Financial performance of selected automobile companies

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The present paper measures the financial performance of major selected automobile companies for the period of 5 years from 2013-2017 by using ratio analysis.

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International Journal of Management (IJM) Volume 9, Issue 4, July–August 2018, pp. 14–23, Article ID: IJM_09_04_003 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=4 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication FINANCIAL PERFORMANCE OF SELECTED AUTOMOBILE COMPANIES Dr. G. Kanagavalli Assistant Professor, Department of Commerce, Alagappa University, Karaikudi, Tamilnadu, India R. Saroja Devi Ph.D Research Scholar, Department of Commerce, Alagappa University, Karaikudi, Tamilnadu, India ABSTRACT The Indian auto industry became the fourth largest in the world with sales increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in 2017. It was the 7th largest manufacturer of commercial vehicles in 2017. The Two Wheelers segment dominates the market in terms of volume owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. India is also a prominent auto exporter and has strong export growth expectations for the near future. Overall automobile exports from India grew at 6.86 per cent CAGR between FY13-18. The present paper measures the financial performance of major selected automobile companies for the period of 5 years from 2013-2017 by using ratio analysis. The purpose of the study is to evaluate and compare the financial performance of selected three companies to rate their financial performances. The aim of the study is to analyze by comparing the risk of different companies, on their strengths and weaknesses. Key words: Financial performance, Automobile Industry, Ratios. Cite this Article: Dr. G. Kanagavalli and R. Saroja Devi, Financial Performance of Selected Automobile Companies. International Journal of Management, 9 (4), 2018, pp. 14–23. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=4 1. INTRODUCTION The automobile sector today is one of the key sectors of the country contributing majorly to the economy of India. It directly and indirectly provides employment to over 1.5 million people in the country. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favorable destination for investment[1]. It is one of the largest sectors in the world, both in terms of sales volume and production. The Indian automobile industry has a well established name globally being the second largest two wheeler market in the world, fourth largest http://www.iaeme.com/IJM/index.asp 14 editor@iaeme.com
Financial Performance of Selected Automobile Companies commercial vehicle market in the world, and eleventh largest passenger car market in the world and expected to become the third largest automobile market in the world only behind USA and China. The automobile sector facilitates the improvement in various infrastructures like power, rail and road transport. Due to its deep forward and backward linkages with several key segments of the economy, the automobile industry is having a strong multiplier effect on the growth of a country and hence is capable of being the driver of economic growth. It plays a major catalytic role in developing transport sector in one hand and help industrial sector on the other to grow faster and thereby generate a significant employment opportunities. In India, automobile is one of the largest industries showing impressive growth over the years and has been significantly making increasing contribution to overall industrial development in the country. The norms for foreign investment and import of technology have also been liberalized over the years for manufacture of vehicles. At present, 100% foreign direct investment is permissible under the automatic route in this sector, including passenger car segment. The Indian automobile industry proved to be in good shape in the last year even after the economic downturn. This was majorly due to the fact of renewed interest shown by global automobile players like Nissan Motors which consider India to be a potential market. The industry accounts for 7.1 per cent of the country's Gross Domestic Product. The Two Wheelers segment with 80 per cent market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 14 per cent market share. 