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Submitted in the partial fulfillment of the requirement for the award of the
Degree of Masters of Business Administration {MBA}


_________________ ___________________


Academic Study Center - BVIMR, New Delhi
An ISO 9001:2008 Certified Institute
NAAC Accredited Grade “A” University

The successful completion of the project would have been far from reality without
mentioning the people who made an indelible impression while making the project.
All the very outset thanks to Mr./Ms.______________ for instructing me and
providing me the opportunity to participate in the project and sharing her invaluable
knowledge and experience with me. Her innovative ideas provided me clarity of
thoughts which helped me to think in the right way.
Without her help and guidance completion of the project report would have been very
difficult. I would also like to give gratitude to all the other faculties who helped me in
making the project worth wile and successful.
I would also like to express my gratitude to ______________ [director],
BVIMR, for providing all needful facilities in the campus and the best faculty for the
Their thoughtful ideas, comments and conceptual insight into the subject kept me
from floundering in my quest. Despite their busy schedule they spared valuable
moments for reviewing and rectifying this project work.
Due to the proper guidance the making of project report became an enjoyable
experience and easy to workout.


A hallmark of any premier business school is its willingness and ability to constantly
explore and implement new ideas and practices in the field of management education.
Institute constantly reorients their programs in order to keep abreast of changing
The initial interaction between school students and industry takes place when the
students undergo project is usually for knowing the process for recruitment, selection,
industrial relations & training of that institution. It is often the exposure to corporate
culture that a student receives, particularly true for students without prior work
During my training at Muthoot Finance Group, I was taken project on Financial
Analysis of Muthoot Finance Group.
The main purpose of the study is to know the policies of the bank regarding marketing
training, which helped me in gaining knowledge about the different working pattern
of different departments of the company.













Muthoot Finance Ltd. is the largest player in the gold loan business in India. 76% of
its business is generated from the 5 southern states in the Country. The Company has
a market share of 19.5% in the organized sector as on FY10. It is facing major legal
hurdle related to Kerala State Money lender Act which, if implemented will
substantially reduce the profitability of the Company as Kerala accounts to 24% of
Company’s business. Moreover, there is a good probability for gold price to get
corrected after this prolonged bull run which may reduce the ticket size of the loans,
leading to a drop in growth and associated profitability. We are quite bullish on the
growth potential of this firm but we would like to avoid the scrip until the
abovementioned factors are sorted out and the scrip is available at a deep discount.


Incorporated in 1997, Muthoot Finance Ltd. is India’s largest gold loan Company. It is
a subsidiary of Muthoot Group which is headquartered at Kochi, India. It provides
personal and business loans secured by gold jewellery, or Gold Loans, primarily to
individuals who possess gold jewellery but could not access formal credit within a
reasonable time, or to whom credit may not be available at all, to meet unanticipated
or other short-term liquidity requirements. It has the largest branch network among
gold loan providers in India with 1921 branches and a strong presence in the
underserved rural and semi-urban markets. In 2010, it received a fund infusion of
Rs.250 cr. from
private equity players like Baring India Private Equity, Matrix Partners India, Kotak
India Private Equity Fund and Well come Trust for a 6% stake in the Company. In
2011, well comes Trust picked up an additional 1% stake from the promoters, taking
the total stake of private equity investors to 7%.


Our Company was originally incorporated as a private limited company on March 14,
1997 with the name “The Muthoot Finance Private Limited” under the Companies
Act. Subsequently, by fresh certificate of incorporation dated May 16, 2007, our name
was changed to “Muthoot Finance Private Limited”. The Company was converted
into a public limited company on November 18, 2008 with the name “Muthoot
Finance Limited” and received a fresh certificate of incorporation consequent upon
change in status on December 02, 2008 from the RoC.
Merger with Muthoot Enterprises Private Limited Our Company, along with
Muthoot Enterprises Private Limited, filed a composite scheme of arrangement
bearing C.P. Nos. 48 and 50 of 2004 under the Companies Act before the High Court
of Kerala (“Scheme of Amalgamation”). The Scheme of Amalgamation was approved
by the board of directors of our Company through the board resolution dated April 28,
Pursuant to the approval of the Scheme of Amalgamation by the High Court of
Kerala by an order dated January 31, 2005, Muthoot Enterprises Private Limited was
merged with our Company, with effect from March 22, 2005 and the High Court of
Kerala had instructed all the parties to comply with the statutory and other legal
requirements to make the Scheme of Amalgamation effective.

The company on March 22, 2005 filed a certified copy of the order of the High
Court of Kerala with the RoC.With the successful implementation of the Scheme of
Amalgamation, the undertaking of Muthoot Enterprises Private Limited along with its
assets and liabilities was transferred to and vested in our Company.


1. 2001 RBI license obtained to function as an NBFC.

2. 2004 Obtained highest rating of F1 from Fitch Ratings for short term debt of Rs.
200 million.
3. 2005 Retail loan and debenture portfolio of the Company exceeds Rs. 500 million.
4. Merger of Muthoot Enterprises Private Limited with the Company
5. 2006 F1 rating obtained from Fitch Ratings affirmed with an enhanced short term
debt of Rs. 400 million.
6. 2007 Retail loan portfolio of the Company crosses Rs. 10 billion.
7. RBI accords status of Systemically Important ND-NBFC.
8. Branch network of the Company crosses 500 branches.
9. Net owned funds of the Company crosses Rs. 1 billion.
10. 2008 Net owned funds of the Company crosses Rs. 2 billion.
11. Retail loan and debenture portfolio crosses Rs. 20 billion and Rs. 10 billion
12. F1 rating obtained from Fitch Ratings affirmed with an enhanced short term debt
of Rs. 800 million.
13. Overall credit limits from lending banks crosses Rs. 5 billion.
14. Conversion of the Company into a public limited company.
15. Fresh RBI license obtained to function as an NBFC without accepting public
deposits, consequent to change in name.
16. 2009 Retail loan and debenture portfolio crosses Rs. 30 billion and Rs. 15 billion
17. Net owned funds of the Company crosses Rs. 3 billion.
18. Gross annual income crosses Rs. 5 billion.
19. Overall credit limits from lending banks crosses Rs. 10 billion.
20. 2010 Retail loan and debenture portfolio crosses Rs. 50 billion and Rs. 20 billion
21. Net owned funds of the Company crosses Rs. 4 billion.
22. Overall credit limits from lending banks crosses Rs. 20 billion.
23. ICRA assigns ‘A1+’ rating for short term debt of Rs. 2 billion.
24. CRISIL assigns ‘P1+’ rating for short term debt of Rs. 4 billion.
25. Branch network of the Company crosses 1,000 branches.

26. Demerger of the FM radio business into Muthoot Broadcasting Private Limited.
27. Private equity investment of an aggregate of Rs. 1,575.45 million from Matrix
Partners India Investments, LLC and Baring India Private Equity Fund III Limited.


