A Study of Financial Analysis of MRF Ltd.
Pramod Prabhakar Kamble*
Abstract :
Finance is considered as life blood of business enterprise. Finance is one of the basic foundations
of all kinds of economic activities. The success and survival of any organization depends upon how
efficiently it is able to raise funds as and when needed and their proper utilization. The object of the
present study is to analysis the financial performance of MRF Limited, India. The financial analyses
help to understand how management is efficient in procuring and utilizing the funds. An attempt is made
in the present study to analyze whether an entity is stable, solvent, liquid, or profitable enough to be
invested in. MRF limited is leading company in Tyre Manufacturing sector. The finding of the study
helps the prospective investors in taking investment decision.
Keywords: financial analysis, MRF Ltd Tyre sector, ratio analysis
Introduction:
Indian tyre industry has shown a decent growth over past few years. At present there were 39 tyre
manufacturing companies operating its business through its 60 plants in India. The industry reported a
turnover of Rs.43,000 crores and export of Rs. 4,800 crores during the financial year 2011-12. The top
10 tyre companies accounted 95% turnover.
MRF Ltd, originally known as Madras Rubber Factory is leading tyre manufacturing company in India
was established in the year 1946 by K M Mammen Mappillai, The company is primarily engaged in the
manufacture of rubber products, such as tyres, tubes, flaps, tread rubber and conveyor belt.MRF is the
first Indian company which exports tyres to USA in 1967, Now it exports to more than 65 countries in
USA, Europe, Middle East Japan and Asia Pacific.The manufacturing units of the company are located
at Tiruvottiyur and Arakonam in Tamil Nadu, Kottayam in Kerala, Ponda in Goa, Medak in Andhra
Pradesh and Union Territory of Pondicherry.
__________________________________
*Assistant Professor, Department of Commerce,
Sahakarbhushion S.K.Patil College,Kurundwad,
Tal.:Shirol, Dist.: Kolhapur,
E-Mail: pp6.k@rediffmail.com
Objectives:
1.
2.
3.
4.
To analysis profitability of MRF Ltd.
To analysis liquidity of the MRF Ltd.
To analysis operational efficiency
To study the growth of the company.
Statement of Problem:
The present study is entitled as “A Study of Financial Analysis of MRF Ltd.,” The study is basically of
diagnostic nature to measure the various facts of financial management viz.: 1liquidity, profitability,
efficiency etc.
Scope of the Study
The scope of the present study is confined to financial analysis of MRF Ltd, India. The emphasis is
given to analysis financial performance in terms of liquidity, profitability, leverage and efficiency. The
period covered in the study is of last 10 years. The study is limited to MRF Limited, India only.
Research Methodology
The present study, entitled as “Study of Financial Analysis of MRF Ltd” is a case study. The present
study is mainly based on the secondary data which is collected from the published annual reports of the
MRF Ltd., books, journals and various websites. For the purpose of financial analysis financial ratios
have been employed.
Data Analysis
In the present study an efforts have been made to analysis financial position of the concern by careful
study of revenues, sales, profits, net worth and other elements from the financial statements and
financial ratio analysis. The relation between two or more accounting figures/groups is called a financial
ratio. A financial ratio helps to express the relationship between two accounting figures in such a way
that users can draw conclusions about the performance, strengths and weakness of a firm
TEN YEARS FINANCIAL SUMMARY
(Rs. in Crore)
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
13444.75
13054.03
10637.03
8080.45
6141.94
5715.52
5036.75
4233.66
3437.13
2989.43
37.40
39.73
33.14
29.13
34.40
40.83
24.17
27.07
44.96
58.54
13482.15
13093.76
10670.17
8109.58
6176.34
5756.35
5060.92
4260.73
3482.09
3047.97
Profit
Before
Taxation
1226.80
833.12
893.65
534.66
398.48
211.39
260.96
99.81
55.34
42.90
Provision
for
Taxation
424.59
260.76
274.23
180.68
145.45
66.83
89.18
19.90
15.03
14.10
Profit
after
Taxation
802.21
572.36
619.42
353.98
253.03
144.56
171.78
79.91
40.31
28.80
4.24
4.24
4.24
4.24
4.24
4.24
4.24
4.24
4.24
4.24
3640.90
2853.56
2293.53
1686.44
1357.18
1116.55
981.91
820.05
749.81
719.17
Sales
Other
Income
Total
Income
Share
Capital
Reserves
Net
Worth
Fixed
Assets
Gross
3645.14
2857.80
2297.77
1690.68
1361.42
1120.79
986.15
824.29
754.05
723.41
5834.14
5477.16
4967.07
3865.62
3020.57
2866.24
2289.77
1955.99
1787.85
1534.47
As shown in above table MRF Ltd. has shown tremendous growth in the last 10 years. Let see
these in the chart to have clear idea of growth
1. Sales
2009
13444.75
2008
8080.45
6141.94
2005
5036.75
2004
5715.52
4000
3437.13
6000
2989.43
8000
4233.66
10000
2012
2013
10637.03
14000
12000
13054.03
Sales
2000
0
2006
2007
2010
2011
As shows in the above chart the sales of Mrf Ltd have continuously increased in the last 10 years. At the
end of 2004 it was Rs. 2989.43 crores which went to Rs. 13444.75 crore in 2013. In terms of
percentages it has increased 450% approximately during the last 10 years.
