HONDATHE POWER OF DREAMS
HISTORYHonda Atlas Cars (Pakistan) Limited is a joint venture between Honda Motor
Company Limited, Japan and Atlas Group of Companies, Pakistan signed on August 05,
1993. The agreements signed between the two sponsors are for technical collaborations
for development parts and systems for manufacture of Honda Cars in Pakistan. Pakistani
and Japanese cultures have blended exceptionally well to form a professional team of
dedicated specialist. This team has done wonders since it’s inception and has created
many records. It was on April 17, 1993 when the foundation laying ceremony was held in
a record period of eleven months on March 31, 1994 the construction and plant and
machinery installation was completed. Running a race against time the first car was rolled
out of the assembly line on May 08, 1994 paving the way for a formal inauguration of the
plant.
No other persons than the President of Pakistan and the President of Honda Motor
Co. graced the auspicious occasion of inauguration on July 13, 1994. The first booking of
Civic made in Pakistan started with pomp and grandeur or July 14, 1994 at six
dealerships in Karachi, Lahore and Islamabad. The response received from the customers
was overwhelming and a morale booster for all concerned at HACPL.
With the rapid increase in business new ware house facilities were constructed on
June 22, 1995. Another ware house is under construction meet the requirements of the
production line which has more than doubled since its start up.
Keeping the spirits of associates high and alive 5,000 car roll out
ceremony was held in July 1995 and 10,000 cars in August 1996. The deletion program
for indigenization has become a success, which started with 23% in 1994 and has crossed
30% by now. The process of developing vendors to manufacture local parts according to
our standards has been tedious but fruitful. The local parts quality is being checked
thoroughly to maintain the standards and achieve customer’s satisfaction.
Service department conducts two campaigns a year to evaluate the performance
and solve the customer complaints on the spot. This has tremendously enhanced the
1
HONDATHE POWER OF DREAMS
customer’s confidence in Honda Cars, which is evident from the phenomenal sales
volumes.
COMPANY DESCRIPTIONThe company was incorporated on November 4, 1992. The principal activity of the
company is the assembly and progressive manufacture and sales of Honda vehicles and
spare parts.
COMPANY ANALYSISThe company maintained its growth from the previous year. The extensive marketing and
promotion strategies continued. The sales rose to Rs 6.5 billion against Rs 4.5 billion last
year ago. Accordingly cost of goods sold also increased from Rs 4.1 billion to Rs 5.7
billion against it period.
COMPETITORSHonda is currently facing the three biggest competitors in its class. They compete
with Honda because of their successful product in the market before the commencement
of Honda Atlas in Pakistan. These three main competitors are
TOYOTA
NISSAN
SUZUKI
Toyota is considered to be the main competitor of Honda because it is only one
company, which has enough market shares that will directly influence the share of
Honda. This is because of the fact that Toyota has been manufacturing cars much before
Honda in Pakistan and the cars they have been manufacturing since 1993 are much
environmental friendly than any other car manufactured in Pakistan, before. Firstly
Toyota introduced GLi in both transmission categories i.e. manual and automatic. This
category car having 1600 horse power is the direct competitor of Honda Civic not only in
the technique but also in luxury that they provide and the other facilities and add-ons.
2
HONDATHE POWER OF DREAMS
In 1.3 liter car’s Toyota can be considered as the market leader before, as it is
producing three different models in this category i.e. GL, XE and XEG. But now with the
introduction of new Honda City 2000, Toyota is no longer a leader in the market because
of the Luxury and style provided by the Honda City 2000.
Nissan is not a direct competitor of Honda because this company produces 1.4
liter and 2.0 liter fuel & Diesel cars respectively. But because of the big giants like
Toyota and Honda in the market this company cannot compete in the market and loses its
share. But now few months back they launched their new models in the market at low
prices as compared to Honda and Toyota.
Suzuki introduced its 1.6-liter car a few years back with the name of Baleno. They
introduced two models GLi and GXi in the market having fuel injection system in the
category of 1.3 liter in competition with Honda City. But Honda has no fear of them
because of the fact that, Honda is already the market leader in 1.6-liter class & 1.3 liter
class. According to the recent survey the graph of Baleno 1.6 & 1.3 is continuously
declining because of their competitors like Toyota and Honda.
3
HONDATHE POWER OF DREAMS
COMPANY INFORMATION
4
The Board of Directors
Mr. Yosuf h. shirazi(Chairman)
Mr. Satoshi okamoto(President / ceo)
Mr. Amir h shirazi
Mr. Motohide sudo
Mr. Hiromi mizutani
Mr. Jawad iqbal Ahmad
Mr. Takashi otsuki
Mr. Raffat iqbal
Company secretary
HONDATHE POWER OF DREAMS
5
A. F. Ferguson & co.Chartered accountants
accountants
Legal advisors
Cornelius lane & mufti
Bankers
Abn amro bank
Habib bank ltd.
Askari commercial bank
Citibank N.A.
