a study on overall financial performance analysis

8/22/2019 A Study on Overall Financial Performance Analysis

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CHAPTER

CONTENTS PAGE NO

ABSTRACT 11

1 INTRODUCTION 12

GENERAL 12

NEED OF THE STUDY 13

OBJECTIVES 14

SCOPE OF STUDY 15

LIMITATIONS 16

2 COMPANY PROFILE 17

INDUSTRY PROFILE 30

3 REVIEW OF LITERATURE 34

4 THEORITICAL PERSPECTIVES 37

5 RESEARCH METHODOLOGY 48

6 DATA ANALYSIS &

INTERPRETATION

50

COMPARTIVE BALANCE SHEET 50

COMMON SIZE BALANCE SHEET 62

COMPARATIVE INCOME STATEMENT 64

CHANGES IN WORKING CAPITAL 73

TREND ANALYSIS 79

RATIO ANALYSIS 81

SUMMARY OF FINDINGS 99

SUGGESTION 101

CONCLUSION 102

BIBLIOGRAPHY 103

APPENDIX 104


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LIST OF TABLE

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Table No Title Page No

1 Table Showing Comparative Balance Sheet

For The Year Ending 2005-2006

50



53



56



59

5 Table Showing Common Size Balance Sheet 62

6 Table Showing Income Statement For The

Year Ending 2006 2007

64



67



70

9 Table Showing Working Capital For The

Year Ending 2006-2007

73



75



77

12 Table Showing Trend Analysis 78

13 Table Showing Current Ratio 81

14 Table Showing Liquid Ratio 83

15 Table Showing Debtors Collection Period 85

16 Table Showing Current Assets Turn Over

Ratio

87

17 Table Showing Net Profit Ratio 89

18 Table Showing Stock To Current Assets

Ratio

91

19 Table Showing Debtors To Current Assets

Ratio

93


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LIST OF CHART

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CHART NO Title Page No

1 Chart Showing Sales For The Year 2006-2007 64



4 Chart Showing Current Ratio 82

5 Chart Showing Liquid Ratio 84

6 Chart Showing Debtors Collection Period 86

7 Chart Showing Current Assets Turnover Ratio 88

8 Chart Showing Net Profit Ratio 90

9 Chart Showing Stock To Current Assets Ratio 92

10 Chart Showing Debtors To Current Assets Ratio 94

11 Chart Showing Cash To Current Assets Ratio 96

12 Chart Showing Operating Ratio 98


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MANUFACTURI

NGCOMPANYMadras Rubber Factory Ltd (MRF)


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ABSTRACT

Madras Rubber Factory Ltd (MRF) is The Profitable leading organization and

succeeds over the competition in the Market.

The study is Necessary to look at its financial position with its own figures for the

past eighteen years (2005-2009) and analyses them for its success.

The studies insist to identify the companys position and to give suggestion to

improve it.

In order to find of reasons behind the above stated problems this project work has

been undertaken for a period of 3 months the main objectives of this project work are to

find out comparative balance sheet, income statement, common size balance sheet, trend

Analysis, Ratio analysis.

The analysis done is based upon the secondary data and study period is limited to

that extent at last it has been find out the company has sound financial position.

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1. INTRODUCTION

1.1 GENERAL

IN our present day economy finance is defined as the provision or money at the

time when it is required every enterprise whether big medium or small needs finance to

carry on its operation and to achieve its target. In fact finance is so indispensable today it

is rightly said that its the life blood of industry without adequate finance no enterprise

can possibly accomplish its objectives.

Since finance is viewed as the most important factors in every enterprise therefore

the management requires special mention and attention. the conventional approach to

finance function in business highlight the procurements of funds on the most economic

and favorable terms to the concern but of the efficient and proper use of the needed for

various venture and project how much to allocate when to allocate and how to allocate

the required funds to a particular project .Deserves special attention in every concern. the

management has to look in to the book and corner of each project the amount of funds

necessary for them and the sources from which to arrange and the sources from which to

arrange financial management plays vital role in procurement allocation and control of

funds.

The basis financial planning and analysis is financial Information. Financial

information is needed to predict compare and evaluate the firms earning ability. It is also

required to aid in economic decision making investment and financing decision

statements or accounting reports.

It contains summarized information of the firms financial situation to owners

creditors are the general public preparation of these statement is the responsibility as

possibly because they are very useful to judge .The financial efficiency of the company.

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1.2.NEED FOR THE STUDY

The need for the study is as follows:

1. The study aim at assessing profitability and solvency position of the company.

2. The liquidity and activity positions of the firm are analyzed using liquidity and

turnover ratios involving current liabilities.

3. The solvency position of the company is also analyzed using ratios.

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1.3. OBJECTIVES OF THE STUDY

1. PRIMARY OBJECTIVES

To analyze the overall financial performance analysis of MRF Ltd

2. SECONDARY OBJECTIVES

1. To ascertain the short term and long term solvency position of the MRF Companylimited

2. To ascertain the profitability ratio of MRF company limited during the past five

financial years.

3. To know the overall financial position of MRF during the past fives financial

years

4. TO Draw the significant relationship between increase or decrease of income and

expenditure with respect to different activities

5. To study the changes which take place in revenue account during the years and

their trends

6. To study the growth rate which take place with respect to each activity

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7. To highlight the service coming in the area of finance with the help of the trend

Analysis comparative balance sheet Analysis commensurate balance sheet analysis

and the view to increasing efficient of the MRF LTD

8. To assess the working capital employed by the MRF.

1.4. SCOPE OF STUDY

1. The activities as the sources are planned in on systematic manner.

2. It provides validity, objectives & reliability in business management.

3. It creates harmony in the relationship between the management & employee.

4. The management aim to control the cost of the production at the same time increase

the efficiency of Employee.

5. STUDYING THE FINANCIAL STSATEMENT Analysis needs and its implication

for the MRF Ltd.

6. Impact of ratio analysis for MRF Ltd.

7. To study how the short term funds and long term funds are generated.

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1.5. LIMITATIONS

1. Time has been a limit factor and it has been difficult the various aspects of finance

with the prescribed time.

2. Financial statements are only in terms of reports. They are not final because the exact

financial position can be known only when the business is closed.

3.Financial statement are prepare on the basis of certain accounting concepts and

conventions any changes in the method or procedure of accounting limits the utility the

utility of financial statements.

4. The number of parties interested in the financial statement is large and their interest

differs. The financial statements cannot meet the purpose of parties interested in them.

5.The authenticity of the financial statement has not been checked with the book of

accounts of the company.

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Chapter - 2

1.1. COMPANY PROFILE

The company has incorporated nearly eight years. The company was started by

K.M. MAMMEN MAPILLAI (Director of the Company).The authorized capital of

company is RS.4.24 Crores the directors is the experienced person He. Opened a small

toy balloon manufacturing unit in a shed at Thiruvottiyur , Chennai They produce a

variety of products ranging from balloons and latex-cast squeaking toys to industrial

gloves and contraceptives were produced MRF ventured into the manufacture of tread

rubber. And with that the first machine a rubber mill was installed at the factory. This

step into tread-rubber manufacturing was later to catapult.

MRF into a league the few had imagined possible MRF soon became the only

Indian-owned unit to manufacture the superior extruded non-blooming and cushion

backed tread rubber, Enabling it to complete with the MNCS operating in INDIA at

that time MRF had become the market leader with a 50% share of the tread-rubber

market in India .So effective was MRFS hold on the market, that the large multinational

had no other option but to gradually withdraw from the tread rubber business in India.

With the success achieved in tread rubber, MRF entered into the manufacture of Tyres

.MRF established a technical collaboration with Mansfield & Rubber Company of USA.

Around the same time it also became a public company it set up a pilot plant for Tyre

manufacturing at Thiruvottiyur.

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Currently Mr.K.M.Mamman is the CMD of the company. The promoters hold

about 26% of the total equity in the company, while institutional investors hold about

14% and individuals hold about 34%.

The registered office of the company is located at Chennai (Tamilnadu) and its

plants at arkonam (TN), Gummidpoondi (TN), tiruvottiyur, medak (AP), Ponodocherry

and Usgon (GOA) and Vadavathoor (kerala).

1. CHRONOLOGY

1946- A young entrepreneur, K. M. Mammen Mappillai, opened a small toy balloon

manufacturing unit in a shed at Tiruvottiyur, Madras (now Chennai).

