PROJECT REPORT

ON

“Ratio Analysis Management at MMTC-PAMP India Pvt Ltd”

BY
KAVITA
(BBA)

GVM Girls College, Sonepat, Haryana

Summer Internship Project

(Batch of 2010)
ACKNOWLEDGEMENT
 EXECUTIVE SUMMARY
A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values
taken from an enterprise's financial statements. Often used in accounting, there are many
standard ratios used to try to evaluate the overall financial condition of a corporation or other
organization. Financial ratios may be used by managers within a firm, by current and
potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use
financial ratios to compare the strengths and weaknesses in various companies. If shares in a
company are traded in a financial market, the market price of the shares is used in certain
financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value,
such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or
always less than 1, such as earnings yield, while others are usually quoted as decimal numbers,
especially ratios that are usually more than 1, such as P/E ratio; these latter are also
called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the
reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but
may be more understandable: for instance, the earnings yield can be compared with bond yields,
while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of
5%.

Financial ratios quantify many aspects of a business and are an integral part of financial
statement analysis. Financial ratios are categorized according to the financial aspect of the
business which the ratio measures. Liquidity ratios measure the availability of cash to pay
debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt
ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's
use of its assets and control of its expenses to generate an acceptable rate of return. Market
ratios measure investor response to owning a company's stock and also the cost of issuing stock.
Financial ratios may not be directly comparable between companies that use different accounting
methods or follow various standard accounting practices. Most public companies are required by
law to use generally accepted accounting principles for their home countries, but private
companies, partnerships and sole proprietorships may not use accrual basis accounting. Large
multi-national corporations may use International Financial Reporting Standards to produce their
financial statements, or they may use the generally accepted accounting principles of their home
country.

There is no international standard for calculating the summary data presented in all financial
statements, and the terminology is not always consistent between companies, industries,
countries and time periods.

Inventories management at MPIPL: MPIPL is a large scale manufacturing company involved

in mining of Bauxite and production of Aluminum. Therefore, it has to maintain large quantity of
inventories at production units for its smooth running and functioning.

Cash management at MPIPL:MPIPL has been accumulating huge cash surpluses over last
several years, which enables the organization to maintain adequate cash reserves and to generate
required amount of cash.

Receivables management at MPIPL:

MPIPL has set up its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New
Delhi, Chennai, Bangalore, and Pondicherry. This marketing office obtains sales order from
Aluminum users in India as well as globally. On the basis of order received for different products
it marks production planning of different i.e. Ingot sow ingot, Billets, Wire etc.
 CO-PROFILE

MMTC’s Precious Metals Division is in to a range of activities covering imports, exports and
domestic retail trade. It helps in promoting exports from India by holding exclusive foreign
exhibitions of gold and studded jewellery at chosen overseas locations. Export activity is also
augmented through MMTC’s four exclusive jewellery Duty Free Shops located at the Departure
Lounges of the International Airports at Mumbai, Chennai and Thiruvananthapuram. The
company supplies gold and studded jewellery as per international standards to these duty-free
shops.

MMTC is an authorized agency of the Government of India for import of gold, silver, platinum,
palladium, rough diamonds, emeralds, rubies and other semi-precious stones and supplies these
items to jewellers in India for domestic sales and exports. It is one of the custodians of the
Diamond Plaza Customs Clearance Center in Mumbai.

The company also operates an in-house assaying and hallmarking unit at New Delhi for testing
purity of gold. MMTC has received Bureau of Indian Standards (BIS) certification for its
assaying and hallmarking unit at Jhandewalan, New Delhi. MMTC also has a unit in New Delhi
for manufacturing its own brand of gold and silver medallions since the year 1996. Customized
requirements for corporate/institutional orders are serviced from here throughout the year. In the
year 1999 the company launched sale of Sterling Silverware of 92.5% purity under the brand
name “SANCHI” in the domestic market, which has been a tremendous success. Plans are afoot
to launch this range of “SANCHI” silverware for exports as well.
The company also operates an in-house assaying and hallmarking unit at New Delhi for testing
purity of gold. MMTC has received Bureau of Indian Standards (BIS) certification for its
assaying and hallmarking unit at Jhandewalan, New Delhi. MMTC also has a unit in New Delhi
for manufacturing its own brand of gold and silver medallions since the year 1996. Customized
requirements for corporate/institutional orders are serviced from here throughout the year. In the
year 1999 the company launched sale of Sterling Silverware of 92.5% purity under the brand
name “SANCHI” in the domestic market, which has been a tremendous success. Plans are afoot
to launch this range of “SANCHI” silverware for exports as well.

