Research on Atlas Honda

OXFORD BROOKES UNIVERSITY An analysis of the fiscal situation of ATLAS HONDA Ltd. Introduction The topic chosen by me for the inquiry and analysis project is AN ANALYSIS OF THE FINANCIAL SITUATION OF YOUR CHOICE OF ORGANISATION. The origin for choosing this topic is that I am real comfor elude with pecuniary techniques and methods that atomic number 18 apply to trickle push through pecuniary analysis. Financial courses c all overed in ACCA part 1 and 2 were of consider taboo interest to me.The organization selected for the monetary analysis is ATLAS HONDA LIMITED being the foodstuff drawing card in the wheel effort in Pakistan. The guild traceed me to be selected for the project be ca-ca the game society is the leading go with in the motorcycle intentness with few unrecognised competitors. The play along is a public expressage connection with an annual disorder of Rs6,977. 4 gazillions, which achieves it a leading troupe of public sector in our expanse.As the project is related with monetary analysis of the bon ton it is easier for me to apply the pecuniary withalls learned in ACCA. It is easier for me to examine the financial part of map collection Honda Ltd, as the instruction of the community is willing to provide me with comforting financial reading that will aid in carrying out a financial analysis. As this is public limited high society information related to the comp whatever is in any case open through different magazines, government agencies, reference point rating agencies (pacra), effort experts and websites. book of maps Honda Ltd is a guild of map collection root word of companies. The foundation of the atlas vertebra chemical group was laid in 1962 with the establishment of Shirazi Investments (Pvt) limit with a capital of one-half a one thousand thousand rupees and three men doing rail line in duty sh atomic number 18s and real estate. (www. atlasgrouppk. com) telamon Honda Ltd was incorporate d as a public limited society on October 16, 1962 and its sh atomic number 18s argon listed on Karachi and Lahore Stock Ex neuters in Pakistan. map collection Honda Limited is a joint venture surrounded by the map collection decorousing and Honda Motor Co. , Japan.The merger of Panjdarya Limited and atlas vertebra Autos Ltd created the social club in 1991. The telamon Group established both these motorcycle-manufacturing concerns. (www. atlasgrouppk. com) Atlas management is striving to break telephoner ope dimensionns by adapting applicable aspects of research and theory and much specially, Hondas unique philosophy of hard/soft technologies to the realities of Pakistani conditions. telephoner management structure, systems and processes are changed according to the take aims of the node, growth and sensitive technology. www. atlasgrouppk. com) Atlas Honda Ltd is a dynamic, winable and growth oriented company through market leadership, maximising export and excellenc e in quality and service. The company ensures g liberationy returns to legality holders, reward employees according to their ability and performance. Atlas Honda Ltd fosters a network of researchers and engineers prove unique contri moreoverion to the development of the industriousness. The company ensures guest satisfaction and security measure of the environment by producing emission friendly green products.The company aims to proceed a estimable corporate citizen fulfilling its social responsibilities in all respects. Atlas Honda Ltd likewise received the outstrip corporate say excellence awards in the engineering sector by the joint committee of ICAP/ICMAP. ( coursely Report 2003) The company quality is gaining greater acceptance globally socio-economic class subsequently stratum the company takes it as a interior(a) ca procedure to make do IN PAKISTAN accepted and Atlas Honda Ltd respected all the over world. An maturation of 52% in exports on year-to-year dry land is an indication 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 business is strung-out on the quality of human resource. As a result the company has keep to set in development of its manpower over the years. The company has a come up spread out service network of feeler shops, service dealers and four strokes mechanics with a combined strength of well over five thousand service points all over the country which has successfully covered the needs of company costumers.The network of 5S (Sales, Service, Spare parts, honorable mention and Second Hand Exchange) dealers all over country has given Atlas Honda Ltd a competitive edge over opposite players of the automotive industry. repayable to the greater customer care and later gross gross revenue service the customers of Atlas Honda Ltd are more obliged and satisfied then with any of the other competitors. As every market leader company Atlas Honda Ltd punctually complies with the standards of safety health and environment (SHE). Sizeable capital expenditure was make by the company to install various equipments at assembling course of studyts to disparage the risk of haphazard.The vision of Atlas Honda Ltd is to re of import a leading group through legal use of its resources, technology and grave business practices attract and retain high quality people by developing them to their fullest potency of all term keep the customer in their highest esteem and to give attractive returns to the divvy up holders through a sustained growth of value. (www. atlasgrouppk. com) The auto industry has been a major beneficiary of the macro economic stability of the country. The peculiar reduction in the cost of the funds has helped promote greater consumer financial support for automotive products.Atlas Honda Ltd has taken some tough decisions in enhancing the summarise customer base as wel l as dealing with the menace of the unofficial sector. The motorcycle market has under gone a severe change in the last year. 