RESEARCH

CHAPTER 1:- INTRODUCTION

COMPANY PROFILE

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

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

In 1973, MRF started manufacturing Nylon tyres for the first time. The company entered into
with a technical know-how collaboration with B. F. Goodrich in 1978. The Mansfield Tire &
Rubber Co sold out its share in 1979 and the name of the company was changed to MRF Ltd in
the year.

The company finalised a technical collaboration agreement with Marangoni TRS SPA, Italy for
the manufacture of pre-cured tread rubber for retreading industry. MRF tyres supplied tyres
to Maruti 800, India's first modern small car. In 1989, the company collaborated with Hasbro
International, the world's largest toy maker and launched Funskool India. Also, they entered into
a pact with Vapocure of Australia to manufacture polyurethane paint formulations and
with Italian tyre manufacturer Pirelli for conveyor and elevator belt manufacture. During the year
2004–05, the product range of the company expanded with Go-kart & rally tyres and tyres for
two/three wheelers.
MEANING AND CONCEPT OF FINANCIAL ANALYSIS:-

Financial analysis refers to an assessment of the viability, stability and profitability of a business,
sub-business or project.

It can also be defined as the process of identifying financial strengths and weaknesses of the firm
by properly establishing relationship between the items of the balance sheet and the profit and
loss account. It is the examination of a business from a variety of perspectives in order to fully
understand the greater financial situation and determine how best to strengthen the business and
it also looks at many aspects of a business from its profitability and stability to its solvency and
liquidity. It is a process of scanning the Financial Statements for evaluating the relationship
between the items as disclosed in them,

In Other words it can be defined as an analysis which critically examines the relationship
between various elements of the Financial Statements with a view to obtain the necessary and
effective information from tulle
OBJECTIVES OF THE STUDY

1. PRIMARY OBJECTIVES

To analyze the overall financial performance analysis of MRF Ltd

2. SECONDARY OBJECTIVES

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

2.To ascertain the profitability ratio or MRF company limited during the past five financial
years.

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

4.TO Draw the significant relationship between increase or decremse of income and expenditure
with respect to different activities

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

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

7.To provide reliable financial information.

8.To provide reliable information about changes in net sources

IMPORTANCE OF FINANCIAL ANALYSIS

The financial statement analysis is important for different reasons, they are as follows:

1. Holding of Share

Shareholders are the owners of the company. They may have to take decisions whether they have
to continue with the holdings of the company’s share or sell them out. The financial statement
analysis is important as it provides meaningful information to the shareholders in taking such
decisions.

2. Decisions and Plans

The management of the company is responsible for taking decisions and formulating plans and
policies for the future. They, therefore, always need to evaluate its performance and effectiveness
of their action to realize the company’s goal in the past. For that purpose, financial statement
analysis is important to the company’s management.

3. Extension of Credit

The creditors are the providers of loan capital to the company. Therefore they may have to take
decisions as to whether they have to extend their loans to the company and demand for higher
interest rates. The financial statement analysis provides important information to them for their
purpose.

4. Investment Decision

The prospective investors are those who have surplus capital to invest in some profitable
opportunities. Therefore, they often have to decide whether to invest their capital in the
company's share. The financial statement analysis is important to them because they can obtain
useful information for their investment decision making purpose.
LIMITATIONS OF FINANCIAL ANALYSIS

l. Mislead the user

The accuracy of financial information largely depends on how accurately financial statements are
prepared. If their preparation is wrong, the information obtained from their analysis will also be
wrong which may mislead the user in making decisions,

2.Not useful for planning

Since financial statements are prepared by using historical financial data. Therefore, the
information derived from such statements may not be effective in corporate planning, if the
previous situation does not prevail.

3.Qualitative aspects

Then financial statement analysis provides only quantitative information about the company’s
financial affairs, However, it fails to provide qualitative information such as management labor
relation, customer’s satisfaction, and management’s skills and so on which are also equally
impoflant for decision making.

