Chapter 1
Introduction
Accounting aids the persistence of providing financial information relating a business. Such
information is provided to people who have an interest in the organization, such as
shareholders, managers, creditors, debenture holders, bankers, tax authorities and others.
Broadly speaking, on the basis of type of accounting information and the purpose for which
such information is used, below mentioned are the three different Types of Accounting:
1. Financial Accounting (or General Accounting)
2. Cost Accounting and
3. Management Accounting.
Loss account and profit showing the loss or net profit during the period.
Balance Sheet showing the financial position of the firm at a point of time. The objective of
financial accounting is to provide information to external parties such as shareholders,
employees, potential investors, government agencies, etc.
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management for making optimum use of scarce resources and ultimately adds to the
productivity of business. The terms 'costing' and 'cost accounting' are often used
interchangeably. The Chartered Institute of Management Accountants - (CIMA) of UK has
defined costing as, "the techniques and processes of ascertaining cost". Thus, costing simply
means cost finding by any process or technique. It consists of principles and rules which are
used for determining:
The cost of manufacturing a product; e.g., motor car, furniture, chemical, steel, paper,
etc. and
3|Page
practices not only of cost accounting but also of financial accounting. Information provided
by financial accounting proves extremely useful for management
accounting. For
example, profit and loss account and balance sheet become the basis of ratio analysis and
comparative financial statements, etc., which are used by the management accounting as
important tools of planning and control.
Financial accounting records also become basis of preparing detailed cost computation and
reports. Cost accounting is a more detailed application of financial accounting and provides
detailed cost information about products, services, departments, etc. This information is
used by management accounting for planning, controlling and decision making purposes.
Fig. 1.1 shows the evolution of management accounting and its relationship to cost
accounting and financial accounting.
PREPARING
PROFIT & LOSS
ACCOUNT AND
BALANCE SHEET
ANALYSING
COST FOR
CONTROL AND
MAXIMISING
EFFICIENCY
ASSISTING
MANAGEMENT
FOR PLANNING,
DECISION
MAKING AND
CONTROL
FINANCIAL
ACCOUNTING
COST
ACCOUNTING
MANAGEMENT
ACCOUNTING
4|Page
ORIGIN
The first basic principles of management accounting emerged during the period 1400 to
1600 in the form of standards for materials, employee productivity, job cost system and
budgets. But no standardized management accounting was in practice until 1885 when
Henry Metcalf published the cost manufacture. The real growth of management
accounting was in 20th century in USA due to the emergence of large and integrated
companies such as DuPont and general motors. In fact the growth of management
accounting is because of the need to overcome the limitations of financial and cost
accounting.
2.
3.
5|Page
materials, labor and other costs by comparing the actual performance with
what should have been accomplished during a given period of time.
4.
5.
2.
3.
4.
5.
6|Page
1.
7|Page
2.
3.
4.
5.
Budgeting
2.
3.
4.
Ratio analysis.
5.
6.
8|Page
differences between the two arise because they serve different audiences. The main points
of difference the two are as follows:
Basis
1. External &
internal users
Financial Accounting
Management Accounting
Management
accounting
method
system.
3. Statement
Management accounting
requirements
Management accounting
responsibility center.
historical records.
9|Page
accounting is often called management accounting. Why? Because cost accountings look
at their organization through managers eyes. Thus managerial aspects of cost accounting
are inseparable from management accounting. One point on which all agree is that these
two types of accounting do not have clear cut territorial boundaries. However, distinction
between cost accounting and management accounting may be made on the following point:
BASIS
COST ACCOUNTING
MANAGEMENT
ACCOUNTING
1. Scope
Scope
of
management
uses.
provides
all
types
information,
of
i.e...Cost
Main
ascertainment
control
and
to
cost
ensure
emphasis
is
decision-making
on
to
maximum profit.
maximize profit.
3. Technique
Management
accounting
employed
also
all
standard
and
statement,
analysis,
etc.
research
and
certain
techniques
from
various
costing
uses
these
statistical
operations
economics,
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etc., which so ever can help
management in its tasks.