1949 - Although the `factory` was just a small shed without any machines, a variety of

products, ranging from balloons and latex-cast squeaking toys to industrial gloves and

contraceptives, were produced. During this time, MRF established its first office at 334,

Thambu Chitty Street, Madras (now Chennai), Tamil Nadu, India.

1952 - MRF ventured into the manufacture of tread rubber. And with that, the first

machine, a rubber mill, was installed at the factory. This step into tread-rubber

Manufacture was later to catapult MRF into a league that few had imagined possible.

1955 - MRF soon became the only Indian-owned unit to manufacture the superior

extruded, non-blooming and cushion-backed tread-rubber, enabling it to compete with the

MNC`s operating in India at that time.

1956 -The quality of the product manufactured was of such a high standard that by theclose of 1956, MRF had become the market leader with a 50% share of the tread-rubber

market in India. So effective was MRF`s hold on the market, that the large multinationals

had no other option but to withdraw from the tread rubber business in India.

1990 - The Aruna Leathers & Exports Ltd. was amalgamated with the Company. As per

the scheme one equity share of Rs 10 each of MRF Ltd. was allotted for every 10,000

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shares of Rs 10 each fully paid-up held in ALEL. Accordingly, 25 equity shares were

allotted to the erstwhile shareholders of ALEL.

- The Company introduced `Vapocure` colors in the market.

- (6 months), the Company privately placed 15, 00,000 - 14% non-convertible

Debentures of Rs 100 each (III Series). The debentures are redeemable - at a premium of

5% in three annual installments of Rs 35 each commencing from 31st July, 1997.

- The Company privately placed with SBI Mutual Fund 10, 00,000 - 14% debentures (IV

the Series) which are redeemable at a premium of 5% on 26th June, 1998.

- During the year 5, 00,000 - 14% debentures were also privately placed with

Infrastructure Leasing & Financial Services, Ltd. These debentures are redeemable in

three annual installments at a premium of 5% commencing from 23rd July, 1997.

1991 - The Company promoted a new Company viz. MRF International, Ltd., in view of

the tremendous growth potential in the export market.

- 3,85,000 No. of equity shares issued to (prem. Rs 242 per share) to the foreign

collaborators M/s. Asia Trading Services, Honking.

1992 - The Company has formed a new Company, viz., MRF INTERNATIONAL

LIMITED and the Company has received the certificate of commencement of business.

1993 - K. M. Mammen Mappillai was awarded the Padmashri Award of National

Recognition for his contribution to industry - the only industrialist from South India to be

accorded this honor. MRF also became the first Tyre Company in India to cross the INR

10 billion mark. In addition, the company was voted by the Far Eastern Economic

Review, as one of the ten leading Corporate Groups in India and a Leader in Asia, and by

readers of the A & M magazine, as one of India`s most admired Marketing Companies.

1995 - The Company has received the Top Export Award for the year from All India

Rubber Industries Association.

1996 - The Company has received an award from CAPEXIL - Certificate of Merit based

on the export performance for the year.

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- The Far Eastern Economic Review Award was presented to MRF for the fourth year in

succession in recognition of excellence.

1997 - MRF Ltd has been assigned a credit rating of `PR1+` (superior) for its proposed

Rs 100 core commercial paper (CP) programme by Credit Analysis and Research Ltd

(CARE).

- MRF is setting up a new plant in Pondicherry for the production of radial Tyres.

- The company set up the Arakonam plant in Chennai to produce bicycle Tyres and tubes.

- MRF began manufacturing Tyres and tubes in technical collaboration with Mansfield

Tire and Rubber Company, USA.

- MRF has launched Nylogrip Zapper, a high performance Tyre for new generation bikes.

- The company tied up with Uniroyal Goodrich Tire Co. of USA, a subsidiary of the

French Tyre giant Michelin, which held 9.8 per cent stake in the company.

1998 - MRF Tyres has signed an OEM (original equipment manufacturer) alliance with

Spiel Honda Motors and Hindustan Motors. MRF has launched a market sampling

operation for the MRF Zigma.

1999 - MRF Ltd has decided to set up more such clinics in Northern and Western cities.

- The Company has entered into agreements with the Depositories viz., National

Securities Depository Ltd. [NSDL] & Central Depository Services (India) Ltd.

- AIRIA Highest Export Award was given in recognition of our outstanding Export

performance in respect of Auto Tyres & Tubes during the year.

2000 - The Company has set up shop in Dubai to target markets in the UAE as part of its

export thrust. MRF has launched a steel-belted premium radial Tyre variant called `MRF

ZVTS`.

2002 -MRF was ranked highest in customer satisfaction along with multinational

Bridgestone in a study conducted by JD Power Asia pacific. MRF Tyres Ltd sees slump

in commercial vehicle Tyre market and passenger car growth has also declined.

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-High court dismisses the writ petition filed by MRF Employees Union challenging the

order of dismissal of a worker, who was the secretary of the union.

-Advertising Standard Council of India Quashed the objection raised by MRF by

upholding J K Industries claim of being India`s Number one tire maker in the four

wheeler segment.

-MRF Ltd has obtained the `Outstanding Corporate Sports Initiative` award from the

Federation of Indian Chamber of Commerce and Industry.

2003 -MRF and Bridgestone are ranked highest in a tie for the second year in a row in

customer satisfaction with original tries according to JD Power Asia Pacific.

-Sheri K.M. Mammen Mappillai, Chairman and Managing Director expired on March

2nd. Mr.C.D Khanna has ceased to be the Director of the company. And Mr. K SNarayanan has resigned from the board of MRF. Mr. Kumar and Mr. Ranjith Issac

Jesudasen have been appointed as the directors of the company.

-Mr. K S Narayanan ceased to be director of the Company with effect from April 17,

2003, consequent to his resignation from the Board of Directors.

-MRF Ltd. has informed the Exchange that at its meeting held on December 19, 2003 the

BOD has re-designated Jt. Managing Director Mr. Arun Mammen as Managing Director

of the Company i.e. April 01, 2004.

2004 -MRF Ltd. has informed that Mr. Ravi Mannish has been appointed as Additional

Company Secretary of the Company i.e... January 05, 2004. MRF received the highest

rankings in the study in four of the five factors determining overall satisfaction with

Tyres appearance, durability, traction and handling.

- MRF Tyres is the biggest consumer of natural rubber in India during 2002-03 -Ties up

with Maruthi Udyog to boost motorsports in India.

2007 - MRF Ltd launches premium truck Tyre Super.

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2. VISION OF MRF

MRF will be a significant global player delighting customer worldwide

Leadership in Technology

Excellence in manufacturing

World-class systems

Driven by a team of motivated high performances to achieve profitable growth

3. POLICY

1. To Maintain proper book keeping.

2To standardize the accounts closing activities.

3. To reduce the document retrieval time.

4. To make the payment on due dates.

5. To maintain the vendor satisfaction.

4. MRF TEAM SPIRIT

1. Has proprietary interest.

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2. Has height Trust.

3. Faces all problems.

4. Delegates & develops.

5. Seeks help.

6. Help others succeed.

7. Creates high performance Situation.

8. Innovative.

9. Avoids surprise.

10. Has process happiness.

5. THE PRIMARY PRODUCTS BY MRF ARE AS FOLLOWS

1. Truck / Bus Tyres.

2. Light Commercial, Jeep & Utility Vehicle Tyres.

3. Passenger Cars Tyres.

4. Off the road Tyres.

5. Two-Wheelers Tyres.

6. Farm Service Tyres.

7. Jeep & utility vehicle Tyres.

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Heavy Duty Truck / Bus Light truck

MUV/RCV/Passenger car Motor sports

Off the road / Earth movers Military service

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http://www.mrf-exports.com/home.asp


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Farm service Fork lift

Two /Three wheeler

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ARKONAM ORNIZATION MACHINARY IMPLAMENTS

AND

PLANT IMPLAMENTATION

2005 - MB BANBURY

2000 - DIP PLANT

1999 - EASY PLANT

1997 - TUBE PLAT

1992 - BELTING PLANT

1972 - MAIN TYRE PLANT

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ARAKONAM PLANT MAILESTONE

2006 -OHAS-18001

2005 - ISO-(TS 16949-2002)

2004- TPM

(Total Productive Maintenance) KICK OFF

2002 - ISO-9001-2000

2001 - ISO-14001

1998 - ISO-9001

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8.PRESENT ACHIEVEMENT & ACTIVITIES

Formula 1 racing.

