RATIO ANALYSIS OF MAHINDRA N MAHINDRA LTD.docx

“A PROJECT REPORT ON FINANCIAL RATIO ANALYSIS OF MAHINDRA N MAHINDRA LTD.”

BACHELOR OF MANAGEMENT STUDIES

SEMESTER V

SUBMITTED

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE DEGR EE OF BACHELOR BACHE LOR OF MANAGEMENT STUDIES

BY

MISS. MAMTA SURESH KOLSUMKAR  ROLL NO. 26

SATHAYE COLLEGE OF COMMERCE DIXIT ROAD VILE PARLE !EAST" MUMBAI # $%% %&'

DECLARATION I, MISS. MAMTA SURESH KOLSUMKAR , the student of T.Y.B.M.S. Semester V

(2016 – 2017) hereby de!"re th"t I h"#e om$!eted the $ro%et on

“A PROJECT REPORT ON FINANCIAL RATIO ANALYSIS OF MAHINDRA N MAHINDRA LTD” . The &nform"t&on subm&tted &s true "nd or&'&n"! to the best

of my no!ed'e.

 

(((((((((((((  M&ss. M"mt" *o!sum"r  +o!! o. 26 S"th"ye -o!!e'e f -ommere /&&t +o"d, V&!e "r!e ("st), Mumb"& – 300 047

CERTIFICATE Th&s to ert&fy th"t MISS. MAMTA KOLSUMKAR ro!! no. 26 of th&rd ye"r B.M.S., Semester V (2016 – 2017) h"s suessfu!!y om$!eted the $ro%et on “RATIO ANALYSIS OF MAHINDRA N MAHINDRA LTD.” under the 'u&d"ne

of P)*+. A,-/ D0-1.

-ourse -o5ord&n"tor rof. Sh"sh"n "&

ro%et u&de rof. 8"sh /es"&

tern"! "m&ner

r&n&$"! /r. *"#&t" +e'e

ACKNOWLEDGEMENT To !&st ho "!! h"#e he!$ed me &s d&ff&u!t be"use they "re numerous "nd the de$th &s so enormous. I ou!d !&e to "no!ed'e the fo!!o&n' "s be&n' &de"!&st& h"nne!s "nd fresh d&mens&ons &n the om$!et&on of th&s $ro%et. I t"e th&s o$$ortun&ty to th"n the U130)145 *+ M78-1 for '&#&n' me h"ne to do th&s $ro%et. I ou!d !&e to th"n my P)191:-; , D). K-314- R0<0 for $ro#&d&n' the neess"ry f"&!&t&es re9u&red for om$!et&on of th&s $ro%et. I t"e th&s o$$ortun&ty to th"n our C*=*)>1-4*) P)*+. S/-/-, P-1 -> A14-4 C*=*)>1-4*) P)*+. S/)41 N-1, for the&r mor"! su$$ort "nd 'u&d"ne.

I ou!d "!so !&e to e$ress my s&nere 'r"t&tude to"rds my P)*?094 G1>0 P)*+. A,-/ D0-1 hose 'u&d"ne "nd "re m"de the $ro%et suessfu!.

I ou!d !&e to th"n my C*;;0<0 L18)-)5 for h"#&n' $ro#&ded #"r&ous referene boos "nd m"'":&nes re!"ted to my $ro%et. ;"st!y, I ou!d !&e to th"n e"h "nd e#ery $erson ho d&ret!y or d&ret!y he!$ed me &n the om$!et&on of the $ro%et es$e&"!!y my P-)04 -> P00)  ho su$$orted me throu'hout my $ro%et.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

CHAPTER @ = INTRODUCTION @.@  M0-1< *+ R-41* A-;51 

+"t&o "n"!ys&s &s the $roess of determ&n&n' "nd &nter$ret&n' numer&"! re!"t&onsh&$s b"sed on f&n"n&"! st"tements. 8 r"t&o &s " st"t&st&"! y"rdst& th"t  $ro#&des " me"sure of the re!"t&onsh&$ beteen to #"r&"b!es or f&'ures. Th&s re!"t&onsh&$ "n be e$ressed "s " $erent or "s " 9uot&ent. +"t&os "re s&m$!e to "!u!"te "nd e"sy to underst"nd. The $ersons &nterested &n the "n"!ys&s of f&n"n&"! st"tements "n be 'rou$ed under three he"ds  ") ners or &n#estors  b) -red&tors ) <&n"n&"! eeut&#es.

