Honda Atlas Cars Pakistan) Limited

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

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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.

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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.

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COMPANY INFORMATION

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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


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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


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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


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.

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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.

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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

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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 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%

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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.

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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 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

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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.

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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 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

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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:

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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.

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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

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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%

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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.

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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

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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.

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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.

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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%

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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%.

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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.

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2000-2001



2001-2002



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


to the decrease on interest on workers participation fund.

2001-2002


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.

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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.

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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

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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.

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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.

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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.

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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

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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.

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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

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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

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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

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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.

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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.

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Documents

Honda Atlas Cars Pakistan) Limited