2)
3)
4)
5)
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RATIO ANALYSIS
MEANING OF FINANCIAL STATEMENT:
The term financial statements refer to two basic statements which an accounting prepares
at the end of an accounting period for a business enterprise. These are:
1.
Balance sheet (or Income statement of financial position ) which reflects the
assets, Liabilities and capital as on a certain date, and
2.
Profit and Loss Account (or Income Statement) which shows the results of
operations i.e. profit or loss during a certain period.
RATIO ANALYSIS:
Ratio analysis is the process of determining and interpreting numerical relationship based
on financial statements. It is the technique of interpretation of financial statements with the
help of accounting ratios derived from the balance sheet and profit and loss account. Ratio
analysis is a very important tool of financial analysis. It is the process of establishing the
significant relationship between the items of financial statement to provide a meaningful
understanding of the performance and financial position of a firm. Ratio when calculated
on the Basis of accounting information are called Accounting Ratio.
DEFINITIONS:
Kennedy and Mc Mullah. The relationship of one to another, expressed in simple term
of mathematical is known as ratio
According to Accountants Handbook by Wixom, kell and Bedford, a ratio is an
expression of the quantitative relationship between two numbers.
Ratio analysis is very powerful and most commonly used tool of analysis and interpretation
of financial statements. It concentrates on the inter-relation among the figures appearing in
the financial statements. Ratio analysis helps to analyze the part performance of a company
and to make future projections. It allows
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evaluation of the various aspects of companys performance from their own point of view
and interest. For example, management and shareholders may be interested in the
companys profitability while creditors and debenture holders may be interested in
solvency of the company.
BASIS OF COMPARISON:
Trend Analysis involves comparison of a firm over a period of time, that is, present ratios
are compared with past ratios for the same firm. It indicates the direction of change in the
performance improvement, worsening or fidelity over the years. Inter-firm Comparison
involves comparing the ratios of a firm with those of others in the same lines of business
or for the industry as a whole. It reflects the firms performance in relation to its
competitors.
Group ratio.
Historical comparison.
Inter-firm comparison.
Projected ratios.
CLASSIFICATION OF RATIOS:
Activity Ratios.
Profitability Ratios.
TEST OF LIQUIDITY:
The liquidity ratios are used to test the short term solvency or liquidity
position of the business.
It enables to know whether short term liabilities can be paid out of short term
assets.
It indicates whether a firm has adequate working capital to carry out routine
business activity.
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Current ratio.
2.
Quick ratio.
3.
CURRENT RATIO
It is the most widely used of all analytical devices based on the balance sheet. It establishes
relationship between total current assets and current liabilities.
Current assets
Current ratio =
Current liabilities
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Quick Liabilities = Current liabilities Bank overdraft
Absolute liquid assets include cash in hand, cash at bank, marketable
securities, Temporary investments.
When an organization's assets are more than its liabilities is known as solvent
organization.
Long term solvency ratios denote the ability of the organization to repay the
loan and interest.
Debt-equity ratio.
Proprietary ratio.
Solvency ratio.
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Outsiders funds
Debt equity ratio=
Shareholders funds
Proprietary funds
Proprietary ratio =
Capital employed
or
Total assets
Total liabilities
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surpluses. Out of this amount accumulated losses should be deducted. Total assets on
other hand denote total resources of the concern.}
SOLVENCY RATIO:
It expresses the relationship between total assets and total liabilities of a business. This ratio is
a small variant of equity ratio and can be simply calculated as 100-equity ratio
Total assets
Solvency ratio=
Total liabilities
No standard ratio is fixed in this regard. It may be compared with similar, such
organizations to evaluate the solvency position. Higher the solvency ratio, the stronger is
its financial position and vice-versa.
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bearing shares
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When fixed interest bearing securities and fixed dividend bearing shares are
higher than equity shareholders funds, the company is said to be highly
geared.
Where the fixed interest hearing securities and fixed dividend bearing shares
share equal to equity share capital it is said to be evenly geared.
When the fixed interest bearing securities and fixed dividend bearing shares
are lower than equity share capital it is said to be low geared.
If capital gearing is high, further rising of long term loans may be difficult
and issue of equity shares may be attractive and vice-versa.