2. Profit Before Taxation
1226.8
Profit Before Taxation
2004
2005
2006
211.39
99.81
200
55.34
400
42.9
600
260.96
800
2007
2008
398.48
1000
534.66
1200
833.12
893.65
1400
0
2009
2010
2011
2012
2013
Profit before taxation of MRF Ltd. has increased exceptionally well during the last 10 years. It was
Rs. 42.90 crore in 2004 which is reached to 1226.80 crore in 2013.
3. Net Worth
3645.14
Net Worth
754.05
824.29
2004
2005
2006
1500
1000
1690.68
986.15
723.41
2000
1120.79
2500
1361.42
3000
2857.8
3500
2297.77
4000
500
0
2007
2008
2009
2010
2011
2012
2013
The net worth has increased from 723.41 crore to 3645.14 crores during the last 10 years. The rate of
increased is 504% approximately.
4. Reserves
981.91
1116.55
2004
2005
2006
2007
2008
3640.9
2853.56
1686.44
820.05
1000
749.81
2000
719.17
3000
1357.18
4000
2293.53
Reserves
0
2009
2010
2011
2012
2013
As shown in the above chart the reserve of MRF Ltd. has shown increasing trend during the last 10
years. It was 3640.90 in 2013 as against 719.17 crore in 2004.
Share Holding Pattern in %
Promoter
DEC' 13
SEP' 13
JUN' 13
MAR' 13
27.32
27.30
27.27
27.21
FII
DII
Others
5.57
10.92
56.19
4.54
11.03
57.13
4.60
10.85
57.28
4.33
10.74
57.72
Source: www.moneycontrol.com
RATIO ANALYSIS:
A financial ratio helps to express the relationship between two accounting figures in such a way
that users can draw conclusions about the performance, strengths and weakness of a firm.It is an
important tool of financial analysis. There are various types of ratios. These ratios can be grouped into
various classes according to financial activity or function be evaluated. In view of the requirement of
various interest groups, in the present study the ratios are classified into following important categories:
A) LIQUIDITY RATIOS
Liquidity means ability of the business to meet its short term obligations, usually a period
of one year. Liquidity is a prerequisite for the survival of the firm. The short term creditors of the firm
are interested in the short term solvency or liquidity of a firm. But liquidity implies, from the view point
of utilization of the funds of the firm, that the funds are ideal or they earn a very little. A proper balance
between two contradictory requirements, that is, liquidity and profitability, is required for efficient
financial management. The liquidity ratios measure the ability of a firm to meet its short term
obligations and reflect the short term financial strength/solvency of a firm.
The liquidity position of the MRF Ltd., Current Ratio, Quick Ratio, Debt Equity Ratio and Long
Term Debt Equity Ratio has been calculated as follows:
Liquidity And Solvency Ratios
Sep 2013
Sep 2012
Current Ratio
2.01
1.80
Quick Ratio
1.24
1.00
Total Debt Equity
0.44
0.60
Interest Cover
7.26
6.25
Source :Annual Report of MRF Ltd and www. money.livemint.com
1) CURRENT RATIO
Current ratio is the ratio of current liabilities and current assets. A current ratio measure the ability of the
firm to meet its current liabilities. It indicates the rupee of current assets available for each rupee of
current liability. A current ratio of 2:1 has been considered satisfactory. Generally the level of current
ratio may vary from industry to industry depending on specific industry characteristics. As shows in the
table above the current ration of MRF Ltd is 2.01 :1 at the end of last financial year as against 1.80:01 of
previous year. It shows the company has kept the current assts level optimally. It has positive impact on
the profitability. However the current ratio below 1 is not satisfactory for short term solvency position.
Further it is not mush fluctuated during the last five years. It say the company has stick with its policy of
working capital management.
