25-01-2013, 11:51 AM
PROJECT REPORT ON CAR INDUSTRY RATIO ANALYSIS
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INTRODUCTION
Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.
Purpose and types of ratios
Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in company’s shares.
RETURN ON EQUITY
RETURN ON EQUITY=NET PROFIT/NET WORTH*100
Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. The profitability from the point of view of the equity shareholders. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable.
In this case we can see net worth is kept on increasing while return on equity is kept on decline and in some cases its negative also. Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan. It generally happen in case of recession so we can conclude that company returns are not that much high but in year4 it might have faced recession and again in year5 it started increasing in positive figure but not at satisfaction level. So company should analyze its weaknesses and try to minimize that so it can improve its return.
SUGGESTIONS:
After considering the last five year ratio of the general motor we can conclude that it’s not growing its facing some problem. Like as we discussed the falling figure of roe and ROCE Company can improve these main and important ratios by doing the SWOT analysis of the company. They can use max-min strategy like to maximize the minimum desirable output and use min-max strategy to minimize the undesirable maximum output. In this way company can analyze their problem and try to improve.
Industry ratio analysis interpretation
Ratio analysis is a very important tool in financial analysis. Although ratios report mostly on past performances, these can be predictive too and can provide lead indications about the future. From our study of different car companies this analysis focuses on the automotive industry, specifically, large-scale manufacturers of automobiles. The automotive industry is inherently interesting: it is massive, it is competitive, and it is expected to undergo major restructuring in the near future. There are many companies like general motors, Hyundai should work harder to make their market stability their ROE and ROC are kept on falling which is not good for any company and somewhere slightly same for every company which we have focused in our ratio interpretation so this industry should do its SWOT analysis so they can reach the level that what should be their step to accomplish the objective of profit maximization.