Muthoot finance is a flagship company of the Muthoot Group based in Southern
India. The group has a presence in diverse businesses including financing, healthcare,
real estate, education, hospitality, forex, wealth management services, money transfer
services, power generation and entertainment.
Muthoot Finance Ltd (MFL), incorporated in 1997, is the Kerala based largest
gold financing company in India in terms of loan portfolio. The company offers gold
loan to individuals like small businessmen, vendors, traders, and salaried individuals
who cannot access formal credit for reasons like lack of credit history, documentation,
accessibility. The company generally gives small ticket loans (average ticket size of
~`31000) with a tenor not exceeding one year, thereby limiting interest risk and asset-
quality concerns. The loan-to-value varies from 60%-85%. Muthoot Finance Gold
Loan portfolio as of November 30, 2010 comprised approximately 4.1 mn loan
accounts in India which it serviced through 2263 branches across 20 states. The
company has further increased its branch network to 2611 branches as of February 28,
2011, servicing an average of 67,953 customers per day in the month of February
2011. As of February 28, 2011, the company has employed 15,664 persons. Other
then Gold Loans business, the company provides money transfer services through
their branches as sub-agents of various registered money transfer agencies.



Muthoot Finance, India’s largest gold loan company is the first choice of Indians who
want to make their dream a reality. May the dream be to start their own business or to
buy their own home, for over 124 years Muthoot Finance has helped almost every
Indian’s dream come true. Trusted by over 70000 customers every day, Muthoot
Finance Gold Loan has services and products that fit the need of any customer,
making it the quickest, most convenient and safest way to take a gold loan.

Key features of Gold Loan:

 Loan disbursal in 5 minutes

 Loans starts from 1,500 to 1 Crore

 Minimal documentation and credit assessment requirements

 High quality customer service in short response time

 Evaluation of gold ornaments takes place in house.

 Safety of Gold Ornaments: All branches as equipped with Strong Rooms for
keeping safe custody of Gold Ornaments

 Gold Loan available at over 3,000 Muthoot Finance branches across India

 0% processing fees

 Pre-payment option-without any penalty

Rs. 2,155/-

Scheme Name Value (per gram) Interest (% p.a.)

True Value Personal Loan (TPL) Rs. 1,035/- 12%

Super Value Personal Loan (SPL) Rs. 2,260/- 24%

Real Value Personal Loan (RPL) Rs 1,960/- 18%

Express Personal Loan (XPL) Rs. 2,090/- 21%


Now invest your wealth in the ever rising power of Gold with the Muthoot Precious
Metals Corporation. 24 carat Pure Gold Coins: Muthoot Precious Metals Corporation
presents Gold Coins with 999% purity (24 Carat). Invest in safe, secure and profitable
Gold Coins.
The Gold Coins hold many advantages:
 999% pure

 Finance schemes with easy monthly installments

 Appreciating asset

 Higher return on investment with no risks

 Available in denominations such as 2g, 4g, 8g, 20g and 50g to suit every

 The ideal gift for your near and dear ones

Silver Coins
999% pure Silver Coins
One of India's few financial players that deals in Silver Coins
Available in 50 gm and 100 gm
Available at over3, 000 Muthoot Finance brances across India


One of the finest Money Transfer services in India, with over 700,000 transfers
annually, Muthoot Money Transfer is the largest payout centre in India. Muthoot
Money Transfer allows real time money transfers from across the seas, with the
money reaching the receiver in less than 10 minutes. The money can be transferred
from First Remit/Coinstar, Xpress Money, Ez Remit, Money Gram, Royar Money,
Global Money Transfer, Western Union, Transfast, Instant Cash and even Muthoot
Finance’s own branches abroad. The service boasts low costs, high exchange rates and
NO additional service charge to the receiver.

The key highlights of this service are:

 Fastest Money Transfer facility

 No bank account needed for amounts up to Rs. 50,000

 The receiver does not have to pay any service charge

 Certified by the RBI

 Access it in any of the 3000 branches across the country


Muthoot Foreign Exchange offers you currency exchange facilities as well as allows
you to buy and sell foreign currency and Traveller’s cheques with Muthoot Foreign
Exchange service. With the wide network of almost 3000 branches, we ensure ease of
transaction. Muthoot Foreign Exchange helps you get competitive rates for all
currencies and notes in 35 major currencies as well as 100 miscellaneous ones!

A few features of our Foreign Exchange service:

 Buying and selling of all major Traveller’s cheques and Travel Cards

 Commission free encashment of Traveller’s cheques

 Competitive rates for all currencies

 Remittance of funds abroad for various purposes


Your life is made infinitely easier with the Muthoot MPower Card, which is a
unique identity card with numerous benefits:
 Access it anywhere in India

 Earn Loyalty Points on every transaction at ANY Muthoot branch

 Redeem these Loyalty Points for attractive gifts

 Get Rs. 20 per gram extra on Gold Loan

 Keep all your jewelry in our lockers free of cost (No locker charges!)

 Rs. 50,000 Personal Accident Insurance coverage

 Deposit and withdraw money from any branch on Real Time

 Special overdraft scheme for MPower Cardholders.


Within just a few months of its launch Muthoot Travel smart has already become one
of the leading IATA (International Air Transport Association) accredited agencies and
has got certified by IRCTC. Muthoot Travel smart offers all the services of a travel
agency and more, such as travel insurance and foreign exchange Muthoot Travel
smart carries forward the group’s core values of helping India make the right decision
with their money by helping you during your travels, both familial and official. In
addition to the 3000 branches of Muthoot Finance in India, the services of Muthoot
Travel smart can be accessed in 6 offices overseas as well.

The services offered under Travel smart include:

 International & Domestic Ticketing

 Railway Ticketing

 Tours

 Passport, Emigration & Visa

 Travel Insurance



We have challenged ourselves to perform better than the best. We have now launched
a new venture in Gold Financing, offering Customers loan against the security of
Gold Exchange Traded Funds (ETFs) units. This will not only add value to the
services but also enable the Company to service financial requirements of new
Customer segment.
The visionary zeal, constant innovation and customer-oriented product &
service delivery deployed at every phase of its growth are indeed exemplary. And
Muthoot Group is now all set to go places, backed by its assets built by extraordinary
people and high values.
With the guiding principles of honesty, sincerity, confidence and service, Muthoot
Group has indeed come a long way. These values continue to drive all business
decisions of the Group Companies. With customer-centric products and services to
offer, the Group has been constantly innovating and evolving to deliver superior
products, transparent workplace practices, easy accessibility and personalized services
at all levels. Perhaps why, Muthoot Group has earned the trust of millions of
customers and associates across the country.

1. Muthoot Finance launches new gold loan scheme

Indian non-banking finance company (NBFC) Muthoot Finance Ltd Friday

announced the launch of a new gold loan scheme that will provide loans to public
against the security of Gold Exchange Traded Fund (ETF) across the country.
The new scheme – Gold ETF Loan Scheme – which will be made available to
the customers by July-end 2011 will help customers get loan against their Gold ETF
units to the extent of 85% of the net asset value (NAV) of ETFs, said a press release
issued by Muthoot Finance.
Gold ETFs are mutual fund units issued by Asset Management Companies
against 995 purity physical gold. They are listed and traded on stock exchanges and
can be bought and sold like stocks on a real-time basis. Gold ETFs were valued at Rs
50 billion as of June 2011.
“Loan against Gold ETF is a scheme through which Muthoot Finance plans to
venture into totally new segment of gold financing which would not only add value
but also enable the company to service the financial requirements of newer customer

segments,” said George Alexander Muthoot, managing director of Muthoot Finance
during the launch.



