FINANCIAL ACCOUNTING AND ANALYSIS

ASSIGNMENT: 1

TOPIC: CALCULATIONS OF VARIOUS RATIOS AND

THEIR INFERENCE

MARUTI SUZUKI

INTRODUCTION
The Maruti story began in the year when scooters had a waiting
period and the Indian car customer had limited options. The Government of India
identified the need for a small car for the Indian masses, a car that would be
economical, environment friendly yet contemporary in technology. In short 'A
people's car'. The result, Maruti Suzuki India Limited (MSIL) was born in
February 1981. Maruti Suzuki started as a government company, with Suzuki as
a minor partner, to make a people's car for middle class India. Over the years, the
company's product range has widened and ownership has changed hands. The
product portfolio of the company consist 11 models with around 100 variants
including Maruti 800, Omni, Alto, WagonR, Swift, Zen, Gypsy, Dzire, Versa,
SX4 and Grand Vitara.
The company set up a network of component vendors, dealers
and service stations and facilitated around 60 technical collaborations for Indian
vendors from Japanese, European and even American partners to upgrade
technology and quality levels. MSIL have a sales network of 600 outlets in 393
towns and cities, and provide maintenance support to customers at 2628
workshops in over 1200 towns and cities (as on March 31,2008). The Company
planned about proposed investments till 2010 amounted Rs. 9000 Crores .

R C Bhargava is the chairman. The Company Secretary is Mr. S

Ravi Aiyar.Maruti has 2628 listed Authorized service stations and 30 Express
Service Stations on 30 highways across India. In the same year 2007, the
company name was changed from Maruti Udyog Limited to Maruti Suzuki India
Limited and Joined hands with Gujarat Government to set up Driving and
Technical Training Institute for tribal youth. The biggest draw even the year 2007
was the award for highest Automotive Customer Satisfaction Index. Maruti
Suzuki scored the highest in customer satisfaction index for the eighth
consecutive year. In the Initial Quality Study, Maruti Swift walked away with the
highest IQS in the Premium Compact car segment during the year 2007.

SALIENT FINANCIAL PERFORMANCE INDICATORS

 Mar- Mar- Mar- Mar- Mar-
09 08 07 06 05

Key Ratios
Debt-Equity Ratio 0.09 0.1 0.06 0.04 0.08

Long Term Debt-Equity Ratio 0.06 0.07 0.06 0.04 0.08

Current Ratio 1.22 1.13 1.52 1.73 1.42

Turnover Ratios
Fixed Assets 2.9 3.13 3.1 2.95 2.77

Inventory 23.9 24.18 21.74 19.06 24.11

Debtors 29.45 29.97 24.69 23.69 20.69

Interest Cover Ratio 29.91 43 61.63 86.78 37.25

PBIDTM (%) 9.63 14.89 15.05 13.93 13.48

PBITM (%) 6.58 12.19 13.47 12 10.05

PBDTM (%) 9.41 14.61 14.83 13.8 13.21

CPM (%) 7.67 10.93 10.66 9.99 9.83

APATM (%) 4.63 8.23 9.08 8.06 6.4

ROCE (%) 15.76 30.51 35.63 34.68 31.28

RONW (%) 12.08 22.67 25.38 24.19 21.42

ESTIMATION OF VARIOUS COMPUTATIONS

Receivable/Debtors as a percentage of sales

PARTICULARS 2009 2008 2007

Debtors 918.9 655.5 747.4

Sales 23182.2 21025.2 17205.9

Debtors to Sales Ratio 3.76 3.11 4.3

Days Debtors 12.39 12.17 14.78

 Debtors to Sales Ratio

5
4.5
4
3.5
3
2.5 Debtors to Sales Ratio
2
1.5
1
0.5
0
2009 2008 2007

Days Debtors

16
14
12
10
8 Days Debtors
6
4
2
0
2009 2008 2007

COMPUTATION PROCESS
• Debtors to Sales Ratio: For each Year Debtors are divided by the sales of the
same year and multiplied by 100 for finding the percentage of each year.

• Formula : Debtors/sales*100

• To compute days Receivables: To find the days debtors we need to first find out
Debtors Turnover Ratio(DTR) and then find the days receivables by dividing
the DTR value with 360

• formula: 360/DTR of each year

INFERENCE
 • The company is maintaining 12.17 days of debtors and debtors to sales ratio is
3.11to 3.96 from past two years.

