ASSESSING BUSINESS PERFORMANCE OF NSE’S CNX SMALL AND MID CAP AUTO AND AUTO ANCILLARY COMPANIES

The financial performance of a company can be established through a detailed ratio analysis that has the potential to measure its operational and financial efficiencies. The Altman’s Z model is built on certain ratios that have proven to have predictive power up to 2-3 years prior to failure/bankruptcy. Even as several attempts to predict bankruptcy have been made, post Altman’s Z model, the financial failure prediction research community has not reached an unambiguous conclusion. This paper seeks to assess the financial health of Indian small cap (3 in number) and mid cap (7 in number) auto and auto ancillary companies (in all, 10 companies) listed on the CNX Small Cap and CNX Mid Cap indices and attempts to evaluate their financial performance considering the said ratios for the period 2000-01 to 2011-12 (12 years).

The current analysis reveals that financial health of small cap and mid cap auto companies (in all, 10 in number) listed on the CNX Small Cap and CNX Mid Cap is just fair to good. The basis of analysis is the combination of five key ratios that Altman identified as having the required predicted power. Of the three small cap companies, the first and the second firm fared quite bad, while the third turned out to be in relatively better financial health in 11 of the 12 years, the period of study, all in terms of the ratio values. On the other hand, the performance of the mid cap companies was, by and large, good, posting quite healthy values for the five identified ratios, though clearly signifying the opportunity to bolster them up.