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FINANCIAL ANALYSIS OF HEROCYCLE LTD.

A PROJECT REPORT

Submitted by:

RITESH GARG7048221587

In partial fulfillment of requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION(SUMMER TRAINING)

GUJRAN ALA GURU NANA! INSTITUTE OF MANAGEMENT "TECHNOLOGY# LUDHIANA

(PUNJAB TECHNICAL UNI$ERSITY# JALANDHAR)

J%&' J% * 2008

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AC!NO LEDGEMENT

Behind this successful undertaking is the blessing and guidance of many. This

formal piece of acknowledgement may not be sufficient to express my feelings of

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gratitude and deep respect that have experienced during my learning process at Hero

Cycles. This endeavor would not have been successful without the help and

encouragement from a lot of people with whom I had good fortunate of interacting

during course of ourney. I am indebted to !r. Bharat "oyal #$r %.&.'inance cum

Company $ecretary( for the knowledge and experience that I gained from him during

course of training which I can easily look at as my most rewarding phase the course of

my study. )ithout his immaculate and intellectual guidance * sustained efforts and

friendly approach* it would have been difficult to achieve the result in a short span of

period.

+ot leaving behind the contribution of all other staff members at 'inance

,epartment for sharing with us the wealth of their experience and knowledge.

PREFACE

!B- is stepping stone to management career. In order to achieve practical* positive

and concrete results* the classroom learning need to be effectively fed to the realities of

the situation existing outside the classroom. This is practical true for management.

To develop healthy managerial and administrative skills in the potential

managers it is necessary that theoretical knowledge must be supplemented with

exposure of real environment. -ctually it is very vital for the management and it is in

the practical training that the measuring of management is itself reali ed.

/

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I took summer training in well0managed organi ation and was fortunate to get agood exposure. In this pro ect report an attempt has been made to coverdifferent aspects of my training.

RITESH GARG

ABSTRACT

The term Financial Analysis 2 also known as analysis and interpretation of

financial statements refers to the process of determining financial strength and

weaknesses of the firm by establishing strategic relationship between the items the

balance sheet* profit and loss account and other operative data. M*'+,- 0 'inancial

statement analysis is largely a study of relationship among the various financial factors

in a business is disclosed by a single set of statements* and a study of the trend of

these factors as shown in a series of statement.2 The Hero "roup has done business

differently right from the inception and that is what has helped us to achieve break0

through in whatever product category we have ventured. The "roup3s low key* but

focused* style of management has earned the plaudits amidst investors* employees*

4

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vendors and dealers* as also worldwide recognition.

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6

TABLES OF CONT

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S.N.

C/ '+N . T 3

1. 1 I& + % 3 &1.1 Introduction

1./ 7rgani ation of hero cy1.4 * 1.5 Hero group 8hero gr

1.6 ,riving force 9 chairm1.: !ilestones1.; Hero9 the super bran1.< "lobal gearing 9expo1.= %ision 8 mission

1.1> ?uality9 the driving f1.11 Building relationship

1.1/*1.14*1.15 @ 8 ,.*innovations* p1.16 $ocial responsibility

1.1: * 1.1; !a or products* compe1.1< 7wnership of manag

2. 2. A /3'6' '& ,

. . LITERATURE RE$IE4. 4. F3& & 3 A& *,3,

5. 5. O9:' 36',

;. ;. R',' + / M' /

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L3, > T 9 ',

S.N . T 9)' N . T 9 ' P

16 5.1 "ross profit ratio =1

1: 5./ +et profit ratio =/

1; 5.4 @eturn on investment =4

L3, > F3

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S.N. F3

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=

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THE ORGANISATION HERO CYCLES LTD

1>

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The Beginning

)e look over our shoulders* we see the past. )e use it to make a

better present and a beautiful tomorrow* as tomorrow isn3t ust another

day* it3s another chance for us to better ourselves and to excel.

Hero Cycles is a product of this philosophy. The philosophy that instills

commitment* team work and foresight. Hero3s colossal ourney startedbefore independence. The four !un al brothers* hailing from a small town

called Gamalia* now in &akistan* are the men who are behind the mission.

Brotherhood apart* what knit the men together was the wealth of will*

integrity* ambition 8 determination. In the year 1=55* they decided to start a

business of bicycle spare parts in -mritsar. Its is modest beginning and the

next 4 years saw the business grow rapidly.But the dark clouds of partition

eclipsed their plans of the future. )ith renewed vigour and optimism* the

operational base was shifted to udhiana. By 1=6:* the brothers had began

manufacturing key components of bicycles and as a logical way forward*

began to assemble the entire cycle at their manufacturing plant in

udhiana. In the early days* the plant had a capacity for /6 cycles per day.

7ver the next few

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years* the Bicycle Fnit started growing in stature and si e* attracting skilled

engineers* technocrats* administrators and entrepreneurs. 'rom a modest beginning

of mere :4= bicycles in the year 1=6:* Hero Cycles products over 1> cycles a day

today* the highest in global reckoning. )ith the 5

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THE HERO GROUP

1/

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The Hero "roup has done business differently right from the inception and that is what hashelped us to achieve break0through in whatever product category we have ventured. The"roup3s low key* but focused* style of management has earned the plaudits amidstinvestors* employees* vendors and dealers* as also worldwide recognition.

The growth of the "roup through the years has been influenced by the number of factor9

The Hero "roup through the Hero Cycles ,ivision was the first to introduce the

concept of ust0in0time inventory. The "roup boasts of superb operational

efficiencies. very assembly line worker operates two machines simultaneously

to save time and improve productivity. The fact that most of the machines are

either developed or fabricated in0house has resulted in low inventory levels.

In Hero cycles imited* the ust0in0time inventory principle has been working since the

beginning of production in the limit in the unit and is functional even till date. The

vendors bring in the raw material and by the end of the day the finished product is

rolled out of the factory. This is the apanese style of production and in IndiaE Hero is

the first company to have mastered the art of the ust0in0time inventory principle

.

HERO GROUP COMPANIES

Hero "roup ranks amongst the Top 1> Indian Business Houses comprising 1>40/>>5.

