Professional Documents
Culture Documents
PROJECT REPORT
ON
“FINANCIAL ANALYSIS OF
MUTHOOT FINANCE”
Submitted in the partial fulfillment of the requirement for the award of the
Degree of Masters of Business Administration {MBA}
_________________ ___________________
MBA (3RD SEMESTER)
The successful completion of the project would have been far from reality without
mentioning the people who made an indelible impression while making the project.
All the very outset thanks to Mr./Ms.______________ for instructing me and
providing me the opportunity to participate in the project and sharing her invaluable
knowledge and experience with me. Her innovative ideas provided me clarity of
thoughts which helped me to think in the right way.
Without her help and guidance completion of the project report would have been very
difficult. I would also like to give gratitude to all the other faculties who helped me in
making the project worth wile and successful.
I would also like to express my gratitude to ______________ [director],
BVIMR, for providing all needful facilities in the campus and the best faculty for the
students.
Their thoughtful ideas, comments and conceptual insight into the subject kept me
from floundering in my quest. Despite their busy schedule they spared valuable
moments for reviewing and rectifying this project work.
Due to the proper guidance the making of project report became an enjoyable
experience and easy to workout.
2
PREFACE
A hallmark of any premier business school is its willingness and ability to constantly
explore and implement new ideas and practices in the field of management education.
Institute constantly reorients their programs in order to keep abreast of changing
development.
The initial interaction between school students and industry takes place when the
students undergo project is usually for knowing the process for recruitment, selection,
industrial relations & training of that institution. It is often the exposure to corporate
culture that a student receives, particularly true for students without prior work
experience.
During my training at Muthoot Finance Group, I was taken project on Financial
Analysis of Muthoot Finance Group.
The main purpose of the study is to know the policies of the bank regarding marketing
training, which helped me in gaining knowledge about the different working pattern
of different departments of the company.
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TABLE OF CONTENT
CHAPTER-1 INTRODUCTION
CHAPTER-6 SUGGESTIONS
BIBLIOGRAPHY
APPENDIX
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CHAPTER - 1
INTRODUCTION
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COMPANY PROFILE
Muthoot Finance Ltd. is the largest player in the gold loan business in India. 76% of
its business is generated from the 5 southern states in the Country. The Company has
a market share of 19.5% in the organized sector as on FY10. It is facing major legal
hurdle related to Kerala State Money lender Act which, if implemented will
substantially reduce the profitability of the Company as Kerala accounts to 24% of
Company’s business. Moreover, there is a good probability for gold price to get
corrected after this prolonged bull run which may reduce the ticket size of the loans,
leading to a drop in growth and associated profitability. We are quite bullish on the
growth potential of this firm but we would like to avoid the scrip until the
abovementioned factors are sorted out and the scrip is available at a deep discount.
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HISTORY - MUTHOOT FINANCE LTD
Our Company was originally incorporated as a private limited company on March 14,
1997 with the name “The Muthoot Finance Private Limited” under the Companies
Act. Subsequently, by fresh certificate of incorporation dated May 16, 2007, our name
was changed to “Muthoot Finance Private Limited”. The Company was converted
into a public limited company on November 18, 2008 with the name “Muthoot
Finance Limited” and received a fresh certificate of incorporation consequent upon
change in status on December 02, 2008 from the RoC.
Merger with Muthoot Enterprises Private Limited Our Company, along with
Muthoot Enterprises Private Limited, filed a composite scheme of arrangement
bearing C.P. Nos. 48 and 50 of 2004 under the Companies Act before the High Court
of Kerala (“Scheme of Amalgamation”). The Scheme of Amalgamation was approved
by the board of directors of our Company through the board resolution dated April 28,
2004.
Pursuant to the approval of the Scheme of Amalgamation by the High Court of
Kerala by an order dated January 31, 2005, Muthoot Enterprises Private Limited was
merged with our Company, with effect from March 22, 2005 and the High Court of
Kerala had instructed all the parties to comply with the statutory and other legal
requirements to make the Scheme of Amalgamation effective.
The company on March 22, 2005 filed a certified copy of the order of the High
Court of Kerala with the RoC.With the successful implementation of the Scheme of
Amalgamation, the undertaking of Muthoot Enterprises Private Limited along with its
assets and liabilities was transferred to and vested in our Company.
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KEY EVENTS, MILESTONES AND ACHIEVEMENTS YEAR
8
26. Demerger of the FM radio business into Muthoot Broadcasting Private Limited.
27. Private equity investment of an aggregate of Rs. 1,575.45 million from Matrix
Partners India Investments, LLC and Baring India Private Equity Fund III Limited.
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PRODUCT AND SERVICES OF THE MUTHOOT FINANCE
1. GOLD LOAN
Muthoot Finance, India’s largest gold loan company is the first choice of Indians who
want to make their dream a reality. May the dream be to start their own business or to
buy their own home, for over 124 years Muthoot Finance has helped almost every
Indian’s dream come true. Trusted by over 70000 customers every day, Muthoot
Finance Gold Loan has services and products that fit the need of any customer,
making it the quickest, most convenient and safest way to take a gold loan.