4.Wrong judgment

The skills used in the analysis without adequate knowledge of the subject matter may lead to
negative direction. Similarly, biased attitude of the analyst may also lead to wrong judgement
and conclusion. The limitations mentioned above about financial statement analysis make it clear
that the analysis is a means to an end and not an end to itself. The users and analysts must
understand the limitations before analyzing the financial statements of the company. Thus,
financial analysis only presents part of the total picture.
PARTIES INTERESTED IN FINANCIAL STATEMENT

Analysis of financial statement is not only useful to the company but also covers the wide range
of different aspirants.

1. MANAGEMENT

Management is over burdened with the data rather than the Information ethe analysis statement
gives the information to management in brief and preside manner with this information the
company can self evaluate their performance and find out any variances until budgets so these
statement in term helpful for solving any deviations in the budgets.

2. SHARE HOLDER
Share holders are the real owners with the help of these statement they can analysis the growth
and earnings of their own company.

3. POTENIAL INVESTORS

The people under this category are very much keen on these statements for the return in short
term and ratios these statement very much required for them.

4. DEBENTURE HOLDERS

These statements will be helpful for them to analysis how not only the company’s ability to pay
the interest also to redeem the same.

5. CREDIT INSTITUTION
Companies’ financial requirements are being fulfilled by this organization before investing.
These institutions are very much required of the solvency and potentiality of the company.
Preparing these statements will fulfill these needs.

6. CREDITORS

Creditors are the one who are inter over with the companies day to day operations they too need
the ability of the company to discharge their debts by the company financial statement are
helpful in this regard to the creditors.

7. EMPLOYEES AND TRADE UNIONS

The profit of the company is in the term of an effect in the pay structure of the
Employees. Bonus generally linked with the parties earned by the company. The financial
statement gives this information to the employees of the organization or company

8. GOVERNMENT

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

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

9. TAX AUTUORITIES

Financial statement are very helpful for the income tax authorities to determine revenue
receivable from the company’s financial statements help them a great deal.

10. RESEARCHER
 These are the documents for the future projections so these are esteem value to scholars
undertaking research business affairs and practices. After duly recognizing the
importance of financial statement analysis this topic has been these as the focus of
project. It analysis the various facts, like ratio of Working capital in MRF LTD.

11. EXPORTS

The commissioning of the main plant in 1964, MRF also made progress in the export of
Tires an overseas office at Beirut (Lebanon) was established to develop the export market
and it was amongst India’s very first efforts on Tyre export. This year also marketed the
birth of the now famous MRF muscleman.
 CHAPTER2 : REVIEW OF LITERATURE

Barton and Schmidt (1986) The size of the equity pool also may depend on the
rate of profitability, income distribution, and equity redemption. Decisions by
cooperative management and members regarding equity investment should be
based on the members cost of equity capital. The cost to the member of providing
equity is the opportunity cost of investing money in a member’s own operation or
other alternatives.

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

fixed assets (such as land, buildings, and equipment) and other assets (such as
investments in other cooperatives), and to provide working capital. Thus,
cooperative management may follow the practice of maximizing the use of equity
capital and minimizing the use of debt.

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

manage equity investment and redemption to achieve this level. Cooperatives must
be lie to identify optimal levels of debt and equity to operate efficiently and to
guard against unexpected economic shocks, because leverage affects the
probability of equity loss and bankruptcy

Cobia and Brewer (1990) Cooperatives also acquire capital through debt
financing. Using debt is attractive to cooperative ditvctors who represent members’
interests, because it allows for members to achieve a higher return on patronage
and equity when the cost of debt is less than the cost of equity. However, acquiring
too much debt subjects the cooperative to unbearable financial risk caused by
varying profitability and interest rates.

JL Berens and CJ Cuny (1995) corporate finance researchers have long been
puzzled by low corporate debt ratios given debt’s corporate tax advantage. This
article recognizes that firm value typically reflects a growing stream of earnings,
while current debt reflects a no growing stream of interest payments. Debt to value
is therefore a distorted measure of corporate tax shielding
Hopkins (1995) one of the most important and most difficult decisions cooperative
management must make is the choice of capital stmcture. Through proper capital
sln I eture, management can influence the financial performance of the business
(Forster). The cost of debt is less than the cost of equity capital because of
differences in risk and the tax deductibility of debt.

