A

Project Report

On

(METRO TYRES LIMITED)

Submitted in Partial fulfillment of the requirements for the award of

MASTER of Business Administration

(MBA)

By

ANMOLDEEP SINGH DHILLON

PUNAJB TEHCNICAL UNIVERSITY

APEEJAY INSTITUTE OF MANAGEMENT & TECHNOLOGY JALANDHAR

Contents

Preface Acknowledgement Director Certificate Project guide certificate Company certificate

Chapter 1: IntroductionChapter 2: Industry profileChapter 3: Company profileChapter 4: Research methodologyChapter 5: Data presentation and analysisChapter 6: FindingChapter 7: Conclusions and suggestion

Annexure

Bibliography

Preface

A management professional should not only be well versed with the principles and theories of management but

should also be capable of applying the theories and principles studied successfully in the practical life.

Considering the practical aspect of the theoretical knowledge to be the supreme importance, Summer Training

forms an integral part of the business management curriculum.

I pursued my summer internship at ‘METRO TYRES LIMITED’ and completed my projects. I am

submitting the report as a partial fulfillment for the Award of degree of Master of Business Administration.

I hope that the project report will communicate the actual quality of the experience gained with subtlety and

precision which is unapproachable by any other means.

ANMOLDEEP SINGH

ACKNOWLEDGEMENT

This report took a long time and effort on my part. But, inspite of all the hard work put in by me,

this report would not have been possible without the help of certain people, whom I wish to convey

my thanks.

I express my gratitude towards Mr.VARUN NAYYAR (Colg guide) and MR.SANDEEP KOHLI T(company

guide), who has given me an opportunity to make this project.

At the very outset, I would also like to express my gratitude to all the people associated, without whose active

support & constant guidance, this project would not have been a success.

ANMOLDEEP SINGH DHILLON

INTRODUCTION

From humble beggining in 1968, Metro Tyres made steady progress to establish itself as a market leader for bicycle tyres and tubes in India.With steadily increasing production of quality products, the Company ventured into overseas market and developed a niche for itself in the international market. The Company also kept itself abreast with latest technologies and developed Nylon tyres and Butyl tubes with its own R&D efforts. The Company has diversified into the field of home appliances such as  electric fans, electric irons, sewing machines. .  The customer being foremost in our mind, for ease of foreign buyers, the Company has established a full fledged "Export Division" located at New Delhi. The Export Division has the capability for entertaining and servicing enquiries not only for the Company products, but also for non-company commodities and engineering goods. Metro's most precious assets is its professionally trained and dedicated personnel.

Metro Group is a US $140 million conglomerate consisting of Metro Tyres Limited, Metro International and Metro Ortem Limited. The Group has seven ISO 9001:2008 certified, state-of-the-art manufacturing facilities, producing tyres and tubes for bicycles, motorcycles, scooters and three wheelers. Metro today has become a leader in the industry, through expansion in related products and diversifying into lifestyle and consumer durable/products .Technical collaboration with Germany's Continental AG, has greatly enhanced Metro Group's position and today it is regarded as a company manufacturing superior quality products .

Gradually the company is increasing its volumes and venturing into overseas markets where it is developing a niche for its products. Today the group has a presence in more than 53 countries and is the largest exporter of bicycle tyres and tubes from India. Under the aegis of Metro Ortem Limited, the group has diversified into manufacturing   a whole range of fans and other home appliances. Today Ortem fans and sewing machines are household names. The group exports are being handled by Metro International which is a government recognized trading house.In Metro Group, quality is the result of a profound understanding of what it takes to make state-of-the-art products for the ultimate customer, even if they are from the world's most quality conscious markets like the European Union and USA. This places Metro ahead of other brands in India.

Metro Group has manufacturing capacity close to 30 Million tyres and 30 Million tubes annually and it enjoys around 24% market share in India. Currently, Metro Group employs over 4000 people who are its greatest asset.

SWOT ANALYSIS

Strengths

1.Wide product offering at different interest rates.

2.Large distribution network

Weakness

1. Lack of advertisement activites,

2. Focus only on middle class.

3. Limited products

Opportunity

1. Rise of Indian middle class and small cities.

2. A booming economy

Threats1. Many players fighting for the same cake

2. Entry of new players

TYRES INDUSTRY

The report elucidates facts about the Indian Tyre Industry, supplemented by latest statistical data and comprehensive analysis.