Safety of Gold Ornaments: All branches as equipped with Strong Rooms for
keeping safe custody of Gold Ornaments
Gold Loan available at over 3,000 Muthoot Finance branches across India
0% processing fees
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GOLD LOAN SCHEMES
Rs. 2,155/-
2. GOLD COINS
Now invest your wealth in the ever rising power of Gold with the Muthoot Precious
Metals Corporation. 24 carat Pure Gold Coins: Muthoot Precious Metals Corporation
presents Gold Coins with 999% purity (24 Carat). Invest in safe, secure and profitable
Gold Coins.
The Gold Coins hold many advantages:
999% pure
Appreciating asset
Available in denominations such as 2g, 4g, 8g, 20g and 50g to suit every
pocket.
3. MONEY TRANSFER
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One of the finest Money Transfer services in India, with over 700,000 transfers
annually, Muthoot Money Transfer is the largest payout centre in India. Muthoot
Money Transfer allows real time money transfers from across the seas, with the
money reaching the receiver in less than 10 minutes. The money can be transferred
from First Remit/Coinstar, Xpress Money, Ez Remit, Money Gram, Royar Money,
Global Money Transfer, Western Union, Transfast, Instant Cash and even Muthoot
Finance’s own branches abroad. The service boasts low costs, high exchange rates and
NO additional service charge to the receiver.
4. FOREIGN EXCHANGE
Muthoot Foreign Exchange offers you currency exchange facilities as well as allows
you to buy and sell foreign currency and Traveller’s cheques with Muthoot Foreign
Exchange service. With the wide network of almost 3000 branches, we ensure ease of
transaction. Muthoot Foreign Exchange helps you get competitive rates for all
currencies and notes in 35 major currencies as well as 100 miscellaneous ones!
5. MPOWER CARD
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Your life is made infinitely easier with the Muthoot MPower Card, which is a
unique identity card with numerous benefits:
Access it anywhere in India
Keep all your jewelry in our lockers free of cost (No locker charges!)
6. TRAVEL SMART
Within just a few months of its launch Muthoot Travel smart has already become one
of the leading IATA (International Air Transport Association) accredited agencies and
has got certified by IRCTC. Muthoot Travel smart offers all the services of a travel
agency and more, such as travel insurance and foreign exchange Muthoot Travel
smart carries forward the group’s core values of helping India make the right decision
with their money by helping you during your travels, both familial and official. In
addition to the 3000 branches of Muthoot Finance in India, the services of Muthoot
Travel smart can be accessed in 6 offices overseas as well.
Railway Ticketing
Tours
Travel Insurance
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We have challenged ourselves to perform better than the best. We have now launched
a new venture in Gold Financing, offering Customers loan against the security of
Gold Exchange Traded Funds (ETFs) units. This will not only add value to the
services but also enable the Company to service financial requirements of new
Customer segment.
The visionary zeal, constant innovation and customer-oriented product &
service delivery deployed at every phase of its growth are indeed exemplary. And
Muthoot Group is now all set to go places, backed by its assets built by extraordinary
people and high values.
With the guiding principles of honesty, sincerity, confidence and service, Muthoot
Group has indeed come a long way. These values continue to drive all business
decisions of the Group Companies. With customer-centric products and services to
offer, the Group has been constantly innovating and evolving to deliver superior
products, transparent workplace practices, easy accessibility and personalized services
at all levels. Perhaps why, Muthoot Group has earned the trust of millions of
customers and associates across the country.
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segments,” said George Alexander Muthoot, managing director of Muthoot Finance
during the launch.
15
CRM at MUTHOOT FINANCE involves increased communication between the
bank and its present and prospective customers. Its philosophy focuses on each and
every customer’s satisfaction. CRM facilitated coordination of multiple business
functions and multiple channel of communication with the customers to carry out
customer management more efficiently. It also automated the process flow tracking in
the product sales process and helped to generate customized reports and promote
cross-selling. The typical components of CRM strategy at MUTHOOT FINANCE
LIMITED are as follows:
1. Deliver 1. Acquire
increased value to customers
customer 2. Retain valuable
2. Interact with customers
customers
1. Customize by 1. Acquire
customer segment, customer’s needs
2. Develop 2. Differentiate
product, service, based on different
and channel to needs, behavior
meet the customer and characteristics
needs.
The spectacular growth of the Muthoot finance ltd is the result of trust and
confidence that millions of our satisfied Customers have reposed in us and the
legacy of 124 years based on values & ethics.
Over the years, we have helped people fulfilling their dreams & ambitions by
providing meaningful, honest and unparalleled services & Products.
Remember, excelling and managing Customer relationship is the future of any
Business. The Customer focusing is not to be viewed as just a Business
strategy but should become a Corporate Mission. In order to create a branded
service, it is important to become Customer-centric.
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Titan Industries, the Largest Jewellery Chain in Tamil Nadu has joined hands
with India’s Largest Gold Loan Company “MuthootFinance Limited” to
enable customers to realize their dream of owning gold jewellery by paying
15% of actual price on buying and remaining price in monthly installments.
This tie-up aims to enable thousands of customers in the rural India, own and
invest in gold jewellery of their choice from Goldplus, without selling their
old jewellery or other assets.
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CHAPTER-2
RESEARCH METHODOLOGY
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RESEARCH METHODOLOGY
The Problem Definition, the Research Objective, the Research Design, the Sampling
Techniques, the formulation of the Hypothesis, the method of Data Collection , the
Analysis of the collected data, and, the Interpretation and the Report constitute the
Research Methodology.
