Financial Ratio Analysis of Indus Motor Company LTD

IMRAN
ZULFIQAR
(MBW-230770)
ALI HUSSAINI
(SP-09-CE-118)
ALI HUSSAINI
(SP-09-CE-118)
[FINANCIAL RATIO
ANALYSIS
COMPARISON OF
INDUS MOTOR
COMPANY LTD AND
PAK SUZUKI]
FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

MOTOR COMPANY LTD AND PAK SUZUKI
ACKNOWLEDGEMENT
In the name of Allah, the most beneficent and

most merciful who gave us strength and knowledge
to complete this report. This report is a part of our
course Financial Management. This has proved to
be a great experience.
We would like to express our gratitude to our
teacher Mr. NAZIM ABDUL MUTALIB who gave us
this opportunity to fulfill this report.
CASE

VISION OF INDUS MOTOR COMPANY LTD.

"IMCs Vision is to be the most respected and
successful enterprise, delighting customers with a
wide range of products and solutions in the
automobile industry with the best people and the
best technology".
The most respected.
The most successful.
Delighting customers.
Wide range of products.
The best people.
The best technology.
CASE

CASE

MISSION OF INDUS MOTOR COMPANY

LTD.
IMCs mission is reflected in companys slogan

ACT # 1
Action, Commitment and Teamwork to become #1
in Pakistan.
Mission of Toyota is to provide safe & sound
journey. Toyota is developing various new
technologies from the perspective of energy saving
and diversifying energy sources. Environment has
been first and most important issue in priorities of
Toyota and working toward creating a prosperous
society and clean world.
CASE

COMPANY PROFILE
Indus Motor Company Limited (IMC) was incorporated in 1989 as a joint venture
company between the House of Habib of Pakistan, Toyota Motor Corporation and
Toyota Tsusho Corporation of Japan. The Company manufactures and markets Toyota
brand vehicles in Pakistan. The main product offerings include several variants of the
flagship Corolla in the passenger cars category, Hilux in the light commercial vehicles
segment and the Fortuner Sports Utility Vehicle. The manufacturing facility and offices
CASE

are located at a 105 acre site in Port Qasim, Karachi, while the product is delivered to
end customers nationwide through a strong network of 41 independent 3S Dealerships
spread across the country. In its 25 years history since inception, IMC has sold more
than 600,000 CBU/CKD vehicles and has demonstrated impressive growth, in terms of
volumetric increase from a modest beginning of 20 vehicles per day production in 1993
to 240 units daily at present through the development of human talent embracing the
Toyota Way of quality and lean manufacturing. Over the years, IMC has made large
scale investments in enhancing its own capacity and in meeting customer requirements
for new products. Today, Corolla is the largest selling automotive brand model in
Pakistan and it also has the distinction of being # 1 in Toyotas Asian market. The
Company invests heavily in training its 2,300 plus workforce of team members &
management employees and creating a culture of high performing empowered teams
working seamlessly across processes in search of quality and continuous improvement.
The core values of the Company encourage employees to pursue high standards of
business ethics and safety; communicating candidly by giving bad news first and to
respect people. The bi-annual TMC morale surveys show that employees rate IMC high
on work environment and level of job satisfaction. The Company has played a major
role in the development of the entire value chain of the local auto industry and is proud
to have contributed in poverty alleviation at the grass root level by nurturing localization
that, in turn, has directly created thousands of job opportunities and transferred
technology to over 60 vendors supplying parts. IMC is also a major tax payer and
significant contributor to the GOP exchequer.
CASE

PAK SUZUKIS VISION
To be recognized as a leading organization that

values Customers needs and provides motoring
solutions with strong customer care.
PAK SUZUKIS MISSION
Strive to market value packed products that

meet customers expectations.
Provide a platform where our stakeholders
passionately contribute, invest and excel.
Make valuable contribution to Social
development of Pakistan.
CASE