Emphasis is laid on the following key subject matters to accomplish the report

The characteristics of the industry (raw material intensity, cyclicality, competition, wide distribution network, capital intensity, low bargaining power, branding, technology requirements, margins and duty structure) and its demand drivers (vehicle production & population, regulatory norms, retreading of tyres etc.).

Category-wise tyre production and market-wise tyre offtake analysis for the period FY 03-07.

Market competition and category-wise market share of players. Change in category-wise market share of players in FY07 vis-a vie FY06.

Cost Analysis (raw material, power & fuel, employee and selling expense) of the top players with specific focus on raw material costs.

Category-wise tonnage offtake growth projection for the tyre industry for a fi ve year horizon (FY 07-12) along with SWOT analysis of the industry.

Financial profi le, international forays, expansion plans of the top fi ve players along with the details of corporate actions by other global and local players in India.

The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19,000 crores in FY 07. MRF Ltd. was the market leader (22% market share) followed closely by Apollo Tyres Ltd. (21%). The other major players were JK Tyre & Industries Ltd (18%) and Ceat Ltd. (13%). The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07¬.

Truck & Bus tyre category (accounting for 57% of the tonnage production) recorded a 5 year CAGR of 7.85% (a rate slower than that of the industry) while Light Commercial Vehicle (LCV), Motorcycle and Car tyre categories grew at 15%, 16% and 14% respectively (at rates faster than that of the industry). Off the road (OTR) tyres (customized tyres which fetch a higher margin compared to other tyres) category is growing at a fast pace. The OTR tyre category registered a 5 year CAGR of over 20% in the last five years. Most of the top players are increasing their capacity for the production of OTR tyres so as to improve their product mix, for e.g. CEAT Ltd. is increasing its OTR capacity at its Nasik plant from 60,000 to 1,00,000 tyres by end 2008, JK Tyre & Industries is expanding its OTR capacity from 25,000 tyres to

42,000 tyres by end 2008, even smaller player like Falcon tyres is making its foray into the OTR category.

The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in the period FY 02¬07. Most of these tyres that are exported are of cross ply design. With radialisation catching up in some of these markets, the manufacturers will need to graduate to radial tyres so as to protect their share in the export market. Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres (95%) but in all other categories cross ply tyres are still preferred. Poor road conditions, overloading in trucks, higher initial cost of radial tyres and poor awareness levels in tyre users are the main reasons for the non transition of the domestic market to radial tyres. However, going ahead, radialisation in truck & bus tyres may increase due to government’s focus on infrastructure development.

CARE Research expects the tyre industry to register a tonnage growth of 9¬10% in the next five years (FY 07¬12). The truck & bus and LCV tyre category are expected to register a CAGR of 8% and 14% respectively (FY 07¬12).  

The report elucidates facts about the Indian Tyre Industry, supplemented by latest statistical data and comprehensive analysis.Emphasis is laid on the following key subject matters to accomplish the report.The characteristics of the industry (raw material intensity, cyclicality, competition, wide distribution network, capital intensity, low bargaining power, branding, technology requirements, margins and duty structure) and its demand drivers (vehicle production & population, regulatory norms, retreading of tyres etc.).Category-wise tyre production and market-wise tyre offtake analysis for the period FY 03-07.Market competition and category-wise market share of players. Change in category-wise market share of players in FY07 vis-a vie FY06.Cost Analysis (raw material, power & fuel, employee and selling expense) of the top players with specific focus on raw material costs.Category-wise tonnage offtake growth projection for the tyre industry for a fi ve year horizon (FY 07-12) along with SWOT analysis of the industry.Financial profi le, international forays, expansion plans of the top fi ve players along with the details of corporate actions by other global and local players in India.

Truck/Bus

The truck and bus tyre segment accounted for 19% of tyres produced in India in FY2003. Every truck/bus manufactured generates a demand for seven tyres (six regular and one spare) as against three in the case of two-wheelers and five for passenger cars. In addition, the price of a truck tyre is significantly higher than that of a passenger car tyre (roughly 10 times) or a motorcycle tyre. Thus the demand multiple emanating from the commercial vehicle segment is highest in value terms.

Given the regular use and heavy wear and tear of truck and bus tyres, the demand from the replacement market

in this segment worked out to 68% of the total demand for truck and bus tyres in FY2003; the OEM demand accounted for around 9% the same year. With the Indian manufacturers of cross-ply tyres focusing on the export market, this segment accounts for around 22% of the demand for truck and bus tyres.