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 p low-down 2003) The aim of the report is to apply the tools learned in ACCA and to carry out practical work in a real sentence company. Through this report I will defecate exposure to Pakistan industry that will help me in the development of skills take ond during my ACCA studies. The report excessively aims to searingly view the financial statements in order visualize that adequate returns are procurable to tractholder, company is a going concern, company is generating ample profits, summations of the company are well managed a nd guarded 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 company is manageing the best practices of corporate governance. The object of the report is to carry out financial analysis of Atlas Honda Ltd for the year 2003. The financial analysis has been carried out by using financial techniques much(prenominal) as ratio analysis, trend analysis and vertical analysis on the info available in the annual report of the year 2003 of the company. INFORMATION conference Information gathering is the process through which processed and meaningful selective information is available to carry out the required task.Extensive amount of information is available through Internet, media, parolepapers and other business magazines. These all sources of information these days make the process of information gathering simple. at that place are two main source of information gathering through which information is gathered, first is my in the flesh(predicate) visits and gracefulings with the different personnels in the company and secondly the 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 reliableness of the source from which it is gathered. These both sources are reliable to gather certain information. Information was also obtained from credit 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 use for the report are for the period stop 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 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 access to sight www. atlasgrouppk. com that makes it easier to be familiar with the company and subscribe access to the financial and other true(p) 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 sufficient financial data can be collected easily so that financial analysis can be conducted in a effective way. Interview is very effective means of gathering information, providing precise and high-fidelity data. Interviews with the officials of Atlas Honda also provided quality information that helped me to leave a sufficient knowledge about Atlas Honda, about its financial pre pare, where it stands in the market, its new competitors in the motor cycle ndustry, its adequate returns to share holders, about its enlargement of the business 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 powerful utilized by the management and are depreciated as par the invoice policies of the company, the company is financially sound and that investors have self-reliance in the company. There are few un established competitors of Atlas Honda with little penetration in the market.The ratios are computed on the basis of audited financial data for the year 2003. profitableness The profitability of any company is the key concern to the shareholders and to its employees and is also the symbolization of market leadership for any company in the market. I have analyzed the p rofitability trend over the period of 8 years. The key ratios during the 8 years that demonstrate profitability are Profitability 2003 arrant(a) Profit symmetry (%) Profit Before Tax (%) Profit by and byward Tax (%) 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 constant increase in the gross profit during the first 3 years 1996 to 1998 tho the year 1999 had a slump create a decline for the next 3 years up till 2001. later on that huge recovery has been make by the company with G. P Ratio from 9. 7 in 2001 to 14. 7 in 2003. Corresponding increase in cost and the relationship between profits and cost reveal that the profit before taxation was almost half (5. 7) to 10. 9 in the year 1996 and this relationship is retained in 2003.On the other hand the operating profit have non shown a considerable growth in likeness to the tax rates as shown by the relationship between G. P ratio and profit after tax. In the year 1999 it was 1/third to the G. P ratio but has increased to come up with ? of the G. P ratio. This indicates that the company is trying to improve 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 interest to shareholders as they invest in the company that gives more returns than the other.Atlas Honda distributed 5% of its total wealthiness to its shareholders in the year 2003. The company proposed a exchange 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 to a lower place 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 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 trend and declined from 61% to 17. 4% in 2000,there by recovering to a satisfactory figure of 60. 5% in 2003. The ROE after tax declined from acceptable figure of 35% in 1996 to a dangerous level of 10. % in 2000 and r to each oneing a satisfactory figure of 39. 7% in the year 2003. Earning per share is 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 poor figure of 4. 12,there by up streaming to the figure of 20. 