Index

S.no topic P a g e
Executive Summary.... 8
1 Introduction... 9
1. Company Overview................. 9
2. Financial Analysis............. 1 7
3. Ratio Analysis................... 1 8
4. Steps In Ratio Analysis ....................
1 8
5. Basis Or Standards Of Comparison............... 1 9
6. Limitations Of Ratio Analysis...7. Types1 Of9 Ratios
2 0

2 Literature review...........26
3 Objectives of the study..........27
4 Research Methodology..............27
5 Data Analysis............. 1. Profitability Ratios.............28.
2. Activity Ratios................ 2 8
3. Liquidity Ratios.............................................................................. . 3 1
3 4
6 Results and Conclusion.........37
7 Limitations and caveats............38
8 Recommendations..........38
9 References...........39
1 0 Appendix........................40
 List of Tables

S.no Page No .

1 Profitability ratios. 2 8
2 Management efficiency ratios. 3 1
3 Solvency ratios. 3 4
4 Balance Sheet of PEC Limited. 4 0
5 Profit & loss A/c of PEC Limited.. 4 1
6 Balance Sheet of MMTC Limited.. 4 2
7 Profit & loss A/c of MMTC Limited. 4 3
8 Balance Sheet of STC Limited 4 4
9 Profit & loss A/c of STC Limited. 4 5

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 List of Figures

S.no Page No .

1 PECs Organizational Structure. 1 3

2 Sale turnover over last decade .. 1 5
3 PECs Network of Offices ..................... 1 6
4 Gross Profit Margin.... 2 9
5 Net Profit Margin 2 9
6 Return on Equity. 3 0
7 Return on Assets.. 3 1
8 Inventory Turnover Ratio... 3 2
9 Debtors Turnover Ratio... 3 3
1 0 Asset Turnover Ratio... 3 3
1 1 Current Ratio... 3 4
1 2 Quick Ratio.. 3 5
1 3 Debt Equity Ratio. 3 6

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 Acknowledgement

I take this opportunity to firstly thank my institute, for giving me this opportunity to
undergo this Project in one of the most reputed financial company. It has been a great
learning experience in terms of gaining exposure into the market and knowing how actually a
business can be developed and run.
I thank my Faculty Guide, Prof. Nitin Bhist and Mr. Owais Iqbal who put all their
efforts in making me understand the overall theme of the Project and thereby increasing my
knowledge. Their time and efforts have indeed been very fruitful.
I also thank all other employees at PEC Limited particularly Mr. Owais Iqbal with
whom I have spent my training period. They have helped me in every possible manner in my
endeavor to complete this project successfully. I acknowledge the support and knowledge
they have provided me.

ADITI AGARWAL
MBA III SEM
ROLL NO-1547970003

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 Executive summary

Projects & Equipment Corporation of India Ltd (PEC) is a progressive and dynamic international
trading company. PEC is an unlisted company whose paid up capital is Rs. 60 crore (Increased
from 20crore by issue of bonus shares in February 2013). PEC is a service provider company
for the international trade and domestic trade. PEC provides credit facility in the form of
letter of credit for the payment option in import,export & domestic trade.
Its revenue is generated by the margin money which is taken on the total import of
commodities, export commodities & domestic trade commodities.

The Project will focus on the Financial Performance Analysis of PEC to gain knowledge over
the profitability, liquidity, solvency, efficiency condition of the company. It will include a
thorough ratio analysis of PEC limited compared to its competitors in this sector, Metals and
Minerals Trading Corporation of India (MMTC) and The State Trading Corporation of India
(STC).

PEC limited incurred a loss of 208 crores in the financial year 2014-15.

This project will help us in knowing the reasons for the loss and it also gives the importance
of financial performance analysis and its tools.

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1. Introduction

1.1 Company Overview

PEC Ltd. was incorporated as a separate Company in 1971. At the time of incorporation it
was called as The Projects & Equipment Corporation of India Ltd. and was a subsidiary of
the State Trading Corporation of India Ltd. It was created as a subsidiary, to take over the
canalized business of STCs Railway Equipment Division and also to diversify in exports of
engineering equipment and turnkey projects. The Corporation became an independent
Company, directly under Ministry of Commerce & Industry, Government of India w.e.f.
27.3.1991.

The export of railway equipment (which was canalized through PEC) was de-canalized in
1991 under liberalization policy of the Govt. The Corporation, therefore, diversified in other
areas like export and import of commodities etc. Its diversification was allowed by the
Ministry of Commerce & Industry, Government of India in order to enable it remain
profitable and grow its business operations.

PECis progressive and dynamic international trading company. PEC trades in wide range of
items capital goods, industrial projects, engineering equipment, solar energy export
pharmaceutical & hospital equipments, commodities, bullion, industrial raw material
etc.ThescopeofPEC'sbusinessactivitynotonly coversexportandimportbutalsostructuringof
Special Trading Arrangement, countertrade transaction,thirdcountrytradinganddomestic
marketing.

It is a Government of India enterprise with headquarters at New Delhi with branch offices
located in all major cities and ports of India.

Over last four decades, PEC has expanded its role to become an international business
organizer and a provider of integrated trade facilitating services. Through its diverse
activities since early nineties, it has emerged as a positive force for the exchange of
commodities, goods and services between India and the nations of the world.

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PEC's comprehensive global commercial services are balanced by readiness to listen to the
individual client and tailor services to his needs. The client services are geared to two
objectives: conducting international transactions and developing whole new business
ventures that will contribute to India's trade. PEC brings buyers and sellers from India and
countries around the globe together on the common ground of mutually profitable trade.

PEC acquired expertise and up-to-date information are unerring guides to rich market
opportunities. The skills in negotiation have been tested and refined over years in various
market place around the world.PEC can also arrange for the funds required for financing a
transaction and the logistics of transporting goods to their destinations.

Areas of special focus have included third country trading in agro-commodities, energy and
raw materials sourcing and promotion of exports of medium scale projects using appropriate
technologies available in India, to the growing economies of Asia, Africa and Latin America.

It is an unlisted company having the paid up capital of Rs 60 Crore. The total human
resources in PEC Ltd is272.