@.2  I7:*)4-90 -> A>3-4-<0 *+ R-41* A-;51  +"t&o "n"!ys&s &s "n &m$ort"nt too! for "n"!y:&n' the om$"ny=s f&n"n&"!  $erform"ne. The fo!!o&n' "re the &m$ort"nt "d#"nt"'es of the "ount&n' r"t&os  ")

8n"!y:&n' f&n"n&"! st"tements  +"t&o "n"!ys&s &s "n &m$ort"nt tehn&9ue of f&n"n&"! st"tement "n"!ys&s. 8ount&n' r"t&os he!$s &n underst"nd&n' the f&n"n&"! $os&t&on of the om$"ny. /&fferent users use r"t&os to "n"!y:e the f&n"n&"! s&tu"t&on of the om$"ny for  the&r de&s&on m"&n' $roess.

 b)

>ud'&n' eff&&eny  8ount&n' r"t&os "re &m$ort"nt for %ud'&n' the om$"ny=s eff&&eny &n terms of &ts o$er"t&ons "nd m"n"'ement.

)

;o"t&n' e"ness  8ount&n' r"t&os "n "!so be used &n !o"t&n' e"ness of the om$"ny=s o$er"t&ons e#en thou'h &ts o#er"!! $erform"ne m"y be 9u&te 'ood.

M"n"'ement "n then $"y "ttent&on to the e"ness "nd t"e remed&"! me"sures to o#erome them. d)


e)

-om$"r&n' $erform"ne  It &s essent&"! for " om$"ny to no ho e!! &t &s $erform&n' o#er the ye"rs "nd "s om$"red to other f&rms of the s&m&!"r n"ture. Bes&des, &t &s "!so &m$ort"nt to no e!! &ts d&fferent d&#&s&ons "re $erform&n' "mon' themse!#es &n d&fferent ye"rs. +"t&o "n"!ys&s f"&!&t"tes suh om$"r&son.

@.  C;-1+19-41* *+ R-41*  ")

;&9u&d&ty +"t&os  ;&9u&d&ty r"t&os me"sures " om$"ny=s "b&!&ty to $"y debt ob!&'"t&ons "nd &ts m"r'&n of s"fety throu'h "!u!"t&on of the r"t&os. ;&9u&d&ty r"t&os "re "n &nd&"tor of hether " om$"ny=s "ssets &!! be suff&&ent to meet the om$"ny=s ob!&'"t&ons hen they beome due.

I.

-urrent r"t&o  The urrent r"t&o &s " !&9u&d&ty r"t&o th"t me"sures " om$"ny=s "b&!&ty to  $"y short – term "nd !on' – term ob!&'"t&ons. The urrent r"t&o ons&ders the urrent tot"! "ssets of " om$"ny re!"t&#e to th"t om$"ny=s urrent tot"! !&"b&!&t&es. The formu!" for "!u!"t&n' " om$"ny=s urrent r"t&o &s 

Current ratio = Current assets / Current 8 h&'her urrent r"t&o &s "!"ys more f"#or"b!e th"n " !oer urrent r"t&o  be"use &t shos the om$"ny "n more e"s&!y m"e urrent debt  $"yments. II.

?u& r"t&o  The 9u& r"t&o &s "n &nd&"tor of " om$"ny=s short – term !&9u&d&ty. The 9u& r"t&o me"sures " om$"ny=s "b&!&ty to meet &ts short – term ob!&'"t&ons &th &ts most !&9u&d "ssets. The formu!" for "!u!"t&n' " om$"ny=s 9u& r"t&o &s 

Quick ratio = Liquid assets / Current @&'her 9u& r"t&os "re more f"#or"b!e for om$"n&es be"use &t shos there "re more 9u& "ssets th"n urrent !&"b&!&t&es.

 b)

;on' Term So!#eny +"t&os  The so!#eny r"t&os &nd&"tes hether " om$"ny=s "sh f!o &s suff&&ent to meet &ts short – term "nd !on' – term !&"b&!&t&es. The !oer " om$"ny=s so!#eny r"t&o, the 're"ter the $rob"b&!&ty th"t &t &!! def"u!t on &ts debt ob!&'"t&ons.

I.

