Financial Highlights of the Company

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Financial Highlights of the Company

HVTL has an authorized share capital of 5,00,00,000 equity shares of Rs. 10

each. It hasissued, subscribed and paid up capital of 4,00,00,000 equity shares

of Rs. 10 each. Of theabove, 340000000 equity shares are held by Tata motors,

the holding company.

From being a loss making company in its initial years, HVTL is now in the pink of

financial

health. Production numbers have steadily moved up and so has HVTLs’ sales. All

financial results of HVTL have improved over the years as a reflection of

overallperformance improvement.In view of strong financial performance board

of directors declared payment of aninterim dividend of Rs. 3.50 per share. And

final dividend of Rs. 1.50 per share on40000000 equity shares fully paid up on

March 31, 2008 consequently total dividend of Rs. 5 was given.

TURNOVER

Turnover has more than doubled since 2002-03, not only through rise in volumes

butalso through change in product mix and higher focus on spare parts. This

shows that thefirm is getting good business from its customers and the firm has

been able to increaseits customer base. Due to global recession the turnover

slightly decreased.



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MANAGERIAL USES OF RATIO ANALYSIS

The following are the important managerial uses of ratio analysis helps in

financialforecasting : Ratio analysis is very helpful in financial forecasting. Ratios

relating to pastsales, profits and financial positions from the basis for setting

future trends.

Helps in Comparison

: With the help of ratio analysis, ideal ratios can be

composed and they can be used for comparing a firm’s progress and

performance. Inter firm comparison or comparison with industry averages

ismade possible by ratio analysis.

Financial Solvency of the Firm

: Ratio analysis indicates the trends in financialsolvency of the firm. Solvency has

two dimensions long term solvency and shortterm solvency. Long term solvency

refers to the financial viability of a firm and itis closely related with the existing

financial structure. On the other hand, shortterm solvency is the liquidity position

of the firm. With the help of ratio analysis

conclusion can be drawn regarding the firm’s li

quidity and long term solvencyposition.

Evaluation of Operating Efficiency

: Ratio analysis throws light on the degreeof efficiency in the management and

utilization of its assets and resources.Various activity ratios measure this kind of

operational efficiency and indicate theguidelines for economy in costs,

operations and time.



Communication Value

: Different financial ratios communicate the strengthand financial standing of the

firms to the internal and external parties. Theyindicate the over all profitability

and capital gearing etc. of the firm.

Other Uses

: Financial ratios are very helpful in the diagnosis of financial healthof a firm.

They highlight liquidity the, solvency, profitability and capital gearingetc. of the

firm.




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INTERPRETATION OF RATIOS

The interpretation of ratios is an important factor. Through calculation is also

importantbut it is only a clerical task whereas interpretation needs skills,

intelligence andforsightedness. The interpretation of the ratios can be done in

the following ways.

Single Absolute Ratio :

Generally speaking one cannot draw meaningfulconclusions when a single ratio

is considered in isolation. But single ratios may bestudied in relation to certain

rules of thumb which are based upon well provencontentions.

Groups of Ratio :

Ratios may be interpreted by calculating a group of relatedratios. A single ratio

supported by related additional ratios becomes moreunderstandable and

meaningful.

Historical Comparisons:



One of the easiest and most popular ways of evaluating the performance of the

firm is to compare its present ratios with thepast ratios called comparison over

time.

Projected Ratios :

Ratios can also be calculated for future standard based uponthe projected

financial statements. Ratio calculation on actual financialstatements can be used

for comparison with the standard ratios to find outvariance, if any. Such variance

helps in interpreting and taking corrective actionfor improvement in future.

Inter firm Comparison:

Ratios of one firm can also be compared with the ratiosof some other selected

firms in the same industry at the same industry at thesame point of time.




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LIMITATIONS OF RATIO ANALYSIS



A firm’s industry category is often difficult to identify

.

Published industry averages are only guidelines.

Accounting practices differ across firms.

Sometimes difficult to interpret deviations in ratios.

Industry ratios may not be desirable targets.

Seasonality affects ratios .