Deutsche bank
Muslim commercial bank
The bank of Tokyo –Mitsubishi LTD.
Auditors
HONDATHE POWER OF DREAMS
6
REGISTERED OFFICE
1 – MCLEOD ROAD, LAHORE
PH: (042) 7225015 – 17FAX: (O42) 7233518
Factory
43 KM, MULTAN ROAD,MANGA MANDI, LAHORE.PH: (042) 5871100 - 09FAX: (042) 5877711-12E-MAIL: [email protected] site: www.honda.com.pk
HONDATHE POWER OF DREAMS
SWOT ANALYSIS
The overall evaluation of company’s strengths, weaknesses, opportunities, and
threats is called SWOT analysis. The first two factors i.e. strengths and weaknesses relate
to company’s internal operations, whereas the other two factors Opportunities and threats
relate to company’s external environment.
STRENGTHS:
These are the company’s strong points, which help the company in achieving a
respectable place in the market.
Honda is a multinational company, which adds to its strengths.
It is a market leader in petrol car industry.
It is an environment friendly car.
Has efficient fuel consumption.
There is no power distance in the company.
It is a sort of status symbol in Pakistan.
Weaknesses:
These are the internal factors, which go against a company’s favor in achieving its
target.
Honda doesn’t produce diesel cars.
It only manufactures for upper middle class only, whereas it should also
produce for cars for middle class.
Compared to its competitors Honda has a less resale value.
7
HONDATHE POWER OF DREAMS
OPPORTUNITIES:
These are the areas of buyer willingness in which a company can perform
profitably.
In the near future it can also manufacture diesel-consuming cars, as petrol
prices are fairly high as compared to diesel.
Honda can make its cars available for middle class as well.
THREATS:
These are the challenges posed by unfavorable trends or developments that would
lead, in absence of defensive marketing action, to deteriorate in sales or profits.
As fuel prices are increasing on regular basis so Honda needs to see this
Change and think for producing a car suitable for changing times.
Honda is facing a fierce competition from its competitors and it has to keep a constant check on activities of its competitors like Toyota, Nissan etc.
8
HONDATHE POWER OF DREAMS
9
HONDATHE POWER OF DREAMS
10
HONDATHE POWER OF DREAMS
Balance Sheet of Honda Atlas Cars (Pakistan) Limited1999 2000 2001 2002
Share Capital &Reserves
Issued Capital 420,000 420,000 420,000 420,000 Reserves 612,000 719,000 840,000 1,082,000 Unappropriate Profit 518 804 275 917
1,032,518 1,139,804 1,260,275 1,502,917
Deferred Liabilities 4,399 5,391 7,321 9,875
Current LiabilitiesShort term running finance and other credit facilities-secured 57,371 - - -
Creditors, accrued and other liabilities 320,572 528,642 654,025 701,079 Provision for taxation 30,820 32,185 31,230 49,655 Proposed Dividend 84,000 84,000 84,000 189,000
492,763 644,827 769,255 939,734
Contingencies and commitments - - - -
Total Liabilities and Equity 1,529,680 1,790,021 2,036,851 2,452,526
Fixed Capital Expenditure
Fixed assets -Tangible assets 450,759 400,389 420,779 421,099 - Intangible assets 10,608 6,365 18,024 13,250
461,367 406,754 438,803 434,349 Capital work in progress 1,579 4,588 37,092 14,101
462,946 411,341 475,895 448,450
Deferred Taxation 2,716 1,541 1,541 -
Long term Deposits 1,498 1,498 1,618 1,745
Current Assets
Stores and Spares 14,373 13,518 14,124 15,837 Stock-in-trade 537,668 685,147 809,255 938,768 Trade debts 355 6,442 - - Loans, advances, deposits, prepayments and other receivables 233,713 180,969 166,254 209,446
Cash and Bank balances 276,410 489,565 568,164 838,280 1,062,519 1,375,642 1,557,797 2,002,331
Total Assets 1,529,679 1,790,021 2,036,851 2,452,526
Vertical Analysis of Balance Sheet1999 2000 2001 2002
11
HONDATHE POWER OF DREAMS
Share Capital &ReservesIssued Capital 27.46%23.46%20.62%17.13%Reserves 40.01%40.17%41.24%44.12%Unappropriate Profit 0.03% 0.04% 0.01% 0.04%Total equity 67.50%63.68%61.87%61.28%
Deferred Liabilities 0.29% 0.30% 0.36% 0.40%
Current Liabilities
Short term running finance and other credit facilities-secured 3.75% 0.00% 0.00% 0.00%Creditors, accrued and other liabilities 20.96%29.53%32.11%28.59%Provision for taxation 2.01% 1.80% 1.53% 2.02%Proposed Dividend 5.49% 4.69% 4.12% 7.71%
32.21%36.02%37.77%38.32%
Contingencies and commitments 0 0 0 0
Total Liabilities and Equity 100% 100% 100% 100%
Fixed Capital Expenditure
Fixed assets -Tangible assets 29.47%22.37%20.66%17.17% - Intangible assets 0.69% 0.36% 0.88% 0.54%
30.16%22.72%21.54%17.71%Capital work in progress 0.10% 0.26% 1.82% 0.57%
30.26%22.98%23.36%18.29%
Deferred Taxation 0.18% 0.09% 0.08% 0.00%
Long term Deposits 0.10% 0.08% 0.08% 0.07%
Current AssetsStores and Spares 0.94% 0.76% 0.69% 0.65%Stock-in-trade 35.15%38.28%39.73%38.28%Trade debts 0.02% 0.36% 0.00% 0.00%Loans, advances, deposits, prepayments and other receivables 15.28%10.11% 8.16% 8.54%Cash and Bank balances 18.07%27.35%27.89%34.18%Total current Assets 69.46% 76.85%76.48%81.64%
Total Assets 100% 100% 100% 100%
12
HONDATHE POWER OF DREAMS
BALANCE SHEET
VERTICAL ANALYSIS
Asset Side:The fixed assets are 30.26% of total assets. They are higher in year 1999-2000 but
after that percentage of fixed asset in total asset has decreased in year 2000-2001. But
after that the percentage remains almost same. The percentage of long term deposits is
10% in year 1999-2000. It remains almost same for years 2000-20001 and 2001-2002.