Vision

To be a highly market focused company engaged in international and domestic trade; an

organization which is lean and flexible; capable of responding to the changing environment
and always conscious of its obligations of delivering value to stakeholders.
A company capable of providing total service to the customers related to international trade.

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Mission

To trade in the international market in a manner to create an image of quality, reliability,

ethical values and sustained long term relationship with the customers and other business
partners by
Export of engineering projects and equipment specially from small and medium
enterprises.
Export and import and domestic trade of commodities, raw-materials, bullion etc,
and develop new products and new markets.
To serve as effective instruments of public and social responsibility.

Objectives

To be a profit oriented international trading organization.

To provide adequate return to the stakeholders, commensurate with the market
expectations.
To seek new opportunities in the global and domestic market..
To focus on export of engineering projects and equipment specially from small
and medium enterprises.
To trade in commodities such as agricultural products, industrial raw materials,
chemicals and bullion.
To continuously strive for enhancement of the corporate image of a reliable, long
term and professionally competent organisation.
To continuously strive for improvement in productivity and competitiveness.

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Organizational Structure

Figure 1: PECs Organizational Structure

Board Of Directors
PEC is headed by Chairman-cum-Managing Director and whole time Directors. The Board
consists of the following members:
RajaniRajanRashmi ( CMD)
A.K. Mirchandani (CMD)
J. Ravi Shanker
Aditi Das Rout
M.C. Luther
Ravi Kumar
Santosh Kumar

PECs line of business:

Exports of Projects, Capital goods, Engineering items, Software and IT related
services and pharmaceutical items & medical equipment/disposables.
Trading in Agricultural Commodities.
Import of Industrial Raw Materials
.Import of Bullion.

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Major Commodities & Industrial Raw Materials
R i c e W h e a t M a i z e

B a r l e y P u l s e s E d i b l e O i l s

O i l S e e d s S u g a r J u t e

S o y a b e a n C o t t o n S t e e l

C o al & Co k e C h e m i c a l s Petrochemicals

I r o n O r e F e r r o C h r o m e B u l l i o n

Agro - Commodities
Indian agriculture has made rapid progress in augmenting the food grain production in last
fifty years and the total annual production has increased from 51 million tonnes in 1950-51 to
almost 200 Million tonnes now.
PEC has established itself as a reliable trader of rice, wheat, soybean/meal, edible oil, sugar,
corn etc. and has emerged as one of the largest traders in commodities from India. With
expertise gained over years as a consistent player in the international agro commodity market,
PEC is able to source agro commodities from world over to meet the requirements of Indian
buyer and also able to export agro commodities of Indian produce.

Edible Oils
India is the one of the world's leading importer and consumer of edible oils in the world.
Currently, India accounts for 11.2 percent of vegetable oil import and 9.3 per cent of edible
oil consumption; import of edible oil has nearly doubled in six years and is expected to
continue rising due to stagnant oilseed production and a rising demand following an increase
in household incomes and per capita consumption. The country buys soya oil from Argentina
& Brazil and palm oil from Malaysia & Indonesia. Palm oil constitutes around 80% of
imported oil in the country. Soybean oil and sunflower oil constitute remaining 20% (around
10% each).

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Industrial Raw Materials
PEC is actively engaged in trading of industrial raw materials.
Steel scrap, billets, HR Coils, Wire Rods, re-inforcing bars and galvanising sheets
have been imported.
Zinc and Manganese concentrates are imported from Australia and Latin America.

Coking Coal
Imports for the pharmaceutical sector include Penicillin G Crystals, PHPG base,
Ethyl & Methyl Aceto Acetate etc.
PEC also imports Industrial Solvents like Toluene, Methanol,Butyl Acetate etc.
It imports manganese ore, coking coal,steamcoal,LAM Coke and Anthracite Coal
for buyers in India from major producers in Australia,

Import Of Bullion
India is one of the largest consumers of Gold and its demand per annum is around 850 MT.
According to rough estimates 95% of gold import is used for jewellery fabrication &
investment demand and balance 5% for industrial use in dental, electronics & other
industries. India is also one of the largest user of Silver. Silver import per annum is around
SSOOMT.
Banks authorized by Reserve Bank of India and Public Sector Undertakings & Star/ Premier
Trading House nominated by Directorate General of Foreign Trade can import Gold/ Silver
in India. PEC is one of the nominated agencies allowed to import Gold/Silver.

PEC has been active in bullion business since February 1998. PEC was the first agency to
offer usance Letter of Credit Facility to import gold. PEC import gold and silver as per the
guidelines issued by Government of India/Reserve Bank of India from time to time.
PEC has imported Gold in denomination of 1kg. 100 gms and 5 gms/10 gms coins at various
destinations in India like Delhi, Mumbai, Bangalore, Jaipur, Chennai, Ahmadabad, Lucknow,
Kanpur etc. from LBMA (Landon Bullion Market Association) approved Gold suppliers and
Banks.

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Corporate Social Responsibility
PEC recognizes the essence of corporate social responsibility and sustainability. Significant
efforts have been put in for identification of relevant projects that would make a positive and
lasting impact on society. During the year a sum of Rs. 2.15 crores was spent on CSR
activities in community welfare initiatives. The majors thrust areas for CSR and sustainability
projects are-
Environment Conservation and Green Energy.
Heritage, culture and sports
Healthcare
Education of Under privileged and disabled
Swachh Bharat Abhiyan
Vocational Training
Drinking Water and Water Conservation

Sales Turnover Over The Years

14000

12012
12000 11344
11483
10275
9969
10000 10496

8000
5961
6000
5671 6186

4000 4518
3725
2000

Figure 2: PECs Sale turnover over last decade

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 Network Of Offices

Figure 3: PECs Network of Offices

However the present working offices of PEC Ltd are in New Delhi, Ahmadabad, Kolkata,
Chennai, Kota, Jaipur, Mumbai.

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1.2 Financial Analysis

Financial statements are the end product of an accounting process which starts with
identification of accounting information and recording thereof in the books of primary entry.
They are prepared following the accounting concepts and principles. Financial statements are
historical in nature.