International money transfer consumers across Kerala - India’s foremost remittance

driven economy will now be able to receive their Western Union® Money
TransferSM transactions from Muthoot Finance - a leading Kerala based financial
Muthoot Finance will now offer Western Union Money Transfer services from
its countrywide network of 2800 locations linking them to Western Union’s network
of more than 400,000 locations in over 200 countries and territories across the world.
Launching the service, Mr George Alexander Muthoot – Managing Director,
Muthoot Finance Ltd said, “Here, on this occasion, three of the biggest players of the
Indian Financial Services industry have come together with the intention of providing
a premium money transfer service to customers across the country”.
Muthoot Finance Ltd., through its extensive network of branches, aims to
capitalize the huge potential of the money transfer business in India.
“With its expansive global network, Western Union is uniquely positioned to
deliver fast, reliable and convenient money transfer services to consumers across
remote geographical locations globally.
“Through our agreement with Western Union we have facilitated a number of
classes of trade including retail and banks to offer Western Union® Money
TransferSM services to the remotest corners of India. The collaboration with Muthoot
Finance is one more step in this direction which would positively impact people
across the 2,800 branches offering the service,”



CRM at MUTHOOT FINANCE involves increased communication between the
bank and its present and prospective customers. Its philosophy focuses on each and
every customer’s satisfaction. CRM facilitated coordination of multiple business
functions and multiple channel of communication with the customers to carry out
customer management more efficiently. It also automated the process flow tracking in
the product sales process and helped to generate customized reports and promote
cross-selling. The typical components of CRM strategy at MUTHOOT FINANCE
LIMITED are as follows:

1. Deliver 1. Acquire
increased value to customers
customer 2. Retain valuable
2. Interact with customers

1. Customize by 1. Acquire
customer segment, customer’s needs
2. Develop 2. Differentiate
product, service, based on different
and channel to needs, behavior
meet the customer and characteristics

 The spectacular growth of the Muthoot finance ltd is the result of trust and
confidence that millions of our satisfied Customers have reposed in us and the
legacy of 124 years based on values & ethics.
 Over the years, we have helped people fulfilling their dreams & ambitions by
providing meaningful, honest and unparalleled services & Products.
 Remember, excelling and managing Customer relationship is the future of any
Business. The Customer focusing is not to be viewed as just a Business
strategy but should become a Corporate Mission. In order to create a branded
service, it is important to become Customer-centric.

 Titan Industries, the Largest Jewellery Chain in Tamil Nadu has joined hands
with India’s Largest Gold Loan Company “MuthootFinance Limited” to
enable customers to realize their dream of owning gold jewellery by paying
15% of actual price on buying and remaining price in monthly installments.
This tie-up aims to enable thousands of customers in the rural India, own and
invest in gold jewellery of their choice from Goldplus, without selling their
old jewellery or other assets.




The purpose of any research is to discover answers to questions through the

application of scientific procedures. The main aim of the research is to find out the
truth, which is hidden and has not been discovered as yet.

Research Methodology is a way to systematically solve the research problem. It may

be understood as the science of studying, how the research is carried out scientifically.
In it, we study the various steps that are generally adopted by a researcher in studying
his research problems, along with the logic behind them.

Thus, when we talk of Research methodology, we talk no only of the research

methods, but we also consider the logic behind the methods we use in the context of
our research study and explain why we are using a certain method or a technique, and
why we are not using the others, so that research results are capable of being
evaluated wither by the researcher himself or by others.

The Problem Definition, the Research Objective, the Research Design, the Sampling
Techniques, the formulation of the Hypothesis, the method of Data Collection , the
Analysis of the collected data, and, the Interpretation and the Report constitute the
Research Methodology.

I have, in the earlier chapters of my report, specified the problem and the objectives of
my research. The subsequent chapters will define the Research design, the sampling
technique, the hypothesis, the analysis and the interpretations.

Let us take a look at the Research Design in the next chapter.


The objectives of research are:

 To survey the consumer buying behavior amongst the premium car buyers,

 To find out the potential customer of Muthoot Finance Group,

 To find out Honda’s position in the Indian market, as compared to its rivals.

1. Target Segment:

 People who own one or more cars of any premium brand.

2. The sample size is 100 respondents in the area of West Delhi.


The research design used in this report is Descriptive Research.

Descriptive Research studies are those studies which are concerned with describing
the characteristics of a particular individual or group.

In this type of a study a comparative study is made, throwing light on all the attributes
of the Research methodology, as discussed in the past chapters. However, it must
ensure the minimization of reliability of the evidence collected , the said design can
be appropriately referred to as a Survey design, since it takes into account, all the
steps involved in a survey, concerning a phenomenon to be studied.


The type of sampling used in this report is Cluster Sampling.

Certain categories of units are concentrated in certain areas. The cluster sampling
technique, is relatively easy device to select ample units, on the premise that units
belonging to one category exist at a specified location. It is presumed that units
belonging to one category exist at a specified location. It homogeneous group. Thus,
by applying sample principles of random sampling, the sample units can be selected
easily, so that they belong to the desired or specified category.



Hypothesis means, an assumption or some supposition, to be proved or disproved. But

for a ,marketing researching ,hypothesis is a formal question, that he intends to
resolve. Thus, a hypothesis may be defined as a proposition, or a seat of
propositions, set forth as an explanation for the occurrence of some specified group of

phenomenon, either asserted merely as a provisional conjecture to guide some
investigation, or accepted as highly probable, in the light of established facts.

My hypothesis for this report will be:

H0 : Null Hypothesis Honda is the best car in the premium car segment.

H1 : Alternate Hypothesis Honda is not the best car in the premium car


The Questionnaire Method was used to collect the required data.

 The questionnaire was a structured on with both, open and closed ended questions.
A sample copy of the Questionnaire can be found in Appendix A2.

 The scales used.

The scales used were mainly Likert or Summated Type of scales and Ranking

This section deals with the Analysis of the respondents’ answers.

Finding from the Customer Study:

The Profile of a typical customer can be defined as follows:

Avg. Age 45 yrs.

Education Post Graduate (50)

Avg. Income 65,000-75,000

Cars Owned (Avg.) 1.44

Frequency of buying a car (Avg.) 2-3 yrs. (26)

Purchase Decision made by Family (38) ; Self (12)

Factors Affecting Purchase Decision Technical Knowledge (34)

Use of Finance Schemes No (42)

Satisfaction with Present Car Extremely Satisfied (36)

Plans to Buy a Honda Yes (26)

(all analysis is done from a sample size

of 50 respondents.)

The above is a profile of a Typical target Customer.

 It has been seen the most customers are of the average age of 45 years.

 They are all Post Graduates.

 They are all either Company Executives (20); or Businessmen (22); 14 of them
were self-employed.

 Most of the respondents were hesitant to divulge their monthly income, but did
no only when categorically told that this survey was only for a college project,
and that their responses would be kept confidential.

 Most of the respondents had at least 2 cars. In most cases, one of the cars were of
the lower segment and did not concern our study. The cars the respondents owned

 The Frequency of buying a car amongst the average respondents was between 2-3
years. (2-6)

 The whole family was a part of the purchase decision. (38)

 The factor that most affected the purchase decision was mainly Technical
Knowledge, as proved by 34 responses in its favor.

 The use of Finance schemes was not made, as about 42 respondents give “No”, as
their answer.

 36, our of 50 respondents said that they were satisfied with their present car.