Tyre industry

The tyre industry has witnessed a CAGR of 8.3% over the last decade mainly fuelled by the strong growth in the domestic auto industry. Though the replacement market has driven the industry growth for long time, the OEM market has seen a robust growth over the last couple of years.

The industry is highly capital intensive, as it requires around Rs4bn to setup a radial tyre plant with a capacity of 1.5mn tyres and around Rs1.5-2bn for a crossply tyre plant of a capacity to manufacture 1.5mn tyres.

The profitability of the industry has high correlation with the prices of key raw materials such as rubber and crude oil as they account for more than 70% of the total costs. The raw material to sales ratio in the industry is around 65%.

The industry has high entry barriers because of its capital intensive nature and low operating margins. With demand increasing at a steady pace, the industry is expected to go through a consolidation phase.

The industry is dominated by four players viz MRF, Apollo Tyres, JK Industries and Ceat and enjoys more than 70% of the total market share.

The fortunes of the industry are linked to the trend in the domestic auto industry, retreading, trend in road transportation and spending on road infrastructure.

The companies have lined up further expansion plans to meet the increasing demand. Most Popular

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The Indian tyre industry is characterized by its raw material intensity (raw material costs account for approximately 70% of operating income), capital intensity, cyclicality, fierce competition among the top players, low bargaining power and resulting low margins. The top players are now focusing on branding their products and strengthening their distribution network so as to increase their market share.

The industry derives its demand from the automobile Industry. While OEM market offtake is dependent on the new vehicle sales, replacement market demand depends on the total population of vehicles on road, road conditions, vehicle scrapping rules, overloading norms for trucks, average life of tyres and prevalence of tyre retreading.

The main category of tyres produced in the country is that of Truck & Bus tyres. These tyres accounted for 57% of the total tyre tonnage production in FY07 followed by LCV tyres which accounted for 9% of the total tyre tonnage production. Approximately 53% of the total tyre tonnage offtake was by the replacement market, 31% by OEM and 15% by the export market in FY07.

The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07. The largest category of Truck & Bus tyres recorded a 5 year CAGR of 7.85% (slower than the industry) while Light Commercial Vehicle (LCV), motorcycle and car tyre categories grew at 15%, 16% and 14% respectively (faster than the industry). Off the road (OTR) tyre category (customized tyres) which fetch a higher margin compared to other tyre categories, is the fastest growing category. The OTR tyre category has registered a 5 year CAGR of over 20% in the last five years. Most of the top players are increasing their capacity for the production of OTR tyres so as to improve their product mix, this being a high margin product.

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

Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres (95%) but in all other categories, cross ply tyres are still preferred. Poor road conditions, overloading in trucks, higher cost of radial tyres and poor awareness of the tyre users are the main reasons for the non transition of the domestic market to radial tyres. However, going

ahead radialisation in truck & bus tyres may increase due to government's focus on infrastructure development.

RESEARCH METHODOLOGY Research Methodology refers to the framework or plan according to which the researcher has to carry out his

activity.

Research can be defined as a "systematized effort to gain new knowledge."

Marketing Research is a systematic and objective process of identifying and formulates the marketing

problems; Setting research objectives and methods for collecting, editing" coding, tabulating,

evaluating, analyzing, interpreting and presenting the various information does it 985 data in order to

find justified solutions for these problems.

Research Methodology is the procedure for conducting the research. It is a way to systematically solve

the problem. It may be understood as a science of studying how research is done scientifically. In it we

study the various steps that are generally adopted by a researcher In studying his research problem along

with the logic behind them. If the researcher wants to claim objectivity of His research and wishes to

establish a truth and gain wide /* aceptability than lot of attention has to be devoted to the procedure and

methodology of the research.

Market research involves the following steps:

Step 1: Define the problem and research objectives.

Step 2: Developing the research plan

Selection method

Questionnaire method

Sampling method

Contact method

Step 3: Collect the information

Step 4: Analyze the information.

Step 5: Present the findings.

Step 1: Define the research objective

After discussing with the external project guide the topic for the project was selected as:

“Financial analysis of Metro Tyres ltd.”

Step 2: Developing the research plan

Questionnaire method

Marketing researchers have the best instrument in collecting primary data i.e. a questionnaire to collect the

data and to establish the view of the people from all the sectors of the society.