But in year 2001-2002 it has decreased to 0%.
The current assets are 69.4% in year 1999-2000 and they are gradually increasing
over the year. In year 2001-2002 they are 81%. This is because of gradual increase in
cash and inventory.
Liabilities Side:
The current liabilities are 32.21% of total liabilities and equity. And they are
gradually increasing over the year. The creditors, accrued and other liabilities are 20% of
total liabilities and equity side and they are also gradually increasing over the year. The
deferred liabilities are 0.29% of total liabilities and equity side. And they are also
gradually increasing over time.
Equity Side:
The total equity is equal to 67.50% in year 1999-2000. The %age of equity to
total liabilities and equity is decreasing over time. The %age of issued capital is 27.46%
in year 1999-2000 and is decreasing gradually over the time.
13
HONDATHE POWER OF DREAMS
Trend Analysis of Balance Sheet 1999 2000 2001 2002
Share Capital &ReservesIssued Capital 100 100 100 100 Reserves 100 117 137 177 Unappropriate Profit 100 155 53 177
100 110 122 146
Deferred Liabilities 100 123 166 224
Current Liabilities
Short term running finance and other credit facilities-secured 100 - - - Creditors, accrued and other liabilities 100 165 204 219 Provision for taxation 100 104 101 161 Proposed Dividend 100 100 100 225
100 131 156 191
Contingencies and commitments 0 0 0 0
Total Liabilities and Equity 100 117 133 160
Fixed Capital Expenditure
Fixed assets -Tangible assets 100 89 93 93 - Intangible assets 100 60 170 125
100 88 95 94 Capital work in progress 100 290 2,348 893
100 89 103 97
Deferred Taxation 100 57 57 -
Long term Deposits 100 100 108 117
Current Assets
Stores and Spares 100 94 98 110 Stock-in-trade 100 127 151 175 Trade debts 100 1,817 - - Loans, advances, deposits, prepayments and other receivables 100 77 71 90
Cash and Bank balances 100 177 206 303 100 129 147 188
Total Assets 100 117 133 160
14
HONDATHE POWER OF DREAMS
Trend Analysis
Balance Sheet
Equity:Trend shows that our reserves increased with the same ratio while our
inappropriate profit firstly increased by 155% in (2000) then decreased to 53%in (2001)
then a tremendous increase in inappropriate profit that is of 177% in 2002, While there is
consistent increase in stockholder’s equity.
Liabilities:Current liabilities have increased consistently over the years due to increase in
Creditors, accrued and other liabilities while dividend also increased in 2002 by 225%. Total
liabilities increase with same ratio. This shows that company working in the same
manner.
Assets:Operating fixed assets tangible, expenditure decreased 92.3% in 2000 and little
increase (93%) in 2001. Decrease in 2000 is higher because company sold fixed assets in
2000. Long-term deposits remains same during 2000 while slightly increased to 108% in
2001 and 117% in 2002. To build good relations with dealers and transporters company
took their deposits because sale was higher in 2000. Current assets in 2000 increased to
129%, in 2001 increase to 147% and in 2002 increase to 188%. C.A is higher in 2000
because trade debts were high in 2000 and also cash and bank balances while Loans,
advances, deposits, prepayments and other receivables decreased. Total assets increased by
117% in 2000, 133% in 2001 and 160% in 2002.