/ebt – e9u&ty r"t&o  /ebt – e9u&ty r"t&o &s " debt r"t&o used to me"sure " om$"ny=s f&n"n&"! !e#er"'e, "!u!"ted by d&#&d&n' " om$"ny=s tot"! !&"b&!&t&es by &ts stoho!der=s e9u&ty. The formu!" for "!u!"t&n' debt – e9u&ty r"t&o "n be $resented &n the fo!!o&n' "y

Debt – equity

ratio

= Total

liabilities /

8 !oer debt to e9u&ty r"t&o usu"!!y &m$!&es " more f&n"n&"!!y st"b!e  bus&ness. -om$"n&es &th " h&'her debt to e9u&ty r"t&o "re ons&dered "s more r&sy to red&tors "nd &n#estors th"n om$"n&es &th " !oer r"t&o. II.

ro$r&et"ry r"t&o  The $ro$r&et"ry r"t&o me"sures the "mount of funds th"t &n#estors h"#e ontr&buted to"rds the "$&t"! of " f&rm &n re!"t&on to the tot"! "$&t"! th"t &s re9u&red by the f&rm to ondut o$er"t&ons. The formu!" for "!u!"t&n' " f&rm=s $ro$r&et"ry r"t&o &s 

Proprietary ratio = Shareholder’s funds

/

@&'her $ro$r&et"ry r"t&o &nd&"tes th"t the om$"ny h"s enou'h "$&t"! to re$"y &ts red&tors "nd !oer r"t&o &nd&"tes th"t the om$"ny &s not &n "  $os&t&on to $"y "!! of &ts red&tors. III.

Interest o#er"'e r"t&o  The &nterest o#er"'e r"t&o

&s debt r"t&o "nd $rof&t"b&!&ty r"t&o used to

determ&ne ho e"s&!y " om$"ny "n $"y &nterest on outst"nd&n' debt. The formu!" for "!u!"t&n' &nterest o#er"'e r"t&o &s  Interest o#er"'e r"t&o  BIT A Interest e$enses )

8t&#&ty A ff&&eny or -urrent 8ssets Mo#ement +"t&os  8t&#&ty r"t&os me"sure " f&rm=s "b&!&ty to on#ert d&fferent "ounts &th&n &ts b"!"ne sheets &nto "sh or s"!es. 8t&#&ty r"t&os me"sures the re!"t&#e

eff&&eny of " f&rm b"sed on &ts use of &ts "ssets, !e#er"'e or other suh b"!"ne sheet &tems. I.

In#entory turno#er r"t&o  In#entory turno#er r"t&o shos ho m"ny t&mes " om$"ny=s &n#entory &s so!d "nd re$!"ed o#er " $er&od of t&me. The formu!" for "!u!"t&n' &n#entory turno#er r"t&o &s 

In#entory turno#er r"t&o  -ost of 'oods so!d A 8#'. &n#entory ost II.

/ebtors turno#er r"t&o  /ebtors turno#er r"t&o &s "n "ount&n' me"sure used to 9u"nt&fy " f&rm=s effet&#eness &n etend&n' red&t "nd &n o!!et&n' debts on th"t red&t. /ebtors turno#er r"t&o &s "n "t&#&ty r"t&o me"sur&n' ho eff&&ent!y " f&rm uses &ts "ssets. The formu!" for "!u!"t&n' debtors turno#er r"t&o &s 

Debtors turnoer ratio = !et credit

sales /

"era#e @&'her r"t&os me"n th"t om$"n&es "re o!!et&n' the&r ree&#"b!es more
-red&tors turno#er r"t&o  -red&tors turno#er r"t&o &s " short – term !&9u&d&ty me"sure used to 9u"nt&fy the r"te "t h&h " om$"ny $"ys off &ts su$$!&ers. The formu!" for "!u!"t&n' red&tors turno#er r"t&o &s 

Creditors turnoer ratio = !et annual credit purchase /

8 h&'her r"t&o shos su$$!&ers "nd red&tors th"t the om$"ny $"ys &ts b&!!s fre9uent!y "nd re'u!"r!y.

IV.

Cor&n' "$&t"! turno#er r"t&o  The or&n' "$&t"! turno#er r"t&o me"sures ho e!! " om$"ny &s ut&!&:&n' &ts or&n' "$&t"! to su$$ort " '&#en !e#e! of s"!es. The formu!" for "!u!"t&n' or&n' "$&t"! turno#er r"t&o &s 

$orkin# capital turnoer Cost of sales /

ratio

=

Sales

or

8 h&'her turno#er r"t&o &nd&"tes th"t m"n"'ement &s be&n' etreme!y eff&&ent &n us&n' " f&rm=s short – term "ssets "nd !&"b&!&t&es to su$$ort s"!es.

d)

rof&t"b&!&ty +"t&os  rof&t"b&!&ty r"t&os me"sures ho e!! " f&rm &s $erform&n' &n terms of &ts "b&!&ty to 'ener"te $rof&t. These r"t&os "ssess the "b&!&ty of " om$"ny to 'ener"te e"rn&n's, $rof&ts "nd "sh f!os re!"t&#e to some metr&, often the "mount of money &n#ested.