Fixed assets
Fixed assets ratio=
Capital employed
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This ratio indicates the ability of the business to maintain the dividend on shares in future.
If this ratio is higher is indicates that there is sufficient amount of retained profit. Even if
there is slight decrease in profit in the future it will not affect payment of dividend in future.
Most of the ratio falling under this category is based on turnover and hence
these ratios are called as turnover ratios.
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this ratio is to measure the liquidity of the receivables or to find out the period over which
receivables remain uncollected.
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The amount of trade debtors at the end of period should not exceed a
reasonable proportion of net sales. Larger the trade debtors greater the
expenses of collection.
Notes: - {if information about credit purchases is not available, total purchases may be
Taken, if opening and closing balances of creditors are not given the balances of
Creditors may be taken. Trade creditors include sundry creditors and bills
Payable.}
Very less creditors turnover ratio or a high debt payment period may indicate
the firms inability in meeting its obligation in time.
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This ratio indicates the number of times the working capital is turned over in the course of the
year. Measures efficiency in the working capital usage. It establishes relationship between
cost of sales and working capital.
Cost of sales
Working capital turnover ratio =
Average working capital
A higher ratio indicates efficient utilization of working capital and a low ratio
indicates inefficient utilization of working capital.
But a very high ratio is not a good situation for any firm and hence care must
be taken while interpreting the ratio.
Net sales
Fixed assets turnover ratio =
Fixed assets
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Net sales
Total assets turnover ratio =
Total assets
Operating ratio.
Expense ratio.
X 100
Net sales
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A low gross profit ratio may indicate unfavorable purchasing; the instability of
management to develop sales volume thereby making it impossible to buy goods in large
volume. Higher the gross profit ratio betters the results.
X 100
Net sales
OPERATING RATIO:
This ratio establishes a relationship between cost of goods sold plus other operating expenses
and net sales. This ratio is calculated mainly to ascertain the operational efficiency of the
management in their business operations.
Higher the ratio the less favorable it is because it would leave a smaller margin to meet
interest, dividend and other corporate needs. For a manufacturing concern it is expected to
touch a percentage of 75% to 85%. This ratio is partial index of overall profitability.
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Operating profit
Operating profit ratio=
X 100
Net sales
EXPENSES RATIO:
It establishes relationship between individual operation expenses and net sales revenue.
X 100
Net sales
X100
Net sales
X 100
Net sales
Non-operating expense
4. Non-operating expense ratio=
X 100
Net sales
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company's equity capital with those of other companies, and thus help the investor in
choosing a company with higher return on equity capital.
and debentures
It is a prime test of the efficiency of business. It measures not only the overall
efficiency of business but also helps in evaluating the performance of various
departments.
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2.
X 100
Total assets
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=
Dividend paid on equity capital
Ideal ratio:
Two times; i.e. for every Rs. 100 profits available for dividend, Rs. 50 is retained in the
business and Rs. 50 is distributed. Higher the ratio higher is extent of retained earnings and
higher is the degree of certainty that dividend Will be repeated in future.
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Dividend paid per share
Payout ratio =
Earnings per share
An investor primarily interested should invest in equity share of a company with high
payout ratio. Company having low payout ratio need not necessarily be a bad company. A
company having income may like to finance expansion out of the income, thus low payout
ratio. Investor interested in stock price appreciation may well invest in such a company
though the payout ratio is low.
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Chapter 2
Research Method
TITLE OF THE STUDY
A study on financial statement using ratio analysis at Mahindra Finance
INTRODUCTION OF RATIOS:
Ratio analysis is a technique of analysis and interpretation of financial position. It is the process
of establishing and interpretation various for helping in making certain decisions, however ratio
analysis is not an end in itself. It is only a mean of better understanding of financial strengths
and weakened of a firm. Calculated of mere ratio does not serve4 any purpose unless several
appropriate ratios are analyses and interpreted. There are a number of ratios which can be
calculated from the information given in the financial position, but the analysis has to select
the appropriate data and calculated only a few appropriate ratios from the same keeping in
mind.