I have, in the earlier chapters of my report, specified the problem and the objectives of
my research. The subsequent chapters will define the Research design, the sampling
technique, the hypothesis, the analysis and the interpretations.
RESEARCH OBJECTIVES
To survey the consumer buying behavior amongst the premium car buyers,
To find out Honda’s position in the Indian market, as compared to its rivals.
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1. Target Segment:
RESEARCH DESIGN
Descriptive Research studies are those studies which are concerned with describing
the characteristics of a particular individual or group.
In this type of a study a comparative study is made, throwing light on all the attributes
of the Research methodology, as discussed in the past chapters. However, it must
ensure the minimization of reliability of the evidence collected , the said design can
be appropriately referred to as a Survey design, since it takes into account, all the
steps involved in a survey, concerning a phenomenon to be studied.
Certain categories of units are concentrated in certain areas. The cluster sampling
technique, is relatively easy device to select ample units, on the premise that units
belonging to one category exist at a specified location. It is presumed that units
belonging to one category exist at a specified location. It homogeneous group. Thus,
by applying sample principles of random sampling, the sample units can be selected
easily, so that they belong to the desired or specified category.
HYPOTHESIS TESTING
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phenomenon, either asserted merely as a provisional conjecture to guide some
investigation, or accepted as highly probable, in the light of established facts.
H0 : Null Hypothesis Honda is the best car in the premium car segment.
H1 : Alternate Hypothesis Honda is not the best car in the premium car
segment.
The questionnaire was a structured on with both, open and closed ended questions.
A sample copy of the Questionnaire can be found in Appendix A2.
The scales used were mainly Likert or Summated Type of scales and Ranking
Scales.
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Satisfaction with Present Car Extremely Satisfied (36)
It has been seen the most customers are of the average age of 45 years.
They are all either Company Executives (20); or Businessmen (22); 14 of them
were self-employed.
Most of the respondents were hesitant to divulge their monthly income, but did
no only when categorically told that this survey was only for a college project,
and that their responses would be kept confidential.
Most of the respondents had at least 2 cars. In most cases, one of the cars were of
the lower segment and did not concern our study. The cars the respondents owned
were:
The Frequency of buying a car amongst the average respondents was between 2-3
years. (2-6)
The factor that most affected the purchase decision was mainly Technical
Knowledge, as proved by 34 responses in its favor.
The use of Finance schemes was not made, as about 42 respondents give “No”, as
their answer.
36, our of 50 respondents said that they were satisfied with their present car.
Honda, reminded 26 people of all the attributes associated with a good car. Like,
technology, superiority, luxury, status, and of course, price.
About 26 people said that they are planning to purchase of Honda next.
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12 people, out of the 24, who said that they were not interest in purchasing a
Honda, because they had better options. The rest of the 12 comprised of people
who said ”can’t say”, or, “haven’t decided”.
TESTING OF HYPOTHESIS
The figures used in this test are the totals of the highest ranks given by the
respondents, to any of the cars in the attributes of Technology, Efficiency,
Performance, Style and Luxury. This has been done to avoid unintentional bias
towards any particular car.
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LIMITATIONS OF THE STUDY
1. Data obtained was dependent on the memory and mood of the respondents; this
could bring about a bias in the survey.
2. Lack of time. Due to constraints of time a very small sample of the populations
could be study, which was not representative of the entire universe.
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CHAPTER-3
CONCEPTUAL DISCUSSION
25
LITERATURE REVIEW
FINANCIAL STATEMENT
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Purpose of Analysis of financial statements
To know the earning capacity or profitability.
To know the solvency.
To know the financial strengths.
To know the capability of payment of interest & dividends.
To make comparative study with other firms.
To know the trend of business.
To know the efficiency of mgt.
To provide useful information to mgt
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debt in the company’s capital structure and its ability to meet interest payments.
Similarly, stockholders are interested in the profitability and solvency of the company.
They want to assess the likelihood of dividends and the growth potential of the stock.
Comparison can be made on a number of different bases.
Following are the three illustrations:
Ratio Analysis:
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Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing
Forms of Ratio:
Since a ratio is a mathematical relationship between two or more variables /
accounting figures, such relationship can be expressed in different ways as follows –
A) As a pure ratio:
For example the equity share capital of a company is Rs. 20, 00,000 & the preference
share capital is Rs. 5, 00,000, the ratio of equity share capital to preference share
capital is 20, 00,000: 5, 00,000 = 4:1.
B) As a rate of times:
In the above case the equity share capital may also be described as 4 times that of
preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit
sales are Rs. 30,00,000. So the ratio of credit sales to cash sales can be described as
2.5 (30, 00,000/12, 00,000) = 2.5 times are the credit sales that of cash sales.
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C) As a percentage:
In such a case, one item may be expressed as a percentage of some other items. For
example, net sales of the firm are Rs.50, 00,000 & the amount of the gross profit is
Rs. 10, 00,000, then the gross profit may be described as 20% of sales (10, 00,000/50,
00,000)
1) Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the concern
e.g. liquid ratios & current ratios.
2) Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the
assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary
ratios.
3) Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover
ratios & productivity ratios e.g. stock turnover ratios, debtors’ turnover ratios.