T.V. serial.

Sponsors Sachin Tendulkar & Steve Waugh.

12th place worldwide.

Largest selling radial car Tyre- ZIGMA.

Largest selling tractor Tyre- SHAKTI.

Largest selling TWO Wheeler Tyre- NYLOGRIP.

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8. PRODUCTS AND BRANCHES

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PRODUCTS BRANCHES

1.Toys 1.New Delhi

2.Paints 2.Maydak

3.Sports goods 3.Goa (fun school toys)

4.Tread Rubber 4.Pondicherry

5.Tyre (radial) bias Tubless Tyre 5.Arkonam

6. Inner tubes flips 6.Thiruvottiyur (Chennai)


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2.2.INDUSTRY PROFILE

MRF Ltd.

"Tyres with Muscle"

MRF Ltd. is the first Indian company to export tyres to the US, the very birthplace of tyre

technology. It is the first company in India to manufacture and market Nylon tyres

passenger tyres commercially. In 2004, the company's turnover crossed INR 30 billion

mark. The company was given the title of most ethical company by 'Business World'

magazine after a survey conducted in 1999.

Quick Facts Founder K. M. Mammen Mappillai

Country India

Year of Establishment 1946 as a toy factory

Industry Tyre Manufacturing

Listings & its codes NSE: MRF; BSE: 500290

Registered Office 124, Greams Road

Chennai - 600 006

India

Tel.: +(91)-(44)-28292777

Fax: +(91)-(44)-28291844/ 0562

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Website www.mrftyres.com

Related Website www.mrf-exports.com (MRF Exports)

Segment and Brands

Truck / Bus Tyres

Light Commercial, Jeep & Utility Vehicle Tyres

Passenger Cars Tyres

Off the road tyres

Two-Wheelers Tyres

Farm Service Tyres

Company Flashback

The company, MRF Ltd., originally started as a small manufacturing unit of balloons,

latex cast squeaking toys and industrial gloves. The company established its first office in

1949 at Chennai, Tamil Nadu, India. It began the manufacturing of tyres in 1961.

Today, MRF has 6 manufacturing plants in India located in Tiruvottiyur and Arakonam

in Tamil Nadu, Kottayam in Kerala, Ponda in Goa, Medak in Andhra Pradesh, and one in

the Union Territory of Pondicherry. It has a distribution network of more than 2,500

outlets in the country and exports tyres in over 75 countries globally.

Market profile

While the tyre industry is mainly dominated by the organised sector, the unorganised

sector holds sway in bicycle tyres. The major players in the organised tyre segment

consist of MRF, Apollo Tyres, Ceat and JK Industries, which account for 63 per cent of

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the organized tyre market. The other key players include Modi Rubber, Kesoram

Industries and Goodyear India, with 11 per cent, 7 per cent and 6 per sent share

respectively. Dunlop, Falcon, Tyre Corporation of India Limited (TCIL), TVS-Srichakra,

Metro Tyres and Balkrishna Tyres are some of the other players in the industry. MRF, thelargest tyre manufacturer in the country, has strong brand equity. While it rules supreme

in the industry, other players have created niche markets of their own

Sector specifics

The tyre industry is a major consumer of the domestic rubber production. Natural

rubber constitutes 80 per cent of the material content in Indian tyres. Synthetic rubber

constitutes only 20 per cent of the rubber content of a tyre in India. World wide, the ratio

of natural rubber to synthetic rubber is 30:70. Apart from natural and synthetic rubber,

rubber chemicals are also widely used in tyres.

Sector trends

Crossply tyres have been used in India for several decades. In these tyres, the ply

cords run across each other or diagonally to the outer surface of the tyre. Rayon and

nylon tyre cords are used as the reinforcing medium. These tyres can be retreaded twice

during their lifetime and are hence preferred by Indian transport operators who normally

overload their trucks.

Outlook

Globally, the OEM segment constitutes only 30 per cent of the tyre market, exports 10

per cent and the balance from the replacement market. In India, the scenario is quite

different. Nearly 85 per cent of the total tyre demand in the country is for replacement.

This anomaly has placed the retreaders in a better position than the tyre manufacturers.

Simply put, rethreading is replacing the worn-out tread of the old tyre with a new one.

The popularity of rethreading stems from the fact that it costs only 20 per cent of a new

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tyre but increases its life by 70 per cent to 80 per cent. Most of the transporters in India

retread their tyres twice during its lifetime, while a few fleet owners even retread thrice.

The Indian Tyres Industry

ICRA Sector Analysis conducted in February 2004

Structure of the Industry

Background

The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set

up the first tyre company in West Bengal. MRF followed suit in 1946. Since then, the

Indian tyre industry has grown rapidly.

Transportation industry and tyre industry go hand in hand as the two are interdependent.

Transportation industry has experienced 10% growth rate year after year with an absolute

level of 870 billion ton freight. With an extensive road network of 3.2 million km, road

accounts for over 85% of all freight movement in India.

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3.1. REVIEW OF LITERATURE

Barton and Schmidt (1986) The size of the equity pool also may depend on the rate ofprofitability, income distribution, and equity redemption. Decisions by cooperative

management and members regarding equity investment should be based on the members

cost of equity capital. The cost to the member of providing equity is the opportunity cost

of investing money in a member's own operation or other alternatives.

Cobia and Brewer (1988). An agricultural cooperative requires capital to finance fixed

assets (such as land, buildings, and equipment) and other assets (such as investments in

other cooperatives), and to provide working capital. Thus, cooperative management may

follow the practice of maximizing the use of equity capital and minimizing the use of

debt.

Featherstone (1989) The cooperative needs to determine a leverage level and then

manage equity investment and redemption to achieve this level. Cooperatives must be lie

to identify optimal levels of debt and equity to operate efficiently and to guard against

unexpected economic shocks, because leverage affects the probability of equity loss and

bankruptcy

Cobia and Brewer (1990) Cooperatives also acquire capital through debt financing.

Using debt is attractive to cooperative directors who represent members' interests,

because it allows for members to achieve a higher return on patronage and equity when

the cost of debt is less than the cost of equity. However, acquiring too much debt subjects

the cooperative to unbearable financial risk caused by varying profitability and interest

rates.

JL Berens and CJ Cuny (1995) corporate finance researchers have long been puzzled

by Iow corporate debt ratios given debt's corporate tax advantage. This article recognizes

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that firm value typically reflects a growing stream of earnings, while current debt reflects

a no growing stream of interest payments. Debt to value is therefore a distorted measure

of corporate tax shielding

Hopkins (1995) one of the most important and most difficult decisions cooperative

management must make is the choice of capital structure. Through proper capital

sln1cture, management can influence the financial performance of the business (Forster).

The cost of debt is less than the cost of equity capital because of differences in risk and

the tax deductibility of debt.

Davis, Henry A (1998) Capital structure describes how a corporation has organized its

capital-how it obtains the financial resources with which it operates its business.

Businesses adopt various capital structures to meet both internal needs for capital and

external requirements for returns on shareholders investments Executives Research

Foundation.

Vojislav Maksimovic (1999) This paper analyzes the relationship between a firm's

capital structure and its information acquisition prior to capital budgeting decisions. It is

found that low-growth industries can sustain a large number of levered firms. In these

industries, leverage is negatively related to a firm's incentive to acquire information

during the capital budgeting process.

Arntzen. L. Fallan (2003) The most important arguments for what could determine

capital structure is the pecking order these static trade off theory. These two theories are

reviewed, but neither of them provides a complete description of the situation and why

some firms prefer equity and others debt under different circumstances.

Christopher J. Green (2004) capital structure and firm ownership in order to identify

the leading theoretical and empirical issues in this area. The theoretical component of the

survey attempts to reconcile competing theories of capital structure and appraises recent

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models which use agency theory and asymmetric information to explore the impact of

managerial shareholdings, corporate strategy and taxation on the firm's capital structure.

Denis (2004) The field of empirical capital structure studies is very actively researched,

the large majority of studies has been conducted on samples of large firms. The relative

shortage of research into private small firm capital structure is troubling because small

firms provide about half of private sector employment and produce about half of private

sector output in the United Even their aggregate importance as users of financing has

recently surpassed that of better-known large-firm markets.

