APOLLO TYRES LTD Case Solution & Answer

APOLLO TYRES LTD Case Solution

The return on asset, return on equity, and net profit margins of Apollo were high in 2010 as compared to 2012. The figures were 16.44% , 46.29% and 11.22% respectively. Now if we look at 2012 figures, these are 8.67%, 25.66% and 5.98% respectively. The company is now merely stabling its important ratios and it appeared that they are finding it hard to demonstrate the exact performance they showed in 2010. The reasons behind such a sudden drop in these ratios in 2011 and 2012 in terms of net profit margins seem that they are not controlling their costs properly. Which in turn shows its affect on net profit, another reason behind such fall is that the gross profit is not increasing the way it increased in 2010. The possible factors that may have contributed in the fall of return ratios like return on equity and return on assets are mainly internal, like management performance and their ability to run business in positive figures because return ratios consist of two factors, assets and profits. The greater return always showed that management is performing better internally.

The liquidity ratios from which Apollo has showed a good interest cover of 4.26 time in 2012 but it has shown a decline in 2012 interest cover is compared to last four preceding years in order to maintain a good interest cover Apollo Tyres Ltd have to earn good profits in order to maintain required interest cover. It is because financial institutions who offer loans and creditor that lend money tend to look at this ratio critically before granting any loan of funds. The current ratio of Apollo Tyres Ltd is not demonstrating a good figure, which is only 0.71:1 and quick ratio currently stands at 0.78:1 in 2012, which is not sufficient to meet short-term liabilities. It shows poor performance and inability of Apollo to meet short-term liabilities as they fall due. The current and quick ratio has always been low as it was below 1 during last five years which should be a point of concern for Apollo Tyres ltd. It appeared that it would further deteriorate if some concrete decisions relating to improvement of liquidity are not taken immediately.

Apollo Tyres Ltd has shown some good working capital management in the past and current inventory, debtor and payable showing a reasonable figures to be relied upon. Apart from debtors and creditors that are reasonable it appears that inventories are taking too much time to transform into liquid asset like cash inventory is currently taking 89 days which is too long and deteriorate Apollo Tyres’ liquidity.

Overall, Apollo is a suitable company for investment purposes. The industry within which it operates is showing a growth, the market shares can be further expanded and there are many opportunities in the external environment. Internally they just have to manage their liquidity issues. Apart from this, it appears that Apollo Tyres is a suitable company for Mr. Santanu’s investment portfolio.

Appendix :1

Ratios			2007	2008	2009	2010	2011	2012	Â
Â
Gross profit margin			30.46%	34.87%	28.93%	42.09%	37.64%	31.40%
ROCE			22.61%	33.77%	20.04%	34.35%	21.02%	20.29%
ROA			7.83%	15.72%	9.00%	16.44%	9.43%	8.67%
Net profit margin			5.52%	9.41%	5.66%	11.22%	7.77%	5.98%
Return on equity		Â	25.35%	37.39%	20.89%	46.29%	28.55%	25.66%
Interest cover			3.6333	7.6932	4.3571	10.067	5.5	4.26263
Debtor days			31.218	24.333	16.478	35.372	39.184	34.4187	Days
Creditor days			82.575	74.316	58.409	94.534	62.408	47.314	Days
Inventories days			80.928	87.108	67.394	83.072	110.46	87.806	Days
Debt to equity			46.84%	35.34%	39.76%	46.45%	50.68%	50.34%
Current ratio			0.50	0.84	1.03	0.51	0.60	0.71	:1
Quick ratio			0.92	0.95	1.13	0.90	0.71	0.78	:1
Total share holders funds and total debt			1759	1828	2241	3675	4893	5705
capital employed			1928	2005	2435	3927	5338	6240
current asset – inventories			1008	769	793	1446	1401	1668

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