![Cross-sectional Analysis
Cross-sectional analysis is referred to analysis on an organization in relation to its peers or industry to discover where the subjected organization
stands as compared to its competitors and industry standards
• Company i have selected for cross-sectional analysis is,“Dhoom Yamaha Limited Motorcycles (DYL)”.
• DYL started operation in 1976 in collaboration with Yamaha Motor Company Japan. DYL is a leader in 100cc engines throughout
Pakistan.
• Market share of both companies:
• Missions statements:
ATLH
35.4% DYL
7.1%
Mission of ATLH[4]
A dynamic growth oriented
company and market leader in
the motorcycle industry,
emerging as a global
competitive centre of
production and exports.
Mission of DYL[45]
To be a leading motorcycle
manufacturer providing the
highest customer satisfaction.](https://image.slidesharecdn.com/e0452035-73a9-43d9-b0ea-5c5e1d76438e-141216182745-conversion-gate01/85/Presentation-19-320.jpg)
Presentation
- 1. Oxford Brookes University Research Analysis Project (RAP) Presentation On Atlas Honda Limited Pakistan (AHL) Prepared By: Hammad Ahmed Qureshi ACCA Registration Number: 1977764 Mentored By: Ms. Areena Haider (ACCA) The Business and Financial Performance of an Organization For The Financial Years 2011-09
- 2. Objectives of the Presentation • Business and Financial Performance of AHL Pakistan for the years 2011-09. • An overview of Global and Local Motorbike Industry. • An overview of AHL as a market leader. • Data gathering sources • Ratio analysis on Atlas Honda. • Cash-flow analysis on AHL • Ethical matter arose during the analysis • Cross-sectional analysis on AHL • Business analysis • The Future • Conclusion and Recommendations
- 3. Industry Global Motorbike Industry: • Global market for motorcycle showed an increasing trend except for FY08. • Market share of approximately 77% relates to Asia. • Economic crisis and increased accidents have also affected demand for motorbikes in USA, Japan and Europe. Local Motorbike Industry : • Automobile industry of Pakistan showed an improvement in current year with a growth rate of 16.5%. • Motorcycle industry of Pakistan is 47 years old. • Pakistan is ranked number 7th in world for the production of Motorcycles. • Pakistan holds 2% of global demand. • Market was previously dominated by Japanese manufacturers. • After competition from China ,competition in this industry has Stiffened.
- 4. 2004 2005 2006 2007 2008 2009 2010 -10000000 0 10000000 20000000 30000000 40000000 50000000 60000000 70000000 80000000 NumberofUnits 2004 2005 2006 2007 2008 2009 2010 Global Production of Motorcycles % of Increase/(Decrease in Production 6.3% 3.1% 4.1% 5.8% -3.7% 12.4% 25.6% Number of Units Produced 6449622 6648243 6922297 7326606 7052049 6179186 7762912 2004 2005 2006 2007 2008 2009 2010 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 119,169 157,550 24.4% 205,169 23.2% 371,007 44.7% 570,706 35.0% 751,379 24.0% 839,850 10.5% 1,054,102 20.3% 917,628 -14.9% 1,380,404 33.5% 1,610,681 14.3% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Production of Motorbikes in Pakistan Number pf Prodution Units % of Increase/(Decrease) in Production
- 5. • Companies operating in the Pakistani motorcycle industry are: Company (Atlas Honda Limited Pakistan) • Organization I have selected is "Atlas Honda Limited Pakistan (AHL)". • It is the part of one of the leading group “Atlas”. • Atlas group started assembling motorbikes in 1964. • AHL is a dynamic, growth oriented, largest motorcycle manufacturer in Pakistan
- 6. • SAFA Pakistan adjudged AHL's annual report for the year 2009 as the "Merit Winner. • Company beliefs is that "Share with the society what we earn from the society. • It has largest in-house manufacturing capacity at Sheikhoopura and Karachi of 750,000 units annually. • Atlas’s vision is to become a market leader and wants to grow as a tough competitor in international market • Company success is because of its belief in quality, leadership, customer satisfaction and shareholders satisfaction. • AHL holds approximately 35% of the market share. • Participation and effective delegation is a key feature in the current success of company. Programs like "Ala Mayar and Quality Circle Movement launched in 1985.