Dirk hack births (2004) This paper develops a framework for analyzing the impact of

macroeconomic conditions on credit risk and dynamic capital structure choice. We begin

by observing that when cash flows depend on current economic conditions, there will be

a benefit for firms to adapt their default and financing policies to the position of the

economy in the business cycle phase.

Fernandez (2004) capital structure and factor-product markets. These studies relate some

elements of the modern financial theory to the stakeholder theory, industrial organization,

and firms strategic management. Three main points are highlighted. First, the relevant

role of non-financial stakeholders in capital structure design. Second, the interactions

between capital structure and market structure.

Frank Adams (2004) Capital structure theories grounded in the finance paradigm

(agency theory, transaction cost theory) have contributed to our understanding of capital

structure decision making. However, they do not address the intricacies of capital

structure decision making from a managerial choice perspective, especially in privately

held firms.

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Hovakimian (2004) This study examines capital structure decisions in a small and

medium enterprise (SME) setting. Specifically, we look at two main issues. First, we test

whether industry median leverage, which has been found to affect large firm capital

structure decisions also guide financing patterns of SMEs.

4.1. THEORITICAL PERSPECTIVES

PARTIES INTERESTED IN FINANCIAL STATEMENT

Analysis of financial statement is not only useful to the company but also covers the

wide range of different aspirants.

1. MANAGEMENT

Management is over burdened with the data rather than the Information .the

analysis statement gives the information to management in brief and preside manner with

this information the company can self evaluate their performance and find out any

variances until budgets so these statement in term helpful for solving any deviations in

the budgets.

2. SHARE HOLDER

Share holders are the real owners with the help of these statement they can

analysis the growth and earnings of their own company.

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3. POTENIAL INVESTORS

The people under this category are very much keen on these statements for the

return in short term and ratios these statement very much required for them.

4. DEBENTURE HOLDERS

These statements will be helpful for them to analysis how not only the companysability to pay the interest also to redeem the same.

5. CREDIT INSTITUTION

Companies financial requirements are being fulfilled by this organization before

investing. These institutions are very much required of the solvency and potentiality of

the company. Preparing these statements will fulfill these needs.

6. CREDITORS

Creditors are the one who are inter over with the companies day to day operations

they too need the ability of the company to discharge their debts by the company

financial statement are helpful in this regard to the creditors.

7. EMPLOYEES AND TRADE UNIONS

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The profit of the company is in the term of an effect in the pay structure of the

Employees. Bonus generally linked with the parties earned by the company. The financial

statement gives this information to the employees of the organization or company

8. GOVERNMENT

To know whether particular industry is in progress or not can be measured by these

statements. In term of the government will be in a position to the progress of the nation as

a whole.

9. TAX AUTUORITIES

Financial statement are very helpful for the income tax authorities to determine

revenue receivable from the companys financial statements help them a great deal.

10. RESEARCHER

These are the documents for the future projections so these are esteem value to

scholars undertaking research business affairs and practices. After duly recognizing the

importance of financial statement analysis this topic has been these as the focus of

project. It analysis the various facts, like ratio of Working capital in MRF LTD.

11. EXPORTS

The commissioning of the main plant in 1964, MRF also made progress in the

export of Tires an overseas office at Beirut (Lebanon) was established to develop the

export market and it was amongst Indias very first efforts on Tyre export. This year also

marketed the birth of the now famous MRF muscleman.

MRF began a rapid product development programme for new vehicles entering

India. MRF Tyres were the maruthi Suzuki 800.

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Indias first small modern cars MRF Nylogrip Tyres for two-wheeler vehicles

were launched. MRF was award pitted against 20 Tyre companies worldwide MRF also

won quality improvement award instituted by the B.F. Goodrich Tyre Company from

USA.

The readers of the A & m Magazine selected MRF as one of Indias most admired

marketing companies. MRF were also chosen for fitment on the ford, escort, polestar and

fiat Uno .Further proof of its superior quality MRF Tyres were also chosen for fitment on

the ford Escort, polestar and fiat Uno further proof of its superior quality.

The musclemen evolved in 1964 soon after MRF began manufacturing Tyres. Over

the past 33 years it has evolved from a mere corporate mascot to a symbol of strength,

reliability and durability embodying the very qualities of the Tyres the muscleman

represent. For 16 years he grew to become Indias most trusted and well recognized

symbol for Tyres in the 1960 the Indian Tyre market was completely controlled by the

large multi-national companies. Around this time MRF opened a Tyre factory at

Thiruvottiyur in Tamilnadu with that came the task of recognizing an appropriate

corporate brand symbol one that would distinctly represent the companys culture and

convey the same to everyone in country of varied languages and cultures. In this process

of developing suggestion for the symbol some enterprising employees conducted an

informal market survey interviewing people from all over the country about their

expectations from a good Tyre.

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4.2. FINANCIAL STATEMENT

Financial statements refer to formal and original statements prepared by a

business concern to disclose its financial information.

1. ACCOUNTING

Accounting process involves recording classifying and summarizing various

business transactions. The Day to today transaction of a business are recorded in the

different subsidiary books .the transaction are posted in to various ledger accounts and

the balance are taken out at the end of financial period the aim of maintaining various

records is to determine the profit ability of the enterprise from operations of the business

and also to find out it financial position

DEFINITION

Hampton J.J The statement disclosing status of investment is known as balance

sheet and the statement showing the result is known as profit and loss account

The definition for financial statement says that the financial statement provide a

summary of the accounts of a business enterprise the balance sheet reflecting the assets &liabilities and capital as on certain date and the income statement showing the result s of

operation during a certain period.

1. Balance sheet

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2. Profit loss a/c

3. Working capital

4. Ratio analysis

5. Trend analysis

1. BALANCE SHEET

Balance sheet is most significance financial statement it indicates the financial

condition or the statement of affairs of a business at a particular moment the time. More

specially, balance sheet contains information about resources and obligation of a business

entity and about its owner interest in the business at particular point of the time. Thus the

balance sheet of a firm prepared on the 31st December at every year the firm financial

position on the specific date .in the language of the accounting, balance sheet

communicates information about assets and liabilities and owners equity for business

firm as on a specific date it provides a snapshot of the financial position of the firm close

of the firm accounting period

2. COMMON SIZE BALANCE SHEET

Common size balance sheet statement indicates the relationship of various items

with common items (Expressed as percentage of the common item) in the income

statement the sales figure is taken as basis and all other figure are expressed as

percentage of sales. Similarly in the balance sheet the total assets & liabilities are taken as

base and all other figure are expressed as percentage of this total.

3. PROFIT AND LOSS ACCOUNTS

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Balance sheet is consider as a very significant statement by bankers and others

lenders because it indicates the firms financial solvency and liquidity ,as measured by

its resources and obligation .however ,creditors ,particularly bankers and financial

analyst in India have recently started paying more attention to the firms earning capacityas a measure of its financial strength. The earning capacity and potential of a firm are

reflected by its performance during a period of time .the generally accepted convention

is to show one years events in the in the profit and loss account.

Since the profit and loss accounts reflect the result of operation for a period of

time, it is flow statement .in contrast, the balance. Sheet Is a stock, or status statement as

it shows assets, liabilities and owners equity at a point of time.

Profit and loss account present the summary of the revenues, expenses and net

income (or net loss) of a firm. It serves as a measure of the firms profitability revenues

are amounts which the customers pay to the firm for providing them goods and services

to customers. The cost of the economic resources used to earn revenues during a period

of time is called expenses.

Thus, to determine net income (or net los), the accounting system matches

expenses incurred during the accounting period against revenues earned during that

period. This matching of expenses with revenues is called matching concept.

4. WORKING CAPITAL

There are two types working capital

I. Gross working capital

II.Net working capital

I. GROSS WORKING CAPITAL

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Gross working capital refers to the firms investment in current assets. Current

assets are the assets which can be converted into cash within an accounting year ( or

operating cycle ) and include cash , short term securities ,debtors ,( accounts receivable

or book debts ) bill receivable and stock ( inventory).

II. NET WORKING CAPITAL

Net working capital refers to the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors (accounts payable), bills

payable, and outstanding expenses.

5. TREND ANALYSIS

In financial analysis the direction of changes over a period of years is of crucial

importance. Time series or trend analysis of ratio indicates the direction of changes. This

kind of analysis is particularly applicable to the items of profit and loss account. It is

advisable that trend of sales and net income may be studied in the light of two factors:

The rate of fixed expansion or secular trend in the growth. Of the business and the

general price level. It might be found in practice that a number of firms would show a

persistent growth over a period of years.

