A

Project Report
On
Study on analysis financial statements through Ratio Analysis Tool
At
Madras Rubber Factory Company
Submitted by
Mrs. Ankur Rajendra Mohite
Under the Guidance of
Prof. Hrutuparna Kamble
Submitted to
Savitribai Phule Pune University
In Partial Fulfilment of the Requirements for Award of the Degree Of
Master of Business Administration
Batch (2024-2026)
Through

Trinity Institute of Management & Research,

Kondhawa, Pune -411048
 DECLARATION OF STUDENT

(CERTIFICATE OF ORIGINALITY/DECLARATION)

This is to declare that I have carried out this project work myself in partial fulfilment of the
MBA Program of Savitribai Phule Pune University. The work is original, has not been copied
from anywhere else and not been submitted to any other University/Institute for an award of
any degree/diploma.

Date

Place Signature
 DECLARATION OF INDUSTRY GUIDE

(CERTIFICATE OF ORIGINALITY/DECLARATION)

This is to certify that the work incorporated in this Project Report (Title)____________
submitted by (Student’s name) ________ is his original work and completed under my
guidance. Material obtained from other sources has been duly acknowledged in the Project
Report.

Date

Place Signature
Name of The Guide
Designation
Cell Number
 ACKNOWLEDGEMENT
I hereby take the opportunity to express my profound sense of gratitude and reverence to all
those who have helped and encouraged me towards successful completion of the Project
Report. It has been a great experience working on the concept of “Study on analysis financial
statements through Ratio Analysis Tool.” It gives me complete insight of this concept of
Business and its application.

I would like to thank my Project guide Mr. Hrutuparna Kamble for his immense guidance,
valuable help and the opportunity provided to me to complete the project under his guidance.

I would like to thank all faculty members of Trinity college of Managment and research for
guiding and supporting me in the completion of project from time to time.

Last but not the least, my gratitude to great almighty and my parents without whose concerned
and devoted support the project would not have been the way it is today
 TABLE OF CONTENT

PAGE
Sr. No CHAPTER
NO
1 Introduction to Research 1-3

2 Review of Literature 04

3 Company Profile 5-8

4 Research Methodology 9-22

5 Data Analysis And Interpretation 23-42

6 Result & Discussion 43-45

7 Reference APA Style 46

8 Annexure 47-52
 INTRODUCTION TO RESEARCH

The management decision making, policy is the greatest important factor for the financial
management in modern thinking. Today, the role of financial manager is not only passive such
as score keeper for the information of accounts and fund arrangements but also, he must involve
in the role of solving complex management problems. And also, he is not only responsible for
shaping the enterprise fortunes but also, he must involve in the most vital role of management
decision of allocating resources. For financial analysis, Ratio analysis is the widely-used tool.
Quantitative or numerical relationship between two variables is the reference of the term
“Ratio”. The Ratio analysis is a systematic use of ratio which is used to determine current
financial condition, its historical performance, strength and weakness of the firm and also to
interpret the financial statements. It helps to conclude in the aspects of financial health,
operating efficiency and profitability of the firm. It also helps in inter-firm comparison through
necessary data. Financial analysis is the process of identifying the financial strengths and
weaknesses of the firm and establishing relationship between the items of the balance sheet
and profit & loss account. Financial ratio analysis is the calculation and comparison of ratios,
which are derived from the information in a company’s financial statements. The level and
historical trends of these ratios can be used to make inferences about a company’s financial
condition, its operations and attractiveness as an investment. The information in the statements
is used by-

 Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position
of the company.
 Investors, to know about the present and future profitability of the company and its
financial structure.
 Management, in every aspect of the financial analysis. It is the responsibility of the
management to maintain sound financial condition in the company.

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SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the annual reports of
the company every year. The analysis is done to suggest the possible solutions. The study is
carried out for 5 years (2017– 21). Using the ratio analysis, firms past, present and future
performance can be analyzed and this study has been divided as short term analysis and long
term analysis. The firm should generate enough profits not only to meet the expectations of
owner, but also to expansion activities.

OBJECTIVE’S OF STUDY

1. To study and analyze the financial position of the Company through ratio analysis.
2. To suggest measures for improving the financial performance of organization.
3. To analyze the profitability position of the company.
4. To assess the return on investment.
5. To analyze the asset turnover ratio.
6. To determine the solvency position of company.
7. To suggest measures for effective and efficient usage of inventory.

NEED OF THE STUDY

The prevalent educational system providing the placement training at an industry being a part
of the curriculum has helped in comparison of theoretical knowledge with practical system. It
has led to note the convergences and divergence between theory and practice. The study
enables us to have access to various facts of the organization. It helps in understanding the
needs for the importance and advantage of materials in the organization, the study also helps
to exposure our minds to the integrated materials management the various procedures, methods
and technique adopted by the organization. The study provides knowledge about how the
theoretical aspects are put in the organization in terms of described below:-

 To pay wages and salaries.

 For the purchase of raw materials, spares and components parts.
 To incur day-to-day expenses.
 To meet selling costs such as packing, advertising.
 To provide credit facilities to customers.
 To maintain inventories and raw materials, work-in-progress and finished stock.

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LIMITATIONS OF STUDY

1. The study was limited to only five years Financial Data.

2. The study is purely based on secondary data which were taken primarily from Published
annual reports of Madras Rubber Factory
3. There is no set industry standard for comparison and hence the inference is made on
general standards.
4. The ratio is calculated from past financial statements and these are not indicators of
future.
5. The study is based on only on the past records.
6. Non availability of required data to analysis the performance.
7. The short span of the time provided also one of limitation.

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 REVIEW OF LITERATURE

Review of literature refers to the collection of the results of the various researches
relating present study. It takes into consideration the research of the previous researchers
which are related to the present research in any way. Here are the reviews of the previous
researches related with the present study.

Sheela Christina (2011) reported on Financial Performance of Wheels India Ltd. Secondary
data collection method is used for the analytical type of research design. Before conducting the
study, validity and reliability is checked for the past five years where the researcher used this
for the purpose of study.
Amalendu Bhunia (2010) took the analysis of pharmaceutical company’s financial
performance to understand how the management of finance playing a crucial role in the growth.
For a period of twelve years the study has undertaken from 1997-98 to 2008-09.
M Kumbirai, R Webb (2010) A financial ratio analysis of commercial bank performance in
South Africa. This paper investigated the South Africa’s performance of commercial banking
sector period for 2005-2009.this financial ratio is used to measure the liquidity, profitability
and credit quality performance of large five commercial banks of South Africa.
James A.Largay et al (1980) Cash flows, Ratio analysis and the W.T. grant company
bankruptcy. The W.T Grant company problems such as bankruptcy, liquidation was not raised
at overnight. The traditional analysis which is the ratio analysis only cannot reveal the company
problems whereas cash flow analysis reveal most of the problems of the company.
Keith A Houghton, David R Woodliff (1987) Financial Ratios: The Prediction of corporate
success and failure. This paper investigated about the financial ratios to predict the business
failure.

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 COMPANY PROFILE

Madras Rubber Factory, commonly known as MRF or MRF Tyres, is an Indian

Multinational tyre manufacturing company and the largest manufacturer of tyres in India, also
the sixth largest manufacturer in the world. It is headquartered in Chennai, Tamil Nadu, and
India. The company manufactures rubber products including tyres, treads, tubes and conveyor
belts, paints and toys. MRF also runs the MRF Pace Foundation, Chennai and MIDD - MRF
Institute of Driver Development in Chennai. The MRF story is a truly fascinating one. What
started as a rubber balloon factory with a funding of Rs.14, 000 way back in the 40’s is now a
multibillion legacy that produces quality tyres used all around India & internationally along
with a presence in paints & coats, toys, motorsports and cricket training.

