

CHAPTER-1: INTRODUCTION AND OVER VIEW OF AUTOMOBILE SECTOR

This Chapter includes the Introduction and research design of the study. Brief
introduction about the topic, Automobile companies present status. Financial
Performance Analysis: Meaning, Types, Tools, etc.

CHAPTER-2: REVIEW OF LITERATURE AND RESEARCH DESIGN

This Chapter includes review of the Literature and research gap that has been identified
from the review of Literature. statisticaltools of analysis. Research Design includes the
Statement of Problem, Need of theStudy, Objectives of the study, Scope of the study,
Limitations, Hypotheses,Methodology used in the study.

CHAPTER-3: LIQUIDITY AND PROFITABILITY PERFRORMANCE

The third Chapter of the study is based on data analysis in which Liquidity and

36
profitability ratios are analyzed and explained through tabulation. Graph and
interpretation.

CHAPTER-4: SOLVENCY AND EFFICIENCY PERFORMANCE

ANALYSIS.
The fourth Chapter of the study is based on an analysis of the Solvency andEfficiency
ratios. In this chapter selected ratios are analyzed and explained in detail through
tabulation, graphs, and interpretation.

CHAPTER-5: IMPACT OF LIQUIDITY, PROFITABILITY, SOLVENCY,

AND EFFICIENCY ON BENEISH M-SCORE
Chapter six of the study is based on the analysis of data in which the financial
performance of select Automobile companies has been analyzed using M-Score. This
chapteralso includes the analysis of data in which the impact of Liquidity, profitability,
solvency, and efficiency on M-Score have been analyzed.

CHAPTER 6- FINDINGS, CONCLUSION & SUGGESTIONS

This chapter includes the findings, conclusion, Suggestions and Scope for Future
Research.

37
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