A STUDY ON THE FINANCIAL

STATEMENT ANALYSIS OF MRF AND

APOLLO TYRES LTD.

NAME: NITISH KUMAR JAISWAL

ROLL NUMBER: 017-BBA17M-0043 REGISTRATION NO:
017-1121-1145-16

COLLEGE NAME: THE BHAWANIPUR EDUCATION SOCIETY COLLEGE COURSE:

BACHELORS OF BUSINESS ADMINISTRATION (HONS.) IN FINANCE, 2ND YEAR,
2018
 PROJECT REPORT
[Submitted for the Degree of BBA (Honors) under the University of Calcutta]

TITLE OF THE PROJECT

A STUDY ON THE FINANCIAL STATEMENT ANALYSIS OF MRF

AND APOLLO TYRES LTD.
Submitted by:

Name of the Candidate: NITISH KUMAR JAISWAL

Name of the College: THE BHAWANIPUR EDUCATION SOCIETY COLLEGE

University Roll No: 017-BBA17M-0043

Supervised by:

Name of the Supervisor: Prof. BARNASREE CHATTERJEE

Name of the College: THE BHAWANIPUR EDUCATION

SOCIETY COLLEGE
 ACKNOWLEDGMENT

Every project big or small is successful largely due to the effort of a number of wonderful people
who have always given their valuable advice or lent a helping hand. I sincerely appreciate the
inspiration; support and guidance of all those people who have been instrumental in making this
project a success.

I, Nitish Jaiswal, have taken efforts in this project. However, it would not have been
possible without the kind support and help of many individuals. I would like to extend my sincere
thanks to all of them.

At this juncture, I feel deeply honored in expressing my sincere indebted to my Prof.

Barnasree Chatterjee from The Bhawanipur Education Society College whose help,
stimulating suggestions, encouragement and constant supervision as well as for providing
necessary information regarding the project & also for his support in completing the project.

My thanks and appreciations also go to my friends in developing the project and people who
have willingly helped me out with their abilities.
 ABSTRACT
Company analysis refers to the process of evaluating a company’s profitability,
profile and products or services. It is also known as fundamental analysis and investors
generally use it. It incorporates basic company information, such as the mission statement,
goals and values. This process involves reviewing the history of a company and the events
that contributed to shaping the firm. Moreover, it looks into the company’s goods and
services. Company analysis studies the products manufactured by the company and
analyzes the quality and demand for these products. If the firm is in the service sector, the
investor reviews the services offered to the related market.
The domestic tyre industry is expected to post volumes growth of 7-8 per cent to 1,805
lakh tyres during FY2018, despite the weak volumes during the first quarter and part of
second quarter during GST rollout.
In value terms, the growth in exports came a bit lower at 13.3 per cent, as realizations
remained tepid; the pricing was constrained by softened RM prices. While overall tyre
exports grew by 13 per cent during FY2017, the growth in exports to the top 10 countries
was higher at 18 per cent, aided by steady demand in most of the regions, barring the UAE
and Philippines.
 TABLE OF CONTENTS

CHAPTER 1- INTRODUCTION

CHAPTER 2 – OBJECTIVE OF STUDY

CHAPTER-3- RESEARCH AND METHODOLOGY

CHAPTER 4 – CONCEPTUAL FRAMEWORK

CHAPTER 5 – ANALYSIS AND FINDINGS

CHAPTER 6 –CONCLUTION

CHAPTER 7- BIBLIOGRAPHY
CHAPTER 1- INTRODUCTION

COMPANY PROFILE
1.1 COMPANY PROFILE OF MRF TYRES AND APOLLO
YRES

APOLLO TYRES LTD.

Company Background Apollo Tyres Ltd is the world's 17th biggest tyre manufacturer and
leading global tyre industry, with annual consolidated revenues of Rs 140.53 billion in
March 2017. They came into inception in 1972 and has since been a trusted name in the
business of manufacture and sale of tyres. It has its corporate headquarters in Gurgaon, India.
They cater to over 100 countries across the globe which includes Asia, Europe and other
growing economies of Asia. The company now has four manufacturing units in India and 1
in Netherlands. It has a network of nearly 5,000 dealerships in India, of which over 2,500
are exclusive outlets. It gets 69% of its revenues from India, 26% from Europe and 5% from
other geographies. They announced its entry into the two-wheeler tyre segment with contract
manufacturing in March 2016. They have a balanced tyre portfolio with one of the largest
radial tyre capacity in India (FY 2016), UHP and winter tyre capabilities along with one of
the largest player with 25% market share in truck industry. They have a mix of global and
regional brands which includes Apollo, Vredesten, Regal tyres, and Kaizen tyres. Apollo
tyres are manufactured in India and Europe and are available across all categories, including
commercial, passenger vehicles, two wheelers, farm and industrial. At the end of the
financial year 2016, they clocked a turnover of US$ 1.8 billion, backed by a global
workforce of approximately 16,000 employees. As of March 31, 2017, they traded in India
on the Bombay Stock Exchange and National Stock Exchange, with 56% of shares held by
the public, government entities, banks and financial institutions. The partners (Customers)
include Audi, Mercedes-Benz, Volvo, Toyota, Ford, General Motors, Hyundai, Maruti
Suzuki, Fiat, Tata, Mahindra, Ashok Leyland, John Deere, and Volkswagen.

VISION MISION VALUES

To be a premier  Be a customer obsessed  Customer First

tyre industry with company  Business Ethics
 a diversified and  No. 1 tyre brand in India  Care for
multinational  Most profitable tyre Society
presence company in India  Empowerment
 Motivated and  One Family
committed team for  Communicate
excellence in Openly
performance
 Be a green company

Segment Target Positioning

Automobile and industry
equipment manufacturers
/OEMs
Passenger cars, LCV, Luxury, Style, Utility &
HCV, SUVs, Agricultural Safety
and off the road vehicle
manufacturers, users and
service providers.