 Honda, reminded 26 people of all the attributes associated with a good car. Like,
technology, superiority, luxury, status, and of course, price.

 About 26 people said that they are planning to purchase of Honda next.

 12 people, out of the 24, who said that they were not interest in purchasing a
Honda, because they had better options. The rest of the 12 comprised of people
who said ”can’t say”, or, “haven’t decided”.


Testing of Hypothesis, as defined earlier is the proposition, or set of propositions set

forth as an explanation for the occurrence of some specified group of phenomenon,
either asserted merely as a provisional conjecture, to guide some investigation, or
accepted as highly probable, in the light of some established facts.

The figures used in this test are the totals of the highest ranks given by the
respondents, to any of the cars in the attributes of Technology, Efficiency,
Performance, Style and Luxury. This has been done to avoid unintentional bias
towards any particular car.

The Wilcoxon’s Rank Test will follow on the next pages.


1. Data obtained was dependent on the memory and mood of the respondents; this
could bring about a bias in the survey.

2. Lack of time. Due to constraints of time a very small sample of the populations
could be study, which was not representative of the entire universe.

3. Errors. Human error is inevitable, both, individually and in representation of the





Financial statements refer to such statements which contains financial information

about an enterprise. They report profitability and the financial position of the business
at the end of accounting period. The team financial statement includes at least two
statements which the accountant prepares at the end of an accounting period. The two
statements are: -
 The Balance Sheet
 Profit And Loss Account
They provide some extremely useful information to the extent that balance Sheet
mirrors the financial position on a particular date in terms of the structure of assets,
liabilities and owners equity, and so on and the Profit and Loss account shows the
results of operations during a certain period of time in terms of the revenues obtained
and the cost incurred during the year. Thus the financial statement provides a
summarized view of financial position and operations of a firm

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision
under consideration to the total information contained in the financial statement. The
second step is to arrange the information in a way to highlight significant relationship.
The final step is interpretation and drawing of inference and conclusions. Financial
statement is the process of selection, relation and evaluation.

Features of Financial Analysis

 To present a complex data contained in the financial statement in simple and
understandable form.
 To classify the items contained in the financial statement inconvenient and
rational groups.
 To make comparison between various groups to draw various

Purpose of Analysis of financial statements
 To know the earning capacity or profitability.
 To know the solvency.
 To know the financial strengths.
 To know the capability of payment of interest & dividends.
 To make comparative study with other firms.
 To know the trend of business.
 To know the efficiency of mgt.
 To provide useful information to mgt

Procedure of Financial Statement Analysis

 The following procedure is adopted for the analysis and interpretation of financial
 The analyst should acquaint himself with principles and postulated of accounting.
He should know the plans and policies of the managements that he may be able to
find out whether these plans are properly executed or not.
 The extent of analysis should be determined so that the sphere of work may be
decided. If the aim is find out. Earning capacity of the enterprise then analysis of
income statement will be undertaken. On the other hand, if financial position is to
be studied then balance sheet analysis will be necessary.
 The financial data be given in statement should be recognized and rearranged. It
will involve the grouping similar data under same heads. Breaking down of
individual components of statement according to nature. The data is reduced to a
standard form. A relationship is established among financial statements with the
help of tools & techniques of analysis such as ratios, trends, common size, fund
flow etc.
 The information is interpreted in a simple and understandable way. The
significance and utility of financial data is explained for help indecision making.
 The conclusions drawn from interpretation are presented to the management in the
form of reports.
Analyzing financial statements involves evaluating three characteristics of a
company: its liquidity, its profitability, and its insolvency. A short-term creditor, such
as a bank, is primarily interested in the ability of the borrower to pay obligations when
they come due. The liquidity of the borrower is extremely important in evaluating the
safety of a loan. A long-term creditor, such as a bondholder, however, looks to
profitability and solvency measures that indicate the company’s ability to survive over
a long period of time. Long-term creditors consider such measures as the amount of

debt in the company’s capital structure and its ability to meet interest payments.
Similarly, stockholders are interested in the profitability and solvency of the company.
They want to assess the likelihood of dividends and the growth potential of the stock.
Comparison can be made on a number of different bases.
Following are the three illustrations:

Ratio Analysis:

Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of
items in the financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the
financial health and profitability of business enterprises. Ratio analysis can be used
both in trend and static analysis. There are several ratios at the disposal of an analyst
but their group of ratio he would prefer depends on the purpose and the objective of
analysis. While a detailed explanation of ratio analysis is beyond the scope of this
section, we will focus on a technique, which is easy to use. It can provide you with a
valuable investment analysis tool. This technique is called cross-sectional analysis.
Cross-sectional analysis compares financial ratios of several companies from the same
industry. Ratio analysis can provide valuable information about a company's financial
health. A financial ratio measures a company's performance in a specific area. For
example, you could use a ratio of a company's debt to its equity to measure a
company's leverage. By comparing the leverage ratios of two companies, you can
determine which company uses greater debt in the conduct of its business. A company
whose leverage ratio is higher than a competitor's has more debt per equity. You can
use this information to make a judgment as to which company is a better investment
risk. However, you must be careful not to place too much importance on one ratio.
You obtain a better indication of the direction in which a company is moving when
several ratios are taken as a group.
Objective of Ratios:
Ratios are worked out to analyze the following aspects of business organization-
A) Solvency-
 Long term
 Short term

 Immediate

B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing

Forms of Ratio:
Since a ratio is a mathematical relationship between two or more variables /
accounting figures, such relationship can be expressed in different ways as follows –

A) As a pure ratio:
For example the equity share capital of a company is Rs. 20, 00,000 & the preference
share capital is Rs. 5, 00,000, the ratio of equity share capital to preference share
capital is 20, 00,000: 5, 00,000 = 4:1.

B) As a rate of times:
In the above case the equity share capital may also be described as 4 times that of
preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit
sales are Rs. 30,00,000. So the ratio of credit sales to cash sales can be described as
2.5 (30, 00,000/12, 00,000) = 2.5 times are the credit sales that of cash sales.

C) As a percentage:
In such a case, one item may be expressed as a percentage of some other items. For
example, net sales of the firm are Rs.50, 00,000 & the amount of the gross profit is
Rs. 10, 00,000, then the gross profit may be described as 20% of sales (10, 00,000/50,

Steps in Ratio Analysis

The ratio analysis requires two steps as follows:
1) Calculation of ratio
2) Comparing the ratio with some predetermined standards. The standard ratio may be
the past ratio of the same firm or industry’s average ratio or a projected ratio or the
ratio of the most successful firm in the industry. In interpreting the ratio of a particular
firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is
compared with some predetermined standard. The importance of a correct standard is
oblivious as the conclusion is going to be based on the standard itself.

1) Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the concern
e.g. liquid ratios & current ratios.

2) Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the
assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary

3) Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover
ratios & productivity ratios e.g. stock turnover ratios, debtors’ turnover ratios.

4) Profitability ratios:
 It shows the relationship between profits & sales e.g. operating ratios, gross
profit ratios, operating net profit ratios, expenses ratios

 It shows the relationship between profit & investment e.g. return on
investment, return on equity capital.

5) Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the
outsiders to be paid out of such profit e.g. dividend payout ratios & debt service

Based on User
1) Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios

2) Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3) Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios

4) Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.