Questionnaires are designed to elicit information that meets the studies requirements.

Questions should be:

o clear

o easy to understand

o directed towards meeting an objective.

Need to define objectives before designing the questionnaire. Must maintain impartiality and be very

careful with personal data. Four basic types of questions are:

o Open ended

o Dichotomous

o Multiple choice.

o Scaled (lickert)

The questionnaire designed for this project contains open-ended questions. All the questions are clearly

defined. The questions are framed keeping in mind the objective of research and kind of information

required .Sampling method

.

Sampling procedures are used in studying the likelihood of events based on assumptions about the future.

o Random sampling, equal chance for each member of the population

o Stratified sampling, population divided into groups re: a common characteristic, random sample

each group

o Area sampling, as above using areas

o Quota sampling, judgmental, sampling error cannot be measured statistically, mainly used in

exploratory studies to develop a hypotheses, non-probablistic.

Random sampling is selected as the sampling method for this project.

Selection Method

o Mail-wide area, limited funds, need incentive to return the questionnaire Mail panels, consumer

purchase diaries. Must include a cover letter to explain survey!!

o Telephone-speed, immediate reaction is negative, WATS, computer assisted telephone

interviewing.

o Personal interviews-flexibilty, increased information, non-response can be explored. Most

favored method among those surveyed. Can be conducted in shopping malls.

o In home (door-to-door) interview, get more information but it is costly and getting harder to

accomplish.

o Mall intercepts-interview a % of people passing a certain point. Almost half of major consumer

goods and services orgs. use this technique as a major expenditure. Can use demonstration,

gauge visual reactions. Regarding social behavior, mall surveys get a more honest response than

telephone surveys. There is a bias toward those that spend a lot of time in malls. Need to weight

for this. On site computer interviewing, respondents complete self administered questionnaires

conducted in shopping malls. Questions can be adaptive depending on the responses.

o Focus groups-observe group interaction when members are exposed to an idea or concept,

informal, less structured. Consumer attitudes, behaviors, lifestyles, needs and desires can be

explored in a flexible and creative manner. Questions are open ended. Cadillac used this method

to determine that they should be promoting safety features.

A sample of 200 people was taken and judgement was done to select the right prospects to secure accurate

information. The sample consisted of people like businessman, doctors, pvt. Company employees.

Contact/Observation method

Record overt behavior, note physical conditions and events. Can be combined with interviews, i.e. get

demographic variables.

Mechanical observation devices, IE cameras, eye movement recorders, scanner technology, Nielsen

techniques for media.

Observation avoids the central problem of survey methods, motivating respondents to state their true feelings

or opinions. If this is the only method, then there is no data indicating the causal relationships.

Step 3: Collection of information

The information of the project was gathered in 2 forms:

Primary data

In primary data collection, you collect the data yourself using methods such as interviews and questionnaires.

The key point here is that the data you collect is unique to you and your research and, until you publish, no one

else has access to it.

There are many methods of collecting primary data and the main methods include:

questionnaires

interviews

focus group interviews

observation

case-studies

diaries

critical incidents

portfolios.

Secondary data

Secondary data - collected by others to be "re-used" by the researcher

What Form Does Secondary Data Take?

o Qualitative Sources

o Sources for Qualitative Research:

Biographies - subjective interpretation involved

Diaries - more spontaneous, less distorted by memory lapses

Memoirs - benefit/problem of hindsight

Letters - reveal interactions

Newspapers - public interest & opinion

Novels & Literature In General Handbooks, Policy Statements, Planning Documents,

Reports, Historical & Official Documents (Hansard, Royal Commission reports)

o Quantitative Sources

Published Statistics:

National Government Sources

Local Government Sources

Other Sources

Non-Published / Electronic Sources

Data Archives eg the Data Archive At Essex

On-Line Access To National Computing Centres

International Sources on Internet & Web

For this project the secondary sources used are:

Journals

Company product brouchers

Internet

Market Research Design

Research : Descriptive type

Data Source : Primary & secondary

Research approach : Survey method

Research instrument : Questionnaire

Type of questions : Closed ended

Sample sizes : 100 samples

Mode of collecting data : Respondents to be

collection : chosen randomly.