Products and Competitors

Apollo Tyre manufactures and sells automobiles tyres, tubes and flaps. Apollo Tyre
exports its products to South America, Pakistan, South-East Asia, Middle East Countries
and Africa. The manufacturing plants of Apollo Tyre are located in Trichur, Vadodara and
Pune.
Apollo Tyre product line includes the following:-
 Passenger Cars
 Trucks and Bus
 Farm
 Two Wheelers
The major competitor of Apollo Tyres is MRF and Balkrishna Ind. Sales for Apollo is
more when compared to Balkrishna Ind. but less when compared to MRF. Net Profit is
maximum for MRF followed by Apollo Tyres. The total assets lies more with MRF
compared to the other competitors.
 SWOT Analysis
Strengths Weaknesses

• Wide product variety • Low presence in latest car models.

• Geographical coverage • Low presence in two/three wheeler

segment
• Good financial position $ brand
awareness • Over 4000 dealerships in • Brand yet to establish itself like the
India, and over 900 in South Africa market leaders

• Has manufacturing plants at India, SA,

Zimbabwe and Netherlands

Opportunities Threats

• Emerging markets and improved • Price wars

lifestyle
• Stiff competition
• More tie-ups with Automobile
• Cheap technologies
companies as it’s mainly into B2B
market. • Volatility in prices and availability of
raw material as India’s rubber production
• Emergence of India as a hub for small
is less than its demand.
car production
• Government Policies
 MRF TYRES LTD.
MRF’s origin traces back to the humble shack in
Madras that housed its first makeshift toy
balloon manufacturing unit set up by KM
Mammen Mappillai in 1946. It was not until
1952 when it changed course and turned to tread
rubber manufacturing. Thus began its glorious
reign as the undisputed leader in the tyre making
industry. By the early 60’s, MRF was exporting
its quality tyres to offices overseas in multiple countries and soon its presence was known
globally in 65 different countries - with tyres rolling out of 8 facilities built across 450
acres, 4000 plus strong dealer networks and 180 different offices. MRF is recognized for
its drive towards continuous quality improvement and customer satisfaction. It has won the
JD Power award not once but 12 times till date. It has also won the TNS and CAPEXIL
awards for being voted as the most trusted tyre company in India. MRF shares a passion
for quality tyres and fast cars just as it does for quality cricket and fast bowlers. It has
chosen to associate itself with some of the world’s best fast bowlers through ‘Pace
Foundation’ - An academy that has trained legends such as Irfan Pathan, Munaf Patel, RP
Singh, Bret Lee, Shoaib Akhtar, Glenn McGrath and many more.
MRF’s passion for
motorsports is seen through its
involvement in racing, karting,
rallying and various other
motorsport events. Its rallying
team has won the prestigious
FIA Asia Pacific Rally
Championship twice and even
in international
championships, MRF karting tyres homologated by FIA, is the preferred choice.

Currently MRF exports tyres to over 65 countries including America, Europe, Middle
East, Japan, and the Pacific region. It presently has overseas offices in Dubai, Vietnam and
Australia.
Products of the company

 Tyres – It manufactures various tyres for passenger cars, two–wheelers, trucks,

buses, tractors, light commercial vehicles and off–the–road tyres.
 Conveyor Belting – It manufactures its Muscleflex brand of conveyor belting at
one of the most advanced state–of–the–art facilities in India. Incorporating the
latest manufacturing techniques in processes beginning with mixing, calendaring
and the like to manufacturing of the finished products, all of which is in–house,
Muscleflex –conveyor belting has gained rapid acceptance in markets worldwide.
 Pretreads – It is the most advanced precured retreading system in India. MRF
forayed into retreading as far back as 1970. Today, MRF has perfected the art of
recured retreading with its extensive knowledge in tyres and rubber.

Awards
 It was awarded as Most Trusted Tyre Company in India by TNS 2006 global CSR
study.
 The company won the J D Power Asia Pacific award for customer satisfaction
seven times.
 MRF was honoured with CAPEXIL award as acknowledgement for its export
performance.
 In 2013 Won the JD power award for the 10th time.

MRF (Madras Rubber Factory)

Parent Company MRF (Madras Rubber Factory)

Category Tyre Industry

Sector Automobiles
 Tyres with muscle; Choice of Champions; India’s No.1 Tyre
Tagline/ Slogan Manufacturer

USP Product superiority, innovation and strength

STP

Segment Automobile industry, manufacturing industry,

Heavy duty trucks/buses, small cars, luxury cars, SUVs and conveyor
Target Group belts for manufacturing facilities.

Positioning India’s no.1 tyre making company with comprehensive tyre portfolio.

Competition

 BALKRISHNA INDUSTRIES LTD.

 APOLLO TYRES LTD.
 CEAT LTD.
 GOODYEAR INDIA LTD.
 TVS SRICHAKRALTD.
 GOVIND RUBBER LTD.

SWOT Analysis

Strengths 1. Company has remained in no.1 position in tyre industry and was the
first to reach annual turnover ofRs.5000Crore in India.
2. They have 6 manufacturing facilities in India (all in south) in
proximity of rubber belt of India, with sales network divided in 4
zones; east(14), west (23), south(33) and north(27 dealers)- very strong
and developed distribution network.
3. Good export market with company exporting tyres and conveyor
belts to 65 countries
4. Complete product portfolio with tyres for all types of vehicles-heavy
duty vehicles, SUVs, small & luxury cars, two & three wheelers,
conveyor belts, paints & coats and pretreads.
5. It enjoys strong brand equity and loyalty of customers.
 6. Company is willing to take innovative measures to suit different
terrains of India.
7. Strong financial position
8. Diversified into Funskool, MRF Pace Foundation, MRF Racing
9. Advertising as India eco-friendly car tyre making company.

Weaknesses 1. Volatility in industrial relations. Ex: the labour unrest

2. Intense competition due to presence of other global brands

1. Emerging markets and growth of automobile industry

2. More tie-ups with Automobile companies as it’s mainly into B2B
Opportunities market.
3. Horizontal and concentric Diversification.