Importance of Ratio Analysis:

As a tool of financial management, ratios are of crucial significance. The importance

of ratio analysis lies in the fact that it presents facts on a comparative basis & enables
the drawing of interference regarding the performance of a firm. Ratio analysis is
relevant in assessing the performance of a firm in respect of the following aspects:
1) Liquidity position
2) Long-term solvency
3) Operating efficiency
4) Overall profitability
5) Inter firm comparison
6) Trend analysis
1) Liquidity position

With the help of Ratio analysis conclusion can be drawn regarding the liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is able to
meet its current obligation when they become due. A firm can be said to have the
ability to meet its short-term liabilities if it has sufficient liquid funds to pay the
interest on its short maturing debt usually within a year as well as to repay the
principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio is
particularly useful in credit analysis by bank & other suppliers of short term loans.

2) Long-term solvency
Ratio analysis is equally useful for assessing the long-term financial viability of a
firm. This respect of the financial position of a borrower is of concern to the long-
term creditors, security analyst & the present & potential owners of a business. The
long-term solvency is measured by the leverage/ capital structure & profitability ratio
analysis s that focus on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The
leverage ratios, for instance, will indicate whether a firm has a reasonable proportion
of various sources of finance or if it is heavily loaded with debt in which case its
solvency is exposed to serious strain. Similarly the various profitability ratios would
reveal whether or not the firm is able to offer adequate return to its owners consistent
with the risk involved.

3) Operating efficiency
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint
of management, is that it throws light on the degree of efficiency in management &
utilization of its assets. The various activity ratios measure this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon
the sales revenues generated by the use of its assets- total as well as its components.

4) Overall profitability
Unlike the outsides parties, which are interested in one aspect of the financial position
of a firm, the management is constantly concerned about overall profitability of the
enterprise. That is, they are concerned about the ability of the firm to meets its short
term as well as long term obligations to its creditors, to ensure a reasonable return to

its owners & secure optimum utilization of the assets of the firm. This is possible if an
integrated view is taken & all the ratios are considered together.

5) Inter firm comparison

Ratio analysis not only throws light on the financial position of firm but also serves as
a stepping-stone to remedial measures. This is made possible due to inter firm
comparison & comparison with the industry averages. A single figure of a particular
ratio is meaningless unless it is related to some standard or norm. One of the popular
techniques is to compare the ratios of a firm with the industry average. It should be
reasonably expected that the performance of a firm should be in broad conformity
with that of the industry to which it belongs. An inter firm comparison would
demonstrate the firms position vice-versa its competitors. If the results are at variance
either with the industry average or with those of the competitors, the firm can seek to
identify the probable reasons & in light, take remedial measures.


It is a financial statement, which shows net loss of a company for a specified period.
The accounting year means calendar year of 12 months or less or more than 12

CONTENTS: This presents the revenues and expenses of a company and shows the
excess of revenues over expenses for profit and vice versa for a loss.

FORMAT: The Companies act does not provide any specific format for this account.
However it is required to be prepared on the basis of the instructions given in part ii of
schedule (VI) of the companies act.


 Turnover or sales: The aggregate amount of sales and connected items with
the sales such as commission paid to sole-selling agents and other selling
agents and brokerage and discounts on sales other than usual trade discount.
 Depreciation: The amount of depreciation of fixed assets and the arrears of
depreciation as per section 205(2) shall be disclosed by way of foot-note.

 Interest on loans and debentures: Interest on loans and debentures has to be
stated separately. It will include the amount of interest paid as well as
 Miscellaneous expenses: In this head items such as rates and taxes, insurance
premium etc., must be stated separately.
 Preliminary expenses: Such expenses include the costs of formation of a
company and since their amount is usually large, it is not desirable to write off
them in one year.
 Provision for taxation: The profit and loss account of a company must be
debited with the estimated liabilities for tax on the current profits at current
rates of taxation.
 Unclaimed dividends: It is shown on the liabilities side of the balance sheet
under the heading ‘current liabilities ‘.

 Interim dividends: It is an item of appropriation. It is transferred to the debit

side of the Profit and loss appropriation account.
 Final dividend as an item of the trial balance: This is shown in the debit
side of the appropriation section of the profit and loss account.

 Proposed dividend or final dividend proposed: Since it is an adjustment

item, it has to be shown at two places- In the debit side of the profit and loss
appropriation account and on the liabilities side of the balance sheet under the
head ‘current liabilities and provisions’.
 Political donations: It must be shown as a separate item in the profit and loss
 Dividend on interest income: This item is transferred to the credit side of the
profit and loss account.

 Payment to auditors: It must be stated separately. This will include

consultancy fee, auditing fees management services etc.
 Managerial remuneration: This includes the payments made to managerial
remuneration director’s fee, pension, other allowances and commission.


The balance sheet is a financial snapshot of a company's condition at a single point in

time. A balance sheet contains a listing of the company's asset, liability and Capital

accounts. When someone, whether a creditor or investor, asks you how your company
is doing, you'll want to have the answer ready and documented. The way to show off
the success of your company is a balance sheet. A balance sheet is a documented
report of your company's assets and obligations, as well as the residual ownership
claims against your equity at any given point in time. It is a cumulative record that
reflects the result of all recorded accounting transactions since your enterprise was
formed. You need a balance sheet to specifically know what your company's net worth
is on any given date. With a properly prepared balance sheet, you can look at a
balance sheet at the end of each accounting period and know if your business has
more or less value, if your debts are higher or lower, and if your working capital is
higher or lower. By analyzing your balance sheet, investors, creditors and others can
assess your ability to meet short-term obligations and solvency, as well as your ability
to pay all current and long-term debts as they come due. The balance sheet also shows
the composition of assets and liabilities, the relative proportions of debt and equity
financing and the amount of earnings that you have had to retain. Collectively,
external parties to help assess your company’s financial status, which is required by
both lending institutions and investors before they will allot any money toward your
business, will use this information.


Current assets: Current assets include cash and other assets that in the normal course
of events are converted into cash within the operating cycle. For example, a
manufacturing enterprise will use cash to acquire inventories of materials. These
inventories of materials are converted into finished products and then sold to
customers. Cash is collected from the customers. This circle from cash back to cash is
called an operating cycle. In a merchandising business one part of the cycle is
eliminated. Materials are not purchased for conversion into finished products. Instead,
the finished products are purchased and are sold directly to the customers. Several
operating cycles may be completed in a year, or it may take more than a year to
complete one operating cycle. The time required to complete an operating cycle
depends upon the nature of the business. It is conceivable that almost all of the assets
that are used to conduct your business, such as buildings, machinery, and equipment,
can be converted into cash within the time required to complete an operating cycle.
However, your current assets are only those that will be converted into cash within the

normal course of your business. The other assets are only held because they provide
useful services and are excluded from the current asset classification. If you happen to
hold these assets in the regular course of business, you can include them in the
inventory under the classification of current assets. Current assets are usually listed in
the order of their liquidity and frequently consist of cash, temporary investments,
accounts receivable, inventories and prepaid expenses.

 Cash: Cash is simply the money on hand and/or on deposit that is available
for general business purposes. It is always listed first on a balance sheet. Cash
held for some designated purpose, such as the cash held in a fund for eventual
retirement of a bond issue, is excluded from current assets.

 Marketable Securities: These investments are temporary and are made from
excess funds that you do not immediately need to conduct operations. Until
you need these funds, they are invested to earn a return.