STATEMENT OF PROBLEM:
In the present global scenario financial position of an organization plays an important role on
its survival. So analyzing financial position of organization has becoming a little bit of difficult
to financial analysis. Financial position of an organization can be analyzed by using compound
and discounting techniques and ratio analysis plays an vital by analyzing the financial position
of an organization this study mainly focuses on the financial position through analyzing various
ratios.
The study has significant and provide benefits to various parties whom
directly or indirectly interest with the company.
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The investors who are interested in investing companys shares will also get
benefited by setting through the study and can easily take a decision whether
to invest or not to invest the companys share.
To evaluate the performance of the company by using ratio as yard stick and
to measure the efficiency of the company.
To analyze the capital structure of the company with help of leverage ratio.
RESEARCH METHODOLOGY:
Research methodology is a way to systematic search pertinent information on a specific topic
and solves the research problem research. It is a scientific investigation. It may be understood
as a science of studying how research is done science of studying how research is done
scientifically. Research is a schematized effort to gain new knowledge.
There are two sources of data:
Primary data
Secondary data
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Secondary Data Are:
Text books
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Chapter 3
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Tractor loan
Repayment for tractor loan is based on cash flows i.e. monthly/quarterly and half yearly (asset
becomes loan free in five years)
Hassle-free documentation
Car loan
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Fast processing
Greater flexibility
Competitive rates
Customized financing
Maximum flexibility
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Personal loans
Easy EMI payment option through cheque, ECS, mobile transfer or cash at the branch
Gold loans:
Repay only by servicing regular interest on the loan/EMI repayment option available on request
Home loans:
Wide network across the country to ensure you have no trouble reaching us
Loan available for various purposes construction, renovation, improvement and purchase
SME loans:
Wide network across the country to ensure you have no trouble reaching us
Loan available for various purposes construction, renovation, improvement and purchase
39 | P a g e
Industries served:
The Indian automobile and the allied auto ancillary sector is among the fastest growing sectors
in emerging market. The Indian auto and auto component industry has witnessed some new
developments. Massive competition, swing in the focus of global automobile manufacturers,
and vigorous changes in policies and business rules are the driving factors for its growth.
It is estimated that manufacturing of auto ancillaries and exports of auto components will see
the auto ancillary industry scale new heights in the coming years. Don't miss this opportunity
to grow your business and accelerate your position in the auto industry with Mahindra
Finance's SME loans.
Designed specially to cater to the financial requirements of the auto ancillary industry, our
quick and hassle-free loans for small businesses can also be customized for your wide-ranging
business requirements.
Due to Mahindra & Mahindra heritage, Mahindra Finance, understand the dynamics of this
industry as well as the unique business requirement that such a setup needs and corresponding
financial solutions. MMFSL aim to extend credit to fulfill the capital and working capital needs
of auto ancillary business. The purpose of these SME loans for small business is to help
customers to achieve their business goals in the best possible manner.
Food processing and Agro based industry:
The Food Processing Industry has witnessed a massive growth in recent years. The availability
of raw materials, improved lifestyles, relaxation of strict government policies are major
contributors to this phenomenal growth. This sector, therefore, plays a critical role in the
agricultural and rural economy drawing a synergy between the consumer, agriculture, and
industry on the whole. Despite its tremendous potential, it has still not achieved its full
potential. Food entrepreneurs require finance for both working capital and capital expansion
needs that has not been readily available. Mahindra Finance, thus, extends loans to finance the
food processing and agro based industries for the acquisition of the equipment and machineries
and meet working capital requirements. Mahindra Finance takes care of the funding needs of
Food and Agro based SMEs by providing specifically tailored loans keeping in view the special
requirements of these industries.
Whenever customer is in need of financial assistance, and are looking for a secured SME
loan for their business, consider Mahindra Finance. MMFSL ensure that business runs as
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smoothly as possible with our quick and easy business loans for the food processing and agro
based industry.