1. Price wars
2. Stiff competition from national and international brands
3. Cheaper technologies
Threats
4. Volatility in prices and availability of raw material as India’s rubber
production is less than its demand.
5. Government Policies w.r.t export duties, import duties, tax levied on
automobile industries and economic condition of nation as it
determines the sale of automobiles.
6. Introduction of other transport facilities like metro, monorails and
local trains keeping pollution hazards caused by combustion of
automobile fuels.
 2 OBJECTIVE OF THE STUDY

The main objectives are as follows -

1. To portray the financial position of MRF TYRES and APOLLO TYRES.
2. To get insight of Indian Tyre Industry.
3. To show the financial statement analysis of above organisations through ratios.
4. To know the liquidity, solvency and profitability position of the companies.
5. To ascertain the operating efficiency of the companies in utilization of its assets.
6. To understand the composition of assets and study the growth of the companies.
7. To examine trend of the business.

3 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically. According to
Hudson Maxim “All progress is born of inquiry. Doubt is often better than over confidence,
for it leads to an inquiry, and inquiry leads to invention.” Research is an academic activity
and as such the term should be used in technical sense. Methodology is the systematic,
theoretical analysis of the methods applied to a field of study. It comprises the theoretical
analysis of the body of methods and principles associated with a branch of knowledge.
Typically, it encompasses concepts such as paradigm, theoretical model, phases and
quantitative or qualitative techniques. A methodology does not set out to provide solutions
- it is, therefore, not the same thing as a method. Instead, it offers the theoretical
underpinning for understanding which method, set of methods or so called “best practices”
can be applied to specific case, for example, to calculate a specific result.
RESEARCH DESIGN
Statistical tools, statements & Ratios have been used for explaining the project. For achieving
the objectives, case studies of a tyre industry – MRF and ApolloTyres limited have been
illustrated. The analysis has been done on the basis of secondary data; the study is analyzed by
taking the help of statistical tool (Bar graph), Balance sheets, profit and loss statements and
Cash flow statement .Analysis of ratios is done below the calculations of the same.

METHODOLOGY

4.2.1 SAMPLE
Annual Reports

4.2.2 DATA TYPE

Secondary Data is being used.

4.2.3 DATA SOURCE

From websites:
Official websites of above two companies
From Annual Report of two companies
4.2.4 PERIOD OF STUDY
A comparative study of the above two companies for the FY 17.
 4 LIMITATIONS OF THE STUDY
At the time of preparing of this project I faced many problems as follows:
1. The study includes only secondary data. If I had taken primary data the results
would have been better.
2. The study is taken only for a limited period of time.
3. The required data which are obtained for the study are all secondary data; no
primary data was used.
4. Financial data are badly distorted by inflation.
5. Any manipulation or creative accounting made by the company may give
misleading result.
6. Personal observations are not allowed properly to bring out complete material
facts.
7. Due to change in accounting policies during the year, the data may not be
comparable from year to year.
8. There was lack of availability of ample information.
9. Time and money both are not sufficient to permit elaborate study of the project.
10. The changes in price level very often distort trend analysis done with the help of
ratio analysis.
 5 CONCEPTUAL FRAMEWORK
5.1 NATURE AND TYPES OF FINANCIAL STATEMENT
ANALYSIS

Nature of financial statement analysis - Financial statement (or financial report) is a

formal record of the financial activities of a business, person, or other entity.
For a business enterprise, all the relevant financial information, presented in a structured
manner and in a form easy to understand, are called the financial statements. They
typically include four basic financial statements, accompanied by a management
discussion and analysis:

1. Balance sheet: Also referred to as statement of financial position or condition, reports

on a company’s assets, liabilities, and Ownership equity at a given point in time.

2. Income statement: Also referred to as Profit and Loss statement (or a "P&L"), reports
on a company’s income, expenses, and profits over a period of time. Profit & Loss
account provides information on the operation of the enterprise. These include sale and
the various expenses incurred during the processing state.

3. Statement of retained earnings: Explains the changes in a company’s retained earnings

over the reporting period.

4. Statement of cash flows: Reports on a company’s cash flow activities, particularly its
operating, investing and financing activities.
 5.2 BENEFIT OF FINANCIAL STATEMENT ANALYSIS

1. Holding of Share: Shareholders are the owners of the company. Time and again, they
may have to take decisions whether they have to continue with the holdings of the
company's share or sell them out. The financial statement analysis is important as it
provides meaningful information to the shareholders in taking such decisions.

2. Decisions and Plans: The management of the company is responsible for taking
decisions and formulating plans and policies for the future. They, therefore, always
need to evaluate its performance and effectiveness of their action to realize the
company's goal in the past. For that purpose, financial statement analysis is important
to the company's management.

3. Extension of Credit: The creditors are the providers of loan capital to the company.
Therefore they may have to take decisions as to whether they have to extend their
loans to the company and demand for higher interest rates. The financial statement
analysis provides important information to them for their purpose.

4. Investment Decision: The prospective investors are those who have surplus capital to
invest in some profitable opportunities. Therefore, they often have to decide whether
to invest their capital in the company's share. The financial statement analysis is
important to them because they can obtain useful information for their investment
decision-making purpose.
 5.3 LIMITATIONS

Although analysis of financial statement is essential to obtain relevant information

for making several decisions and formulating corporate plans and policies, it should
be carefully performed as it suffers from a number of the following limitations.

1. Mislead the user: The accuracy of financial information largely depends on how
accurately financial statements are prepared. If their preparation is wrong, the
information obtained from their analysis will also be wrong which may mislead the
user in making decisions.

2. Not useful for planning: Since financial statements are prepared by using historical
financial data, therefore, the information derived from such statements may not be
effective in corporate planning, if the previous situation does not prevail.

3. Qualitative aspects: Then financial statement analysis provides only quantitative

information about the company's financial affairs. However, it fails to provide
qualitative information such as management labor relation, customer's satisfaction,
and management’s skills and so on which are also equally important for decision
making.