Financial statements are the summarized statements of accounting data produced at the end of
the accounting process by an enterprise through which it communicates the accounting
information to the internal (management) and the external users. The external users can be
investors, lenders, suppliers and trade creditors, customers, government and their agencies
and employees. Customarily, a set of financial statements includes

Balance Sheet ( Position Statements)

Profit & Loss Account ( Income Statements)
Schedules & Notes to accounts

The financial statements are prepared according to the historical cost convention on accrual
basis and in line with the fundamental accounting principles or prudence, consistency and
materiality. The financial statements are reported in Indian Rupee and all values are rounded
to the nearest million unless otherwise stated.

The financial statements are prepared on the basis generally accepted accounting principles in
India, accounting standards issued by THE Institute of Chartered Accountants of India and
the provisions of the Companies Act 1956, as amended time to time. Purchases and sales are
booked where the company has entered into purchase/sale, contract/agreement with the
sellers/buyers or received allocation letter from the Government on performance of the
contract/agreement /allocation either wholly or partially.

Revenue is recognized on the accrual basis and accounted on actual realization since
reliability of such items is uncertain in accordance with the provisions of AS 9 issued by
ICAI.

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Analysis of Financial statements is a systematic process of the critical examination of the
financial information contained in the financial statements in order to understand and make
decisions regarding the operations of the firm.

Several Tools & Techniques are used in analyzing the financial statements which are as
follows.

Comparative Financial Statements

Common size Financial Statements
Trend percentages
Ratio Analysis
Cash Flow Statements

Among all these tools & techniques Ratio Analysis is one of the most used tools for preparing
the Financial Statements. A ratio is an arithmetical expression of relationship between two
related or interrelated items, when calculated on the basis of accounting information are
called accounting ratios.

1.3 Ratio Analysis

Ratio Analysis is a technique of analyzing the financial statements by computing ratios.

Ratios are regarded as a test of earning capacity, financial soundness and operating efficiency
of business organization. The use of ratios in accounting and financial management to the
profitability, financial position (liquidity & Solvency) and operating efficiency of an
enterprise.

1.4 Steps In Ratio Analysis

The first task of the financial analysis is to select the information relevant to the
decision under consideration from the statements and calculates appropriate ratios.
To compare the calculated ratios with the ratios of the same firm relating to the past or
with the industry ratios. It facilitates in assessing success or failure of the firm.

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 Third step is to interpretation, drawing of inferences and report writing conclusions
are drawn after comparison in the shape of report or recommended courses of action.

1.5 Basis Or Standards Of Comparison

Ratios are relative figures reflecting the relation between variables. They enable analyst to
draw conclusions regarding financial operations. They use of ratios as a tool of financial
analysis involves the comparison with related facts. This is the basis of ratio analysis. The
basis of ratio analysis is of four types.
Past ratios, calculated from past financial statements of the firm.
Competitors ratio, of the some most progressive and successful competitor firm at
the same point of time.
Projected ratios, ratios of the future developed from the projected or pro forma
financial statements

1.6Limitations Of Ratio Analysis

Differences in definitions
Limitations of accounting records
Lack of proper standards
No allowances for price level changes
Changes in accounting procedures
Quantitative factors are ignored
Limited use of single ratio
Background is over looked
Limited use
Personal bias

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1.7Types Of Ratios

1. Liquidity ratio
2. Solvency ratio
3. Activity ratio
4. Profitability ratio

1. Liquidity Ratios
Liquidity refers to the ability of a concern to meet its current obligations as & when there
becomes due. The short term obligations of a firm can be met only when there are sufficient
liquid assets. The short term obligations are met by realizing amounts from current, floating
or circulating assets The current assets should either be calculated liquid or near liquidity.
They should be convertible into cash for paying obligations of short term nature. The
sufficiency or insufficiency of current assets should be assessed by comparing them with
short-term current liabilities. If current assets can pay off current liabilities, then liquidity
position will be satisfactory.
To measure the liquidity of a firm the following ratios can be calculated
Current ratio
Quick / Acid-test / Liquid ratio
Absolute liquid ratio / Cash position ratio

(A) Current Ratio:

The current ratio indicates a company's ability to meet short-term debt obligations. The
current ratio measures whether or not a firm has enough resources to pay its debts over the
next 12 months. Potential creditors use this ratio in determining whether or not to make short-
term loans. The current ratio can also give a sense of the efficiency of a company's operating
cycle or its ability to turn its product into cash. The current ratio is also known as the working
capital ratio.
The current ratio is calculated by dividing current assets by current liabilities:

Current ratio = Current Assets / Current Liabilities.

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The higher the ratio, the more liquid the company is. Commonly acceptable current ratio is 2;
it's a comfortable financial position for most enterprises. Acceptable current ratios vary from
industry to industry. For most industrial companies, 1.5 may be an acceptable current ratio.
Low values for the current ratio (values less than 1) indicate that a firm may have difficulty
meeting current obligations. However, an investor should also take note of a company's
operating cash flow in order to get a better sense of its liquidity. A low current ratio can often
be supported by a strong operating cash flow.
If the current ratio is too high (much more than 2), then the company may not be using its
current assets or its short-term financing facilities efficiently. This may also indicate
problems in working capital management.
All other things being equal, creditors consider a high current ratio to be better than a low
current ratio, because a high current ratio means that the company is more likely to meet its
liabilities which are due over the next 12 months.

(B) Quick Ratio

The quick ratio is a measure of a company's ability to meet its short-term obligations using its
most liquid assets (near cash or quick assets). Quick assets include those current assets that
presumably can be quickly converted to cash at close to their book values. Quick ratio is
viewed as a sign of a company's financial strength or weakness; it gives information about a
companys short term liquidity. The ratio tells creditors how much of the company's short
term debt can be met by selling all the company's liquid assets at very short notice.
The quick ratio is also known as the acid-test ratio or quick assets ratio.