4) Profitability ratios:
It shows the relationship between profits & sales e.g. operating ratios, gross
profit ratios, operating net profit ratios, expenses ratios
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It shows the relationship between profit & investment e.g. return on
investment, return on equity capital.
5) Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the
outsiders to be paid out of such profit e.g. dividend payout ratios & debt service
ratios.
Based on User
1) Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios
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With the help of Ratio analysis conclusion can be drawn regarding the liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is able to
meet its current obligation when they become due. A firm can be said to have the
ability to meet its short-term liabilities if it has sufficient liquid funds to pay the
interest on its short maturing debt usually within a year as well as to repay the
principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio is
particularly useful in credit analysis by bank & other suppliers of short term loans.
2) Long-term solvency
Ratio analysis is equally useful for assessing the long-term financial viability of a
firm. This respect of the financial position of a borrower is of concern to the long-
term creditors, security analyst & the present & potential owners of a business. The
long-term solvency is measured by the leverage/ capital structure & profitability ratio
analysis s that focus on earning power & operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The
leverage ratios, for instance, will indicate whether a firm has a reasonable proportion
of various sources of finance or if it is heavily loaded with debt in which case its
solvency is exposed to serious strain. Similarly the various profitability ratios would
reveal whether or not the firm is able to offer adequate return to its owners consistent
with the risk involved.
3) Operating efficiency
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint
of management, is that it throws light on the degree of efficiency in management &
utilization of its assets. The various activity ratios measure this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon
the sales revenues generated by the use of its assets- total as well as its components.
4) Overall profitability
Unlike the outsides parties, which are interested in one aspect of the financial position
of a firm, the management is constantly concerned about overall profitability of the
enterprise. That is, they are concerned about the ability of the firm to meets its short
term as well as long term obligations to its creditors, to ensure a reasonable return to
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its owners & secure optimum utilization of the assets of the firm. This is possible if an
integrated view is taken & all the ratios are considered together.
It is a financial statement, which shows net loss of a company for a specified period.
The accounting year means calendar year of 12 months or less or more than 12
months.
CONTENTS: This presents the revenues and expenses of a company and shows the
excess of revenues over expenses for profit and vice versa for a loss.
FORMAT: The Companies act does not provide any specific format for this account.
However it is required to be prepared on the basis of the instructions given in part ii of
schedule (VI) of the companies act.
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Interest on loans and debentures: Interest on loans and debentures has to be
stated separately. It will include the amount of interest paid as well as
outstanding.
Miscellaneous expenses: In this head items such as rates and taxes, insurance
premium etc., must be stated separately.
Preliminary expenses: Such expenses include the costs of formation of a
company and since their amount is usually large, it is not desirable to write off
them in one year.
Provision for taxation: The profit and loss account of a company must be
debited with the estimated liabilities for tax on the current profits at current
rates of taxation.
Unclaimed dividends: It is shown on the liabilities side of the balance sheet
under the heading ‘current liabilities ‘.
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accounts. When someone, whether a creditor or investor, asks you how your company
is doing, you'll want to have the answer ready and documented. The way to show off
the success of your company is a balance sheet. A balance sheet is a documented
report of your company's assets and obligations, as well as the residual ownership
claims against your equity at any given point in time. It is a cumulative record that
reflects the result of all recorded accounting transactions since your enterprise was
formed. You need a balance sheet to specifically know what your company's net worth
is on any given date. With a properly prepared balance sheet, you can look at a
balance sheet at the end of each accounting period and know if your business has
more or less value, if your debts are higher or lower, and if your working capital is
higher or lower. By analyzing your balance sheet, investors, creditors and others can
assess your ability to meet short-term obligations and solvency, as well as your ability
to pay all current and long-term debts as they come due. The balance sheet also shows
the composition of assets and liabilities, the relative proportions of debt and equity
financing and the amount of earnings that you have had to retain. Collectively,
external parties to help assess your company’s financial status, which is required by
both lending institutions and investors before they will allot any money toward your
business, will use this information.
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normal course of your business. The other assets are only held because they provide
useful services and are excluded from the current asset classification. If you happen to
hold these assets in the regular course of business, you can include them in the
inventory under the classification of current assets. Current assets are usually listed in
the order of their liquidity and frequently consist of cash, temporary investments,
accounts receivable, inventories and prepaid expenses.
Cash: Cash is simply the money on hand and/or on deposit that is available
for general business purposes. It is always listed first on a balance sheet. Cash
held for some designated purpose, such as the cash held in a fund for eventual
retirement of a bond issue, is excluded from current assets.
Marketable Securities: These investments are temporary and are made from
excess funds that you do not immediately need to conduct operations. Until
you need these funds, they are invested to earn a return.
Inventories: Your inventories are your goods that are available for sale,
products that you have in a partial stage of completion, and the materials that
you will use to create your products. The costs of purchasing merchandise and
materials and the costs of manufacturing your various product lines are
accumulated in the accounting records and are identified with either the cost of
the goods sold during the fiscal period or as the cost of the inventories
remaining.
Prepaid expenses: These expenses are payments made for services that will
be received in the near future. Strictly speaking, your prepaid expenses will
not be converted to current assets in order to avoid penalizing companies that
choose to pay current operating costs in advance rather than to hold cash.