INDIA'S LEADING EXPORTER OF MINERALS

INDIA’S LEADING EXPORTER OF MINERALS

MMTC is major global player in the minerals trade and is the single largest exporter of minerals
from India. With its comprehensive infrastructural expertise to handle minerals, the company
provides full logistic support from procurement, quality control to guaranteed timely deliveries
of minerals from different ports, through a wide network of regional and port offices in India, as
well as international subsidiary.

MMTC has won the top export award from Chemicals and Allied Products Export Promotion
Council (CAPEXIL) as the largest exporter of minerals from India for the eighteenth year in a
row.
THE SINGLE LARGEST BULLION TRADER IN THE INDIAN
SUBCONTINENT

MMTC is the largest importer of gold and silver in the Indian sub continent, handling about 146
MT of gold and 1250 MT of silver during 2008-09. MMTC supplies gold on loan and outright
basis to the exporter, bullion dealers and jewellery manufacturers on all India basis. MMTC
has retail jewellery & its own branded Sterling Silverware (Sanchi) showrooms in all the major
metro cities of India. MMTC also supplies branded hallmarked gold and studded
jewellery. Assay and hallmarking units have been set up at New Delhi, Ahmedabad & Kolkata
for testing the purity of gold and gold articles duly accredited with Bureau of Indian Standards .
Besides organizing major jewellery exhibitions in India & abroad, MMTC also has a medallion
manufacturing unit for minting of Gold/Silver medallions.

GENERAL TRADING

MMTC also handles items like textiles, Mulberry raw silk, building materials, marine products,
chemicals, drugs and pharmaceuticals, processed foods, hydro carbons, coal and coke.

Information on above can be supplied on request. MMTC also exports engineering products.
NETWORK OF OFFICES

Its vast international trade network, includes.

One wholly owned international subsidiary in Singapore- MMTC Transnational Pte. Ltd. (MTPL)

13 Regional offices
East Zone : Kolkata, Bhubaneshwar
West Zone : Mumbai, Goa, Ahmedabad
North Zone : Delhi, Jhandewalan (Delhi), Jaipur
South Zone : Bangalore, Bellary, Chennai, Hyderabad, Vizag
 OBJECTIVE OF STUDY

The following are the main objective which has been undertaken in the present study. Financial
Ratio Analysis is the calculation and comparison of main indicators - ratios which are derived
from the information given in a company's financial statements (which must be from similar
points in time and preferably audited financial statements and developed in the same manner). It
involves methods of calculating and interpreting financial ratios in order to assess a firm's
performance and status. This Analysis is primarily designed to meet informational needs
of investors, creditors and management. The objective of ratio analysis is the comparative
measurement of financial data to facilitate wise investment, credit and managerial decisions.
Some examples of analysis, according to the needs to be satisfied, are:

 Horizontal Analysis - the analysis is based on a year-to-year comparison of a firm's

ratios,
 Vertical Analysis - the comparison of Balance Sheet accounts either using ratios or not,
to get useful information and draw useful conclusions, and
 Cross-sectional Analysis - ratios are used and compared between several firms of the
same industry in order to draw conclusions about an entity's profitability and financial
performance. Inter-firm Analysis can be categorized under Cross-sectional, as the analysis is
done by using some basic ratios of the Industry in which the firm under analysis belongs to
(and specifically, the average of all the firms of the industry) as benchmarks or the basis for
our firm's overall performance evaluation
 Place of study

The project study is carried out at the Finance Department of MPIPL Corporate office Situated
at Bhubaneswar, ORISSA. The study is undertaken as a part of the PGDM curriculum from 02
MAY 2009 to 02 JULY 2009 in the form of summer placement.

RESEARCH METHODOLOGY

Two types of data are collected, one is primary data and second one is secondary data. The
primary data were collected from the Department of finance, MPIPL. The secondary data were
collected from the Annual Report of MPIPL, MPIPL website, etc.
 INTRODUCTION OF STUDY

Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition
and performance of a business concern. Simply, ratio means the comparison of one figure to
other relevant figure or figures.