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

organized its capital-how it obtains the financial resources with which it operates
its business. Businesses adopt various capital structures to meet both internal needs
for capital and extemal requirements for retums on shmeholders investments
Executives ReseQrch Foundation.

Vojislav Maksimovic (1999) This paper analyzes the relationship between a finn's
capital structure and its information acquisition prior to capital budgeting
decisions. It is found that low-growth industries can sustain a large number of
levered firms. In these industries, leverage is negatively related to a firm's
incentive to acquire information during the capital budgeting process.
CHAPTER3:- TYPES OF FINANCIAL STATEMENT ANALYSIS

Financial statement analysis can be performed by employing a number of methods

or techniques.

There are two key methods for analyzing financial statements:

I. Horizontal and vertical analysis:

Horizontal analysis is the comparison Of financial information over a series

of reporting periods, Horizontal analysis looks at amounts on the financial
statements over the past years. This allows you to see how each item has
changed in relationship to the changes in other items. Horizontal analysis is
also referred to as trend analysis.

Vertical analysis is the proportional analysis of a financial statement, where

each line item on a financial statement is listed as a percentage of another
item. Typically, this means that every line item on an income statement is
stated as a percentage of gross sales, while every line item on a balance sheet
is stated as a percentage of total assets. Thus, horizontal analysis is the
review of the results of multiple time periods, while vertical analysis is the
review of the proportion of accounts to each other within a single period.

2. Ratio Analysis
The second method for analyzing financial statements is the use of many
kinds of ratios. You use ratios to calculate the relative size of one number in
relation to 7 another. After you calculate a ratio, you can then compare it to
the same ratio calculated for a prior period, or that is based on an industry
average, to see if the company is performing in accordance with
expectations, In a typical financial statement analysis, most ratios will be
within expectations, while a small number will flag potential problems that
will attract the attention of the reviewer,The methods to be selected for the
analysis depend upon the circumstances and the users’ need. The user or the
analyst should use appropriate methods to derive required information to
fulfill their needs.
Advantages of Ratio Analysis :

Financial statements i.e., Profit and Loss account and Balance Sheet prepared at
the end of the year do not always convey to the reader the real profitability and
financial health of the business. They contain various facts and figures and it is for
the reader to conclude, whether these facts indicate a good or bad managerial
performance. Ratio analysis is the most important tool of analysing these financial
statements, It helps the reader in giving tongue to the mute heaps of figures given
in financial statements. The figures then speak of liquidity, solvency, profitability
etc. of the business enterprise. Some important objects and advantages derived by a
firm by the use of accounting ratios are:

L Helpful in Analysis of Financial Statements:- Ratio analysis is an extremely

device for analyzing the financial statements. It helps the bankers. Creditors,
investors, shareholders etc. in acquiring enough knowledge about the profitability
and financial health of the business. In the light of the knowledge so acquired by
them, they can take necessary decisions about their relationships with the concern.

2.Simplification of Accounting Data:- Accounting ratio simplifies and summarises

a long array of accounting data and makes them understandable. It discloses the
relationship between two such figures. Which have a cause and effect relationship
with each other.
3.Helpful in comparative study:- With the help of ratio analysis comparison of
profitability and financial soundness can be made between one firm and another in
the same industry. Similarly. Comparison of current year figures can also be made
with those of previous years with the help of ratio analysis

4.Helpful in locating the weak spots of the business :- Current year’s ratios are
compared with those of the previous years and if some weak spots are thus located,
remedial measures are taken to correct them.

5.Helpful in forecasting:- Accounting ratios are very helpful in forecasting and the
plans for the future.