14

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Hero Cycles imitedHero Honda !otors imited

Hero Cold @olling ,ivision

Hero !otors imited

Hero xports

7 "7

!a estic -uto imited

@ockman Cycle Industries

7" 7

Highway Cycle Industries

7" 7

$unbeam -uto imited

7"7

!un al -uto Industries imited

!un al $howa imited

15

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!un al Castings

!un al -uto Components

Hero "lobal ,esign

Hero Corporate $ervices imited

Hero IT $

Hero !ind mine

Hero $oft

!un al e0systems

asy Bill imited

T/' D+363&< F + '@ C/ 3+ &

Dr.Brijmohan Lall Munjal, patriarch of the US$ 3.19 billion Hero Groupa! born in 19"3, in hat i! no #a i!tan. %fterpartition, the Munjal brother! !tarte& a !mallbu!ine!! of manufacturin' bic(cle component! inLu&hiana in )orth *n&ia in the face of the bottlenec !

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16

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of in&u!trial infra!tructure an& in+e!tment!. Dr Lall le& a !mall timemanufacturer of - c(cle! a &a( to become a manufacturin' 'iant,hich churn! out not onl( o+er 1 ,--- c(cle! per &a( but i! al!o&i+er!ifie& into +ariou! &omain!. Un&oubte&l(, Dr.Lall i! a fir!t'eneration bu!ine!! entrepreneur of the 19/-!0.

Dr.Lall ha! enriche& the Hero Group ith hi! +i!ion of !oun& bu!ine!!'o+ernance an& +alue &ri+en mana'ement practice!. Hi! fore!i'htha! ma&e the Hero Group a lea&er in it! bu!ine!!. Dr Brijmohan Lalli! a role mo&el for *n&ian *n&u!tr( in corporate 'o+ernance an&ethical an& +alue &ri+en mana'ement practice!. Hi! principle ba!e&lea&er!hip ha! le& the Group companie! to recei+e the be!t in&u!trial'o+ernance an& !afet( a ar&! an& ac2uire !trin'ent +aluecertification!.

Dr.Lall a! amon'!t the fir!t *n&ian in&u!triali!t! to

effecti+el( implement bac ar& inte'ration an& he i!

ac no le&'e& a! the tren& !etter in the area. %partfrom the promotion of the *n&ian in&u!tr(, he i! the

acti+el( in+ol+e& in man( national a!!ociation! !uch

a! **, S*%M, %SS4 H%M an& #HD an& i! a member

of the 5e'ional Boar& of the 5e!er+e Ban of *n&ia.

He i! Honorar( 6ello of the

*n&ian *n!titute of *n&u!trial 7n'ineerin'.

Dr.Lall ha! recei+e& +ariou! accola&e! an& a ar&! for hi! immen!econtribution to the *n&ian in&u!tr(. He a! a&ju&'e& Businessmanof the Year in 1994 b( a lea&in' bu!ine!! ma'a8ine Bu!ine!! *n&ia.

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>a+ier Labour 5elation! *n!titute >L5*:, a premier in!titution ha!conferre& on him the honor of Sir 'ehangir (hand "edal forIndustrial )eace in *+++!

7rn!t an& ?oun' ha! reco'ni8e& him a! the ; $ntrepreneur of theear *++1! ;

%ll *n&ia Mana'ement %!!ociation conferre& him ith the ,ifetime

Achievement award for ; "anagment ; *++- :Banara! Hin&u Uni+er!it(, @arana!i one of the mo!t pre!ti'iou!Uni+er!itie! of *n&ia conferre& him ith a DoctrateA &e'ree of ;Doctors of letters ; .onoris #ausa in 4ctober "--

/he (overnment %f India honoure& him ith the pre!ti'iou! ;)adma Bhushan ;in March "--/ for hi! contribution to

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MILESTONES

Hero3s success saga contains the element of courage* greatE determination*

enterprises and perseverance coupled with vision and meticulous planning9

1=5;

Hero Cycles td. is established.1;

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1=;1

@ockman Cycle Industries td. established which is today the largest

manufacturer of bicycle chains 8 hubs in the world.

1=;

Bicycle exports take off from India L a faray into the international market.

1=71

Highway Cycles was set up. It is today the largest manufacturer of single speed

8 multi0speed freewheels in the country.

1=75

Hero Cycles imited became the largest manufacturer of bicycles in India.

1=78

!a estic -uto imited was formed and Hero !a estic !oped was introduced.

1=81

!un al Casting established.

1=84

Hero Honda !otors imited established in oint venture with Honda !otors* apan

to manufacture !otorcycles. It is now the world3s largest producer of two0wheelers.

1=85

0 !un al $howa td. established to manufacture shock absorbers and struts and is

today one of the topmost shock absorber manufacturers companies in this country.

1

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1>>cc Hero Honda !otorcycle was launched* which* later on in 1=

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Hero Briggs 8 $tratton -uto #&( td. was set up to produce 50stroke two wheelerengines in various cubic capacities.

1==8

!un al -uto Components established to manufacture gear shaft 8 gear blanks

for motorcycles.

2000

The first fully automated bicycles by the name &7) @BIG 3 was

introduced by Hero Cycles imited. Hero Corporate diversified into I.T. and I.T.

nabled $ervices through its services segment Hero Corporate $ervices imited.

2001

Hero Honda emerges as the market leader in motorcycles with the sales of over

a million motorcycles and a market share of 5;J.

2002

Hero Cycles imited ties up with +ational Bicycle Industries* a part of

!atsushita "roup* apan* to manufacture high0end bicycles.

'astener )orld established.

2002asy Bills imited established to offer utility bill collection and retail services.

200

Tie0up with ive Bridge Inc.* F.$.-.* -prilia $cooters* Haly 8 Bombardier @otax

"mbH of "ermany.

200

$uper $tarter $eries aunched by Hero Cycles imited.

200

Hero Honda continues to be the world3s largest manufacturer of two0wheelers

with the market of more than 5

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2004

Hero @etail Insurance Business established.

$uper $mart $eries introduced by Hero Cycles imited.

2005

Hero IT $ strengthens its relationship with -C$* F$- F$, 6 BI I7+0market

cap and fortune 6>> companies.

200;

Hero Honda crosses a unit sales threshold of 4 !I I7+ motorcycles.

