Beruflich Dokumente
Kultur Dokumente
Submitted to
Gangadhar Meher University, sambalpur
Professional department
I hereby declare that, this project report entitled "REPORT ON RATIO ANALYSIS”
conducted at MAHANADI COALFIELDS LIMITED, Burla, Sambalpur prepared by me
in partial fulfillment of the requirement for the award Master Business Administration in
Finance Management.
I further declare that this project is prepared from the information collected from
MAHANADI COALFIELDS LIMITED and that the same is purely for academic
purpose and the report has not been submitted to any other institution of higher learning
for the award of any degree, diploma or other similar title.
This is to certify that the project work entitled "RATIO ANALYSIS" is a bonafide work
carried out by ROJISMITA MEHER, a candidate of the MBAFM (2016-2018)
GANGADHAR MEHER UNIVERSITY, SAMBALPUR under my guidance and
direction.
Asst.General Manager
I extend my special gratitude to our beloved Dr. Srinivas das sir, hod of professional
department for inspiring me to take up this project.
Finally yet importantly, I would like to thank my parents and friends for their constant
support and encouragement to do the best.
INTRODUCTION
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. The ratios are
categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management
Ratios, Profitability Ratios, and Market Value Ratios.
Ratio Analysis as a tool possesses several important features. The data, which are
provided by financial statements, are readily available. The computation of ratios
facilitates the comparison of firms which differ in size. Ratios can be used to compare a
firm's financial performance with industry averages. In addition, ratios can be used in a
form of trend analysis to identify areas where performance has improved or deteriorated
over time.
Because Ratio Analysis is based upon accounting information, its effectiveness is limited
by the distortions which arise in financial statements due to such things as Historical Cost
Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in
financial analysis, to obtain a quick indication of a firm's performance and to identify
areas which need to be investigated further.
The pages below present the most widely used ratios in each of the categories given
above. Please keep in mind that there is not universal agreement as to how many of these
ratios should be calculated. You may find that different books use slightly different
formulas for the computation of many ratios. Therefore, if you are comparing a ratio that
you calculated with a published ratio or an industry average, make sure that you use the
same formula as used in the calculation of the published ratio.
Meanings of Ratio:
In simple words, "Ratio" is the numerical relationship between two variables which are
connected with each other in some way or the other. Ratios may be expressed in any one
of the following manners
As a number the relationship between 500 and 100 may be expressed as 5(500 divided by
100).
As a fraction the above may alternatively be expressed as former being 5 times of the
latter or latter being 1/5th of the former.
As a percentage the relationship between 100 and 500 may be expressed as 20% of the
latter (100/500 x 100) = 20%.
As a proportion the relationship between 100 and 500 may be expressed as 1:5. Ratio
analysis facilitates the presentation of information of financial statements in simplified,
concise and summarized form.
CHAPTER:-2
COMPANY PROFILE
IB –Valley, Jharsugda
Talcher, Angul
Basundhara, Sundergarh
India is currently among the top three fastest growing economies of the world. As natural
corollary India's energy needs too are fast expanding with its increased industrialization
and capacity addition in Power generation. This is where 'Coal' steps in. In India coal is
the critical input for major infrastructure industries like Power, Steel and Cement.
? Coal meets around 52% of primary commercial energy needs in India against
29% the world over.
? India is the 3rd largest coal producing country in the world after China and USA.
Coal India is a holding company with seven wholly owned coal producing
subsidiary companies and one mine planning &Consultancy Company. It encompasses
the whole gamut of identification of coal reserves, detailed exploration followed by
design and implementation and optimizing operations for coal extraction in its mines. The
producing companies are:
8. The consultancy company is Central Mine Planning and Design Institute Limited
(CMPDIL), Ranchi, Jharkhand
The Indian energy sector is largely dependent on coal as the prime source of energy. After
the Indian independence, a greater need for coal production was felt in the First Five Year
Plan. In 1951 a Working Party for the coal industry was set up, which suggested the
amalgamation of small and fragmented producing units. Thus the idea of a nationalized,
unified coal sector was born.
In the pre-nationalized era coal mining was controlled by private owners, and suffered
from their lack of interest in scientific methods, unhealthy mining practices and sole
motive of profiteering. The miners lived in sub-standard conditions as well. 1n 1956, the
National Coal Development Corporation (NCDC) was formed with 11 collieries with the
task of exploring new coalfields and expediting development of new coal mines.
With the governments national energy policy the near total national control of
coal mines in India took place in 2 stages in 1970s. The coking coal mines (Emergency
provision) act 1971 was promulgated by government on 16 October 1971 under which
except the captive mines of IISCO, TISCO, and DVC, the govt of India took over the
mgnt. Of all 226 coking coal mines and nationalized them on 1 may 1972.Bharat coking
coal ltd was thus born. Further by promulgation of coal mines (Taking over of mgnt)
ordinance 1973 on 31 January 1973 the central government took over the management of
all 711 non-coking coal mines. In the next phase of nationalization these mines were
nationalized with effect from 1 may 1973 and public sector Company named coal mines
authority ltd (CMAL) was formed to manage these non-coking mines.