Quick ratio = Quick assets / Current liabilities

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2. Solvency Ratios

The leverage or solvency ratio refers to the ability of a concern to meet its long term
obligations. Accordingly, long term solvency ratios indicate firms ability to meet the fixed
interest and costs and repayment schedules associated with its long term borrowings.
The following ratios serve the purpose of determining the solvency of the business firm.
Debt equity ratio
Proprietary ratio

(A) Debt to Equity Ratio:

The debt-to-equity ratio (debt/equity ratio, D/E) is a financial ratio indicating the relative
proportion of entity's equity and debt used to finance an entity's assets. This ratio is also
known as financial leverage.

Debt-to-equity ratio is the key financial ratio and is used as a standard for judging a
company's financial standing. It is also a measure of a company's ability to repay its
obligations. When examining the health of a company, it is critical to pay attention to the
debt/equity ratio. If the ratio is increasing, the company is being financed by creditors rather
than from its own financial sources which may be a dangerous trend. Lenders and investors
usually prefer low debt-to-equity ratios because their interests are better protected in the
event of a business decline. Thus, companies with high debt-to-equity ratios may not be able
to attract additional lending capital.

A debt-to-equity ratio is calculated by taking the total liabilities and dividing it by the
shareholders' equity:

Debt-to-equity ratio = Liabilities / Equity

3. Activity Ratios

Funds are invested in various assets in business to make sales and earn profits. The efficiency
with which assets are managed directly affects the volume of sales. Activity ratios measure

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the efficiency (or) effectiveness with which a firm manages its resources (or) assets. These
ratios are also called Turn over ratios because they indicate the speed with which assets are
converted or turned over into sales.
Working capital turnover ratio
Fixed assets turnover ratio
Capital turnover ratio
Assets turnover ratio

(A) Working Capital Turnover Ratio

Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This indicates the no. of
times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.
Working capital turnover ratio= Cost of goods sold / Working Capital.

(B) Fixed Assets Turnover Ratio

It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit
earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed
assets. Lower ratio means under-utilization of fixed assets.

Fixed assets turnover ratio = Cost of Sales / Net fixed assets

(C) Asset Turnover Ratio

The asset turnover ratio is an efficiency ratio that measures a company's ability to generate
sales from its assets by comparing net sales with average total assets. In other words, this
ratio shows how efficiently a company can use its assets to generate sales.

Asset Turnover Ratio = Net Sales / Average Total Assets

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4. Profitability Ratios

The primary objectives of business undertaking are to earn profits. Because profit is the
engine, that drives the business enterprise.
Net profit ratio
Return on total assets
Reserves and surplus to capital ratio
Earnings per share
Operating profit ratio
Price earning ratio
Return on equity

(A) Net Profit Ratio

Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates
the efficiency of the management in manufacturing, selling administrative and other activities
of the firm.

Net profit ratio=Net profit after tax / Net sales

It also indicates the firms capacity to face adverse economic conditions such as price
competitors, low demand etc. Obviously higher the ratio, the better is the profitability.

(B) Return On Assets:

Return on assets (ROA) is a financial ratio that shows the percentage of profit that a company
earns in relation to its overall resources (total assets). Return on assets is a key profitability
ratio which measures the amount of profit made by a company per dollar of its assets. It
shows the company's ability to generate profits before leverage, rather than by using leverage.
Unlike other profitability ratios, such as return on equity (ROE), ROA measurements include
all of a company's assets including those which arise from liabilities to creditors as well as
those which arise from contributions by investors. So, ROA gives an idea as to how
efficiently management use company assets to generate profit, but is usually of less interest to
shareholders than some other financial ratios such as ROE.

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Return on assets gives an indication of the capital intensity of the company, which will
depend on the industry. Capital-intensive industries (such as railroads and thermal power
plant) will yield a low return on assets, since they must possess such valuable assets to do
business. Shoestring operations (such as software companies and personal services firms) will
have a high ROA: their required assets are minimal. The number will vary widely across
different industries. This is why, when using ROA as a comparative measure, it is best to
compare it against a company's previous ROA figures or the ROA of a similar company.

ROA = Net Income after tax / Total assets (or Average Total assets)

(C) Return On Equity:

Return on equity (ROE) is the amount of net income returned as a percentage of shareholders
equity. It reveals how much profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet.

ROE is one of the most important financial ratios and profitability metrics. It is often said to
be the ultimate ratio or the mother of all ratios that can be obtained from a companys
financial statement. It measures how profitable a company is for the owner of the investment,
and how profitably a company employs its equity.

Return on equity is calculated by taking a years worth of earnings and dividing them by the
average shareholder equity for that year, and is expressed as a percentage:

ROE = Net income after tax / Shareholder's equity

A common way to break down ROE into three important components is the DuPont formula,
also known as the Strategic Profit model. Splitting the return on equity into three parts makes
it easier to understand the changes in ROE over time.

ROE (DuPont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets /
Shareholder's equity) = Net profit margin * Asset Turnover * Financial leverage.

For stable economics, ROEs more than 12-15% are considered desirable. But the ratio
strongly depends on many factors such as industry, economic environment (inflation,
macroeconomic risks, etc.).

The higher the ROE, the better. But a higher ROE does not necessarily mean better financial
performance of the company. As shown above, in the DuPont formula, the higher ROE can

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be the result of high financial leverage, but too high financial leverage is dangerous for a
company's solvency.

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2. Literature Review

Schmidgall(2003) conducted a studyon Financial Analysis Using the Statement of Cash

Flows on which he observed that Managers use many financial ratios to judge the health of
theirbusinesses. With the recent requirement of a statement of cashflow (SCF) by the
Financial Accounting Standards Board, managersnow have a new set of ratios that will give a
realistic pictureof the business. The ratios include cash flow-interest coverage,cash flow-
dividend coverage, and cash flow from operations tocash flow in investments. These ratios
are particularly usefulbecause they show changes in a hotel or restaurant's cash positionover
time, rather than at a given moment, as is the case withmany other ratios.
Murinde (2003) )conducted study on Corporate Financial Structures on which he observed
that the financial structure of a sample of Indian non-financialcompanies using a new and
unique dataset consisting of a panelcontaining the published accounts of almost 900
companies thatpublished a full set of accounts every year during 1989-99.In a new departure
in the literature, the dataset includes quotedand unquoted companies. We compare the
sources-uses approachto analyzing company financial structures with the asset-
liabilityapproach. We use both approaches to characterize and to comparethe financial
structures of Indian companies over time; betweenquoted and unquoted companies; and
between companies whichbelong to a business group and those that do not. Finally,
wecompare our results to those obtained previously for India andfor the industrial countries.