200;

Hero Honda enters the scooters segment* launches 1>> cc pleasure2.

200;

Hero group celebrates "7 , + FBI M -@ since inception. It was

commemorated by sales of over 16 million motorcycles 8 over 1>> million bicycles.

2007

Hero group has made 14 models of e0bikes.

//

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provoke us to explore the realms of our dreams and inspire us to live satisfying lifestyles. -nchored in omnipotent consumer insights* the super brands go beyondmere functional promises as they trigger deeply embedded emotional chords.

Hero Cycles has been one of the most progressive and dynamic brands for the

decades now. M +' / & 200 ' '+,# 4800 ' *'', & +' / & =.;

+ +' , 3,>3' %, '+,# have directly or indirectly* endeavored tirelessly to

make Hero Cycles a phenomenal success and are the true guardians of this brand.

-mbitions* belief* empathy and a strong culture of sensitivity are at the heart of

Hero Cycles brand. ach of these values is reflected in the company3s products*

its communication and its dealings with suppliers* employees* dealers and

customers. Be it company3s environment friendly manufacturing processes or

the brand initiatives for the lower income customers* leadership is all about

capturing the hearts 8 minds of the people0 the way a true Hero always does.

GLOBAL GEARING@ E PORTS

/5

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.$0% #Y#,$S

.$0% .%NDA "%/%0S

.$0% "%/%0S

.$0% #%0)%0A/$ S$0 I#$,I"I/$D 2 .ero "indmine 3 "un aleS stems 3 Nsure)lus 5 .$0% "ANA("$N/ S$0 I#$ ,I"I/$D2.$0% ITES 5

"6N'A, S.%7A ,I"I/$D

http://www.herocycles.com/http://www.herocycles.com/http://www.herocycles.com/http://www.herohonda.com/http://www.herohonda.com/http://www.heromotors.com/http://www.heromotors.com/http://www.herocorp.com/http://www.herocorp.com/http://www.heromindmine.com/http://www.heromindmine.com/http://www.heromindmine.com/http://www.munjal-esystems.com/http://www.munjal-esystems.com/http://www.nsureplus.com/http://www.nsureplus.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.munjalshowa.net/http://www.munjalshowa.net/http://www.munjalshowa.net/http://www.herohonda.com/http://www.heromotors.com/http://www.herocorp.com/http://www.herocorp.com/http://www.heromindmine.com/http://www.munjal-esystems.com/http://www.munjal-esystems.com/http://www.nsureplus.com/http://www.heroites.com/http://www.heroites.com/http://www.heroites.com/http://www.munjalshowa.net/http://www.herocycles.com/

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-s early as in the 1=:>sO very few Indian bicycle manufacturers were interested in

exports. However* the Hero "roupOs foray into the overseas markets in 1=:4

pioneered Indian exports in the bicycle segment. It was a move prompted

essentially by the need to remain attuned to the global marketplace.

)hile initial exports were restricted to -frica and the !iddle ast* today more

than 6> percent of the exports from Hero Cycles

imited meet the demands of sophisticated markets in urope and -merica. This is

/6

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primarily because of appropriate product development and excellent Auality thatHero offers.The "roup has been continuously upgrading technology and has set up

special units 0 like "u arat Cycles imited #now !un al -uto Industries imited(*

to meet international Auality standards. !un al -uto Industries imited has

state0of0the0art eAuipments imported from urope and Taiwan. The unit is

designed to match international standards and is an xport 7riented Fnit# 7F(. Its products are supplied to the International !arkets of developed

countries like Fnited Gingdom* "ermany* 'rance etc.

The "roupOs exports have gone beyond cycles and their components. The success of the

Hero !a estic moped did not remain confined to Indian shores. 'inding enthusiastic

buyers across the world* it became the largest exported moped from India.

Hero &uch is perhaps the first Indian two0wheeler to be homologated abroad #in

$pain( and has assembly plants in !auritius and gypt. Today Hero &uch mini0

motorcycles can also be seen in &araguay* !exico* -rgentina* Turkey and Holland.

"roup Company* !un al $howa imited is one of the largest suppliers

of shock absorbers to ma or auto giants in apan* Fnited $tates and the

Fnited Gingdom* amongst other developed markets.

In 1==4 Hero xports was established as the International Trading ,ivision

for "roup and non0"roup products. The "overnment of India recogni es

Hero xports as a Trading House.

-nd the latest diversification for the "roup in the export market is in the area of

$oftware exports and providing Business &rocessing and Contact Center

$ervices through Hero Corporate $ervice limited. The company exports

services to many 'ortune 1>>> corporations in the F$-* FG and -ustralia and

has offices in FG 8 F$- to manage client relationships.

$ISION AND MISSION

The Vision

)e* at the Hero "roup are continuously striving for synergy between technology*

systems and human resources to provide products and services that meet the

/:

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Auality* performance* and price aspirations of the customers. )hile doing so* wemaintain the highest standards of ethics and societal responsibilities* constantlyinnovate products and processes* and develop teams that keep the momentumgoing to take the group to excellence in everything we do.2

The Mission Statement

It3s our mission to strive for synergy between technology* systems and

human resources* to produce products and services that meet the Auality*

performance and price aspirations of our customers. )hile doing so* we

maintain the highest standards of ethics and societal responsibilities.2

This mission is what drives us to new heights in excellence and helps us forge a

uniAue and mutually beneficial relationship with all our stakeholders. )e are committed

to move ahead resolutely on this path* shown to us by visionaries like !r. $atyanand

!un al* !r. 7m &rakash !un al* the late !r. ,ayanand !un al and late !r. @aman

Gant !un al. !r. Bri mohan all !un al* Chairman 8 !, L TH H @7 "@7F&.

?uality9 The ,riving 'orce

-t Hero Cycles* Auality is a tradition* be it in the form of well trained labour*

technically superb machines or world class Auality. The conformance to Auality at

Hero begins on shop floor* with every worker ensuring at each stage

manufacturing* that only perfect product passes through his hands. Hero3s

production department too believes in following the ero0defect approach and

continuous upgradation of its manufacturing systems. The marketing and

operations teams are also constantly creating new and effective strategies using

modern management techniAues. -nd finally* every Hero cycle goes through aseries of rigorous Auality checks before it leaves the factory. +o wonder* Hero is in

proud possession of I$70=>>1* I$70=>>/ 8 B%?I certifications and also I$7

15>>1* environmental compliance endorsement from the !inistry of nvironment.