Often your insurance premiums or rentals are paid in advance.
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Investments: Investments are cash funds or securities that you hold for a
designated purpose for an indefinite period of time. Investments include stocks
or the bonds you may hold for another company, real estate or mortgages that
you are holding for income-producing purposes. Your investments also include
money that you may be holding for a pension fund.
Plant Assets: Often classified as fixed assets, or as plant and equipment, your plant
assets include land, buildings, machinery, and equipment that are to be used in
business operations over a relatively long period of time. It is not expected that you
will sell these assets and convert them into cash. Plant assets simply produce income
indirectly through their use in operations.
Intangible Assets: Your other fixed assets that lack physical substance are referred to
as intangible assets and consist of valuable rights, privileges or advantages. Although
your intangibles lack physical substance, they still hold value for your company.
Sometimes the rights, privileges and advantages of your business are worth more than
all other assets combined.
Other Assets: During the course of preparing your balance sheet you will notice other
assets that cannot be classified as current assets, investments, plant assets, or
intangible assets. These assets are listed on your balance sheet as other assets.
Frequently, your other assets consist of advances made to company officers, the cash
surrender value of life insurance on officers, the cost of buildings in the process of
construction, and the miscellaneous funds held for special purposes.
Current Liabilities: On the equity side of the balance sheet, as on the asset side, you
need to make a distinction between current and long-term items. Your current
liabilities are obligations that you will discharge within the normal operating cycle of
your business. In most circumstances your current liabilities will be paid within the
next year by using the assets you classified as current. The amount you owe under
current liabilities often arises as a result of acquiring current assets such as inventory
or services that will be used in current operations. You show the amounts owed to
trade creditors that arise from the purchase of materials or merchandise as accounts
payable. If you are obligated under promissory notes that support bank loans or other
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amounts owed, your liability is shown as notes payable. Other current liabilities may
include the estimated amount payable for income taxes and the various amounts owed
for wages and salaries of employees, utility bills, payroll taxes, local property taxes
and other services.
Long-Term Liabilities: Your debts that are not due until more than a year from the
balance sheet date are generally classified as long-term liabilities. Notes, bonds and
mortgages are often listed under this heading. If a portion of your long-term debt is
due within the next year, it should be removed from the long-term debt classification
and shown under current liabilities.
Deferred Revenues: Your customers may make advance payments for merchandise
or services. The obligation to the customer will, as a general rule, be settled by
delivery of the products or services and not by cash payment. Advance collections
received from customers are classified as deferred revenues, pending delivery of the
products or services.
Owner's Equity: Your owner's equity must be subdivided on your balance sheet: One
portion represents the amount invested directly by you, plus any portion of retained
earnings converted into paid-in capital. The other portion represents your net earnings
that are retained. This rigid distinction is necessary because of the nature of any
corporation. Ordinarily, stockholders, or owners, are not personally liable for the
debts contracted by a company. A stockholder may lose his investment, but creditors
usually cannot look to his personal assets for satisfaction of their claims. Under
normal circumstances, the stockholders may withdraw as cash dividends an amount
measured by the corporate earnings. The distinction in this rule gives the creditors
some assurance that a certain portion of the assets equivalent to the owner's
investment cannot be arbitrarily withdrawn. Of course, this portion could be depleted
from your balance sheet because of operating losses. The owner's equity in an
unincorporated business is shown more simply. The interest of each owner is given in
total, usually with no distinction being made between the portion invested and the
accumulated net earnings. The creditors are not concerned about the amount invested.
If necessary, creditors can attach the personal assets of the owners.
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BALANCE-SHEET STRUCTURE
Basis of balance-sheet: Assets = Liability + Equity
The following Balance sheet structure is just an example. It does not show all possible
kind of assets, equity and liabilities, but it shows the most usual ones. It could be a
consolidated balance sheet. Monetary values are not shown and summary (total) rows
are missing as well.
PREPAIRING A BALANCE-SHEET
Title and Heading: In practice, the most widely used title is Balance Sheet;
however Statement of Financial Position is also acceptable. Naturally, when
the presentation includes more than one time period the title "Balance Sheets"
should be used.
Heading: In addition to the statement title, the heading of your balance sheet
should include the legal name of your company and the date or dates that your
statement is presented. For example, a comparative presentation might be
headed:
BALANCE SHEETS
Format: There are two basic ways that balance sheets can be arranged. In
Account Form, your assets are listed on the left-hand side and totaled to equal
the sum of liabilities and stockholders' equity on the right-hand side. Another
format is Report Form, a running format in which your assets are listed at the
top of the page and followed by liabilities and stockholders' equity. Sometimes
total liabilities are deducted from total assets to equal stockholders' equity.
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Captions: Captions are headings within your statement that designate major
groups of accounts to be totaled or subtotaled. Your balance sheet should
include three primary captions: Assets, Liabilities and Stockholders' Equity. In
the report form of presentation, the placement of your primary captions would
be as follows: 2006 ASSETS, LIABILITIES AND STOCKHOLDER’S
EQUITY.
Order of Presentation of Captions: First, start with items held primarily for
conversion into cash and rank them in the order of their expected conversion.
Then, follow with items held primarily for use in operations but that could be
converted into cash, and rank them in the order of liquidity. Finally, finish with
items whose costs you will defer to future periods or that you cannot convert
into cash.