McMahon (2005) conducted a studyon Financial Informationon which he found that

financial statements mean little to the uninitiated. This paper, explains, in layman's terms,
how to understandfinancial information. It covers measures of profitability.The second article
will cover measures of company liquidityand the use of financial ratios. This paper continues
to explainhow to interpret and understand financial information. It dealswith measures of
liquidity, solvency and fund flows and describeshow to establish standards against which a
company's financialratios can be compared.
Johnson (2009) conducted a studyon Financial Ratio patterns on which he found that the
properties and characteristics of financial ratios have received considerable attention in recent
years with interest primarily focused on determining the predictive ability of financial ratios
and related financial data. Principal areas of investigation have included the prediction of
corporate bond ratings , and the anticipation of financial impairment. Related studies have

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examined the characteristics of merged firms the differences in financial ratio averages
among industries whether firms seek to adjust their financial ratios toward industry averages
the relationship between accounting-determined and market-determined risk measures, and
the influence of financial ratios on analysts' judgments about impending bankruptcy The
general conclusion to emerge from these various research efforts is that a number of financial
ratios have predictive and descriptive utility when properly employed.

To summarize the literature, Ratio analysis is a key dimension of financial management,

suggesting a relationship between profit and loss as mentioned in the balance sheet of an
organization. Its appropriate use will go toward giving a true picture of the financial health of
the unit. Its benefits can be seen in areas of management, production, marketing, personnel
management etc.

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3. Objectives of the study

The ultimate objective of the study is to gain real life exposure of the financial performance
of PEC Limited.

More precisely we can identify the objective of the study as follows:

1. To analyze the downfall in profitability of PEC Ltd.

2. To compare financial performance of PEC Ltd with its competitors.
3. To study the liquidity position of PEC Ltd.
4. To suggest measures for improving the financial performance of PEC Ltd.

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4. Research Methodology

In order to analyze the financial performance of PEC we need to compare its financial
indicators with that of the industry. For the comparative analysis I have chosen 3 different
companies belonging to the same industry. Then their various financial ratios are calculated.

Research Design
Descriptive research is used in this study because it will ensure the minimization of bias and
maximization of reliability of data collected. There is need to use information already
available through financial statements of earlier years and analyze these to make critical
evaluation of the available material. Hence by making the type of the research conducted to
be both descriptive and analytical in nature. From the study, the type of data to be collected
and the procedure to be used for this purpose were decided.

Data Collection
The required data for the study are basically secondary in nature and the data are collected
from the audited reports of the company.

Sources of Data:
I used secondary source
The sources of data are from the annual reports of the companies from the year 2012-2013 to
2014-15.

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 5. Data Analysis
5.1 Profitability Ratios

M M T C S T C P E C
Profitability Ratios 2013 2014 2015 2013 2014 2015 2013 2014 2015
Gross Profit Margin(%) 6 . 0 9 9 . 2 4 6 . 5 5 0 . 6 7 1 . 2 4 0 . 7 6 8 7 5
Net Profit Margin(%) -0.24 0 . 0 7 0 . 2 6 -1.45 -5.43 0 . 1 8 0.832 0.007 -3.37
Return On Net Worth(%) -5.26 1 . 3 8 3 . 5 2 18.46 35.91 3 . 0 4 26.78 0 . 2 -135.23
Return on Assets(%) -2.51 1 . 0 6 2 . 9 1 0 . 8 6 -35.52 1 . 8 1 1 . 8 1 0 . 0 2 -5.79
Table 1: Profitability Ratios

GROSS PROFIT MARGIN (%)

10.00%
9.00%
8.00%
7.00%
6.00%
Axis Title

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2012-13 2013-14 2014-15
MMTC 6.09% 9.24% 6.55%
STC 0.67% 1.24% 0.76%
PEC 8% 7% 5%

Figure 4: Gross Profit Margin

Gross Profit Margin of PEC has dropped from 8% to 5% in the last 3 years, showing the
degrading operational efficiency of PEC. While MMTC also showed a decline in its margin
from 9.24% to 6.55% in 2015 and STCs gross profit margin remained fairly similar.

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 NET PROFIT MARGIN (%)
2
1
0
-1
-2
-3
-4
-5
-6
2012-13 2013-14 2014-15
MMTC -0.24 0.07 0.26
STC -1.45 -5.43 0.18
PEC 0.832 0.007 -3.37

Figure 5: Net Profit Margin

Net Profit Margin of PEC in 2014 was 0.007% and in FY 2014-2015 it has dropped
unexpectedly to -3.37%. PEC has incurred huge loss of Rs. 208crore in 2015. Therefore the
Net profit margin is negative in FY 2014-15. While both of its competitors MMTC &STC, in
2015 showed a growth in net profits from the previous financial year 2013-14.

RETURN ON EQUITY(%)
100

-100
Axis Title

-200

-300

-400

-500

-600
2013 2014 2015
MMTC -5.26 1.38 3.52
STC 18.46 -504 3.04
PEC 26.78 0.2 -135.23

Figure 6: Return on Equity

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Return on Equity of PEC is -135.23% in 2015, ROE has declined significantly for PEC while
it has been almost constant for MMTC. The amount of equity has not changed for PEC
meaning that the decline is due to the dipping net profit only. On the other hand STCs net
profit margin were -504% in 2014 and 3.04% in 2015, because it had a loss of 492 crore in
2014, and in 2015 a profit of 26.19 crores.

The return on assets ratio measures how effectively a company can earn a return on its
investment in assets. ROA of PEC has seen a downward trend since FY 2012-13 from 1.81
to -5.79 in the FY 2014-15, which means that PEC is not efficient in converting the money
used in to purchase assets into profits. While MMTC and STC both have a better ROA when
compared with PEC limited.