2) QUICK RATIO
The quick ratio indicates the relation of quick assets with current liabilities. Quick or liquid assets
include all current assets except stock and prepaid expenses. Quick ratio measures the extent to which
liquid resources are immediately available to meet current obligations. This ratio is a better test of
financial strength as it gives no consideration to inventory which may be very slow. Generally, a quick
ratio of 1:1 is considered to represent a satisfactory current financial condition. The table above indicates
the quick ratio if MRF Ltd. is 1.24:1 as against 1:1. It means the company has enough liquid asset to
meet short term liabilities. The short term liquidity position of the concern is satisfactory.
3) TOTAL DEBT–EQUITY RATIO
The debt-equity ratio indicates the proportion of borrowed capital to the net worth. Generally 2:1 debtequity is considered to be satisfactory. A very high ratio is unfavorable from firms’ point of view. The
debt-equity ratio indicates margin of safety to the creditors against possible losses in the events of
liquidation. This ratio is also important for judging the financial policy of the management. An
organization having stable profit can afford to operate on a relatively high debt-equity ratio. Too much
reliance on external equities may indicate under capitalization where too much reliance on the internal
equities may lead to over capitalization. The above table shows the debt equity ratio of MRF Ltd. is
0.44:1 at the end of financial year Sept.2013 and 0.60:1 on the previous year. It indicates that the
company is not much relied on borrowed capital to finance its activities. It further strengthens the capital
structure of the company. It raises the creditworthiness of the company and it further strengthen the
liquidity position of the company
B) PROFITABILITY RATIOS
The profitability ratios measure the profitability and operational efficiency of the firm. These
ratios reflect the final results of business operations. Profitability ratios can be determined on the basis
of either sales or investments. The profitability ratios in relation to sales are a) profit margin (gross and
net) ratio b) expenses ratio. Profitability in relation to investments is measured by a) return on assets b)
return on capital employed C) return on shareholders’ equity.
For the present study following profitability ratios has been calculated in order to serve the
object:
Profitability Ratios
Sep '12
Sep '11
Gross Profit Margin(%)
11.89
8.68
Net Profit Margine (%)
5.96
4.38
1892.00
1349.91
ROA(%)
10.37
8.45
ROE(%)
24.67
22.20
ROCE(%)
29.01
23.44
Earnings Per Share
1) GROSS PROFIT MARGIN/ RATIO
Gross profit margin is also known as gross margin. It is calculated by dividing gross
profit by sales. Gross profit is the result of the relation between prices, sales volume and costs. A
change in the gross margin can brought about by change in any of those factors, the gross margin
represents the limit beyond which fall in sales prices are outside the tolerance limit. A high ratio of gross
profit to sales is the sign of good management as it implies that the cost of production of the firm is
relatively low. It may also be indicative of a higher sales price without a corresponding increase in the
cost of goods sold. A relatively low gross margin is definitely a danger single, warranting a careful and
detailed analysis of the factor responsible for it. Therefore a firm should have a reasonable gross profit
margin to ensure adequate coverage for operating expenses of the firm and sufficient return to the
owners of the business. There is substantial increase in the gross profit ration of MRF Ltd in the last two
years. It was 8.68% in Sept. 2012 which is raised to 11.89% in Sept. 2013. It shows the profitability of
the concern has increased.
2) NET PROFIT RATIO MARGIN/RATIO
It is also known as net margin. This measures the relationship between net profits and sales. Net profit
is that proportion of net sales which is remained to the owners or the shareholders after all costs; charges
and expenses including income tax have been deducted. The net profit margin is indicative of
management’s ability to operate business with sufficient success not only to recover from revenues of
the period, the cost of merchandise or services, the expenses of operating the business (including
depreciation) and the cost of borrowed funds, but also leave a margin of reasonable compensation to the
owners for proving their capital at risk. The ratio of net profits to sales essentially the cost price
effectiveness
of
the
operation.
The
ratio
of net profit margin of MRF Ltd. was 5.96% at the end of last financial year as against 4.38% in the
previous year. As compared the other firms in the industry it is much better.
3) EARNING PER SHARE:
The market value of the concern is much affected by the earning per
Generally with the increase in the earning per share the market value of the share also increases. Hence
the shareholders are interested to known earning per share. The earnings per share of MRF Ltd. was
Rs.1892 by the end of last financial year. It is much better than the other companies in India.
4) RETURN ON ASSETS
Return on the asset is another indicator of the company’s profitability. It calculated by dividing the
company’s annual earnings by its total assets. It shows how efficiently the management has used the
assets of the company. ROA of MRF Ltd was 10.37% at the end of last financial year as against 8.45%
in the previous year.