6.Fixation of Ideal Standards:- Ratios helps us in establishing ideal standards of the

different item of the business. By comparing the actual ratios calculated at the end
of the year with the ideal ratios, the efficiency of the business can be easily
measured.
 CHALTER4: ANALYSIS AND INTERPRETATION

The data is collected from the websites and annual report of the organization.
Following are the tools which have been used for analysis:-
i.comparitive balance sheet
ii. Ratio analysis

COMPARITIVE BALANCE SHEET OF MRF LTD DURING THE

PERIOD OF 2020-2021
PARTICULARS 2020 2021 INCREASE/ INCREASE/
DECREASE DECREASE
(AMT) (%)
LIABILITIES
SHARE CAPITAL 4.24 4.24
RESERVES AND 13174.62 120000.11 (1174.51) (8.91)
SURPLUS
TOTAL 13178.86 12004.35 (1170.51) (8.88)
SHAREHOLDERS
FUNDS
NON-CURRENT
LIABILITIES
Long term 811.76 779.03 (32.73) 4.03
Borrowings
Deferred tax 378.50 427.83 49.33 13.03
liabilities(net)
Other long term 496.85 578.12 81.72 16.45
liabilities
Long term 211.25 189.16 (22.09) (10.46)
provisions
Short borrowings 40.82 241.99 201.17 492.82
Trade payables 4244.86 2340.14 (1904.72) (44.87)
Other current 2696.95 2440.41 (256.54) (9.51)
liabilities
Short term 199.73 153.08 (46.65) (23.36)
provisions
TOTAL 7182.36 5175.62 (2006.74) (27.94)
CURRENT
LIABILITIES
TOTAL CAPITAL 22259.58 19154.11 (3105.47) (13.95)
AND
LIABILITIES
ASSETS
NON-CURRENT
ASSESTS
Tangible assets 9366.83 8820.72 (546.11) (5.83)
Intangible assets 24.31 28.46 4.15 17.07
Capital work in 1001.03 17 34.56 733.2 73.24
progress
FIXED ASSETS 10392.17 10583.74 191.57 1.84
Non current invt 1150.34 26.53 (1123.81) (97.69)
Long bterm loans 2.67 12.22 9.55 357.67
and advances
Other non current 562.58 573. 81 11.23 1.99
assets
Total non current 12107.76 11196.30 (911.46) (7.53)
assets
CURRENT
ASSETS
Current investments 4725.83 1513.65 (3212.18) (67.97)
Inventories 2880.33 2852.69 (27.64) (0.96)
Trade receivables 2220.50 2257.03 36.53 1.65
Cash and cash 105.34 1106.85 1001.51 950.74
equivalents
Short term loan 6.77 2.89 (3.880) (57.31)
TOTAL 9938.77 7733.11 (2205.66) (22.19)
CURRENT ASST
TOTAL ASSETS 22046.53 18929.41 (3117.12) (14.14)

INTERPRETATION:-
1) There is no change in share capital.

2) Fixed assets have increased to 191.57 crores which is 1.84%

3) Shareholders funds have decreased to 1170.51 crores which is 8.88%

4) Current assets have decreased to 2205.66 crores which is 22.19%

5) The increasing reserves should have improved working capital position.

6) Cash position of MRF LTD has improved in 2021

 RATIO ANALYSIS

1. CURRENT RATIO

CURRENT RATIO= CURRENT ASSETS/CURRENT LIABILITIES

PARTICULARS 2017 2018 2019 2020 2021

Current assets 7187.48 7684.85 8320.50 7957.81 10151.82

Current liabilities 4476.21 4548.44 5436.36 5175.62 7182.36
Current ratio 1.61 1.69 1.53 1.54 1.41

current ratio
1.75

1.7

1.65

1.6

current ratio
1.55

1.5

1.45

1.4
2017 2018 2019 2020 2021

The current ratio is increasing and decreasing gradually. The company is not good in
position. A low current ratio is a sign that the firm does not have adequate fund to pay
current liabilities and other current payments.
 2.LIQUID RATIO