Cash flow statement or statement of cash flows is a financial statement that shows a
company's incoming and outgoing money (sources and uses of cash) during a time
period (often monthly or quarterly). The statement shows how changes in balance
sheet and income accounts affected cash and cash equivalents, and breaks the analysis
down according to operating, investing, and financing activities. As an analytical
tool the statement of cash flows is useful in determining the short-term viability of a
company, particularly its ability to pay bills.
PURPOSE: The cash flow statement reflects a firms liquidity or solvency. The main
purpose to make cash flow statement are as follows:
1. provide information on a firm's liquidity and solvency and its ability to change
cash flows in future circumstances
2. provide additional information for evaluating changes in assets, liabilities and
equity
3. improve the comparability of different firms' operating performance by
eliminating the effects of different accounting methods
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ACTIVITIES INVOLVED IN CASH FLOW:
The cash flow statement is partitioned into cash flow resulting from operating
activities, cash flow resulting from investing activities, and cash flow resulting from
financing activities.
Operating activities: Operating activities include the production, sales and delivery
of the company's product as well as collecting payment from its customers. This could
include purchasing raw materials, building inventory, advertising.
Investing activities: Investing activities focus on the purchase of the long-term assets
a company needs in order to make and sell its products, and the selling of any long-
term assets.
Financing activities: Financing activities include the inflow of cash from investors
such as banks and shareholders, as well as the outflow of cash to
shareholders as dividends as the company generates income. Other activities
which impact the long-term liabilities and equity of the company are also
listed in the financing activities section of the cash flow statement.
Analysis of cash flow statement is necessary for every organisation to depict its
cash inflow and outflow.
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TOOLS FOR ANALYSING
1. PERCENTAGE CALCULATION
There are two popular methods by which we can analyze the financial
statement by calculating percentage as taking a common base.
Horizontal Analysis
When an analyst compares financial information for two or more years for a
single company, the process is referred to as horizontal analysis, since the
analyst is reading across the page to compare any single line item, such as
sales revenues. In addition to comparing dollar amounts, the analyst computes
percentage changes from year to year for all financial statement balances,
such as cash and inventory. Alternatively, in comparing financial statements
for a number of years, the analyst may prefer to use a variation of horizontal
analysis called trend analysis. Trend analysis involves calculating each year's
financial statement balances as percentages of the first year, also known as the
base year. When expressed as percentages, the base year figures are always
100 percent, and percentage changes from the base year can be determined.
Vertical Analysis
When using vertical analysis, the analyst calculates each item on a single
financial statement as a percentage of a total. The term vertical analysis
applies because each year's figures are listed vertically on a financial
statement. The total used by the analyst on the income statement is net sales
revenue, while on the balance sheet it is total assets. This approach to financial
statement analysis, also known as component percentages, produces common-
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size financial statements. Common-size balance sheets and income
statements can be more easily compared, whether across the years for a single
company or across different companies.
2. RATIO ANALYSIS
Financial ratio analysis uses formulas to gain insight into the company and its
operations. For the balance sheet, using financial ratios (like the debt-to-equity
ratio) can show you a better idea of the company’s financial condition along
with its operational efficiency. It is important to note that some ratios will need
information from more than one financial statement, such as from the balance
sheet and the income statement. Ratio analysis facilitates inter-firm and intra-
firm comparison.
LIQUIDITY RATIO
Liquidity ratios are measures of the short-term ability of the company to pay
its debts when they come due and to meet unexpected needs for cash.
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recovered by the most liquid current assets. quick ratio is calculated as
follows:
Quick ratio= (cash + marketable securities + Receivables)/current liabilities
SOLVENCY RATIO
Solvency ratios indicate the ability of the company to meet its long-term
obligations on a continuing basis and thus to survive over a long period of
time.
Debt/Worth Ratio: This ratio expresses the relationship between capital
contributed by creditors and that contributed by owners. It expresses the
degree of protection provided by the owners for the creditors. The higher the
ratio, the greater the risk being assumed by creditors. The lower the ratio, the
greater the long-term financial safety. A firm with a low debt/worth ratio
usually has a greater flexibility to borrow in the future. A more highly
leveraged company has a more limited debt capacity.
PROFITABILITY RATIO
Profitability ratios are gauges of the company's operating success for a given
period of time.
Return On Assets: Return on assets is a measure of how effectively the firm’s
assets are being used to generate profit. It is calculated as follows:
Return On Assets= Net Income/Total Assets
Return On Equity: Return on equity is the bottom line measure for the
shareholders, measuring for the profits earned for each rupee invested in
business. It is calculated as follows:
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Return on Equity= Net income/shareholder’s equity
Fixed/Worth Ratio: This ratio measures the extent to which owner’s equity
(capital) has been invested in plant and equipment (fixed assets). A lower ratio
indicates a proportionately smaller investment in fixed assets in relation to net
worth and a better cushion for creditors in case of liquidation. Similarly, a
higher ratio would indicate the opposite situation. The presence of substantial
leased fixed assets (not shown on the balance-sheet ) may deceptively lower
this ratio.
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CHAPTER-4
DATA ANALYSIS
46
DATA ANALYSIS
RATIO ANALYSIS
Current Ratio
Current ratio may be defined as the relationship between current assets and current
liabilities.
