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A Holistic Approach to Ratio Analysis—The Need of the Hour

This financial assessment study analyzes the financial ratios of public companies across the globe in the Chassis, Powertrain, and Safety market segments. It computes industry benchmarks and identifies top companies and best practices. To assess the financial performance, ratios are divided into four categories including: profitability, liquidity, activity, and solvency. Weights are assigned to different ratios based on the industry, and an overall ranking is determined. Top performers in each sector are highlighted as well. The study also presents a portfolio analysis, wherein key indicators such as Sharpe's ratio and portfolio risk of top companies in each sector have been computed.

Executive Summary

•In the current economic scenario, maintaining healthy financials plays a key role in determining a company’s future prospects.
•This study analyzes the financial health of public companies in the global automotive components industry, which is divided into Chassis, Powertrain, and Safety segments.
•Companies are ranked based on four broad categories of ratios: profitability, activity (reflecting financial management), liquidity, and solvency (reflecting risk management).
•Top companies are plotted based on their risk management rank and financial management rank.
•Top performers are identified and their key financials are presented.
•The study also discusses key challenges and issues faced by industry participants.

Research Objective and Scope

Research Objective
•To analyze the financials of public companies in the global automotive components industry (including Chassis, Powertrain, and Safety segments).
•To rank companies based on their financial and risk management and compare their position with respect to the industry.
•To identify key trends/events that can impact the performance of industry participants over the next 12 months.

Geographic Scope
Global Study

Broad Industry Classification
•Chassis
•Powertrain
•Safety

Ratios Analyzed
•Profitability
•Activity (Turnover)
•Liquidity
•Solvency

Study Period
Financial Year 2010–2011

Companies Analyzed
342 publically listed companies across the globe

Sources
•Frost & Sullivan in-house research expertise
•Established business and financial databases such as Capital IQ
•Company annual reports
•Published news
•Press releases

Who will benefit?
•Automotive components companies
•Private equity
•Venture capital investors
•Fund managers
•Retail investors
•Sovereign wealth funds
•Hedge funds
•Insurance funds other members of investing community

Key Risk Factors Affecting Industry—Business

Euro zone Crisis and High Inflation => Increase in Borrowing Costs => Global Economic Slowdown => Decrease in Demand

The ongoing debt crisis in the Eurozone is having an impact on all major global economies. In this current global scenario, companies are increasingly being cautious and risk-averse about their strategies. This, coupled with high inflation in developing economies/BRIC nations, is forcing the central banks of those countries to increase borrowing costs. BRIC nations contribute considerably toward revenue of the automotive original equipment manufacturers (OEMs). The demand for automotive components is directly related to the OEM industry. Around Xto X% of financing for buying vehicles is done through borrowing from financial institutions. Even a X% to X% increase in the financing costs can significantly affect consumer choice in buying a vehicle.

Signs of Slowing Down of Emerging Economies
From percent in April to June 2011, India’s GDP growth decreased to percent in January to March 2012. With China’s growth also decreasing, companies are finding it difficult to manage operations in the emerging economies. While inflation versus growth is a key balancing factor driving the slowdown in these economies, a part of this can be attributed to the Eurozone crisis. The European Union is one of the biggest foreign markets for emerging countries. For instance, around percent of China’s exports and percent of South Africa’s exports go to the European Union. Expansions into emerging economies is now a greater challenge for established Western companies. In addition, owing to a slowdown of growth rates in the Eurozone, interest rates are at very low levels (around Xpercent) to encourage capital expenditures/investments. If any major economy in the EU (say Italy, Portugal, Greece, or Spain) defaults, foreign institutional investors who have borrowed and invested in emerging markets are likely to withdraw their investments. This is anticipated to hit the domestic markets of the emerging countries.

Government Regulations
Government regulations with respect to exhaust emission, noise, safety, and pollution for plants are extremely high within the industry. It helps if the company has an in-house components division. The companies need to be pro-active to guess future regulations and if a product development strategy is in place, it helps them in adopting faster to new regulations.

Table Of Contents

Financial Assessment of the Global Automotive Components Industry
Table Of Contents

1. Executive Summary
2. Definition of Key Terms
3. Research Objective and Scope
4. Research Methodology
5. Key Risks/Challenges Faced by Industry Participants
6. Chassis
7. Powertrain
8. Safety
9. Markowitz Portfolio Allocation—Determination of Industry Sharpe Ratios
10. Legal Disclaimer
11. The Frost and Sullivan Story

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