HISTORY

Madras Rubber Factory was started by K. M. Mammen Mappillai as a toy balloon

manufacturing unit in 1946 at Tiruvottiyur, Madras (now Chennai). In 1952, the company
ventured into the manufacture of tread rubber. Madras Rubber Factory limited was incorporated
as a private company in November 1960 and ventured into manufacture of tyres in partnership
with Mansfield Tire & Rubber Company based in Ohio, United States. The company went
public on 1 April 1961 and an office was established in Beirut, Lebanon to develop the export
market in 1964 and its current logo of the muscleman was born. In 1967, it became the first
Indian company to export tyres to USA.

In 1973, MRF started manufacturing Nylon tyres for the first time. The company entered into
with a technical know-how collaboration with B. F. Goodrich in 1978. The Mansfield Tire &
Rubber Co sold out its share in 1979 and the name of the company was changed to MRF Ltd
in the year. The company finalised a technical collaboration agreement with Marangoni TRS
SPA, Italy for the manufacture of pre-cured tread rubber for retreating industry. MRF tyres
supplied tyres to Maruti 800, India's first modern small car. In 1989, the company collaborated
with Hasbro International, the world's largest toy maker and launched Funs Kool India. Also,
they entered into a pact with Vapocure of Australia to manufacture polyurethane paint
formulations and with Italian tyre manufacturer Pirelli for conveyor and elevator belt
manufacture. During the year 2004–05, the product range of the company expanded with Go-
kart & rally tyres and tyres for two/three wheelers.

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Products

Tyres manufactures various tyres for passenger cars, two–wheelers, trucks, buses, tractors,
light commercial vehicles, off–the–road tyres and aero plane tyres, MRF ZVTS and MRF
Wanderers for cars and SUVs, MRF Meteor all terrain tyres, MRF Steel Muscle for trucks and
buses.

I. MRF ZLX is the latest one which is well known for its comfort in passenger
segment
II. Conveyor Belting – manufactures its in-house brand of Muscle flex conveyor belts.
III. Pretreats – MRF has the most advanced pre-cured retreading system in India. MRF
forayed into retreading in 1970 and manufactures retreads for tyres.
IV. Paints - manufactures polyurethane paint formulations and coats used in
automotive, decorative and industrial applications.

Research & Development

The Design process at MRF starts from the customer - inputs from individual customers are
compiled by marketing and given to Corporate Technical MRF's R&D and Product
Development Division or vehicle specific requirements are received from the OE customer.
MRF's team of 300 engineers and scientists gives MRF its enormous strength in product design.
Requirements received, a team now works on converting the customer input into a Design
Concept.
MRF uses cutting - edge technologies in predictive testing and design validation before it
leaves the drawing board. These advances have significantly brought down the time to market
for new designs .Advanced raw materials are tested and approved in our NABL accredited
laboratories. MRF works closely with global suppliers in using the latest developments in
materials across the globe. Our laboratories which have the very latest in testing equipment
closely monitor the quality of the material going into our tyres at the time of approval and
regularly after that. The prototypes for verification and validation testing are manufactured in
one of MRF's 9 factories all of which are TS 16949/ISO 9001 certified. The tyres then go
through testing for confirming the architecture and a series of indoor testing to ensure that they
meet MRF's tight standards and also those required by the OEM or by any of the national
standards like BIS/JIS/ETRTO/T&RA.

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Tyres are now handed over to the Vehicle Dynamics Group, who now validates the design on
the vehicle. These tests are done at the test track in a series of manoeuvres at various speeds,
pushing the tyres to the limits of its capabilities.
MRF also tests tyres on fleets across the country to ensure that the tyres have endured
successfully all the types of roads on which our customers travel daily. Race Tracks and Indian
Roads are our laboratories. Only after this do we give any tyres to the customer - all global
players manufacturing a global class of vehicles. MRF has been designing tyres this class of
vehicles for more than a decade now. MRF tyres have met the demanding requirements of these
vehicles, backed by an R&D team which is completely in-house and self-reliant.

Manufacturing facilities in India

 Kottayam Plant in Kerala

 Puducherry Plant
 Goa Plant
 Trichy Radial Plant in Perambalur District, Tamil Nadu
 Trichy Bias Plant in Perambalur District, Tamil Nadu
 Arakonam Plant in Tamil Nadu
 Tiruvottiyur Plant in Chennai, Tamil Nadu
 Medak Plant in Telangana
 Ankenpally Plant in Telangana
 Dahej Plant in Gujarat

The company also manufactures toys at its facility in Goa. The paints and coats are
manufactured at two facilities in Chennai, Tamil Nadu.

Awards & Achievement

 D Power India 2018 - MRF Tractor Tyre rated no.1 on J.D. Power customer satisfaction
index.
 D Power India 2018 -MRF Brand of Car/SUV tyres ranked Highest in Customer
Satisfaction. The 13th win for MRF!
 CAR INDIA AWARDS 2018- Perfinza by MRF won the Product of the Year award

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  FORD WORLD EXCELLENCE AWARDS- MRF won the silver award and is the only
Indian company to win this excellence award.
 J D POWER ASIA PACIFIC- MRF won the award for customer satisfaction not once
but 12 times till date.
 TNS- MRF voted the "Most Trusted" Tyre Company in India by TNS 2006 global CSR
study.
 CAPEXIL- MRF won the award for exports

International

By the early 60’s, MRF was exporting its quality tyres to multiple countries and soon its
presence was known globally in 65 different countries - with tyres rolling out of 10 facilities
built across 450 acres, 5000 plus strong dealer networks and 130 different offices

Recognition

MRF is recognized for its drive towards continuous quality improvement and customer
satisfaction. It has won the JD Power award not once but 13 times till date. It has also won the
TNS and CAPEXIL awards for being voted as the most trusted tyre company in India.

Motor Sports

MRF’s passion for motorsports is seen through its involvement in racing, karting, rallying and
various other motorsport events. Its rallying team has won the prestigious FIA Asia Pacific
Rally Championship twice and even in international championships, MRF karting tyres
homologated by FIA, is the preferred choice.

Shareholders Got Rich | MRF Share Price

MRF has made a lot of progress in the last few decades. This company has not only earned
profit but has also given a lot of profit to its shareholders. MRF listed itself in the stock market
in the year 1993. On that day the price of one of its shares started from Rs 9, which closed at
Rs 11. Today after 27 years, its share price is 77,805. In February 2021, its share price had
crossed 90 thousand rupees. Since then, whoever bought its share in the year 1993 for Rs 11 is
now the owner of Rs 77 thousand. If you had bought even 10 shares at that time, you would
have been the owner of Rs 7.78 lakh today.

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Today MRF has become the largest company not only in the country but also in the world. It
is the sixth largest tire manufacturer in the whole world. It is the largest tire manufacturer in
India. This company has come a long way from Arsh to Floor.

RESEARCH METHODOLOGY

In view of the objects of the study listed above an exploratory research design has been adopted.
Exploratory research is one which is largely interprets and already available information and it
lays particular emphasis on analysis and interpretation of the existing and available
information.

 To know the financial status of the company.

 To know the credit worthiness of the company.
 To offer suggestions based on research finding.