4. Comparison not possible: The financial statements are based on historical data.
Therefore comparative analysis of financial statements of different years cannot be
done as inflation distorts the view presented by the statements of different years .The
limitations mentioned above about financial statement analysis make it clear that the
analysis.

5.4 QUALITATIVE FACTOR

1. The Company: Before diving into a company's financial statements, we're going to
take a look at some of the qualitative aspects of a company. Fundamental analysis
 seeks to determine the intrinsic value of a company's stock. But since qualitative
factors, by definition, represent aspects of a company's business that are difficult or
impossible to quantify, incorporating that kind of information into a pricing
evaluation can be quite difficult. On the flip side, as we've demonstrated, you can't
ignore the less tangible characteristics of a company. In this section, we are going to
highlight some of the company-specific qualitative factors that you should be aware
of.
2. Competitive Advantage: Another business consideration for investors is competitive
advantage. A company's long-term success is driven largely by its ability to maintain
a competitive advantage - and keep it. Powerful competitive advantages, such as
Coca Cola's brand name and Microsoft's domination of the personal computer
operating system, create a moat around a business allowing it to keep competitors at
bay and enjoy growth and profits. When a company can achieve competitive
advantage, its shareholders can be well rewarded for decades. If company like Moser
Baer making CDs and DVDs have better competition advantage compare to
company or firm making cassettes for audio and video promotion of movies and
songs.
3. Management: Just as an army needs a general to lead it to victory, a company relies
upon management to steer it towards financial success. Some believe that
management is the most important aspect for investing in a company. It makes sense
- even the best business model is doomed if the leaders of the company fail to properly
execute the plan. So how does an average investor go about evaluating the
management of a company? This is one of the areas in which individuals are truly at
a disadvantage compared to professional investors. You can't set up a meeting with
management if you want to invest a few thousand dollars. On the other hand, if you
are a fund manager interested in investing millions of dollars, there is a good chance
you can schedule a face- to-face meeting with the upper brass of the firm. Every
public company has a corporate information section on its website. Usually there will
be a quick biography on each executive with their employment history, educational
background and any applicable achievements. Don't expect to find anything useful
here. Let's be honest: We're looking for dirt, and no company is going to put negative
information on its corporate website.
4. Ownership and Insider Sales: Just about any large company will compensate
executives with a combination of cash, restricted stock and options. While there are
 problems with stock options (See Putting Management under the Microscope), it is
a positive sign that members of management are also shareholders. The ideal
situation is when the founder of the company is still in charge. Examples include Bill
Gates (in the '80s and '90s), Michael Dell and Warren Buffett. When you know that
a majority of management's wealth is in the stock, you can have confidence that they
will do the right thing. As well, it's worth checking out if management has been
selling its stock. This has to be filed with the Securities and Exchange Commission
(SEC), so it's publicly available information. Talk is cheap - think twice if you see
management unloading all of its shares while saying something else in the media.
5. Past Performance: Another good way to get a feel for management capability is to
check and see how executives have done at other companies in the past. You can
normally find biographies of top executives on company web sites. Identify the
companies they worked at in the past and do a search on those companies and their
performance.
6. Corporate Governance: Corporate governance describes the policies in place within
an organization denoting the relationships and responsibilities between management,
directors and stakeholders. These policies are defined and determined in the
company charter and its bylaws, along with corporate laws and regulations. The
purpose of corporate governance policies is to ensure that proper checks and
balances are in place, making it more difficult for anyone to conduct unethical and
illegal activities. Good corporate governance is a situation in which a company
complies with all of its governance policies and applicable government regulations
in order to look out for the interests of the company's investors and other
stakeholders.
a. Financial and Information: Transparency This aspect of governance
relates to the quality and timeliness of a company's financial disclosures
and operational happenings. Sufficient transparency implies that a
company's financial releases are written in a manner that stakeholders
can follow what management is doing and therefore have a clear
understanding of the company's current financial situation.
b. Stakeholder Rights: This aspect of corporate governance examines the
extent that a company's policies are benefiting stakeholder interests,
notably shareholder interests. Ultimately, as owners of the company,
shareholders should have some access to the board of directors if they
 have concerns or want something addressed. Therefore, companies with
good governance give shareholders a certain amount of ownership
voting rights to call meetings to discuss pressing issues with the board.
c. Structure of the Board of Directors: The board of directors is composed
of representatives from the company and representatives from outside of
the company. The combination of inside and outside director’s attempts
to provide an independent assessment of management's performance,
making sure that the interests of shareholders are represented. The key
word when looking at the board of directors is independence. The board
of directors is responsible for protecting shareholder interests and
ensuring that the upper management of the company is doing the same.
The board possesses the right to hire and fire members of the board on
behalf of the shareholders. A board filled with insiders will often not
serve as objective critics of management and will defend their actions as
good and beneficial, regardless of the circumstances.

5.5 QUANTITATIVE FACTORS

1. The Balance Sheet:

The balance sheet represents a record of a company's assets, liabilities and equity at
a particular point in time. The balance sheet is named by the fact that a business's
financial structure balances in the following manner: Assets = Liabilities +
Shareholders' Equity Assets represent the resources that the business owns or controls
at a given point in time. This includes items such as cash, inventory, machinery and
buildings. The other side of the equation represents the total value of the financing
the company has used to acquire those assets. Financing comes as a result of liabilities
or equity. Liabilities represent debt (which of course must be paid back), while equity
represents the total value of money that the owners have contributed to the business -
including retained earnings, which is the profit made in previous years.
2. The Income Statement:
While the balance sheet takes a snapshot approach in examining a business, the
income statement measures a company's performance over a specific time frame.
Technically, you could have a balance sheet for a month or even a day, but you'll only
 see public companies report quarterly and annually. The income statement presents
information about revenues, expenses and profit that was generated as a result of the
business' operations for that period. Revenue, also commonly known as sales, is
generally the most straightforward part of the income statement. Often, there is just a
single number that represents all the money a company brought in during a specific
time period, although big companies sometimes break down revenue by business
segment or geography. The best way for a company to improve profitability is by
increasing sales revenue. For instance, cafe Coffee has aggressive long-term sales
growth goals that include a distribution system of 20,000 stores worldwide.
Consistent sales growth has been a strong driver of café’s profitability. The best
revenue is those that continue year in and year out. Temporary increases, such as
those that might result from a short-term
Promotion, are less valuable and should garner a lower price-to-earnings multiple for
a company.