• The company has shown decrease in its trend from 2007 to 2008 but from2008
to 2009 it has maintained 12 days.
• It is showing consistency in days which is a good sign for the company

Break-up of Product sales

Commodity 2009 2008 2007

QTY Rupees QTY Rupees QTY Rupees

Passenger cars 792167 21659 76482 19799 674942 16136

Vehicle spares N/A 1409 N/A 1102.6 N/A 930

Service Charges N/AA 97 N/A 75.9 N/A 77.2

Moulds and dies N/A 19.5 N/A 47.7 N/A 61.7

100%
90%
80%
70%
60% 2007
50% 2008
40% 2009
30%
20%
10%
0%
Passenger cars Vehicle spares Service Charges Moulds and dies

COMPUTATION PROCESS
• To find break-up of product sales we need to divide the product quantity and
their respective prices from current year to previous year.
• It is given by the formula: Quantity current yr/Quantity previous yr
• For computing rupees: Rupees current yr/Rupees previous yr

Solution To The Given Table

•
 Commodity 2008 TO 2007 2009 TO 2008

QTY Rupees QTY Rupees

Passenger cars 1.04% 1.09% N/A 0.07%

Vehicle spares N/A 1.28% N/A 1.19%

Service Charges N/A 1.28% N/A 0.98%

Moulds and dies N/A 0.41% N/A 0.77%

Solution to the Given Table (Pricing the Trend)

1.40%

1.20%

1.00%

0.80% 2008 TO 2007

0.60% 2009 TO 2008

0.40%

0.20%

0.00%
Passenger Vehicle spares Service Moulds and
cars Charges dies

INFERENCE

• PASSENGER CARS: From the above table we can see that the value of
the product has come down in 2008 to 2009 when compared to previous
year that is from 1.09% to 0.07% this shows that demand for the product is
decreasing from year to year which is a bad sign for the company.
o Suggestions: The Company should use new strategies to attain
customer satisfaction and thus increasing the demand for the
product which in turn effects product value.
• VEHICLE SPARES: The sales of the product is satisfactory as the value
of the product is more then 1% and there is increase in the value from
1.19% to 1.28% from 2007-08 to 2008-09 which shows that there is
increase in demand as well as sales hence the company is in good sales
position.
o Suggestion: The company is performing well has maintained to
increase its value from year to year and should try to keep this trend
by increasing its quality so that it can gradually attract more
customers and hence increasing its product value.
• SERVICE CHARGES: From the above data we can say that there is
 major increase in the value of the product as compared to other products of
the company. There is increase in value from 0.98% to 1.28% in 2009
which shows that customers are happy with the service provided by the
company. Hence the income from product has increased which is a good
sign for the company.
o Suggestion: The Company is showing increasing trend in the value
of the product and it should try to maintain this trend. Company can
give more value added services so that it can build customer loyalty
and new techniques in its services.
• MOULDS AND DIES: The income from the product has gone down from
0.77% to 0.41% which is not a good sign for the company. As the value of
the product is less then 1% the demand is going down so there is no much
income from this product which is a negative factor for the company.
o Suggestion: The Company can try to use new techniques and waste
management strategies so that it can produce better quality product
in lower price. The company should try to increase product value to
earn more incomes

Export As Percentage Of Sales

PARTICULARS 2009 2008 2007

EXPORT 15022.1 7413.3 5781.2

SALES 23182.2 2105.2 17205.9

EXPORT AS A % OF SALES 64.7% 35.2% 33.6%

EXPORT AS A % OF SALES

2007
25%
2009
49%

2008
26%

COMPUTATION PROCESS

• To find out export as a percentage of sales we need to divide the

export for the given year with the sales of given year.
• Formula: Export/Sales*100
INFERENCE
 • The export value of the company has increased from 2007 to
2009.
• In 2007 the export value is 33.6% which is not satisfactory. In
2009 the export value has increased to 64.7%. Hence the
company is growing and increasing its exports sales.
• This shows that the company is not much affected by economic
crisis.
Provision for Bad Debts to Sales.

Particulars 2009 2008 2007

Provisions for Bad Debts 266 266 273

Sales 23182.2 21025.2 17295.9

Bad Debts as % of Sales 1.14 1,26 1.58

Bad Debts as % of Sales

1.6
1.4
1.2
1
0.8 Bad Debts as % of Sales
0.6
0.4
0.2
0
2009 2008 2007

COMPUTATION PROCESS

• To find out the provisions for bad debts as a % of sales: we find out
these values by dividing provisions for bad debts by sales for the
given year and then multiplying the value by 100 to find the
percentage change.
• Formula : provisions for bad debts/Sales*100

INFERENCE
• There is a decline in the trend of provision for bad debts. In 2007 it
is 1.58% and it has gradually decreased to 1.14 % in 2009 which is
good sign for the company as it is reducing bad debts .Hence
company should maintain this trend for it's profitability.
Receivables Greater Than 6 Months As Percentage Of Tangible Net Worth