Project finance:
Tenure: Up to 6 years
Equipment finance
Corporate finance:
Annually reviewed
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Bill discounting
Validity: Up to 12 months
Tenure: Up to 6 years
Financial advisory
Loan structuring
Insurance solutions
The MMFSL Fixed Deposit has a Crisil rating of 'FAAA', which indicates a high level of safety
0.35% additional interest for all Mahindra group company employees and Employees Relatives
Mutual funds
Fund Distribution (FINSMART)
Our Mutual Fund Distribution team started its operation in September 2005, and since then,
has spread widely across the Southern, Western and Northern states of India.
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The entire effort here is to provide you with end-to-end solutions to help you achieve your
financial objectives in a hassle-free manner.
When it comes to investing, we understand that everyone has unique needs based on their own
financial objectives and risk profiles. And while many investment avenues are open to
investors, it is usually seen that in the longer run, equities typically outperform the others.
Which is why, we believe that systematic investment in equity has the potential to help your
money reap maximum returns and in turn, create more wealth for you in a shorter span of time.
However, investing in equity requires thorough understanding of the market and its myriad
complexities. This is where we step in with our expertise. Our advisors carefully understand
your investment objectives and risk appetite. They accordingly help you allocate your money
in schemes that are best suited for your unique needs. This way, you can hang up your boots,
lie back and watch your money do all the hard work.
Index Funds: Investing in BSE listed stocks, managing the funds passively
Tax Saver Mutual Funds: Section 80 C benefits, where the invested amount is locked for three
years
Monthly Income Plans: Where the monthly dividend is paid back to the investor
Floating Rate Short term Funds: Invests in debt securities, money market instruments &
floating rate instruments with maturity profile of three months and up to 2 years
New Fund Offers: The new funds launched by Fund Houses at a face value of Rs.10
Risk Documentation
Insurance services
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Provision for technical discussions with the surveyor and insurer regarding admissibility and
quantum of claims
Individual Insurance
Motor Insurance
Health Insurance
Travel Insurance
Home Insurance
Corporate Insurance
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Chapter 4
Grouping and sub grouping of the items given in the financial statements on the
basis of common characteristics.
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Development relationship from one group to another group for further study.
Past year figures may be used as standard for comparison with the present
year figures.
b.
c.
d.
The relationship can also be established from one item of statement to the other item of
statement. E.g.Net profit or gross profit to sales, current assets to current liabilities, cost of
sales to inventory, fixed assets to capital etc.
INTERPRETATION:
To interpret means to put the meaning of data in simple and understandable manner to a
layman. Interpretation can be made only after analysis. It is the explanation of the
conclusion drawn from analysis in simple terms. The interpretation involves the following.
1)
2)
Study of trend over a period or actual data with the standard data used for
comparison
3)
Conclusions or inferences are put in simple terms for easy and more understanding
for a common man.
2)
It highlights the significant facts and relations which cannot be understood by mere
reading of financial statements.
3)
It is based on some logical and scientific method and is useful for decisions.
4)
5)
6)
46 | P a g e
CLASSIFICATION OF RATIOS:
Ratio may be classified as given below:
A. Classification according to the nature of accounting statement from which the
ratios are derived
1. Balance Sheet Ratios. These ratios deal with the relationship between two items
appearing in the balance sheet, e.g., current ratio, liquid ratio, debt equity ratio, etc.
2. Profit and loss Account Ratios. This type of ratios show the relationship between
two items which are in the profit and loss account itself, e.g. gross profit ratio, net
profit ratio, operating ratio, etc.
3. Combined or Composite ratios. These ratios show the relationship between items
one of which is taken from profit and loss account and the other from the balance
sheet, e.g., Ratio of return on capital employed, debtors turnover ratio, stock
turnover ratio, capital turnover ratio, etc.
B. Classification from the point of view of financial management or objective
1. Liquidity Ratios.
2. Capital Structure Ratios.
3. Turnover Ratios.
4.
Profitability Ratios.
Current Ratio.
ii.
Quick Ratio.
iii.
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CAPITAL STRUCTURE RATIOS OR GEARING RATIOS (long term solvency):
Capital structure ratios are also known as gearing ratios or solvency ratios or leverage ratios.