COMPANY PROFILE
Pak Suzuki Motor Company Limited was formed as a joint venture between
Pakistan Automobile Corporation and Suzuki Motor Corporation (SMC) Japan. The Company was incorporated as a public limited company in August
1983 and started commercial operations in January 1984. The initial share
holding of SMC was 12.5% which was gradually increased to 73.09%.
Pak Suzuki is pioneer in Automobile Business having the most modern and
the largest manufacturing facilities in Pakistan with an Annual production
capacity of 150,000 vehicles. The vehicles produced include cars, small vans,
Pickups, Cargo vans and Motorcycle. Pak Suzuki holds more than 50% Market
Share.
Following the aggressive policy of Indigenization, Suzuki vehicles have a
healthy local content upto 72%. This was made possible by strong support of
our vendors.
Pak Suzuki has the largest Dealers network offering 3S (Sales, Service and Spare Parts)
CASE

facilities across Pakistan.
Caring for the Environment Pak Suzuki was pioneer in introduction of Factory
fitted CNG vehicles.
Pak Suzuki always endeavors to go aggressively for the sound development
of the society by increasing motorization, industrialization and creating job
opportunities thus improving the peoples living standards with the combined
efforts of all the dealers, vendors and Pak Suzuki employees.
Pak Suzuki is also exporting Suzuki Ravi pickup, Liana and components to
Bangladesh and Europe thus earning precious foreign exchange for the
country.
CASE
10

RATIO ANALYSIS
A statistic has little value in isolation. Hence, a profit figure of Rs.100 million
is meaningless unless it is related to either the firms turnover (sales
revenue) or the value of its assets. Accounting ratios attempt to highlight the
relationships between significant items in the accounts of a firm. Financial
ratios are the analysts microscope; they allow them to get a better view of
the firms financial health than just looking at the raw financial statements.
Ratios are used by both internal and external analysts
Internal uses
Planning
Evaluation of management
External uses
Credit granting
Performance monitoring
Investment decisions
Making of policies
CASE
11

CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to five categories:
1. Liquidity Ratios shows the extent to which the firm can meet its
financial obligations.
2. Asset Management Ratios shows that how effectively the firm is
managing its assets.
3. Debt Management Ratios shows the extent to which a firm uses
debt financing or financial leverages.
4. Profitability Ratios relates profits to sales and assets.
5. Market Value Ratios are a measure of the return on investment.
CASE
12

CASE
13

CURRENT RATIO
Ratio
Formula
Curre
nt
Ratio
Current
Assets/Cur
rent
Liabilities
(Rs. In
Million)
Ratio
Formula
Curre
nt
Ratio
Current
Assets/Cur
rent
Liabilities
(Rs. In
Million)
CASE
Calculati
on
1706045
1/
5547980
Value
2012
3.08
Calculatio
n
18372365/
6166119
Value
2013
2.98
Calculati
on
2310757
3/
9117479
Value
2014
2.53
Calculati
on
2408897
5/
1039591
9
Value
2012
2.32
Calculatio
n
22187601/
7412684
Value
2013
2.99
Calculati
on
2003831
2/
5976034
Value
2014
3.35
14

Current Ratio
4
3.5
3.35
3.08
2.98
3
2.5
2.99
2.53
2.32
2
1.5
1
0.5
0
2012
2013
Pak Suzuki
2014
Column1
Analysis
The current ratio helps investors and creditors understand the liquidity of a company and
how easily that company will be able to pay off its current liabilities. This ratio expresses a
firm's current debt in terms of current assets. So a current ratio of 4 would mean that the
company has 4 times more current assets than current liabilities.
A higher current ratio is always more favorable than a lower current ratio because it shows
the company can more easily make current debt payments.
In above year wise comparison, Current ratio of Pak Suzuki is on decreasing trend which
shows The company can find difficulty to pay its debts in future. But on the other way, Indus
motor is showing a significant trend in current ratio.
The current ratio also sheds light on the overall debt burden of the company. If a company is
weighted down with a current debt, its cash flow will suffer.
CASE
15

QUICK RATIO
Ratio
Formula
Quic
k
Ratio
Quick
Assets/Cur
rent
Liabilities
(Rs. In
Million)
Ratio
Formula
Quic
k
Ratio
Quick
Assets/Cur
rent
Liabilities
(Rs. In
Million)
CASE
Calculati
on
6459339/
5547980
Value
2012
1.16
Calculatio
n
7582973/
6166119
Value
2013
1.23
Calculati
on
8078462/
9117477
Value
2014
0.89
Calculati
on
1653843
9/
1039591
9
Value
2012
1.59
Calculatio
n
14293493/
7412684
Value
2013
1.93
Calculati
on
1555391
0/
5976034
Value
2014
2.60
16