 Accounts Receivable: Simply stated, accounts receivables are the amounts

owed to you and are evidenced on your balance sheet by promissory notes.
Accounts receivable are the amounts billed to your customers and owed to you
on the balance sheet's date. You should label all other accounts receivable
appropriately and show them apart from the accounts receivable arising in the
course of trade. If these other amounts are currently collectible, they may be
classified as current assets.

 Inventories: Your inventories are your goods that are available for sale,
products that you have in a partial stage of completion, and the materials that
you will use to create your products. The costs of purchasing merchandise and
materials and the costs of manufacturing your various product lines are
accumulated in the accounting records and are identified with either the cost of
the goods sold during the fiscal period or as the cost of the inventories

 Prepaid expenses: These expenses are payments made for services that will
be received in the near future. Strictly speaking, your prepaid expenses will
not be converted to current assets in order to avoid penalizing companies that
choose to pay current operating costs in advance rather than to hold cash.
Often your insurance premiums or rentals are paid in advance.

 Investments: Investments are cash funds or securities that you hold for a
designated purpose for an indefinite period of time. Investments include stocks
or the bonds you may hold for another company, real estate or mortgages that
you are holding for income-producing purposes. Your investments also include
money that you may be holding for a pension fund.

Plant Assets: Often classified as fixed assets, or as plant and equipment, your plant
assets include land, buildings, machinery, and equipment that are to be used in
business operations over a relatively long period of time. It is not expected that you
will sell these assets and convert them into cash. Plant assets simply produce income
indirectly through their use in operations.
Intangible Assets: Your other fixed assets that lack physical substance are referred to
as intangible assets and consist of valuable rights, privileges or advantages. Although
your intangibles lack physical substance, they still hold value for your company.
Sometimes the rights, privileges and advantages of your business are worth more than
all other assets combined.
Other Assets: During the course of preparing your balance sheet you will notice other
assets that cannot be classified as current assets, investments, plant assets, or
intangible assets. These assets are listed on your balance sheet as other assets.
Frequently, your other assets consist of advances made to company officers, the cash
surrender value of life insurance on officers, the cost of buildings in the process of
construction, and the miscellaneous funds held for special purposes.


Current Liabilities: On the equity side of the balance sheet, as on the asset side, you
need to make a distinction between current and long-term items. Your current
liabilities are obligations that you will discharge within the normal operating cycle of
your business. In most circumstances your current liabilities will be paid within the
next year by using the assets you classified as current. The amount you owe under
current liabilities often arises as a result of acquiring current assets such as inventory
or services that will be used in current operations. You show the amounts owed to
trade creditors that arise from the purchase of materials or merchandise as accounts
payable. If you are obligated under promissory notes that support bank loans or other

amounts owed, your liability is shown as notes payable. Other current liabilities may
include the estimated amount payable for income taxes and the various amounts owed
for wages and salaries of employees, utility bills, payroll taxes, local property taxes
and other services.
Long-Term Liabilities: Your debts that are not due until more than a year from the
balance sheet date are generally classified as long-term liabilities. Notes, bonds and
mortgages are often listed under this heading. If a portion of your long-term debt is
due within the next year, it should be removed from the long-term debt classification
and shown under current liabilities.
Deferred Revenues: Your customers may make advance payments for merchandise
or services. The obligation to the customer will, as a general rule, be settled by
delivery of the products or services and not by cash payment. Advance collections
received from customers are classified as deferred revenues, pending delivery of the
products or services.
Owner's Equity: Your owner's equity must be subdivided on your balance sheet: One
portion represents the amount invested directly by you, plus any portion of retained
earnings converted into paid-in capital. The other portion represents your net earnings
that are retained. This rigid distinction is necessary because of the nature of any
corporation. Ordinarily, stockholders, or owners, are not personally liable for the
debts contracted by a company. A stockholder may lose his investment, but creditors
usually cannot look to his personal assets for satisfaction of their claims. Under
normal circumstances, the stockholders may withdraw as cash dividends an amount
measured by the corporate earnings. The distinction in this rule gives the creditors
some assurance that a certain portion of the assets equivalent to the owner's
investment cannot be arbitrarily withdrawn. Of course, this portion could be depleted
from your balance sheet because of operating losses. The owner's equity in an
unincorporated business is shown more simply. The interest of each owner is given in
total, usually with no distinction being made between the portion invested and the
accumulated net earnings. The creditors are not concerned about the amount invested.
If necessary, creditors can attach the personal assets of the owners.

Basis of balance-sheet: Assets = Liability + Equity
The following Balance sheet structure is just an example. It does not show all possible
kind of assets, equity and liabilities, but it shows the most usual ones. It could be a
consolidated balance sheet. Monetary values are not shown and summary (total) rows
are missing as well.

EQUITY VALUATION:The real value to a purchaser of the business or a

shareholder may be different from the net assets shown by the balance sheet. This is
because factors that affect the value of a business may not be recorded yet. For
example, a purchaser will be interested in the future earnings of the business, whether
assets such as property have been revalued recently, and whether there are potential
liabilities in the future such as lawsuits. The value of the assets in the balance has also
been based on the assumption that the business is a going concern, otherwise the
break-up value of the assets may be far less than the value in the balance sheet.


 Title and Heading: In practice, the most widely used title is Balance Sheet;
however Statement of Financial Position is also acceptable. Naturally, when
the presentation includes more than one time period the title "Balance Sheets"
should be used.

 Heading: In addition to the statement title, the heading of your balance sheet
should include the legal name of your company and the date or dates that your
statement is presented. For example, a comparative presentation might be


 Format: There are two basic ways that balance sheets can be arranged. In
Account Form, your assets are listed on the left-hand side and totaled to equal
the sum of liabilities and stockholders' equity on the right-hand side. Another
format is Report Form, a running format in which your assets are listed at the
top of the page and followed by liabilities and stockholders' equity. Sometimes
total liabilities are deducted from total assets to equal stockholders' equity.

 Captions: Captions are headings within your statement that designate major
groups of accounts to be totaled or subtotaled. Your balance sheet should
include three primary captions: Assets, Liabilities and Stockholders' Equity. In
the report form of presentation, the placement of your primary captions would

 Order of Presentation of Captions: First, start with items held primarily for
conversion into cash and rank them in the order of their expected conversion.
Then, follow with items held primarily for use in operations but that could be
converted into cash, and rank them in the order of liquidity. Finally, finish with
items whose costs you will defer to future periods or that you cannot convert
into cash.


Cash flow statement or statement of cash flows is a financial statement that shows a
company's incoming and outgoing money (sources and uses of cash) during a time
period (often monthly or quarterly). The statement shows how changes in balance
sheet and income accounts affected cash and cash equivalents, and breaks the analysis
down according to operating, investing, and financing activities. As an analytical
tool the statement of cash flows is useful in determining the short-term viability of a
company, particularly its ability to pay bills.

PURPOSE: The cash flow statement reflects a firms liquidity or solvency. The main
purpose to make cash flow statement are as follows:

1. provide information on a firm's liquidity and solvency and its ability to change
cash flows in future circumstances
2. provide additional information for evaluating changes in assets, liabilities and
3. improve the comparability of different firms' operating performance by
eliminating the effects of different accounting methods


The cash flow statement is partitioned into cash flow resulting from operating
activities, cash flow resulting from investing activities, and cash flow resulting from
financing activities.

