1.1 Topic reason and its context
It was imperative to select the topic in which I could submit my finest competence. At first all topics looked trouble-free, but when I studied them thoroughly, they turned complicated for me. Then, I finally reached at the conclusion of trying, “The Analysis of financial situation of Indus Motor Company Limited (IMC)”.
It involves appraising how the company has been performing over the years, within the industry and along with other competitors. It leads to calculation of accounting ratios and interpreting them in the light of internal and external factors, which may affect the performance of the company. Different analytical tools have been used:
1.1.1 Ratio analysis
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. http://www.finpipe.com/equity/finratan.htm
1.1.2 SWOT analysis
SWOT analysis provides a structure for analyzing either your own strengths and weaknesses, and the opportunities and threats you face, or in a work context for analyzing the strengths, weaknesses, opportunities and threats a business or event faces. (Pauline Kneale and Sam Aspinall, 2003)
1.1.3 Porter’s five forces of competitive analysis
Five forces analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products.
Five forces analysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry (Marketing Teacher Ltd 2000 – 2008)
1.2 Reasons for Selection
I was enthusiastic of studying and analyzing the financial situations for successful companies and learn from their strategies, now I got a chance to work on it. The chosen topic was explicable and lucid. Automobile industry has a main effect in the national economy of Pakistan and it is being developed in the previous years so I had a keen interest in analyzing the financial performance of this sector. I wanted to practice applying ratio analysis techniques in a real life context. The various models, I have used in my report (SWOT, Porter’s five forces model and ratio analysis) were all part of my studies. The shares of company are quoted on the stock exchanges of Pakistan so collection of its accurate and reliable information was not a big deal.
1.3 Aims and Objectives of the study:
The main aim of my research is to analyze the financial situation of IMC. The analysis of my project will reflect:
1.3.1 Ratio analysis
18.104.22.168 Sales and Profitability
Profitability ratios measure how well a company is performing by analyzing how profit was earned relative to sales, total assets and net worth. http://kbr.dnb.com/help/Ratios/Profitability_Ratios.htm
22.214.171.124 Liquidity and efficiency
The proportion of total assets that are readily convertible into cash that a clearing bank must maintain in order to repay deposits on demand. http://uk.encarta.msn.com/dictionary_1861824737/liquidity_ratio.html
The efficiency ratio compares operating expenses with operating revenue. It measures how effectively or efficiently operating expenses are used to generate loans, deposits and fee income. http://www.mhastakeholders.com/secure/KPIDefinitions/EfficiencyRatio.doc
126.96.36.199 Debt to Capital structure
Debt capital divided by total assets. This will tell you how much the company relies on...