15
HONDATHE POWER OF DREAMS
Horizontal Analysis of Balance Sheet 1999-2000 2000-2001 2001-2002
Share Capital &ReservesIssued Capital - - - Reserves 17 17 29 Unappropriate Profit 55 (66) 233
10 11 19
Deferred Liabilities 23 36 35
Current Liabilities
Short term running finance and other credit facilities-secured (100) - - Creditors, accrued and other liabilities 65 24 7 Provision for taxation 4 (3) 59 Proposed Dividend - - 125
31 19 22
Contingencies and commitments
Total Liabilities and Equity 17 14 20
Fixed Capital Expenditure
Fixed assets -Tangible assets (11) 5 0 - Intangible assets (40) 183 (26)
(12) 8 (1)Capital work in progress 190 709 (62)
(11) 16 (6)
Deferred Taxation (43) 0 (100)
Long term Deposits - 8 8
Current Assets
Stores and Spares (6) 4 12 Stock-in-trade 27 18 16 Trade debts 1,717 (100) - Loans, advances, deposits, prepayments and other receivables (23) (8) 26
Cash and Bank balances 77 16 48 29 13 29
Total Assets 17 14 20
Horizontal Analysis
16
HONDATHE POWER OF DREAMS
Balance Sheet
Asset Side:
1999-2000:
The company has invested large amounts in capital work in progress. There was
decreased in all other long-term assets such as Deferred taxation. The current assets of
the company increased by 29% and this was due to mainly increase in trade debt. The
increase in trade debt was 1717%. This might be due to the relaxation in company policy.
2000-2001
There was large investment in capital work in progress from year 2000-2002.
There was also some comprehensive increase in the intangible assets. The current assets
of the company increased by 14%. The trade debt has been decreased due to the
collection of trade debt. The trade debt of the company has been decreased by 100%. The
cash and bank balances of company also increased but the percentage, as compare to
previous year was low.
2001-2002
The investment in capital work in progress decreased and this was due to the
small scale of investment in Plant and machinery. There was also some comprehensive
decrease in the deferred taxation. The decrease in deferred tax was due to the reason that
company has utilized this asset. The current assets of the company increased by 29%.
The cash and bank balances of company also increased. The percentage increase in cash
and bank balances was 48%.
Liabilities Side:
17
HONDATHE POWER OF DREAMS
1999-2000
The current liabilities of the company increased by 31%. The short term running
finance and other liabilities decreased by 100%. There was increase in other liabilities
and it was due to mainly increase in liabilities of creditors. The deferred liabilities
increased by 23%.
2000-2001
The current liabilities of the company increased by 19% and this increase was due
to increase in other liabilities. The deferred liabilities increased by 36%.
2001-2002
The current liabilities of the company increased by 22% and this increase was due
to increase in other liabilities. The deferred liabilities increased by 35%.
Equity Side:
The reserves of the company increased by 17% from year 1999-2000. the reserves
of the company increased with same %age as the previous year from year 2000-20001.
The reserves of the company increased from year 2001-2002 by 29% and this was due to
large amount of profit earned.
18
HONDATHE POWER OF DREAMS
19
HONDATHE POWER OF DREAMS
Profit and Loss Account of Honda Atlas Cars (Pakistan) Limited1999 2000 2001 2002
Rupees in Thousands Sales 2,561,055 3,506,532 4,485,438 6,519,069 Cost of goods sold (2,217,837) (3,137,808) (4,129,927) (5,747,659)Gross profits 343,168 368,724 355,511 771,410 Administrative Expenses (111,585) (107,626) (100,941) (133,337)
Operating Profits 231,583 261,097 254,570 638,073 Other income 29,418 53,136 63,049 68,311
261,001 314,233 317,619 706,384
Financial charges (3,684) (2,494) (1,656) (1,252)Other charges (18,012) (21,240) (21,235) (48,978)
(21,696) (23,735) (22,891) (50,230)
Profit Before Taxation 239,305 290,498 294,728 656,154 Provision for Taxation (31,613) (99,213) (90,257) (224,512)
Profit after Taxation 207,692 191,286 204,471 880,666 Unappropriated Profit Brought forward 826 518 804 275 Profit available for appropriation 208,518 191,804 205,275 880,941
Appropriation Transferred to general reserves 107,000 121,000 242,000 Proposed Dividend 84,000 84,000 84,000 189,000
191,000 205,000 431,000 Unappropriated Profit carried forward 518 804 275 917 Earning per share 4.95 4.55 4.87 10.48
20
HONDATHE POWER OF DREAMS
Vertical Analysis of Profit and Loss Account1999 2000 2001 2002
Sales 100.00% 100.00% 100.00% 100.00%Cost of goods sold -86.60% -89.48% -92.07% -88.17%Gross profits 13.40% 10.52% 7.93% 11.83%Administrative Expenses -4.36% -3.07% -2.25% -2.05%
Operating Profits 9.04% 7.45% 5.68% 9.79%Other income 1.15% 1.52% 1.41% 1.05%
10.19% 8.96% 7.08% 10.84%
Financial charges -0.14% -0.07% -0.04% -0.02%Other charges -0.70% -0.61% -0.47% -0.75%
-0.85% -0.68% -0.51% -0.77%
Profit Before Taxation 9.34% 8.28% 6.57% 10.07%Provision for Taxation -1.23% -2.83% -2.01% -3.44%
Profit after Taxation 8.11% 5.46% 4.56% 13.51%Unappropriated Profit Brought forward 0.03% 0.01% 0.02% 0.00%Profit available for appropriation 8.14% 5.47% 4.58% 13.51%
Appropriation Transferred to general reserves 0.00% 3.05% 2.70% 3.71% Proposed Dividend 3.28% 2.40% 1.87% 2.90%
0.00% 5.45% 4.57% 6.61%Unappropriated Profit carried forward 0.02% 0.02% 0.01% 0.01%
21
HONDATHE POWER OF DREAMS
PROFIT AND LOSS ACCOUNTVERTICAL ANALYSIS
Cost of good sold and Operating Profit:
In 1999-2000 the cost of good sold was 86% of total sales. There continuous increase In COGS up to year 2001. But after that in year 2002 it has decreased. However the increase in cost of good sold was less as compare to sales because of favourable exchange rate prevailed in market. The operating profit in year 2002 has increased because of decline in cost of good sold.