A formal holding in the form of coal India limited was formed in November 1975
to manage both the companies
To produce and market the planned quantity of coal and coal products efficiently and
economically in an eco-friendly manner with due regard to safety, conservation and
quality.
a) To act towards achieving corporate objectives and approve and review strategies
for achievement of these objectives.
b) To establish policies regarding the long term planning, conservation, research and
development, finance, training, recruitment, safety of the mine workers, industrial
relations etc. ;
c) To set targets and monitor them;
d) To approve budgets, determine standard cost and retention prices and evaluate
performances;
e) To coordinate prices and evaluate performances;
f) To coordinate among the subsidiary companies
g) To establish board linkage to the consumers at coalfields.
h) To maintain liaisons with the major customers.
i) On behalf of the subsidiaries, to make the purchase of plants, equipment etc.
j) All imports and exports of coal to be rated through coal India Ltd.
k) Corporate Structure and Subsidiary Companies
Orissa has abundant coal reserves--a small portion has been exploited till date. With more
and more exposure of coal, spates of thermal power generating units are coming up, be it
for captive use as feedstock for a series of steel and aluminum industries that have come
up or in the pipeline of being set up. The significance of coal for the industrial
development of the state was probably not foreseen, when coal was first sighted by Lt.
Hittoe in 1839 in the Talcher Coalfields and by V. Ball in 1871 in the IB Coalfields.
Though abandoned after sometime, first time mining activity of coal in the state
commenced in 1875. However, it was from 1921 that commercial coal mining was started
by M/S Villiers Ltd. In Handidua Coal Mines (near Talcher).
In the IB Coalfields, M/S Himgir – Rampur Coal Company Ltd. Started the Rampur
Colliery in 1906 and was being managed by M/S Klick Nixon Ltd. The IB River Colliery
was started by M/S Rai Sahab Chandra Mull Indra Kumar (p) Ltd. In 1921 and the Orient
Colliery by M/S R.N. Birla Group of Industries under the banner of Western Bengal
Coalfields Ltd. in 1954.
Thus, began the journey of Coal Mining in Orissa, which is being ably guided and
successfully navigated since 3.4.1992 by Mahanadi Coalfields Ltd. – the one and the only
company operating in the state with an unflinching determination to be the best in the
business so far as Coal sector is concerned.
Mahanadi Coalfields Limited (MCL), a subsidiary of Coal India Limited, and a “Mini
Ratna” company of Government of India with effect from 15:03:07 was formed on
03:04:1997 with its corporate office at Sambalpur, Orissa by bifurcation of Coal mines of
Orissa State from South Eastern Coalfields Limited, with the then coal production of
23.14 MT
Since then the company has grown by leaps and bounds and achieved a total coal
production of 138million tons in the year 2015-16.
The company has been a pioneer in the introduction of clean & new technologies and was
the first to introduce surface miners of coal production in India.
The company has been a role model in the conservation of the environment with
introduction of green belts, water harvesting methods and land reclamation modules.
MCL has planted more than 5 Million trees up to since its inception on the OB dump /
Mine outline as well as in colonies with the help of state Government Agencies. The
company has 15 opencast and 7 underground mines and also 2 joint venture projects.
VISION OF MCI.
"To be the leading energy supplier in the world through best practices from mine to
market"
MISSION OF MCL
“To produce and market the planned quantity of coal and coal products efficiently and
economically in an eco-friendly manner with due regard to safety, conservation and
quality”
The Authorized Share Capital of the Company as on 31. 3. 2011 contented al500.
00crore, divided into 2958200 Equity Shares of 1000/-each and 2041800 10%
Cumulative Redeemable Preference Shares of 1000/-each. The paid up Equity Share
Capital of the Company as on 31, 3. 2011 is 186.40 corer. The entire Equity Share
Capitals are held by Coal India Limited (CIL) and its nominees
ORGANISATION
Lakhanpur area
IB valley area
Basundhara-Garjanbahal area
Salmal area
Orient area(UG)
PRODUCTIVITY;-
2.5.2 OBJECTIVE OF MAHANADI COALFIELDS LIMITED
o Reorganization and reconstruction of the coal mines taken over by the govt.
Mahanadi Coalfields Limited (MCL) is one of the major coal producing company of
India. It is one of the eight subsidiaries of Coal India Limited. Mahanadi Coalfields
Limited was carved out of South Eastern Coalfields Limited in 1992 with its headquarters
at Sambalpur. It has its coal mines spread across Odisha. It has total seven open cast
mines and three underground mines under its fold.
MCL has two subsidiaries with private companies as a joint venture. The names of these
companies are MJSJ Coal Limited & MNH Shakti Ltd.
There are 45 sanctioned mining projects in MCL with a capacity of 190.83 Mty of coal.