RESEARCH DESIGN

A research design is simply a framework for the study that is used as a guide for collecting and analyzing the

data. Decision regarding what, where when, how much, by what means concerning an inquiry or a research

study constitutes a research design. This framework ensures collection and analysis of data in a manner that

aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is

the conceptual structure within which research is conducted. It constitutes the blue print for collection,

measurement analyses of data. Research design depends on the purpose of study. Research purpose may be

grouped into four categories:

a) EXPLORATORY RESEARCH: It is also termed as formulate research. The main purpose of such

research is to gain familiarity with a phenomenon or discovery of ideas and insights.

b) DESCRIPTIVE RESEARCH: These are studies, which are concerned with describing the

characteristics of a particular individual, situation or a group.

c) DIAGNOSTIC RESEARCH STUDIES: These studies determine the frequency with which something

occurs or with which it is associated with something else.

d) HYPOTHESIS TESTING RESEARCH STUDIES: These are concerned with testing a hypothesis of

a causal relationship between variables.

TYPE OF RESEARCH

SAMPLE DESIGN

All items in any field of study constitute the UNIVERSE. In any study it is almost impossible to

examine the entire universe. The only alternative that is best, suitable and economical is to resort to sample.

'This is absolute for present study. The basic principle, which is followed is that the sample chosen should be

representative of the entire universe to be studied.

A SAMPLE DESIGN is a definite plan for obtaining a sample from a given population. It refers to the

technique or the procedure the researchers would adopt in selecting items for the sample. Sample design may as

well lay down the number of items to be included in the sample i.e. the size of sample and also the sampling

units. Sampling units implies the unit of sample considered and the unit of inquiry

There are different types of sample designs based on two factors viz., REPRES.ENTATION BASIS and,

the ELEMENT SELECTION TECHNIQUE.

On the REPRESENTATION BASIS, the sample may be PROBABILITY SAMPLING or it may be

NON PROBABILITY SAMPLING.

Probability sampling is based on random selection and in this every element in the universe has an equal

chance of being selection in sample.

Non-Probability is non-random sampling and it does not afford any basis for estimating the probability

that each item in the population

has of being included in the sample.

On ELEMENT SELECTION BASIS, the sample may be either RESTRICTED or UNRESTRICTED.

Unrestricted sampling is based when each sample element is drawn individually from the population at

large, then the sample so drawn is known as 'unrestricted sampling'.

Restricted sampling includes all other forms of sampling like quota, judgmental, stratified sampling etc.

TYPE OF SAMPLE

In the PRESENT STUDY non-probability sampling technique was applied, where samples are selected

RANDOMLY BASED ON CONVENIENCE AND JUDGEMENTAL.

SAMPLE SIZE

A sample of 50 Dealers was selected.

TECHNIQUES USED IN THE RESEARCH

Various techniques were used for making and studying the report. These

are: -

Ø Ratio analysis

Ø Profitability ratio

Ø Long-term solvency ratio

Ø Short-term solvency ratio

Ø Turnover ratio

Objective: Assesement of METRO TYRES Ltd in order to come out with the potential areas for improvement and suggest the recommendations for the same.

Data collection process design: Collecting the Dealer list of metro tyres Ltd. for the regions of Delhi and Gurgaon from the Asst. Managers in the Corporate Sales Dept. Selecting the dealers to whom the goods were send from last six months

and the data was compared

FINANCIAL ANALYSIS

INTRODUCTION

o Financial analysis is the process of determining the significant operating and financial characteristics of

a firm from accounting data and financial statements

o The goal of such analysis is to determine the efficiency and performance of the firm’s management, as

reflected in the financial records and reports.

o The analyst attempts to measure the firm’s liquidity, profitability and other indication that business is

conducted in a rational and orderly way.

o If a firm does not achieve financial norms for its industry or relationships among data that seem

reasonable, the analysts note the deviations. The burden of explaining the apparent problems may then

be placed upon management.

Managers, shareholders, creditors, tax authorities and other interested groups seek answers to the following

important questions about the firm:

# What is the financial position of the firm at a given point of time?

# How did the firm perform financially over a given period of time?

The firm itself and outside providers of capital — creditors and investors — all undertake financial statement

analysis. The type of analysis varies according to the specific interests of the party involved. Trade creditors

(suppliers owed money for goods and services) are primarily interested in the liquidity of the firm. Their claims

are short term, and the ability of the firm to quickly pay these claims is best judged by the analysis of the firm’s

liquidity. The long term lenders on the other hand accordingly are more interested in the cash flow ability of the

firm to service debt over a long period of time. They evaluate this ability by analyzing the capital structure of

the firm, the major sources and uses of funds, the firm’s profitability over the time, and projections of future

profitability. Investors in a company’s common stock are principally concerned with present and expected

future earnings as well as with the stability of these earnings about a trend line. As a result, investors usually

focus on analyzing the profitability of the firm. They would also be concerned with the firm’s financial condition insofar as it affects the ability of the firm to pay dividends continuously.