- 7. Products: CD-100 •Four stroke engine 100cc •Kick start •Dry weight: 98Kgs •Price: Rs.77,000/= CG-125 •Four stroke engine, 125cc •Kick start •Petrol capacity 9.2 liters •Dry weight: 96.5Kgs •Price: Rs.93,000/= CG-125 Deluxe •Fourstroke engine,125cc •Kickstart •Petrolcapacity 12liters •Dryweight: 112Kgs •Price: Rs.115,000/=
- 8. • Internet Data Sources • Annual Reports • Student Accountant • Electronic and Print Media • Study Texts
- 9. • Critical success factors I have used for my analysis: Ratio Analysis 1.Profitability 3.Management Efficiency 5.Gearing 4.Share Investment 2.Liquidity Ratio analysis is fundamental examination of the health of a company by studying relationships of its key financial variables. It involves conversion of financial data of a company into ratios.
- 10. Gross Profit Margin This ratio gives an assessment regarding operating profitability. It crosses revenue generated with the costs incurred over a period for the examination of amount of earnings left for indirect costs and shareholders. Profitability Net Profit Margin NP margin evaluates basic purpose of the business through examination of its ability of generation of profit, for each $1 generated from sales and judges the growth in business.
- 11. Liquidity Current Ratio This ratio evaluates whether current assets are sufficient to pay current liabilities. If the ratio falls below one, significant questions marks arises on the ability of company to operate as a going concern. Quick Ratio This ratio is a strict measure of liquidity position. Quick ratio tells whether the company will be able to meet it current debts with most liquid assets. Many companies hold stocks which are not cash equivalent. So inclusion of those stocks in current ratio is not a very pure measure of liquidity.
- 12. Inventory turnover days: Tells the production efficiency i.e. average days taken to produce and sale the inventories. Receivable turnover days: Tells the average days in which cash from receivables are recovered. Payable turnover days: Measures days taken to repay the short-term creditors. Cash operating cycle tells for how many days company has to borrow cash to maintain its short-term liquidity. It tells operating and management efficiency of the company. In summary, it is the time period between money goes out of and into your pocket Cash Operating Cycle
- 13. Management Efficiency Return on Capital Employed ROCE will tell how the sources of finance have been utilized. The ratio is very informative; it informs the investors how their investments have been used by management for generating returns to counter the risks faced by them. Return on Assets Return on Assets is used for the evaluation that how many rupees company generates as a result of Rs.1 invested in its assets.
- 14. Market Performance Earnings Per Share EPS tells the earnings that are earned by each outstanding share of the company. Its Importance can be extracted that a separate IAS-33 is issued for its calculation and presentation. Price / Earnings Ratio P/E ratio represents risk and growth of a company. Increasing P/E indicates that share holders are expecting higher returns from company. In summary, it tells that how many Rupees an investor would expect to pay for Rs.1 earning.
- 15. Dividend Ratios
- 16. GearingDebt to Equity Ratio This ratio determines the extent to which company is financed by equity and debt. It will illustrate AHL’s inherent risk and risk of default beard by shareholders of AHL. Interest Cover Ratio Interest cover ratio evaluates interest payment capacity of a company, assuming that earning and interest remain same. Debt Service Coverage Ratio DSCR is a measurement tool for evaluating the ability of a company in generating enough cash for repayment of principal, interest and lease payments.
- 17. 2008200920102011 "000"000"000"000Activities 842,189165,929-1,768,2632,009,360Operating Activity --120%-1166%14%Increase/(Decrease) 572,029-922,673730,915-504,018-Investing Activity --261%-179%-31%Increase/(Decrease) 685,645-1,117,089-31,811-1,056,505-Financing Activity -63%-97%3221%Increase/(Decrease) 415,485-360,345-1,005,537448,837 Net Increase/(Decrease) 504,138143,7931,641,9632,090,800 Cash position at the end of years Casflow Analysis Year Cash-Flow Analysis Cash-flow is the movement of money into and out of organization, while cash-flow analysis is analysis of operating, investing and financing activities of organization and identifies cash-flow opportunities and threats.
- 18. Ethical Matters During analysis, an ethical matter arose. Cash-flow from operations for nine months ended period in FY09 was Rs.215,340,000, a quarter for comparison purpose added and figure for twelve months became Rs.(165,929,000). This raises an issue that the management of AHL might have deliberately changed its year end for making its operating cash flows positive because the share price was already depressed and profitability in FY09 was also very low.