Financial statements have two major uses in financial analysis. First, they are used to present
a historical recover of the firm’s financial development. Second, they are used for a course of
action for the firm. A performance financial statement is prepared for a future period. It is the
financial manager’s estimate of the firm’s future performance. The operation and performance
of a business depends on many individuals are collective decisions that are continually made
by its management team. Every one of these decisions ultimately causes a financial impact, for
better or works on the condition and the periodic results of the business. In essence, the process
of managing involves a series of economic choices that activates moments of financial
resources connected with the business. Some of the decisions made by management one will
be the major, such as investment in a new facility, raising large amounts of debts or adding a
new line of products or services. Most other decisions are part of the day-to-day process in
which every functional area of the business is managed. The combine of effect of all decisions
can be observed periodically when the performance of the business is judged through various
financial statements and special analysis. These changes have profoundly affected all our lives
and it is important for corporate managers, shareholders, tenders, customers and suppliers to
investment and the performance of the corporations on which then relay. All who depend on a
corporation for products, services, or a job must be med about their company “Fundamental
and applied research are the two main research categories. Most research can be defined as
fundamental or applied, depending on the goals of the study. Ability to meet their demands

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time and in this changing world. The growth and development of the corporate enterprises is
reflected in their financial statement.

DATA COLLECTION METHODS

Secondary Data - Company balance sheet and profit and loss account. Secondary data is
second hand information. Research is purely based on secondary information provided by
company.

DATA COLLECTION TOOLS

To analyze the data acquire from the secondary sources “Ratio Analysis “The scope of the
study is defined above in terms of concepts adopted and period under focus. First the study of
Ratio Analysis is confined only to the Madras Rubber Factory Limited. Secondly the study is
based on the annual reports of the company for a period of 5 years from 2016-17 to 2020-21
the reason for restricting the study to this period is due time constraint.

TYPE OF RESEARCH

Research methods are classified based on different criteria. During the study researcher use
following research method:-

1. Quantitative Research

Quantitative refers to the numbers where data is collected based on numbers, and a summary
is taken from these numbers. Graphs help to quantify the results in quantitative research.
Methods deal with numbers and measurable forms. It uses a systematic way of investigating
events or data. It answers questions to justify relationships with measurable variables to either
explain, predict, or control a phenomenon.

2. Analytical Research

Analytical research uses the facts that have been confirmed already to form the basis for the
research and critical evaluation of the material is carried out in this method. Analytical methods
make use of quantitative methods as well.

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TYPE OF ANALYSIS

Analysis of data is a vital part of running a successful business. When data is used effectively,
it leads to better understanding of a business’s previous performance and better decision-
making for its future activities. Researcher use following type of analysis:-

1. Statistical Analysis

It’s the science of collecting, exploring and presenting large amounts of data to discover
underlying patterns and trends.

2. Descriptive Analysis

Descriptive analysis works with either complete or selections of summarized numerical data.
It illustrates means and deviations in continuous data and percentages and frequencies in
categorical data.

3. Simple Percentage Analysis

Simple Percentage analysis it refers to a special kind of rates, percentage are used in
making comparison between two or more series of data. A percentage is used to determine
relationship between the series.

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the
firm. It is done by establishing relationships between the items of financial statements viz.,
balance sheet and profit and loss account. Financial analysis can be undertaken by management
of the firm, viz., owners, creditors, investors and others.

Objectives of the Financial Analysis

Analysis of financial statements may be made for a particular purpose in view.

1. To find out the financial stability and soundness of the business enterprise.
2. To assess and evaluate the earning capacity of the business
3. To estimate and evaluate the fixed assets, stock etc., of the concern.
4. To estimate and determine the possibilities of future growth of business.

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 5. To assess and evaluate the firm’s capacity and ability to repay short and long term loans.

Parties Interested In Financial Analysis

The users of financial analysis can be divided into two broad groups.

Internal users

1. Financial executives
2. Top management

External users

1. Investors
2. Creditor.
3. Workers
4. Customers
5. Government
6. Public
7. Researchers

Significance of Financial Analysis

Financial analysis serves the following purpose

1) To know the operational efficiency of the business: The financial analysis enables the
management to find out the overall efficiency of the firm. This will enable the
management to locate the weak Spots of the business and take necessary remedial
action.
2) Helpful in measuring the solvency of the firm: The financial analysis helps the decision
makers in taking appropriate decisions for strengthening the short-term as well as long-
term solvency of the firm.
3) Comparison of past and present results: Financial statements of the previous years can
be compared and the trend regarding various expenses, purchases, sales, gross profit
and net profit can be ascertained.
4) Helps in measuring the profitability: Financial statements show the gross profit, & net
profit.

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 5) Inter‐firm comparison: The financial analysis makes it easy to make inter-firm
comparison. This comparison can also be made for various time periods.
6) Bankruptcy and Failure: Financial statement analysis is significant tool in predicting
the bankruptcy and the failure of the business enterprise. Financial statement analysis
accomplishes this through the evaluation of the solvency position.
7) Helps in forecasting: The financial analysis will help in assessing future development
by making forecasts and preparing budgets.

METHODS OF ANALYSIS

A financial analyst can adopt the following tools for analysis of the financial statements. These
are also termed as methods of financial analysis.

A. Comparative statement analysis

B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. Ratio analysis

NATURE OF RATIO ANALYSIS

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated
quotient of mathematical expression" and as "the relationship between two or more things". A
ratio is used as benchmark for evaluating the financial position and performance of the firm.
The relationship between two accounting figures, expressed mathematically, is known as a
financial ratio. Ratio helps to summarizes large quantities of financial data and to make
qualitative judgment about the firm's financial performance.

The persons interested in the analysis of financial statements can be grouped under three head
owners (or) investors who are desired primarily a basis for estimating earning capacity.
Creditors who are concerned primarily with Liquidity and ability to pay interest and redeem
loan within a specified period. Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view to make intelligent decisions.

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Definition

Ratio analysis is the process of examining and comparing financial information by calculating
meaningful financial statement figure percentages instead of comparing line items from each
financial statement.

Meaning

They are a comparison of two numbers with respect to each other. Similarly, in finance, ratios
are a correlation between two numbers, or rather two accounts. So two numbers derived from
the financial statement are compared to give us a more clear understanding of them. This is an
accounting ratio.

TYPES OF RATIOS: -

Management is interested in evaluating every aspect of firm's performance. In view of the

requirement of the various users of ratios, we may classify them into following four important
categories:

 Liquidity Ratio
 Leverage Ratio
 Activity Ratio
 Profitability Ratio

Liquidity Ratio

It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios
help in establishing a relationship between cast and other current assets to current obligations
to provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack
of liquidity and also that it does not have excess liquidity. A very high degree of liquidity is
also bad, idle assets earn nothing. The firm's funds will be unnecessarily tied up in current
assets. Therefore it is necessary to strike a proper balance between high liquidity. Liquidity
ratios can be divided into three types:

 Current Ratio
 Quick Ratio
 Cash Ratio

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 I. Current Ratio

Current ratio is an acceptable measure of firm’s short-term solvency. Current assets includes
cash within a year, such as marketable securities, debtors and inventors. The current ratio is a
measure of the firm's short term solvency. It indicated the availability of current assets in rupees
for every one rupee of current liability. A current ratio of 2:1 is considered satisfactory. The
higher the current ratio, the greater the margin of safety; the larger the amount of current assets
in relation to current liabilities, the more the firm's ability to meet its obligations. It is a cured
-and -quick measure of the firm's liquidity.
Current assets
Current ratio –
Current liabilities

II. Quick Ratio

Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset, other assets that are considered to be relatively liquid asset
and included in quick assets are debtors and bills receivables and marketable securities
(temporary quoted investments). Inventories are converted to be liquid. Inventories normally
require some time for realizing into cash; their value also has a tendency to fluctuate. The quick
ratio is found out by dividing quick assets by current liabilities.