All the cases described so far have involved suppliers of capital. Therefore, the analysis has taken an

external point of view. Internally, management also employs financial analysis for the purpose of internal

control and to better provide what capital suppliers seek in financial condition and performance from the

firm. From an internal control standpoint, management needs to undertake financial analysis in order to

plan and control effectively

FINANCIAL STATEMENTS

Financial analysis involves the use of various financial statements. A financial statement is a collection of data

organised according to logical and consistent accounting procedures. Its purpose is to convey an understanding

of some financial aspects of a business firm. It may show a position at a moment in time, as in the case of

Balance Sheet (A summary of firm’s financial position on a given date that shows total assets = total liabilities

+ owner’s equity ), or may reveal a series of activities over a given period of time; as in the case of an Income

Statement ( A summary of the firm’s revenues and expenses, over a specified period ending with net income or

loss for the period ), or may show the sources and uses of funds, as in the case of Fund Flow Statement (A

summary of a firm’s changes in financial position from one period to another).The Income statement, the

statement or retained earnings and the statement of changes of financial position report what has actually

happened to earnings during a specified period. The balance sheet presents a summary of financial position of

the company at a given point of time. The statement of retained earnings reconciles income earned during the

year and any dividends distributed with the change in retained earnings between the start and end of financial

year under study. The statement of changes in financial position provides a summary of funds flowing during

the period of financial statements.

BALANCE SHEET

The balance sheet is the first of the three major financial statements. The balance sheet shows the assets,

liabilities and the equity for the firm as of the last day of the accounting period. In effect, it matches

resources (assets) with sources (liabilities and equity). It is commonly presented in two columns that illustrate

the relationship between assets and the sources of these assets. The assets or resources of the firm are

displayed in the right hand column and the sources of these assets in the left hand column.

INCOME STATEMENT

The income statement, is a report of the firm’s activities during a given accounting period. Firms often publish

income statements showing the results of each quarter, each half year and the full accounting year. It shows the

revenues and expenses of the firm, the effect of interest and taxes, and the net income for the period. It may be

called by other titles, such as the profit-and-loss statement or the statement of earnings. It is an accounting

device designed to show stockholders and creditors whether the firm is making money. It can also be used as a

tool to identify the factors that affect the degree of profitability

FLOW OF FUNDS STATEMENTS

A third important financial statement is the flow-of-funds or sources-of- funds statement. This statement shows

the movement of funds into the form’s current asset account from external sources such as stockholders,

creditors and customers. It also shows the movement of funds to meet the firm’s obligations, retire stock or pay

dividends. The movements are shown for a specific period of time, normally the same time period as the firm’s

income statement. The financial manager makes decisions to ensure that the firm has sufficient funds to meet

financial obligations when they are due and to take advantage of financial opportunities. To help the analyst

appraise these decisions (made over a period of time), we need to study the firm’s “flow of funds”.

RATIO ANALYSIS-A TOOL

Ratio analysis is a very powerful analytical tool for measuring performance of an organization. The ratio

analysis concentrates on the inter-relationship among the figures appearing in the aforementioned four financial

statements. The ratio analysis helps the management to analyze the past performance of the firm and to make

further projections. Ratio analysis allows interested parties like shareholders, investors, creditors, Govt. and

analyst to make an evaluation of certain aspects of a firm’s performance.

Ratio analysis is a process of comparison of one figure against another, which make a ratio, and the

appraisal of the ratios to make proper analysis about the strengths and weaknesses of the firm’s operations.

The calculation of ratios is a relatively easy and simple task but only the skilled analyst can make the proper

analysis and interpretation of the ratios. While interpreting the financial information, the analyst has to be

careful in limitations imposed by the accounting concepts and methods of valuation. Information of non-

financial nature will also be taken into consideration before a meaningful analysis is made.

Ratio analysis is extremely helpful in providing valuable insight into a company’s financial picture. Ratios

normally pinpoint a business strengths and weakness in two ways:

1. Ratios provide an easy way to compare today’s performance with past.

2. Ratio depict the areas in which a particular business is competitively advantaged or disadvantaged

through comparing ratios to those of other businesses of the same size within the same industry.