PARTICULARS 2009 2008 2007

Debtors greater than 6months 120.5 139.4 129

Tangible net worth 9344.9 8415.4 1290

DRS as % of TNW 1.28% 1.65% 1.88%

DRS as % of TNW

2.00%

1.50%

1.00%

0.50%

0.00%
2009 2008 2007
DRS as % of TNW 1.28% 1.65% 1.88%

COMPUTATION PROCESS
• This computation is done by: considering the DRS greater than 6
months and dividing them by the tangible net worth of the
company(Share Capital + Reserves & Surplus - MISCL EXPS )
and then multiplying by 100
• Formula : DRS greater than 6months/TNW*100
INFERENCE
• From the above table we can see that the company had been able to
maintain it's consistency in it's value from 2007 to 2009. This
means that the company had been able to realize its money on time
so that it can meet its obligation which is a very good sign for the
company.
ADVANCES REDUCED FROM DEBTORS AND RECOMPUTED DRS DAYS

PARTICULARS 2009 2008 2007

ADVANCES FROM CUSTOMERS 150 200 440

DEBTORS 918.9 655.5 747.4

DRS (LESS) ADVANCES 768.9 415.5 307.4

DTR 30.1 46.1 6.5

 DAYS DRS RECOMPUTED 12.12 7.9 56.1

DAYS DRS RECOMPUTED

60

50

40
DAYS DRS RECOMPUTED
30

20

10

0
2009 2008 2007

COMPUTATION PROCESS
• This calculation is computed as follows here the advance is 1st
reduced form the debtors and then recalculated debtors is used to
find out DTR and then DTR is used to calculate DRS days for 360
days period.
• Formula : Advances to customers – Debtors
• Second step: recomputed Debtors to calculate DTR = SALES/DRS
• Third step: calculation of DRS DAYS = 360/DTR
INFERENCE
• We can see from the above table that there is a decrease in
advance from customer and days debtors but there is slightly increase
in the value in 2008.
• The advances which are been given to customers have been
realized fast which is a very good sign for the company, as the
company is able to sell its products on advance payments.
• The cash sales have increased and this had led to the reduction in
sundry debtors from 56.1 days in 2007 to 12.12 in 2009 which is
satisfactory.

Analysis of Directors Report, Auditors Report & Notes to Accounts

2009:
The gross revenue (net of excise) of the Company for the year was Rs. 214,538 million as
against Rs. 187,733 million in the previous year showing growth of 14.3%. Sales of
vehicles in the domestic market increased to 722,144 as compared to 711,818 in the
 previous year showing a growth of 1.5%.Exports of vehicles grew at an impressive rate of
32% from 53,024 to 70,023 in the current year. The overall growth was 3.6% which was
achieved in spite of the difficult economic and market conditions prevailing particularly
in the later half of the year due to the global financial and economic crisis which did not
spare the Indian economy. Earnings before depreciation, interest, tax and amortization
(EBDITA) stood at Rs. 24,333 million against Rs. 31,308 million in the previous year.

2008:
The Company for the year was Rs. 188,238 million as against Rs. 152,523 million in the
previous year showing an impressive growth of 23.4%. Earnings before depreciation,
interest, tax and amortization (EBDITA) stood at Rs. 31,308 million against Rs. 25,888
million in the previous year, recording a jump of 20.9%.Profit after Tax (PAT) stood at
Rs. 17,308 million against Rs. 15,620 million in the previous year showing a growth of
10.8%.

2007:
The gross revenue (net of excise) of the Company for the year was Rs. 152,523million as
against Rs. 124,814 million in the previous year. Earnings before depreciation, interest,
tax and amortization (EBDITA) Rs. 25,888 million. Profit after Tax (PAT) stood at Rs.
15,620million against Rs. 11,891 million. 2006-07, the passenger car industry growth is
11.8%.

Conclusions Drawn From the Study Conducted

After conducting the study and computing the various ratios we can come to the following
conclusion:
• The company has maintained credit sales limit approximately 12 days in 2008 and
2009 and it has reduced as compared to 2007 which is good sign to the company.
• We can see that the value of the passenger cars, moulds and dies has come down in
2008 to 2009 when compared to previous year. The other product vehicle spares and
service charges managed to maintain a steady growing trend in its value. The company
needs to work to establish itself as the market leader in these products to earn more
profit.
 • Export sales value of the company has increased from 2007 to 2009 this shows that
there is more demand for the products which is a good sign for the company. Company
has tried to maintain its exports sales even during the crisis.
• The provisions for bad debts has reduced from 2007 to 2009 bad debts as percentage
of sales has reduced which shows that company is reducing its bad debts which is a
positive sign for the company.
• Debtors greater than 6 months has increased from 2007 to 2008 and then again it has
reduced in 2009 this shows that company has taken measures to realise the debts which
is good for the company.
• The cash sales have increased and this had led to the reduction in sundry debtors from
56.1 days in 2007 to 12.12 in 2009 which is satisfactory.

From the above analysis we can conclude that there is satisfactory debtor turn over
ratio and there has been proper cash management as bad debts are reducing. The companies
some products are doing extremely well in the market. Hence maintaining its good
profitability and debtor’s relationship. The company’s financial position is good in 2009 as
compared to previous year this shows that company is not much affected by economic crisis.