Quick Ratio
3
2.6
2.5
1.93
2
1.59
1.5
1.16
1.23
0.89
1
0.5
0
2012
2013
Pak Suzuki
2014
Column1
Analysis
The acid test ratio measures the liquidity of a company by showing its ability to pay off its
current liabilities with quick assets. If a firm has enough quick assets to cover its total
current liabilities, the firm will be able to pay off its obligations without having to sell off any
long-term or capital assets.
Higher quick ratios are more favorable for companies because it shows there are more
quick assets than current liabilities. A company with a quick ratio of 1 indicates that quick
assets equal current assets. This also shows that the company could pay off its current
liabilities without selling any long-term assets. An acid ratio of 2 shows that the company
has twice as many quick assets than current liabilities.
CASE
17

Indus motor quick ratios for 3 years are with changing values with increasing trend which is
better for company performance for paying its without selling its long term assets. While,
Pak Suzuki is showing the mix trend of ratios with slight increase in 2013 and then decrease
in 2014.
DEBT-EQUITY RATIO
Ratio
Formula
DebtEquit
y
Ratio
Total
Debts/Sha
re holders
Equity
(Rs. In
Million)
Ratio
Formula
Quic
k
Ratio
Quick
Assets/Cur
rent
Liabilities
(Rs. In
Million)
CASE
Calculati
on
5547980/
1580088
4
Value
2012
0.35
Calculatio
n
6166119/
17645158
Value
2013
0.35
Calculati
on
9117477/
1923668
2
Value
2014
0.47
Calculati
on
1039591
9/
1701385
8
Value
2012
0.61
Calculatio
n
7412684/
17692708
Value
2013
0.42
Calculati
on
5976034/
1991565
2
Value
2014
0.30
18

Debt-Equity Ratio
0.7
0.61
0.6
0.47
0.5
0.42
0.4
0.35
0.35
0.3
0.3
0.2
0.1
0
2012
2013
Pak Suzuki
2014
Column1
Analysis
A lower debt to equity ratio usually implies a more financially stable business. Companies
with a higher debt to equity ratio are considered more risky to creditors and investors than
companies with a lower ratio. Unlike equity financing, debt must be repaid to the lender.
Since debt financing also requires debt servicing or regular interest payments, debt can be
a far more expensive form of financing than equity financing. Companies leveraging large
amounts of debt might not be able to make the payments.
So, Indus Motor have high debt-equity ratios in 2012 and 13 But It has a good control on it
in year 2014. Pak Suzuki is nicely manageable to control its debt to equity ratio to make it
within limits.
CASE
19

AVERAGE COLLECTION PERIOD
Ratio
Formula
Av.
Colle
ction
Perio
d
A/c
Rec./Net
Sales Per
Day
(Rs. In
Million)
Ratio
Formula
Av.
Colle
ction
Perio
d
A/c
Rec./Net
Sales Per
Day
(Rs. In
Million)
CASE
Calculati
on
757108/
162587
Value
2012
4.65
Calculatio
n
919206/
141837
Value
2013
6.48
Calculati
on
1089823/
149069
Value
2014
7.31
Calculati
on
1414032/
213785
Value
2012
6.61
Calculatio
n
1730921/
149525
Value
2013
11.58
Calculati
on
1196641/
158510
Value
2014
7.55
20

Average Collection Period
14
11.58
12
10
8
6
6.61
7.31
6.48
7.55
4.65
4
2
0
2012
2013
Pak Suzuki
2014
Column1
Analysis
The average collection period ratio measures the average number of days clients take to pay their
bills, indicating the effectiveness of the businesss credit and collection policies. This ratio also
determines if the credit terms are realistic. It is calculated by dividing receivables by total sales and
multiplying the product by 360 (days in the period).
A short collection period means prompt collection and better management of receivables. A longer
collection period may negatively affect the short-term debt paying ability of the business in the eyes of
analysts.
Year wise comparison shows the better average collection period for Pak Suzuki than Indus Motor.
INVENTORY TURN OVER
CASE
21