Admn. Expenses:
The admn. Expenses have 4.36 %age of total sales in year 1999. The percentage of admn. Expenses to total sales have decreased.
Financial Charges:
The financial charges are .14% of total sales in year 1999. But they are decreasing over time and it is because of decrease of short term running finances.
22
HONDATHE POWER OF DREAMS
Trend Analysis of Profit And Loss Account1999 2000 2001 2002
Sales 100 136.92 175.14 254.55Cost of goods sold 100 141.48 186.21 259.16Gross profits 100 107.45 103.60 224.79Administrative Expenses 100 96.45 90.46 119.49
Operating Profits 100 112.74 109.93 275.53Other income 100 180.62 214.32 232.21
100 120.40 121.69 270.64
Financial charges 100 67.70 44.95 33.98Other charges 100 117.92 117.89 271.92
100 109.39 105.51 231.51100
Profit Before Taxation 100 121.39 123.16 274.19Provision for Taxation 100 313.84 285.51 710.20
Profit after Taxation 100 92.10 98.45 424.02 Unappropriated Profit Brought forward 100 62.72 97.36 33.30 Profit available for appropriation 100 91.98 98.44 422.48
Appropriation Transferred to general reserves 100 113.08 226.17 Proposed Dividend 100 100 100 225
100 107.33 210.24Unappropriated Profit carried forward 100 155.13 53.09 177.03
23
HONDATHE POWER OF DREAMS
PROFIT AND LOSS ACCOUNTTREND ANALYSIS
SALES:The sales of Honda Atlas are increasing over the year. This may be attributed to
the upsurge in demand of cars that resulted in the boom of car industry.
COST OF GOOD SOLD:
The cost of goods sold is increasing over the period. The increase in COGS is
more in year 2002. This may be attributed to the more usage of raw material, which
have increased over the years. Due to the high demand of cars.
ADMN. & SELLING EXPENSE:
The admin and selling expenses decreased in year 2000 & 2001. But in year 2002
the admn and selling expense increased. This is because of slight increase in all expenses.
OPERATING PROFIT:
The operating profit of the company has increased through out the year. But in
year 2001 they slightly decreased because of more increase in cost of goods sold as
compare to sales.
OTHER INCOME:The other income is increasing over the year and this mainly because of increase in
scrap sales and increase on return of deposits.
FINANCIAL CHARGES:
The financial charges are decreasing over the time. This may be attributed to the
decrease in markup on short term running finances.
OTHER CHARGES:
The other charges increased over the year. But the %age increase in other charges
in year 2002 is more as compare.
24
HONDATHE POWER OF DREAMS
PROFIT BEFORE TAXATION:
The profit before is increasing over time and it may be because of increase in
sales over time.
TAXES:
The taxes have increased over the year because of higher profits earned by the
company.
25
HONDATHE POWER OF DREAMS
Horizental Analysis Of Profit And Loss Account1999-2000 2000-2001 2001-2002
Sales 37% 28% 45%Cost of goods sold 41% 32% 39%Gross profits 7% -4% 117%Administrative Expenses -4% -6% 32%
Operating Profits 13% -3% 151%Other income 81% 19% 8%
20% 1% 122%
Financial charges -32% -34% -24%Other charges 18% 0% 131%
9% -4% 119%
Profit Before Taxation 21% 1% 123%Provision for Taxation 214% -9% 149%
Profit after Taxation -8% 7% 331%Inappropriate Profit Brought forward -37% 55% -66%Profit available for appropriation -8% 7% 329%
Appropriation Transferred to general reserves 13% 100% Proposed Dividend 0% 125%
7% 110%Inappropriate Profit carried forward 55% -66% 233%
26
HONDATHE POWER OF DREAMS
PROFIT AND LOSS ACCOUNTHORIZONTAL ANALYSIS
SALES:1999-2000
The sales of Honda Atlas are increasing through the year 1999-2000. The
percentage increase in sale in 1999-2000 was 37%.
