Research on Atlas Honda

OXFORD BROOKES UNIVERSITY An compendium of the pecuniary situation of ATLAS HONDA Ltd. Introduction The topic elect by me for the question and outline project is AN ANALYSIS OF THE FINANCIAL website OF YOUR CHOICE OF ORGANISATION. The priming for choosing this topic is that I am very(prenominal) convenient with fiscal techniques and methods that ar employ to carry out monetary analysis. pecuniary courses coered in ACCA part 1 and 2 were of spot pursuit to me.The organization selected for the monetary analysis is ATLAS HONDA LIMITED being the trade attractor in the cycle persistence in Pakistan. The companion attracted me to be selected for the project be execute the fellowship is the leading fraternity in the motorcycle industry with few unestablished competitors. The connection is a existence limited bon ton with an annual disturbance of Rs6,977. 4 one thousand zillions, which set outs it a leading order of public sector in our nation.As the project is relate with financial analysis of the order it is easier for me to apply the financial tools well-read in ACCA. It is easier for me to examine the financial spotlight of telamon Honda Ltd, as the trouble of the club is willing to provide me with able financial in random variableation that will aid in carrying out a financial analysis. As this is public limited fraternity selective breeding related to the ac follow is as well as purchasable by assorted magazines, goernment agencies, extension rating agencies (pacra), industry experts and websites. atlas Honda Ltd is a troupe of atlas group of companies. The seat of the atlas Group was laid in 1962 with the establishment of Shirazi enthronizations (Pvt) confine with a crown of half a million rupees and three men doing contrast in trading parcel outs and real estate. (www. atlasgrouppk. com) Atlas Honda Ltd was inembodiedd as a public limited social club on October 16, 1962 and its voices be listed on Karachi and Lahore job Exchanges in Pakistan. Atlas Honda Limited is a joint venture amid the Atlas Group and Honda Motor Co. , Japan.The merger of Panjdarya Limited and Atlas Autos Ltd created the participation in 1991. The Atlas Group established both these motorcycle-manufacturing concerns. (www. atlasgrouppk. com) Atlas concern is striving to modernize gild trading operations by adapting applicable aspects of look for and theory and more speci tout ensembley, Hondas unique philosophy of hard/ bonkers technologies to the realities of Pakistani conditions. Company management structure, systems and processes ar changed according to the demands of the imposter, maturation and recent technology. www. atlasgrouppk. com) Atlas Honda Ltd is a dynamic, internetable and growth oriented society through foodstuff leadership, maximizing export and excellence in persona and benefit. The company ensures attractive returns to fair play controlers, reward employees according t o their ability and performance. Atlas Honda Ltd fosters a cyberspace of researchers and engineers ensuing unique contri entirelyion to the development of the industry. The company ensures customer satisfaction and protection of the environment by producing emission friendly spirt products.The company aims to re primary(prenominal) a heartfelt corporate citizen fulfilling its social responsibilities in either respects. Atlas Honda Ltd in addition received the best corporate hide excellence awards in the engineering sector by the joint delegacy of ICAP/ICMAP. (Annual Report 2003) The company quality is gaining greater acceptance globally form after yr the company takes it as a national provoke to make MADE IN PAKISTAN accepted and Atlas Honda Ltd respected all the everywhere world. An wampum of 52% in exports on course of study-to- course of instruction founding is an characteristic of the growing popularity of the company products globally.Atlas Honda Ltd as being a market leader in motorcycle industry recognized the fact that excellence in trade is dependent on the quality of human re ascendent. As a result the company has continued to invest in development of its paws over the old age. The company has a well spread out service network of antenna shops, service dealers and four strokes mechanics with a feature strength of well over five thousand service points all over the country which has successfully covered the needs of company saluteumers.The network of 5S (Sales, Service, Spargon parts, Credit and Second Hand Exchange) dealers all over country has given Atlas Honda Ltd a competitive edge over new(prenominal) players of the automotive industry. Due to the greater customer c be and after exchanges service the customers of Atlas Honda Ltd are more obliged and satisfied whence with any of the separate competitors. As every market leader company Atlas Honda Ltd duly complies with the standards of safety health and environment (SHE ). Sizeable not bad(p) expenditure was made by the company to install various equipments at assembling plants to minimize the take a chance of haphazard.The vision of Atlas Honda Ltd is to remain a leading group through effective use of its resources, technology and good business practices attract and retain uplifted quality people by developing them to their fullest potential always keep the customer in their highest prise and to give attractive returns to the percent holders through a sustained growth of profit. (www. atlasgrouppk. com) The auto industry has been a study(ip) beneficiary of the macro economic stability of the country. The unprecedented reduction in the cost of the gold has helped fire greater consumer financing for automotive products.Atlas Honda Ltd has taken some tough decisions in enhancing the get customer base as well as dealing with the menace of the unauthorized sector. The motorcycle market has under gone a severe change in the last social class . Ninety percent of the market is dominated by established brands from the organized sector. The players in the organized sector consist 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 account mastery 2003) The aim of the piece of music is to apply the tools learned in ACCA and to carry out practical work in a real time company. Through this account I will kick in exposure to Pakistan industry that will help me in the development of skills acquired during my ACCA studies. The report also aims to slenderly view the financial statements in order externalise that adequate returns are obtainable to shareholder, company is a going concern, company