A PROJECT REPORT ON

‘”PROFITABILITY ANALYSIS”

AT MRF TYRES, HYDRABAD

In the partial fulfillment of the requirement for the award of the degree

MASTER OF BUSINESS MANAGEMENT

SATAVAHANA UNIVERSITY

Submitted by

DUMPATI NARESH

(HT NO: 7023-18-672-012)

Under the guidance of

Dr. CH. RAVI

Assistant professor (C)

DEPARTMENT OF COMMERCE AND BUSINESS MANAGEMENT

UNIVERSITY P.G.COLLEGE,
SATAVAHANA UNIVERSITY, GODAVARIKHANI

(2018-2020)
 UNIVERSITY POST GRADUATE COLLEGE
SATAVAHANA UNIVERSITY
GODAVARIKHANI-505209,
PEDDAPALLI DISTRICT

Date:………………..
CERTIFICATE
This is to certify that the project work entitled

“PROFITABILITY ANALYSIS AT MRF TYRES”being submitted by

DUMPATI NARESH

(HTNO: 7023-18-672-012)

In partial fulfillment and for the award of "MASTER OF BUSINESS

MANAGEMENT” at UNIVERSITY POST GRADUATE COLLEGE,
GODAVARIKHANI, PEDDAPALLI (DIST).
is a record of bonafide work carried out under my guidance and supervision.

Project Guide
Dr. CH. RAVI
Faculty member
Dept. of Commerce & Business
Management
UNIVERSITY P.G.COLLEGE
Godavarikhani.
 DECLARATION

I, D.Naresh, hereby state that the project entitled PROFITABILITY

ANALYSISAT MRF TYRES submitted to Satavahana University is a partial
fulfillment of the requirements for the award of the Master of commerce is my
original work under the supervision and guidance of Dr.CH.RAVI. It has not
previously submitted for any degree or diploma, or other similar title.

PLACE: Godavarikhani DUMPATI NARESH

DATE: (HTNO: 7023-18-672-012)
 ACKNOWLEDGEMENT

I take this opportunity to express my heartfelt thanks to all the people

directly and indirectly related in completing the project report. The successful
completion of my project is indeed practically incomplete without mentioning
of all those encouraging people who supported encouraged me throughout this
project. I would like to thank indebted to Mr MADHU NAINAN., Finance
Manager.
I convey my sincere and whole hearted thanks to Mr.NR MANI, HR
Managerand other officials of MRF TYRESltd for their concern towards
completion of my project.
I convey special thanks for our principal sir Dr. D.SURESH KUMAR
for his supporting. I express my deliberate thanks to my guide Dr CH.RAVI,
Assistant professorof Department of commerce and Business Management,
University P.G. College, Satavahana University without whose assistance this
project is not an easy and successful task.
I thank faculty members of University P.G. College, who helped me
directly and indirectly to do this project work.

DUMPATI NARESH
(HT NO: 7023-18-672-012)
 CONTENTS

CHAPTER -I
Introduction

CHAPTER -II
Company profile

CHAPTER -III
Theoretical Framework

CHAPTER -IV
Data Analysis And Interpretations

CHAPTER- V
Findings And Conclusion
 CHAPTER-I

INTRODUCTION
 INTRODUCTION

MEANING AND DEFINITION OF PROFITABILITY:

The word 'profitability' is composed of two words, namely; profit and ability.
The term profit has already been discussed at length in detail. The term ability
indicates the power of a firm to earn profits. The ability of an enterprise also denotes
its earning power or operating performance. Also, that the business ability points
towards the financial and operational ability of the business. So, on this basis
profitability may be defined as ¯the ability of a given instrument to earn a return from
its use"'1 Weston and Brigham defines profitability as "the net surplus of a large
number of policies and decisions."2. Profit being an absolute figure fails to indicate
the adequacy of income or changes in efficiency resulting from financial and
operational performance of an enterprise. Much difficulty and confusion comes home
while interpreting the absolute figures of profit in case of historical or inter-firm
comparisons due to variation in the size of investment or volume of sales etc. Such
problems are handled by relating figures of profit either with the volume of sales or
with the level of investment.

A quantitative relationship is thereof established either in the form of ratios or

percentages. Such ratios are names as profitability ratios. Thus, profitability may be
regarded as a relative term measurable in terms of profit and its relation with other
elements that can directly influence the profit. No doubt, profit and profitability are
closely related and mutually interdependent, yet they are two different concepts. "The
accounting concept of profit measures what have been accumulated, the analytical
concept of profitability is concerned with future accumulation of wealth."3 Profit of
an enterprise, reports about the financial and operational efficiency of the business.
Whereas, profitability interprets the term profit in relation to other elements likely to
affect these profits in order to help in decision-making.
NEED OF THE STUDY:

 Profitability analysis is the process of identifying the financial strengths and

weaknesses of a firm with respect to profitability.

 In this study profitability in day-to-day and long-term transaction will be

studied.

 Ratio analysis is a widely used tool of financial analysis.

 Ratio analysis is often underrated but is extremely helpful in providing

valuable insight into corporation financial health.

 Public is pouring lot of money in the stock market and new issues are coming
very rapidly.

 Public and the management of the companies need to assess financial health of
the company periodically.

 Analysis of financial data is based on five parameters namely, sales, assets, net
income, stockholders equity and number of employees.

 Stockholders are concerned whether income will be sufficient to cover interest

and the management is interested in the future success of operations under
their leadership.

 For these reasons, one must have various analytical tools to assist in
interpreting the key relationships and trends and to predict the potential future
success.

OBJECTIVE OF THE STUDY

 To evaluate financial health, Profitability, liquidity and operational efficiency

of the establishment.

 To have a comparison of years to measure efficiency and help the

management to take remedial measures.

 To establish trend analysis for planning and forecasting for a 5 years period.

 To help the investors in taking investment decisions and to help MRF tyres
and financial institution in taking lending decision.
  To assess the ability of the firm to meet its short-tm as well as long-term
obligations to its creditors and also to ensure a reasonable return to its owners
and secure optimum utilization of the assets of the firm.

 To develop a software programmes to visually see the liquidity status of the

MRF tyres on day-to-day

 The word profit represents the absolute figure of profit but an absolute figure
alone does not give an exact ideas of the adequacy or otherwise of increase or
change in performance as shown in the financial statement of the enterprise.

 The word ‗ability‘ reflects the power of an enterprise to earn profits, it is

called earning performance.

 Earnings are an essential requirement to continue the business.

10. So we can say that a healthy enterprise is that which has good profitability.
According to hermenson Edward and salmonson ‗profitability is the
relationship of income to some balance sheet measure which indicates the
relative ability to earn income on assets employed.

SCOPE OF THE STUDY

 The company is facing liquidity problem due to shortage of working capital

finances.