Operating activities: Operating activities include the production, sales and delivery
of the company's product as well as collecting payment from its customers. This could
include purchasing raw materials, building inventory, advertising.

Investing activities: Investing activities focus on the purchase of the long-term assets
a company needs in order to make and sell its products, and the selling of any long-
term assets.

Financing activities: Financing activities include the inflow of cash from investors
such as banks and shareholders, as well as the outflow of cash to
shareholders as dividends as the company generates income. Other activities
which impact the long-term liabilities and equity of the company are also
listed in the financing activities section of the cash flow statement.
Analysis of cash flow statement is necessary for every organisation to depict its
cash inflow and outflow.


Financial statement analysis is the process of examining relationships among financial
statement elements and making comparisons with relevant information. It is a
valuable tool used by investors and creditors, financial analysts, and others in their
decision-making processes related to stocks, bonds, and other financial instruments.
With a great understanding of the balance sheet & p&l account and how it is
constructed, we can look at some techniques to analyze the information contained
within the balance sheet & p&l account.
PURPOSE: The main purpose of analyzing the financial statement are the following:-
 To assess past performance and current financial position.
 To make predictions about the future performance of a company.



There are two popular methods by which we can analyze the financial
statement by calculating percentage as taking a common base.

 Horizontal Analysis

When an analyst compares financial information for two or more years for a
single company, the process is referred to as horizontal analysis, since the
analyst is reading across the page to compare any single line item, such as
sales revenues. In addition to comparing dollar amounts, the analyst computes
percentage changes from year to year for all financial statement balances,
such as cash and inventory. Alternatively, in comparing financial statements
for a number of years, the analyst may prefer to use a variation of horizontal
analysis called trend analysis. Trend analysis involves calculating each year's
financial statement balances as percentages of the first year, also known as the
base year. When expressed as percentages, the base year figures are always
100 percent, and percentage changes from the base year can be determined.

If we want to calculate % change in sales then we apply the following


Percentage=change in sales /Base Year Sales*100

 Vertical Analysis

When using vertical analysis, the analyst calculates each item on a single
financial statement as a percentage of a total. The term vertical analysis
applies because each year's figures are listed vertically on a financial
statement. The total used by the analyst on the income statement is net sales
revenue, while on the balance sheet it is total assets. This approach to financial
statement analysis, also known as component percentages, produces common-

size financial statements. Common-size balance sheets and income
statements can be more easily compared, whether across the years for a single
company or across different companies.

If we want to calculate % change of current assets then we apply the following


Percentage: current assets/total assets*100

Financial ratio analysis uses formulas to gain insight into the company and its
operations. For the balance sheet, using financial ratios (like the debt-to-equity
ratio) can show you a better idea of the company’s financial condition along
with its operational efficiency. It is important to note that some ratios will need
information from more than one financial statement, such as from the balance
sheet and the income statement. Ratio analysis facilitates inter-firm and intra-
firm comparison.

Ratios are often classified using the following terms:


Liquidity ratios are measures of the short-term ability of the company to pay
its debts when they come due and to meet unexpected needs for cash.

 Current Ratio: The current ratio is a rough indication of a firm ability to

service its current obligations. Generally, the higher the current ratio, the
greater the cushion between current obligations and a firm ability to pay them.
The stronger ratio reflects a numerical superiority of current assets over
current liabilities Current ratio is calculated as follows:

Current ratio= Current Assets/Current Liabilities

 Quick Ratio: It is also known as the “acid test” ratio, this is a refinement of
the current ratio and is a more conservative measure of liquidity. The quick
ratio expresses the degree to which a company’s current liabilities are

recovered by the most liquid current assets. quick ratio is calculated as
Quick ratio= (cash + marketable securities + Receivables)/current liabilities

Solvency ratios indicate the ability of the company to meet its long-term
obligations on a continuing basis and thus to survive over a long period of
 Debt/Worth Ratio: This ratio expresses the relationship between capital
contributed by creditors and that contributed by owners. It expresses the
degree of protection provided by the owners for the creditors. The higher the
ratio, the greater the risk being assumed by creditors. The lower the ratio, the
greater the long-term financial safety. A firm with a low debt/worth ratio
usually has a greater flexibility to borrow in the future. A more highly
leveraged company has a more limited debt capacity.

Debt/worth ratio=Total Liabilities / Tangible Net Worth


Profitability ratios are gauges of the company's operating success for a given
period of time.
 Return On Assets: Return on assets is a measure of how effectively the firm’s
assets are being used to generate profit. It is calculated as follows:
Return On Assets= Net Income/Total Assets
 Return On Equity: Return on equity is the bottom line measure for the
shareholders, measuring for the profits earned for each rupee invested in
business. It is calculated as follows:

Return on Equity= Net income/shareholder’s equity

 Fixed/Worth Ratio: This ratio measures the extent to which owner’s equity
(capital) has been invested in plant and equipment (fixed assets). A lower ratio
indicates a proportionately smaller investment in fixed assets in relation to net
worth and a better cushion for creditors in case of liquidation. Similarly, a
higher ratio would indicate the opposite situation. The presence of substantial
leased fixed assets (not shown on the balance-sheet ) may deceptively lower
this ratio.

Fixed Worth Ratio=Net Fixed Assets/ Tangible Net Worth




 Current Ratio

Current ratio may be defined as the relationship between current assets and current
Current ratio = Current assets/current liabilities

Year 2009 2010 2011

Current Ratio 1.10 1.07 1.08


1.11 1.10
1.09 1.08

1.08 1.07 C.R

2009 2010 2011

If the C.R. is less than 2 : 1, it indicates lack of liquidity and shortage of
working capital. But a much higher ratio, even though it is beneficial to the
short-term creditors, is not necessarily good for the company. A much higher
ratio than 2 : 1 may indicate the poor investment policies of the management.
So liquidity of Bank is satisfactory.

Interest coverage/debt service ratio
= Net profit (before interest and taxes)/ Fixed interest charge

Interest coverage ratio (times)

2.2 Interest coverage

2.1 ratio(times)
2008-2009 2009-2010 2010-2011

Interpretation :
Since this Ratio indicates the interest paying capability of firm and ideal Ratio
is 6 to 7 times. So interest paying capacity of the firm is moderate.

Operating ratio= (Operating cost / Net income )*100

Interpretation :
Operating Ratio is a measurement of the efficiency and profitability of the
business enterprise. The ratio indicate the extent of sales that is absorbed by
the cost of goods sold and operating expenses. Lower the operating ratio, the
better it is , because it will leave higher margin of profit on sales.

Return on gross capital employed=(Net profit / Gross capital) * 100
Gross capital employed= fixed assets + current assets

Return on gross capital employed(%)

Return on gross capital
29 28

26 Return on gross
25 24 capital employed(%)
2008-09 2009-10 2010-11

Interpretation :
Since profit is the overall objective of a business enterprise, this ratio is a
barometer of the overall performance of the enterprise. It measures how efficiently the
capital employed in the business is being used.

Return on shareholders=(Net profit / Shareholders funds) *100

Return on Shareholders
Return on shareholders(%)

20 17.74

15 13.83

Return on

2008-09 2009-10 2010-11

Interpretation :
This Ratio indicates what amount of return has been given to the Share holders
of the firm which help in building the good will firm.