5.2 Activity Ratios/ Management Efficiency Ratios

MMTC STC PEC

Management Efficiency
2013 2014 2015 2013 2014 2015 2013 2014 2015
Ratios
Inventory Turnover Ratio 32.18 81.95 57.25 64.85 694.79 4480.37 14.91 20.11 24.49
Debtors Turnover Ratio 11.45 12.77 7.67 5.89 7.30 8.30 0.55 3.20 2.33
Asset Turnover Ratio 7.46 11.05 10.75 7.92 13.94 10.48 2.27 2.59 1.74
Table 2: Management Efficiency Ratios

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 INVENTORY TURNOVER RATIO
5000
4500
4000
3500
3000
Axis Title

2500
2000
1500
1000
500
0
2012-13 2013-14 2014-15
MMTC 32.18 81.95 57.25
STC 64.85 694.79 4480.37
PEC 14.91 20.11 24.49

Figure 8: Inventory Turnover Ratio

Inventory turnover ratio shows the relationship between the sales &average inventory held by
company during a particular time period. The inventory turnover ratio of PEC in FY 2014-15
is 24.49. On the other hand MMTC and STC have a Inventory turnover ratio of 57.25 and
4480.37 as the average inventory of STC is low as compared to other 2 companies.

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 DEBTORS TURNOVER RATIO
14

12

10

0
2012-13 2013-14 2014-15
MMTC 11.45 12.77 7.67
STC 5.89 7.3 8.3
PEC 0.55 3.2 2.33

Figure 9: Debtors Turnover Ratio

DTR measures a business' ability to efficiently collect its debtors or receivables, higher ratios
are more favorable. PEC has a DTR of 2.33 which means it collects their receivables every 5
months. MMTC and STC have a higher DTR than PEC, which means they collect cash from
customers sooner and use that cash to pay bills and other obligations sooner.

ASSET TURNOVER RATIO

16
14
12
10
8
6
4
2
0
2012-13 2013-14 2014-15
MMTC 7.46 11.05 10.75
STC 7.92 13.94 10.48
PEC 2.27 2.59 1.74

Figure 10: Asset Turnover Ratio

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The Asset Turnover Ratio measures how efficiently a firm uses its assets to generate sales.
PEC has a asset turnover of 1.74 in FY 2014-15 which means for every rupee of assets it
generates 1.74rs sales which is a good ratio, But it is low when compared to MMTC and STC
whose asset turnover ratio for FY 2014-15 are 10.75 and 10.48 respectively.

5.3 Solvency Ratios

MMTC STC PEC

Liquidity And Solvency Ratios 2013 2014 2015 2013 2014 2015 2013 2014 2015
Current Ratio 0.9 1.16 1.15 0.59 0.47 1.11 1.07 1.1 1.04
Quick Ratio 1.31 1.22 1.14 1.8 0.99 1.11 0.4 1.03 0.97
Debt Equity Ratio 1.1 0.31 0.21 2.55 13.18 9.22 13.81 9.73 22.34
Table 3: Solvency Ratios

CURRENT RATIO
1.4

1.2

0.8

0.6

0.4

0.2

0
2012-13 2013-14 2014-15
MMTC 0.9 1.16 1.15
STC 0.59 0.47 1.11
PEC 1.07 1.1 1.04

Figure 11: Current Ratio

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For PEC, the current ratio is 1.04:1 in FY 2014-15. It means that for one rupee of current
liabilities. The current assets are 1.23 rupee, available to them. In other words Current assets
are 1.23 times the current liabilities. While in FY 2014-15 MMTC the current ratio is 1.15
and STC current ratio is 1.11. In the last 3 years, the current ratio of PEC is constant. The
consistency increase in the value of current assets increased the ability of the company to
meets its obligations.
Thus, the current ratio throws light on the companys ability to pay its current liabilities out
of its current assets. PEC Ltd. has a good current ratio.

QUICK RATIO
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2012-13 2013-14 2014-15
MMTC 1.31 1.22 1.14
STC 1.8 0.99 1.11
PEC 0.4 1.03 0.97

Figure 12: Quick Ratio

The quick ratio indicates the financial position of an enterprise. The Quick Ratio of PEC is
0.97:1 in FY 2014-15 which is almost similar to 1.03 in FY 2013-14, which is a good for the
company to meet the urgency, which means the companys liquidity position is decent as
compared to the other two companies.

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 DEBT EQUITY RATIO
25

20

15

10

0
2012-13 2013-14 2014-15
MMTC 1.1 0.31 0.21
STC 2.55 13.18 9.22
PEC 13.81 9.73 22.34

Figure 13 : Debt Equity Ratio

D/E ratio is used to measure a companys financial leverage, it indicates how much debt a
company is using to finance its assets relative to the amount of value represented in
shareholders equity. The D/E ratio for PEC is very high, 22.34 for the FY 2014-15 as
compared to 9.73 in FY 2013-14. While STC also has a high D/E ratio of 9.22, MMTC has a
much lower D/E ratio of 0.21.

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6. Results and Conclusion

Poor financial performance of PEC cant be attributed to a single factor. The gross profit
margin in 2015 was 5% while the net profit margin was -3.33%. Net profit margin is negative
in 2015 because of these factors:
Provision for doubtful debts/advances was Rs. 98.70crore, an increase of 87% from
that of previous year.
Finance cost (interest on loans) was Rs. 139 crores, an increase of 145.5% from that
of previous year. It shows that company has relied on debt to raise capital. In 2015 the
company had equity of just Rs. 60 crores. Government of India is the only shareholder
for PEC. This fact is also reflected by Debt-Equity (D/E) ratio. D/E ratio for PEC in
2015 was 22.34 while it was just 9.73 in 2014. Its competitor MMTC had D/E ratio of
0.21 and STC had D/E ratio of 9.22.

The performance and efficiency of PEC is poor when compared to its competitors in the
industry. The following factors show that the efficiency of PEC ltd in using its resources is
low.