is generating sufficient profits, assets of the company are well managed and guarded by the management in the best vex of the share holders.I will also round off that the best practices of mana gement stewardship is carried out to ensure that the company is maintaining the best practices of corporate governance. The objective of the report is to carry out financial analysis of Atlas Honda Ltd for the yr 2003. The financial analysis has been carried out by using financial techniques much(prenominal) as ratio analysis, trend analysis and vertical analysis on the data available in the annual report of the year 2003 of the company. INFORMATION GATHERING selective information assembly is the process through which neat and meaningful data is available to carry out the required task.Extensive pith of nurture is available through Internet, media, newspapers and other business magazines. These all sources of teaching these days make the process of discipline gathering simple. There are two main source of information gathering through which information is ga on that pointd, first is my personal visits and meetings with the different personnels in the company and secondly th e financial statements available in the stock exchange 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 unquestionable to gather authentic information. Information was also obtained from citation rating agencies such as (pacra) and industry experts. Some politics agencies also hold information relating to companies such as Securities and Exchange Commission of Pakistan (SECP). The financial statements and print media information used for the report are for the breaker point end 2003,the broachers of Atlas Honda Ltd, financial and business news papers such as THE NEWS BUSINEES PAGE, contact 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 Gulf Economist. They are good source of reliable information , that too with a critical viewpoint about the company. Information relating to Atlas Honda is also available through Internet by advance to sight www. atlasgrouppk. com that makes it easier to be familiar with the company and defecate 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 appeal through which sufficient financial data can be smooth easily so that financial analysis can be conducted in a effective way. Interview is very effective means of gathering information, providing precise and accurate data. Interviews with the officials of Atlas Honda also provided quality information that helped me to have a sufficient knowledge about Atlas Honda, about its financial position, 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 b usiness and its unique 5S(service) network that give Atlas Honda Ltd edge over its competitors. ANALYSIS The analysis stage of the report carries critical view of the financial statements to ensure that adequate returns are available to share holders, assets are properly put ond by the management and are depreciated as par the news report policies of the company, the company is financially break and that investors have self-reliance in the company. There are few un established competitors of Atlas Honda with bittie insight in the market.The ratios are computed on the basis of audited financial data for the year 2003. PROFITABILITY The profitability of any company is the key 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 profitability trend over the period of 8 eld. The key ratios during the 8 years that demonstrate profitability are Profitability 2003 Gross Profit ratio (%) Profi t Before levy (%) Profit After r as yetue (%) 14. 7 9. 3 6. 1 2002 13. 3 7. 1 4. 9 TABLE 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 changeless change magnitude in the gross profit during the first 3 years 1996 to 1998 but the year 1999 had a drop-off causing a decline for the next 3 years up till 2001. After that huge recovery has been made by the company with G. P Ratio from 9. 7 in 2001 to 14. 7 in 2003. synonymous increase in cost and the kindred between profits and cost reveal that the profit before tax was almost half (5. 7) to 10. 9 in the year 1996 and this relationship is kept up(p) in 2003.On the other hand 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 change magnitude to draw up with ? of the G. P ratio. T his indicates that the company is trying to correct its profit by maintaining its cost but the increase in taxes has jeopardized the efforts and consequent increase in profit after tax has not been obtained. Returns to Shareholders The returns are of key hobby to shareholders as they invest in the company that gives more returns than the other.Atlas Honda distributed 5% of its total wealth to its shareholders in the year 2003. The company proposed a gold in dividend of Rs. 7 per share. The return on capital employed, Earning per share (E. P. S), Price earning ratio, their trend can be seen below in the table. Returns to share holders 2003 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 Price 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 persistence Average . P. E Ratio 3. 21 3. 14 3. 52 3. 50 2. 14 3. 31 3. 27 3. 25 The Return on fairness before tax ratio showed a downward trend and declined from 61% to 17. 4% in 2000,there by recovering to a satisfactory radiation pattern of 60. 5% in 2003. The ROE after tax declined from acceptable betoken of 35% in 1996 to a dangerous level of 10. % in 2000 and comer a satisfactory figure of 39. 7% in the year 2003. Earning per share is widely used to step 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 unworthy figure of 4. 12,there by up streaming to the figure of 20. 91,compariably stronger than last year payable to improved profits. Price Earning ratio shows partial ups and downs through years not having significant variation except 1999 where it shows a downward trend, mask ing a healthy 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 above the industry average as indicated in table 2. The market price of the shares has grown rapidly and has go away twice as compared to the last year, which indicates peoples confidence. Cash run for situation The immediate payment flow statement with the same importance as profit and loss account and balance sheet is used to express the difference between profit and bullion. Cash flows, including net present appreciate calculations, have always been a popular management tool.The situation of the company hard currency flow showed that net property generation from operations increased to Rs. 724. 20 million as compared to Rs. 519. 