The total capital outlay of 45 projects is 6,076.78crore (US$940 million) & out of which
28 with a total capacity of 73.98.Mty have been completed by April 01st, 2009 with a
sanctioned capital investment of 2,348.61crore (US$360 million). Out of the 28
completed projects, 2 have been exhausted (Balanda OCP & Basundhara-East OCP). One
Expn. Project, namely, Lajkura Expn. (2.50 Mty, 1.50 Mty incr.) is going to be approved
within a short period of time.
Approval of Garjanbahal OCP (10.00 Myth) has been stalled temporarily due to delay in
getting Forestry clearance. Seventeen ongoing projects i.e. Kulda OCP (10.00 Mty),
Bhubaneswar OCP (20.00 Mty), Kaniha OCP (10.00 Mty), Bharatpur Expn. Ph.-III (9.00
Mty Incr.), Balaram OC Extn. (8.00 Mty), Ananta Expn. Ph.-III (3.00 Mty Incr.),
Lakhanpur Expn. Ph.-III (5.00 Mty Incr.), Hingula Expn. Ph.-III (7.00 Mty Incr.), Talcher
West) UG (0.52 Mty), Natraj U/G (0.64 Mty), Jagannath U/G (0.67 Mty), Bharatpur OC
Expn. Ph-II (6.00 Mty Incr.), Lakhanpur Expn. (5.00 Mty Incr.), HBI UG Aug. (0.42
Mty), Basundhara (W) Expn. (4.60 Mty Incr.) and two JV projects Gopalprasad OCP
(15.00 Mty), Talabira OCP (20.00 Mty) with a capital investment of ?3,728.17 crore
(US$580 million) are under implementation.[3][7]
2.6 MCL’S POLICY FOR CORPORATE SOCIAL RESPONSIBILITY
(CSR)
Contribution to the society at large by way of social and cultural development, imparting
education, training and social awareness especially with regard to the economically
backward class for their development and generation of income of avoid any liability of
employment.
REVIEW OF LITERATURE
Review of Literature refers to the collection of the results of the various researches
relating to the present study. It takes into consideration the research of the previous
researchers which are related to the present research in any way. Here are the reviews of
the previous researches related with the present study:
Bollen (1999)
Conducted a study on Ratio Variables on which he found three different uses of ratio
variables in aggregate data analysis: (1) as measures of theoretical concepts, (2) as a
means to control an extraneous factor, and (3) as a correction for hetero scedasticity. In
the use of ratios as indices of concepts, a problem can arise if it is regressed on other
indices or variables that contain a common component. For example, the relationship
between two per capita measures may be confounded with the common population
component in each variable. Regarding the second use of ratios, only under exceptional
conditions will ratio variables be a suitable means of controlling an extraneous factor.
Finally, the use of ratios to correct for hetero scedasticity is also often misused. Only
under special conditions will the common form forgers soon with ratio variables correct
for heteroscedasticity. Alternatives to ratios for each of these cases are discussed and
evaluated.
Cooper (2000)
CHAPTER:-4
The financial statements provide some extremely useful information to the extent
that the balance sheet mirrors the financial position on a particular date in terms of the
structure of assets, liabilities and owners’ equity, and so on and the profit an loss account
shows the results of operations during a certain period of time in terms of the revenues
obtained and the cost incurred during the year. Thus, the financial statements provide a
summarized view of the financial position and operations of a firm. Therefore, much an
be learnt about a firm from a careful examination of its financial statements as invaluable
documents performance reports. The analysis of financial statements is thus, an important
aid to financial analysis.
Ratio analysis is a widely-use tool of financial analysis. It can be used to compare the
risk and return relationships of firms of different sizes. It is defined as the systematic use
of ratio to interpret the financial statements so that the strengths and weakness of a firm
as well as its historical performance and current financial condition can be determined.
The term ratio refers to the numerical or quantitative relationship between two items and
variables. These ratios are expressed as (i) percentages, (ii) fraction and (iii) proportion of
numbers. These alternative methods of expressing items which are related to each other
are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that
computing the ratios does not add any information not already inherent in the above
figures of profits and sales. What the ratio do is that they reveal the relationship in a more
meaningful way so as to enable equity investors, management and lenders make better
investment and credit decisions.
A. Current Ratio:
The current ratio is the ratio of total current assets to total current liabilities. It is
calculated by dividing current assets by current liabilities:
The current assets of a firm, as already stated, represent those assets which can be, in the
ordinary course of business, converted into cash within a short period of time, normally
not exceeding one year and include cash and bank balances, marketable securities,
inventory of raw materials, semi-finished (work-in-progress) and finished goods, debtors
net of provision for bad and doubtful debts, bills receivable and prepaid expenses. The
current liabilities defined as liabilities which are short-term maturing obligations to be
met, as originally contemplated, within a year, consist of trade creditors, bills payable,
bank credit, and provision for taxation, dividends payable and outstanding expenses.
