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Business And Financial Analysis

1497 words - 6 pages

Revenue Analysis

FY 2012-2013, Indus Motor Company had it difficult. Its Revenue has fallen about -17.6 % own to many reasons as it can be seen in Figure 2. This financial year had been rough for all the local automakers, manufacturers and assemblers (Honda Atlas, 2013). Government was exceedingly blamed for most of the revenue fall witnessed by all the automobile industry participants.

Decision of increasing age limit of imported used cars was extremely disheartening and discouraging for all the auto industry companies (Xinhua, 2010). It wasn’t enough that a law regarding the decision of letting smuggled cars in the country was issued. Yet IMC had managed to get through such a tough ...view middle of the document...

Honda Atlas also launched ninth generation of new Honda Civic with features which were introduced for the first time in Pakistan (Honda Atlas, 2013). It was also received and accepted in a fastidious.
Profitability Analysis
Analysis, in which it is determined whether the company is generating any profit, how is they as compared to the last year or quarter or to any competitor in the industry, is called Profitability analysis. If figures for profit are higher or lower for costs as compared to the previous period then it is seen as a positive factor of company’s performance (Investopedia, 2007).

Gross Profit Margin
It is calculated by dividing gross profit of the company by net sales and then results are expressed in percentage. Gross profit comes after deducting cost of sales from net sales. The higher the gross profit margin is, the better the company has a grip over its costs (The Free Dictionary, 2014).
Although sales had declined greatly in the FY 2012 – 2013, yet IMC had managed to keep its costs. Costs related to sales such as returns or recalls by customers under tight control since it can be seen in Figure 3 that gross profit margin had increased from a previous 8.53% for the year 2011 – 2012 to a 9.18%. Product cutbacks were also necessary for survival so the decision was taken into consideration too (IMC, 2013, p. 30).
As for Honda, compared to IMC its gross profit margin is about half as less of it with 4.80%. This lower profit margin can be caused by all the major political changes, power shortage etc.

Net Profit Margin
The costs related to sales and the control a firm has over them can be seen by means of gross profit margin. But it is still not sure if the control was just on cost of goods sold or on every other expense or cost that has occurred such as fixed costs etc (Investopedia, 2007). They too, are significant in determining the overall profitability of a company. Net profit margin is calculated by dividing net profit after interest and tax by net sales. Just like gross profit margin, net profit margin presents results in percentage. For Indus Motor Company, net profit margin has certainly shrunk while its gross profit margin was more. The percentage value has changed from 5.59% to 5.26%. This indicates a decrease of 6% than last year. It did not fluctuate to a significant extent yet it can be monitored that IMC was unable to control its other expenses.
Honda had very high finance costs for FY 2012:2013. Its net profit margin is 0.80% (Figure 3). It is probable that it had taken quite some time to pay its creditors as it had quite high trade payables.

Return on Capital Employed (ROCE)
Performance of a company shouldn’t be always measured in terms of sales or profitability. Capital employed to generate these sales is equally relevant for the assessment of a company’s well being and it is done via ROCE (Robert, 2014). Looking at IMC’s ROCE, it has decreased about 24%. In 2011 – 2012, IMC’s ROCE was 37.10% where as in...

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