According to Myers, " Ratio analysis of financial statements is a study of relationship among
various financial factors in a business as disclosed by a single set of statements and a study of
trend of these factors as shown in a series of statements."

FINANCIAL STATEMENTS ANALYSIS

It is mainly divided in to three subtypes

1. Ratio Analysis

2. Common Size Statements

3. Importance and Limitations of Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as
its historical performance and current financial condition can be determined.

Trend Analysis involves comparison of a firm over a period of time, that is, present ratios are
compared with past ratios for the same firm. It indicates the direction of change in the
performance – improvement, deterioration or constancy – over the years

Inter firm Comparison involves comparing the ratios of a firm with those of others in the same
lines of business or for the industry as a whole. It reflects the firm’s performance in relation to its
competitors.

Comparison with standards or industry average.

Types of Ratios

Liquidity Ratios

Capital Structure Ratios

Profitability Ratios

Efficiency ratios
 Integrated Analysis Ratios

Growth Ratios

Net Working Capital

Net working capital is a measure of liquidity calculated by subtracting current liabilities from
current assets

Liquidity Ratios

Liquidity ratios measure the ability of a firm to meet its short-term obligations.

Current Ratio

Current Ratio is a measure of liquidity calculated dividing the current assets by the current
liabilities.

Acid-Test Ratio

The quick or acid test ratio takes into consideration the differences in the liquidity of the
components of current assets.
Supplementary Ratios for Liquidity

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Inventory Turnover Ratio

The ratio indicates how fast inventory is sold. A high ratio is good from the viewpoint of
liquidity and vice versa. A low ratio would signify that inventory does not sell fast and stays on
the shelf or in the warehouse for a long time.

Inventory turnover ratio =Cost of goods sold/Average inventory

The cost of goods sold means sales - gross profit.

The average inventory refers to the simple average of the opening and closing inventory

Inventory Turnover Ratio

A firm has sold goods worth Rs 3,00,000 with a gross profit margin of 20 per cent. The stock at
the beginning and the end of the year was Rs 35,000 and Rs 45,000 respectively. What is the
inventory turnover ratio?
Inventory turnover ratio = (Rs 3,00,000 – Rs 60,000)/ (Rs 35,000 + Rs 45,000) ÷ 2

= 6 (times per year)

Debtors Turnover Ratio

The ratio measures how rapidly receivables are collected. A high ratio is indicative of shorter
time-lag between credit sales and cash collection. A low ratio shows that debts are not being
collected rapidly.

Debtors turnover ratio = Net credit sales/Average debtors

Net credit sales consist of gross credit sales minus returns, if any, from customers.

Average debtors is the simple average of debtors (including bills receivable) at the beginning
and at the end of year.

Debtors Turnover Ratio

A firm has made credit sales of Rs 2,40,000 during the year. The outstanding amount of debtors
at the beginning and at the end of the year respectively was Rs 27,500 and Rs 32,500.
Determine the debtors turnover ratio.

Debtors turnover ratio = Rs 2,40,000/(Rs 27,500 + Rs 32,500) ÷ 2 =8 (times per year)

Debtors collection period = 12 Months/Debtors turnover ratio, (8) = 1.5 Months

Creditors Turnover Ratio

A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shows
that accounts are to be settled rapidly. The creditors turnover ratio is an important tool of
analysis as a firm can reduce its requirement of current assets by relying on supplier’s credit.

Creditors turnover ratio = Net credit purchases/Average creditors

Net credit purchases = Gross credit purchases - Returns to suppliers.

Average creditors = Average of creditors (including bills payable) outstanding at the beginning
and at the end of the year.

Creditors Turnover Ratio

The firm in previous Examples has made credit purchases of Rs 1,80,000. The amount payable to
the creditors at the beginning and at the end of the year is Rs 42,500 and Rs 47,500 respectively.
Find out the creditors turnover ratio.

Creditors turnover ratio = (Rs 1,80,000)/ (Rs 42,500 Rs 47,500) ÷ 2 = 4 (times per year)

The summing up of the three turnover ratios (known as a cash cycle) has a bearing on the
liquidity of a firm. The cash cycle captures the interrelationship of sales, collections from debtors
and payment to creditors.
DEFENSIVE INTERVAL RATIO

Defensive interval ratio is the ratio between quick assets and projected daily cash requirement.