TYPES OF RATIOS

Liquidity Ratios

–

can current debts be met

Leverage Ratios

–



can all debts be met

Activity Ratios

–

how efficient is the operation.

Profitability Ratios

–

how profitable is the operation

FINANCIAL STATISTICS OF HVTL

NET SALES

Gross sales for a period after cash discounts, returns, and freight expenses have

beendeducted.The sales figures are encouraging as there is a positive trend and

the rate of increase isconsiderably high. However considering the fact that it hasonly one customer in theform of Tata Motors Limited the figures infers an



increase in sales of TML. So in order toincrease sales in a higher rate HVTL

should diversify its market. The net sales went upfrom Rs 13924.05 lakhs in year

2000-01 to Rs 19197.82 in year 2007-08 but decreased to14259.23 in the year

2008

–

09

Profit Before Interest and Tax

PBIT is essentially Net Income with interest, taxes, depreciation, and

amortization addedback to it. It can be used to analyze and compare profitability

between companies andindustries because it eliminates the effects of financing

and accounting decisions.However, this is a non-GAAP measure that allows a

greater amount of discretion as towhat is (and is not) included in the calculation

Observation

The profit before interest and tax has gone up from -836.38 lakhs to 7632.56

lakhs in2007-08 .This is a big achievement for HVTL. As it has proved its

credibility as anorganization.

Profit Before Tax -PBT

A profitability measure that looks at a company's profits before the company has

to paycorporate income tax. This measure deducts all expenses from revenue

includinginterest expenses and operating expenses, but it leaves out the

payment of tax.This measure combines all of the company's profits before tax,

includingoperating, non-operating, continuing operations and non-continuing

operations. PBTexists because tax expense is constantly changing and taking it

out helps to give aninvestor a good idea of changes in a company's profits or

earnings from year to year.

Observation

The profit before tax is rising in a consistent rate showing a very positive trend

fromRs.-2203.96 lakhs in year 2000-01 to Rs.7246 in 2007-08 reducing to 2583.1

in 2008-09.

Profit after tax (PAT)

It the net profit earned by the company after deducting all expenses like

interest,depreciation and tax.PAT can be fully retained by a company to be used

in the business. Howeverdividend is paid to the share holders from this residue

Observation

The profit after tax is rising in a consistent rate showing a very positive trend

fromRs.-2202.96 lakhs in year 2000-01 to Rs.4744.32 in 2007-08 .




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LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its short-term financial obligations

whenand as they fall due.The main concern of liquidity ratio is to measure the

ability of the firms to meettheir short-term maturing obligations. Failure to do

this will result in the total failure of the business, as it would be forced intoliquidation.Common liquidity ratios include the current ratio, the quick ratio and

theoperating cash flow ratio.

Current Ratio :

The current ratio is a popular financial ratio used to test acompany's liquidity

(also referred to as its current or working capital position) byderiving the

proportion of current assets available to cover current liabilities.The concept

behind this ratio is to ascertain whether a company's short-term assets (cash,

cash equivalents, marketable securities, receivables andinventory) are readily

available to pay off its short-term liabilities (notes payable,current portion of

term debt, payables, accrued expenses and taxes). In theory,the higher the

current ratio, the better.Current assets normally includes cash, marketable

securities, accountsreceivable and inventories. Current liabilities consist of

accounts payable, shortterm notes payable, short-term loans, current maturities

of long term debt,accrued income taxes and other accrued expenses (wages).

Interpretation

1.

Relatively high ratio values mean that the business is liquid, but cash is

notworking.2.

If the current ratio is greater than 1.0, the business is liquid.3.

If the current ratio is less than 1.0, the business is illiquid

f the current ratio is less than 1.0, the business is illiquid.




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Observation

HVTL has a current ratio ranging between 0.42 to 0.79. This indicates that the

currentassets of the firm are less than the current liabilities. This is because the

firm has alwaysmaintained a negative net working capital. Its current liabilities

have always beengreater than current assets. Current liabilities is greater than

current assets which showsthat the company is able to recover its debtors faster

and has a good bargaining facilitywith its suppliers

Financial Highlights of the Company

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