 From this study we will come to know the strengths of the company and weak
points of the company.

 The study can provide many solutions to overcome the Profitability problems
and increase their profits.

 My project analysis will go a long way in improving the liquidity of the firm.

 Necessary comments and recommendations will be included in the project

report.

 Profit is regarded as an absolute connotation as against profitability, which is

regarded as a relative concept.
  Where profit is the residual income left after meeting all manufacturing,
administrative expenses; profitability is the profit making ability of an
enterprise.

 The profit figure indicates the amount of earning of a business during a special
period.

 While, profitability denotes whether these profits are constant or improved or

deteriorated, how and to what extent they can be improved. profit in two
separate business concerns may be identical, yet, at many times, it usually
happens that their profitability varies when measured in terms of size of
investment* It has been aptly remarked that the role played by profits and
profitability in a business enterprises is identical to the function carried out by
blood and pulse in the human body.

 Profitability is the ability to earn profit from all the activities of an enterprise.

RESEARCH METHODOLOGY

SOURCES OF DATA:

Primary data:

Primary data required for study will be collected through direct interaction
with financial executives of the establishment. Since a good rapport has been
maintained the management has assured timely guidance and assistance and
availability of relevant information through ledger and files etc.

Secondary data:

Secondary data will consist of annual reports, publications, audited financial

statement issued, day-to-day working files and budgets for different years.

The Profitability ratios and the elements of profitability ratios will be plotted
to analyze the trend over a five-year period and to have a comparison with firms of
similar nature to find areas that need improvement.
Bar graphs will be plotted show in year-wise various elements of current
assets and current liabilities.

Pie diagram showing composition of elements of current assets to the total

current assets – comparison of the same with the earliest year and the latest year.
 The study, comparisons and the calculation of the ratios will be done from the
data collected from the above mentioned methods for last five years.

LIMITATIONS OF THE STUDY:

 The period of the study is limited to data of 5 years (2013-2018).

 The time period was limited which is not sufficient to have a complete study.

 Both managers and employees are not ready to fully reveal the data required
for the project and the document of the company are not open for the public
scrutiny

 It is difficult to judge the financial performance with the said comparative

statement

 The study is based on the secondary data provided by the company

 It indicates how well management of an enterprise generates earnings by using

the resources at its disposal.

 In the other words the ability to earn profit e.g. profitability, it is composed of
two words profit and ability.
 CHAPTER-II

COMPANY PROFILE
 COMPANY PROFILE

1946 - A year to remember… India was on the threshold of independence. A young

entrepreneur, K.M. Mammen Mappillai, opened a small manufacturing unit where balloons,
latex cast squeaking toys and industrial gloves were manufactured. little did he realize then
that the company he started would grow to become the No. 1 tyre manufacturer in India.

MRF established its first office in 1949 at Chennai, Tamil Nadu, and India. The company
began as a manufacturer of toy balloons and other rubber products and then later on moved to
manufacture tyres in 1961.

Today MRF is into a league of its own with:

MRF manufactures the largest range of tyres in India and enjoys the highest brand
preference for superior quality, company manufactures the largest range of tyres in India and
is the market leader with the largest market share it tyre industry.

Since 1984 MRF tyres has consistently been chosen as oem fitment by almost every major
car manufacturer in India apart from tyres MRF also manufacturer conveyor belts, pretreads
and advanced polyurethane paints

The milestones achieved while being such a progressive and vibrant company, is also
recognized by the corporate world through a number of awards like.

Voted as one of the Indian most admired marketing companies by A & M leading
advertising and marketing and marketing journal.

Most ethical company in India by business world, a leading business

magazine.
 Industry Review

Indian Tyre Industry to Register a Growth of 9-10% in the Next 5 Years

The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tones)
garnering Rs. 19000 crores in FY07. MRF Ltd. was the market leader (22% market
share) followed closely by Apollo Tyres Ltd. (21%). The other major players were JK
Tyre & Industries (18%) and Ceat Ltd.(13%). The Indian tyre industry is
characterized by its raw material intensity (raw material costs account for
approximately 70% of operating income), capital intensity, and cyclicality, fierce
competition among the top players, low bargaining power and resulting low margins.
The top players are now focusing on branding their products and strengthening their
distribution network so as to increase their market share.

The industry derives its demand from the automobile Industry. While OEM
market off take is dependent on the new vehicle sales, replacement market demand
depends on the total population of vehicles on road, road conditions, vehicle
scrapping rules, overloading norms for trucks, average life of tyres and prevalence of
tyre retreading.
The main category of tyres produced in the country is that of Truck & Bus
tyres. These tyres accounted for 57% of the total tyre tonnage production in FY07
followed by LCV tyres which accounted for 9% of the total tyre tonnage production.

Approximately 53% of the total tyre tonnage off take was by the replacement market,
31% by OEM and 15% by the export market in FY07. The industry tonnage
production registered a 5 year CAGR of 9.69% between FY 02-07. The largest
category of Truck & Bus tyres recorded a 5 year CAGR of 7.85% (slower than the
industry) while Light Commercial Vehicle (LCV), motorcycle and car tyre categories
grew at 15%, 16% and 14% respectively (faster than the industry). Off the road
(OTR) tyre category (customized tyres) which fetch a higher margin compared to
other tyre categories, is the fastest growing category.

The OTR tyre category has registered a 5 year CAGR of over 20% in the last
five years. Most of the top players are increasing their capacity for the production of
OTR tyres so as to improve their product mix, this being a high margin product.

The exports from the country clocked a CAGR of 13% in unit terms and 18%
in value terms in the period FY 02-07. Most of these tyres that are exported are of
 cross ply design. With radicalization catching up in some of these markets, the Indian
manufacturers will need to graduate to production and export of radial tyres so as to
protect their share in the export market.

Radicalization of tyres is still minimal in India.

Only the car tyre market has moved to radial tyres (95%) but in all other
categories, cross ply tyres are still preferred. Poor road conditions, overloading in
trucks, higher cost of radial tyres and poor awareness of the tyre users are the main
reasons for the non transition of the domestic market to radial tyres. However, going
ahead radicalization in truck & bus tyres may increase due to government‘s focus on
infrastructure development.

CARE Research projects the Indian Tyre Industry to register a growth of 9-10% in the
next five years

The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tones) garnering
Rs. 19,000 crores. MRF Ltd. was the market leader (22% market share) followed
closely by Apollo Tyres Ltd. (21%). The other major players were JK Tyre &
Industries Ltd (18%) and Ceat Ltd. (13%). The industry tonnage production registered
a 5 year CAGR of 9.69%.
Truck & Bus tyre category (accounting for 57% of the tonnage production) recorded a 5
year CAGR of 7.85% (a rate slower than that of the industry) while Light Commercial
Vehicle (LCV), Motorcycle and Car tyre categories grew at 15%, 16% and 14% respectively
(at rates faster than that of the industry). Off the road (OTR) tyres (customized tyres which
fetch a higher margin compared to other tyres) category is growing at a fast pace. The OTR
tyre category registered a 5 year CAGR of over 20% in the last five years.