These are used to analyze the long term solvency of any particular business concern. There are
two aspects of long term solvency of a firm
(i)
(ii)
Regular payment of interest. In other words long term creditors like debenture
holders, financial institution etc. are interested in the security of their loan
amount as well as the ability of the company to meet interest costs. They,
therefore, also consider the earning capacity of the company to know whether it
will be able to pay off interest on loan amount. Liquidity ratios discussed earlier
indicate short term financial strength whereas solvency ratios judge the ability of
a firm to pay off its long term liabilities. Important solvency ratios are discussed
below :
2.
Proprietary ratio.
3.
4.
5.
48 | P a g e
4. Working capital turnover ratio.
5. Capital turnover ratio.
6. Creditors turnover ratio.
PROFITABILITY RATIOS:
Every business should earn sufficient profits to survive and grow over a long period of
time. In fact efficiency of a business is measured in terms of profits. Profitability ratios are
calculated to measure the efficiency of a business. Profitability of a business may be
measured in two ways:
1.
2.
Profitability in relation to sales indicated the amount of profit per rupee of sales. Similarly,
profitability in relation to investment indicates the amount of profit per rupee invested in assets.
If a company is not able to earn a satisfactory return on investment, it will not be able to pay a
reasonable return to investors and the survival of the company may be threatened.
IMPORTANT PROFITABILITY RATIOS:
1.
2.
3.
4.
Return on investment
5.
Return on equity.
6.
7.
8.
9.
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Data analysis and interpretation
year
1. CURRENT RATIO
2014
2013
2012
2011
Current asset
14,78,946.19
11,71,196.39
8,83,772.53
6,93,215.45
Current liability
9,07,388.71
7,46,914.99
5,86,884.38
4,21,728.92
Current ratio
1.62
1.57
1.51
1.64
Analysis:
In the year 2011 the current ratio of the firm stood at 1.64, current assets were
6,93215.45(in lakhs), and current liabilities were 421728.92(in lakhs)
In the year 2012 the current liabilities stood at 1.51 it decreased by .13, the
current assets were 883772.53(in lakhs) and current liabilities were
586884.38(in lakhs)
In the year 2013 the current ratio of the firm stood at 1.57 a slight increase of
.06 compared to previous years ratio of 1.51, the current assets were
1171196.39(in lakhs) and current liabilities were 746914.99 (in lakhs)
In the year 2014 the current ratio of the firm stood at 1.62 an increase of .05
than previous years 1.57, the current assets were 1478946.19(in lakhs) and
current liabilities were 907388.71(in lakhs)
current ratio
1.65
Axis Title
1.6
1.55
1.5
1.45
1.4
current ratio
year 2014
year 2013
year 2012
year 2011
1.62
1.57
1.51
1.64
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Interpretation:
The current ratio of the firm indicates the liquidity position of the firm suppose if the ratio is 4
it means that the company current assets is 4 times more than current liability. In the above
graph year 2011 and 2014 had better liquidity ratio 1.64 and 1.62 respectively. The ideal current
ratio is 2:1.
Year
2012
2011
Total liability
2491503.97
1959675.57
1441851.49
1009855.38
Shareholders fund
509421.60
445457.88
295101.06
249009.42
4.9
4.4
4.8
4.1
Analysis:
In the year 2011 the Debt equity ratio of the firm stood at 4.1, the total liability
were 1009855.38 in lakhs and shareholders fund were 249009.42 in lakhs
In the year 2012 the Debt equity ratio of the firm stood at 4.8 a slight increase
in .7, total liability were 1441851.49 in lakhs and shareholders fund was
295101.06 in lakhs.
In the year 2013 the Debt equity ratio of the firm stood at 4.4 decreased by .4
from previous year, the total liability were 1959675.57 in lakhs and
shareholders fund were 445457.88 in lakhs
In the year 2014 the Debt equity ratio of the firm stood at 4.9 a slight increase
in .5 , the total liabilities were 2491503.97 in lakhs and shareholders fund were
509421.60
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4.8
4.8
4.6
4.4
4.4
4.2
4.1
4
3.8
3.6
debt equity ratio
year 2011
year 2012
year 2013
year 2014
4.1
4.8
4.4
4.9
Interpretation:
It means for every 2 shares there is 1 debt. If the debt is less than 2 times the equity, it means
the creditors are relatively less and the financial structure is sound. If the debt is more than 2
times the equity, the state of long term creditors are more and indicate weak financial structure.