I.

ross $rof&t r"t&o  ross $rof&t r"t&o &s " $rof&t"b&!&ty r"t&o th"t shos the re!"t&onsh&$ beteen

'ross $rof&t

"nd tot"! net s"!es re#enue. It &s " $o$u!"r too! to e#"!u"te

the o$er"t&on"! $erform"ne of the bus&ness. The formu!" for "!u!"t&n' the 'ross $rof&t r"t&o &s 

%ross pro&t ratio = %ross pro&t / !et ross $rof&t r"t&o &nd&"tes to h"t etent the se!!&n' $r&e of 'oods $er un&t m"y be redued &thout &nurr&n' !osses on o$er"t&ons.

II.

et $rof&t r"t&o   et $rof&t r"t&o &s the $o$u!"r $rof&t"b&!&ty r"t&o th"t shos re!"t&onsh&$  beteen net $rof&t "fter t" "nd net s"!es. The formu!" for "!u!"t&n' net $rof&t r"t&o &s 

!et pro&t

ratio = !et pro&t

after ta*

/ !et

8 h&'h net $rof&t r"t&o &nd&"tes the eff&&ent m"n"'ement of the "ff"&rs of the bus&ness.

III.

$er"t&n' $rof&t r"t&o  $er"t&n' $rof&t r"t&o he!$s &n determ&n&n' the "b&!&ty of the m"n"'ement &n runn&n'

the bus&ness. $er"t&n' $rof&t r"t&o &s the $erent"'e of

o$er"t&n' $rof&t re!"t&#e to the re#enue e"rned dur&n' " $er&od. The formu!" for "!u!"t&n' o$er"t&n' $rof&t r"t&o &s 

$er"t&n' $rof&t r"t&o  $er"t&n' $rof&t A et s"!es D 100

ener"!!y, " h&'her o$er"t&n' $rof&t r"t&o &s des&r"b!e "s &t su''ests 're"ter  $otent&"! to der&#e $rof&ts "nd more ush&on "'"&nst "ny &nre"se &n om$et&ton or osts.

IV.

$er"t&n' e$enses r"t&o  The o$er"t&n' e$enses r"t&o &s " me"sure of h"t &t osts to o$er"te "  $&ee of $ro$erty om$"red to the &nome th"t the $ro$erty br&n's &n. The formu!" for "!u!"t&n' o$er"t&n' e$enses r"t&o &s 

$er"t&n' e$enses r"t&o  $er"t&n' e$enses A ross &nome D 100 8 !oer o$er"t&n' e$enses r"t&o &nd&"tes " 're"ter $rof&t for the &n#estors "nd h&'her o$er"t&n' e$enses r"t&o &nd&"tes " !oer $rof&t for the &n#estors.

e)

"rn&n's +"t&os A #er"!! rof&t"b&!&ty +"t&os  #er"!! $rof&t"b&!&ty r"t&os &nd&"tes the re!"t&onsh&$ beteen the $rof&ts of " f&rm "nd &n#estment &n the f&rm. In o#er"!! $rof&t"b&!&ty r"t&os, $rof&t &s used "s y"rdst& to me"sure the $rof&t"b&!&ty of "ny bus&ness onern.

I.

+eturn on "ssets  +eturn on "ssets &s "n &nd&"tor of ho $rof&t"b!e " om$"ny &s re!"t&#e to &ts tot"! "ssets. It '&#es "n &de" "s to ho eff&&ent m"n"'ement &s "t us&n' &ts "ssets to 'ener"te e"rn&n's. The formu!" for "!u!"t&n' return on "ssets &s  +eturn on "ssets  et $rof&t "fter t" A Tot"! "ssets D 100

8 h&'her r"t&o &s more f"#or"b!e to &n#estors be"use &t shos th"t the om$"ny &s more effet&#e!y m"n"'&n' &ts "ssets to $rodue 're"ter "mount of net $rof&t.

II.

+eturn on "$&t"! em$!oyed  +eturn on "$&t"! em$!oyed &s " f&n"n&"! r"t&o th"t me"sures " om$"ny=s  $rof&t"b&!&ty "nd the eff&&eny &th h&h &ts "$&t"! &s em$!oyed. The formu!" for "!u!"t&n' return on "$&t"! em$!oyed &s  +eturn on "$&t"! em$!oyed  et $rof&t A -"$&t"! em$!oyed D 100

8 h&'her r"t&o &nd&"tes more eff&&ent use of "$&t"!. +eturn on "$&t"! em$!oyed shou!d be h&'her th"n the om$"ny=s "$&t"! ost, other&se &t &nd&"tes th"t the om$"ny &s not em$!oy&n' &ts "$&t"! effet&#e!y "nd &s not 'ener"t&n' sh"reho!der #"!ue.