2. REVIEW OF LITERATURE Sheela Christina (2017)[2] carried out the study on Financial Performance of Wheels India Limited-Chennai. The study deals with Analytical type of research design with the help of secondary data collection method. For this purpose the researcher took past five years‟ data and also checked out for the validity and reliability before conducting the study. The researcher used the following financial tool namely ratio analysis, comparative balance sheet and DuPont analysis and also statistical tools such as trend analysis and correlation. Profitability ratios indicate there is a decrease in the profit level, utilization of fixed assets and working capital in the last financial year. Thus the company can take necessary steps to improve sales and profit. Finally, the study reveals that the financial performance is satisfactory. Neha Mittal (2018)[3] studies the determination of capital structure choice of the selected Indian industries. The main objective is to investigate whether and to what extent the main structure theories can explain the capital structure choice of Indian firms. It has applied multiple regression models on the selected industries by taking data for the period 2009-2017. It examines the relevance of capital structure in selected Indian industries based on a regression analysis and data study. It concludes that the main variables determining capital structure of industries in India are agency cost, assets structure, non-debt tax shield and size. The coefficients of these variables are significant at one per cent and five per cent levels. 3. STATEMENT OF THE PROBLEM Evaluating Performance is necessary to understand its strengths and weaknesses to know the risks and rewards and to find out what changes to make, to achieve higher returns and if possible with less risk. The purpose of measuring performance evaluation is not to know how http://www.iaeme.com/IJM/index.asp 15 editor@iaeme.com
Dr. G. Kanagavalli and R. Saroja Devi the business is performing but to enable it to perform better. As there is an increasing competition from other global players, the management has to initiate appropriate steps to lower the cost of production and generation of additional revenues through cost competitiveness. For this purpose, certain production areas have been identified for cost reduction. The management can aim at increasing the profit through the following methods:  Optimization of the product mix with a view to enhance the sales revenue and thus, the profitability of the company.  Increased production of value added products.  Continuous reduction of inventory levels of spare and raw materials.  Implementation of expansion plans as per the fixed schedule with an eye on capturing the expanding market.  Creating good reputation in customers by providing adequate sales network and enhancing after sales services. The purpose of Performance Evaluation is to examine the past and current financial data so that a company‟s performance and financial position can be measured and evaluated and future risks and potential can be estimated. 4. SCOPE OF THE STUDY This present study is concerned with the financial performance of selected automobile companies. Financial Performance measures whether the company‟s strategy and its implementation and execution are effectively contributing towards Profitability, Liquidity, Efficiency and Solvency so that the business can be carried out smoothly ensuring success, growth and bottom line improvement. 5. OBJECTIVES OF THE STUDY  To study the profile and growth of selected automobile companies.  