2000-2001
The percentage of sale of the cars increase in year 2000-2001 but the increase in
sale was less as compare to increase in cost of spare parts and commission paid to the
dealers. This increase is low as compare to previous year increase. The percentage
increase in sale in 2000-2001 was 28%.
2001-2002
The percentage of sale of the cars increases in year 2001-2002. This may be
attributed to the upsurge in demand of cars that resulted in the boom of car industry. The
percentage increase in sale in 2001-2002 was 45%.
COST OF GOOD SOLD:
1999-2000
The cost of goods sold increased over in the period 1999-2000 because of more
usage of raw material. The percentage increase in cost of good sold was 37%.
2000-2001
The percentage of the COGS increased in year 2000-2001 but the increase in
COGS was less as compare to increase in COGS of previous year. The percentage
increase in COGS in 2000-2001 was 32%.
2001-2002
The increase in COGS was more in year 2002. This may be attributed to the
more usage of raw material, which has increased over the years and due to the high
demand of cars. The percentage increase in COGS in 2001-2002 was 39%.
27
HONDATHE POWER OF DREAMS
ADMN. & SELLING EXPENSE:
1999-2000
The admin and selling expenses decreased in year 1999-2000. This is because of
slight decrease in warranty expenses.
2000-2001
The admin and selling expenses increased in year 2000-2001. This is because of
slight increase in all expenses.
2001-2002
In year 2002 the admn and selling expense increased. This is because of slight
increase in all expenses.
OPERATING PROFIT:
1999-2000
The operating profit of the company has increased in the year 1999-2000.
2000-2001
In year 2000-2001 they slightly decreased because of more increase in cost of
goods sold as compare to sales.
2001-2002
The operating profit of the company has increased in the year 2001-2002.
OTHER INCOME:
1999-2000
The other income is increasing in year 1999-2000 and this mainly because of
increase in scrap sales and increase on return of deposits.
28
HONDATHE POWER OF DREAMS
2000-2001
The other income is increasing in year 2000-2001 and this mainly because of
increase in scrap sales and increase on return of deposits.
2001-2002
The other income is increasing in year 2001-2002 and this mainly because of
increase in scrap sales and increase on return of deposits.
FINANCIAL CHARGES:
1999-2000
The financial charges are decreasing in year 1999-2000 and this may be attributed
to the decrease in markup on short term running finances.
2000-2001
The financial charges are decreasing in year 2000-2001 and this may be attributed
to the decrease on interest on workers participation fund.
2001-2002
The financial charges are decreasing in year 2001-2002 and this may be attributed
to the decrease in interest on workers participation fund.
OTHER CHARGES:
1999-2000
The other charges increased in the year1999-2000.
2000-2001
The other charges remained same in the year 2000-2001.
29
HONDATHE POWER OF DREAMS
2001-2002
The %age increase in other charges in year 2002 was 131%. And this was mainly
due to 130% increase in workers profit participation fund.
PROFIT BEFORE TAXATION:
1999-2000:
The profit before taxation increased by 21% in year 1999-2000and it may be
because of increase in sales.
2000-2001
The profit before taxation increased by 1% in year 2000-2001 and it because of
more increase in cost of goods sold as compare to sales.
2001-2002
The profit before taxation increased in year 2001-2002 by 123% and this was
because of higher sales.
TAXES:
1999-2000:
The taxes have increased in the year 1999-2000 because of higher profits earned
by the company and future taxes are paid in that financial year. The tax rate increased by
214% in year 1999-2000.
2000-2001
The taxes have decreased in the year 2000-2002 because of higher profits earned
by the company. That was because of the prior payment of taxes in previous year.
2001-2002
The taxes increased by 149% in year 2001-2002 and it was because of higher
profits earned by the company.
30
HONDATHE POWER OF DREAMS
31
HONDATHE POWER OF DREAMS
RATIO ANALYSIS
1999 2000 2001 2002LIQUIDITY RATIOSN –W-C 569,756 730,815 788,542 1,062,597 CASH RATIO 0.56 0.76 0.74 0.89 Q.R 0.56 0.77 0.74 0.89 C.R 2.16 2.13 2.03 2.13ACTIVITY RATIOSA/R TUR OVER 10.94 16.64 25.37 34.70AVG COL PERIOD 33.36 21.94 14.39 10.52INV TUR OVER 4.02 5.02 5.43 6.47AVG AGE OF INV 90.85 72.74 67.26 56.45OPERATING CYC 124.21 94.68 81.65 66.97FIXED ASSET TURNOVER 5.55 8.62 10.22 15.01TOT ASSET TUR 1.67 2.11 2.34 2.90
LEVERAGE RATIODEBT TO TOTAL ASSETS 0.33 0.36 0.38 0.39F.C RATIO 12.03 13.24 13.88 14.06DEBT TO EQUITY 0.48 0.57 0.62 0.63TIME INT EARNED 64.95 116.46 177.98 524.08PROFITABILITY RATIOSGROSS MARGIN 0.13 0.11 0.08 0.12OPERATING MARGIN 0.09 0.07 0.06 0.10PRETAX MARGIN 0.09 0.08 0.07 0.10PROFIT MARGIN 0.08 0.05 0.05 0.14R O T A 0.17 0.18 0.16 0.29RET ON COM EQU 0.20 0.17 0.16 0.59EPS 4.95 4.55 4.87 20.97PRICE 2 EARNB.V 24.58 27.14 30.01 35.78DIVIDENT RATIOSDIVIDENT YIELD
DIVIDENT PAYOUT 0.40 0.44 0.41 0.21
32
HONDATHE POWER OF DREAMS
LIQUIDITY RATIOS:
These ratios determine the company ability to meet its maturing short-term
obligations. Through these ratios we are expected the future cash flows. The company
appears to have a good liquidity position and can meet its short term obligation.
