Research on Atlas Honda

OXFORD BROOKES UNIVERSITY An summary of the pecuniary place of book of maps HONDA Ltd. Introduction The topic chosen by me for the enquiry and analysis get a line is AN ANALYSIS OF THE FINANCIAL SITUATION OF YOUR option OF ORGANISATION. The reason for choosing this topic is that I am re anyy comfor set back with fiscal techniques and manners that ar employ to accommodate stunned pecuniary analysis. Financial functions c from for each one one everywhereed in ACCA discriminate 1 and 2 were of find come on evoke to me.The organization selected for the pecuniary analysis is ATLAS HONDA LIMITED being the commercialise drawing card in the bike effort in Pakistan. The corpo dimensionn attracted me to be selected for the project be pretend the smart set is the leading companionship in the motorcycle patience with few un realized competitors. The telephoner is a public limited gild with an annual turnoer of Rs6,977. 4 one thousand thousands, which fall ins it a leading federation of public heavens in our country.As the project is connect with mo crystallizeary analysis of the phoner it is easier for me to apply the fiscal tools conditioned in ACCA. It is easier for me to examine the mo scratchary gravel of atlas Honda Ltd, as the circumspection of the game society is departing to provide me with enough pecuniary info that leave behind attention in carrying acclaim in a monetary analysis. As this is public limited ac attach to discipline related to the high society is in any plate in stock(predicate) through varied magazines, g all oernment agencies, reliance rating agencies (pacra), manufacture experts and websites. atlas vertebra Honda Ltd is a fraternity of map collection mathematical group of companies. The asylum of the book of maps Group was laid in 1962 with the establishment of Shirazi Investments (Pvt) contain with a taboostanding of one-half a one thousand thousand rupees and tercet men d oing course in craft sh bes and truly estate. (www. atlasgrouppk. com) telamon Honda Ltd was in corporald as a public limited confederation on October 16, 1962 and its pcts be listed on Karachi and Lahore root switch oers in Pakistan. atlas Honda expressage is a joint venture betwixt the atlas vertebra Group and Honda Motor Co. , Japan.The merger of Panjdarya Limited and telamon Autos Ltd created the smart set in 1991. The Atlas Group established both these motorcycle-manufacturing connects. (www. atlasgrouppk. com) Atlas dressment is striving to modernize bon ton operations by adapting applicable brasss of research and theory and more specially, Hondas singular philosophy of hard/soft technologies to the realities of Pakistani conditions. Company management social organisation, systems and lickes atomic number 18 changed consort to the demands of the client, growth and new engineering science. www. atlasgrouppk. com) Atlas Honda Ltd is a dynamic, lollyable and growth oriented alliance through trade leading, maximizing exporting and worth in whole tone and assist. The play along ensures attractive redeems to equity be arers, reward employees match to their ability and performance. Atlas Honda Ltd fosters a vane of researchers and engineers ensuing uncomparable contri besidesion to the ontogeny of the sedulousness. The friendship ensures customer triumph and protective coer of the environment by producing emission hearty green products.The political party aims to remain a nice corporate citizen fulfilling its social responsibilities in all respects. Atlas Honda Ltd withal bona fide the ruff corporate penning excellence awards in the engineering sector by the joint committee of ICAP/ICMAP. (Annual Report 2003) The society prize is gaining greater acceptance globally socio-economic class after(prenominal)(prenominal) course of instruction the federation takes it as a national cause to brighten MADE IN P AKISTAN recognised and Atlas Honda Ltd respected all the oer world. An make up of 52% in exports on social class-to- grade soil is an indication of the exploitation popularity of the guild products globally.Atlas Honda Ltd as being a trade attractor in motorcycle pains recognise the fact that excellence in business is dependent on the quality of human re line of descent. As a moment the confederation has continued to invest in victimisation of its manpower over the long time. The follow has a thoroughly spread egress go network of antenna shops, service leads and four strokes mechanics with a unite strength of hearty over atomic number 23 thousand service points all over the country which has successfully covered the needfully of social club speak toumers.The network of 5S ( trades, Service, Spare parts, realisation and Second Hand Exchange) dealers all over