3. Operating profit margin and non-operating margin -

If company’s revenue is increasing from its normal business than a company’s
fundamentals are strong if company had shown growth in revenue from a business
which is not a regular business of company than that is not good for a company. For
example appreciation on company’s investment in real estate is not a part of core
business of company it is the part non-operating profit of company.
4. What are the Expenses?
There are many kinds of expenses, but the two most common are the cost of goods
sold (COGS) and selling, general and administrative expenses (SG&A). Cost of
goods sold is the expense most directly involved in creating revenue. It represents the
costs of producing or purchasing the goods or services sold by the company. For
example, if Wal-Mart pays a supplier $4 for a box of soap, which it sells to customers
for $5. When it is sold, Wal-Mart’s cost of goods sold for the box of soap would be
$4. Next, costs involved in operating the business are SG&A. This category includes
marketing, salaries, utility bills, technology expenses and other general costs
associated with running a business. SG&A also includes depreciation and
amortization. Companies must include the cost of replacing worn out assets.
Remember, some corporate expenses, such as research and development (R&D) at
technology companies, are crucial to future growth and should not be cut, even though
doing so may make for a better-looking earnings report. Finally, there are financial
costs, notably taxes and interest payments, which need to be considered. Profits =
Revenue – Expenses Profit, most simply put, is equal to total revenue minus total
expenses. However, there are several commonly used profit subcategories that tell
investors how the company is performing. Gross profit is calculated as revenue minus
cost of goods sold. Returning to Wal-Mart again, the gross profit from the sale of the
soap would have been $1 ($5 sales price less $4 cost of goods sold = $1 gross profit).
Companies with high gross margins will have a lot of money left over to spend on
other business operations, such as R&D
Or marketing. So be on the lookout for downward trends in the gross margin rate over
time. This is a telltale sign of future problems facing the bottom line. When cost of
goods sold rises rapidly; they are likely to lower gross profit margins - unless, of
course, the company can pass these costs onto customers in the form of higher prices.
Operating profit is equal to revenues minus the cost of sales and SG&A. This number
represents the profit a company made from its actual operations, and excludes certain
expenses and revenues that may not be related to its central operations. High operating
margins can mean the company has effective control of costs, or that sales are
increasing faster than operating costs. Operating profit also gives investors an
opportunity to do profit-margin comparisons between companies that do not issue a
separate disclosure of their cost of goods sold figures (which are needed to do gross
margin analysis). Operating profit measures how much cash the business throws off,
and some consider it a more reliable measure of profitability since it is harder to
manipulate with accounting tricks than net earnings.

5.6. USERS OF FINANCIAL STATEMENTS

Financial statements are intended to be understandable by readers who have “a
reasonable knowledge of business and economic activities and accounting and who
are willing to study the information diligently”. The users of financial statements
use financial statement for a large variety of business purposes and their ability to
understand and analyse financial statements, helps them to succeed in the business
world.
There are various kinds of users of financial statements and they are as follows:
1. Internal users
The internal users of financial statements are individuals who have direct bearing
with the organization. They may include:

a) Managers and owners: For the smooth operation of the organization, the
manager and the owners need the financial reports essential to make business
decisions. So to provide a more comprehensive view of the financial position of
an organization, financial analysis is performed with the information supplied
in the financial statements.

b) Employees: The financial reports or the financial statements are of immense use
to the employees of the company for making collective bargaining agreements.
Such statements are used for discussing matters of promotion, rankings and
salary.

2. External users
The external users comprise of:

a) Institutional investors: The external users of financial statements are basically

the investors who use the financial statements to assess the financial strength of
a company. This would help them to make logical investment decision.
b) Financial institutions: Financial institutions like banks and other lending
institutions use financial statement to decide whether to whether to help the
company with working capital or to issue debt security to it.
c) Government: The financial statement of different companies is also used by
government to analyse whether tax paid by them is accurate and is in line with
their financial strength.
d) Vendors:The vendors who extend credit to a business require financial statement
to assess the credit worthiness of the business
e) General mass and media: The common people as well as media also make a part
of the users of financial statements.
 5.7THE TYPES OF DECISIONS

Just as the knowledge level of potential users varies, the information needs of users
vary, depending on the decision at hand. A supplier considering whether or not to
sell goods on account to a particular company wants to evaluate the likelihood of
getting paid; a potential investor in that company wants to predict the likelihood of
increases in the market value of the company’s common stock. Financial statements,
however, are designed for general purposes; they are not aimed at any specific user
group. Some disclosed information, therefore, may be irrelevant to some users but
vital to others. Users must employ different forms of analysis to identify
information most relevant to a particular decision. Financial statements can provide
only highly summarized economic information. The costs to a company of
providing excessively detailed information would be prohibitive. In addition, too
much detail leads to information overload, the problem of having so much data that
important information becomes obscured by trivial information. Users faced with
reams of data may become so frustrated attempting to use it that they lose the value
of key information that is provided.

5.8. MAJOR TOOLS OF FINANCIAL STATEMENT

ANALYSIS
Accountants and others have developed a variety of standardized tools and
techniques which can be used in financial statement analysis. Financial statement
procedures fall into three basic categories: (1) comparisons and measurements
relating to financial data for two or more periods, (2) comparisons and
measurements relating to financial data of the current period, and (3) special-
purpose examination. A review of financial statements can involve the three types
of analysis.