Most of the top players are increasing their capacity for the production of OTR tyres so as to
improve their product mix, for e.g. CEAT Ltd. is increasing its OTR capacity at its Nasik
plant from 60,000 to 1,00,000 tyres by end 2016, JK Tyre & Industries is expanding its OTR
capacity from 25,000 tyres to 42,000 tyres by end 2008, even smaller player like Falcon tyres
is making its foray into the OTR category.
 MARKET PLAYERS

Indian % International %

MRF 22.00% Michelin 20.01%

Apollo 20.00% Brighestone 18.04%

JK Tyres 19.00% Goodyear 16.09%

Ceat 16.00%

Birla 7.00%

Goodyear 6.00%

MRF LTD.

"Tyres with Muscle"

MRF Ltd. is the first Indian company to export tyres to the US, the very birthplace of
tyre technology. It is the first company in India to manufacture and market Nylon
tyres passenger tyres commercially. In 2004, the company's turnover crossed INR 30
billion mark. The company was given the title of most ethical company by 'Business
World' magazine after a survey conducted in 1999.

BOARD OF DIRECORS

Table: 2.4

Name Designation

K M Mammen Chairman & Managing Director

K M Philip Whole Time Director

 K C Mammen Director

V Sridhar Director

N Kumar Director

S S Vaidya Director

Jacob Kurian Director

Arun Mammen Managing Director

Rahul Mammen Mappillai Whole Time Director

Ashok Jacob Director

Vijay R Kirloskar Director

Ranjit I Jesudasen Director

Salim Joseph Thomas Director

M Meyyappan Director

Segment and Brands

 Truck / Bus Tyres

 Light Commercial, Jeep & Utility Vehicle Tyres

 Passenger Cars Tyres

 Off the road tyres

 Two-Wheelers Tyres

MRF Ltd:
A LEADING PLAYER IN THE TYRE MANUFACTURING INDUSTRY

MRF Limited is engaged in the manufacturing, distribution And sale of an extensive

range of superior quality tyres for Various kinds of vehicles. The company‘s
operations relate to manufacture of rubber products, such as tyres, tubes, flaps, tread
rubber And conveyor belt, as well as specialty coatings for a variety of applications.
MRF has six production facilities in India and around 80 sales offices. From its
humble origins in 1946, the company has come long way to become the market leader
in the tyre manufacturing industry. MRF exports its products to over 75 countries
Worldwide. Today, global tyre manufacturers have to plan and adapt to changes in
customer Demand, fluctuations in raw material prices and availability, while keeping
pace with timelines for shipments; in the face of increasing competition in the global
marketplace.

MRF ranked 12th by Crain Communication

MRF, India‘s largest tyre-maker, has moved up the pecking order. According
to the latest report of Tire Business, published by Crain Communications of the US,
MRF‘s rank has improved to 12th during 2000 from 13th during 1999.

The special report titled, "2001 Global Tyre Company Ranking", covered 72
tyre companies across the world. Commenting on the improved ranking of MRF,
executive director (marketing), Philip Eapen told ET, "It clearly shows the intrinsic
strength of MRF, brand equity and its ability to protect bottom-line.
He said that MRF is retaining its position as number one tyre company in
India for the last several years. Its improved global ranking comes at a time when the
automotive industry is facing a tough market with tremendous pressure on margins.

At the global level, Bridgestone Corporation was ranked number one by Tire
Business, closely followed by Michelin. Among other major Indian players, J K
Industries was ranked 17th against 16th in 1999 while Apollo Tyres moved up the
ladder from 21 to 18 in 2000. Ceat was positioned at 20 last year against 19 in 1999.

Eapen said MRF has emerged as the sole supplier of truck tyres to Volvo.
While it is the largest supplier of radial car tyres (40 per cent share) to Telco‘s Indica
with a monthly supply of 10,000 tyres.

MRF was originally started as a small manufacturing unit of balloons, latex

cast squeaking toys and industrial gloves. It was only in the year 1961 that the
company started manufacturing tyres. Today, MRF has 6 manufacturing plants in
India located in Tiruvottiyur and Arakonam in Tamil Nadu, Kottayam in Kerala,
Ponda in Goa, Medak in Andhra Pradesh, and one in the Union Territory of
Pondicherry. It has a distribution network of more than 2,500 outlets in the country
and exports tyres in over 75 countries globally. The company established its first
office in 1949 at Chennai, Tamil Nadu. It has overseas offices in United Arab
Emirates, Bangladesh and Vietnam.

MRF manufactures the largest range of tyres in India and it has the highest
brand preference. It makes tyres for heavy duty truck, bus, light truck, passenger car
to motor sports, rally cars, off the road earth movers, two and three wheelers, farm
service and military service. It is the market leader and has 26 per cent share in the Rs
19,00000 million Indian tyre industry.

Funskool India is a joint venture between MRF and Hasbro Inc., USA, the
world`s largest toy company. Funskool`s Goa plant has been making its own moulds
for a number of its products, the most popular of which are Pipsqueaks, a range of
low priced baby toys. MRF collaborated with PIRELLI to manufacture Conveyor
Belting. The MRF Conveyor Belt plant in Arkonam, Tamil Nadu, with an annual
capacity of 3000 tonnes, is the most modern belting plant in India. The company also

It manufactures speciality coatings for wide range of applications like

Metalcoat, Woodcoat Glasscoat etc. MRF made a foray in retreading as far back as
1970. MRF Pretreads is the most advanced Precured Retreading system in India.
MRF made a foray in retreading as far back as 1970. In the MRF Pretreads system,
the tread rubber is precured from MRF`s factory. It also has the specialised expertise
required for retreading Radial Tyres. The company is an original equipment supplier
(OES) of radial tyres to Tata Indica, Hyundai Elantra, Ford Fiesta and many other
cars. Volvo also sources most of its tyres from MRF for its Indian operations.

Financials

The Company swung to loss for the quarter ended December 2008. During the
quarter, the company reported loss of Rs 383 million compared with a profit of Rs
517.50 million in the same quarter last year. Net sales for the quarter rose 17% to Rs
13,519.70 million, while total income for the quarter rose 16.81% to Rs 13,560.30
million, when compared with the prior year period. It reported loss of Rs 90.32 a
share during the quarter compared with earnings of Rs 122.03 a share in previous year
period.
 AWARDS AND ACHIEVEMENTS

MRF won the silver award and is the only Indian company to win this excellence award

MRF won the award for customer satisfaction not once but 11 times till date.