year
3. DEBT RATIO
2014
2013
2012
2011
Total liability
2491503.97
1959675.57
1441851.49
1009855.38
Total assets
3166572.28
2549241.70
1856155.82
1368297.26
Debt ratio
.78
.76
.77
.74
Analysis
In the year 2011 the debt ratio was .74, the total liability were 1009855.38 in
lakhs and total assets 1368297.26
In the year 2012 the debt ratio was .77 the total liability were 1441851.49 in
lakhs, and total assets 1856155.82 in lakhs
In the year 2013 the debt ratio was .76, the total liability were1959675.57 in
lakhs, and total assets 2549241.70 in lakhs
In the year the 2014 the debt ratio was .78, the total liability were2491503.97
in lakhs, and total assets were 3166572.28 in lakhs.
52 | P a g e
debt ratio
0.79
0.78
0.78
0.77
0.77
Axis Title
0.76
0.76
0.75
0.74
0.74
0.73
0.72
debt ratio
year 2014
year 2013
year 2012
year 2011
0.78
0.76
0.77
0.74
Interpretation:
The debt ratio is shown in decimal format because it calculates total liabilities as a percentage
of total assets. As with many solvency ratios, a lower ratios is more favorable than a higher
ratio. A lower debt ratio usually implies a more stable business with the potential of longevity
because a company with lower ratio also has lower overall debt. Each industry has its own
benchmarks for debt, but .5 is reasonable ratio. A debt ratio of .5 is often considered to be less
risky. This means that the company has twice as many assets as liabilities. Or said a different
way, this company's liabilities are only 50 percent of its total assets
2014
2013
2012
2011
Employed
capital
2259183.57
1802326.71
1269271.44
946568.34
Operating
profits
134576.84
127919.88
92525.60
70244.82
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ROCE
5.9%
7.09%
7.3%
7.4%
Analysis
In the year 2011 the ROCE stood at 7.4 %, the employed capital is
946568.34 and operating profits were 70244.82 in lakhs
In the year 2012 the ROCE stood at 7.3 %, the employed capital is
1269271.44 and operating profits were 92525.60 in lakhs
In the year 2013 the ROCE stood at 7.09% , the employed capital is
1802326.71 in lakhs and operating profits were 127919.88 in lakhs
In the year 2014 the ROCE stood at 5.9% , the employed capital is
2259183.57 in lakhs and operating profits were 134576.84 in lakhs
7.3
7.4
year 2014
year 2013
year 2012
year 2011
5.9
7.09
7.3
7.4
8
7
5.9
6
5
4
3
2
1
0
return on capital employed
Interpretation:
The return on capital employed ratio shows how much profit each dollar of employed capital
generates. Obviously, a higher ratio would be more favorable because it means that more
dollars of profits are generated by each dollar of capital employed. Investors are interested in
the ratio to see how efficiently a company uses its capital employed as well as its long-term
financing strategies.
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5. RETURN ON EQUITY
Year
2014
2013
2012
2011
Net income
88722.75
88269.18
62011.67
46310.92
Shareholders
fund
509421.60
445457.88
295101.06
249009.42
ROE
17.42%
19.82%
21.01%
18.60%
Analysis:
In the year 2011 the ROE stood at 18.60 and net income were 46310.92
in lakhs and shareholders fund were 249009.42 in lakhs.
In the year 2012 the ROE stood at 21.01 a slight increase of 2.41% than
previous year 18.60, the net income were 62011.67 in lakhs and
shareholders fund were 295101.06 in lakhs.