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Constant Auality upgradation ensures that the company stays in the globalmainstream and maintains its edge* through excellence. - technology tie0up with+ational Bicycle Industries of apan led to the launch of the )orld 13 series ofcycles* besides introduction of new frame designing and features like0 -0frame* ,0frame* M0frame* $wan shaped frame* speedometers 8 indicators among other

Building @elationships

-t Hero* it3s always believed that there is much more to life than ust business. -s a

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company with a heart* it has certain commitments towards its employees* the society

and the nation. Though growing incomes* changing life styles and availability of cheap

customer finance has changed the market scenario enormouslyE Hero believes that

cycles can still be the driving force of the rural economy. By introducing the loan

facilities under Hero Cycle oan Mo ana3 through Corporation Bank and 7riental Bank

of Commerce* Hero Cycles has enabled low income customers to purchase cycles on/

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easy terms.

Commitment to its employees is ust as important as commitment to the society.

-ll efforts are taken to make sure that employees are provided the best working

conditions as work culture at Hero revolves around the philosophy0if there3s one

way to work* it3s with the heart. -t Hero Cycles* there is a strong affinity towardsbuilding the relationships with employees* workers* vendors and dealers. ob

security* growth opportunity and respect are the unspoken* yet understood

components of every man3s package who chooses to work within the fold of

Hero family. It is Auite common to find two generations of the same familyworking together in the company* or the workers sharing their skills with other

family members and passing on finest training to each other. It goes without saying

that people at Hero are its largest investment and easily the largest asset.

-t customer front too* Hero3s perception of customer relationship management

#C@!( does not end with merely meeting their expectations and aspirations or by

ensuring complete customer delight by overnight turnaround of customer

complaints* but it goes several steps beyond that hori on. The company believes in

delivering value to the customers even before they feel the need. This has helped

Hero Cycles develop immense brand loyalty and customer satisfaction. ike a true

$uper Brand* Hero has been able to attract the respect and awe of not only its

users* but also those who are directly or indirectly exposed to it.

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RESEARCH AND DE$ELOPMENTOF HERO CYCLES

1. Specific areas in which R ! carried out by the company @ Increasing

competition in the market place has brought into sharp focus importance of

differentiation. 7ur in0house @esearch 8 ,evelopment Centre* which is

recogni ed by ,$I@ "ovt. of India* plays a pivotal role in launch of innovative

product models on continuous basis. 7ur product models excel in meeting

expectations from extremely demanding customers of today3s modern era.

2. "enefits deri#ed as a result of the abo#e R ! acti#ities @ This brought

the concept of high Auality low costDfancy bicycles.

3. Future plan of action @ Though the domestic market for standard bicycles is

shrinking since last three years but the fancy segment has shown a significant

upsurge in the demand. !oreover India has a very small share of "lobal !arket.

The up graduation of technology through in0house research will assist the company

in design development to capture the vast untapped market potential.

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)hile in Indian market it is directed towards introducing products at lower cost

e.g. )onder Mears and Brat series to the benefit of masses or high0end

technology products like $treet @acer* 'usion* Miking Hero and !iss

India $eries #for the ladies( which completes the total product range.

(3) The company has not imported any technology in the last 6 years.

However* it has entered into a technical assistance agreement with

national Bicycle Industrial Co. td. Gashiwara City* 7saka* apan in />>/

for upgrading its technology.

$utloo%

,uring the year />>:0>; the economy has shown further improvements and the

",& has also increased. Mour directors are pleased to inform you that despite thevolatility in the prices of main inputs i.e. steel and nickel your company has increased

its production by 6.5;J vis a vis previous year by introducing new era light alloy

bicycles and powered cycles as well as bikes with a sincere focus on students.

Industry producing the rolling steel strips can be broadly classified into two

categories i.e. narrow #5>>mm( and wide #1:6>mm(. Mour company comes under mid

segment with a capacity to produce up to >mm wide strips. The industry is further

classified into $tand -lone manufacturer and Integrated manufacturer. Though the

$tand -lone manufacturer are putting up a stiff competition * your directors are hopeful

that company3s C.@.,ivision will do well by putting emphasis on special grades* narrow

and thinner strips with short delivery period and fast customi ation.

INNO$ATIONS

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"orn out of &assion

The ore goes into fire only to shed off its impurities. $imilar is the man whose virtues

shine when he is tried by the fire of life. Taking upon +ovelty3 itself as a competitor* the

Hero Cycles* has been always striving for perfection and innovation in every aspect

of their dealings. The pursuit to innovate is endless at Hero* so much so that

innovation3 has become a bu word in Hero premises. Hero Cycles has been ableto use changes and new trends to its advantage by identifying emerging need gaps

and expanding its product portfolio to appeal to different kinds of customers. In its

endeavour to keep a step0ahead of times* Hero3s most advanced 8 modern @ 8 ,

department continuously creates innovative products having functional attributes 8

aesthetics* meeting the aspirational needs of its proud customers around the globe.

-s a result* Hero Cycles was able to launch several new concepts and models in

bicycles like the !ountain Bikes* @acer Bikes* ,irt Terrain Bikes 8 ,0frame bikes

besides creating a variety of cycles for different user segments and sub0segments

L including women and children* students* adventure seekers* labourers* city

customers and fitness conscious. @olling out nineteen new models in ust one year*

itself speaks volume for Hero3s emphasis on innovations 8 designs.

&romotions

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SOCIAL RESPONSIBILTIES

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In this way* the company has fulfilled its social obligation. Charged with their

mission nationalistic fervor* the Hero "roup has always been actively involved in

$ocial and !edicare activities* such as providing medical facilities for the under

privileged* Hospitals* Heart @esearch 'oundation and !obile !edical %ans. Hero

also runs schools and colleges* maintains parks and public facilities.

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MAJOR PRODUCTS

The Hero Cycles td. !anufactures cycles* rims * free wheels *hubs 8 chains

and cold rolled strips as a main product. Company has long portfolio of different range

of cycles. Company has 14/models in the list * covers all the three section0gents*

ladies and kids. It also manufactures cycles parts for its own reAuirements. -fter

fulfilling the reAuirements of company *it can export its remaining Auantity.