MRF voted the "Most Trusted" Tyre company in India by TNS 2006 global CSR study

MRF won the award for exports.

PRODUCT CATEGORY IN TWO WHEELER SEGMENT

ZVTS

FEATURES

 Carcass incorporates supple sidewalls

 Deeper tread grooves in an optimised tread design

 BENEFITS

 Supple sidewalls for comfort and reliability

 Outstanding traction and responsive braking capability

VTM

FEATURES

 Large tread blocks

 See through circumferential grooves and wide lateral grooves

BENEFITS

 Superior tyre life and durability

 Excellent traction and grip in dry and wet conditions

Wanderer

FEATURES

 Computer generated tread block sequence and structure profile

 Cut resistant tread compounds ensure superior performance on rough/off-road

conditions

 Specially designed for Sports Utility Vehicles

BENEFITS

 Multi layered reinforced steel belt package with N-66 ply enhances
performance in all terrains

 Bold sidewall graphics to give your vehicle a distinctive look

 Multi layer hi-modulus carcass and sidewall for superior driving experience

ZGP
FEATURES

 Bold block tread pattern

 All-terrain tread compound

BENEFITS

 Excellent even on rugged terrains

 Enhanced breaking and stability

ZLO

FEATURES

 Muscle polymer blend

 Stable Spiral Ring

 Unique Groove plus

 Sporty sidewall design

BENEFITS

 Stability in wet and dry conditions Precise and responsive handling

 Wide footprint

 Stylish Looks

SLM

FEATURES

 4 rib design

 Unique tread compound

BENEFITS

 Enhanced mileage and traction

 Better road grip

ZCC

FEATURES

 Futuristic appearance

 Unique tread compound

 Dynamic contour

BENEFITS

 Bold and imposing block design gives the car the designer look

 Excellent mileage and low rolling resistance

 Excellent grip while cornering

 Superior wet traction channelling water away from tread contact path

 Improves fuel efficiency and greater driving comfort

SLM
FEATURES

 4 rib design

 Unique tread compound

BENEFITS

 Enhanced mileage and traction

 Better road grip

ZGT

FEATURES

 Futuristic design

 Bold block tread pattern

 Sporty looks

BENEFITS
  Excellent Traction

 Quick Handling Response

ZV2K

FEATURES

 Carcass incorporates supple sidewalls

 Deeper tread grooves in an optimised tread design

 Tread deign features higher sipe

 Density and computerised tread pitch Sequence

 Premium all-season tread compound

BENEFITS

 Supple sidewalls for comfort and reliability

 Outstanding traction and responsive braking capability

 Optimum traction and a smooth, quite ride

 Special polymer compound provides long-term even tread wear

ZSLK

FEATURES

 Premium silica tread compound

 Aggressive looking pattern

 Computerised tread pattern design

 Four rib pattern

 Curvilinear sipes and tread blocks

BENEFITS

 Eco friendly tyre lower rolling resistance resulting in better fuel efficiency

 Excellent traction in wet conditions

  Better handling

 Quieter ride

 For improved handling with specially developed pattern stiffness ratio

 Improved appearance

Super Trekker

FEATURES

 Non-directional treads pattern with rib-lug combination

BENEFITS

 All wheel fitment with enhanced traction and excellent performance

NDMS

FEATURES

 Non-directional trend pattern

 Strong casing

BENEFITS

 Good traction on soft and sandy terrain

All wheel fitment

Legend

FEATURES

 Premium non-skid depth

 Unique rib width

 High sipe density

 Thick cross overs

  Wrap around shoulder design

BENEFITS

 Higher mileage

 Increased road contact area

 Better wet traction

 Easy water drainage

 Sure grip while cornering

SW99

FEATURES

 Unique rib pattern

 Optimum sipes

BENEFITS

 Good mileage

 Low rolling resistance

Big Rover

FEATURES

 Rib lug combination tread pattern

BENEFITS
 Combines superior mileage with excellent traction

 Aggressive look and good all round performance

ZVTS TT-TL

FEATURES

 Carcass incorporates supple sidewalls

  Deeper tread grooves in an optimised tread design

 Tread deign features higher sipe density and computerised tread pitch
sequence

 Premium all-season tread compound

BENEFITS

 Supple sidewalls for comfort and reliability

 Outstanding traction and responsive braking capability

 Optimum traction and a smooth, quite ride

 Special polymer compound provides long-term even tread wear

ZTX TT

FEATURES

 Wide footprint area

 Curvilinear tread pattern

BENEFITS

 Tread design optimised for tyre life, comfortable and quiet ride

 Good tyre life, grip and traction

ZGP TT-TL

FEATURES

 Bold block tread pattern

 All-terrain tread compound

ORGANIZATION CHART

Chairman, CEO

Director

Excecutive director

Assistant
Excecutive director

Managing Director
 CHAPTER-III

THEORETICAL FRAMEWORK
 THEORETICAL FRAMEWORK

MEANING OF FINANCE

Finance may be defined as the provision of money at the time. When it is

required finance refers to the management of flows of Money through an
organization. It concerns with the application of skills in the manipulation used and
control of money. However there are three main approaches to finance.

 The first approach views finance as to providing of funds need by a business

on most suitable terms.

 The second approach relates finance to cash.

 The third approach views finance as being concerned with rising of funds and
their effective utilization.

FINANCIAL MANAGEMENT

Financial management can be defined as the process of rising, providing and

administrating of all money funds to be used in a business enterprise.

DEFINITIONS

¯That business activity which is concerned in meeting the financial needs the
overall objectives of business enterprise."

- Mr. WHEELER

¯Financial Management on be broadly defined as activity concerned with

planning, raising, controlling and administering the funds Used in business."

-Mr. GUTHAMANN & DOUGALL

Financial Management is that managerial activity which is concerned with the

planning and controlling of the firms financial resources.

Financial management focuses on finance manager performing various tasks

as Budgeting, Financial Forecasting, Cash Management, Credit Administration,

Investment Analysis, Funds Management, etc.

Financial management includes management of assets and liabilities in the

long run and the short run.

The management of fixed and current assets, however, differs in three

important ways: Firstly, in managing fixed assets, time is very important;
consequently discounting and compounding aspects of time element play an
important role in capital budgeting and a minor one in the management of current
assets. Secondly, the large holdings of current assets, especially cash, strengthen
firm‘s liquidity position but it also reduces its overall profitability. Thirdly, the level
of fixed as well as current assets depends upon the expected sales, but it is only the
current assets, which can be adjusted with sales fluctuation in the short run.

A finance manager contributes to organisation's profit and we exclude other

departments, because they are out of the scope of the book. Men, Money, Machines,
Materials, Methods, Minutes and Management, are the 7 M's of management, Money
—is one of the important vitamins required for running any organisation, it is just like
blood, without which there is no human being, similarly without finance there is no
organisation. Here. there is a need to know the difference between money and
finance. Money is any country's currency, which is in the hands of a person or an
organisation, whereas finance is also a country's currency, which is owned by a
person or organisation, that is given to others as loan to buy an asset or to invest in
investment opportunities.