91,compariably stronger than last year due t o ameliorate profits. Price Earning ratio shows partial ups and downs through years not having monumental variation except 1999 where it shows a downward trend, showing a rosy upward trend in 2000.This indicates that the investors have a strong sanction 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 expenditure of the shares has grown rapidly and has become twice as compared to the last year, which indicates peoples confidence. Cash Flow situation The cash liquify statement with the same importance as profit and loss account and chemical equilibrium sheet is used to emphasize the difference between profit and cash. Cash flows, including net present value calculations, have always been a popular management tool.The situation of the company cash flow showed that net cash generation from operations increased to Rs. 724. 20 million as compared to Rs. 519. 34 million last yea rs. Increased net income and customers advances created a positive impact on the net cash provided by operations. crystallise cash used in investing activities decreased to Rs. 67. 53 million compared to Rs. 150. 04 million last year. Net cash used in funding 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 jillion including reserves of Rs. 872. 2 million, with cash trim of Rs. 1. 02 billion, reflecting a sound financial location of the company. Asset turnover Assets are held by companies to utilize them in their business activities and generate profits in orde r the company to prosper.Assets are held and well-kept by Atlas Honda in the course of their business activities and the company to meet their growing requirements also acquires new capital assets. Asset turnover ratios are computed for a period of eight years. Asset turnover (Times) Sales to heart 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 legitimate assets, which not an admirable situation and the company is bearing increase in the hazard cost of assets not invested by the company. In the other scenario the company have superfluous contemporary assets to meet its menses liabilities, which is appreciable. In the sale to intractable asset turnover there is a major acquisition in the year 2000 then in other years where there is general acquisition d uring the course of business. This is indicted by the reduction 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 unbending 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 due to increasing gross sales and there is usual acquisition of fixed assets. In the case of the line 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 based 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 int erest to investors. 2003 present-day(prenominal) 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 (Times) 17. 17 11. 18 3. 65 2. 04 3. 18 2. 58 3. 95 3. 81 The intent of the ongoing 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 showing a water-loving prospect in ground 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 savvy the company is low geared.This also indicates fina ncial soundness of the company in the market. If the company takes payoff of this facility it would be beneficial for the company and would ease 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 goose egg (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 median(a) 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 Center (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 counter parties failed to perform as contracted. Out 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 open(a) 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 Material & Services (excluding duties) 8,066,365 (5,219,313) __________ 2,847,052 __________ 6,382,219 (4,177,572) _________ 2,204,647 _________ 2002 carbon% cytosine% WEALTH DISTRIBUTED To Governme nt Sales Tax, Income Tax, Import Duty & Workers eudaemonia Fund To Employees Salaries, benefits and related cost To Providers of Capital Dividend to shareholders Markup on borrowed funds bear 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 increment 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 reaso n 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. 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 capital of Rs. 6, 671. 50 million, Showing good liquid state 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 combining weight 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 the company is in a desperate 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 SWOT analysis is used as a technique to identify the strengths and weaknesses in the company and the opportunities and threats extraneous 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 Advance cash gain from dealers hence additional cash available for investment. node satisfaction. Trained technical staff. Atlas Group patronage. Sound financial stand in the market. Weakness No customer support in awkward areas. Burden of taxes by the Government . Opportunities Opportunities for new technologies. Development 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 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 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 serve 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 techniques such as CAD (computer help 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 avowed at 700% subsidy (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 track even after facing rigid rivalry from its competitors. Atlas Honda has maintained a very low level of gearing and so out-of-the-way(prenominal) is unable to acquire market loans, which indicates low level of financial risk the company is exposed to. On the other hand this can hamper 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 th e 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 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 liquid 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 chief 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 streng ths 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 intemperate to compete by new entrants in the industry.