Quick ratio – Current assets – inventories

Current liabilities

III. Cash Ratio

Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent
current liabilities. Cash and Bank balances and short-term marketable securities are the most
liquid assets of a firm, financial analyst stays look at cash ratio. Trade investment is marketable
securities of equivalent of cash. If the company carries a small amount of cash, there is nothing
to be worried about the lack of cash if the company has reserves borrowing power. Cash Ratio
is perhaps the most stringent Measure of liquidity. Indeed, one can argue that it is overly
stringent. Lack of immediate cash may not matter if the firm stretch its payments or borrow
money at short notice.

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 Cash ratio- Cash and bank balances + Current Investment
Current Liabilities

Leverage Ratios

Also called financial leverage ratios, solvency ratios compare a company’s debt levels with its
assets, equity, and earnings, to evaluate the likelihood of a company staying afloat over the
long haul, by paying off its long-term debt as well as the interest on its debt.

 Debt equity ratio.

 Debt ratio.
 Interest coverage ratio
 Proprietary ratio.
 Capital gearing ratio

I. Debt Equity Ratio

It indicates the relationship describing the lenders contribution for each rupee of the owner's
contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total
debt by net worth. Lower the debt-equity ratio, higher the degree of protection. A debt-equity
ratio of 2:1 is considered ideal. The debt consists of all short term as well as long-term and
equity consists of net worth plus preference capital plus Deferred Tax Liability.

Long term Debt

Debt equity ratio -
Shareholder fund

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Debt Ratio

Several debt ratios may use to analyze the long-term solvency of a firm. The firm may be
interested in knowing the proportion of the interest-bearing debt in the capital structure. It may,
therefore, compute debt ratio by dividing total debt by capital employed on net assets. Total
debt will include short and long-term borrowings from financial institutions, debentures/bonds,
deferred payment arrangements for buying equipment’s, bank borrowings, public deposits and
any other interest-bearing loan. Capital employed will include total debt and net worth.
Debt
Debt ratio -
Equity

II. Interest Coverage Ratio

The interest coverage ratio or the time interest earned is used to test the firms’ debt servicing
capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes
by interest charges. The interest coverage ratio shows the number of times the interest charges
are covered by funds that are ordinarily available for their payment. We can calculate the
interest average ratio as earnings before depreciation, interest and taxes divided by interest.

EBIT
Interest coverage ratio - Interest

III. Proprietary Ratio

The total shareholder's fund is compared with the total tangible assets of the company. This
ratio indicates the general financial strength of concern. It is a test of the soundness of financial
structure of the concern. The ratio is of great significance to creditors since it enables them to
find out the proportion of shareholders’ funds in the total investment of business.

Net worth
Proprietary Ratio -
Total assets

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 IV. Capital Gearing Ratio

This ratio makes an analysis of capital structure of firm. The ratio shows relationship between
equity share capital and the fixed cost bearing i.e., preference share capital and debentures.

Debt+ Preference
Capital gearing ratio - Equity + P&L

Activity Ratios
Turnover ratios also referred to as activity ratios or asset management ratios, measure how
efficiently the assets are employed by a firm. These ratios are based on the relationship between
the level of activity, represented by sales or cost of goods sold and levels of various assets. The
improvement turnover ratios are inventory turnover, average collection period, receivable turn
over, fixed assets turnover and total assets turnover.

 Total capital turnover ratio

 Working capital turnover ratio
 Fixed assets turnover ratio
 Stock turnover ratio
 Debtor turnover ratio
 Creditor turnover ratio

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 I. Total Capital Turnover Ratio

This ratio expresses relationship between the amounts invested in this assets and the resulting
in terms of sales. This is calculated by dividing the net sales by total sales. The higher ratio
means better utilization and vice-versa. Some analysts like to compute the total assets turnover
in addition to or instead of net assets turnover. This ratio shows the firm's ability in generating
sales from all financial resources committed to total assets.

Sales
Total capital turnover ratio - Capital employed

II. Working Capital Turnover Ratio

This ratio measures the relationship between working capital and sales. The ratio shows the
number of times the working capital results in sales. Working capital as usual is the excess of
current assets over current liabilities

Sales
Working capital turnover ratio -
Working capital

III. Fixed Asset Turnover Ratio

The firm may which to know its efficiency of utilizing fixed assets and current assets
separately. The use of depreciated value of fixed assets in computing the fixed assets turnover
may render comparison of firm's performance over period or with other firms.

Net sales
Fixed asset turnover ratio -
Fixed asset

IV. Stock Turnover Ratio

Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average stock. It measures how fast the
inventory is moving through the firm and generating sales. The stock turnover ratio reflects the

19 | P a g e
efficiency of inventory management. The higher the ratio, the more efficient the management
of inventories and vice versa

Cost of goods sold

Inventory turnover ratio - Average inventory

V. Debtor Turnover Ratio

The Debtors Turnover Ratio also called as Receivables Turnover Ratio shows how quickly the
credit sales are converted into the cash. This ratio measures the efficiency of a firm in managing
and collecting the credit issued to the customers.

Net Credit Sales

Debtor turnover ratio - Average Account Receivable
VI. Creditor Turnover Ratio

A creditor’s turnover ratio is a measure of how often a particular company pays off its debts to
suppliers within a given accounting period. This relates back to the more general term ‘credit
turnover’ which simply means the number of total transactions made during a particular time
frame.

Credit Purchases
Creditor turnover ratio -
Average Trade Payables.

PROFITABILITY RATIOS

A company should earn profits to survive and grow over a long period of time. Profits are
essential but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits. Profit is the difference between revenues and
expenses over a period of time. These ratios convey how well a company can generate profits
from its operations. Profit margin, return on assets, return on equity, return on capital
employed, and gross margin ratios are all examples of profitability ratios.

 Gross profit ratio

 Operating profit ratio
 Net profit ratio
 Return on investment

20 | P a g e
  Earns per share
 Operating expenses ratio

I. Gross Profit Ratio

First profitability ratio in relation to sales is the gross profit margin the gross profit margin
reflects. The efficiency with which management produces each unit of product. This ratio
indicates the average spread between the cost of goods sold and the sales revenue. A high gross
profit margin is a sign of good management. A gross margin ratio may increase due to any of
following factors: higher sales prices cost of goods sold remaining constant, lower cost of
goods sold, sales prices remaining constant. A low gross profit margin may reflect higher cost
of goods sold due to firm's inability to purchase raw materials at favorable terms, inefficient
utilization of plant and machinery resulting in higher cost of production or due to fall in prices
in market. This ratio shows the margin left after meeting manufacturing costs. It measures the
efficiency of production as well as pricing.

Gross Profit
`Gross profit ratio – Net Sales x100

II. Operating Profit Ratio

This ratio expresses the relationship between operating profit and sales. It is worked out by
dividing operating profit by net sales. With the help of this ratio, one can judge the managerial
efficiency which may not be reflected in the net profit ratio.

Operating profit
Operating profit ratio – Net sales x 100

III. Net Profit Ratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross
profit. Net profit margin ratio established a relationship between net profit and sales and
indicates management's efficiency in manufacturing, administering and selling products. This
ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with
a high net margin ratio would be in an advantageous position to survive in the face of falling
selling prices, rising costs of production or declining demand for product.