DEFINITION OF FINANCIAL MANAGEMENT

Financial management is an integral part of overall management. It is concerned with

the duties of the financial managers in the business firm.

The term financial management has been defined by soloman ¯it is concerned with
the efficent use of an important economic resources namely,capital funds‖ The most
popular and acceptable defination of financial management as given by s.c.kuchal is
that ¯financial managent deals with procurement of funds and their effective
utilization in this business.‖
EVOLUTION OF FINANCIAL MANAGEMENT

Financial management has emerged as a distinct field of study, only in the early
part of this century, as a result of consolidation movement and formation of large
(2
enterprises. Its evolution may be divided into three phases (some what arbitrary) )—
viz.,

 The Traditional phase,

 The Transitional phase and

 The Modern phase.

 The Traditional Phase: This phase lasted for about four decades. Its finest
expression was shown in the scholarly work of Arthur S. Dewing, in his book titled
C3)
"the Financial Policy of Corporation in 1920s. " In this phase the focus of financial
management was on four selected aspects.

 It treats the entire subject of finance from the outsider's point of view
(investment banks, lenders, other) rather than the financial decision-maker's
view point in the firm.

 It places much importance on corporation finance and too little on the

financing problems of non-corporate enterprises.

 The sequence of treatment was on certain episodic events like formation,

issuance of capital, major expansion, merger, reorganisation and liquidation
during the life cycle of an enterprise.

 It placed heavy emphasis on long-term financing, institutions, instruments,

procedures used in capital markets and legal aspects of financial events. That
is it lacks emphasis on the problems of working capital management.

It was criticised throughout the period of its dominance, but the criticism is based
on matters of treatment and emphasis. Traditional phase was only outsiders looking
approach, due to its over emphasis on episodic events and lack of importance to day
to-day problems.
2. The Transition phase: It began around the early 1940's and continued through
the early 1950's. The nature of financial management in this 'phase is almost similar to
that of earlier phase but more emphasis was given to the day-to-day (working capital)
problems faced by the finance managers. Capital budgeting techniques were
developed in this phase only. Much more details of this phase are given in the book
titled "Essays on Business Finance.")
 3. The Modern Phase: It begun in the mid 1950's. It has showed commendable
development with a combination of ideas from economic and statistics that has lead
financial management to be more analytical and quantitative. The main issue of this
phase was rational matching of funds to their uses, which leads to the maximization of
shareholders' wealth. This phase witnessed significant developments. The areas of
advancements are capital structure. The study says the cost of capital and capital

)
structure is independent in nature, Dividend policy, suggests that there is the effect of
dividend policy on the value of the firm. This phase has also seen one of the first
s
applications of linear programming‘ For estimation of opportunity cost of funds,
multiple rates of return-gives way to calculate multiple rates of a project. Investment
decisions under conditions of uncertainty, gives formulas for determination of
expected cash inflows and variance of net present value of projects and gives how
probabilistic information helps the firm to optimize investment decisions

FINANCIAL DECISIONS

As we have read above that Financial management is concerned with the

acquisition, financing and management of assets with some over all goals in mind. As
mentioned in the contents of modern approach the discussions of financial
management can be broken down into three major decisions viz., (I) Investment
decision; (2) Financing decision; and (3) Dividend decision (see figure 1.1). A firm
takes these decisions simultaneously and continuously in the normal course of
business. Firm may not take these decisions in a sequence, but decisions have to be
taken with the objective of maximising shareholders' wealth.

It is more important than the other two decisions. It begins with a determination of
the total amount of assets needed to be held by the firm_ In other words, investment

decision relates to the selection of assets, on which a firm will invest funds. The
required assets fall into two groups

 Long-term Assets (fixed assets: plant & machinery land & buildings, etc),
which involve huge investment and yield a return over a period of time in
future. Investment in longterm assets is popularly known as "capital
budgeting". It may be defined as the firm's decision to invest its current funds
most efficiently in fixed assets with an expected flow of benefits over a series
of years. It is discussed in detail under the Chapter Capital Budgeting.
  Short-term Assets (current assets: raw materials, working in process, finished
goods, debtors, cash, etc.,) that can be converted into cash within a financial year
without diminution in value. Investment in current assets is popularly termed as
"working capital management". It relates to the management of current assets. It is
an important decision of a firm, as short-survival is the prerequisite for long-term
success. Firm should not maintain more or less assets. More assets reduces return
and there will be no risk, but having less assets is more risky and more profitable.
Hence, the main aspects of working capital management are the trade-off between
risk and return. Management of working capital involves two

 Investment Decision

It is more important than the other two decisions, It begins with determination
relates to the selection of assets on which a firm will invest funds. The above
discussion says that there is an inter-relationship among investment decisions.
Financial manager has to take optimal joint decisions by evaluation of the decisions
that will affect the wealth of the shareholders, if there is any negative effect on wealth
it should be rejected and vice-versa.

2. Financing Decision

After estimation of the amount required and the selection of assets required to be
purchased then the next financing decision comes into the picture. Financial manager
is concerned with makeup of the right hand side of the balance sheet. It is related to
the financing mix or capital structure or leverage. Financial manager has to determine
the proportion of debt and equity in capital structure. It should be on

optimum finance mix, which maximizes shareholders' wealth. A proper balance will
have to be struck between risk and return. Debt involves fixed cost (interest), which
may help in increasing the return on equity but also increases risk. Rising of funds by
issue of equity shares is one permanent source, but the shareholders will expect
higher rates of earnings. The two aspects of capital structure are: One capital structure
theories and two determination of optimum capital structure. Capital structure
theories are out of the scope of this book, but optimal capital structure is discussed in
detail under the Chapter Capital Structure.

3. Dividend Decision
 This is the third firáncia1 decision, which relates to dividend policy. Dividend is a
part of profits, which are available for distribution to equity shareholders. Payment of
dividends should be analyzed in relation to the financial decision of a firm. There are
two options available in dealing with net profits of a firm, viz., distribution of profits
as dividends to the ordinary shareholders' where there is no need of retention of
earnings or they can be retained in the firm itself if they are required for financing of
any business activity. But distribution of dividends or retaining should be determined
in terms of its impact on the shareholders' wealth. Financial manager should
determine the optimum dividend policy, which maximizes market value of the share
thereby market value of the firm.

Comparative analysis of financial statements, including balance sheets, allows

management and investors to assess a company's performance over time and against
its industry peers. Comparing the performance of the individual components of
balance sheets -- assets, liabilities and shareholders' equity -- management can
identify operational areas that require improvements and investors can make informed
buy-sell decisions.