B. Quick Ratio /Liquid ratio;- The liquidity ratio is a measure of liquidity designed to
overcome this defect of the current ratio. It is often referred to as quick ratio because it is
a measurement of a firm’s ability to convert its current assets quickly into cash in order to
meet its current liabilities. Thus, it is a measure of quick or acid liquidity.
The acid-test ratio is the ratio between quick assets and current liabilities and is
calculated by dividing the quick assets by the current liability.
This ratio is also known as cash position ratio or super quick ratio. It is a variation of
quick ratio. This ratio establishes the relationship absolute liquid asserts and current
liabilities. Absolute liquid assets are cash in hand, bank balance and readily marketable
securities. Both the debtors and bills receivable are excluded from liquid assets as there is
always an uncertainty with respect to their realization. In other words, liquid assets minus
debtors and bills receivable are absolute liquid assets. In this form of formula:
Activity ratios are concerned with measuring the efficiency in asset management.
These ratios are also called efficiency ratios or asset utilization ratios. The efficiency with
which the assets are used would be reflected in the speed and rapidity with which assets
are converted into sakes. The greater is the rte of turnover or conversion, the more
efficient is the utilization of asses, other things being equal. For this reason, such ratios
are designed as turnover ratios. Turnover is the primary mode for measuring the extent of
efficient employment of assets by relating the assets to sales. An activity ratio may,
therefore, be defined as a test of the relationship between sales and the various assets of a
firm.
This ratio indicates the number of times inventory is replaced during the year. It
measures the relationship between the cost of goods sold and the inventory level. The
ratio can be computed in
Ratio of net credit sales to average trade debtors is called debtors turnover ratio .This
ratio is expressed in times. Accounts receivables is the term which includes trade debtors
and bills receivables. It is a component of current assets and as such has direct influence
on working capital position of the business.
This ratio establishes relationship between cost of sales and net working capital. As
working capital has direct and close relationship with cost of goods sold, therefore, the
ratio provides useful idea of how efficiently or actively working capital is being used.
As the organization employs capital on fixed assets for the purpose of equipping itself
with the required manufacturing facilities to produce goods and services which are
saleable to the customers to earn revenue, it is necessary to measure the degree of success
achieved in this bearing. This ratio expresses the relationship between cost of goods sold
or sales and fixed assets. The following is used for measurement of the ratio.
It is an activity ratio that measures the efficiency with which assets are used by a
company. It is computed by dividing net sales by average total assets for a given period.
The long-term lenders/creditors would be judge the soundness of a firm on the basis of
the long-term financial strength measured in terms of its ability to pay the interest
regularly as well as repay the installment of the principal on due dates or in one lump
sum at the time of maturity. The long term solvency of a firm a be examined by using
leverage or capital structure ratios. The leverage or capital structure ratios may be defined
as financial ratios which throw light on the long-term solvency of a firm as reflected in its
ability to assure the long-term lenders with regard to (i) periodic payment of interest
during the period of the loan and (ii) repayment of principal on maturity or in
predetermined installments at due dates.
A. Proprietary Ratio:
This ratio is also known as ‘Owners fund ratio’ (or) ‘Shareholders equity ratio’ (or)
‘Equity ratio’ (or) ‘Net worth ratio’. This ratio establishes the relationship between the
proprietors’ funds and total tangible assets. The formula for this ratio may be written as
follows.
Proprietors’ funds mean the sum of the paid-up equity share capital plus preference
share capital plus reserve and surplus, both of capital and revenue nature. From the sum
so arrived at, intangible assets like goodwill and fictitious assets capitalized as
“Miscellaneous expenditure” should be deducted. Funds payable to others should not be
added. It may be noted that total tangible assets include fixed assets, current assets but
exclude fictitious assets like preliminary expenses, profit & loss account debit balance
etc.
B. Debt to Equity Ratio
The relationship between borrowed funds and owner’s capital is a popular measure of
the long-term financial solvency of a firm. The relationship is shown by the debt-equity
ratios. This ratio reflects the relative claims of creditors and shareholders against the
assets of the firm. The relationship between outsiders’ claims and owner’s capital can be
shown in different ways and, accordingly, there are many variants of the debt-equity
ratio.
It is also known as ‘time interest-earned ratio’. This ratio measures the debt servicing
capacity of a firm insofar as fixed interest on long-term loan is concerned. It is
determined by dividing the operating profits or earnings before interest and taxes (EBIT)
by the fixed interest charges on loans. Thus,
The main object of a business concern is to earn profit. A company should earn
profits to survive and to grow over a long period. The operating efficiency of a business
concern is ultimately adjudged by the profits earned by it. Profitability should
distinguished from profits. Profits refer to the absolute quantum of profit, whereas
profitability refers to the ability to earn profits. In other words, an ability to earn the
maximum from the maximum use of available resources by the business concern is
known as profitability. Profitability reflects the final result of a business operation.
Profitability ratios are employed by the management in order to assess how efficiently
they carry on business operations. Profitability is the main base for liquidity as well as
solvency. Creditors, banks and financial institutions are interest obligations and regular
and improved profits enhance the long term solvency position of the business.