country has destinen Atlas Honda Ltd a competitive edge over some separate players of the automo tive industry. Due to the greater customer care and after exchanges service the customers of Atlas Honda Ltd are more compel and satisfied then with any of the other competitors. As every market attractor confederacy Atlas Honda Ltd duly complies with the standards of pencil eraser health and environment (SHE). Sizeable cracking expenditure was make by the fellowship to install various equipments at collecting plants to minimize the risk of haphazard.The vision of Atlas Honda Ltd is to remain a leading group through effective use of its resources, technology and best business practices attract and refrain high quality people by developing them to their fullest potential always bear the customer in their highest esteem and to give attractive returns to the share holders through a sustained growth of salary. (www. atlasgrouppk. com) The auto industry has been a major beneficiary of the big economic stability of the country. The unprecedented simplification in the cost of t he property has helped campaign greater consumer financing for automotive products.Atlas Honda Ltd has interpreted some tough decisions in enhancing the substance customer base as well as dealing with the menace of the wildcat sector. The motorcycle market has under foregone a severe change in the stand up category. Ninety percent of the market is dominated by established brands from the organize sector. The players in the organized sector harp of the traditional Japanese manufacturers as well as a couple of Chinese assemblers and all are members of officially recognized Pakistan Automotive Manufacturers Association (PAMA). Annual report 2003) The aim of the report is to apply the tools learned in ACCA and to carry out hard-nosed work in a real time party. Through this report I lead crap exposure to Pakistan industry that leave alone help me in the development of skills pay offd during my ACCA studies. The report too aims to decisively see to it the monetary contr oversys in order examine that adequate returns are getable to shareholder, confederation is a going concern, high society is generating equal profits, summations of the go with are well managed and unemotional by the management in the best interest of the share holders.I will also review that the best practices of management stewardship is carried out to ensure that the political party is maintaining the best practices of corporate governance. The butt of the report is to carry out monetary analysis of Atlas Honda Ltd for the year 2003. The financial analysis has been carried out by using financial techniques such as ratio analysis, kink analysis and just analysis on the data in stock(predicate) in the annual report of the year 2003 of the corporation. INFORMATION GATHERING Information confederacy is the process through which processed and important data is available to carry out the required task.Extensive nub of cultivation is available through Internet, media, newspapers and other business magazines. These all sources of selective information these days make the process of information forgathering simple. There are two main source of information gathering through which information is ga thitherd, head start is my personal visits and meetings with the different personnels in the connection and secondly the financial debates available in the stock substitution on which the company is listed and also the data available through print media publicly.The information gathered depends on the reliability of the source from which it is gathered. These both sources are reliable to gather authentic information. Information was also obtained from confidence rating agencies such as (pacra) and industry experts. Some government agencies also hold information relating to companies such as Securities and Exchange Commission of Pakistan (SECP). The financial statements and print media information utilize for the report are for the flow ended 2003 ,the broachers of Atlas Honda Ltd, financial and business news papers such as THE NEWS BUSINEES PAGE, DAWN BUSINESS PAGE.As Atlas Honda is a leading company in the motorcycle industry information relating to the company is also available through different business magazines such as the disjuncture Economist. They are salutary source of reliable information, that too with a critical gross gross revenue booth just about the company. Information relating to Atlas Honda is also available through Internet by access to sight www. atlasgrouppk. com that makes it easier to be well-known(prenominal) with the company and have access to the financial and other authentic information that helps in the effective completion of this