1. Comparative financial statements:

a. Horizontal analysis
b. Vertical analysis
2. Common-size financial statements
3. Cash flow statements
 4. Ratio Analysis

2.8.1 COMPARATIVE FINANCIAL STATEMENTS:

Financial statements presenting financial data for two or more periods are called
comparative statements. Comparative financial statements usually give similar
reports for the current period and for one or more preceding periods. Comparative
financial statements provide analysts with significant information about trends and
relationships over two or more years. Comparative statements are considerably
more significant than are single-year statements.

2.8.2 TREND ANALYSIS:

Trend analysis indicates in which direction a company is headed. Trend percentages
are computed by taking a base year and assigning its figures as a value of 100.
Figures generated in subsequent years are expressed as percentages of base-year
numbers.
2.8.3 HORIZONTAL ANALYSIS
Horizontal analysis spotlights trends and establishes relationships between items
that appear on the same row of a comparative statement. Horizontal analysis
discloses changes on items in financial statements over time. Each item (such as
sales) on a row for one fiscal period is compared with the same item in a different
period. Horizontal analysis can be carried out in terms of changes in dollar amounts,
in percentages of change, or in a ratio format.
2.8.4 VERTICAL ANALYSIS
Vertical analysis involves the conversion of items appearing in statement columns
into terms of percentages of a base figure to show the relative significance of the
items and to facilitate comparison. For example, individual items appearing on the
income statement can be expressed as percentages of sales. On the balance sheet,
individual assets can be expressed in terms of their relationship to total assets.
Liabilities and shareholders’ equity accounts can be expressed in terms of their
relationship to total liabilities and shareholders’ equity. On the income statement,
each item is stated as a percentage of sales. On the retained earnings statement,
beginning retained earnings is 100 per cent.
2.8.5 COMMON-SIZE STATEMENTS
Statements omitting dollar amounts and showing only percentages are referred to as
common-size statements because each item in the statement has a common basis for
comparison, for example, total assets, net sales. Data for common-size statements is
computed in a manner similar to that described for vertical analysis computations.
Changes in proportions are emphasized in common-size statements which make
efficiencies and inefficiencies easier to identify than in comparative statements.
2.8.6 MEANING OF RATIO
A ratio is one figure expressed in the term of another figure. It measures the
relationship of two figures which are related to each other and mutually
interdependent. Ratio is expressed by dividing one figure by another. It is simply a
quotient of two numbers. It can be expressed as fraction, as a decimal, as a pure
ratio, in absolute figures as “so many times” and in percentage.

2.8.6.1 DEFINITION OF RATIO ANALYSIS:

Single most important technique of financial analysis in which quantities are
converted into ratios for meaningful comparison, with past ratios and ratios of the
other firms in the same or different industries. It determines trends and exposes
strengths or weaknesses of a firm.

2.8.6.2 IMPORTANCE OF RATIO ANALYSIS:

 It helps the management to assess the financial health of the business by
highlighting the performance.
 Helps the management with working capital analysis
 Helps the outsiders by giving them pertinent pieces of information
 Helps the management with financial forecasts.
6 – ANALYSIS AND FINDINGS
It is a statement which compares financial data from different periods of time. The
comparative statement lines up a section of the income statement, balance sheet or cash flow
statement with its corresponding section from a previous period. It can also be used to
compare financial data from different companies over time, thus revealing the trend in the
financials.
A comparative statement is an important tool for analysis because they show the effect
business decisions have on a company's bottom line. Analysts can identify trends and
evaluate the performance of managers, new lines of business and new products on one
statement instead of having to flip through individual financial statements from different
periods of time. When comparing different companies, a comparative statement can show
how businesses react to market conditions affecting an entire industry.
To summarise,
1. Comparative financial statements are the statements of financial position at
different periods.
2. Comparison is made between financial statements of a business at different
periods.
3. Current year’s statement is compared with previous year’s statements. That is
balance sheets and income statement is prepared in comparative form for
analysis purposes.
4. It enables identification of weaknesses and strengths and applying corrective
measures.
 SALES 16-17

13,000.00
Rs. in Crore

SALES 16-17
12,000.00

11,000.00
MRF LTD. APOLLO LTD.

SALES
16-17
MRF LTD. 13,346.26
APOLLO LTD. 13,062.97

Sales of MRF Ltd. Rs. 13346.26 and Apollo Ltd. is Rs. 13062.97 .
 RATIO ANALYSIS AND INTERPRETATION

Every business organization prepares their financial statements i.e. income statements and balance sheet
on the last date of the year or financial year. The financial statement is prepared in the vertical form and
presented before the management for their kind considerations and information. Then the required ratios
are calculated, followed by its interpretation and comments on them. This is very effective and
important tool of financial statement analysis.

The analysis of the financial statements and interpretations of financial results of a particular period of
operations with the help of 'ratio' is termed as "ratio analysis." Ratio analysis used to determine the
financial soundness of a business concern. Five common categories of ratios exist: liquidity, asset
turnover, leverage, profitability and solvency.

SHORT TERM SOLVENCY/LIQUIDITY RATIO

These ratios provide a measure of a company’s ability to generate cash and meet its immediate
needs. There are two commonly used ratios and they are current ratio and quick ratio.
 CURRENT RATIO
It is the ratio of current assets to current liabilities; indicates a company’s ability to satisfy its
current liabilities with its current assets. (The larger the ratio the better is the ability of the
company meet its immediate liabilities)

Current ratio = current asset/current liability

CURRENT RATIO

1.57

1.13

MRF LTD. APOLLO LTD.

CURRENT RATIO
16-17
Current
CA CL Ratio
MRF LTD. 7,063.57 4,502.04 1.57
APOLLO
LTD. 5,018.20 4,457.18 1.13

INTERPRETATION-

The ideal current ratio is 2:1. It indicates that current assets should be double the current liability as
that is considered to be satisfactory. From the above chart we can conclude that the current ratio of
MRF Ltd is better than APPOLO Ltd. The current ratio of MRF Ltd is close to 1.57 which is close to
ideal ratio.
QUICK RATIO

It is the ratio of quick assets to quick liabilities; indicates a company’s ability to satisfy its
current liabilities with most liquid assets. (The larger the ratio the better is the ability of the
company meet its immediate liabilities)

Quick ratio = (current asset-inventories)/ (current liability-bank o/d)

QUICK RATIO

APOLLO LTD.