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CHI+- HIT CH1 -%7+2 7& @-3 F T@-4 T%$

O NERSHIP OF MANAGEMENT

BOARD OF DIRECTORS

$H. B@I !7H-+ - !F+ - (CHAIRMAN)

$H. $-TM-+-+, !F+ - (CO CHAIRMAN CUM M.D. OR!S)

$H. 7! &-@G-$H !F+ - (CO CHAIRMAN CUM M.D. M!TG. " ADMN.)

$H. %I -M GF!-@ !F+ - (M.D. INTN-L MAR!ETING)

$H. $F@ $H CH-+,@- !F+ - (M.D. DOMESTIC M!TG.)

-$HI$H GF!-@ !F+ - (M.D. UNIT TO SAHIBABAD)

$H. $F+I G-+T !F+ - (M.D. C.R.DI$ISION)

$H. &-+G- !F+ - (M.D. NE HERO AUTO RIM DI$.)

$H. $.G. @-I (M.D. OR!S)

,@. !.-. P-HI@ (DIRECTOR)

,@. ,.@. $I+"H (DIRECTOR)

4:

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CHAPTER 2

T/' A /3'6' '& ,

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The "roup and its management have acAuired a number of

accolades and achievements over the years9

Hero "roup !anagement style has been acclaimed internationally by

)orld Bank and BBC* FG. Hero "roup is discussed as a case study

at ondon Business $chool* FG and I+$ -,* 'rance. )orld Bank

has acclaimed Hero Cycles as a role model in vendor development

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based on a worldwide study. The ondon Business $chool* FG* has done acase study on the "roup as model of entrepreneurship.

Boston Consulting "roup has ranked Hero "roup as one of the top tenBusiness Houses on conomic value* in India.

The Hero "roup is recogni ed as a long0term partner and an ideal employer9

00Hero "roup3s &artnership with Honda !otors* apan is over /> years old.

00Hero "roup3s &artnership with $howa !anufacturing Corporation*apan is over 1< years old.

"roup Chairman* !r. Bri mohan all !un al received the coveted rnst8 Moung ntrepreneur of the Mear2 award for />>1.

Hero Cycles was ranked 4 rd amongst top Indian Companies @eview />>>

.

-sia3s leading companies award #/>>4( by 'ar astern conomic @eview.

Hero Cycles is the )orld3s argest manufacture of Bicycles with annualsales volume of over 5.< million cycles.

Hero Cycles imited is a "uinness Book @ecord holder since 1=

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CHAPTER

4=

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L3 '+ %+' +'63'

Ball and Brown #1=:

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#/>>;( 'inancial -nalysts ournal %ol.:4 +o>/* />>; C'- Institute

Q1/R

Gallunki* uha0&ekka and &aakki* i a* S$tock !arket @esponse to

I'@$DI-$ Cash 'lowsS

5>

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#-ugust 11* />>6(. -vailable at $$@+. Q14Rev* Baruch and &aul Parowin* 1===* SThe Boundaries of 'inancial @eporting

and How to

xtend ThemS* Journal of Accounting Research

Q15R

iu* +issim* and Thomas #!arch />>/( Auity %aluations using !ultiples2

ournal of -ccounting @esearch 5>#1(.

Q16R

!ingyi Hung* -ccounting $tandards and %alue @elevance of 'inancial

$tatements0 -n International -nalysis2 ournal of -ccounting and conomics*

%ol.4> +o.4* ,ec.*/>>>. R , . (1==8). @isk and the financial analyst of the

year />>>. Business Credit, Vol. 100 #Iss. 4(* pg. 6;.

CHAPTER 4

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5/

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The analysis and interpretation of financial statement is used to determine thefinancial position and results of operations as well. - number of methods ordevices are used to study the relationship between different statements. -financial analyst may use following methods90

1 Comparative statements

2 @atio analysis

3 'und 'low analysis

4 Common si e statement

CHAPTER 5

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56

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OBJECTI$ES

1. To analy e the liAuidity position of the firm.

2. To analy e the solvency position of the firm.3. To study and analy e the overall profitability of the firm.

4. To study and analy e the changes in working capital and fund flow position.

5. To relate the various items of profit and loss account with sales.

6. To compare the assets and liabilities of the current year and previous year.

7. To study the and analy e the capital structure of the firm.

8. To determine the efficiency with which the current assets are managed.

5:

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CHAPTER ;

5;

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CHAPTER 7.1

6>

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61

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COMPARATI$E STATEMENTS

The comparative financial statements are statements of the financial position at

different periodE of time. The elements of financial position are shown in a

comparative form so as to give an idea of financial position at two or more periods.

'rom practical point of view* generally* two financial statements #balance sheet and

income statement( are prepared in comparative form for financial analysis purpose.

+ot only the comparison of the figure of two periods but also be relationship

between balance sheet and income statement may show9

1. -bsolute figures #rupee amounts(2. Changes in absolute figures #increase or decrease in absolute figures(

3. -bsolute data in term of percentages

4. Increase or decrease in terms of percentages

1. COMPARATI$E BALANCE SHEET

The comparative balance sheet analysis is the study of the trend of the same

items* groups of items and computed items in two or more balance sheets of the

same business enterprise on different dates. The changes can be observed by

comparison of the balance sheet at the beginning and at the end of a period and

changes can help in forming an opinion about the progress of an enterprise.

The comparative balance sheet has two columns for the data of original

balance sheets. - third column is used to show increase in figures. The fourth

column may be added for giving percentages of increases or decreases.

2. COMPARATI$E INCOME STATEMENT6/

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The comparative income statement gives an idea of a business over a period of time. Thechanges in absolute data in money values and percentages can be determined to analy ethe profitability of the business. It has also four columns. 'irst two columns give figures ofvarious items for two years. Third and fourth columns are used to show increase ordecrease in figures in absolute amounts and percentages respectively.

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HERO CYCLE LTD.9) COMPARATI$E STATEMENT

1) C + 36' B & ' S/''

P + 3 % +, 200; 2007I& +' ,' D' +','

3 A> '+ ? ;;4= 1 02 5.85 10255857 8 7.71

I& '+ +' 3 &

In />>: the cost of goods sold is ;.