The gross profit margin is also known as gross margin. It is calculated by dividing gross
profit by sales. Thus,
A high ratio of gross profit to sales is a sign of good management as it implies that the
cost of production of the firm is relatively low. It may also be indicative of a higher sales
price without a corresponding increase in the cost of goods sold. It is also likely that cost
of sales might have declined without a corresponding decline in sales price. Nevertheless,
a very high and rising gross margin may also be the result of unsatisfactory basis of
valuation of stock, that is, overvaluation of closing stock and/or undervaluation of
opening stock.
A relatively low gross margin is definitely a danger signal, warranting a careful and
detailed analysis of the factors responsible for it. The important contributory factors may
be (i) a high cost of production reflecting acquisition of raw materials and other inputs on
unfavorable terms, inefficient utilization of current as well as fixed assets, and so on; and
(ii) a low selling price resulting from severe competition, inferior quality of the product,
lack o f demand, and so on. A through investigation of the factors having a bearing on
the low gross margin is called for. A firm should have a reasonable gross margin to ensure
adequate coverage for operating expenses of the firm and sufficient return to the owners
of the business, which is reflected in the net profit margin.
It is also known as net margin. This measures the relationship between net profits and
sales of a firm.
A low net profit margin has the opposite implications. However, a firm with low profit
margin can earn a high rate of return on investment if it has a higher turnover. This aspect
is covered in detail in the subsequent discussion. The profit margin should, therefore, be
evaluated in relation to the turnover ratio. In other words, the overall rate of return is the
product of the net profit margin and the investment turnover ratio. Similarly, the gross
profit margin and the net profit margin should be jointly evaluated.
The operating ratio is determined by comparing the cost of the goods sold and other
operating expenses with net sales.
OR
A. Return on Investment:
The basic objective of making investments in any business is to obtain satisfactory return
on capital invested. The nature of this return will be influenced by factors such as, the
type of the industry, the risk involved, the risk of inflation, the comparative rate of return
on gilt-edged securities and fluctuations in external economic conditions. For this
purpose, the shareholders can measure the success of a company in terms of profit related
to capital employed. The return on capital employed can be used to show the efficiency
of the business as a whole. The overall performance and the most important, therefore,
can be judged by working out a ratio between profit earned and capital employed. The
resultant ratio, usually expressed as a percentage, is called rate of return or return on
capital employed to express the idea, the purpose is to ascertain how much income the
use of Rs.100 of capital generates. The return on “capital employed” may be based on
gross capital employed or net capital employed. The formula for this ratio may be written
as follows.
This ratio is also known as the profit-to-assets ratio. This ratio establishes the
relationship between net profits and assets. As these two terms have conceptual
differences, the ratio may be calculated taking the meaning of the terms according to the
purpose and intent of analysis. Usually, the following formula is used to determine the
return on total asset ratio.
The dividend payout ratio measures the percentage of net income that is
distributed to shareholders in the form of dividends during the year. In other words, this
ratio shows the portion of profits the company decides to keep to fund operations and the
portion of profits that is given to its shareholders.
The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market
prospect ratio that calculates the market value of a stock relative to its earnings by
comparing the market price per share by the earnings per share. In other words, the price
earnings ratio shows what the market is willing to pay for a stock based on its current
earnings
CHAPTER;-5
RESEARCH DESIGN
In simple terms, methodology can be defined as, giving a clear cut idea on what
methods or process the researcher is going to use in his or her research to achieve
research objectives. In order to plan for the whole research process at a right point of time
and to advance the research work in the right direction, carefully chosen research
methodology is very critical. In other words; what is Research methodology can be
answered as it maps out the whole research work and gives credibility to whole effort of
the researcher.
The study was conducted through the use of the primary and secondary data. The various
sources of the data collection are mentioned below:-
• Primary data:
Primary data are those which are collected afresh and for the first time and thus happen
to be original in character. This method was used by means of personal interview
wherein researcher had face to face to face contact with the person. The reason behind
choosing this method was to have detailed information on the subject. It also provided
opportunity for selecting the sample for interview.
• Secondary data:
Secondary data means data that are already available i.e., the data which is already
collected and analyzed by other. To get a better understanding and to have a larger
exposure on the subject this method was used. methods use was data available on world
wide web , financial industry report , financial planning board of India reports and
article , reports published by government of India etc. Support was also provided by
the project guide by giving inputs from his years of experience.
The study is conducted through following tools which help to get more important and
sufficient data to understand people’s psychology and also help to solve the research
problems.
For the purpose of the present project the Descriptive type of research design can be said
to be most effective and most suitable, because in descriptive type of study the main
emphasis is laid down over the existing situations and not over the causes which
determine such effects. Thus for that purpose Descriptive type of study has been selected
as it seems to be most appropriate to fulfill the objective of the project.
• Sample Size: This study involves 40 respondents were selected for the study.