In the year 2013 the ROE stood at 19.82 decrease in 1.19% than
previous year, the net income were 88269.18 in lakhs and shareholders
fund were 445457.88 in lakhs
In the year 2014 the ROE stood at 17.42% decrease of 2.4% than
previous years 19.82% net income were 88722.75nin lakhs and
shareholders fund were 509421.60 in lakhs
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RETURN ON EQUITY
RETURN ON EQUITY
25
20
19.82
21.01
18.6
17.42
15
10
0
RETURN ON EQUITY
year 2014
year 2013
year 2012
year 2011
17.42
19.82
21.01
18.6
Interpretation:
Return on equity measures how efficiently a firm can use the money from shareholders to
generate profits and grow the company. Unlike other return on investment ratios, ROE is a
profitability ratio from the investor's point of view not the company, investors want to see a
high return on equity ratio because this indicates that the company is using its investors' funds
effectively. Higher ratios are almost always better than lower ratios, but have to be compared
to other companies' ratios in the industry
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Chapter 5
The profitability and efficiency of the business has increased over the 5 years. The Net
profit stood at Rs.134576.84 (in lakh) for 2014-13.
The return on capital employed was 7.4 in the year 2011 followed by 7.3 is said to be
highest, the company was able to generate profits from capital employed in 2011 and
2012 but it came down in 2013 to 7.01 and 5.9 in 2014.
The Return on shareholder was highest in the year 2012 which stood at 21.01%. In the
year 2013, it stood at 19.82%, this is mainly because the Net worth has increased 1.5
times compared to 2012.
The Trade payables of the company has decreased in the year 2014 which stood at
43785.76 in lakhs than previous years 47884.82 in lakhs. Indicating that the firm was
prompt in making payments.
Trade receivable was 768.40in lakhs in 2012 and has increased to 1435.36 in lakhs in
the year 2014
From 2012 to 2013, the total revenue of the firm has increased by 1.3 times whereas
the total expenses of the firm have increased by 1.4 times. The company has to ensure
that this does not continue; else its profitability will be eroded.
The company has spent a considerable amount in providing benefit to its employees,
there had been increase benefits expenses incurred by company from 2011 till 2014
there is increase in amount spent by the company for employees.
SUGGESTIONS:
A strong supply chain helps Mahindra finance obtain the right resources from suppliers
and delivery the right product to customers in a timely manner.
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Any increase in the NPA levels of the Company could adversely affect the Companys
performance. Therefore, the company has to concentrate on the movement of the NPA.
In the present era, adopting of new technology is very essential for the survival in the
market. Superior technology allows Mahindra finance to better meet the needs of their
customers.
Mahindra finance can expand their business in fragmented markets and increase market
share.
In online market segment Mahindra finance has not made much improvement.
Therefore, they can expand their business through online market.
Mahindra finance has a well-established market in the domestic sector. It has not yet
entered the international market where the growth opportunities are high. So they can
expand their market in the international markets.
Mahindra finance has a lot of competitors and also the threat of new entrants is
increasing. Unique products help distinguish Mahindra finance from competitors and
also help retain its customers.
Recruiting of local people, not only helps the company to keep the costs lower but also
have an understanding of a particular region.
CONCLUSION:
Mahindra Finance exists and prospers only because of the customer. They respond to the
changing needs and expectations of their customer speedily and effectively. They always
sought the best people for the job and give them freedom and opportunity to grow. Consistent
economic growth has given rural India the capability and the confidence to surge ahead. At
Mahindra Finance, they are helping drive this rural opportunity through their products and
services. They value rural aspirations, strengthen relationships of trust with customers and
evolve a viable business model focused on their needs, with a vision of creating a self-reliant
India, they have empowered millions of ambitious individuals by providing flexible financing
opportunities to transform their dreams and help them to rise. Today, they are not just one of
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the trusted NBFCs of the country; they empower those who reside at the lower end of the social
pyramid. The Indian NBFC arena has seen a lot of transformation, especially due to change in
regulations pertaining to NBFCs and emergence of newer financial products. As this study
shows, Mahindra Finance has done well in terms of meeting customers aspirations. It will have
to ensure that in the future it is able to connect with the people in many more ways and offer
more variety in its products and services. This will enable the company to scale newer heights
in the days to come
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ANNEXURE
BALANCE SHEET 2014-2013
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REFERENCE
Introduction to accounting
http://www.edu-
resource.com/accounting/types-ofaccounting.php
About Mahindra
Mahindrafinance.com
Mahindrafinance.com