MRF LTD.

- 0.20 0.40 0.60 0.80 1.00 1.20

QUICK RATIO
16-17
Quick Quick Quick
Assets Liabilities ratio
MRF LTD. 4,888.37 4,502.04 1.09
APOLLO
LTD. 2,372.67 4,457.18 0.53

INTERPRETATION-

The ideal Quick Ratio of 1:1 is considered to be satisfactory. We can see that ouick ratio of MRF Ltd
is has reached the standard ratio i.e. 1. But APOLLO Ltd is far bellow the standard ratio.
TOTAL DEBT TO OWNERS FUND/ DEBT EQUITY RATIO
This ratio is calculated to ascertain the firm's obligations to creditors in relation to funds invested
by the owners. The ideal Debt Equity Ratio is 1:1. This ratio also indicates all external liabilities to
owner recorded claims.

Debt equity ratio = (outsiders fund/ shareholders fund)

Or

(Total long term debt/ shareholders fund)

Debt Equity Ratio

16-17
LONG TERM SHAREHOLDER'S
DEBT FUND RATIO
MRF LTD. 1,238.32 8,640.76 0.14
APOLLO
LTD. 2,155.90 7,289.95 0.30

INTERPRETATION-

Since MRF is having a debt equity ratio of 0.14 which is better than the the debt equity ratio of
APOLLO .
PROFITABILITY RATIOS
The term profitability means the profit earning capacity of any business activity. Thus, profit
earning may be judged on the volume of profit margin of any activity and is calculated by
subtracting costs from the total revenue accruing to a firm during a particular period.

GROSS PROFIT RATIO

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross
profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the
business . The ratio is computed by dividing the gross profit figure by net sales.

GROSS PROFIT RATIO

16-17
GROSS
PROFIT SALES RATIO
MRF LTD. 2,109.37 13,346.26 0.16
APOLLO
LTD. 1,435.85 13,062.97 0.11

INTERPRETATION-

As comparing the gross profit ratio of MRF Ltd i.e. 0.16 is far more than the gross profit of APOLLO
Ltd i.e. 0.11 which mean that MRF is earning more profit than APOLLO tyres.
NET PROFIT RATIO
Net Profit Ratio is also termed as Sales Margin Ratio (or) Profit Margin Ratio (or) Net Profit
to Sales Ratio. This ratio reveals the firm's overall efficiency in operating the business. Net
profit Ratio is used to measure the relationship between net profit (either before or after taxes)
and sales.

Net Profit Ratio = (Net Profit after Tax/ Net Sales) x 100

NET PROFIT RATIO

16-17
NET
PROFIT SALES RATIO
MRF LTD. 1,486.22 13,346.26 0.11
APOLLO
LTD. 1,099.30 13,062.97 0.08

INTERPRETATION-

As comparing the net profit ratio of MRF Ltd i.e. 0.16 is far more than the net profit of APOLLO Ltd
i.e. 0.11 which mean that MRF is earning more profit than APOLLO tyres.
RETURN ON ASSETS

This ratio measures a company’s earnings before interest and tax against it total net assets.
This ratio indicates that how effectively a company is using its assets

Return on total asset = Earnings before interest and tax/ Total net assets

RETURN ON NET ASSETS

16-17
TOTAL
NET
EBIT ASSETS RATIO
MRF LTD. 2,360.84 15,048.47 0.16
APOLLO LTD. 1,538.73 15,296.12 0.10

INTERPRETATION

The return on asset og MRF Ltd. is better than return of assest of APOLLO Ltd.
INVENTORY TURNOVER RATIO
The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. In other words, it
measures how many times a company sold its total average inventory dollar amount during the year.

INVENTORY TURNOVER RATIO

16-17
CREDIT AVG.
SALES INVENTORY RATIO
MRF LTD. 13,346.26 2,162.54 6.17
APOLLO LTD. 13,062.97 2,292.31 5.70

INTERPRETATION

The inventory turnover ratio of MRF Ltd. is better than inventory turnover ratio of APOLLO Ltd.
Management Efficiency ratios

TOTAL ASSET TURNOVER RATIO

This ratio indicates the efficiency of assets management. Total Assets Turnover Ratio is used to
measure the utilization of total assets. This ratio establishes the relationship between cost of goods
sold and total assets. Higher the ratio highlights a firm has successfully utilized all the assets. If the
ratio is depressed, it indicates the underutilization of assets.

Total Asset turnover ratio = Net sales/ Total assets

TOTAL ASSETS TURNOVER RATIO

16-17
NET TOTAL
SALES ASSETS RATIO
MRF LTD. 13,346.26 15,048.47 0.89
APOLLO
LTD. 13,062.97 15,296.12 0.85
INTERPRETATION

which means that the banks total assets are not utilized efficiently. Thus we can say that the bank has
to look upon this ratio to increase the overall utilization of total assets.
DEBTORS TURNOVER RATIO

Receivables turnover ratio measures company's efficiency in collecting its sales on

credit and collection policies. This ratio takes in consideration ONLY the credit sales. If the
cash sales are included, the ratio will be affected and may lose its significance. It is best to
use average accounts receivable to avoid seasonality effects. If the company uses discounts,
those discounts must be taken into consideration when calculate net accounts receivable.