FINDINGS FROM RATIO ANALYSIS OF METRO TYRES

GROSS PROFIT RATIO

The gross profit ratio is also called the average markup ratio. This ratio expresses relationship between gross

profit and net sales. This ratio indicates the degree to which income per unit may decline without resulting in

losses from operations to the firm. It also helps in ascertaining whether the average percentage of mark up on

the funds is maintained. It is calculated by comparing the gross profit of the firm with the net sales as follows:

GP Ratio= Gross profit x 100

Net sales

Gross profit = Gross income – Interest and other charges.

GP RATIO - 2007 ( Current Year)

= 50.13 x 100

718.43

= 6.97%

GP RATIP – 2006 (Previous Year)

= 40.85 x 100

320.67

= 12.73%

Hence, gross profit of year 2007 is better then 2006.

NET PROFIT RATIO

The NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales. The NP

ratio measures the efficiency of the management in generating additional revenue over and above the total cost

of operations. The NP ratio shows the overall efficiency in manufacturing, administrative, selling and

distributing the product.

It may be calculated as follows:

NP ratio = Profit (after tax) x 100

Net sales

Net Profit – 2007 (Current Year)

= 131.90 X 1 00 718.43

= 18.35%

Net Profit – 2006 (Previous Year)

= 40.56 X 100 320.67

= 12.64%

Hence, Net profit of year 2006 is better then 2007

RETURN ON ASSETS (ROA)

The ROA measures the profitability of the firm in terms of assets employed in the firm. The ROA is calculated

by establishing the relationship between the profits and the assets employed to earn that profit. Usually the

profit of the firm is measured in terms of the net profit after tax and the assets are measured in terms of total

assets or total tangible assets or total fixed assets. Conceptually, the ROA may be measured as follows:

ROA = Net profit after taxes x 100 Total assets

ROA – 2007 (Current Year)= 131.90 X 100 1172.73

= 11.24%

ROA – 2006 (Previous Year)

= 40.56 X 100 241.79

= 16.77%

Hence, ROA of the year 2007 is better then 2006.

RETURN ON INVESTMENT (ROI)

The profitability of the firm can also be analyzed from the point of view of total funds employed in the firm.

The term funds employed or the capital employed refers to the total long-term sources of funds.

Capital employed = shareholders funds plus long-term debts.

Alternatively, capital employed = fixed assets plus + working capital.

The ROI may be calculated as follows:

ROI = Net profit before interest and taxes x 100 Capital employed

ROI – 2007 (Current Year)

= 197.63 X 100 17.25

= 1145.68%

ROI – 2006 (Previous Year)

= 58.17 X 100 7.30

= 7.96%

Hence, ROI of the year 2007 is better then 2006

RETURN ON EQUITY (ROE)

The ROE examines profitability from the perspective of equity investors by relating profits available for the

equity shareholders with the book value of equity investment. The return from the point of view of equity

shareholders may be calculated by comparing the net profit less preference dividend with their total contribution

in the firm

ROE = Net Profit after tax x 100 Total shareholders fund

ROE – 2007 (Current Year)

= 131.90 x 100 931.91

= 14.15%

ROE – 2006 (Previous Year)

= 40.56 X 100 141.94

= 28.57%

Hence, the ROE of year 2006 is better then Year 2007

CONCLUSIONS & SUGGESTIONS

FINANCIAL PERFORMANCE (1 ST APRIL,2006 TO 31 ST MARCH,2007)

a) SHARE CAPITAL

As on march 31st 2007, paid up equity share capital of the company stood at rs 28,37,52,750/-(i.e. 5,67,50,550 equity share Capital of rs 5/- each, fully paid up). However, consequently upon the issue and allotment of bonus Equity share on 04.05.2007 in the ratio of 1:1 in terms of approval of members received on 19.03.2007 by voting through postal ballot, the paid up capital of the company inceased from rs. 28,37,52,750/- to Rs. 56,75,05,500/-(i.e. 11,35,01,100 equity shares of Rs 5/- each, fully paid up).

b) RESERVE & SURPLUS

An amount of rs 7500 lacs has been transferred to General Reserve out of the Net Profit for the year ended 31.03.2007 as compared to the Rs 3000 lacs in the previous year.

c) LOANS

Secured loans stood at rs 23361.37 lacs as compared to rs. 8930.98 lacs in the previous year. This includes an amount of rs 5000 lacs raised by issue of 819659 no. of Zero Coupon Secured Redeemable optionally Convertible Debentures(“ROCD”) of Rs 100/- each

Unsecured loans stood at Rs 720.91 lacs as compared to rs 1054.46 lacs in the previous year.

d) CURRENT ASSETS

Inventories: During the year, Inventory level has increased by Rs 18821.83 lacs i.e from Rs 30639.53 lacs to Rs 13270.19 lacs.