Cash-flow From Operations Ratio

Cash-flow from operation ratio measures liquidity of a firm by comparing actual cash flows from
operations (in lieu of current and potential cash inflows from current assets such as inventory and
debtors) with current liability.

Leverage Capital Structure Ratio

There are two aspects of the long-term solvency of a firm:

Ability to repay the principal when due, and

Regular payment of the interest .

Common Size Statements

Preparation of common-size financial statements is an extension of ratio analysis. These

statements convert absolute sums into more easily understood percentages of some base amount.
It is sales in the case of income statement and totals of assets and liabilities in the case of the
balance sheet.
 Advantages and Uses of Ratio Analysis

There are various groups of people who are interested in analysis of financial position of a
company. They use the ratio analysis to workout a particular financial characteristic of the
company in which they are interested. Ratio analysis helps the various groups in the following
manner: -

1. To workout the profitability: Accounting ratio help to measure the profitability of the
business by calculating the various profitability ratios. It helps the management to know
about the earning capacity of the business concern. In this way profitability ratios show
the actual performance of the business.
2. To workout the solvency: With the help of solvency ratios, solvency of the company
can be measured. These ratios show the relationship between the liabilities and assets. In
case external liabilities are more than that of the assets of the company, it shows the
unsound position of the business. In this case the business has to make it possible to
repay its loans.
3. Helpful in analysis of financial statement: Ratio analysis help the outsiders just like
creditors, shareholders, debenture-holders, bankers to know about the profitability and
ability of the company to pay them interest and dividend etc.
4. Helpful in comparative analysis of the performance: With the help of ratio analysis a
company may have comparative study of its performance to the previous years. In this
way company comes to know about its weak point and be able to improve them.
5. To simplify the accounting information: Accounting ratios are very useful as they
briefly summarise the result of detailed and complicated computations.
6. To workout the operating efficiency: Ratio analysis helps to workout the operating
efficiency of the company with the help of various turnover ratios. All turnover ratios are
worked out to evaluate the performance of the business in utilising the resources.
7. To workout short-term financial position: Ratio analysis helps to workout the short-
term financial position of the company with the help of liquidity ratios. In case short-term
financial position is not healthy efforts are made to improve it.
8. Helpful for forecasting purposes: Accounting ratios indicate the trend of the business.
The trend is useful for estimating future. With the help of previous years’ ratios,
estimates for future can be made. In this way these ratios provide the basis for preparing
budgets and also determine future line of action.
 DATA ANALYSIS

(Rs in cores)

2004/05 2005/6 2006/7 2007/8

A: CURRENT ASSETS:

Inventories: 529.06 591.58 634.96 686.65

Sundry debtors: 92.81 29.42 34.13 60.65

Cash and bank balance: 755.21 2193.71 3686.53 3516.46

Other current assets: 82.01 118.62 212.4 236.46

Loans and advances: 351.95 364.95 406.42 541.10

……………………………………………………………………………..

TOTAL: 1811.04 3257.88 5041.33 4974.08

B: CURRENT LIABELITIES:

Sundry creditors:

a) On capital a/c: 64.72 44.39 102.09 272.78

b) on others: 169.38 222.95 260.74 324.94

Other liabilities: 326.92 284.96 424.64 557.94

Security deposit: 55.92 55.10 74.66 162.69

Book over draft ……. ……… 9.98 …….

Provisions: 190.14 332.82 346.49 222.57

… …………………………………………………………

TOTAL: 806.39 940.15 1218.61 1540.40

WORKING CAPITAL (A-B): 1004.65 2317.73 3822.72 3433.68
1. OPERATING PROFIT MARGIN (%)

61.12
56.36 54.81
48.46 46.36

2004 2005 2006 2007 2008

2. NET PROFIT MARGIN (%)

40.09
31.96 32.71
30.09
23.6

2004 2005 2006 2007 2008

 3. RETURN ON NETWORTH (RONW) (%)

30.95

26.29 26.51 18.39

19.63

2004 2005 2006 2007 2008

4. RETURN ON CAPITAL EMPLOYED (ROCE)

31.89

24.01 24.79 23.21

18.3

2004 2005 2006 2007 2008

 FINDINGS
5 YEARS PERFORMANCE HIGHLIGHTS

1. SALES – Rs.crores

6515
5324
4420

3349
2740

2003 2004 2005 2006 2007

2. EXPORTS-Rs.crores

2586
2306
2200
1717
1501

2003 2004 2005 2006 2007

3. NET PROFIT-Rs.crores
 2381

1562
1235
737
521

2003 2004 2005 2006 2007

4. EARNING PER SHARE-Rs.

37

24.25
19.17
11.44
8.08

2003 2004 2005 2006 2007

 CONCLUSION

A relationship between various accounting figures, which are connected with each other,
expressed in mathematical terms, is called accounting ratios.