Ratio
Formula
Invento
ry Turn
Over
COGS/Av
.
Inventor
y
(Rs. In
Million)
Ratio
Formula
Invento
ry Turn
Over
COGS/Av
.
Inventor
y
(Rs. In
Million)
Calculati
on
5618539
7/
1056219
4
Value
2012
5.32
Calculatio
n
47818820/
10726457
Value
2013
4.46
Calculati
on
4948124
8/
1497600
1
Value
2014
3.30
Calculati
on
7040078
8/
7529571
Value
2012
9.35
Calculatio
n
57972038/
7883309
Value
2013
7.35
Calculati
on
5127004
0/
4469460
Value
2014
11.47
Inventory Turn Over

14
11.47
12
9.35
10
7.35
8
6
5.32
4.46
3.3
4
2
0
2012
2013
Pak Suzuki
CASE
Column1
22
2014

Analysis
Inventory turnover is a measure of how efficiently a company can control its merchandise,
so it is important to have a high turn. This shows the company does not overspend by
buying too much inventory and wastes resources by storing non-salable inventory. It also
shows that the company can effectively sell the inventory it buys.
This measurement also shows investors how liquid a company's inventory is. Think about it.
Inventory is one of the biggest assets a retailer reports on its balance sheet. If this inventory
can't be sold, it is worthless to the company. This measurement shows how easily a
company can turn its inventory into cash.
Creditors are particularly interested in this because inventory is often put up as collateral for
loans. Banks want to know that this inventory will be easy to sell.
The comparison shows that Indus motor has high inventory turnover than Pak Suzuki.
ASSETS TURN OVER
Ratio
Formula
Assets
Turn
Net
Sales/To
CASE
Calculati
on
5853113
7/
Value
2012
2.74
Calculatio
n
51061333/
23860436
23
Value
2013
2.14
Calculati
on
5366494
7/
Value
2014
1.89

Over
Ratio
Assets
Turn
Over
tal
Assets
(Rs. In
Million)
2136172
9
Formula
Calculati
on
7696260
0/
2758516
1
Net
Sales/To
tal
Assets
(Rs. In
Million)
2839415
2
Value
2012
2.79
Calculatio
n
63829075/
25129557
Value
2013
2.54
Calculati
on
5706366
2/
2605644
8
Value
2014
2.19
Assets Turn Over

3
2.74
2.79
2.54
2.5
2.19
2.14
1.89
2
1.5
1
0.5
0
2012
2013
Pak Suzuki
2014
Column1
Analysis
This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio
is always more favorable. Higher turnover ratios mean the company is using its assets more
CASE
24

efficiently. Lower ratios mean that the company isn't using its assets efficiently and most
likely have management or production problems.
Indus motor have high ratios than Pak Suzuki. That means It is using its assets more
efficiently than Pak Suzuki to generate sales.
OPERATING PROFIT MARGIN
Ratio
Formula
Operati
ng
Profit
Margin
Net
Profit/N
et Sales
(Rs. In
Million)
Ratio
Operati
ng
Profit
Margin
CASE
Formula
Net
Profit/N
et Sales
(Rs. In
Million)
Calculati
on
978022/
5853113
7
Value
2012
0.017
Calculatio
n
1849357/
51061333
Value
2013
0.036
Calculati
on
1921494/
5366494
7
Value
2014
0.036
Calculati
on
4302715/
7696264
2
Value
2012
0.056
Calculatio
n
3357445/
63829075
Value
2013
0.053
Calculati
on
3873542/
5706362
2
Value
2014
0.068
25

Operating Profit Margin
0.08
0.07
0.07
0.06
0.06
0.05
0.05
0.04
0.04
0.04
0.03
0.02
0.02
0.01
0
2012
2013
Pak Suzuki
2014
Column1
Anaysis
The profit margin ratio directly measures what percentage of sales is made up of net
income. In other words, it measures how much profits are produced at a certain level of
sales.
This ratio also indirectly measures how well a company manages its expenses relative to its
net sales. That is why companies strive to achieve higher ratios. They can do this by either
generating more revenues why keeping expenses constant or keep revenues constant and
lower expenses.
Indus motor has a high operating profit margin ration as compared to Pak Suzuki.
CASE
26