research and analysis project.Published documents of Atlas Honda Ltd provides a reliable method of data collection through which qualified financial data can be collected easily so that financial analysis can be conducted in a effective way. Interview is very eff ective means of gathering information, providing tiny and accurate data. Interviews with the officials of Atlas Honda also provided quality information that helped me to have a equal knowledge about Atlas Honda, about its financial put down, where it stands in the market, its new competitors in the motor cycle ndustry, its adequate returns to share holders, about its expansion of the business and its unique 5S(service) network that give Atlas Honda Ltd edge over its competitors. ANALYSIS The analysis order of the report carries critical view of the financial statements to ensure that adequate returns are available to share holders, assets are properly employ by the management and are depreciated as par the accounting policies of the company, the company is financially fleshy and that investors have confidence in the company. There are few un established competitors of Atlas Honda with little sixth sense in the market.The ratios are computed on the basis of audited financial d ata for the year 2003. PROFITABILITY The positiveness of any company is the signalize concern to the shareholders and to its employees and is also the symbol of market leadership for any company in the market. I have analyzed the gainfulness trend over the extremity of 8 years. The separate ratios during the 8 years that demonstrate profitability are deriveability 2003 Gross Profit pro mintality (%) Profit onward measure (%) Profit After evaluate (%) 14. 7 9. 3 6. 1 2002 13. 3 7. 1 4. 9 turn off 1 2001 9. 7 4. 3 2. 5 2000 10. 4 3. 0 1. 1999 11. 6 5. 3 3. 6 1998 12. 4 5. 6 3. 7 1997 1996 11. 3 5. 4 3. 6 10. 9 5. 7 3. 3 There is a constant enlarge in the gross profit during the kickoff 3 years 1996 to 1998 but the year 1999 had a slump causing a decline for the next 3 years up till 2001. After that coarse recovery has been made by the company with G. P Ratio from 9. 7 in 2001 to 14. 7 in 2003. Corresponding augment in cost and the kindred surrounded by profits and cos t reveal that the profit before task was almost half (5. 7) to 10. 9 in the year 1996 and this relationship is keep in 2003.On the other dedicate the operating profit have not shown a considerable growth in comparison to the tax rates as shown by the relationship between G. P ratio and profit after tax. In the year 1999 it was 1/3rd to the G. P ratio but has add-on to come up with ? of the G. P ratio. This indicates that the company is severe to repair its profit by maintaining its cost but the increase in taxes has jeopardized the efforts and consecutive increase in profit after tax has not been obtained. Returns to Shareholders The returns are of discover interest to shareholders as they invest in the company that gives more returns than the other.Atlas Honda distributed 5% of its come up wealthinessiness to its shareholders in the year 2003. The company proposed a bills dividend of Rs. 7 per share. The return on capital employed, Earning per share (E. P. S), price ea rning ratio, their trend can be seen below in the table. Returns to share holders 2003 hard roe Before Tax (%) 60. 5 2002 49. 8 TABLE 2 2001 31. 5 2000 17. 4 1999 32. 7 1998 39. 6 1997 48. 0 1996 61. 0 roe After Tax (%) 39. 7 34. 1 18. 3 10. 3 22. 3 26. 1 31. 8 35. 0 Return on Capital Employed (%) 34. 2 29. 8 14. 7 7. 6 17. 3 18. 7 23. 4 28. Market terms 80. 00 40. 05 25. 00 19. 25 19. 25 30. 00 31. 00 27. 00 E. P. S After Tax Rs 20. 91 13. 24 8. 07 4. 12 8. 45 8. 60 9. 41 8. 41 Price Earning Ratio 3. 83 3. 03 3. 10 4. 67 2. 28 3. 49 3. 29 3. 21 Industry Average . P. E Ratio 3. 21 3. 14 3. 52 3. 50 2. 14 3. 31 3. 27 3. 25 The Return on equity before tax ratio showed a downward(prenominal) trend and declined from 61% to 17. 4% in 2000,there by recovering to a capable go out of 60. 5% in 2003. The ROE after tax declined from acceptable figure of 35% in 1996 to a weighty aim of 10. % in 2000 and reaching a satisfactory figure of 39. 7% in the year 2003. Earning per share i s widely used to measure the performance of the company over a number of years. E. P. S of Atlas Honda started to decline after 1997 and declined to a sorry figure of 4. 12,there by up drift to the figure of 20. 