To analyze the liquidity and solvency performance of selected automobile companies  To measure turnover and profitability performance of selected automobile companies 6. HYPOTHESIS The hypothesis of the research has been formulated as under: H1: There is no significant difference between the values of current ratio among the selected automobile companies. H2: There is no significant difference between the values of Quick ratio among the selected automobile companies. H3: There is no significant difference between the values of Interest Coverage Ratio among the selected automobile companies. H4: There is no significant relationship between Net profit, Operating Profit, Fixed Assets and Net Sales of selected automobile companies. 7. RESEARCH METHODOLOGY The proposed study is entirely based on secondary data. The data has been compiled from Annual Reports of the respective companies, Text Books, Reference Books, Journals, Articles, Magazines and from the Internet. The necessary data has been collected from money control.com, equity master and Society of Indian Automobile Manufactures (SIAM). http://www.iaeme.com/IJM/index.asp 16 editor@iaeme.com
Financial Performance of Selected Automobile Companies Sample Design The Companies are selected on the basis of top two wheelers and three wheelers Manufacturers. The researcher has selected three Automobile companies on the basis of availability of data for the post five years. This sample has been selected for the proposed research. The following companies have been selected for the study. a) Hero Motocorp Limited, b).Bajaj Auto Limited, c).TVS Motor Company Limited. The period of study that has been taken for the research five years i.e. from the financial year 2012-2013 to 2016- 2017. Ratio Used for Analysis of Data “Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables”. Ratio Computed S.No Ratio Computed Formula 1 Current Ratio Current assets /Current liabilities 2 Quick Ratio Current asset- inventories)/Current liabilities 3 Interest Coverage Ratio EBIT / Interest Expense 4 Proprietary Ratio Shareholders‟ funds / Total Assets 5 Sales to Total Assets Net Sales / Total Assets Ratio Liquidity Performance of Selected Automobile Companies The following table-1 shows that the current ratio and quick ratio of selected automobile industry. Table 1 Liquidity Performance of Selected Automobile Companies Year/ Current Ratio of selected automobile Quick Ratio of selected automobile Company industry industry Hero Bajaj Auto TVS Hero Motocorp Bajaj Auto TVS Motocorp Motor Motor 2013 1.2 1.5 0.9 1.06 1.32 0.48 2014 1.3 1.2 0.9 1.10 1.05 0.52 2015 1.6 3.7 0.9 1.13 1.95 0.47 2016 1.8 1.7 0.8 1.27 1.32 0.45 2017 1.8 2.9 0.8 1.64 2.72 0.39 Mean 1.54 2.2 0.86 1.24 1.67 0.46 Median 1.6 1.7 0.9 1.13 1.32 0.47 S.D 0.27 1.05 0.05 0.23 0.67 0.04 CV 18.13 48.10 6.36 19.00 40.03 9.98 Skewness -0.340 0.791 -0.609 1.68 1.14 -0.067 Source: www.moneycontrol In the above table current ratio of Hero Motocorp in 2013 was 1.2 , in 2014 was 1.3 and in 2017 was 1.8 follow the Bajaj Auto in 2013 was 1.5 in 2014 was 1.2 and 2017 was 2.9 and TVS Motor in 2013 was 0.9 in 2014 was 0.9 and 2017 was 0.8. It can be interpreted that http://www.iaeme.com/IJM/index.asp 17 editor@iaeme.com
Dr. G. Kanagavalli and R. Saroja Devi current ratio of Hero Motocorp motors, Bajaj Auto is continuously rising and TVS Motor is continuously declining. In the above table quick ratio of Hero Motocorp in 2013 was 1.06, in 2014 was 1.10 and in 2017 was 1.64 follow the Bajaj Auto in 2013 was 1.32 in 2014 was 1.05 and 2017 was 2.72. and TVS Motor in 2013 was 0.48 in 2014 was 0.52 and 2017 was 0.39. It can be interpreted that quick ratio of Hero Motocorp motors, Bajaj Auto and TVS Motor is continuously declining. ANOVA Test of Current Ratio Table 2 Analysis of Variance – Current Ratio of Selected Automobile Companies Source of Variation SS Df MS F P-value F crit Between Groups 1.966667 4 0.491667 0.671065 0.626819 3.47805 Within Groups 7.326667 10 0.732667 Total 9.293333 14 Source: Computed Table -2 gives the F-value (0.671) is less than the F-critical value (3.478) and P-value is 0.626. It is greater than the alpha level 0.05. Therefore, the null hypothesis is accepted. So there is no significant difference between the values of Current Ratio among the