- 19. Cross-sectional Analysis Cross-sectional analysis is referred to analysis on an organization in relation to its peers or industry to discover where the subjected organization stands as compared to its competitors and industry standards • Company i have selected for cross-sectional analysis is,“Dhoom Yamaha Limited Motorcycles (DYL)”. • DYL started operation in 1976 in collaboration with Yamaha Motor Company Japan. DYL is a leader in 100cc engines throughout Pakistan. • Market share of both companies: • Missions statements: ATLH 35.4% DYL 7.1% Mission of ATLH[4] A dynamic growth oriented company and market leader in the motorcycle industry, emerging as a global competitive centre of production and exports. Mission of DYL[45] To be a leading motorcycle manufacturer providing the highest customer satisfaction.
- 20. Products Comparison: 1. Honda CD - 70cc 2. Honda CD- 100cc 3. Honda CG - 125cc 4. Honda CG - 125 Deluxe 1. Yamah a Dhoom YD - 70cc 2. Yamaha Junoon YD - 100cc 3. Yamaha Yama4 YD - 100cc 4. Yamaha Royale YB - 100cc
- 21. Financial Performance: DYL For The Year 2011 ATLH For The Year 2011 10.6%7.5%Percentage (%)Gross Profit Margin (GP Margin) 0.7%4.3%Percentage (%)Net Profit Margin (NP Margin) 0.91.5RatioCurrent Ratio 0.60.9RatioAcid-test Ratio (Quick Ratio) 6.6%26.8%Percentage (%)Return On Capital Employed (ROCE) 1.7%10.4%Percentage (%)Return On Assets (ROA) 11.8916.03RatioEarning Per Share (EPS) 163.06135.50Currency PKRShare Price (Average) 12.5%0%Percentage (%)Debt To Equity Ratio 0.716.1RatioInterest Cover Ratio Selected Ratios Basis of Measurement Measured in Selected Basis
- 22. Business analysis is a mechanism of identification of business problems and needs, then developing a range of solution to solve those problems. SWOT analysis is used for corporate appraisal. SWOT model appraises the Strengths, Limitations/Weaknesses, Opportunities and Threats of a company and will give an understanding of SWOT of AHL. There are some limitations of the model which need to be considered. Business Analysis
- 23. Strengths •Highest market share •Synergy of Honda & Atlas •Highest production capacity •Continuos improvement culture (BPR & KC) •Environment favorable initiatives •A listed company •AHL is a part of Atlas group •CD-70cc Market •ISO Certification •AHL Culture Opportunities •Divesify market and make products for other countries •Pakistani motorbike industry is expanding •Energy efficient bikes •Diversify product range and develop new priducts •Acquire small competitors Threats •Heavy imports from China •Increasing small chinese competitors , operating in a niche •Merger of small competitors •Increase in fuel prices •Increase in inflation Weaknesses •Lack of products under BCG matrix •International competition cannot be based on one product •Most expensive products in Pakistan •Decreasing share price •AHL haven’t manufactured any heavy or sports bike for elite class •No strategy for joint products or ventures with successful and emerging chinese competitors S W TO
- 24. The Future • Economy of world is expected to decline in FY12. • Growth rate of world and south Asia is expected to decline from 3.7% to 3.4% and 6.6% to 5.8% respectively. • Global demand for motorcycles is estimated to be growing at a rate of 7% annually through FY15. • Demand in national market is also estimated to grow from 1.6million units in FY11 to 1.7million units in FY12. • Technology in motorcycle industry is expected to boom as more green-products are demanded such as future retro hover bike • Based on analysis, in my opinion local industry and AHL future seems to be improving and growing plus new technology and products are also expected to be launched.
- 25. Conclusion • Overall, my objectives, stated at the beginning have been achieved satisfactorily. • During analysis, some difficulties came across. Such as changed year and DYL accounts availability. • Overall financial performance is good but ratios are unstable and following an unpredictable pattern through which it’s future and market performance will be affected. • Cash-flow and performance compared to DYL is satisfactory. • Factors identified through business analysis are significant and need to be considered.
- 26. • Reduce increasing payables. • Implement JIT and Value chain due to increasing distribution cost. • For continues improvement, apply BPR. • Consider significance of declining P/E plus share price and increasing EPS. • Significance of Chinese competition and merger of small competitor. • Improve product base, analyzed under BCG matrix. • Introduce energy efficient bikes. • Worsening cash operating cycle and its significance on liquidity, apply supply chain management. • Review its sources of finance for an optimal WACC. Recommendations