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 Net profit
Net profit ratio - x 100
Net sales

IV. Return On Investment

This is one of the most important profitability ratios. It indicates the relation of net profit with
capital employed in business. Net profit for calculating return of investment will mean the net
profit before interest, tax, and dividend. Capital employed means long term funds.

EBIT
Return on investment - Capital employed x100

V. Earnings Per Share

This ratio is computed by earning available to equity shareholders by the total amount of equity
share outstanding. It reveals the amount of period earnings after taxes which occur to each
equity share. This ratio is an important index because it indicates whether the wealth of each
shareholder on a per share basis as changed over the period.

Net Profit
Earnings per share – x100
Number Of Equity Shareholder

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 VI. Inventory holding period

Inventory Holding Period is a ratio that depicts the number of days for which an organization
holds inventory before sales. It shows how many days it takes for inventory to rotate in the
business. Inventory holding period, also known as days in inventory, can be calculated by
dividing the average inventory by the cost of goods sold per day.

12
Inventory holding period - Inventory turnover ratio

VII. Debtor collection period

The debtor’s day’s ratio measures how quickly it’s taking your debtors to pay you. The longer
it takes for a company to get paid, the greater the number of debtor’s days. Debtor days are
used to show the average number of days it takes a company to receive payment from its
customers for invoices issued to them.

12
Debtor collection period -
Debtor turnover ratio

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 Note – consider all
LIQUIDITY RATIO
figures in crore
 CURRENT RATIO

The ratio between all current assets and all current liabilities; another way of expressing
liquidity. It is a measure of the firm’s short-term solvency. It indicates the availability of current
assets in rupees for every one rupee of current liability. A ratio of greater than one means that
the firm has more current assets than current claims against them.
Current assets
Current liabilities

Sr. No Year Current assets Current liabilities Current ratio

1 2016-17 7313.64 4502.04 1.62

2 2017-18 7862.76 4589.89 1.71
3 2018-19 8463.8 5464.43 1.54
4 2019-20 8151.04 5252.24 1.55
5 2020-21 10367.18 7267.65 1.42

1.8 1.71
1.62
1.54 1.55
1.6 1.42
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION - the standard norm for current ratio is 2:1. As we can see in the graph
it does not meet standard ratio. That’s means low current ratio may be due to inadequate
investment in the current assets which may result in low liquidity and may threaten the solvency
of the enterprise. However it was able to touch 1.71 in 2018 which is highest in compare to 5
year. Current should be reasonable. It should neither be too high nor too low. Both the situation
are disadvantage. Its means the firm may face difficulty in meeting its current obligation.

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  QUICK RATIO
Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities.
An asset is liquid if it can be converted into cash immediately or reasonably soon without a
loss of value. The quick ratio is an indicator of a company’s short-term liquidity position and
measures a company’s ability to meet its short-term obligations with its most liquid assets.
Liquid assets
Current liabilities

Sr. No Year Liquid asset Current liabilities Liquid ratio

1 2016-17 4866.6 4502.04 1.08
2 2017-2018 5648.73 4589.89 1.23
3 2018-2019 5451.02 5464.43 0.99
4 2019-2020 5209.18 5252.24 0.99
5 2020-2021 7390.33 7267.65 1.01

1.4
1.23
1.2 1.08
0.99 0.99 1.01
1

0.8

0.6

0.4

0.2

0
2016-17 2017-2018 2018-2019 2019-2020 2020-2021

INTERPRETATION

The standard norm of quick ratio is 1:1. During the year 2017 the ratio is 1.08 and it has increase
to 1.23 during the year 2018 and it has decease to 0.99 in 2019 and is constant in 2020. And is
increase to 1.01 during the year 2021. During the covid pandemic year (2019-20) company is
able to maintain in 0.99 in respective year shown in graph. Liquid ratio is more than 1 which
means current liabilities are less than liquid asset. As a result enterprise may able to meet its
short term financial obligation. Ratio are above the standard norm so the ratio is satisfactory.

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  ABSOLUTE LIQUIDITY RATIO

The ratio between cash plus marketable securities and current liabilities. Absolute Liquid Ratio
is a type of liquidity ratio that is calculated to analyze the short-term solvency or financial
position of the firm. It is calculated to exclude the receivables from the current and liquid assets
and to know about the absolute liquid assets.

Cash And Cash Equivalent + Short Term Marketable Securities

Current Liabilities

Cash and cash equivalent Absolute liquidity

Sr No. Year Current liabilities
+ short term securities ratio

1 2016-17 2569.25 4502.04 1.106

2 2017-18 3266.79 4589.89 0.711
3 2018-19 2899.63 5464.43 0.530
4 2019-20 2692.27 5252.24 0.512
5 2020-21 4911.1 7267.65 0.675

1.2 1.106

0.8 0.711 0.675

0.6 0.53 0.512

0.4

0.2

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

The ideal standard ratio for this ratio is 0.5:1. We can see in the graph company is able to
maintain its absolute liquidity position. In 2017 company having highest cash reserve to meet
its short term liquidity. However we can see that from 2017 to 2020 year there is rapid decrease
in the absolute ratio but they are maintaining there standard ratio and always above the standard
norm. in 2021 currents year they have improve their cash reserve. Its company meets there
short term obligation. Ratio is satisfactory

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 SOLVENCY RATIO

 DEBT TO EQUITY RATIO

Debt equity ratio indicates the relationship describing the lenders contribution for each rupee
of the owner’s contribution is called debt- equity ratio. Debt equity ratio is computed by
dividing Long term Liabilities divided by Equity. Lower debt – equity ratio higher the degree
of protection. A debt-equity ratio of 2:1 is considered ideal. Calculate the weight of total debt
and financial liabilities against shareholder fund.
Long term liabilities
Equity

Sr. No Year Long term debt Equity Debt equity ratio

1 2016-17 1375.81 8640.88 0.15
2 2017-18 1472.37 9738.31 0.15
3 2018-19 1222.84 10837.47 0.11
4 2019-20 968.75 12214.84 0.0793
5 2020-21 1023.31 13413.81 0.076

0.16 0.15 0.15

0.14
0.12 0.11
0.1
0.0793 0.076
0.08
0.06
0.04
0.02
0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

Standard norm of debt equity ratio is 2:1. As we see in the chart company may not even close
to standard norm. However in 2017 and 2018 they maintain same ratio but after following year
company debt equity ratio deceasing (0.11, 0.0793, and 0.076). Low debt ratio means that the
company is depending more on shareholder fund than external equities. In effect, lender are at
lower risk and have higher safety. Ratio is satisfactory in all years.

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  FIXED ASSETS UPON LONG TERM FUNDS

Fixed assets to long term funds ratio establishes the relationship between fixed assets and long-
term funds and is calculated by dividing fixed assets by long term funds. This shows the number
of times the earnings of the firms are able to cover the fixed interest liability of the firm. It
indicates the extent to which long-term liabilities can be covered with company's tangible fixed
assets.
Fixed assets
Long term funds

Sr. No Year Fixed assets Long term funds Ratio

1 2016-17 7734.83 10016.69 0.77
2 2017-18 8603.98 11210.68 0.76
3 2018-19 9977.46 12060.31 0.82
4 2019-20 11291.3 13183.59 0.85
5 2020-21 12214.64 14437.12 0.84

0.86 0.85
0.84
0.84
0.82
0.82
0.8
0.78 0.77
0.76
0.76
0.74
0.72
0.7
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

As shown in the graph ratio is increasing in each year. In 2020 pandemic period company
shows highest ratio 0.85.however in previous year 2018 it show lower ratio. Its means he
greater the ratio's value, the greater the ability to cover the long-term liabilities, and also the
debt capacity of the company (increasing the chances for gaining new long-term liabilities in
the future). The increase of ratio's value is assessed positively, since it indicates increased debt
capacity, the decrease of ratio's value is assessed negatively, since it indicates decreased debt
capacity.