For trend analysis, the use of index number is generally advocated. The procedure

followed is to assign the number 100 items of the year and to calculated percentage

changes in each item of other years in relation to the base year. This procedure may be

called as Trend Percentage Method .

6. RATION ANALYSIS

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Analysis and interpretation of financial statement with the help of Ratio is

termed as Ratio Analysis. Ratio analysis involves the process of computing determining

and presenting the relationship of items or groups of items of financial statement.

MEANING OF RATIO

A ratio can be defined as Relationship expressed in quantitative terms between

figures which have cause and effect relationship or which are connected with each other

in some manner or the other

1. Time

2. Percentage

1. CURRENT RATIO

The ratio of current assets to current liabilities is called current ratio. In order to

measure the short term liquidity or solvency of a concern, comparison of current assets

and current liabilities is invisible. Current ratio indicates the ability of a concern to meet

its current obligation as and when they are due for payment.

An ideal current ratio 2:1 the ratio of 2 considered as a safe margin off solvency

due to the fact that if the current assets is reduced to halftime. 1 instead of 2 then also the

creditors will be able to get their payments in full.

Current Ratio = Current Assets / Current Liabilities

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2. QUICK RATIO

Quick ratio is calculated by comparing the quick assets which current liabilities.

Quick assets refer to assets which are quickly convertible into cash current assets, other

than stock and prepaid expenses are considered as quick assets. The ideal liquid ratio is

1:1. The ratio is also an indication of short term solvency of the company. A comparison

of quick ratio with current ratio shall indicate the inventory holdups.

Quick Ratio = Quick Assets / Current Liabilities

3. NET PROFIT RATIO

This ratio also called as net profit sales ratio. It is a measure of management

efficiency in operating the business successfully from the owners point of view. It

indicates the return on shareholders investments. Higher the ratio better is the

operational efficiency of the business concern.

The net profit ratio margin is indicates of Managements ability to operate the

business with sufficient success not to recover from revenues of the period. ,the cost ofmerchandise, the expenses of operating the business and the cost of the borrowed funds,

but also to leave a margin of reasonable compensation to the owners for providing their

capital at risk .

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Net Profit Ratio = Net Profit / Sales X 100

4. DEBTORS COLLECTION PERIOD

The average collection period measure the quality of debtors since it indicates the

speed of their collection. The shorter the average collection, the better the quality of

debtors, since a short collection period implies the prompt payment by debtors.

Debtors Collection Period = Total Receivables / Credit Sales X 365

5. CURRENT ASSETS TURN OVER RATIO

Assets are used to generate sales. Therefore, a firm should manage its assets

efficiently to maximize sales. Therefore, a firm should manage its assets is called assets

turnover

Current Assets Turn Over Ratio = Sales / Current Ratio

6. OPERATING RATIO

This ratio indicates the relationship between total operating expenses and sales.

The operating expenses here include cost of goods sold administrative expenses and

selling and distribution expenses. Generally finance expenses like interest are not

included under operating expense.

Net sales mean total sales minus sales return. Operating ratio measure the amount

of expenditure in production sales and distribution of output. It indicates operational

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efficiency of the concern lower the ratio more is the efficiency. The ratio should be low

enough to provide fair return to the share holder are and other investors.

Operating Ratio = Cost of Sales + Operating Expenses / Net Sales X 100

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5.1. RESEARCH METHODOLOGY

The term research is derived from French word research meaning, search back,

research is a careful inquiry or examination in seeking fact or principle intelligent

investigation in order to ascertain something web masters international dictionary.

Research methodology is way to systematically solve the problem when we talk of

research methodology we not mean the research methods. Also, consider the logic

behind the methods used in the context of research study and explain why a particular

method or technique is used, so that research results are capable of being evaluated.

1. RESEARCH DESIGN

Research design is purely and simply framework or plan for study that guides the

collection and analysis of the data.

2. RESEARCH TYPE

The type of research used in this study is desk research.

3. DESK RESEARCH

Desk research (sometimes known as secondary data or secondary research )

involves gathering data that already exists either from internal some of the client,

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publications of governmental institutions, free access data on the internet, in professional

newspapers and magazines, in annual reports of companies and commercial databases to

name but a few. In many projects, carrying out an initial desk research stage is strongly

recommended to background knowledge to a subject as well as providing useful leadsthat will help to get the maximum from a research budget.

4. DATA COLLECTION METHOD

SECONDARY DATA

The rest of the data is collected from the annual report brochures and websites and

annual reports of the organization.

5. ANALYSIS TOOL

i. Comparative Balance sheet

ii. Common Size Balance Sheet

iii. Comparative Income Statement

iv. Changes in Working Capital

v. Trend Analysis

vi. Ratio Analysis

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6.1. DATA ANALYSIS & INTERPRETATION

Table No: 1

COMPARATIVE BALANCE SHEET OF MRF LTD DURING THE

PERIOD OF 2005-2006

(In Crores)

PARTICULAR 2005 2006

ABSOLUTE

INCREASE/DECR

EASE

ABSOLUTE

INCREASE/DECRE

ASE %

LIABILITIES

SOURCE OF

FUND

Share Capital 4.24 4.24

Reserve and Surplus 526.51 592.64 66.13 12.56

LOAN AND

FUNDS

Secured Loan 142.91 147.52 4.61 3.23

Unsecured Loan 351.75 292.75 -59 -16.77

CURRENT

LIABILITIES AND

PROVISION

Current Liabilities 218.91 252.74 33.83 15.43

Provision for Tax 31.82 57.16 25.34 79.64

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TOTAL

LIABILITIES

1276.1

4

1346.5

6

70.42 5.52

ASSETS

APPLICATIONOF FUND

Fixed Assets 383.87 384.79 0.92 0.24

Capital Work in

Progress

54.29 30.74 -23.55 -43.38

Investment 32.99 75.88 42.89 130.01

CURRENT

ASSETS , LOAN

AND ADVANCES

Inventories 349.19 358 8.81 2.52

Sundry Debtors 331.43 357.81 26.38 7.96

Cash and Bank

Balances

34.88 34.39 -0.49 -1.4

Other Current Assets 0.08 0.09 0.01 12.5

Loan and Advances 89.41 104.62 15.21 16.36

Deferred Tax Assets 0 .82 .82 100

TOTAL ASSETS 1276.1

4

1346.5

6

70.41 5.52

Sources: projected Balance sheet of the company

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INTERPRETATION 2005 -2006

1. There is no change in share capital.

2. The increasing reserves should have improved working capital position.

3. Fixed assets have increased to 384.79 crores which is 0.24%.

4. Investments have increased to 42.89 crores which is 130.01%.

5. Cash position of MRF LTD has not improved in 2006.

6. Current assets have increased to 49.34 crores which is 6.13% in compare 2005 to2006.

7. The MRF LTD financial position is not that much good in 2005 to 2006.

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Table No: 2


PERIOD OF 2006-2007

(In Crores)


ABSOLUTE

INCREASE/DECR

EASE

ABSOLUTE

INCREASE/DECRE

ASE %

LIABILITIES

SOURCE OF

FUND



LOAN ANDFUNDS

Secured Loan 147.52 191.73 44.21 29.96

Unsecured Loan 292.75 280.86 -11.89 -4.06

CURRENT

LIABILITIES AND

PROVISION



TOTAL

LIABILITIES

1346.5

6

1506.3

6

159.8 11.87

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ASSETS

APPLICATION

OF FUND

Fixed Assets 384.79 398.47 13.68 3.55

Capital Work in

Progress

30.74 52.07 21.33 69.38

Investment 75.88 75.11 -0.77 -1.01

CURRENT

ASSETS, LOAN

AND ADVANCES

Interest accrued on

Investment

0 0.09 0.09 100

Inventories 358 403.18 45.18 12.62

Sundry Debtors 357.81 396.32 38.51 10.76

Cash and Bank

Balances

34.39 40.26 5.87 17.07

Other Current Assets 0.09 0.07 -0.02 22.22


Deferred Tax Assets 0.82 5.46 4.64 565.85

TOTAL ASSETS 1346.5

6

1506.3

6

159.8 11.87



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2. Investments have decreased to 0.77 crores which is 1.01%.