Interest expense ratio= (Interest expense / income) * 100

This Ratio indicates that what is the Ratio of Total Interest Expenses to the
Income. So that we can know about profitability of firm.

Net profit ratio = (Net profit / Net income) * 100


This Ratio measures the rate of net profit earned on sales. It helps in
determining the overall efficiency of the business operations. An increase in
the ratio over the previous year shows improvement in the overall efficiency
and profitability of the business.

Operating profit ratio= (Operating profit / Income) * 100

Operating profit ratio (%)

39 38.57

Operating profit ratio (%)

38 37.22
2008-09 2009-10 2010-11

Interpretation :

Operating Ratio and Operating Profit Ratio are inter-related and total of both
these Ratio is 100. Both Ratios indicated the profitability of firm.

Return on net capital employed = (Net profit / Net capital employed) * 100
Net capital employed = Total assets- Current liability
Return on Net capital


Interpretation :

This Ratio indicates how well the Capital employed is being use in business.
Even the performance of two Dissimilar firms may be compared with the help
of this Ratio.

Operating expenses ratio= (Operating Expenses /Income)

Operating expenses ratio(%)

41 39.98
38 Operating expenses

37 36.41 ratio(%)
2008-09 2009-10 2010-11

Interpretation :

This Ratio indicates the how much expenses has been spent on selling and
administration use of organization.

EPS = Net profit after interest, tax & preference dividend /
No. of equity shares

Interpretation :

This ratio is helpful in the determination of the market price of the equity
share of the company. The ratio is also helpful in estimating the capacity of the
company to declare dividends on equity shares.

DPS = Dividend paid to equity shareholders / No. of equity shares


9.00 8.50
8.00 7.0
6.00 5.50

2009 2010 2011

Interpretation :

This Ratio indicates how much profit has been given in hand to the equity
share holders. This represents higher the ratio more is the good will of the firm.

P.E Ratio = Market price per share / Earning per share

P.E Ratio(%)

29 28.80
P.E Ratio(%)

28 27.74
27 P.E Ratio (%)
26.5 26.29
2009 2010 2011

Interpretation :

This ratio shows how much is to be invested in the market in this company’s
shares to get each rupee of earning on its shares. The ratio is used to measure whether
the market price of a share is high or low.



During the year, the Bank has pursued a strategy of prioritizing capital conservation,
liquidity management and risk containment given the challenging economic
environment. This is reflected in the Bank’s strong capital adequacy and its focus on
reducing its wholesale term deposit base and increasing its CASA ratio. The Bank is
maintaining excess liquidity on an ongoing basis. The Bank has also placed strong
emphasis on efficiency improvement and cost rationalization. The Bank continues to
invest in expansion of its branch network to enhance its deposit franchise and create
an integrated distribution network for both asset and liability products.

In line with the above strategy, the total deposits of the Bank were Rs. 218,348 crore
(US$ 43.0 billion) at March 31, 2011, compared to Rs. 244,431 crore (US$ 48.2
billion) at March 31, 2010. The reduction in term deposits by Rs. 24,970 crore (US$
4.9 billion) was primarily due to the Bank’s conscious strategy of paying off
wholesale deposits. During Q4-2011, total deposits increased by Rs. 9,283 crore (US$
1.8 billion), of which Rs. 5,286 crore (US$ 1.0 billion), or about 57%, was in the form
of CASA deposits. The CASA ratio improved to 28.7% of total deposits at March 31,
2011 from 26.1% at March 31, 2010.

The branch network of the Bank has increased from 755 branches at March 31, 2007
to 1,438 branches at April 24, 2011. The Bank is also in the process of opening 580
new branches which would expand the branch network to about 2,000 branches,
giving the Bank a wide distribution reach in the country.

In line with the strategy of prioritizing capital conservation and risk containment, the
loan book of the Bank decreased marginally to Rs. 218,311 crore (US$ 43.0 billion) at
March 31, 2011 from Rs. 225,616 crore (US$ 44.5 billion) at March 31, 2010.

Liquidity position

The liquid ratio of the bank in the year 2005,2006 and 2011 is 0.60,0.67and 0.68
respectively and the year 2007 and 2010 liquid ratio is 0.97 and 0.88 respectively
which is close to 1.Though it is not equal to the ideal liquid ratio of 1:1 but still its

under control. So in nut shell, it can be concluded that the liquidity position of the
bank is quite satisfactory.

Capital adequacy and return on capital employed

The Bank’s capital adequacy at March 31, 2011 as per Reserve Bank of India’s
revised guidelines on Basel II norms was 15.5% and Tier-1 capital adequacy was
11.8%, well above RBI’s requirement of total capital adequacy of 9.0% and Tier-1
capital adequacy of 6.0%. The above capital adequacy takes into account the impact
of dividend recommended by the Board.Also the capital is being effectively utilized in
the bank as it shows better return on capital employed over years.

Asset quality

At March 31, 2011, the Bank’s net non-performing asset ratio was 1.96%. During the
year the Bank restructured loans aggregating to Rs. 1,115 crore (US$ 220 million).

Dividend on equity shares

Since the dividend per share has shown a promising increase for the period under
study.It shows that the bank is following a sound dividend policy and is capable of
distributing higher this way the investors will feel investing in capital of
the bank a much beneficial option and will be reluctant to withdraw capital for a long

Earnings per share

The earnings per share for the period under study also shows a promising
suggests that bank has better profitability position and in future it can be a better or
attractive channel of investment for shareholders.

Higher trends of credit deposit ratio – A positive sign

High trends of credit deposit ratio reveals that bank has performed satisfactorily as
regard to granting loans and advances to generate income. It suggests that credit
performance is good and the bank is doing its business good by fulfilling its major
objective as regards to granting loans and accepting deposits.


Muthoot Finance is a company that provides support to the banking and financial
sector in the various arenas of life, gold is a major part of all offers. Website: information in each category Muthoot Finance Corporate
glad enough remit to cover all loans of gold, precious metals, money, money,
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CRISIL and ICRA have both assigned Grade 4 to the IPO which means that the IPO
has above average fundamentals. Gold is having a dream run in commodities market
and the issue seems priced fairly. The company has good growth potential in the
medium term.
We believe MFL is a pure gold play in the burgeoning Indian consumer
Gold Loan market with is growth 15-18% CAGR. We are positive on the
business outlook on the loan against gold. With the above rationale like Strong
brand, track record and management expertise, we advice investors to park
there investment with a medium-to-long term horizon. With less competition in
the business segment MFL is well set in its segment because of it brand loyalty
they have retained in the south Indian states. Now main focus is to penetrate the
North Indian markets by adopting new strategies and also increasing sales from
other investment alternative. Comparable peers like Manappuram and other
NBFC are trading at price to earnings multiples of 18-23x and MFL is available
at 18x.






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 Financial Management I. M. Pandey Ninth Edition Vikash Publishing house

Pvt ltd.
 Financial Management Theory and Practice Prasanna Chandra Sixth Edition
Tata Mc Graw Hill Publishing company.
 Management Accounting Principles and Practice R. K. Sharma Sahashi K.
Guptha Eigth edition kalyani publishiers.
 Dr .S.N. Maheswari-financial management G.G.S. Indraprasatha university ,
new delhi.