Current ratio = Current assets/current liabilities
C.R
1.11 1.10
1.10
1.09 1.08
C.R
Interpretation
If the C.R. is less than 2 : 1, it indicates lack of liquidity and shortage of
working capital. But a much higher ratio, even though it is beneficial to the
short-term creditors, is not necessarily good for the company. A much higher
ratio than 2 : 1 may indicate the poor investment policies of the management.
So liquidity of Bank is satisfactory.
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Interest coverage/debt service ratio
= Net profit (before interest and taxes)/ Fixed interest charge
2.5
2.38
2.4
2.3
2.2 Interest coverage
ICR
2.09
2.1 ratio(times)
2
2
1.9
1.8
2008-2009 2009-2010 2010-2011
Years
Interpretation :
Since this Ratio indicates the interest paying capability of firm and ideal Ratio
is 6 to 7 times. So interest paying capacity of the firm is moderate.
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Operating ratio= (Operating cost / Net income )*100
Interpretation :
Operating Ratio is a measurement of the efficiency and profitability of the
business enterprise. The ratio indicate the extent of sales that is absorbed by
the cost of goods sold and operating expenses. Lower the operating ratio, the
better it is , because it will leave higher margin of profit on sales.
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Return on gross capital employed=(Net profit / Gross capital) * 100
Gross capital employed= fixed assets + current assets
26
26 Return on gross
25 24 capital employed(%)
24
23
22
2008-09 2009-10 2010-11
Years
Interpretation :
Since profit is the overall objective of a business enterprise, this ratio is a
barometer of the overall performance of the enterprise. It measures how efficiently the
capital employed in the business is being used.
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Return on shareholders=(Net profit / Shareholders funds) *100
Return on Shareholders
Return on shareholders(%)
20 17.74
16.43
funds
15 13.83
Return on
10
shareholders(%)
0
2008-09 2009-10 2010-11
Years
Interpretation :
This Ratio indicates what amount of return has been given to the Share holders
of the firm which help in building the good will firm.
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Interest expense ratio= (Interest expense / income) * 100
Interpretation:
This Ratio indicates that what is the Ratio of Total Interest Expenses to the
Income. So that we can know about profitability of firm.
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Net profit ratio = (Net profit / Net income) * 100
Interpretation:
This Ratio measures the rate of net profit earned on sales. It helps in
determining the overall efficiency of the business operations. An increase in
the ratio over the previous year shows improvement in the overall efficiency
and profitability of the business.
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Operating profit ratio= (Operating profit / Income) * 100
42
40.98
41
40
39 38.57
OPR
Interpretation :
Operating Ratio and Operating Profit Ratio are inter-related and total of both
these Ratio is 100. Both Ratios indicated the profitability of firm.
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Return on net capital employed = (Net profit / Net capital employed) * 100
Net capital employed = Total assets- Current liability
Return on Net capital
employed
Interpretation :
This Ratio indicates how well the Capital employed is being use in business.
Even the performance of two Dissimilar firms may be compared with the help
of this Ratio.
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Operating expenses ratio= (Operating Expenses /Income)
*100
41 39.98
40
39
38 Operating expenses
OER
37.03
37 36.41 ratio(%)
36
35
34
2008-09 2009-10 2010-11
Years
Interpretation :
This Ratio indicates the how much expenses has been spent on selling and
administration use of organization.
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EPS = Net profit after interest, tax & preference dividend /
No. of equity shares
Interpretation :
This ratio is helpful in the determination of the market price of the equity
share of the company. The ratio is also helpful in estimating the capacity of the
company to declare dividends on equity shares.
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DPS = Dividend paid to equity shareholders / No. of equity shares
DPS
9.00 8.50
8.00 7.0
7.00
6.00 5.50
DPS
5.00
DPS
4.00
3.00
2.00
1.00
0.00
2009 2010 2011
Years
Interpretation :
This Ratio indicates how much profit has been given in hand to the equity
share holders. This represents higher the ratio more is the good will of the firm.
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P.E Ratio = Market price per share / Earning per share
P.E Ratio(%)
29 28.80
28.5
P.E Ratio(%)
28 27.74
27.5
27 P.E Ratio (%)
26.5 26.29
26
25.5
25
2009 2010 2011
Years
Interpretation :
This ratio shows how much is to be invested in the market in this company’s
shares to get each rupee of earning on its shares. The ratio is used to measure whether
the market price of a share is high or low.
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CHAPTER-5
FINDINGS & CONCLUSION
60
FINDINGS
During the year, the Bank has pursued a strategy of prioritizing capital conservation,
liquidity management and risk containment given the challenging economic
environment. This is reflected in the Bank’s strong capital adequacy and its focus on
reducing its wholesale term deposit base and increasing its CASA ratio. The Bank is
maintaining excess liquidity on an ongoing basis. The Bank has also placed strong
emphasis on efficiency improvement and cost rationalization. The Bank continues to
invest in expansion of its branch network to enhance its deposit franchise and create
an integrated distribution network for both asset and liability products.