5) RETURN ON SHAREHOLDERS EQUITY
Return on equity measures the profitability of equity funds invested in the firm. This ratio revels how
profitability of the owners’ fund have been utilized by the firm. The realization of a satisfactory net
income is the major objective of a business and the ratio shows the extent to which this objective is
being achieved. If the ratio is higher they feel confident and encouraged to invest in the company. The
effect of such high ratio will be reflected in the market price of the shares of the company. The Return
on equity of MRF Ltd is 24.67 at the end of last financial year. It was 22.20 at the end of previous
financial year. It is profitable and it would possible for the company to raise finance from external
sources and even through public deposits.
6) RETURN ON CAPITAL EMPLOYED
ROCE indicates how much return/ profits the company earned on the capital employed. It is calculated by
dividing earnings before interest and tax by capital employed. A higher ROCE indicates more efficient use of
capital. ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is
not employing its capital effectively and is not generating shareholder value. ROCE of MRF Ltd. is 29.01%
at
the
end
of
last
financial
year.
C) EFFICIENCY RATIOS
Efficiency ratios analyses how well a company uses its assets and liabilities internally. These ratios are
also called turnover ratios or activity ratios because they indicate the speed with which assets are being
converted or turned over into sales. Efficiency ratios, thus, involve a relationship between sales and
assets. A proper balance between sales and asserts generally reflects that assets are managed well.
Several activity ratios can be calculated to judge the effectiveness of asset utilization. For the present
study following activity ratios are calculated:
.
Efficiency Ratios
Sept.2013
Sept.2012
Inventory Turnover Ratio
7.49
7.94
Debtors Turnover Ratio
8.65
8.58
Fixed Assets Turnover Ratio
4.04
3.92
Total Assets Turnover Ratio
1.62
1.81
1) INVENTORY TURNOVER RATIO
This ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by
dividing the cost of goods sold by the average inventory. The inventory or stock turnover ratio measures
how quickly inventory is sold. It is the test of efficient inventory management. In general, a high
inventory ratio is better than a low ratio. A high ratio implies good inventory management. However, it
may be of underinvestment in, or very low level of inventory. Similarly, a very low inventory turnover
ratio is dangerous. It signifies excessive inventory or overinvestment in inventory. Thus a firm should
have neither too high nor too inventory turnover. Inventory turnover ratio of MRF Ltd. is 7.49:1 at the
end of Sept.2013 as compared to 7.94:1 in the previous year.
2) DEBTORS TURNOVER RATIO
The debtors’ turnover ratio shows how quickly receivables or debtors are converted into cash. These
throw light on the collection and credit policies of the firm. Debtor’s turnover ratio is found out by
dividing credit sales by average debtors. At the end of last financial year the debtor’s turnover ratio of
MRF Ltd was 8.65:1 and 8.58:1 in previous year.
3) FIXED ASSETS TURNOVER RATIO
This ratio helps to know the efficiency of management in using the fixed assets. It is calculated by
dividing sales to fixed assets. This ratio is an important measure of the efficiency and profit earning
capacity of the business. A high ratio indicates efficiency in utilizing the fixed assets while a low ratio
suggest idle capacity and excessive investment in fixed assets. Fixed Asset turnover ratio of MRF Ltd.
was 4.04 and 3.92. It means the efficiency of utilizing fixed assets have increased.
4) TOTAL ASSETS TURNOVER RATIO
Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to maximize
sales. The relationship between sales and total assets is called as total assets turnover ratio. This ratio
shows the firm’s ability in generating sales from all financial resources committed to total assets. Total
assets include net fixed and current assets. The ratio indicates the sales generated per rupee of
investment in total assets. This ratio indicates the efficiency in use of total assets. Higher ratio indicates
that more revenue is generated per rupee of total investment in the assets. The total asset turnover ratio
of MRF Ltd was 1.61:1 at the end last financial year. Considering the industry standard it is satisfactory.
It means the MRF Ltd. has efficiently utilized its assets.
Conclusion:
MRF tyre is a leading brand in the tyre industry in India. The financial position of MRF Ltd. is sound.
The liquidity position, short term solvency position and profitability is satisfactory. The progress made
by the company during the last 10 years is exceptionally well. The company is growing speedily.
Recently MRF won the silver award and is the only Indian company to win this excellence award.
References:
Pande I. M. :“Financial Management” , Vikas Publishing House Pvt.Ltd., New Delhi.
Pransanna Chandra: “Financial Management”, Tata McGraw Hill Publishing Co. Ltd.,
Annual Reports of MRF Ltd.
www.mrftyres.com
www.moneycontrol.com/india/stockpricequote/tyres/mrf/MRF
www.money.livemint.com/