Sundary Debtors: There is also an increase in Subdary Debtors of rs 7167.21 lacs i.e from Rs 6039-98 lacs to rs 13207.19 lacs.

Loans & Advances: During the year, the loans and advances also increases by Rs 60519.86 lacs i.e. from Rs 30844.72 lacs to Rs 91364.58 lacs.

Current Liabilities: Current Liability stood at Rs 63532.75 lacs as compared to Rs 49500.91 lacs in the previous year.

NET CURRENT ASSETS

During the year, the net current of the company have increased by rs 92492.75 lacs i.e from Rs 20486.94 lacs as compared to Rs 112979.69 lacs.

e) INTEREST

During financial 2006-07, company has paid an amount of rs 1942.41 as interest as compared to rs 1203.68 lacs in the previous year.

f) STAFF EXPENSES

During the year, the staff cost of he company stood at rs 2255.96 lacs as compared to rs 952.08 lacs in the previous year. This includes Eployees Stock Option Compensation Expenses of rs 45.97 lacs pursuance to grant of 1,16,700 Option on 26.10.2006 in terms of the approval of the members received on 02.05.2006.

g) DEPRICIATION

During financial 2006-07, depreciation increased from rs 213.14 lacs to rs 310.64 lacs

ANNEXURES

Profit & Loss A/C Of Metro Tyres Ltd

PARTICULARS 2007 2006

Sales Turnover 718.43 320.67Other Income 47.72 34.51Stock adjustments -6.59 3.73Total Income 759.56 258.91Raw Material 0.12 1.04Excise Duty 0.00 0.00Power & Fuel Cost 0.49 0.29Other manufacturing Expenses 469.46 241.86Employee Cost 17.25 7.30Selling & Administration Expenses 43.75 12.85Miscellaneous Expenses 6.45 21.56Less: Preoperative Expenditure Capitalised

0.00 0.00

Profit before interest, Depreciation & Tax

222.04 74.01

Interest & Financial Charges 21.30 13.71Profit Befire Depreciation & Tax 200.74 60.30Depreciation 3.11 2.13Profit before Tax 197.63 58.17Tax 65.73 17.61Profit after Tax 131.90 40.56Adjustment below Net Profit 0.00 0.00P & L Balance brought forward 23.46 16.89Appropriations 86.49 33.99P & L Balance carried down 68.87 23.46Equity Dividend 9.93 3.50Preference Dividend 0.00 0.00Corporate Dividend Tax 1.56 0.49Equity Dividend (%) 25.00 20.00Earning Per Share (Rs) 22.96 22.90Book Value 163.31 78.11Extraordinary Items 0.01 -10.14

Balance sheet of METRO TYRES LTD.

BIBLOGRAPHYWEBSITES:

www.wikipedia.com

www.yahoo.com

www.google.com

Metro tyres ltd.

BOOKS REFFERED:

Financial Management by I.M.Pandey

Cost accounting by S.N. Maheshwari

PARTICULARS 2007 2006

Share Capital 28.38 17.50Reserve & Surplus 903.53 124.44Total Shareholders Fund 931.91 141.94Secured Loans 191.81 89.31Unsecured Loans 49.01 10.54Total Debt 240.82 99.85Total Liabilities 1,172.73 241.79Gross Block 50.13 40.85Less: Accum Depreciation 19.86 15.81Net Block 30.27 25.04Capital Work In process 0.00 0.00Investments 11.22 9.03Inventories 494.61 306.39Sundry debtors 132.07 60.40Cash and Bank Balance 224.79 24.64Loans and Advances 915.40 311.30Current Liabilities 614.95 475.17Provisions 20.68 19.84Net Current Assets 1,131.24 207.72Miscellaneous Expenses not w/o 0.00 0.00Total Assets 1,172.73 241.79Contigent Liabilities 196.47 110.48