34 million last years. increase net income and customers advances created a positive impact on the net cash provided by operations. Net cash used in investing activ ities reduced 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 billion including reserves of Rs. 872. 2 million, with cash surplus of Rs. 1. 02 billion, reflecting a phone financial position of the company. summation turnover 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 maintained by Atlas Honda in the course of their business activities and the company to meet their growin g requirements also acquires new capital assets. Asset turnover ratios are computed for a period 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 total assets are current assets, which not an admirable situation and the company is bearing increase in the opportunity cost of assets not invested by the company. In the other scenario the company have superfluous current assets to meet its current liabilities, which is appreciable. In the sale to fixed asset turnover there is a major acquisition in the year 2000 then in other years where there is normal acquisition during the course of business. This is indicted by the reduction of alone 0. 99% in the sale of year 2000 from previous year where as there is a reduction of 2. 1 ti mes 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 usual 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 therefrom reducing the stock holding cost. Demand found production is carried out by the company and there are no over purchases by the company.Solvency/Liquidity Solvency is the term used to determine 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 inte tranquillity 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 Interest Cover Ratio (Tim es) 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 above in the Total Asset turnover that a major portion of the total assets is current assets viewing a healthy perspective in terms of the company to meet its current liabilities. The company is showing an acceptable current ratio over the period indicating the companys capability 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 sapience of the company in the market. If the company takes advantage of this facility it would be good 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 fair value.The investments held by the company are in listed and also some unlisted companies. Investments are counted as companys principal 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 Unlisted Arabian Sea Country Club (private) Limited 200,000 prevalent 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 self-propelled Testing and Training effect (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 if takings parties failed to perform as contracted. Out of the total financial assets, following do 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 exposure to credit risk, the company applies credit limits to its customers. STAEMENT OF VALUE ADDITION 2003 WEALTH GENERATEDTotal Revenue real(a) &038 Services (excluding duties) 8,066,365 (5,219,313) __________ 2,847,052 __________ 6,382,219 (4,177,572) _________ 2,204,647 _________ 2002 100% 100% WEALTH DISTRIBUTED To Government Sales Tax, Income Tax, importee Duty &038 Workers Wel furthermoste Fund To Employees Salaries, benefits and related cost To Providers of Capital Dividend to shareholders Markup on bo rrowed funds Retained 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 economy by way of value improver this year amounts to Rs. 2. 85 billion, which is 29. 13% higher as compared to last year showing companys responsibility towards overall economy.This is also the reason that the company is futile to increase its profit after tax even though the company is maintaining its cost. This huge 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 by offering benefits to them. workings 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 capital of Rs. 6, 671. 50 million, presentation good liquidity performance. Capital Structure The company shows a very low financial gearing (0. 165b 1b) but the timing of the repayment 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 dependence on maintaining very high liquid assets.This indicates that t he company is in a direful 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. Presentation of Findings The hit the books analysis is used as a technique to identify the strengths and weaknesses in the company and the opportunities and threats outside faced by the company. A SWOT analysis of Atlas Honda Limited would be a significant appraisal of the companys position in the automotive industry.Strengths Market leader go on cash receipts from dealers hence additional cash available for investment. Customer satisfaction. Trained technical staff. Atlas Group patronage. skilful financial standing(a) in the market. Weakness No customer permit in rural areas. Burden of taxes by the Government. Opportunities Opportunities for new technologies. Development of in style(p) IT infrastructure. Effective media promotion. No threat of established compe titor. 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 seize 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 burden of taxes this year but its my anticipation that the burden of taxes will increase further, to foretell 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 developed latest IT infrastructure to make good use of IT in manufacturing using computer t echniques such as CAD (computer aided 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 essence 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 holders, the company is generating sufficient 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 swan at 700% premium (Market value Rs. 80 per nominal value of Rs. 10 p er 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 get through even after facing rigid rivalry from its competitors. Atlas Honda has maintained a very low level of gearing and so far is unable to acquire market loans, which indicates low level of financial risk the company is exposed to. On the other hand this can thwart 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 yet a market leader as far as the wealth dissemination to the government is concern. 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 w elfare 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 reason 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 improve d 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.