selected automobile companies. ANOVA Test of Quick Ratio Table 3 Analysis of Variance – Quick Ratio of Selected Automobile Companies Source of Variation SS Df MS F P-value F crit Between Groups 0.929373 4 0.232343 Within 0.477707 0.751759 3.47805 Groups 4.863719 10 0.486372 Total 5.793092 14 Source: Computed Table -3 reveal that the F-value (0.477) is less than the F-critical value (3.478) and P- value is 0.751. It is greater than the alpha level 0.05. Therefore, the null hypothesis is accepted. So there is no significant difference between the values of Quick Ratio among the selected automobile companies. Solvency Performance of Selected Automobile Companies The following table-4 shows that the Interest Coverage Ratio, Proprietary Ratio and Sales to Total Assets Ratio of selected automobile industry. http://www.iaeme.com/IJM/index.asp 18 editor@iaeme.com
Financial Performance of Selected Automobile Companies Table 4 Solvency Performance of Selected Automobile Companies Year/ Interest Coverage Ratio Proprietary Ratio of Sales to Total Assets Company of Selected Automobile Selected Automobile Ratio of Selected Companies Companies Automobile Companies Hero Bajaj TVS Hero Baja TVS Hero Bajaj TVS Motocorp Auto Moto Motocor j Moto Motocor Auto Moto r p Auto r p r 2013 2.13 3.59 2.8 0.51 0.63 0.25 2.5 1.6 2.2 2014 2.43 5.67 4.6 0.55 0.66 0.03 2.5 1.3 2.3 2015 2.82 6.82 7.2 0.61 0.69 0.27 2.5 1.3 2.1 2016 2.98 5.41 9.2 0.62 0.79 0.31 2.2 1.3 2.2 2017 1.68 3.99 12 0.67 0.82 0.35 1.9 1 2 Mean 2.41 5.10 7.16 0.59 0.72 0.24 2.32 1.3 2.16 Median 2.43 5.41 7.2 0.61 0.69 0.27 2.5 1.3 2.2 S.D 0.52 1.31 3.64 0.06 0.08 0.12 0.268 0.212 0.114 CV 21.82 25.75 50.91 10.19 11.42 51.16 11.566 16.31 5.279 8 Skewness -0.42 0.10 0.19 -0.18 0.41 -1.73 -1.258 0.000 -0.405 Source: www.money control In the above table Interest Coverage Ratio of Hero Motocorp in 2013 was 2.13 , in 2014 was 2.43 and in 2017 was 1.68 follow the Bajaj Auto in 2013was 3.59 in 2014 was 5.67 and 2017 was 3.99 and TVS Motor in 2013 was 0.51 in 2014 was 0.55 and 2017 was 12. It can be interpreted that Interest Coverage Ratio of TVS Motor Hero continuously rising and Motocorp motors, Bajaj Auto is continuously declining. In the above table Proprietary Ratio of Hero Motocorp in 2013 was 0.51, in 2014 was 0.55 and in 2017 was 0.67 follow the Bajaj Auto in 2013 was 0.63 in 2014 was 0.66 and 2017 was 0.82. and TVS Motor in 2013 was 0.25 in 2014 was 0.03 and 2017 was 0.35. It can be interpreted that Proprietary Ratio of Hero Motocorp motors, Bajaj Auto continuously rising and TVS Motor is continuously declining. In the above table Sales to Total Assets Ratio of Hero Motocorp in 2013 was 2.5, in 2014 was 2.5 and in 2017 was 1.9 follow the Bajaj Auto in 2013 was 1.6 in 2014 was 1.3 and 2017 was 1 and TVS Motor in 2013 was 2.2 in 2014 was 2.3 and 2017 was 2. It can be interpreted that Sales to Total Assets Ratio of Hero Motocorp motors, Bajaj Auto and TVS Motor is continuously declining. ANOVA Test of Interest Coverage Ratio Table 5 Analysis of Variance – Interest Coverage Ratio of Selected Automobile Companies Source of Variation SS Df MS F P-value F crit Between Groups 21.29336 4 5.32334 0.550941 0.702988 3.47805 Within Groups 96.62273 10 9.662273 Total 117.9161 14 Source: Computed Table -5 gives that the F-value (0.550) is less than the F-critical value (3.478) and P-value is 0.702. It is greater than the alpha level 0.05. Therefore, the null hypothesis is accepted. So http://www.iaeme.com/IJM/index.asp 19 editor@iaeme.com