CHAPTER 7.

6

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HERO CYCLES LTD.C ,/ F S ' '&

P + 3 % +, 200; 2007I& +' ,' .51+et Cash 'low 7perating

-ctivity

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FUND FLO ANALYSIS

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D'>3&3 3 & > F%&

- Auestion arises as to the definition of 'F+,2. It means9

1 'unds may mean change in cash onlyE

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'unds may mean change in working capital #the difference between current

assets and current liabilities( only.

- more comprehensive definition of funds may be given as follows9

1 'unds may mean change in financial resources* arising from changes in working

capital items and from financing and investing activities of the enterprise* which

may involve only non0current items.The funds flow statement analyses only the causes of changes in the

firm3s working capital position. The cash flow statement is prepared to analy e

changes in the flow of cash only. These statements fail to consider the changes

in the firm3s total financial resources. They do not reveal some significant items

that do not affect the firm3s cash or working capital position* but considerably

influence the financing position and asset mix of the firm.

The statement of changes in financial position is an extension of the funds flow

statement or the cash flow statement. Therefore* to get better insights* a firm may

prepare a comprehensive* all inclusive* statement of changes in financial position

incorporating changes in the firm3s cash and working capital positions involving9

1 Changes in the firm3s working capital position*

2 Changes in the firm3s cash position* and

3 Changes in the firm3s total financial resources.

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OR!ING NOTES

A :%, ' P+ >3 & L ,, A %&

P + 3 % +, A %& P + 3 % +, A %&(R,.) (R,.)

To ,ep. on fixed/14456//

4 By Balance bDd 5>/=/444>6 -ssets

To Balance cDd5=::>1

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expressed mathematically. - ratio can also be expressed as percentage by

simply multiplying the ratio by 1>>. @atios provide clues to the financial strength*

soundness position or weakness of an enterprise. 7ne can draw conclusions

about the exact financial position of a concern with the help of ratios.

:5

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G%3 ' 3&', + +' % 3 &, > + %,' > + 3 @

1. A %+ * > >3& & 3 , ' '& ,@ The ratios are calculated from the data available

in financial statements. Before calculating ratios one should see whether proper

concepts and conventions have been used for preparing financial statements or not.

These statements should also be properly audited by competent auditors. Theprecautions will establish the reliability of data given in financial statements.

2. O9:' 36' + %+ ,' > & *,3,@ The type of ratios to be calculated will depend

upon the purpose for which these are reAuired. The purpose or ob ect for which

rations are reAuired to be studied should always be kept in mind for studying

various ratios. ,ifferent ob ects may reAuire the study of different ratios.

3. S' ' 3 & > + 3 ,@ -nother precaution in ratios analysis is the proper

selection of appropriate ratios. The ratios should match the purpose for

which these are reAuired. 7nly these ratios should be selected which can

throw proper light on the matter to be discussed.

4. U,' > , & + ,@ The ratios will give on indications of financial positiononly when discussed with reference to certain standard. These standard

may be rule of thumb as in case of current ratio U/91Vand acid test

ratioU191V* may be industry standards* may budgeted or pro ected ratios etc.

5. C 39'+ > /' & *, @ The ratios are the only tools of analysis and their

interpretation will depend upon the caliber and competence of the analyst.

He should be familiar with various financial statements and the significance

of changes etc.

6. R 3 , + 63 ' & * 9 ,'@ The ratios are only guidelines for the analyst

he should not base his decision entirely on them. He should study any

other relevant information* situation in the concern* general economic

environment etc. before reaching final conclusions.

F%& 3 & ,,3>3 3 & + ,,3>3 3 & + 3&< ', ,::

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In view of financial management or according to tests satisfied* various ratioshave been classified as below9

1. L3 %3 3 * + 3 ,@ These are the ratios* which measure the short term

solvency or financial position of the firm and are calculated to comment upon

the short term paying capacity of concern or firm3s ability to meet its currentobligations. The various liAuidity ratios are9 current ratio* liAuid ratio and

absolute ratio.

2. L &< '+ , 6'& * & '6'+ S/ + T'+ F3& & 3 P ,3 3 &

The short0term obligation of a firm can be met only when there are

sufficient liAuid assets. If a firm fails to meet such current obligations* its

goodwill in the market is likely to be affected beyond repair. !oreover a very

high degree of liAuidity will tie funds in current assets.

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Therefore it is necessary to have a proper balance in regard to liAuidity of the firm.Two types of ratio are calculated to measure short0term solvency of a firm.

I( I?FI,ITM @-TI7$

II( ''ICI +CM @-TI7$

III( $7 % +CM @-TI7$

I%(&@7'IT-BI ITM @-TI7$9) LI UIDITY RATIO

It refers to the ability of a concern to meet its current obligation as and when

these become due. The short0term obligations are met by reali ing amounts

from current* floating or circulating assets. These should be convertible into

cash for paying obligations of short L term nature. The sufficiency or

insufficiency of current assets should be assessed by comparing them with

short0term liabilities. If current assets can pay0off current liabilities* the liAuidity

position is satisfactory. 7n the other hand* if current liabilities may not easily

met out of current assets then the liAuidity position will be bad.

To measure liAuidity of a firm* the following ratios can be calculated9

(1) Current ratio

(2) ?uick ratio

(3) -bsolute Auick ratio

(1) C%++'& R 3

It is also known as )orking capital ratio. It is a measure of liAuidity and used in making

analysis of short term financial position.

Current @atio WCurrent -ssets D Currentiabilities.

TABLE 1.1 (C%++'& R 3 )

Y' + 200; 2007Current assets /:=:616/64 4>6:4

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C%++'& ,,' , C%++'& 3 93 3 3',

500000000(R,.)