91,compariably stronger than stretch forth year imputable to improved profits. Price Earning ratio shows overtone ups and downs through years not having monumental variation except 1999 where it shows a downward trend, screening a rubicund upward trend in 2000.This indicates that the investors have a strong confidence in the company abilities to maintain the earnings. Overall the P/E ratio of the company is high up the industry average as indicated in table 2. The market price of the shares has grown promptly and has become twice as compared to the last year, which indicates peoples confidence. Cash merge site The bills flow statement with the same importance as profit and loss account and balance sheet is used to emphasize the difference between profit and ca sh. Cash flows, including net put in value calculations, have always been a popular management tool.The built in bed of the company cash flow showed that net cash generation from operations increase to Rs. 724. 20 zillion as compared to Rs. 519. 34 million last years. Increased net income and customers advances created a positive impact on the net cash provided by operations. Net cash used in investing activities change magnitude to Rs. 67. 53 million compared to Rs. 150. 04 million last year. Net cash used in financing activities was Rs. 42. 33 million as compared to Rs. 121. 74 million last year. During the year Rs. 150 million long-term loans were acquired and Rs. 71. 11 million loans were repaid.Cash and bank balance increased by 1. 5 times to Rs. 1, 021. 23 million this year Rs. 406. 88 million for the operating year 2002. Investment income increased to Rs. 38. 3 million from Rs. 32. 6 million of last year. Debt equity ratio was 1090. The equity of the company stood at over Rs. 1 one thousand thousand including reserves of Rs. 872. 2 million, with cash tautological of Rs. 1. 02 billion, reflecting a legal financial position of the company. plus disorder Assets are held by companies to utilize them in their business activities and generate profits in order the company to prosper.Assets are held and keep by Atlas Honda in the course of their business activities and the company to meet their growing requirements also acquires new capital assets. Asset overturn rate ratios are computed for a achievement of eight years. Asset turnover (Times) Sales to Total Assets Sales to Fixed Assets 2003 2. 63 12. 39 2002 3. 02 10. 32 2001 3. 16 10. 44 2000 2. 28 6. 93 1999 2. 80 9. 34 1998 2. 23 9. 02 1997 2. 89 13. 02 1996 2. 97 11. 42 Inventory Turnover 10. 34 9. 57 7. 46 6. 87 7. 39 6. 06 5. 41 5. 38Major portion of the score assets are ac extension ratinged assets, which not an admirable situation and the company is bearing increase in the fortune cost of assets not invested by the company. In the other scenario the company have lazy current assets to meet its current liabilities, which is appreciable. In the sale to refractory asset turnover there is a major attainment in the year 2000 then in other years where there is principle acquisition during the course of business. This is indicted by the lessening of only 0. 99% in the sale of year 2000 from previous year where as there is a reduction of 2. 1 times in the sale to fixed asset turnover ratio. This acquisition by the company in the year 2000 was made to cope with predict future growth. In other years the fixed asset turnover ratio is increasing callable to increasing sales and there is vulgar acquisition of fixed assets. In the case of the inventory turnover ratio there is a constant increase in the figures over the years. The company in warehouses does not hold idle stocks thus reducing the stock holding cost. Demand base production is carried out by the company an d there are no over purchases by the company.Solvency/Liquidity Solvency is the term used to detect that are the assets of the company surplus enough to pay its liabilities. This is a key measure of the financial reliability of a company and the key ratios that computes solvency are of key interest to investors. 2003 Current ratio (Times) 1. 47 2002 1. 38 2001 1. 48 2000 1. 46 1999 1. 64 1998 1. 31 1997 1. 21 1996 1. 10 invade Cover Ratio (Times) 17. 17 11. 18 3. 65 2. 04 3. 18 2. 58 3. 95 3. 81 The intent of the current ratios is to determine that how many current assets are there to repay current liabilities on demand.The company holds surplus current assets. This is also discussed preceding(prenominal) in the Total Asset turnover that a major portion of the total assets is current assets masking a healthy prospect in terms of the company to meet its current liabilities. The company is showing an acceptable current ratio over the effect indicating the companys capableness to meet its liabilities. The interest cover ratio for the year 2002 and 2003 shows that the company is having added profits that allows the company to borrow more loans but the company is not utilizing this facility. This is also the reason the company is low geared.This also indicates financial wisdom of the company in the market. If the company takes not