The average inventory turnover ratio is low for PEC as compared to its Competitors
because of the 38% decline in revenue from operations from the previous year.
The asset turnover ratio of PEC is low as compared to its competitors, MMTC and
STC. This is because the sales revenue of PEC came down from Rs. 10,074.68 crores
to Rs. 6254.51.
Debtors Turnover Ratio of PEC is low when compared to MMTC & STC. This means
that PEC takes longer time to collect cash from its debtors. As PECs debtor
collection period is 5 months and MMTCs debtor collection period is less than 2
months.

The Liquidity of PEC when compared to the industry is low because of the following factors.
The current ratio of PEC showed a decline in the trend as compared to its
Competitors, but there is no such significant change in the ratio.
The quick ratio of PEC is lower than that of its competitors.

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7. Limitations and caveats

The financial performance of a company is affected by many factors like global trend,
government policies, and economic situations of the country. In this project only ratio
analysis of financial statements is used to analyze the financial performance of the
company with its competitors.
The study is restricted to a period of three months only, so some additional financial
parameters are not covered in this study.
The financial statement and annual reports were used; hence the data collected is
secondary in nature.
Only 3 companies were taken for the comparative analysis: PEC Ltd, MMTC Ltd and
STC Ltd.
Financial parameters reveal only the past performance of firm, it is not necessary that
the same conditions have to be repeated in the future.
Past performance (Good or bad) is not a perfect indicator of future performance.

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8. Recommendations

For raising capital, PEC should focus on equity rather than debt. Due to excessive debt
companys interest expenses have imploded. Higher debt may also lead to solvency issues.

The company needs to do proper credit appraisal before advancing credit sales. In 2015,
company was in loss because of high provisions for doubtful debts (resulting from defaults by
customers).

Operational efficiency needs to be improved. As of now, company has below industry

average inventory turnover ratio and Asset turnover ratio.

PEC LtdPage 37
9. References

Annual Reports Of PEC Limited, MMTC limited, STC Limited

2012-13

2013-14

2014-15

Websites:

http://www.peclimited.com/

http://www.moneycontrol.com/

http://mmtclimited.com/

http://www.stclimited.co.in/

http://www.investopedia.com

http://www.myaccountingcourse.com/

PEC LtdPage 38
10. Appendix

Financial Statements of the Companies

Balance Sheet of PEC Limited for the past 3 years.

A EQUITY AND LIABILITIES As at 31 As at 31
As at 31
March, March,
March, 2015
2014 2013
1 Shareholders Funds
(a) Share Capital 60 60 60
(b) Reserves and Surplus 94.21281482 302.7461 302.0387
154.2128148 362.7461 362.0387
2 Non-Current Liabilities
(a) Long-term Provisions 22.03 23.59424 10.27707
22.0311661 23.59424 10.27707
3 Current Liabilities
(a) Short-term Borrowings 1298.89 1205.76 224.0908
(b) Trade Payables 1813.39 1734.554 4236.697
(c) Other Current Liabilities 307.6048755 553.7083 506.2876
(d) Short-term Provisions 3.1750982 10.25138 22.53069
3423.061599 3504.274 4989.606

TOTAL 3599.29558 3890.614 5361.922

B ASSETS
1 Non-current Assets
(a) Fixed Assets
(i) Tangible Assets 0.6 0.758584 0.73549
(b) Non-current Investments 0 0.40015 0.400075
(c) Deferred Tax Assets (net) 0 28.74342 12.49562
(d) Long-term Loans and Advances 31.76 21.01231 2.373417
(e) Other Non-current Assets 0 0 0.0902
32.36 50.91446 16.0948
2 Current Assets
(a) Inventories 241.8 242.4375 692.2025
(b) Trade Receivables 2635.94 2673.739 3435.555
(c) Cash and Cash Equivalents 4.84 13.54669 347.2121
(d) Short-term Loans and Advances 682.29 899.8629 851.8813
(e) Other Current Assets 2.074815982 10.10951 18.97615
3566.944816 3839.696 5345.827
Total 3599.304816 3890.61 5361.922

Table 4:Balance Sheet of PEC Limited

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 Profit & Loss A/c of PEC Limited for the past 3 years.

For the year For the year

For the year ended ended
Particulars ended 31 March, 31 March,
31 March, 2015 2014 2013
` in Crore
1 Revenue from Operations 6254.510764 10074.68447 12182.84
Revenue from operations (net) 6254.510764 10074.68447 12182.84
2 Other Income 69.97911914 31.04095092 25.3
3 Total Revenue (1+2) 6324.489883 10105.72542 12208.14
4 Expenses
(a) Cost of materials consumed
(a) Purchases of Stock-in-trade 5928.57 8946.711171 11069.73
(b) Changes in Inventories of Stock-in-trade 0.64 449.7550398 116.59
(c) Employee Benefits Expense 29.54 24.7251997 27.47
(d) Finance Costs 139 56.5292795 40.93
(e) Depreciation and Amortization Expense 0.34 0.36 0.44
(g) Trade Expenses 0 0
(f) Other Expenses 310.9 545.7996395 823.72
Total Expenses [ 4(a) to 4(f) ] 6408.993911 10023.89033 12078.88

5 Profit / (Loss) before exceptional, extraordinary items and tax (3-4) -84.5040285 81.83509517 129.26

6 Exceptional items (net) -95.28696238 -79.85740035 0.54

7 Profit before extraordinary items and tax (5+6) -179.7909909 1.977694825 129.8

8 Extraordinary items (net) 0 0 16.73

9 Profit / (Loss) Before Tax (7-8) -179.7909909 1.977694825 113.07

10 Tax Expense:
(a) Current Income Tax 0 17.5 17.1
(b) Deferred Tax 28.74342053 -16.25 -0.98
(c ) Wealth Tax 0.0089109 0.02 -
28.75233143 1.27
Profit / (Loss) from continuing operations -208.5433223 0.707694825 96.95

11 Profit / (Loss) for the Period -208.5433223 0.707694825 96.95

12 Earnings per Equity Share of ` 100 each:

Basic (in `) -347.5722039 1.18 162
Diluted (in `) -347.5722039 1.18 162

Table 5:Profit & Loss A/c of PEC Limited

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 Balance Sheet of MMTC Limited for the past 3 years.