LIQUID RATIO= LIQUID ASSETS / LIQUID LIABILITIES

PARTICULARS 2017 2018 2019 2020 2021

Liquid assets 1959.95 2135.92 2361.62 2257.03 2220.50

Liquid liabilities 1677.08 1998.96 2327.64 2340.14 4244.86
Liquid ratio 1.17 1.07 1.01 0.96 0.52

liquid ratio
1.4

1.2

0.8

liquid ratio
0.6

0.4

0.2

0
2017 2018 2019 2020 2021

The liquid ratio is decreasing gradually from 1.01 to 0.52 from 2019 to 2021. It
may happen because current COVID-19 situation and other market
fluctuations. This is not a good sign. The ratio should be more than 1:1. The
liquid ratio of MRF LTD has gone below standard ratio in 2020&2021. The
company may has to face the problems in future.
 3.DEBT-EQUITY RATIO

DEBT-EQUITY RATIO=DEBTS/EQUITY
PARTICULARS 2017 2018 2019 2020 2021

Debts 2072.05 1700.62 1867.51 1365.10 1119.69

equity 8544.42 9604.20 10653.30 120004.35 13178.86
Liquid ratio 0.24 0.18 0.18 0.01 0.08

debt-equity ratio
0.3

0.25

0.2

0.15
debt-equity ratio

0.1

0.05

0
2017 2018 2019 2020 2021

The debt-equity ratio is decreasing gradually form 2019 to 2021. A lower debt
to equity ratio usually implies more financial stable business. Companies with
a higher debt to equity ratio are considered more risky to creditors and
investors than companies with a lower ratio.
 STOCK WORKING CAPITAL RATIO

4.STOCK WORKING CAPITAL RATIO=CLOSING STOCK/WORKING

CAPITAL*100
PARTICULARS 2017 2018 2019 2020 2021

Closing stock 2392.92 2172.07 2950.93 2852.69 2880.33

Working capital 4873.70 4642.57 5550.11 6444.16 5425.99
Stock working 49.09 46.79 53.17% 44.26% 53.08%
capital ratio

stock working capital ratio

60

50

40

30
stock working capital ratio

20

10

0
2017 2018 2019 2020 2021

The above table states the stock position of the company. The proportion of
stock to working capital is more for the year 2019 and 2021. It indicates that
the stock are not fully converted into cash effectively in the year 2019 and
2021 compared to remaining years.
 5. PROPRIETORS RATIO

PROPRIETORS RATIO= PROPRIETORS FUND/TOTAL ASSET*100

PARTICULARS 2017 2018 2019 2020 2021

Proprietors Fund 8544.42 9604.20 10653.30 12004.35 13178.86

Total Assets 10458.94 11157.00 12106.43 13550.70 14441.40
Proprietors ratio 81.69 86.08% 88% 88.58 91.26%

Proprietors ratio
92

90

88

86

84
Proprietors ratio
82

80

78

76
2017 2018 2019 2020 2021

The proprietory ratio shows the contribution of stockholders in total capital of

the company. A high proprietory ratio, indicates a strong financial position of
the company and greater security for creditors. A low ratio indicates that the
company is already heavily depending on debts for its operations.
 CHAPTER5:- CONCLUSION

It clearly observed that the company’s profit has declined. But, it earns profit at marginal rate.
The recommendation and suggestion may help the company to improve its eaming Capacity
thmugh the company can achieve optimum profitability and its goodwill also. Company should
try to control its expenses. By controlling expenses the company can earn maximum profit.

SUGGESTIONS:-
1.MADRAS RUBBER FACTORY (MRF) companies showed decline trend for last 3 year. This
profit is not sufficient to cover up administrative expenses of the company. Company has to
increase its profit . The company try to control its expenses. So, the company can earn a
minimum profit.

2, The company showed a decrease in liquid ratio. The ratio should be more than or equal to I: l
, But, during the year of 2006, 2007, 2008 and 2009 the liquid ratio is less than 1:1. This is not a
good sign.

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

4.The comlMny’s gmwth rate was very less during the study period. This shown the profit was
very less. So, the company should control the expenses for earning the more profiL

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