3. A fixed asset has increased in 2007.

4. Capital work in progress has increased to 21.33 crores which is 69.38 %

5. Current assets has increased to 126.38 crores which is 14.79% when compare to

2006

6. Current liabilities has also increased to 18.85 crores which is 6.06% it alarms the

company go for different source of finance to meet the liabilities.

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Table No: 3


PERIOD OF 2007-2008

( In Crores )


ABSOLUTE

INCREASE/DECR

EASE

ABSOLUTE

INCREASE/

DECREASE

%

LIABILITIES

SOURCE OF

FUND



LOAN ANDFUNDS

Secured Loan 191.73 166.32 -25.41 -13.25

Unsecured Loan 280.86 394.04 113.18 40.3

CURRENT

LIABILITIES AND

PROVISION



TOTAL

LIABILITIES

1506.3

6

1676.8

6

170.5 11.32

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ASSETS

APPLICATION

OF FUND

Fixed Assets 398.47 419.22 20.75

Capital Work in

Progress

52.07 124.01 71.4

Investment 75.11 76.21 1.1

CURRENT

ASSETS, LOAN

AND ADVANCES

Interest accrued on

Loan

0.09 0.06 -0.03 33.33

Inventories 403.18 482.04 78.86 19.55

Sundry Debtors 396.32 398.36 2.04 0.51

Cash and Bank

Balances

40.26 36.72 -3.54 -87.79



Deferred Tax Assets 5.46 3.66 -1.8 32.97

TOTAL ASSETS 1506.3

6

1676.8

6

170.5 11.32


INTERPRETATION 2007- 2008

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1. The current liabilities of the company is increasing year by year . it indicates that

the company Has need more finance to meet the liabilities

2. Cash and bank balance have been decreased to 3.54 crores which is 8.79% it

indicates. That the cash position of the company is not satisfactory in 2008 as

compare to 2007.

3. The total assets of the company have been increased to 170.5%.it indicates that

there is adequate cash available in 2008 has compare to 2007 for meeting working

capital equipment of the company effectively.

Table No: 4

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PERIOD OF 2008-2009

( In Crores )


ABSOLUTE

INCREASE/

DECREASE

ABSOLUTE

INCREASE/

DECREASE %

LIABILITIES

SOURCE OF

FUND



LOAN AND

FUNDS

Secured Loan 166.32 299.57 133.25 80.11

Unsecured Loan 394.04 410.39 16.35 4.12

CURRENT

LIABILITIES AND

PROVISION


Provision for Tax 100.69 93.78 -6.91 10.61

TOTAL

LIABILITIES

1676.8

6

1878.3

7

201.5 12.01

ASSETS

APPLICATION

OF FUND

Fixed Assets 419.22 536.81 117.59 28.05

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Capital Work in

Progress

124.01 151.99 27.98 22.56

Investment 76.21 13.75 -62.46 -81.5

CURRENT

ASSETS, LOAN

AND ADVANCES

Interest accrued on

Loan

0.06 0.06

Inventories 482.04 553.56 71.52 14.83

Sundry Debtors 398.36 462.34 63.98 16.06

Cash and Bank

Balances

36.72 46.02 9.3 25.32


Loan and Advances 136.42 112 -24.42 -17.9

Deferred Tax Assets 3.66 1.63 -2.03 -55.46

TOTAL ASSETS 1676.8

6

1878.3

7

201.51 12.01



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1. Investment has been decrease by 62.46 crores which is 81.95 and the deferred

tax asset has been decrease by 2.03 crores which is 55.46%. it indicates that the

working capital of the company is not satisfactory in 2008 as compare to 2008.

2. Fixed assets have increased by 117.59 crores which is 28.05%.it indicate that

the company is buying properties during 2009.

3. Secured loan and unsecured loan of the company is increasing year by year.

This shows that the companys working capital position is not good.

Table No: 5

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COMMON SIZE BALANCE SHEET ANALYSIS OF MRF LTD FOR THE

YEAR ENDING 2007-2009

(In Crores )

PARTICULAR 2007 2008 2009

ASSETS

Fixed Assets 26.45 25 28.7

Investment 4.98 4.54 0.73

Capital Work in Progress 3.45 7.39 8.09

Deferred Tax 0.36 0.21 0.08

CURRENT ASSETS ,LOAN

AND ADVANCES

Interest accured on investment 0.005 0.003 0.003

Inventories 26.76 28.75 29.47

Sundry debtors 26.3 23.75 24.61

Cash and Bank Balances 2.67 2.18 2.24

Other Current Assets 0.004 0.009 0.01

Loan And Advances 8.98 8.14 5.96

99.959 99.972 99.893

TOTAL ASSEST 100 100 100

LIABILITIES

Share Capital 0.28 0.25 0.22

Reserve and Surplus 46.46 42.88 39.91

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Secured Loan 12.73 9.92 15.94

Unsecured Loan 18.64 23.49 21.84

Current Liabilities 17.86 17.43 17.06

Provision 4.01 6.2 4.9

99.98 100 99.87

TOTAL LIABILITIES 100 100 100


INTERPRETATIONS FOR COMMON SIZE BALANCE SHEET FOR THE

YEAR ENDING 2007 -2009

1. Current assets and current liabilities have increasing from 2007 -2009 in all

absolute figures and in terms of percent of all total assets.

2. Fixed assets have increasing year by year as 26.45, 28.57. But it is decreased in

2008 as 2009.

3. Total assets have been decreased in small figure which shows in which small

figures which shows that the working capital position is not satisfactory. The

overall financial position is good.

Table No: 6

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COPMRATIVE INCOME STATEMENT OF MRF LTD FOR THE YEAR

ENDING 2006-2007

( In Crores )


ABSOLUT

E

INCREASE

/

DECREAS

E

ABSOLUTE

INCREASE/

DECREASE %

INCOME

Sales 2195.62 2541.97 346.35 15.77

Export Incentive 37.34 58.47 21.13 56.58

Other Income 7.7 7.24 -0.5 -6.46

TOTAL INCOME 2240.7 2607.68 366.98 16.38

EXPENSES

Raw material 1006.55 1392.3 385.75 38.32

Purchase of tread

goods

4.75 7.11 2.36 49.68

Increase/decrease stock 28.41 -44.49 16.08 56.59

Interest 41.97 39.62 -2.35 5.59

Excise Duty 396.58 414.92 18.34 4.62

Other expenses 649.94 704.21 54.27 8.35

TOATL

EXPENSES

2128.2 2513.67 474.45 22.29

PROFIT BEFORE

TAX

112.5 94.01 -18.49 -16.44

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PROVISION

Add Exceptional item 73.71 73.71 100

Current Tax 39.2 55.01 15.81 40.33

Deferred Tax -5.16 -4.64 -0.52 -10.08

NET PROFIT 78.46 117.38


Chart No: 1

SALES OF MRF LTD FOR THE YEAR 2OO6-2OO7

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Table No: 7

COMPARATIVE INCOME STATEMENT OF MRF LTD FOR THE YEAR

ENDING 2007-2008

66

YEAR 2006 2007

SALES 2195.62 2541.97


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( In Crores )


ABSOLUT

E

INCREASE/

DECREAS

E

ABSOLUTE

INCREASE/

DECREASE %

INCOME

Sales 2541.97 2989.43 447.46 17.6

Export Incentive 58.47 44.75 -13.72 -28.47

Other Income 7.24 13.79 6.55 90.47

TOTAL INCOME 2607.68 3047.97 440.29 16.88

EXPENSES

Raw material 1392.3 1726.02 333.72 23.97

Purchase of tread

goods

7.11 9.58 2.47 34.74

Increase/decrease

stock

-44.49 -23.54 20.95 -47.09

Interest 39.62 28.15 -11.47 -28.95

Excise Duty 414.92 454.15 65.17 9.25

Other expenses 704.21 769.38 39.23 9.45

TOATLEXPENSES

2513.67 2963.74 450.07 17.9

PROFIT BEFORE

TAX

94.01 84.23 -9.78 -10.4

PROVISION

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Add Exceptional item 73.71 -14.33 -32.39 -43.93

Current Tax 55.01 12.3 -42.71 -77.64

Deferred Tax -4.64 1.8 -2.84 -61.21

NET PROFIT 117.38 28.8


Chart No: 2


SALES

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Table No: 8

COPMRATIVE INCOME STATEMENT OF MRF LTD FOR THE YEAR

ENDING 2008-2009

( In Crores )