• Sampling Technique: The sample size has been taken by non-random convenience
sampling technique
CHAPTER;-6
A single ratio in itself does not convey much of the sense. To make ratios useful, they
have to be further interpreted. For example, say the current ratio of 3:1 does not convey
any sense unless it is interpreted and conclusion is drawn from it regarding the financial
condition of the firm as to whether it is very strong, good, questionable or poor. The
interpretation on the ratios can be made in the following ways.
Generally speaking one cannot draw any meaningful conclusion when a single
ratio is considered in isolation. But single ratios may be studied in relation to certain
release of thumb which are based upon well proven conversions as for example 2: 1 is
considered to be a good ratio for current assets to current liabilities.
2. Group of Ratios;-
Rations may be interpreted by calculating a group of related ratios. A single ratio
supported by other related additional ratios becomes more understandable and
meaningful. For example, the ratio of current assets to current liabilities may be
supported by the ratio of liquid assets to liquid liabilities to draw more dependable
conclusions.
3. Historical Comparison.
One of the easiest and most popular ways of evaluating the performance of the
firm is to compare its present ratios with the past ratios called comparison overtime.
When financial ratios are compared over a period of time, it gives an indication of the
direction of change and reflects whether, the firm’s performance and financial position
has improved, deteriorated or remained constant over period of time. But while
interpreting ratios from comparison over time, one has to be careful about the changes, if
any, in the firm’s policies and accounting procedures.
4. Projected Ratios.
Ratios can also be calculated for future standards based upon the projected or
proforma financial statements. These future ratios may be taken as standard for
comparison and the ratios calculated on actual financial statements can be compared with
the standard ratios to find out variances, if any. Such variances help in interpreting and
taking corrective action for improvement in future.
5. Inter-firm Comparison;-
Ratios of one firm can also be compared with the ratios of some other selected firms in
same industry at the same point of time. This kind of comparison helps in evaluating
relative financial position and performance of the firm. But while making use of such
comparison one has to be very careful regarding the different accounting methods,
policies and procedures adopted by different firms.
Liquidity refers to the ability of a concern to meet its current obligations and
when these become due. The short-term obligations are met by realizing amounts from
current. Floating or circulating assets. The current assets should either be liquid or near
liquidity. These 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 of current
liquidities then liquidity position will be satisfactory. On the other hand, if current
liabilities may not be easily met out of current assets then liquidity position will be bad.
The bankers, suppliers of goods and other short-term creditors are interested in the
liquidity of the concern. They will extend credit only if they are sure that current assets
are enough to pay out the obligations. To measure the liquidity of a firm, the following
ratios can be calculated.
(i) Current Ratio
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio also known as working capital ratio, is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial position
or liquidity of a firm. It is calculated by dividing the total of current assets by total of the
current liabilities.
Account receivables
Debtors
Inventories/stock
Prepaid expenses
Normally the current ratio of 2:1 is considered as healthy for the business as because the
business can convert its current assets to liquid cash to meet the requirement and establish
a good market reputation. In the financial year 2016-15 the current ratio of the MCL
stands at 4.29:1. This means the company’s short term financial position is very healthy.
As such MCL encompasses an effective current ratio. A relatively high current ratio is an
indication that MCL is liquid and has the ability to pay its current obligation in time as
and when they become due. The effective current ratio of 4.29:1 represents the sound
liquidity position of MCL.
(ii)Quick/liquid ratio:-
Quick ratio or liquid ratio is a more rigorous test of liquidity than the current ratio.
Liquid ratio may be defined as the relationship between quick/liquid assets and current
liabilities. An asset is said to be liquid if it is easily convertible into cash within a short
period of time without ant loss of value.
Normally the liquid ratio of 2:1 is considered as healthy for the business as because the
business can convert its liquid assets to cash to meet the requirement and establish a good
market reputation. In the financial year 2015-16, the liquid ratio of the MCL stands at
4.18:1This means the company’s short term financial position is very healthy. As such
MCL encompasses an effective liquid ratio. The effective liquid ratio of 4.18:1 represents
the sound liquidity position of MCL
Although debtors, receivable are generally more liquid than inventories, yet there
may be doubts regarding their realization into cash immediately or in time. Hence,
absolute liquid ratio came to existence which indicates the ability of a firm to repay its
short term dues through its cash and bank balances and marketable securities because
basically these three assets are most liquid form of assets.
The above calculation and graph it is clear that the company is maintaining an
absolute liquid ratio of 2.87 in the year 2011-12. But in the year 2012-13 it was increased
to 3.08 and then decrease slightly to 3.06. It was again decrease to 2.55 in the year 2014-
15. Then in 2016-15 in was increase to 2.57.
Working capital turnover ratio indicates the velocity of the utilization of net working
capital. This ratio indicates the number of times the working capital is turned over in is
being used by a firm the course of a year. This ratio measures the efficiency with which
the working capital.