NET WORKING CAPITAL:
Net working capital = current assets – current liabilities
The networking capital shows the liquidity position of the company. The
company has excessive cash to meet its short-term obligation. The networking capital of
the company is increasing over the period. The networking capital in the year 1999 was
569756 and in year 2002 it was 1062597. This shows that company maintains excessive
cash on hand and lot of its cash remain idle.
CASH RATIO:
Cash ratio = Cash+M/S Current liabilities
The cash ratio is the more precise measure of the liquidity position of company.
The cash ratios of company over the year show favourable increase. The current ratio in
year 1999 was .56 and in year 2002 it was 0.89. There was decrease in cash ratio in year
2001 as compare to previous year and that was because of relative increase in current
liabilities was more as compare to cash and bank balances.
33
HONDATHE POWER OF DREAMS
QUICK RATIO:
Quick ratio = quick assets Current liabilities
It is used to test the most current assets against current liabilities. The company
quick ratio shows as increase trend with a decrease rate, as it was .56 in 1999, which is
increase to 0.89 in 2002. There was decrease in quick ratio in year 2001 as compare to
previous year because of relative more increase in current liabilities as compare to current
asset. The increase in current liabilities was mainly due to the increase in creditors and
other liabilities.
CURRENT RATIO:
Current ratio = Current Assets
Current Liabilities
A high current ratio is required when the firm is going to borrowing short-term
loans. So short-term creditors are always interested in current ratio. As the company
current ratio is good it indicates that company can pay its short tern obligations as they
come due. The company current ratio shows a favorable trend as it was 2.16 in year 1999
and in year 2002 it was 2.13. It shows that company has maintained its current ratio. This
shows that company maintains excessive cash on hand and lot of its cash remain idle.
There was decrease in current ratio in year 2001 as compare to previous year because of
relative more increase in current liabilities as compare to current asset. The increase in
current liabilities was mainly due to the increase in creditors and other liabilities.
34
HONDATHE POWER OF DREAMS
ACTIVITY RATIOS:
Activity ratios are used to determine how quickly various accounts are converted
into sales or cash. The company’s activity ratios are exceptionally high and have
increased during the period.
Accounts receivable turnover ratio
A/R turnover ratio = net sales Avg. A/R
It measures the effectiveness of the firm’s credit policies and indicates the level of
investment in receivables needed to maintain the sales level. The A/R turnover ratio has
increased over the period. In year in 1999 it was 10.94 and in year 2002 it was 34.7. This
shows firm collecting its receivables early and it has tighten its policy. This might be
attributed to the increase in sales and decrease in accounts receivable. This is good sign
because company can collect its cash early while it has not badly affected the sales.
Average collection period
Avg. collection period = 365 A/R turnover ratio
It measures the effectiveness of the firm’s credit policies and indicates the level of
investment in receivables needed to maintain the sales level. The Average collection
period ratio has decreased over the period. In year 1999 it was 33.36 days and in year
2002 it has decreased to 10.52 days. The low the Average collection period ratio shows
that firm have strict policy and it might hamper its sales. But in case of Honda Atlas
company decrease in sale has not badly affected its sales. This decrease in the Average
collection period ratio is due to the increase in A/R turnover ratio.
35
HONDATHE POWER OF DREAMS
Inventory turnover ratio
. The inventory turnover shows increasing trend. As it was 10.94 times in 1999
which quickly increase in 2002 to 6.47. But there was slight relative decrease in 2001 in
inventory turnover as compare to previous year increase in inventory turnover. The
decline in inventory turnover show the stock whether it is not selling well or there is
obsolete goods on hand. The increase in inventory turnover shows that there is no
stockpile up. The inventory is turned into Finished good. In case of the company, which
we have selected there is gradual increase in inventory turnover it means the inventory is
turning to sale quickly. This is a positive sign for a company. Because company can save
it’s carrying cost. But shorter time period sometime is very dangerous because in that
case it can result into shortage of inventory. When company struck into such type of
situation it can be very dangerous for the company.
Average age of Inventory:
As the length of period is greater it shows the market of obsolescence. In 1999
this ratio was 90.95, which decreased in 2001 to 56.45. This is a positive sign for a
company. Because company can save it’s carrying cost. But shorter time period sometime
is very dangerous because in that case it can result into shortage of inventory. When
company struck into such type of situation it can be very dangerous for the company.