Dr. G. Kanagavalli and R. Saroja Devi there is no significant difference between the values of Interest Coverage Ratio among the selected automobile companies. 8. RELATIONSHIP OF PROFITABILITY AND ASSET ON NET SALES Regression is a statistical technique to determine the linear relationship between two or more variables. Regression is primarily used for prediction and causal inference. In its simplest form, regression shows the relationship between one dependent variable (X) and a independent variable (Y), Regression thus shows us how variation in one variable co-occurs with variation in another, Regression with shoe size as an independent variable and foot size as a dependent variable would show a very high regression coefficient and highly significant parameter estimates, but we should not conclude that higher shoe size causes higher foot size. It is important to recognize that regression analysis is fundamentally different from ascertaining the correlations among different variables. Correlation determines the strength of the relationship between variables, while regression attempts to describe that relationship between the variables. X is a Dependent variable, Y is an Independent variable. X1- Net Profit, X2- Operating Profit, X3 - Fixed Assets and Y - Net Sales. Table 6 Analysis of Variance of Hero Motocorp Adjusted Multiple R Df SS MS F S R R Square Square Regression 3 15281986 5093995 1.16287 0.577845 Residual 1 4380538 4380538 0.881597 0.777214 0.108855 Total 4 19662524 Constant variable: Net Sales Table 6.1 Coefficients of Hero Motocorp Coefficient Standard Lower Upper s Error t Stat P-value 95% 95% 19470.6881 1.68449 0.34106 166338.61 NETSALES 3 11558.75647 7 1 -127397 4 - 7.98531779 0.83514 375.04033 NET PROFIT 1 30.14477262 -0.2649 6 -391.011 5 OPERATING 1.19738924 0.11943 0.79432 128.58330 PROFIT 1 10.02548898 4 4 -126.189 5 5.85450904 0.43223 0.74027 177.95752 FIXED ASSETS 5 13.54480119 3 1 -166.249 6 Constant variable: Net Sales The multiple regression analysis indicated in Table No -6 performed based on the enter method shows that Net Sales have significant impact on Profit and Assets. The overall method was explained by Net Profit, Operating Profit, and Fixed Assets emerged as significant variables in explaining the variance in Net Sales. Fixed Assets had a strongest effect on Net Sales with a Coefficient of 5.85. Furthermore, Net Profit no longer significant for the Net Sales. Since the significant value is 0.835146 (Coefficient= -7.98). The overall method was explained by 88% of variance which was statically significant F (3, 1) = 1.1628, Significant F=0.5778 it‟s greater than 0.05 to predict the Net Sales. Result of regression http://www.iaeme.com/IJM/index.asp 20 editor@iaeme.com
Financial Performance of Selected Automobile Companies analysis indicates adjusted R square of 0.1088 and the Significant F=0.5778 (P>0.005). Hence, the Null hypothesis is accepted at 5% level. So there is no significant relationship between Net profit, Operating Profit, Fixed Assets and Net Sales. Relationship of Profitability and Asset on Net Sales in Bajaj Auto Ltd Ho: There is no significant relationship between Net profit, Operating Profit, Fixed Assets and Net Sales of Bajaj Auto ltd H1: There is a significant relationship between Net profit, Operating Profit, Fixed Assets and Net Sales of Bajaj Auto ltd Table 7 Analysis of Variance of Bajaj Auto ltd D Adjusted R Multiple R R Square f SS MS F S Square Regressio 156447 0.95768311 0.91715694 n 3 4693425.86 5 4 7 423938.049 3.69033 0.36134 0.66862778 Residual 1 4 423938 9 5 8 5117363.90 Total 4 9 Constant variable: Net Sales Table 7-1 Coefficients of Bajaj Auto ltd Coefficient Standard Lower Upper s Error T Stat P-value 95% 95% 57016.7689 1.61099 0.35365 506717.29 NET SALES 5 35392.19868 8 8 -392684 1 - 3.34692974 - 0.39110 26.651987 NET PROFIT 6 2.360965961 1.41761 7 -33.3458 1 OPERATING 2.90605 0.21098 19.574152 PROFIT 3.64352136 1.253767857 7 7 -12.2871 4 - 19.0314219 - 0.41828 167.50010 FIXED ASSETS 8 14.6803499 1.29639 5 -205.563 9 Constant variable: Net Sales The multiple regression analysis indicated in Table No 6.1.8 performed based on the enter method shows that Net Sales have significant impact on Profit and Assets. The overall method was explained by Net Profit, Operating Profit, and Fixed Assets emerged as significant variables in explaining the variance in Net Sales. Operating Profit had a strongest effect on Net Sales with a Coefficient of 3.64. Since the significant value is 0.418285 (Coefficient= -19.031). The overall method was explained by 95% of variance which was statically significant F (3, 1) = 3.690339, Significant F=0.361345 it‟s greater than 0.05 to predict the Net Sales. Result of regression analysis indicates adjusted R square of 0.66862 and the Significant F=0.5778 (P>0.005). Hence, the Null hypothesis is accepted at 5% level. So there is no significant relationship between Net profit, Operating Profit, Fixed Assets and Net Sales. http://www.iaeme.com/IJM/index.asp 21 editor@iaeme.com