Interpretation;-
This ratio indicates the number of times inventory is replaced during the year. It
measures the relationship between the cost of goods sold and the inventory level. The
ratio can be computed in
There is no rule of thumb to interpret this ratio. Analyst can compare the ratio
with industry standard. Generally, a high ratio indicates that the receivables are more
liquid and are being collected promptly. A low ratio is a sign of less liquid receivables
and may reduce the true liquidity of the business in the eyes of the analyst even if the
current and quick ratios are satisfactory.
After analyzing the above ratio of MCL, the ratio interprets that a high ratio i.e. 42.44 &
34.52 in the year 2012-11 & 2014-13 indicates that the receivables are more liquid as
compare to 2016-15 i.e. 11.35.
(v) Asset turnover ratio;-
Proprietary ratio establishes the relationship between shareholders fund to total assets of
the firm. The ratio of proprietor’s funds to total funds (i.e. owner’s funds + outsiders
funds or total funds or total funds or total assets) is an important ratio for determining
long term solvency position of a firm
The proprietary ratio shows the contribution of stockholders in total capital of the
company. A high proprietary ratio, therefore indicates a strong financial position of the
company and greater security for creditors. A low ratio indicates that the company is
already heavily depending on debts for its operations. A large portion of debt in the total
capital may reduce creditors, interests, increase interest expenses and also the risk of
bankruptcy.
After analyzing the above ratio of MCL, the ratio interprets that there is a decrement in
the year 2015-14 i.e. 0.18 and further to 0.16 in the year 2016-15 compare to 2013-12
which is 0.36 times.
Solvency ratio is a small variant of equity ratio and can be simply calculated as 100 %
proprietary ratio. This ratio indicates the relationship between the total liabilities to
outsiders to total assets of a firm
After analyzing the above ratio of mcl, the ratio interprets that there is a continuous
increment of the solvency ratio to the year 2015-14 i.e. 0.37 further slightly decrease in
the year 2016-15 i.e. 0.35.
The term, capital gearing is used to describe the connection between the equity
share capital including reserve & surpluses to fixed interest bearing loans and long term
debts. If fixed income bearing loans and long term debts exceed the equity share capital
(including reserve & surplus), the firm is said to be highly geared.
After analyzing the above ratio of mcl, the ratio interprets that there is a increment in the
year 2016-15 i.e. 3.6233 which is the measure of capital structure analysis and financial
strength of the company and is of more importance for actual and potential investors.
After analyzing the above ratio of MCL, the ratio interprets that there is a slight
increment in 2012-13 i.e. 15.69 as compare to 2011-12 i.e. 8.60. It was further decrease
to 10.57 in 2013-14. After that it was continue increasing to 14.81 & then to 32. 15 in
2014-15 & 2015-16 respectively.
Gross profit ratio measures the relationship of gross profit to net sales and usually
represented as a percentage. Gross profit ratio indicates the extent to which selling prices
of goods per unit may decline without resulting in losses on operations of a firm. It
reflects the efficiency with a firm produces its products.
The gross profit ratio was 49% in 2015-16; it suggest that in 2015-16 48% of selling price
of MCL product per tones decline without resulting in losses on operations of the firm.
As such, MCL could be considered as efficient in production of non-cooking coal. The
soaring gross profit ratio of 49% indicates that MCL gross profit was sufficient to cover
the operating expenses and to provide for fixed charges, dividend and appropriation of
reserves. But in 2012-13 it earns highest gross profit that is 61%.
Net profit ratio establishes the relationship between profit after tax and net sales. It
indicates the efficiency of the management in manufacturing, selling, administrative and
other activities of the firm. Net profit ratio is the overall measure of firm’s profitability
The earning per share is an excellent measure of profitability and when compared with
earnings per share of other companies belonging to same industry and carrying out same
business it gives an outlook of the comparative earnings or earning power of a firm.
Earnings per share is calculated for a number of years indicate whether or not earning
power of the company has increased or not.
After analyzing the above ratio of MCL, it interprets that the company maintain
48.33 in 2011-12 and then decreases to 47.12 in 2012-13 and continue increasing to
65.14, 79.37 & 96.88 in 2013-14, 2014-15 & 2015-16 respectively.
(v)Return on investment;-
From the above data it is interpret that the company maintain a return on
investment of 0.66 in 2011-12. It was decreases to 0.62 in 2012-13. Then the ratio
continue increasing to 0.70, 0.76 & 0.80 in 2013-14, 3014-15 & 2015-16 respectively.
From the above table it is clear that the company is maintaining a return on capital
employed i.e. 2011-12 it was 0.53. But in the year 2012-13 it was decreases to 0.48.
Then, 2013-14 it was increases to 0.51 and continue increasing to 0.55 & then to 0.57 in
2014-15 & 2015-16 respectively.
From the above data it is clear that the company maintaining a working capital to
net asset ratio i.e. in 2011-12 it was 1.61 and then decreases to 1.59 in 2012-13. After that
in the next years it was further increases to 1.70, 1.77 & 1.79 in 2013-14, 2014-15
&2015-16 respectively.