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  PROPRIETARY RATIO

Proprietary ratio establishes the relationship between proprietor’s funds and total assets. The
objective of computing this ratio is to measuring the proportion of total assets financed by
proprietor’s funds. The ratio is important for creditors as they can ascertain the portion of
shareholder funds in the total assets employed in the firm and thus safety margin available to
them Shareholder fund
Total assets

Sr. No Year Proprietary Fund Total Assets Proprietary Ratio

1 2016-17 8640.88 15048.47 0.57

2 2017-18 9738.31 16478.48 0.59
3 2018-19 10837.47 18441.26 0.58
4 2019-20 12214.84 19442.34 0.62
5 2020-21 13413.81 22581.86 0.59

0.63
0.62
0.62
0.61
0.6
0.59 0.59
0.59
0.58
0.58
0.57
0.57
0.56
0.55
0.54
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

Standard norm ratio of proprietary ratio is 0.75 or 75%. As shown in the graph highest ratio is
0.62 in 2020, but it does not reach to standard ratio. A low proprietary ratio means lower or
inadequate safety for creditor. It may lead to unwillingness of creditor to extend to the
enterprise. It is so because in case of liquidation creditor being unsecured are likely to lose their
money, however company ratio are not that too low which lead to any risk creditors of
company.

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  DEBT TO TOTAL CAPITAL RATIO

The debt-to-capital ratio is calculated by dividing a company’s total debt by its total capital,
which is total debt plus total shareholders’ equity. The debt-to-capital ratio gives analysts and
investors a better idea of a company's financial structure and whether or not the company is a
suitable investment. All else being equal, the higher the debt-to-capital ratio, the riskier the
company.
Debt
Total Capital

Sr. No Year Debt Total Capital Debt To Total Capital Ratio

1 2016-17 1375.81 10016.69 0.137
2 2017-18 1472.37 11210.68 0.131
3 2018-19 1222.84 12060.31 0.101
4 2019-20 968.75 13183.59 0.073
5 2020-21 1023.31 14437.12 0.070

0.16
0.137
0.14 0.131

0.12
0.101
0.1
0.08 0.073 0.07
0.06
0.04
0.02
0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

As we can see in the graph there is constant decrease in the debt to equity ratio. Higher the debt
equity ratio means the more the company is funded by debt than equity, which means a higher
liability to repay the debt and a greater risk of forfeiture on the loan if the debt cannot be paid
timely. Company show the lower the debt equity ratio in 2021 which may have good benefit
to the investors.

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  INTEREST COVERAGE RATIO

The ratio establishes the relationship between net profit before interest and tax and interest on
long term debt. Interest charge on profit therefore, net profit before interest and tax is taken to
calculate the ratio. The ratio is very meaningful to debenture holders and lenders of long term
funds. Profit Before Interest And Tax
Interest On Long Term Debt

Sr. No Year EBIT Interest I.C ratio

1 2016-17 2360.84 251.47 9.38
2 2017-18 1905.77 253.12 7.52
3 2018-19 1919.49 267.31 7.18
4 2019-20 1727.07 292.82 5.8
5 2020-21 2011.51 274.67 7.3

10 9.38
9
8 7.52 7.3
7.18
7
5.8
6
5
4
3
2
1
0
2016-17 2017-18 2018-19 2019-20 2020-21
1 2 3 4 5

INTERPRETATION

The objective of calculating this ratio is to ascertain the amount of profit available to cover
interest on long term debt. A higher ratio is considered better for the lenders as it means higher
margin to meet interest cost. In 2017 interest coverage ratio show highest 9.38 and in 2020 5.8
show lowest ratio. Although ratio show are not that low. It’s a show satisfactory ratio.

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 Consider ratio in times
ACTIVITY RATIO

 Inventory Turnover Ratio

Inventory turnover is the rate that inventory stock is sold, or used, and replaced. The inventory
turnover ratio is calculated by dividing the cost of goods by average inventory for the same
period. It indicates the firm efficiency of the firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average inventory.

Cost Of Goods Sold

Average Inventory

Inventory Turnover
Sr. No Year Cost Of Goods Sold Average Inventory
Ratio
1 2016-17 7722.8 1015.415 7.60
2 2017-18 9031.34 1036.86 8.71
3 2018-19 10323.17 10323.17 8.25
4 2019-20 9599.63 1548.66 6.19
5 2020-21 8968.25 1362.835 6.58

10 7.6 8.71 8.25

8 6.58
6.19

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

The objective of computer inventory ratio is to ascertain whether investment in stock has been
judicious or not. It measure the efficiency of inventory management. In 2018 we can see that
inventory turnover ratio is highest in all (8.71). Higher turnover ratio is good but it must be
carefully interpreted as it may be due to buying in small lots or selling quickly at low margin
to realize cash. Thus it throw light on utilization of stock. However all ratio are satisfactory.

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  INVENTORY CONVERSION HOLDING PERIOD

The inventory conversion period is the time required to obtain materials for a product,
manufacture it, and sell it. This period is essentially the time period during which a company
must invest cash while it converts materials into a sale.

12 month
Inventory turnover ratio

Sr no Year Months Inventory turnover ratio Period in months

1 2016-17 12 7.60 1.578
2 2017-18 12 8.71 1.377
3 2018-19 12 8.25 1.454
4 2019-20 12 6.19 1.938
5 2020-21 12 6.58 1.823

Period in months
2.5 1.938 1.823

2 1.578 1.377 1.454

1.5

0.5

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

As shown in the graph in 2020 during COVID pandemic inventory conversion period is 1.938.
That means company take a high inventory holding period signifies that money is tied up in
the form of inventory for longer periods. The increasing inventory holding period is a warning
sign for businesses since it indicates that sales are slowing down. But a high inventory turnover
may be a good sign in some cases. And company has 1.377 holding period on 2018 which
means a lower inventory holding period indicates good efficiency since it indicates that less
time is required for the stock to be realized as sales income.

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  WORKING CAPITAL TURNOVER

Working capital turnover ratio is a formula that calculates how efficiently a company uses
working capital to generate sales. This ratio demonstrates a company's ability to use its working
capital to generate income. This formula may also be referred to as net sales to working capital.

Revenue from operation

Working capital turnover

Sr. No Year Sales Working Capital Working Capital Ratio

1 2016-17 14749.40 2811.6 5.24
2 2017-18 15227.07 3272.89 4.65
3 2018-19 16062.46 2999.37 5.35
4 2019-20 16239.3 2898.8 5.60
5 2020-21 16163.19 3099.53 5.21

6 5.24 5.35 5.6 5.21

4.65
5

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

A working capital turnover ratio is most commonly used to determine a company's financial
performance and analyze its overall operations. It can also be used to see if a company will be
able to pay off debt in a set period and avoid running out of cash as a result of increased
production requirements. As shown in the graph in 2020 working capital turnover ratio is high
5.6. Which means Company is more efficient in running operations and generating sales.
Where in 2018 company obtain 4.65 ratio which is lowest in all year. It is an indicator that
operations are not being run effectively.

