Financial Statement Analysis in Maruti Suzuki India - Example

FINANCIAL STATEMENT ANALYSIS IN MARUTI SUZUKI INDIA Name School affiliation Table of Contents Table of Contents 2 FINANCIAL STATEMENT ANALYSIS IN MARUTI SUZUKI INDIA 3 Chapter one: company profile 3 Chapter two: Introduction 3 Purpose of study 3 Objectives 4 Data collection 4 Chapter 3: project review 4 Various financial statements 5 Various methods of statement analysis 6 Chapter 4 analysis and interpretation 7 Analysis on Maruti Suzuki India 7 Ratio analysis 9 Stockholder ratio 9 Short term creditor ratio 10 Long-term creditor ratio 11 Chapter 5: Discussion and conclusion 11 References 13 FINANCIAL STATEMENT ANALYSIS IN MARUTI SUZUKI INDIA Chapter one: company profile In this study am going to analyze financial statement of Maruti Suzuki India.It was established in 1981 and it was owned by India government and sold to financial institutions. It is a limited company that deals in production of cars and bikes. I chose this company because its financial statements are easily available for over a period of time The Company uses IFRS in its financial reporting systems. The company has other joint venture in different countries but in my analysis is going to focus on standalone statements rather than consolidated statements. (MSI,2015) Chapter two: Introduction Purpose of study The study aims at understanding the financial analysis as it is used every day. The study will also be used for further studies and will be used show the clear understanding of the theory analyzing the Suzuki Company. Scope of the study, the company manufactures cars and sells to the customers. Objectives 1. to explain the meaning and type of analysis of a company 2. to calculate the financial ratios of the company Data collection The study used secondary data collected from the financial statement then analyzed to come up with conclusions. The company financial statement were downloaded from the company website Chapter 3: project review Introduction Analysis is to find a significant association between two or more things to enable one comes up with result and make a decision. Financial statements are summary of financial activities and balances at a given period of time referred to as financial year. Financial statement analysis is getting meaning information from financial statement to improve decision making, compare performance and know the status of the company in relation to its competitors (Venkataramani, 1990). The analysis can be used to make prediction and forecast to effective planning and budgeting. Financial analysis is used to establish profitability, which is income and growth of the company in both short term and long term. Solvency and stability which is ability to meet the obligation of the company and ability of company to remain in the business in the long run is determined. Liquidity on the other hand is is ability to have cash in the company or easily convert assets into cash, it helps in knowing ability to satisfy obligationAltman,1968).. Financial analysis of a company is done using past data obtained over a period of time, future performance obtained by use of mathematical formulas and also use of comparative performance between firms in same industry or different industries (Kieso, 2007) Various financial statements Financial statements are managerial tools used to plan and control and are able to monitor the resources in the firms; these financial statements are guided by conventions and principles such as IFRS and GAAPS (White, 2003).. Some of common financial statements are: 1. cash flow statement The show the cash flow statements of the company. It includes inflow and outflow from activities especially financing, operating and investing. They identify how the assets moved from as working capital and help in understanding the total financial position. 2. equity statement It is the amount of equity that is possessed by the owners in reference to firm’s assets. It shows the funds invested the shareholders and the income acquired by the company in terms of income from financial activities. 3. profit and loss report Also called income statement, profit and loss indicate the revenues of the company and the expenses of the company. Income statements indicate if the firm is making profit or loss in the financial year. Using profit and loss it indicate all the activities in which the firms engages hence explaining the company operations it deals in, e.g. sales 4. financial position Also called balance sheet is prepared at the end of financial position. It is a statement that shows financial strength. It is composed of assets owned by the company, liabilities that represent the obligation the company owe to other parties and the difference shows the equity which shows the owners own in the company. Various methods of statement analysis Analysis done on financial statement ought to show and explain clear relationship in the financial statement to make a better perspective and ranking of significance of items in statement (Wild, 2004). Some of methods used in analysis include: 1. trend analysis This is a type of analysis in which the trend of companies financial statement ratios are selected over a period of years to assist in making a good forecast and it mostly used for internal uses such as budgetary controls. 2. comparative analysis To best evaluate the performance of the company in the industry it is important to compare performance of a company and another related to know how competitive the company is. 3. Cash flow It compares the change of cash inflow and outflow in a given period. It aims at evaluating the effect of implementing financial decisions. 