Operating Cycle:
It is number of days that company takes to convert inventory and receivables to
cash. It is desirable when the operating cycle is short because company can quickly
365 / Inventory Turnover
Operating cycle = Average collection product + Average age of inventory
Inventory Turnover = COGSAverage inventory
36
HONDATHE POWER OF DREAMS
convert its inventory into cash. The operating cycle show a desirable trend in 2001, as it
was 66.97 as compare to 124.21 days in year 1999.
Total Assets Turnover:
Total asset T/O = Sales Avg. total asset
It is used in evaluating a company is ability to use its asset to generate revenue. The total
assets turnover shows increase in year 2001, as it was 2.90 as compare to1.67 in 1999.
This is mainly because relative increase in sale is more as compare to total asset.
37
HONDATHE POWER OF DREAMS
LEVERAGE RATIOS:
Solvency is a company’s ability to meet its long-term obligations as they become
due. When debt is excessive, additional financing should be obtained primarily from
equity sources.
Debt Ratio: (T.L/T.A)The company’s debt ratio increased from 0.4 in year 1999 to 0.63 in year
20002.this show reliance on debt due to which the company may face the difficulty in
meeting its interest and principal payments on time. On the other hand, the increased
reliance on leverage may increase favourable leverage.
Debt/ Equity RatioThe debt to equity ratio has increased
over time. It was .48 in year 1999 and increased to 0.63 in year 2002. This is a good sign
from the point of view of company, because reliance on debt may increase favourable
leverage.
Times Interest Earned / Interest Coverage Ratio
It shows how much a decline in earning a company can absorb. The time interest
earned ratio increased from 64.95 in 1999 and increased to 524.06 in 2002.
Times Interest Earned = EBIT Interest expenses
Debt / Equity Ratio = Total LiabilitiesStockholder equity
38
HONDATHE POWER OF DREAMS
Profitability Ratio:
It shows the financial position of the company is whether the company earns
satisfactory profit and return on investment.
Gross Profit Margin
The gross profit margin remained stable, which is a true sign. There was slight
decrease in the gross profit margin in year 2000& 2001.
Profit Margin
It produce the cost structure, production efficiency and pricing the company. The
net profit margin has increased from 8% in 1999 to 14% in 2002, which is a true sign.
This indicates that the company’s profitability from sales has increased which was due to
the more relative increase in sales as compare to the increase in cost of goods sold. There
was slight decrease in profit margin in year 2000 & 2001.
Return on Total Assets
The return on total asset shows increasing trend over the period of time.
The ROA has increased from 17% in year 1999 to 29% in year 2002. The increases in
ROA show a good trend because it shows increase in the efficiency of assets to generate
income.
Gross profit / Net sales
Profit margin = Net Income Net sale
Return on Total Assets = Net incomeAverage Total Assets
39
HONDATHE POWER OF DREAMS
Return on Common Equity
ROE shows the same trend
as that other profitability
ratios. It has increased over the year. In year 1999 it was 20% and in year 2002 it was
59%. This is a favourable sign for stockholders because the profitability on the capital
supplied by them has increased.
Return on Common Equity = Earning available to common stockholder Average stockholder equity
40
HONDATHE POWER OF DREAMS
MARKET VALUE RATIOS
Dividend payout Ratio:
The dividend payout shows the dividend declared by the company. The dividend
payout ratio remains same throughout the year. This is a good sign because investor in
country like Pakistan are more attracted by dividend as compare to the price appreciation.
So, the stable dividend policy will attract more investors.
41
HONDATHE POWER OF DREAMS
OVERALL ANALYSIS
The Honda Atlas Pakistan ltd. was incorporated in 1992 and it’s started working
from 1994. The company is enjoying a good position from its start. The conditions in like
Pakistan where conditions are volatile and it’s not possible for any company to maintain
its stable policies. But the Honda Atlas Pakistan ltd. has maintained its policies and
profits over the number of years. This might be due to the growth in the industry. But this
is one factor. There are some other factors also that result in increase in profit. These
factors are extensive marketing and promotion activities and good management practices.
The sales in year 2002 rose to Rs 6.5 billion against Rs 4.5 billion in previous
year. The cost of goods sold also increases but the relative increase of cost of goods sold
was less than the increase in sales.
The company has strong liquidity position. Over the year the company has
strengthen its position. This is a true sign and short-term creditors feel confident while
investing in it.
The company has also show high increase in profitability. This was due to the
extensive demand of cars. All the profit ratios show improvement in year 2002. And it is
good from company’s future prospects.
The efficiency of assets is increasing over the time. It might because of relative
extensive increase in sale. This is also a good sign and shows that company is
performing.
In the end we can say that Honda Atlas Pakistan ltd. has maintained its growth
throughout the year. This can be attributed to the good management policies and good
market. This increase in future trend might continue because the prevailing market
conditions are helping to grow the business.
42