Hcr Hoinda Co
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INTRODUCTION
1. Meaning and Context of the Topic
The word “Analysis” means “to break a complex problem down into smaller, more manageable “independent” parts for the purpose of examination”. (Source:
Similarly financial analysis involves examining historical data to gain information about the current and future financial health of a company. Financial analysis can be applied in a wide variety of situations to give business managers the information they need to make critical decisions. The inability to understand and deal with financial data is a severe handicap in the corporate world.
It involves analyzing the data contained in financial statements in order to provide valuable information for management decisions.
Sources used:
➢ Eugene E. Comiskey, Charles W. Mulford, Financial reporting and analysis, John Wiley & Sons.
2. Reason for Choosing the Topic
When it came to selecting a topic for my research report, I tried to choose a topic that is challenging and have some interesting element in it for me. I have chosen financial analysis as I myself is a small, growth investor in Karachi Stock Exchange and I had already carried out financial analysis on different companies on a limited level.
Financial analysis constitutes a major portion of ACCA papers. I was already well versed with different financial analysis methods and techniques, which I tried to use effectively during this project.
3. Aims and Objectives of the Report
The basic objective of carrying on financial analysis of the Honda Atlas Cars Pakistan Limited (Karachi Stock Exchange Code: HCAR) is to assess its operating performance and financial condition through its annual report and other economic and market data.
4. Company Profile
The Honda motor Co was officially founded in 1948 in Japan. Ten years later, it expanded its operations to the US. Honda was the first Japanese automobile manufacturer to introduce a car to the luxury segment. The brand name Acura was the first blend of Japanese technology with luxury.
Honda has been an innovator of a number of technologies including the introduction of the first engine compliant with the 1970 Clean Air Act. Honda is the largest manufacturer of engines and motorcycles in the world today. It produces more than 14 million internal combustion engines each year (source: IGI research).
Worldwide, Honda produced about 3.6 million (Source: IGI research) vehicles during 2006 and is the fifth largest automobile manufacturer in the world by production volume today. It has global presence in almost all the nations of the world which ranges from full fledged automobile manufacturing, CKD assemble line to mere CBU trading.
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In Pakistan the Honda Co entered with the collaboration of Atlas Group of Industries with the name of Honda Atlas Cars Pakistan Limited (HCAR). It was formed on November 4, 1992 as a public limited company, listed on all three Stock Exchanges of Pakistan. The automobile market in Pakistan is yet relatively smaller than the neighboring countries and thus the facilities in the country are mere CKD assembly lines. The company assembles two CKD models namely Civic (1800cc) and City (1300cc and 1500cc) and trades one CBU model – Honda Accord (2,400cc). The company commenced commercial production from July 1994 soon after a couple of years it rolled out its 100,000th car.
Pakistan provides significant upward automobile growth potential. Automobile sale in Pakistan drastically increased since 2002 as the economy boomed and the auto financing facility gained much popularity in the society.
Sources used: HCAR Annual Reports, Hondas websites, IGI Research, Wikipedia, Pakistan Automotive Manufacturers Association (PAMA) website.
5. INFORMATION GATHERING
I have used the following sources for information gathering:
* HCAR Annual and quarterly reports 2007.
* HCAR website.
* Pakistan Automobile Manufactures Association website
* Karachi stock exchange website.
* State Bank of Pakistan website
* Local Newspapers.
* Financial Analysis reports of various brokerage houses.
* My friends who had made reports on the topic no.8 earlier. Their guidance regarding gathering of relevant data and tips to make a successful report were very helpful.
* An interview with a brokerage house employee.
(Mr. Abdul Rasheed, Head of research, Foundation Securities)
FINANCIAL ANALYSIS
1. Brief Outlook:
The fiscal year 2006-07 of HCAR was tough year on its financial and operational performance. The main challenges faced by the company were low turnover due to decrease in demand, high interest cost and huge depreciation expense
Sales revenues of the company plunged by 33.5% to PKR 17 billion, from 25.6 billion last year. The after tax profit plummeted by 137.5% to negative PKR 264 million from PKR 705 million.
There are multiple reasons behind the depressing digits of Hondas financial statements. The overall automobile industry faced severe challenges during FY 2006-07 mainly due the Government of Pakistan (GoP) liberalization policy for import of used and new cars, which has seriously effected sales of locally manufactured vehicles. Secondly, the State Bank of Pakistan has increased the discount rate by 10% which has resulted in costly car financing. Thirdly, because of the dearth of consumer credit facility, due to high loan defaults. After the healthy double digit growth for the last few years,