4. ratio analysis They are used to show the relationship of financial figure in the statement for one year. Some of commonly used ratios are: activity ratio These are ratio that shows that assets flow in and out. These include inventory turnover, receivable turnover and total asset turnover. liquidity ratio These are ratio that ability of how the company is able to meet short term liabilities by easily converting short term assets into liquidity. They include current ratio. quick ratio and cash ratio, solvency ratio Financing method determining risk of the company, these include by determining the capital structure and ability to meet financing assets costs. Examples are debt to equity ratio, financial leverage, and cash to debt and interest coverage. profitability ratio It ratio showing effect on profit or margins and are Gross profit margin, Operating profit margin and others. Chapter 4 analysis and interpretation Analysis on Maruti Suzuki India Financial statement in comparative and common size form Balance sheet 000 000 particulars 2015 2014 change % change Long term asset 22741 20636 2105 10.20062 Short term 3703 3749 46 -1.22699 total 26444 24385 -2059 8.443715 0 loans 2891 3256 365 -11.2101 shareholders fund 23553 21129 -2424 11.47238 presented by share capital 10000 10000 0 0 reserve 13553 10827 -2726 13.08878 shareholder fund 23553 21129 -2424 11.47238 The company’s assets have increased, long term by 10 and short term decreased by 1.2 which is a clear indication that the company is growing as they have invested current assets into long term assets which are important in production of goods and services. The shareholders fund has increased as the company is making profit hence more capital base to expand more. They have paid their loans which show they have high rate of continuity. Profit and loss 000 000 2015 2014 change % sales 51258 44505 6753 15.17358 less COGS 35713 31495 4218 13.3926 gross profit 15545 13010 2535 19.48501 expenses 8833 7915 918 11.59823 NPBT 6712 5095 1617 31.737 tax &interest 3001 2312 689 29.80104 NPAT 3711 2783 928 33.34531 From 2014 to 2015 sales have increased by 15%, this was caused by increase of price of cars. Over the year the COGS have reduced and the quantity sold increased. Cost of goods have reduced as previously the company has reduced it suppliers by applying good supplier analysis, this has reduced the direct cost. Proper marketing has increased its sales for the last year. Ratio analysis The calculations were summarized as shown below 2015 2014 2013 DPS 25 12 8 Operating Profit Margin 13.43 11.66 9.7 Return On Capital Employed 21.24 16.91 15.92 Liquidity And Solvency Ratios Current Ratio 0.68 0.77 1.04 Quick Ratio 0.41 0.67 0.9 Debt Equity Ratio 0.01 0.08 0.07 Investments Turnover Ratio 21.08 28.65 26.67 EPS 5 5 5 Asset Turnover Ratio 2.15 2.05 2.41 The ratio were summarized for last 3 years and divided into . Stockholder ratio According to Grzegorz (2011) some of ration that can used by the shareholders are ROCE This is a financial analysis ratio that shows the profitability of the company in relation to capital employed. = PBIT/capital employed The company has Increasing ROCE up to 25 hence a clear indication that the company has effectively utilized its resources. EPS It is the amount of money earned by the preference shares. =Preference dividend/number of equity shares The company EPS is constant indicating it is a good plan to invest in and a predictable in terms of expected income. DPS These are dividends paid to both ordinary and preference shares and from the company it has a growing trend in which the DPS increased from 8- 24 hence a good investment plan to shareholders. Investments Turnover Ratio It is the value of income and its equity and debt to know the ability of the firm to generate revenue. =Net sales /equity + debt The investment has reduced from 31-26 which show the managed has relaxed. Short term creditor ratio Tsay in (2005 he describes following ratio as very important to short term creditors Current ratio It is a liquidity ratio that test how solvent the company is. It shows how the company is able to meet its short term obligation calculated as Current assets/ current liabilities From the analysis the company has 0.68 in 2015 which has reduced from 1.04 in 2013 which shows that the company is not liquid hence it will have difficult in meeting liabilities. Acid test Ratio Also called quick ratio it used to specify if the company currents asset can be quickly converted to cash. It is calculated as shown below Quick assets/ Current liabilities The company has a ratio of 0.4 in 2015 which has decreased from 0.9 in 2013. Long-term creditor ratio the following ratio according to Matsatsinis,(1997) are very important to long term creditors Debt ratio It shows how the company is leveraged in terms of the ratio of what shareholders and the debt it has to pay =Total debt/total assets The company has reduced the debt ratio to 0.01 which shows it has few obligation but on the other hand it is not investing as these are what finance most investment. Operating Profit Margin This used to know the operating efficiency and strategy used in pricing. =income (operating) / sales The company has continuously improved to up to 13 hence a clear indication it understanding the market. Chapter 5: Discussion and conclusion Financial analysis is very important in terming the progress of the company. There are different users of this information present in the financial statement and they can be able to to use this information by use of financial analysis ratio. Analyzing data using ration assist help the company in determining its profitability, liquidity and is able to plan for the future. Maruti Suzuki India is a company that deals in production of cars and bikes and from the financial statements the company has a good liquidity ratio and its growth rate is god in relation to investment turnover but its gearing ratio is not good thus indicate the disadvantage of using ration in that they are confusing References Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate Accounting (12th ed.). Hoboken, NJ: John Wiley & Sons, p. 1320 ISBN 0-471-74955-9 Venkataramani, R. (1990). Japan enters Indian industry: the Maruti-Suzuki joint venture. StosiusInc/Advent Books Division. Maruti Suzuki India (2015) http://www.marutisuzuki.com/company-at-a-glance.aspx accessed 31/12/2015 Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy.The journal of finance, 23(4), 589-609. White, G. I., Sondhi, A. C., & Fried, D. (2003).The analysis and use of financial statements (Vol. 1).John Wiley & Sons. Wild, J. J., Bernstein, L. A., Subramanyam, K. R., & Halsey, R. F. (2004). Financial statement analysis.McGraw-Hill. Grzegorz, M. (2011). Financial Analysis in the Enterprise: A Value-Based Liquidity Frame-work. Available at SSRN 1839367. Tsay, R. S. (2005). Analysis of financial time series (Vol. 543).John Wiley & Sons. Gibson, C. H. (2001). Financial reporting and analysis.Cengage Learning, 11 th Edition, 2009, ISBN 0324660839, 684127846. Matsatsinis, N. F., Doumpos, M., &Zopounidis, C. (1997).Knowledge acquisition and representation for expert systems in the field of financial analysis. Expert Systems with Applications, 12(2), 247-262. Ohlson, J. A. (1980). Financial ratios and the probabilistic prediction of bankruptcy.Journal of accounting research, 109-131. Barnes, P. (1987). The analysis and use of financial ratios: A review article. Journal of Business Finance & Accounting, 14(4), 449-461. Chen, K. H., &Shimerda, T. A. (1981).An empirical analysis of useful financial ratios. Financial Management, 51-60. Read More