bad(predicate) of this facility it would be beneficial for the company and would facilitate the company in reducing its taxes, as interest expense is a tax allowable expense. The company has been obtaining loans in the rest of the period as indicated by the interest cover ratios of rest of the periods. Investments Investments are held by companies to have adequate returns from their sales. Investments held by Atlas Honda in associates are proposed for sale and are stated at uninfected value.The investments held by the company are in listed and also some unlisted companies. Investments are counted as companys drumhead financial assets. Listed Atlas Battery Limited Associated undertaking NIL (2002 165,550 Ordinary shares of Rs. 10 Each includes bonus shares 25,550) 2003 (Rupees in 000s) 9,548 2002 ex-directory Arabian Sea Country ordering (private) Limited 200,000 ordinary shares of Rs. 10 each Break-up value on the basis of audited Accounts for the year ended June 30, 2002 Rs. 6. 25 per share 2003 2002 (Rupees in 000s) 2,000 2,000 Automotive Testing and Training aggregate (private) Limited 187,500 ordinary shares of Rs. 0 each Break-up value on the basis of audited Accounts for the year ended June 30,2001 Rs. 5. 75 per share 1,875 1,875 The credit risk represents the accounting loss that would be recognized at the reporting date stamp if return key parties failed to perform as contracted. kayoed of the total financial assets, following amount of financial assets are subject to credit risk 1,118,907. The company believes that it is not exposed to major concentration of credit risk. To manage exposur e to credit risk, the company applies credit limits to its customers. STAEMENT OF VALUE ADDITION 2003 WEALTH GENERATEDTotal tax income Material & Services (excluding duties) 8,066,365 (5,219,313) __________ 2,847,052 __________ 6,382,219 (4,177,572) _________ 2,204,647 _________ 2002 blow% cytosine% WEALTH DISTRIBUTED To Government Sales Tax, Income Tax, importing Duty & Workers Welfare Fund To Employees Salaries, benefits and related cost To Providers of Capital Dividend to shareholders Markup on borrowed funds hold with the business Depreciation Retained profit 89,645 284,345 _________ 2,847,052 _________ 3% 10% ______ 100% ______ 83,433 4% 143,058 20,487 5% 1% 122,621 19,913 5% 1% 346,762 12% 322414 15% 1,962,755 69% 1,508,389 68% 47,877 7% _________ ____ 2,204,647 100% _________ ____ As can be seen from the table above and the chart that a greater portion of wealth generated is distributed to the government. The company paid sales tax, income tax and custom duties amounting to Rs. 1. 96 billion during the year, which represents 69% of the total wealth generated. The companys contribution to the national providence by way of value increase this year amounts to Rs. 2. 85 billion, which is 29. 13% higher as compared to last year showing companys responsibility towards boilersuit economy.This is also the reason that the company is unable(p) to increase its profit after tax even though the company is maintaining its cost. This grand amount of tax payments has jeopardized the efforts made by the company. A good proportion of wealth generated is distributed to employees as salaries and benefits showing that the company is facilitating its employees and maintaining a healthy environment of working(a) by offering benefits to them. WORKING CAPITAL The company has maintained a good working capital that shows the stewardship of the management in the use of financial resources in the operations.Company maintains a 51 to the current assets that is a working c apital of Rs. 6, 671. 50 million, Showing good limpidity performance. Capital Structure The company shows a very low financial geartrain (0. 165b 1b) but the timing of the refund cash flows is a cause of concern, as 50million out of a total of 166million has to be repaid during the next 12 months. As the net increase in cash and cash equivalent is 614million it would not be a major cause of concern but shows the companys vulnerability and habituation on maintaining very high liquid assets.This indicates that the company is in a heroical need to maintain its profits and to increase them. The period where the company is unable to make any profit the company will be in a critical situation beyond its accepting power. origination of Findings The SWOT analysis is used as a technique to identify the strengths and weaknesses in the company and the opportunities and banes outside faced by the company. A SWOT analysis of Atlas Honda Limited would be a epoch- make appraisal of the comp anys position in the automotive industry.Strengths Market leader Advance cash receipts from dealers hence additional cash available for investment. Customer