According to Kennedy and Macmillan, "The relationship of one item to another expressed in
simple mathematical form is known as ratio."

Robert Anthony defines a ratio as – "simply one number expressed in terms of another."

Accounting ratios are very useful as they briefly summaries the result of detailed and
complicated computations. Absolute figures are useful but they do not convey much meaning. In
terms of accounting ratios, comparison of these related figures makes them meaningful. For
example, profit shown by two-business concern is Rs. 50,000 and Rs. 1,00,000. It is difficult to
say which business concern is more efficient unless figures of capital investment or sales are also
available.
Analysis and interpretation of various accounting ratio gives a better understanding of the
financial condition and performance of a business concern.

After studying the components of working capital management system of MPIPL. It is found
that the company has a sound and effective policy and its performance is very good even in this
bad recession situation company has managed to post good profit. Company is competing well at
the domestic as well as the international level and it is among the low cost producers of gold and
silver in the world only because of its proper management of finance, specially the short term
finance known as the working capital.

The company is a matured one and it has contributed well in the countries growth and
development and will also continue to perform and contribute to the whole nation.

In conclusion ,we can say that the companies management is an effective one and knows well the
management of finance, its working capital management system is very good because of which
only the company has got the status of NAVRATNA company.
 Limitations

Ratio analysis in view of its several limitations should be considered only as a tool for analysis
rather than as an end in itself. The reliability and significance attached to ratios will largely hinge
upon the quality of data on which they are based. They are as good or as bad as the data itself.
Nevertheless, they are an important tool of financial analysis.

In spite of many advantages, there are certain limitations of the ratio analysis techniques and they
should be kept in mind while using them in interpreting financial statements. The following are
the main limitations of accounting ratios:

1. Limited Comparability: Different firms apply different accounting policies. Therefore

the ratio of one firm can not always be compared with the ratio of other firm. Some firms
may value the closing stock on LIFO basis while some other firms may value on FIFO
basis. Similarly there may be difference in providing depreciation of fixed assets or
certain of provision for doubtful debts etc.
2. False Results: Accounting ratios are based on data drawn from accounting records. In
case that data is correct, then only the ratios will be correct. For example, valuation of
 stock is based on very high price, the profits of the concern will be inflated and it will
indicate a wrong financial position. The data therefore must be absolutely correct.
3. Effect of Price Level Changes: Price level changes often make the comparison of
figures difficult over a period of time. Changes in price affects the cost of production,
sales and also the value of assets. Therefore, it is necessary to make proper adjustment for
price-level changes before any comparison.

4. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis

and thus, ignores qualitative factors, which may be important in decision making. For
example, average collection period may be equal to standard credit period, but some
debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.
5. Effect of window-dressing: In order to cover up their bad financial position some
companies resort to window dressing. They may record the accounting data according to
the convenience to show the financial position of the company in a better way.
6. Costly Technique: Ratio analysis is a costly technique and can be used by big business
houses. Small business units are not able to afford it.
7. Misleading Results: In the absence of absolute data, the result may be misleading. For
example, the gross profit of two firms is 25%. Whereas the profit earned by one is just
Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and
 sales are Rs. 40,00,000. Even the profitability of the two firms is same but the magnitude
of their business is quite different.
8. Absence of standard university accepted terminology: There are no standard ratios,
which are universally accepted for comparison purposes. As such, the significance of
ratio analysis technique is reduced.

BIBLIOGRAPHY

1. Financial Management……..Prasanna Chandra

2. Financial Management…….I.M.Pandey

3. Annual Report of MPIPL.

4. Auditors Report, Directors Report and Investors Report.

5. MPIPL’s official website….www.MPIPL.co.in

6. www.google.co.in