000000000A7%&2

2500000000

2000000000

1500000000

1000000000

5000000000

200; 2007

Y' +,

FIGURE 1.1

C%++'& R 3

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2

1.5

1

0.5

0

200; 2007

Y' +,

I& '+ +' 3 & @ It is decreasing in the year />>; because current liabilities are

increased this year as compare to />>:. 7verall this ratio is satisfactory as it is

nearest to the thumb rule i.e. /91

:=

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(2) L3 %3 R 3

iAuid @atio is more rigors test of liAuidity than the current ratio. It is the ratio

between Auick ratio 8 current liabilities. ?uick ratio refers to all current assets

except Inventory 8 prepaid expenses.iAuid @atio W iAuid assets D Current iabilities

iAuid assets W Current -ssets0 &repaid xp L Inventories

Y' + 200; 2007iAuid assets 1=/===5111 //6>;/;154Current liabilities 1:5>5/6

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Y' +,

;>

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(3) A9, % ' L3 %3 R 3

Cash is the most liAuid ratio asset. -bsolute liAuid assets include Cash in hand*

Cash at bank* marketable securities or temporary investments.

-bsolute iAuid @atio W -bsolute iAuid -ssets D Current iabilities

-bsolute iAuid -ssets W Cash Bank !arketable $ecurities

Y' + 200; 2007 -bsolute iAuidassets :=55/6.>1

TABLE 1. (A9, % ' L3J%3R 3 )

;1

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-bsolute iAuidassets

Currentliabilities

/6>>>>>>>>

/>>>>>>>>>

16>>>>>>>>

1>>>>>>>>>

6>>>>>>>>

>/>>: />>;

FIGURE 1.

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A9, % ' L3J%3R 3

0.0;

0.05

0.04

0.0

0.02

0.01

0

200; 2007

Y' +,

I& '+ +' 3 & @ %iewing the trend of the cash ratio of both the years it can be said

that this ratio is not satisfactory because cash and bank balance has been

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decreased very much in the year />>; approx. :

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-ctivity ratio measures the efficiency and the effectiveness with which a firmcan manage its resources. These are known as the Turnover ratios * becausethey indicate the speed with which assets are converted into cash.

!a or ratio given as under 9

1. )orking capital ratio

/ . Inventory turnover ratio

13 ,ebtor turnover ratio

4. Creditor turnover ratio

1. + 3&< C 3 T%+& 6'+ R 3

It indicates the velocity of utili ation of net working capital. It indicates the

efficiency with which working capital is being used by the company.

)orking Capital Turnover @atio W +et $ales D-verage working capital

Y' + 200; 2007

+et sales 114:=44;51>144>611

: -verage working capital 11;>:1/=6:.6 1>::=55/1>)orking Capital Turnover @atio =.;1 1/.5;

TABLE 2.1 ( + 3&< C 3 T%+& 6'+ R 3 )

;4

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+ 3&< C 3 T%+& 6'+ R 3

15

10

T3 ',

5

0

200; 2007 Y' +,

FIGURE 2.1

I& '+ +' 3 & @ )orking capital turnover ratio is increasing as we can see from the

above table becomes 1/.5; in />>; from =.;1 in />>: due to increase in sales

2. I&6'& +* T%+& 6'+ R 3

It indicates whether the inventory has been efficiently used or not. It

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I&6'& +* T%+& 6'+ R 3

20

15T3 ',10

5 0

200; 2007 Y' +,

FIGURE 2.2

I& '+ +' 3 & @ -s seen from the analysis there has been slight increase in the

ratio. Being a manufacturing concern company has to maintain large amount of

inventories in different forms but on the other side sales are increasing so it is

good sign for the company.

3. I&6'& +* C &6'+,3 & P'+3

It is calculated to see the average time taken for clearing the stocks.

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Inventory conversion period W +o. of days in a year DInventory Turnover @atio

Y' + 200; 2007+o. of days in a year 4:6 4:6Inventory Turnover @atio 1:.>6 1:.=4

Inventory conversion period /4 #days(

//

#days(TABLE 2. (I&6'& +* C &6'+,3 & P'+3 )

;6

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I&6'& +* &6'+,3 & '+3

D

*,

25

20

15

10

5

0

200; 2007

Y

'

+

,

FIGURE 2.

I&

'

++

'

3

&@

Th

e

c

o

m

pany3sinventor

y

conversi

on

period

is

approximate /6 days

which

indicates

there is no

fear of

obsolesce

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of

m

at

eri

al.

4. D'9+

T%+ &6'+R3

Thi

sratioindicatesthevelocityof

debtcollectiongener allyhighertheratio

m

ea

ns

th

e

m

o

r

e

e

ff

i

c

i

e

nt

m

a

n

a

g

em

e

n

t

o

f

d

e

b

t

o

r

s

or more

liAuid

are

debtors

and

vice

verse.

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,ebtor Turnover @atioW Total sales D -verage Trade ,ebtors

Y' + 200;Total $ales 114:=44;51>

-verage trade

debtors 1

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T3

',

D'9 + T%+& 6'+ R 3

10

8

;

4

2

0

200; 2007 Y' +,

FIGURE 2.4

I

&

'

+

+' 3 & 9 This ratio has

been increased by 45J due

to increase in sales but at

the same time debtors are

also increasing which is not

feasible in long run.

5. A6'+

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-ver. Collection periodW

Y' + +o. of days in a year

-vg. Collection period

-verage Collection&eriod

;;

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creditors areturnedover in

r

e

l

a

t

i

o

n

t

o

p

u

r

ch

a

s

e

s

.

"

e

n

e

r

a

ll

y

h

i

g

h

e

r

t

h

e

r

a

ti

o

b

et

t

e

r

it

i

s

o

r

o

t

h

e

r

w

i

s

e

l

o

w

e

r

t

h

e

c

r

ed

i

t

o

r

v

e

l

o

c

i

t

y

*

less favorable

are the results.

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Creditor Turnover @atio W -nnual &urchases D -verageCreditors.

Y' + -nnual purchases -verage creditorsCreditor Turnover@atio

;

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C+' 3 + T%+& 6'+ R 3

20

15T3 ', 10

5

0

200; 2007 Y' +,

FIGURE 2.;

7. A6'+

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A6'+

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I& '+ +' 3 &@ The payment track record of the company is properly designedsuch that timely payment is made to the suppliers. By analy ing the trend it canbe said that creditors are paid with in two months this shows as and whenpayment is received from the debtors then it is being paid and more overcompany is en oying credit policy by the creditors.