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  FIXED ASSETS TURNOVER RATIO

The fixed asset turnover ratio is an efficiency ratio that measures a company’s return on their
investment in property, plant, and equipment by comparing net sales with fixed assets. In other
words, it calculates how efficiently a company is a producing sales with its machines and
equipment. Investors and creditors use this formula to understand how well the company is
utilizing their equipment to generate sales.
Sales
Fixed assets

Sr. No Year Sales Fixed Assets Fixed Assets Turnover Ratio

1 2016-17 14749.40 7734.83 1.323
2 2017-18 15227.07 8603.98 1.438
3 2018-19 16062.46 9977.46 1.609
4 2019-20 16239.3 11291.3 1.76
5 2020-21 16163.19 12214.64 1.906

2.5
1.906
1.609 1.76
2
1.438
1.323
1.5

0.5

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

A high turnover indicates that assets are being utilized efficiently and large amount of sales are
generated using a small amount of assets. It could also mean that the company has sold off its
equipment and started to outsource its operations. In 2021 company show most high ratio
1.906. whereas in 2017 company as most low ratio is 1.323 which means that the company
isn’t using its assets to their fullest extent as compare to above given year. Point to note that
company has constant growth in the ratio.

35 | P a g e
  CURRENT ASSETS TURNOVER RATIO

Current Assets Turnover Ratio indicates that the current assets are turned over in the form of
sales more number of times. A high current assets turnover ratio indicates the capability of the
organization to achieve maximum sales with the minimum investment in current assets.

Sales
Current assets

Sr. No Year Sales Current assets Current asset turnover ratio

1 2016-17 14749.40 7313.64 1.55
2 2017-18 15227.07 7862.76 1.99
3 2018-19 16062.46 8463.8 1.89
4 2019-20 16239.3 8151.04 1.93
5 2020-21 16163.19 10367.18 2.01

2.5
1.99 1.93 2.01
1.89
2 1.55

1.5

0.5

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

A high current assets turnover ratio indicates the capability of the organization to achieve
maximum sales with the minimum investment in current assets. Company has highest current
ratio in 2021 which is 2.01 however all ratio are same approximately. But in 2017 company
show lowest ratio 1.55 which is not good year company attend sales from investment compare
to above given year.

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  TRADE RECEIVABLE RATIO

Trade receivable is the amount receivable against good or service rendered in the normal course
of business by the enterprise. Trade receivable turnover ratio establish the relationship between
credit revenue from operation and average trade receivable.

Credit revenue from operation

Average trade receivable

Sr. no Year Credit sales Average trade receivable Trade receivable ratio
1 2016-17 14749.40 1903.86 7.74
2 2017-18 15227.07 2059.465 7.39
3 2018-19 16062.46 2266.32 7.08
4 2019-20 16239.3 2341.055 6.93
5 2020-21 16163.19 2276.83 7.09

Trade receivable ratio

7.74
8
7.39

7.5 7.08 7.09

6.93
7

6.5
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

This ratio indicates the number of times trade receivable are turned over in year in relation to
credit sales. In 2017 company record highest ratio 7.74, and in 2018, 2019, 2020 company
trade receivable ratio kept decreasing ( 7.39, 7.08, and 6.93) which means company is
inefficient from collecting debt or increase credit period and more investment in debtors than
required. However in current year 2021 company ratio 7.09 has growth after 3 year which
indicate good sign. Higher ratio is better since it show that debt are collected more promptly.

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  DEBTOR COLLECTION PERIOD

It provide an approximation of the average time that it takes to collect debtors. It is computed
by dividing 365 for day or 12 for month by trade receivable turnover ratio

12
Trade receivable turnover ratio

Sr. No Year Month Trade receivable ratio Period

1 2016-17 12 7.09 1.69
2 2017-18 12 6.93 1.73
3 2018-19 12 7.08 1.69
4 2019-20 12 7.39 1.62
5 2020-21 12 7.74 1.54

1.75 1.69 1.73 1.69

1.7
1.62
1.65

1.6 1.54

1.55

1.5

1.45

1.4
2016-17 2017-18 2018-19 2019-20 2020-21
1 2 3 4 5

INTERPRETATION

As we can see in graph company in 2018 company take more time to collect the debt. Although
all above shown ratio are satisfactory but when it comes to comparison 2018 takes more time
and 2021 company take less time 1.54. However it may be the reason company collected the
debt to recover from Covid pandemic according to my analysis. Company like MRF 1 month
period for collection is satisfactory.

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 PROFITABILITY RATIO Consider ratio in
percentage (%)
 OPERATING PROFIT RATIO

*Operating profit ratio measure the relationship between operating profit and revenue from
operation. Objectives is to find out the operational efficiency. And it expressed in terms of
percentage.
Operating profit
Revenue from operation

Sr. no Year Operating profit Revenue from operation Operating profit ratio
1 2016-17 3019.14 14749.40 20.4695784
2 2017-18 2484.55 15227.07 16.316665
3 2018-19 2452.89 16062.46 15.2709485
4 2019-20 2375.80 16239.3 14.6299409
5 2020-21 2663.20 16163.19 16.4769455

25 20.46957842

20 16.31666499 16.47694545
15.27094853 14.62994095

15

10

0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

The objective of computing the ratio is to determine operational efficiency of the business. An
increase in the ratio over the previous period shows Improvement in the operational efficiency
of the business enterprise. As shown in the graph that company as more efficient in 2017
compare all above year. In covid pandemic period compare is not much efficient in its
production.

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  NET PROFIT RATIO

Net profit ratio establishes the relationship between net profit and revenue from operation. The
shows the percentage of net profit earned on revenue from operation. It indicate overall
efficiency of the business.
Profit after tax
Revenue from operation

Sr. no Year Net profit Revenue from operation Net profit ratio

1 2016-17 1277.07 14749.4 8.66

2 2017-18 1422.57 15227.07 9.34

3 2018-19 1130.61 16062.46 7.04

4 2019-20 1131.61 16239.3 6.97

5 2020-21 1486.22 16163.19 9.20

10 8.658453903 9.342375125 9.195090821

9
7.038834649 6.968342232
8
7
6
5
4
3
2
1
0

INTERPRETATION

Net profit ratio is an indicator of overall efficiency of the business. Higher the ratio better the
business. This ratio helps in determining the operational efficiency. An increase in the ratio
over the previous period shows improvement in the operational efficiency and decline means
otherwise. In 2021 company record highest ratio 9.19 and in 2019 company show lowest 7.03.
Although ratios are keep changing.

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  RETURN ON EQUITY

Return on equity (ROE) is a measure of financial performance calculated by dividing net

income by shareholders' equity. Because shareholders' equity is equal to a company’s assets
minus its debt, ROE is considered the return on net assets. ROE is considered a gauge of a
corporation's profitability and how efficient it is in generating profits.

Profit After Tax

Shareholder Fund

Sr. no Year Net profit Proprietary Fund Return on equity

1 2016-17 1277.07 8640.88 14.7793975

2 2017-18 1422.57 9738.31 14.6079761
3 2018-19 1130.61 10837.47 10.4324164
4 2019-20 1131.61 12214.84 9.26422286
5 2020-21 1486.22 13413.81 11.0797752

16 14.77939747 14.60797613

14 9.264222863 11.07977525
10.43241642
12
10
8
6
4
2
0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

An ROE is considered satisfactory based on industry standards, though a ratio near the long-
term average around 14% is typically considered acceptable. According to standard norm
company attain good ratio in 2017 and 2018. However in 2019 and 2020 has closed to standard
norm. Which means company is not having efficient profit generating during 2019 and 2020
compare to other years.