69

YEAR 2007 2008

SALES 2541.97 2989.43


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ABSOLUT

E

INCREASE

/

DECREAS

E

ABSOLUTE

INCREASE/

DECREASE

%

INCOME

Sales 2993.24 3410.94 421.51 14.10

Export Incentive 44.75 16.35 -28.4 -63.46

Other Income 13.79 28.62 14.83 107.54

TOTAL INCOME 3047.97 3455.9 407.93 13.38

EXPENSES

Raw material 1726.02 2119.9 393.88 22.82

Purchase of tread

goods

9.58 5.69 -3.89 -40.65

Increase/decreasestock

-23.54 -50.07 26.53 112.7

Interest 28.15 32.66 4.51 16.02

Excise Duty 454.15 827.11 372.96 82.12

Other expenses 769.38 461.09 308.29 40.06

TOATL

EXPENSES

2963.74 3396.38 1102.28 14.6

PROFIT BEFORE

TAX

84.23 59.52 -694.34 -29.33

PROVISION

Add Exceptional item -14.33 4.18 -10.15 -89.89

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Current Tax 12.3 11.55 -0.75 -6.09

Deferred Tax 1.8 2.03 0.23 12.78

Fringe benefit Tax 1.45 1.45 100

NET PROFIT 28.8 40.31


Chart No: 3


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Table No: 9

SCHEDULE OF CHANGES IN WORKING CAPITAL OF MRF LTD

FOR THE YEAR ENDING 2006-2007

72

YEAR 2008 2009

SALES 2993.24 3410.94


73/104

( In Crores )

PARTICULAR 2006 2007 INCREASE DECREASE

CURRENT ASSETS

Interest accrued on

investment

--- 0.09 0.09

Inventories 358 403.18 45.18

Sundry Debtors 357.81 396.32 38.51

Cash and bank balances 34.49 40.26 5.87


TOTAL ASSETS

(A )

750.29 839.92

CURRENT

LIABILITIES


Provision For Tax 57.16 60.46 3.3

Loan and advances 104.04 135.33 31.29

TOTAL

LIAIBILITIES (B )

413.94 464.9

TOTAL (A B ) 336.35 357.02 89.65 89.65

INCREASE IN

WORKING

CAPITAL

20.67 ------ ------ 20.67

TOTAL 357.02 357.02 89.65 89.65


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INTREPRETATION

Inventories has been increased 45.18 in the year 2007 compared to 2006

Cash and bank balances 5.8 has been increased in the year 2007 compared to

2006.

Other current assets decreased in the year 0.02.

In the year 2006 2007 is increasing in working capital

Table No: 10

SCHEDULE OF CHANGES IN WORKING CAPITAL OF MRF LTD FOR

THE YEAR ENDING 2007-2008

( In Crores )

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INCREASE

DECREASE

CURRENT ASSETS

Interest accrued oninvestment

0.09 0.06 0.03

Inventories 403.18 482.04 78.86

Sundry Debtors 396.32 398.36 2.04



TOTAL ASSETS (A ) 839.92 917.34

CURRENT

LIABILITIES



Loan and advances 135.33 136.42 1.09

TOTAL

LIAIBILITIES( B )

464.9 529.51 80.99

TOTAL A- B 357.02 387.83 80.99 68.18

INCREASE IN

WORKING

CAPITAL

12.81 ---- ----- 12.81

TOTAL 387.83 387.83 80.99 80.99


INTREPRETATION

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Cash and bank balances decreased 40.26 in the year 2007 compared to 2008.

Current liabilities and current assets increased to year by year.

In the year 2007 2008 is increasing working capital.

Table No: 11

SCHEDULE OF CHANGES IN WORKING CAPITAL OF MRF LTD FOR

THE YEAR ENDING 2008-2009

( In Crores )

PARTICULAR 2008 2009 INCREASE DECREASE

CURRENT ASSETS

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Interest accrued on

investment

0.06 0.06

Inventories 482.04 553.56 71.52

Sundry Debtors 398.36 462.34 63.98



TOTAL ASSETS (A) 917.34 1062.19

CURRENT

LIABILITIES



Loan and advances 136.42 112 24.42

TOTAL

LIAIBILITIES ( B )

529.51 526.36

TOTAL ( A- B ) 387.83 535.83 180.41 32.14

INCREASE IN

WORKING

CAPITAL

148 ------- ---------- 148

TOTAL 535.83 535.83 180.41 180.41


INTREPRETATION

Inventories increased to year by year.

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Total assets increased in the year 2009 compared to 2008.

In the year 2008- 2009 is increasing working capital.

Table No: 12

TREND ANALYSIS OF MRF LTD DURING THE PERIOD

OF 2005-2009

(In crores )

PARTICULARS 2005 2006 2007 2008 2009

LIABILITIES

SOURCES OF FUND

Share Capital 100 100 100 100 100

Reserve and Surplus 100 112.47 132.94 136.59 142.41

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LOANS FSUND

Secured L:oan 100 103.23 134.16 116.38 209.62

Un Secured Loan 100 83.23 79.85 112.02 116.67

CURRENT LIABILITIES

AND PROVSION

Current liabilities 100 115.45 122.93 133.57 146.44

Provision 100 179.64 190.04 316.44 294.72

TOTAL LIABILITIES 100 105.52 118.04 131.4 147.19

ASSETS

APPLICATION OFFUND

Fixed Assets 100 100.24 103.8 109.21 131.94

Capital work in progress 100 56.62 95.91 228.42 279.95

Investment 100 230.01 227.67 231.01 416.68

CURRENT ASSETS

,LOAN AND ADVANCES

Inventories 100 102.52 115.46 105.28 131.94

Interest accrued on

investment

100 0 0.09 0.06 0.06

Sundry debtors 100 107.96 119.58 120.58 128.64

Cash and bank balances 100 98.6 115.42 105.28 131.94

Other current assets 100 112.5 87.5 200 262.5

Loan and advances 100 116.36 151.36 152.58 125.27

Deferred tax assets 100 0.82 5.46 3.66 1.63

TOTAL ASSETS 100 105.52 118.04 131.4 147.19

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INTREPRETATION


2. Reserve and surplus increased to year by year.

3. Loan and fund increased to year by year.

4. Total liabilities increased to year by year.

5. Application of funds increased to year by year.

6. Total assets increased to year by year.

6.2. RATIO ANALYSIS

1. CURRENT RATIO

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

Table No: 13

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Chart No: 4

81

PARTICULAR 2005 2006 2007 2008 2009

Current assets 715.58 750.29 845.38 921 1063.82

Current liabilities 340.14 414.76 464.9 529.51 526.36

Current Ratio 2.1 1.8 1.81 1.73 2.02


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INTREPRETATION

The current assets ratio is increasing and decreasing gradually. The company is

good in Position .A high current ratio is an assurance that the firm will have adequate

fund to pay current liabilities to make other current payments.

2. LIQUID RATIO

LIQUID RATIO =LIQUID ASSETS / LIQUID LIABILITIES

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Chart No: 14

( In crores )

PARTICULAR 2005 2006 2007 2008 2009

Liquid as sets 366.39 392.29 442.2 435.3 510.26

Liquid liabilities 340.14 414.76 464.9 529.51 526.36

Current Ratio 1.07 0.94 0.95 0.82 0.96


Chart No: 5

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INTERPRETATION

The liquid ratio is decreasing gradually from 1.07 to 0.96 from 2001 to 2005.Tis is

not a good sign. The ratio should be more then 1:1 the financial position is sound and

good. In this company, the liquid ratio of MRF LTD has gone for below the standard

norms from 2005 to 2009. Otherwise the company has to face the problem in future.

3. DEBTORS COLLECTION PERIOD

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DEBTORS COLLECTION PERIOD = TOTAL RECEIVABLE / CREDIT

SALES x 365

Table No: 15

(In Crores )

PARTICULAR 2005 2006 2007 2008 2009

Debtors 331.43 357.81 396.32 398.36 462.34

Credit Sales 2090.5 2195.62 2541.97 2989.43 3410.94

Debtors Collection

Period

(days )

57 59 56.91 48.64 49.47


Chart No: 6

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INTERPRETATION

The debtors collection period should be less. Company should take minimum

days to collect the due amount but in 2006, it takes 59 days .so, this is not a good sign of

MRF Ltd. It is suggested that the company should take steps to reduce the debtors

collection period.