Balance Sheet in (Rs.) Cr.

Mar '15 Mar '14 Mar '13
Sources Of Funds
Total Share Capital 100 100 100
Equity Share Capital 100 100 100
Reserves 1,259.20 1,241.87 1,240.78
Networth 1,359.20 1,341.87 1,340.78
Secured Loans 161.73 176.08 1,478.29
Unsecured Loans 124.92 236.87 0
Total Debt 286.65 412.95 1,478.29
Total Liabilities 1,645.85 1,754.82 2,819.07

Mar '15 Mar '14 Mar '13

Application Of Funds
Gross Block 203.13 202.72 202.44
Less: Accum. Depreciation 145.31 127.49 115.81
Net Block 57.82 75.23 86.63
Capital Work in Progress 0.01 6.54 5.49
Investments 445.66 501.66 484.74
Inventories 319.4 308.36 888.82
Sundry Debtors 3,035.08 1,734.12 2,224.10
Cash and Bank Balance 163.77 472.67 1,460.05
Total Current Assets 3,518.25 2,515.15 4,572.97
Loans and Advances 1,929.16 1,598.43 1,548.23
Total CA, Loans & Advances 5,447.41 4,113.58 6,121.20
Current Liabilities 4,028.45 2,640.69 3,588.94
Provisions 276.61 301.51 290.06
Total CL & Provisions 4,305.06 2,942.20 3,879.00
Net Current Assets 1,142.35 1,171.38 2,242.20
Total Assets 1,645.84 1,754.81 2,819.06
Table 6:Balance Sheet of MMTC Limited

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 Profit & Loss A/c of MMTC Limited for the past 3 years.

Profit & Loss account (in Rs. Cr)

Mar '15 Mar '14 Mar '13
Income
Sales Turnover 18,284.84 25,269.65 28,599.41
Excise Duty 0.56 0.14 1.05
Net Sales 18,284.28 25,269.51 28,598.36
Other Income 148.05 -11.16 60.83
Stock Adjustments 28.42 -572.77 -8.78
Total Income 18,460.75 24,685.58 28,650.41
Expenditure
Raw Materials 17,099.11 22,354.80 26,821.36
Power & Fuel Cost 2.75 2.49 2.44
Employee Cost 191.83 189.5 202.92
Other Manufacturing Expenses 991.6 1,996.37 1,468.47
Miscellaneous Expenses 80.76 48.56 51.62
Total Expenses 18,366.05 24,591.72 28,546.81
Mar '15 Mar '14 Mar '13
Operating Profit -53.35 105.02 42.77
PBDIT 94.7 93.86 103.6
Interest 17.02 66.99 219.47
PBDT 77.68 26.87 -115.87
Depreciation 17.82 12.42 11.97
Profit Before Tax 59.86 14.45 -127.84
PBT (Post Extra-ord Items) 59.86 14.45 -127.84
Tax 11.96 -4.18 -57.21
Reported Net Profit 47.91 18.64 -70.62
Table 7:Profit & Loss A/c of MMTC Limited

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Balance Sheet of STC Limited for the past 3 years.

Balance Sheet (in Rs. Cr)

Mar '15 Mar '14 Mar '13
Sources Of Funds
Total Share Capital 60 60 60
Equity Share Capital 60 60 60
Res erves 81.41 37.73 529.93
Networth 141.41 97.73 589.93
Secured Loans 1,304.07 1,287.62 1,505.39
Uns ecured Loans 0.07 0.18 0
Total Debt 1,304.14 1,287.80 1,505.39
Total Liabilities 1,445.55 1,385.53 2,095.32
Mar '15 Mar '14 Mar '13
Application Of Funds
Gros s Block 1,021.67 106 100.13
Les s : Revaluation
Res erves 897.51 0 0
Les s : Accum .
Depreciation 62.12 43.57 42.36
Net Block 62.04 62.43 57.77
Capital Work in
Progres s 0.39 0.86 8.69
Investments 0.21 0.31 0.31
Inventories 5.5 0.97 43.5
Sundry Debtors 2,425.25 1,968.44 2,289.11
Cas h and Bank
Balance 6.51 58.13 248.14
Total Current As s ets 2,437.26 2,027.54 2,580.75
Loans and Advances 1,261.52 1,221.16 1,832.09
Total CA, Loans &
Advances 3,698.78 3,248.70 4,412.84
Current Liabilities 2,198.54 1,810.23 2,281.82
Provis ions 117.33 116.54 102.47
Total CL & Provis ions 2,315.87 1,926.77 2,384.29
Net Current Assets 1,382.91 1,321.93 2,028.55
Total Assets 1,445.55 1,385.53 2,095.32

Table 8:Balance Sheet of STC Limited

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 Profit & Loss A/c of STC Limited for the past 3 years.

Profit & Loss account (in Rs. Cr.)

Mar '15 Mar '14 Mar '13
Income
Sales Turnover 14,494.01 15,448.63 19,041.62
Net Sales 14,494.01 15,448.63 19,041.62
Other Income 238.22 -356.72 199.18
Stock Adjustments 4.42 -42.49 -500.24
Total Income 14,736.65 15,049.42 18,740.56
Expenditure
Raw Materials 14,388.66 15,214.26 18,414.47
Employee Cost 100.41 133.08 106.54
Other Manufacturing Expenses 8.14 9.04 8.38
Miscellaneous Expenses 31.35 26.79 27.5
Total Expenses 14,528.56 15,383.17 18,556.89
Mar '15 Mar '14 Mar '13
Operating Profit -30.13 22.97 -15.51
PBDIT 208.09 -333.75 183.67
Interest 157.78 154.41 166.25
PBDT 50.31 -488.16 17.42
Depreciation 20.02 4.36 3.58
Profit Before Tax 30.29 -492.52 13.84
Extra-ordinary items 1.11 0.14 0.58
PBT (Post Extra-ord Items) 31.4 -492.38 14.42
Tax 5.21 -0.18 -3.53
Reported Net Profit 26.19 -492.2 17.95
Table 9:Profit & Loss A/c of STC Limited

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