According to the above data it is clear that, current asset to net asset ratio of the
company continue increasing in the last 5 years. Current asset to net asset ratio of the
company i.e. 1.19, 1.23, 1.33, 1.38 & 1.38 in 2011-12, 2012-13, 2013-14, 2014-15 &
2015-16 respectively. this ratio is nearly same in the year 2014-15 & 2015-16.
CURRENT RATIO;-
Interpretation;-
According to the above calculation, the current ratios of MCL is higher than,
SECL & WCL. In the year 2015-16 it increase more as compare to SECL & WCL. The
current ratio of MCL, SECL, & WCL are 4.29, 2.20, and 1.84 respectively.
In the year 2014-15 & 2013-14 the current ratio of MCL, SECL, & WCL are 3.95,
3.16, 2.63, & 4.48, 3.53, 2.83 respectively. In both the year current ratio of MCL is
slightly more than SECL, & WCL. Current ratio of MCL is higher than SECL is higher
than WCL.
QUICK RATIO;-
INTERPRETATION;-
According to the above graph, it is clearly shown that quick ratio of MCL is
higher than SECL & WCL. In the year 2015-16 quick ratio of MCL is much higher than
SECL & WCL. The QR of MCL, SECL & WCL are 4.18, 1.89, and 1.52 respectively.
In the year 2014-15 the quick ratio of MCL is slightly higher than SECL & WCL
as compare to the year 2015-16. The QR of MCL, SECL, & WCL are 3.83, 2.92 & 2.38
respectively. In the year 2013-14 the QR of MCL is also slight higher than SECL & WCL
i.e. 4.37, 3.32 & 2.54 respectively.
In the year 2014-15 & 2013-14 it is slightly less than SECL & WCL. The working capital
turnover ratio of MCL, SECL& WCL are 0.91, 1.49, 1.46 & 0.87, 1.39, 1.37 respectively.
Inventory turnover ratio of MCL is much higher than SECL & WCL in the year
2015-16, i.e. 28.124, 10.559, 8.279 respectively. in the year 2014-15 it is slightly higher
than SECL & WCL, but in the year 2013-14 the inventory turnover ratio of MCL a little
bit less as compare to SECL & WCL i.e. 18.262, 18. 463, 9.378 respectively.
PROPRIETORY RATIO;-
Interpretation;-
According to the above diagram, the proprietary ratio of MCL is less than SECL
& WCL. In the year 2015-16 proprietary ratio is slightly less than SECL &WCL. The
proprietary ratio of MCL, SECL & WCL are 0.15, 0.20, and 0.23 respectively.
But in the year 2014-15 & 2013-14 proprietary ratio of MCL is very less as
compare to SECL & WCL.
According to the calculation, the graph shows that MCL has a very high net profit
ratio as compare to SECL & WCL. WCL has below 5% net profit ratio whereas MCL
above 30% of net profit ratio.in 2015-16 the net profit ratio of MCL, SECL & WCL is
32.53, 19.39 & 3.99 respectively.
In the above diagram we concluded that working capital to net asset ratio of MCL
is much lower than SECL & WCL. The ratio of MCL, SECL & WCL is 1.79, 2.85 & 3.97
respectively. But in the year 2014-15 & 2013-14 the ratio of MCL is slightly lower than
SECL & WCL. The working capital to net asset ratio in the year 2013-14 & 2014-15 are
1.70, 1.83, 2.60 & 1.77, 1.95, 2.15 respectively.
Conclusion
Ratios are just one number divided by another and such really don’t mean much.
The trick is in the way ratios are analyzed and used by the decision maker. A good
strategy is to compare the ratios to some sort of benchmark, such as industry averages or
to what a company has done in the past, or both. Once ratios are calculated, to find out
where the company stands at that particular point. Useful benchmarks are industry
comparison and company trends.
The company doesn’t have any Raw Materials as it only extract mines and sales
the Raw Coal to the Companies like State Electricity Boards.
By analyzing the above topic I concluded that the company liquidity position is
satisfactory due to more concern on raising the operating activities which increase
working capital of the company. Which affect the operational efficiency of the
company and also the liquidity position.
Debtor turnover ratio (Table) shows a steady growth over the years and it shows
the better debtor management and better Customer Satisfaction policy adopted by
the company.
The current assets are increasing year by year then current liabilities. A further
analysis of component wise current assets shows a considerable increase of bank
balance over the period of time. It means the company as well as the coal industry
is enjoying absolute monopoly in the market and it has increased its production
every year as per the market demand.
The firm is self-sufficient to finance the fixed asset. It is not depending on the
outsider funds. MCL use less amount of long term and did not take any short fund
from outside to invest
BIBLIOGRAPHY
Books:
Annual Reports:
Annual Report of the year 2012-13, 2013-14, 2014-15 & 2015-16 of Mahanadi Coalfields
Ltd.
Internet Source:
www.mcl.gov.in
www.wikipedia.org.in
www.accounting explanation.com
www.Accounting for management .org
www.ratioanalysis.net