Profit is an excess of revenues over associated expenses for an activity over a period
of time. Terms with similar meanings include ‗earnings‘, ‗income‘, and ‗margin‘.
Lord Keynes remarked that ‗Profit is the engine that drives the business enterprise‘.
Every business should earn sufficient profits to survive and grow over a long period
of time. It is the index to the economic progress, improved national income and rising
standard of living. No doubt, profit is the legitimate object, but it should not be over

emphasised. Management should try to maximise its profit keeping in mind the
welfare of the society. Thus, profit is not just the reward to owners but it is also
related with the interest of other segments of the society. Profit is the yardstick for
judging not just the economic, but the managerial efficiency and social objectives
also.

CONCEPT OF PROFITABILITY

Profitability means ability to make profit from all the business activities of an
organization, company, firm, or an enterprise. It shows how efficiently the
management can make profit by using all the resources available in the market.
According to Harward & Upton, ¯profitability is the ‗the ability of a given investment
to earn a return from its use.‖
However, the term ‗Profitability‘ is not synonymous to the term ‗Efficiency‘.
Profitability is an index of efficiency; and is regarded as a measure of efficiency and
management guide to greater efficiency. Though, profitability is an important
yardstick for measuring the efficiency, the extent of profitability cannot be taken as a
final proof of efficiency. Sometimes satisfactory profits can mark inefficiency and
conversely, a proper degree of efficiency can be accompanied by an absence of profit.
The net profit figure simply reveals a satisfactory balance between the values receive
and value given. The change in operational efficiency is merely one of the factors on
which profitability of an enterprise largely depends. Moreover, there are many other
factors besides efficiency, which affect the profitability

CONCEPT OF PROFITABILITY:

1.Accounting Profitability

Profitability is a measure of evaluating the overall efficiency of the business. The best
possible course for evaluation of business efficiency may be input-output analysis.
Profitability can be measured by relating output as a proportion of input or matching it
with the results of other firms of the same industry or results attained in the different
periods of operations. Profitability of a firm can be evaluated by comparing the amount of
capital employed i.e. the input with income earned i.e. the output. This is popularly
known as return on investment or return on capital employed. It is regarded

as the overall profitability ratio and has two components; net profit ratio and turnover
ratio. That is: Return on Investment = Net Profit Ratio x Turnover Ratio

Or, Return on Investment = Operating Profit x Sales

Sales Capital Employed Or, Return on Investment = Operating Profit Capital

Employed This method is increasingly accepted as an indicator of performance and
capability. This is the reason for viewing operational and financial performance in
relation to the scale of resources of funds required in production. That is, "a given
amount of profit return should be evaluated in terms of the percentage profit return on
the investment of funds."5 Moreover, "the return on capital used depicts the
effectiveness of all the operating decisions from the routine to the critical, made by
the management at all levels of the organization from shop foreman to President.

2. Social Profitability
Along with the economic objective of earning profits, a business is also required to
perform a large number of social objectives. Besides providing better quality of goods
and services, it provides big employment opportunities to the people, better condition
of work, fulfill community needs, conserves resources etc. C. Mean Cardiner rightly
observed, "The darkness of avarice has been dispelled by the light of a new kind of
social responsibility."7 Social objectives may prove profitable as well as expensive lo
a concern. As some objectives aids in enhancing profitability by attracting customers
like in case of providing quality goods. Whilst other may be counteractive such as
elimination of pollution may cost the company and reduce its profitability, but it
creates social profitability. In other words of Earnest Dale, these social objectives
"appear lo urge the executive to assume an infinitely broad-gauge burden of
responsibilities to all the various public with whom he clears."8That makes it an
obligation on the part of the company to disclose its financial, marketing, personnel
and social objectives in a simple and concise form to all the members of the concern
so that they can judge the influence of these objectives on their jobs.

3. Value Added Profitability

Wealth generation is essential for every enterprise. Value added profitability indicates
the wealth generated (net value earned) as a result of manufacturing process during a

specified period. Wealth generation is the very essence for survival or growth of a
business. An enterprise may survive without making profit but would cease to do so
without adding value. "The enterprise, not making profit, is bound to become sick but
not adding value may cause its death over a period of lime."9

Profit forms a part of value added. Thus, value added is a broader concept. "Value
added at particular level of operating capacity and claims should be determined as
value added can expose the efficiency and inefficiency of a business."™ The concept
of value added can be related to the concept of social profitability of an enterprise.
The investment of an enterprise comprises of the investment of shareholders,
debenture holders, creditors, financial institutions etc. If an enterprise fails to generate
growth or add anything as value added, it would simply mean that the enterprise is
misusing public funds. This concept represents the wealth distribution in a proper
manner besides suggesting how productivity can be increased when reducing the
consumption of resources produces same or better outputs. 4.Measurement of
Profitability The measurement of profitability for a concern is as important as the
earning of profits. The importance of measuring profitability has been stated by
Hingorani, Ramanathan rand Grewal, "A measure of profitability is the overall
measure of efficiency."^Since, profitability is the outcome of many business
activities. Therefore, its measurement is a multistage concept. As stated before
profitability is a relative concept based on profits. But profits alone cannot express the
concept of profitability. Thus, there arises a need to established relationship between
profit and other variables. Some of the well-known techniques of measurement of
profitability are discussed below: - Accounting Profitability

The most common course of action adopted by a management in measuring

profitability is that several relationships between investment figures and its related
income figures are established. Profitability of a concern depends mainly up to two
factors; the rapidity of turnover of capital employed and the operating profit margin.
Profitability is the resultant figure obtained by the product of these two factors.
Hence, profitability can be maximized by maximizing each i.e. a better profitability
level can be achieved by improving the net profit ratio and turnover ratio of an
enterprise. The net profit ratio reveals the margin made in each sale in terms of
percentage and the turnover ratio states the rotation of the capital for affecting the

sales proceeds. In technical terms the combination of profitability with operating

profit margin and turnover is known as the 'triangular relationship'. The significance
of this relationship lies not only in the fact that it can be utilized as a tool of analysis
but also because that it can be directly calculated from the earning and investment
data. ¯

PROFIT & PROFITABILITY

Sometimes, the terms ‗Profit‘ and ‗Profitability‘ are used interchangeably. But in real
sense, there is a difference between the two. Profit is an absolute term, whereas, the
profitability is a relative concept. However, they are closely related and mutually
interdependent, having distinct roles in business. Profit refers to the total income
earned by the enterprise during the specified period of time, while profitability refers
to the operating efficiency of the enterprise. It is the ability of the enterprise to make
profit on sales. It is the ability of enterprise to get sufficient return on the capital and
employees used in the business operation.

