Journals Proceedings

Abstract

Global recession of 2008 had a major effect on the auto industry worldwide. This paper is an attempt at analyzing the impact of recession on the auto industry in India. The financial data of auto companies in the passenger vehicle segment having 80% share in market, is used. The DuPont 5 point ratios are compared for two different periods of pre­2008 and post­2008. To validate their correlation with the financial health of the companies, multiple linear regression was applied on 3 of the 5 ratios (as the independent variables) and net earnings (as the dependent variable). Each of the DuPont 5 point ratios were compared with their corresponding values in pre­ and post­ recession phase, to identify the extent of change, using T­ test. The paper highlights the extent of affect, the DuPont ratios have on EAT in the two phases. An insignificant change was observed in the coefficient of equity multiplier, the ratio of total asset and share holders’ equity, which implies that there was no effect of recession on Shareholder’s equity and the total assets trends. On the other hand, asset turnover, the ratio of net sales and total assets, became less significant in controlling EAT after recession. This implies that even if there was an increase in total assets, the net sales were still low.