61) SOL$ENCY RATIOS

The term solvency3 refers to ability of a concern to meet its long0termobligations. The long0term indebtness of a firm includes debenture0holders* financial

institutions providing medium and long0term loans and other creditors selling goods on

installments basis . ong0term solvency ratio indicate a firm3s ability to meet the fixed

interest and costs and repayment schedules associated with its long0term borrowings.

'ollowing solvency ratios have been used for this purpose90

(1) ,ebt0eAuity ratio

(2) Auity ratio

(3) $olvency ratio

(4) 'ixed assets to net worth

(1) D'9 E %3 * R 3

It shows the relationship between external and internal eAuities 8 it is calculated

to measure the claim of outsiders and owners against company3s assets

The outsiderOs funds include all debtsD liabilities to outsiders* whether in

form of debentures* bonds* mortgage or bills.The shareholders funds include eAuity preference share capital

included capital reserve* revenue reserve and reserves representing

accumulated profits and surpluses.

,ebt Auity @atio W ong term ,ebts D $hareholders 'undsX1>>

Y' + 200; 2007

ong term ,ebts 16:;

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P'

D'9 E %3 * R 3

40

0

20

10

0

200; 2007 Y' +,

FIGURE .1

I

&

'

+ +' 3 & @ There has been aslight decrease in this ratio

due to the fact that now the

company is relying more on

own funds then on outsiders

funds. -s such ratio has been

improved and that amount is

blocked in inventories.

(2) E %3 * R 3

stablish the relationshipbetween shareholders fundsand total assets of the

company* the components of thisratio are

Auity @atio W $hareholder3s 'unds

D Total -ssets X1>>

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Y' + 200; 2007

$hareholder3s 'unds 55/;55:1>664:;/41>/

/

Total -ssets ;61:=>>5=1

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P'

E %3 * R 3

70

;0

50

40

0

20

100

200; 2007 Y' +,

FIGURE .2

I

&

'

+

+' 3 & @ Company isrelying more shareholder

funds than on loan funds. This

is favourable point for the

creditors as company3s eAuity

ratio in />>: is 6=J and in

/>>; is :1J .

3. S 6'& * R 3This ratio indicates the

relationship between total liabilities

to outsiders 8 total assets of the

company.

$olvency ratio W 1>>0 Auity ratio

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Mear />>:

/>>;TABLE . (S 6'& *R 3 )

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S 6'& * R 3

50P'+ '& >: is 51J and in />>; is 4=J * so it implies

lower the ratio of total liabilities to total assets* more satisfactoryDstable in the

long term solvency position of the firm.

4. F3?' A,,' , N' + / R 3The ratio established the relationship between fixed assets and

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shareholders funds i.e. share capital plus* reserves and surplus and retained

earning The ratio can be calculated as follows9 'ixed -ssets to +et worth @atio

W 'ixed -ssets #after ,ep.( D $hareholder funds X 1>>

Y' +

P'+'&

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I& '+ +' 3 &@ the company3s fixed assets to net worth is 55.5;J and 46.4>J

in years />>: and />>;. It implies that owners funds are more than total fixed

assets and a part of the working capital is provided by the shareholders.

I$ PROFITABILITY RATIOS

The following ratios are known as general profitability ratio

1) ".&. @atio

2) +.&. @atio

3) @eturn on Investment

1. G+ ,, P+ >3 R 3

"ross profit ratio measures the relationship of gross profit to net sales

and is usually represented as a percentage. Thus it is calculated by dividing the

gross profit by sales.

"ross &rofit @atio W "ross &rofit D $ales X 1>>

Y' + 200; 2007"ross &rofit 1:1/=6:6;6 16;6:4645=

$ales 114:=44;51>144>611

:"ross &rofit @atio 15.1= 11.3 R 3 )

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2. N' P+ >3 R 3

+et profit ratio established a relationship between net profit and sales.

This ratio is the overall measure of firms profitability and is calculated as9

+et &rofit @atio W +et profit after tax D +et $ales X1>>

Y' + 200; 2007+et profit after tax ::5=414>/ 1>/66144>611

:+et &rofit @atio 6.3 R 3

P'+4'&20

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4

2

0200; 2007 Y' +,

FIGURE 4.2

I& '+ +' 3 & @ There has been decrease in the "ross &rofit by /.41J because

the rate of increase in sales is less than the rate of increase in cost of goods sold.The non0operating expenses decrease by

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3. R' %+& & I&6', '&

@eturn on Investment W &rofit Before interest and taxes D Total investment X1>>

Y' + 200; 2007&rofit Before interest and taxes :4:1;45:4

1/114/;;=;

Total investment /5>>154

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SUGGESTIONS

1. The Company is en oying a good current position. It should take steps to

further improve its position by repositioning the composition of currentassets as large amount has been block in debtors and inventories.

2. arge amounts of funds are blocked in debtors. Company should reduce

its debtors so that the blocked amount is properly utili ed.

3. Inventory control is not proper. The Company has not defined the minimum and

the maximum stock level scientifically. Therefore there is blockage of funds.!oreover* the safety stock level is also not defined. $o the company should

apply the proper Inventory Control $ystem so that there is no wastage of funds.

=1

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CHAPTER 10

=/

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LIMITATION

'inancial analysis is a powerful mechanism of determining financial strength

and weakness of a firm. But the analysis is based on the information available

in the financial statements. Thus the financial analysis suffers from someserious inherent limitation of financial statements* which are as follows 90

1. It is only a study of interim reports.

2. 'inancial analysis is based only upon monetary information 8

non0monetary factors are ignored.

3. It does not consider changes in price level.

4. -s financial statement are prepared on the basis of a going concernE it

does not give exact position.

5. -nalysis is only a mean not an end in itself. The analyst has to

make interpretation and draw his own conclusion.

=4

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REFERENCES

S3 ',@

www.herocycles.com

www.google.com

B A% / +

!anagement -ccounting @.G.$harma

-nnual @eports of H @7 CMC $ I!IT , at ending year 41 $T !-@CH />>:

-+, />>;.

http://www.herocycles.com/http://www.herocycles.com/http://www.herocycles.com/http://www.herocycles.com/

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CHAPTER 12=6

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=:

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=;

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=

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==

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1>>

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1>1

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1>/

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1>4

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1>5

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1>6

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