In line with the above strategy, the total deposits of the Bank were Rs. 218,348 crore
(US$ 43.0 billion) at March 31, 2011, compared to Rs. 244,431 crore (US$ 48.2
billion) at March 31, 2010. The reduction in term deposits by Rs. 24,970 crore (US$
4.9 billion) was primarily due to the Bank’s conscious strategy of paying off
wholesale deposits. During Q4-2011, total deposits increased by Rs. 9,283 crore (US$
1.8 billion), of which Rs. 5,286 crore (US$ 1.0 billion), or about 57%, was in the form
of CASA deposits. The CASA ratio improved to 28.7% of total deposits at March 31,
2011 from 26.1% at March 31, 2010.
The branch network of the Bank has increased from 755 branches at March 31, 2007
to 1,438 branches at April 24, 2011. The Bank is also in the process of opening 580
new branches which would expand the branch network to about 2,000 branches,
giving the Bank a wide distribution reach in the country.
In line with the strategy of prioritizing capital conservation and risk containment, the
loan book of the Bank decreased marginally to Rs. 218,311 crore (US$ 43.0 billion) at
March 31, 2011 from Rs. 225,616 crore (US$ 44.5 billion) at March 31, 2010.
Liquidity position
The liquid ratio of the bank in the year 2005,2006 and 2011 is 0.60,0.67and 0.68
respectively and the year 2007 and 2010 liquid ratio is 0.97 and 0.88 respectively
which is close to 1.Though it is not equal to the ideal liquid ratio of 1:1 but still its
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under control. So in nut shell, it can be concluded that the liquidity position of the
bank is quite satisfactory.
The Bank’s capital adequacy at March 31, 2011 as per Reserve Bank of India’s
revised guidelines on Basel II norms was 15.5% and Tier-1 capital adequacy was
11.8%, well above RBI’s requirement of total capital adequacy of 9.0% and Tier-1
capital adequacy of 6.0%. The above capital adequacy takes into account the impact
of dividend recommended by the Board.Also the capital is being effectively utilized in
the bank as it shows better return on capital employed over years.
Asset quality
At March 31, 2011, the Bank’s net non-performing asset ratio was 1.96%. During the
year the Bank restructured loans aggregating to Rs. 1,115 crore (US$ 220 million).
Since the dividend per share has shown a promising increase for the period under
study.It shows that the bank is following a sound dividend policy and is capable of
distributing higher dividends.in this way the investors will feel investing in capital of
the bank a much beneficial option and will be reluctant to withdraw capital for a long
time.
The earnings per share for the period under study also shows a promising increase.it
suggests that bank has better profitability position and in future it can be a better or
attractive channel of investment for shareholders.
High trends of credit deposit ratio reveals that bank has performed satisfactorily as
regard to granting loans and advances to generate income. It suggests that credit
performance is good and the bank is doing its business good by fulfilling its major
objective as regards to granting loans and accepting deposits.
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CONCLUSION
Muthoot Finance is a company that provides support to the banking and financial
sector in the various arenas of life, gold is a major part of all offers. Website:
www.muthootfinance.com information in each category Muthoot Finance Corporate
glad enough remit to cover all loans of gold, precious metals, money, money,
securities, Travel Smart, financing of vehicles and Muthoot and currency in the world.
Therefore, all areas of life greatly help improve the confidence of the Muthoot
Finance.
Muthoot Finance website has been developed to obtain from each country, so
interested can rely on the advice of the business and seeking a better life. Do not
dream to the conclusion come Muthoot Finance Company. All documents and
processes undertaken to grant a simple correspondence minutes, and then, bearing in
mind the flexibility of case studies.
Muthoot Finance in Poland is aware that it is the fastest growing company
largest loan, which offers a variety of gold trade, personal loans, housing, education,
investments, etc., low interest rates on the site, only 1% of the Muthoot Finance Web
site to keep people from all over India in place of promise and improvement. But still
the main lending. The company employs around 17,000 branches in the country and
about 45,000 new customers.
Therefore, instead of this account are a revelation for those who are salivating
has the gold, and various activities in recent years. E ‘was acquired by exposure to the
benefits that other concepts by Muthoot Finance Trust can be created. Mobile
indicates that the page will look attractive to those who want to reach a new direction
in life and to stop taking Muthoot Finance and all the dreams that you want to.
63
CHAPTER-6
SUGGESTIONS
64
SUGGESTIONS
CRISIL and ICRA have both assigned Grade 4 to the IPO which means that the IPO
has above average fundamentals. Gold is having a dream run in commodities market
and the issue seems priced fairly. The company has good growth potential in the
medium term.
We believe MFL is a pure gold play in the burgeoning Indian consumer
Gold Loan market with is growth 15-18% CAGR. We are positive on the
business outlook on the loan against gold. With the above rationale like Strong
brand, track record and management expertise, we advice investors to park
there investment with a medium-to-long term horizon. With less competition in
the business segment MFL is well set in its segment because of it brand loyalty
they have retained in the south Indian states. Now main focus is to penetrate the
North Indian markets by adopting new strategies and also increasing sales from
other investment alternative. Comparable peers like Manappuram and other
NBFC are trading at price to earnings multiples of 18-23x and MFL is available
at 18x.
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BIBLIOGRAPHY
WEBSITE:
www.google.com
www.muthootfinance.com
www.scribd.com
www.wikepedia.com
Times of India
Hindustan Times
India Today
Business Today
BOOKS
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