As Weston and Brigham rightly notes ¯to the financial management profit is the test
of efficiency and a measure of control, to the owners a measure of the worth of their
investment, to the creditors the margin of safety, to the government a measure of
taxable capacity and a basis of legislative action and to the country profit is an index
of economic progress, national income generated and the rise in the standard of
living‖, while profitability is an outcome of profit. In other words, no profit drives
towards profitability. Firms having same amount of profit may vary in terms of
profitability. That is why R. S. Kulshrestha has rightly stated, ¯Profit in two separate
business concern may be identical, yet, many a times, it usually happens that their
profitability varies when measured in terms of size of investment‖.

ANALYSIS OF PROFITABILITY

Apart from the short term and long term creditors, owners and management or a
company itself also interests in the soundness of a firm which can be measured by
profitability ratios. Profitability ratios are of two types those showing profitability in
relation to sales and those showing profitability in relation to investment. Together,
these ratios indicate firm‘s overall effectiveness of operation. With a view to appraise
profitability, the analysis has been made from the point of view of management and

shareholders. The management of the firm is naturally eager to measure its operating
efficiency. Similarly, the owners invest their funds in the expectation of reasonable
returns. The operating efficiency of a firm and its ability to ensure adequate returns to
its shareholders depends ultimately on the profits earned by it. The analysis throws
the light on the following questions:

 Is the profit earned by the firm adequate?

 What rate of return does it represent?

 What is the rate of profit for various segments of the firm?

 What is the rate of return to equity holders?

To evaluate the profitability and answer above questions, two fold analyses is
undertaken as shown under:

A Profitability Analysis from the View Point of Management

 Gross Profit to Net Revenue Ratio

 Net Operating Profit to Net Revenue Ratio

 Return on Capital Employed Ratio

B Profitability Analysis from the View Point of Shareholders

 Net Profit to Net Revenue Ratio

 Return on Owners‘ Equity Ratio

A Profitability Analysis from the View Point of Management In order to pin-point the
causes which are responsible for low / high profitability, a financial manger should
continuously evaluate the efficiency of a firm in terms of profit. The study of increase
or decrease in retained earnings, various reserve and surplus will enable the financial
manger to see whether the profitability has improved or not. An increase in the
balance of these items is an indication of improvement in profitability, where as a
decrease indicates a decline in profitability. Following ratios are calculated to analyse
the profitability

1. Gross Profit Ratio

Gross profit ratio is important for management because it highlights the efficiency of
operation and also indicates the average spread between the operating cost and
revenue. Any difference position in this ratio is the result of a change in the operating
cost or revenue or both. The main objective of computing this ratio is to determine the
efficiency with which operations are carried on.

The Gross Profit Ratio expresses the relationship between gross profit and net sales.
As company is a service sector, net sales is replaced by net revenue. Moreover, in the
present study, gross profit is taken as the excess of total revenue over operating
expenses. It is figured as shown below:

A high ratio of gross profit to revenue is a sign of good management as it implies that

 the operating cost is relatively low; (ii) increase revenue income, operating cost
remains constant; (iii) operating cost decline, revenue income remains the same.

On the contrary, a low gross profit to revenue is definitely a danger signal. It implies
that (i) the profit is relatively low; (ii) the operating cost is relatively high (due to
purchase of inputs on unfavourable terms, inefficient utilisation of current as well as
fixed assets and so on); (iii) low revenue income (due to sever competition, inferior
quality of services, lack of demand and so on). There is no standard showing
reasonableness of gross profit ratio. However, it must be enough to cover its operating
expenses.
 CHAPTER-IV

DATA ANALYSIS AND INTERPRETATIONS

1. GROSS PROFIT RATIO

Gross Profit

Gross Profit Ratio= –––––––––––––––––––––––––––––––––

Net Sales

Gross Profit = Sales - Cost of Goods Sold

Net Sales = Sales – Sales Returns

YEAR GROSS PROFIT NET SALES GROSS PROFIT

RATIO

2013-14 646.65 5,668.29

0.11
2014-15 799.56 7,458.73
0.11
2015-16 1,141.35 9,751.81
0.12
2016-17 1,145.06 11,967.32
0.10
2017-18 1,609.11 12,248.22
0.13

INTERPRETATION

From the above graph, Gross Profit ratio is fluctuating every year. In the
years -13 and 2017-18, the ratio is 0.11. After 2018, the maximum ratio is 0.13 in the
year 2017-18.
2.OPERATING PROFIT RATIO

Operating income

Operating profit margin = –––––––––––––––––––––––––

net sales

Operating Income = Revenue - Cost of Goods Sold (COGS), Labor, and other day-to-

day expenses

Net Sales = Sales – Sales Returns

YEAR OPERATING NET SALES OPERATING

INCOME PROFIT RATIO

2013-14 715.61 8,819.22

0.081
2014-15 862.72 9,240.86
0.093
2015-16 1,239.08 10,005.11
0.124
2016-17 1,303.90 11,248.58
0.116
2017-18 1,805.13 12,094.44
0.149

INTERPRETATION

From the above graph, Operating Profit ratio is fluctuating every year. In the
year -14, the ratio is 0.081. It increased to 0.093 in the year 2017-18. After 2018, the
maximum ratio is 0.149 in the year 2017-18.
3.EBITDA MARGIN

EBITDA

EBITDA margin = ––––––––––––––––––––––––––

net sales

EBITDA = Earnings before interest, tax, depreciation and amortization

Net Sales = Sales – Sales Returns

YEAR EBITDA NET SALES EBITDA

MARGIN

2013-14 716.7 8,819.22

0.081
2014-15 858.5 9,240.86
0.093
2015-16 1,239.0 10,005.11
0.124
2016-17 1,293.0 11,248.58
0.115
2017-18 1,795.7 12,094.44
0.148

INTERPRETATION

From the above graph, EBITDA margin is fluctuating every year. In the year
2013-14, the ratio is 0.081. It increased to 0.093 in the year 2017-18. After 2018, the
maximum ratio is 0.148 in the year 2017-18.
4.NET PROFIT RATIO Net Profit

Net Profit Ratio= ––––––––––––––––––––

Net sales

Total Revenue -Total Expenses = Net Profit

Net Sales = Sales – Sales Returns

YEAR NET PROFIT NET SALES NET PROFIT

RATIO

2013-14 250.79 8,819.22

0.028
2014-15 357.51 9,240.86
0.039
2015-16 618.78 10,005.11
0.062
2016-17 579.41 11,248.58
0.052
2017-18 808.61 12,094.44
0.067

INTERPRETATION

From the above graph, Net Profit Ratio is fluctuating every year. In the year
2013-14, the ratio is 0.028. It increased to 0.039 in the year 2017-18. After 2018, the
maximum ratio is 0.037 in the year 2017-18.
5.RETURN ON CAPITAL EMPLOYED
EBIT