satisfaction. Trained good staff. Atlas Group patronage. Sound financial standing in the market. Weakness No customer support in folksy areas. Burden of taxes by the Government. Opportunities Opportunities for new technologies. increment of latest IT infrastructure. Effective media promotion. No threat of established competitor. Threats Threat of new entrants.Unestablished Competitors imitating the models of motorcycles at low price. Demands for low priced motorcycles. The strengths of the company are the key to triumph and the company should appropriate advantage from its opportunities and should devise such that its opportunities should be part of its strengths. Atlas Honda has been able to prolifically make its way through the heavy commit of taxes this year but its my expectation that the burden of taxes will increase further, to counter this the company should plan a head.Atlas Honda is having a sound financial standing in the market and had attained customer satisfaction by quality products and after sales customer service. Customers are drawn in due to quality and services provided by the company, which the company should sustain and enhance, by making available price controlled motorcycles. Company has true latest IT infrastructure to make good use of IT in manufacturing using data processor techniques such as CAD (computer back up design) and CAM (computer aided manufacturing) thus enhancing costs.The edifying aspect of the report has been the findings that Atlas Honda is a financially sound company with market penetration and strong customer base. Conclusion The ticker of the research and analysis report was to carry out a comprehensive financial analysis of Atlas Honda Ltd. The core objective of the report was to scrutinize that ample returns are available to share holder s, the company is generating equal profits, and the financial situation of the company is sound and investors have confidence in the company and its financial position.In my surveillance over all the company has maintained a good level of profit even after an amplified amount of tax over the period of time. This has caused an increase in Earning per share of the company and eventually the market value of the company, which is assert at 700% premium (Market value Rs. 80 per nominal value of Rs. 10 per share). The investors have confidence, which is reflected in the Price Earning Ratio of the company, which the company has maintained over the period of 8 years.The overall enhancement in the level of operations and market demand indicates that the company is moving on the right traverse even after facing blind drunk rivalry from its competitors. Atlas Honda has maintained a very low level of appurtenance and so far is unable to acquire market loans, which indicates low level of fi nancial risk the company is exposed to. On the other hand this can oppose the potential available in the market by scarcity of the funds in the company when investment climate is good and market demands is high.In the Automotive industry Atlas Honda is still a market leader as far as the wealth distribution to the government is concerned. In the statement of value addition it is indicated that 69% of the companys wealth had been distributed to the government as sales tax, income tax, import duty and workers social welfare fund. Subsequent to the distribution the company has maintained sufficient levels of profit to distribute to the shareholders in the form of dividends. The company has continued to improve the net generation of cash and cash equivalents during the year causing the company to increase its cash resources.Positive inflow of cash from operations is a signal of companys ability to improve the liquidity position of the company on a continuous basis. This is the main r eason the liquidity situation of the company is very good. The analysis shows that the company is making headway well in terms of profitability, liquidity but as far as the capital structure of the company is concerned it is still at very low level of gearing thus hampering the opportunities available in the market and without exploiting the internal strengths available in the company.A high level of profits, good liquidity and sufficient working capital indicates that the financial situation of the company has improved over the period of time and is still improving. On the basis of the research and analysis work carried out I foresee that Atlas Honda will be more profitable over the period of time and will be able to exploit the opportunities available in the market. In my viewpoint Atlas Honda will remain to be the market leader for the coming years too. The company will also prove arduous to compete by new entrants in the industry.