NET PROFIT MARGIN
Ratio
Formula
Net
Profit
Margin
Gross
Profit/N
et Sales
(Rs. In
Million)
Ratio
Net
Profit
Margin
CASE
Formula
Gross
Profit/N
et Sales
(Rs. In
Million)
Calculati
on
2345740/
5853113
7
Value
2012
0.040
Calculatio
n
3242513/
51061333
Value
2013
0.064
Calculati
on
4183699/
5366494
7
Value
2014
0.078
Calculati
on
6561854/
7696264
2
Value
2012
0.085
Calculatio
n
5857037/
63829075
Value
2013
0.092
Calculati
on
5793582/
5706362
2
Value
2014
0.102
27

Net Profit Margin
0.12
0.1
0.1
0.09
0.09
0.08
0.08
0.06
0.06
0.04
0.04
0.02
0
2012
2013
Pak Suzuki
2014
Column1
Analysis
Net profit margin ratio is a profitability ratio that measures how profitable a
company can sell its inventory. It only makes sense that higher ratios are
more favorable. Higher ratios mean the company is selling their inventory at
a higher profit percentage.
High ratios can typically be achieved by two ways. One way is to buy
inventory very cheap. If retailers can get a big purchase discount when they
buy their inventory from the manufacturer or wholesaler, their gross margin
will be higher because their costs are down.
Indus motor has high net profit margin ratio than Pak Suzuki.
BOOK RETURNS ON EQUITY
CASE
28

Ratio
Formula
Book
ROE
Net
Income/Sh
are
holders
Equity
(Rs. In
Million)
Ratio
Formula
Quic
k
Ratio
Quick
Assets/Cur
rent
Liabilities
(Rs. In
Million)
Calculati
on
978022/
1580088
4
Value
2012
0.619
Calculatio
n
1849357/
17645158
Value
2013
0.105
Calculati
on
1921894/
1923668
2
Value
2014
0.10
Calculati
on
4302715/
1701385
8
Value
2012
0.253
Calculatio
n
3357545/
17692708
Value
2013
0.190
Calculati
on
3873452/
1991565
2
Value
2014
0.194
Book Returns on Equity

0.7
0.62
0.6
0.5
0.4
0.3
0.25
0.11
0.1
0
2012
0.1
2013
Pak Suzuki
Column1
Analysis
CASE
0.19
0.19
0.2
29
2014

Return on equity measures how efficiently a firm can use the money from shareholders to
generate profits and grow the company. Unlike other return on investment ratios, ROE is a
profitability ratio from the investor's point of viewnot the company. In other words, this ratio
calculates how much money is made based on the investors' investment in the company,
not the company's investment in assets or something else.
That being said, investors want to see a high return on equity ratio because this indicates
that the company is using its investors' funds effectively. Higher ratios are almost always
better than lower ratios, but have to be compared to other companies' ratios in the industry.
Since every industry has different levels of investors and income, ROE can't be used to
compare companies outside of their industries very effectively.
In 2012, Pak Suzuki has high ROE than Indus, But in year 2013-14, Indus motor performed
well in utilizing their shareholders investment to grow profits and more sales.
CASE
30

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31

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32

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33

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34

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35

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36

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37

Conclusion
CASE
38

Financial Ratio Analysis of Indus Motor Company LTD

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IMRAN

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

In the name of Allah, the most beneficent and

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

VISION OF INDUS MOTOR COMPANY LTD.

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

MISSION OF INDUS MOTOR COMPANY

IMCs mission is reflected in companys slogan

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

PAK SUZUKIS VISION

To be recognized as a leading organization that

Strive to market value packed products that

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

Ratios are used by both internal and external analysts

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

CATEGORIES OF FINANCIAL RATIOS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

AVERAGE COLLECTION PERIOD

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

INVENTORY TURN OVER

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

Inventory Turn Over

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

ASSETS TURN OVER

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

Assets Turn Over

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

OPERATING PROFIT MARGIN

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

NET PROFIT MARGIN

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

BOOK RETURNS ON EQUITY

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

Book Returns on Equity

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

FINANCIAL RATIO ANALYSIS COMPARISON OF INDUS

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