DEBTOR TURNOVER RATIO

16-17
CREDIT AVG.
SALES DEBTORS RATIO
MRF LTD. 13,346.26 1,903.86 7.01
APOLLO
LTD. 13,062.97 2,211.85 5.91

INTERPRETATION

In the above graph we can see low receivables turnover ratio that implies that the company
should re-assess its credit policies in order to ensure the timely collection of credit sales that is not
earning interest for the firm
 CONSOLIDATED BALANCE SHEET OF MRF LTD (In Cr.)
Particulars As at 31.03.2017 As at 31.03.2016

ASSETS
Non-Current Assets
Property, Plant and Equipment 5489 4599.2
Capital Work-in-Progress 847.9 1059.3
Other Intangible Assets 13.2 9.1

Financial Assets:

Investments 1059.4 1023.4

Loans 3.9 3.6

Others financial assets 16.1 14.2
Deferred Tax Asset (Net) 0.3 0
Other non-current assets 339.5 226.1
Current Assets
Inventories 2425.3 1899.8
Financial Assets:
Investments 2322.7 2114.5
Trade Receivables 1969 1838.7
Cash and cash Equivalents 246.5 121.1
Bank balances other than cash and cash equivalents 96.1 3.1
Others financial assets 10.2 10.4
Other current assets 243.9 331.3
TOTAL ASSETS 15083 13253.8
EQUITY AND LIABILITIES

Equity
Equity Share Capital 4.2 4.2
Other Equity 8636.5 7220.1
Total Equity 8640.8 7224.3

Non Controlling Interest 0.1 0.1

LIABILITIES

Non-Current Liabilities

Financial Liabilities
Borrowings 1238.3 1486.5
Provisions 137.5 125.3

Deferred Tax Liabilities (Net) 536.5 352.5

Other non-current liabilities 27.7 36.2

Current Liabilities
Financial Liabilities
Borrowings 834.1 885.6
Trade Payables 1408.4 1126.2

Other Financial Liabilities 576.1 458.2

Other Current Liabilities 1496.4 1459.3

Provisions 121.6 89.7

Current Tax Liabilities (Net) 65.5 10

Total Liabilities 6442.1 6029.4

TOTAL EQUITY AND LIABILITIES 15083 13253.8

 Consolidated Balance sheet of Apollo Tyres Ltd
Particulars
31-Mar-17 31-Mar-16
ASSETS
1. Non-Current Assets
(a) Property, plant & equipments 60,381.70 45,559.50
(b) Capital work-in-progress 28,723.40 9,694.10
(c) Goodwill 1,773.60 1,982.40
(d) Other intangible assets 4,759.80 4,594.20
(e) Intangible assets under development 427.5 242.3
Financial assets
I. Investment in joint venture - 29.7
ii. Other investments 17.5 12.1
iii. Loans 24.1 21.5
iv. Other financial assets 973.8 1,421.80
(g) Deferred tax assets (net) 629.3 602.1
(h) Other non-current assets 5,199.20 6,357.40
Total Non-Current Assets 1,02,909.90 70,516.90
2. Current Assets
(a) Inventories 26,455.30 19,390.90
Financial assets
i.Investments 3,944.40 5,017.70
ii.Trade receivables 11,275.00 10,843.50
iii.Cash and cash equivalents 3,308.90 5,899.90
iv.Other bank balances 60.2 42.1
v.Loans 38.9 37
vi.Other financial assets 410.8 810.5
(b) Other current assets 4,601.40 3,504.00
Total Current Assets 50,094.90 45,545.40
3. Assets held for sale - 475.9
TOTAL ASSETS (1+2+3) 1,53,004.80 1,16,538.20
Particulars
31-Mar-17 31-Mar-16

B. EQUITY AND LIABILITIES

1. Equity
(a) Equity share capital 509 509
(b) Other equity 72,390.50 65,537.10
Total Equity 72,899.50 66,046.20
LIABILITIES
Non-Current Liabilities
(a) Financial liabilities
i Borrowings 21,559.00 6,492.70
ii Other financial liabilities 505 521.3
(b) Provisions 343.8 364.4
(c) Deferred tax liabilities (net) 7,661.10 7,011.80
(d) Other non-current liabilities 5,217.20 1,628.70
Total Non-Current Liabilities 35,286.10 16,018.90
3. Current Liabilities
(a) Financial liabilities
i.Borrowings 10,886.30 7,399.00
ii.Trade payables 17,317.60 15,431.70
iii. Other financial liabilities 8,945.70 4,224.30
(b) Other current liabilities 2,553.20 2,657.90
(c) Provisions 4,042.70 3,291.70
(d) Current tax liabilities (net) 1,073.80 1,468.60
Total Current Liabilities 44,819.20 34,473.20
TOTAL EQUITY AND LIABILITIES (1+2+3) 1,53,004.80 1,16,538.20
 CONCLUSION
Analysis and interpretation of financial statements is an important tool in
assessing company’s performance. It reveals the strengths and weaknesses of a firm.
It helps the clients to decide in which firm the risk is more or less or in which one
they should invest so that maximum benefits can be earned. It is known that
investing in any company involves a lot of risk. So before putting up money in any
company one must have thorough knowledge about its past records and
performances. Based on the data available, the trend of the company can be predicted
in near future
This project of financial analysis and interpretation in the production concern
is not merely a work of the project but a brief knowledge and experience of that how
to analyze the financial performance of the firm. The study undertaken has brought in
to the light of the following conclusions. According to this project, I came to know
that from the analysis of financial statements it is clear that both the companies have
been incurring profits during the period of study. So the firm should focus on earning
more profits in the coming year by taking care internal as well as external factors. And
with regards to the market share both the companies should invest in heavy marketing
for the new products recently launched by them.
This project mainly focuses on the basis of different types of financial
statements- Balance sheets, Profit and Loss statements and Cash Flow Statements with
various Ratio Analysis.
 BIBLOGRAPHY
REPORTS:

1. ANNUAL REPORTS OF MRF AND APOLLO TYRES LTD.

2. BOARD OF DIRECTORS REPORT OF MRF AND APOLLO TYRES LTD.

WEBSITES:

1. www.economictimes.com
2. www.investopedia.com
3. www.wikipedia.com
4. www.mrftyres.com
5. www.apollotyres.com

BOOKS:

1. FINANCIAL ACCOUNTING III BY AMITABH BASU

2. FINANCIAL STATEMENT ANALYSIS BY JAYANTO GHOSH
3. FINANCIAL ACCOUNTING BY HANIF & MUKHERJEE