Dr. G. Kanagavalli and R. Saroja Devi 9. CONCLUSION Ratio analysis helps to compare the financial statements of the firms and comparison of financial performance also investigated over a period of time. Firms have made use of more borrowed funds. The study found that there is the positive strong relationship of liquidity ratio. It evolves the effective inventory management and conversion period leads to higher liquidity power to the companies. Therefore, the study proves that there are some significant changes to meet their liabilities. The Solvency Ratios of selected automobile companies have some fluctuation. This means they face a little risk to meet their long term obligations. The Efficiency or Turnover Ratios of Hero Motocorp is high rank among other Automobile companies. This shows that Hero Motocorp effectively manages its resources and assets. The Profitability Ratios of Hero Motocorp is higher than other automobile companies. It shows Hero Motocorp earned high profit and it is good for the company. After analyzing all the aspects, concern with this research, we can say that Bajaj Auto and TVS Motors are satisfactory but Hero Motocorp sustains a good position in the market. Hence share holders can invest their share daringly. They can get wholesome return and their shares will be safe and secured. KEY NOTES 1. www.ibef.com 2. Sheela Christina (2017) the study on Financial Performance of Wheels India Limited- Chennai. 3. Neha Mittal (2018), “Determinants of capital structure of Indian industries”, Journal of Accounting and Finance, Volume 25, No: 1, PP.32-40. REFERENCES [1] Khan.M.Y and P.K. Jain, 2010, „Financial Management, Text and Problems‟, Tata McGraw Hill Publishing Company Ltd., New Delhi. [2] Kothari, C.R. 2008, „Research Methodology methods & techniques‟, second edition, new age international publishers, Delhi. [3] OmPrakash, „Ratio Analysis for Management in new prospective- Management ratio‟, Himalaya publishing House, New Delhi. [4] Pandey, I.M. 2010, „Financial Management‟, Ninth Edition, Vikas Publishing, House Pvt.Ltd, New Delhi. [5] Pillai, R.S. N. and Bahavathi, „Management Accounting‟, (New Delhi: S.Chand and Company Ltd). [6] Adolphus J. Toby (2007), „ Financial Management Modeling of the performance of Nigerian Quoted small and Medium-Sized Enterprises‟, Journal of financial management and Analysis. pp. 49-65. [7] Ahmed Arif Almazari. (2012). “The financial performance of the jordanian arab commercial bank”. Dupont system of financial analysis. [8] Christina Sheela Dr. K. Karthikeyan. (2012).” Financial Performance of Pharmaceutical Industry in India using DuPont Analysis". European Journal of Business and management, 4 (14). [9] Dharmaraj, A. and Kathirvel, N (2013), “Analysing the Financial Performance of Selected Indian Automobile Companies”. Global Research Analysis, Volume: 2, Issue 4, April 2013, Pp 18-20. http://www.iaeme.com/IJM/index.asp 22 editor@iaeme.com
Financial Performance of Selected Automobile Companies [10] Geethalakshmi, Dr.K.Jothi, Dr.A.Sumathi. (2016). Financial Performance of Select automobile Companies in India. International Journal of Business Management, 4 (6). [11] Jothi. K, (june 2015). A Study on Financial Performance of Honda and Toyota Automobile Company a Comparative Analysis . Journal of Progressive Research in Social Sciences, Volume 2, Issue 1 , 33-35. [12] Financial Express [13] India Today [14] Indian Express [15] The Economic Times [16] The Hindu [17] The Times of India [18] www.heromotocorp.com [19] www.bajaj.com [20] www.tvs.com [21] www.auto.indiamart.com [22] www.moneycontrol.com [23] www.equitymaster.com [24] www.siamindia.com [25] https://scholar.google.co.in/ http://www.iaeme.com/IJM/index.asp 23 editor@iaeme.com