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  RETURN ON INVESTMENT (ROI)

The assesses the overall performance of the enterprise. It measure, how efficiently the resource
entrusted to the business are used. The net result of operations of business is either profit or
loss. The source funds used in the business to earn this are proprietor’s funds or loan.

Net profit
Capital employed

Sr. No Year Net Profit Capital Employed Return On Investment

1 2016-17 1277.07 15314.21 8.33911772
2 2017-18 1422.57 14190.1 10.0250879
3 2018-19 1130.61 12976.83 8.71252841
4 2019-20 1131.61 11876.87 9.52784698
5 2020-21 1486.22 10546.43 14.092162

16 14.09216199
10.02508791 9.527846983
14
12 8.339117721 8.712528406
10
8
6
4
2
0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

Return on investment assesses overall performance of the enterprise. Its measure how
efficiently the resource of the business are used. Return on investment is a fair measures of the
profitability of any concern with the result that the performance of different industries may be
compared. In 2021 company share has highest return on investment. However in 2017 company
return is lowest 8.33.

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  EARNING PER SHARE

Represents a company's annualized net profit divided by the number of common shares of
stock it has outstanding. Because it's a measure of profitability on a per-share basis, EPS is
commonly used by investors to estimate the value of a company, per share. EPS is a calculation
that shows how profitable a company is, per share.

Profit After Tax

Number Of Equity Shareholder

Sr. No Year Profit After Tax No Of Shareholder EPS

1 2016-17 1486.22 4241143 3011.14
2 2017-18 1131.61 4241143 3354.20
3 2018-19 1130.61 4241143 2665.82
4 2019-20 1422.57 4241143 2668.17
5 2020-21 1277.07 4241143 3504.29

4000 3354.2 3504.29

3011.14
3500
2665.82 2668.17
3000
2500
2000
1500
1000
500
0
2016-17 2017-18 2018-19 2019-20 2020-21

INTERPRETATION

As shown in the table company has same number of shareholder since 2017. However company
profit is changing which ultimately give effect on earnings per share. From graph we came to
know that company has highest value of share in 2021 right after pandemic however in 2018
company also gave good share value 3354.2. But in 2019 and 2020 compare share gone down
to 2665.82 and 2668.17 respectively.

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 RESULT & DISCUSSION

1. During the analysis of last 5 years, it came to know that the current ratio indicates that
the firm is not doing well. Company is not closed to the standard ratio which ultimately
affect company financial status.
2. As we see in the chart and table of Acid Test Ratio that the company make up to
standard ratio that is 1:1. Company may able to convert its investment into cash quickly.
Ratio satisfactory in all easy.
3. In debt to equity Ratio Company is totally depend on shareholder fund. All the ratio are
below in standard norm that is 2:1. It’s a plus point for the company that they used there
owned fund. The lender or creditors are at low risk and have higher safety
4. In the proprietary ratio company is not able to meet its standard norm. all ratio are below
75% . However it means there is lower or inadequate safety for the creditor.
5. In 2019 company show highest ratio and in 2020 it show lowest ratio.
6. During analysis of 5 years company record highest working capital ratio on 2020 which
means in 2020 company record highest sales due to efficiently working in daily
operation
7. Fixed assets are more efficiently working in current year 2021. That may because of
company may purchase advance machinery in current year compare to other year.
8. During the current asset turnover company record highest ratio in 2021 which means
company have achieve maximum sales with the minimum investment in the current
assets. However company has all approximately same in all year.
9. During 2017 trade receivable ratio show highest which means company is collecting
the debt more promptly than other year. The ratio indicate the number of times trade
receivable are turned over in a year in relation to credit sales.
10. During 2019-2020 company has lowest net profit which is because of covid pandemic
where company many services has been stop which effect the wealth of company
11. As company has attain good industry standard in 2017 and 18 which is above 18% in
case of return on equity but in 2019 and 2020 company is not have enough profit
compare to other year
12. Company give its highest return in 2021. It shown us company used their resources
efficiently and allow the investor trusting after pandemic

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 13. Earnings per share keep changing due to change in profit. According to analysis
company is not increase or decrease in the shareholders.

SUGGESTION

1. The company has to increase the profit maximization and has to decrease the operating
expenses.
2. By considering the profit maximization in the company the earning per share,
investment and working capital also increases. Hence, the outsiders are also interested
to invest.
3. The company has maintain sufficient cash and bank balances but also use credit which
help them for tax exemption.
4. The company should works on working capital management for more efficiency
5. The company profit is huge in the current year; it’s better to declare dividend to
shareholder
6. The company must reduce its debtors collection period from 83 & 84 days to 40 days
be adopting credit policy by providing discounts to the debtors.
7. Company show low proprietary ratio which means lower or inadequate safety for
creditor. It may lead to unwillingness of creditor to extend to the enterprise. So
company should maintain it properly.
8. Return on investment is fluctuates every year. The company has to make efforts in
increasing return on investments by reducing its administration, selling and other
expenses.
9. The net profit of the company is increasing over the study period. Hence the
organization maintaining good control on all trees of expenses.
10. Earnings per share is totally depend on profit of the year company should change policy
for shareholder benefit.
11. Company should use the debt fund for shorter period in order to get benefit from tax
exemption.
12. Company should focus on its operational efficiency. Ratio keep changing every year
which lead to efficiency management in company production.

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 CONCLUSION

The project of Ratio analysis in the service industry is not merely a work of the project. But a
brief knowledge and experience that how to analyze the financial performance of the firm. The
study undertaken has brought in to the light of the following conclusions. According to this
study came to know that from the analysis of financial statements it is clear that Madras Rubber
Factory the company have been incurring profit during the period of study. So the firm should
focus on getting of huge profits in the coming year by taking care internal as well as external
factors. Current ratio is showing ineffectiveness in liquidity as in all the years current ratio is
less than the standard 2:1 but quick ratio is greater than the standard 1:1 ratio which show
effectiveness. The firm is maintaining a low cash balance and marketable securities which
means they done cash payments. Debt equity ratio, solvency ratio and interest coverage ratio
are showing an average increase in the long term solvency of the firm. The proprietary ratio is
showing an average increase which means, the shareholders have contribute more funds to the
total assets. Fixed assets turnover ratio is showing that the firm has high investment in fixed
assets to generate sales. The increasing trend of current assets turnover ratio indicates that the
firm has more investment in current assets for generating sales. In trade receivable ratio current
year 2021 company ratio 7.09 has growth after 3 year which indicate good sign. Higher ratio
is better since it show that debt are collected more promptly. Company is more efficient in
running operations and generating sales as per working capital turnover ratio. Net profit of the
madras rubber factory limited is fluctuating over the past five years. On an average the Madras
Rubber Factory Limited overall performance is quite satisfactory. The company financial
performance is very good and also they will increase their business year by year by expanding
their branches.

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 WEBLIOGRAPHY

1. https://www.mrftyres.com/

2. https://shodhganga.inflibnet.ac.in/

3. https://www.investopedia.com/terms/r/ratioanalysis.asp

4. https://en.wikipedia.org/wiki/MRF_(company)

5. https://www.business-standard.com/company/mrf-391/information/company-history

BIBLIOGRAPHY

Analysis Of Financial Statement

T.S. Grewal

D.K Goyal Analysis Of Financial Statement

National Council Of Education Research Company Account And Financial Statement

And Training

Arihant Publication Financial Statement

Oswal Publication Accounting & Finance

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2017 & 2018

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2019& 2020

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2021

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