4. CURRENT ASSETS TURN OVER RATIO

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CURRENT ASSETS TURN OVER RATIO = SALES / CURRENT

ASSETS

Table No: 16

(In Crores )

PARTICULAR 2005 2006 2007 2008 2009

Sales 2090.5 2195.62 2541.97 2989.43 3410.94

Current assets 715.58 750.29 845.38 921 1063.82

Current assets

Turnover ratio

2.92 2.93 3.01 3.25 3.21


Chart No: 7

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INTERPRETATION

The current assets turnover ratio is approximately 2.93 times during the year 2006.

From 2007, it started increasing .so, the current assets turnover ratio is good.

5. NET PROFIT RATIO

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NET PROFIT RATIO = NET PROFIT /NET SALES x 100

Table No: 17

(In crores )

PARTICULAR 2005 2006 2007 2008 2009

Net profit 26.24 78.46 117.38 28.8 40.31

Net Sales 2090.5 2195.62 2541.97 2989.43 3410.94

Net profit Ratio 1.25 3.57 4.62 0.96 1.18


Chart No: 8

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INTERPRETATION

The above table obviously shows that the profitability position of the company is

satisfactory. The proportion of net profit to the net sales is comparatively very low in

2005, 2008 and2009.it represent that the operating expenses of the company are more

A low percentage of net profit would indicate that the company is unable to meet

its financial requirement effectively.

6. STOCK TO CURRENT ASSETS RATIO

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STOCK TO CURRENT ASSETS RATIO = STOCK / CURRENT ASSEST

Table No: 18 ( In crores )

PARTICULAR 2005 2006 2007 2008 2009

Stock 349.19 358 403.18 482.04 553.56

Current assets 715.58 750.29 845.38 921 1063.82

STOCK TO

CURRENT

ASSETS RATIO

0.49 0.48 0.47 0.52 0.52


Chart No: 9

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INTERPRETATION

The above table infers that stock position of the company gradually decrease from

2005 to 2007. The proportion of stock to current assets is more for the year 2008 and

2009. it indicates that the stock are not fully converted into cash effectively in the last

two years when compared to first three years .

7. DEBTORS TO CURRENT ASSETS RATIO

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DEBTORS TO CURRENT ASSETS RATIO = TOTAL DEBTORS / TOTAL

ASSETS

Table No: 19 (in crores )

PARTICULAR 2005 2006 2007 2008 2009

Sundry debtors 331.43 357.81 396.32 398.36 462.34

Total Assets 1099.45 1135.08 1243.85 1340.22 1600.63

Debtors to

Current Assets

Ratio

0.3 0.32 0.31 0.29 0.28


Chart No: 10

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INTERPRETATION

It is inferred from the above table debtors to current assets ratio is gradually

increasing .And decreasing from 2005 2009. It clearly indicates that the cash is not

properly collected from the debtors. In the year of 2006 -2009 the debtors to current

assets ratio has started decreasing.

8. CASH TO CURRENT ASSETS RATIO

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CASH TO CURRENT ASSETS RATIO = CASH / CURRENT ASSETS

RATIO

Table No: 20 ( in crores )

PARTICULAR 2005 2006 2007 2008 2009

Cash 34.88 34.39 40.26 36.72 46.02

Current assets 715.88 750.29 845.38 921 1063.82

Cash to Current

Assets Ratio

0.04 0.05 0.05 0.04 0.04


Chart No: 11

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INTERPRETATION

There is no change in cash to current assets ratio has been observed from 2005 to

2009 .This is a good sign because the company has not spent larger amount for current

assets.

9. OPERATING RATIO

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OPERATING RATIO = OPERATING EXPENSES / NET SALES

Table No:21 ( In crores )

PARTICULAR 2005 2006 2007 2008 2009

Operating expenses 671.31 691.91 748.7 797.53 859.77

Net sales 2090.5 2195.65 2541.97 2989.43 3410.94

Operating Ratio 0.32 0.31 0.29 0.26 0.25


Chart No: 12

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INTERPRETATION

The table above shows that operating expenses has started from 2005 and the net

sale has been increased. it clearly indicates that the company is in good position and the

overall profit has been maintained.

6.3. FINDINGS

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There is no change in share capital. The increasing reserves should have improved

working capital position. Fixed assets have increased to 384.79 crores which is 0.24%.

Investments have increased to 42.89 crores which is 130.01%. Cash position of MRF

LTD has not improved in 2006. Current assets have increased to 49.34 crores which is6.13% in compare 2005 to 2006. The MRF LTD financial position is not that much good

in 2005 to 2006.

Investments have decreased to 0.77 crores which is 1.01%. A fixed asset has increased in

2007. Capital work in progress has increased by 21.33 crores which is 69.38 % Current

assets has increased to 126.38 crores which is 14.79% when compare to 2006. Currentliabilities has also increased to 18.85 crores which is 6.06% it alarms the company go for

different source of finance to meet the liabilities.

The total assets of the company have been increased to 170.5%.it indicates that there is

adequate cash available in 2008 has compare to 2007 for meeting working capital

equipment of the company effectively. Investment has been decrease by 62.46 crores

which is 81.95 and the deferred tax assets has been decrease by 2.03 crores which is

55.46% . it indicates that the working capital of the company is not satisfactory in 2008

as compare to 2008. Fixed assets have increased by 117.59 crores which is 28.05%.it

indicates that the company is buying properties during 2009.

Secured loan and unsecured loan of the company is increasing year by year. This shows

that the companys working capital position is not good. Current assets and current

liabilities have increasing from 2007 -2009 in all absolute figures and in terms of percent

of all total assets. Fixed assets have increasing year by year as 26.45, 28.57. But it is

decreased in 2008 as 2009.Total assets have been decreased in small figure which shows

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in which small figures which shows that the working capital position is not satisfactory.

The overall financial position is good.

Current ratio of the year 2006, 2007, and 2008 was 1.80, 1.81, 1.73 which was lower

standard r ratio of 2:1.Quick ratio indicates that for every one rupee of liabilities the

company has Rs.1.70 quick assets for 2005.Debtor collection period is more during the

year of 2005, 2006 and 2007.

The company has take more days to collect the due amount form the debtors. Currentassets turnover ratio is more during the year of 2007, 2008 and2009. This indicates that

the company is concentrated more in selling of current assets. Net profit ratio is less in

2005, 2006 and 2009. This indicates that the company has spent more amounts for

expenses. Stock to current assets ratio is more in the ratio of 2008. 2008 compare to

2005, 2006, 2007. Debtors to current assets ratio is more in 2005, 2006 and 2007. Net

operating ratio is less during the year of 2007, 2008 and 2009. This indicates that the

company has spent large amount for the expenses.

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6.4. SUGGESTION

1. MADRAS RUBBER FACTORY (MRF) companies showed decline trend for last

3 year. This profit is not sufficient to cover up administrative expenses of the

company. Company has to increase its profit . The company try to control its

expenses. So, the company can earn a minimum profit.

2. The company showed a decrease in liquid ratio. The ratio should be more than 1:1

or equal to 1:1. But, during the year of 2006, 2007, 2008 and 2009 the liquid ratio

is less than 1:1. This is not a good sign.

3. Company should maintain minimum bank balance to meet the future liabilities.

4. The companys growth rate was very less during the study period. This shown the

profit was very less. So, the company should control the expenses for earning the

more profit.

5. Company can makes use of reserve for the purchase of properties.

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6.5. CONCLUSION

It clearly observed that the companys profit has declined. But, it earns profit at

marginal rate. The recommendation and suggestion may help the company to improve its

earning Capacity through the company can achieve optimum profitability and its

goodwill also. Company should try to control its expenses. By controlling expenses the

company can earn maximum profit.

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BIBLIOGRAPHY

T.S Reddy Andy Hari Prasad Reddy Management Accounting Margham

Publication

I.M Pandy Financial Management Vikesh Publishing .Hpuse Pvt. Ltd

C.R Kothari Research and methodology Wishiva Prakasam Newdelhi

2004

Management accounting by (R.P. trivedi & Manoj Pankaj publications Hyd.)

Financial Management By (I.M. Pandey) vikas publishing house ltd.

Management Accounting By (R.k. Sharma, Shashi) k.Gupta, Kalyani

publication.

MRF ANNUAL REPORTS

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a study on overall financial performance analysis

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