ROCE = ––––––––––––––––––––––––––––––––––––

Capital Employed

EBIT = Before Interest and Tax

Capital employed = Total Assets – Current Liabilities = Equity + Non-current Liabilities

YEAR EBIT CAPITAL RETURN ON

EMPLOYED CAPITAL
EMPLOYED

2013-14 9,259.44 -39.05

-237.12
2014-15 352.81
9,720.09 27.55
2015-16 1,226.26
10,541.45 8.60
2016-17 1,549.06
11,608.60 7.49
2017-18 1,979.98
12,725.64 6.43

INTERPRETATION

From the above graph, Return on Capital Employed is fluctuating every year.
In the year 2013-14, the ratio is -237.12. It increased to 27.55 in the year 2017-18.
After 2018, the maximum ratio is 8.6 in the year 2017-18. The ratio is decreased to
6.43 in the year 2017-18.
6.RETURN ON TOTAL ASSETS

EBIT

RETURN ON TOTAL ASSETS = ––––––––––––––––

TOTAL ASSETS

EBIT= Net Income+ Interest Expenses + Taxes

Total assets = Inventories+ Sundry Debtors + Cash and Bank Balance + Loans
and Advances + Investments + fixed assets

YEAR EBIT TOTAL NET RETURN ON

ASSETS TOTAL ASSETS

2013-14 5,713.60 2,027.67 2.82

2014-15 7,878.18 3,042.83 2.59

2015-16 10,701.91 4,719.14 2.27

2016-17 12,404.92 5,565.29 2.23

2017-18 12,889.34 6,373.60 2.02

INTERPRETATION

From the above graph, Return on Total Assets is fluctuating every year. In
the year 2013-14, the ratio is 2.82. It decreased to 2.59 in the year 2016-14. After
2017, the maximum ratio is 2.27 in the year 2017-18. The ratio is decreased to 2.02
in the year 2017-18.
7.DIVIDEND PAY OUT RATIO

Dividends

Dividend Payout Ratio = –––––––––––––––––––––––––––––––––––

Net income

Net income = Total Revenue - Total Expenses

YEAR DIVIDENDS NET INCOME DIVIDEND PAY

OUT RATIO

2013-14 10.60 5,482.34 0.002

2014-15 21.20 7,631.69 0.003

2015-16 10.60 10,486.74 0.001

2016-17 10.60 12,027.23 0.001

2017-18 12.72 12,300.87 0.001

INTERPRETATION

From the above graph, Dividend Payout Ratio is fluctuating every year. In
the year 2013-14, the ratio is 0.002. It increased to 0.003 in the year 2017-15. After
2018, the ratio is 0.001 in the year2018-17,2016-15,2015-14.
 CHAPTER-V

FINDINGS AND CONCLUTION

 FINDINGS

 Gross Profit ratio is fluctuating every year. In the years -14 and 2017-15, the
ratio is 0.11. After 2018, the maximum ratio is 0.13 in the year 2017-18.

 Operating Profit ratio is fluctuating every year. In the year -14, the ratio is
0.081. After 2018, the maximum ratio is 0.149 in the year 2017-18.

 EBITDA margin is fluctuating every year. In the year -14, the ratio is 0.081.
After 2018, the maximum ratio is 0.148 in the year 2017-18.

 Net Profit Ratio is fluctuating every year. In the year -14, the ratio is 0.028.
After 2018, the maximum ratio is 0.037 in the year 2017-18.

 Return on Capital Employed is fluctuating every year. After 2018, the

maximum ratio is 8.6 in the year 2018-16. The ratio is decreased to 6.43 in the
year 2017-18.

 Return on Shareholder‘s Equity is fluctuating every year. After 2017, the

maximum ratio is 1.13 in the year 2017-11. The ratio is decreased to 0.13 in
the year 2017-14.

 Return on Total Assets is fluctuating every year. In the year -14, the ratio is
2.82. After 2018, the maximum ratio is 2.27 in the year 2018-16. The ratio is
decreased to 2.02 in the year 2017-18.

 Dividend Pay out Ratio is fluctuating every year. In the year -14, the ratio is
0.002. After 2018, the ratio is 0.001 in the years 2018-16,2016-17, 2017-18.

 Net sales are increased in 2017 when compared to the 2013 with the amount
of 619.48. So it has increased with the percentage of 0.123%.

 Total income is increased in 2018 when compared to the 2017 with the
amount of 2,149.35. So it has increased with the percentage of 0.392%.

 Operating profit is increased in when compared to the 2018 with the amount
of 376.36. So it has increased with the percentage of 0.436%
 Depreciation is increased in 2017 when compared to the with the amount of
53.57. So it has increased with the percentage of 0.0216%.

 Tax is increased in 2018 when compared to the 2017 with the amount of
173.60.so it has increased with the percentage of 0.793%.

 Net Profit is decreased in 2018 when compared to the 2017 with the amount
of 229.20.so it has decreased with the percentage of 0. 396%.

CONCLUSION

 Analysis of profitability describes the conceptual framework of financial

efficiency and profitability.

 Financial efficiency is the ability of a given investment to earn a return from

its use.

 It‗s vital instrument to measure not only the business performance but also
overall efficiency in its concerned.

 In present study seven types of measurement tools of financial efficiency were

discussed I.e. Gross profit ratio, operating profit ratio, net profit ratio, earning
per share, return on gross capital employed, return on net capital employed,
return and return on net worth.

 Generally, Earning per share ratio uses widely and famous.

 The present study showed concept, importance and measurement tools for
profitability performance for measure the efficiency of business organization.

 Profitability is measured with income and expenses.

 Income is money generated from the activities of the business.

 However, money coming into the business from activities like borrowing
money do not create income.
 This is simply a cash transaction between the business and the lender to
generate cash for operating the business or buying assets.
SUGGESTIONS

 Though the present collection system is near perfect, the company as due to
the increasing sales should adopt more effective measures so as to counter the
threat of bad debts.

 The over purchasing function should be avoided as it could lead to liquidity

problems.

 The investment of cash in marketable securities should be increased, as it is

very profitable for the company.

 Holding of excessive and insufficient stock must be avoided.

 As it creates a burden on the cash resources of a business and results in lost

sales, delays for customers, etc respectively.
 BIBLIOGRAPHY

BOOKS

 Techniques of profitability analysis,Sam R. Goodman, Wiley-Interscience,

1970

 H.G. Lutz, profitability analysis, Swedish Cooperative Centre

 Bank cost accounting and profitability analysis, International Business

Machines Corporation

 IBM - Banks and banking

WEBSITES

 http://www.mrftyres.com/

 http://www.investopedia.com/terms/p/profitabilityratios.asp

 http://en.wikipedia.org/wiki/Profitability_Analysis

 http://www.valuationtutor.com/btchp2/topic5/topic5.htm

 http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm