Financial Appraisal and Analysis of Minerals and Metals...

ABSTRACT

Journal of Management and Social SciencesVol. 9, No. 1, (Spring 2013) 49-66

C

Financial Appraisal and Analysis of Minerals and MetalsTrading Corporation (MMTC)

India is a nation with vast geographical diversities, providing a variety of mineraland metal resources, crucial for the economic development of a country. Thereare many public sector enterprises in India engaged in the business of thesenatural resources. Minerals and Metals Trading Corporation (MMTC) Ltd. isone of the leading public sector enterprises involved in the business of mineralsand metals at international as well as national level. This paper aims to studythe performance and efficiency of MMTC Ltd. during the period from 2000-01 to 2010-11 using various financial and statistical tools for analysis andinterpretation of the data obtained basically from the published reports of thecorporation. The study, in addition to checking the growth in business examinesthe liquidity, solvency, profitability and activity of the corporation and foundit growing. The analysis further reveals that the liquidity position of thecorporation is comfortable but profitability wise it is precariously placed.

Muhammad Taqi *Aligarh Muslim University, Aligarh, India.

Keywords : Financial Performance, MMTC Ltd., Minerals, Metals, PSU.

*The material presented by the author does not necessarily portray the viewpoint of the editorsand the management of the Institute of Business & Technology (IBT) or Aligarh Muslim University, Aligarh,India.

JMSS is published by the Institute of Business and Technology (IBT).Main Ibrahim Hydri Road, Korangi Creek, Karachi-75190, Pakistan.

* Muhammad Taqi : [email protected]

Jel classification : E440

1. INTRODUCTION

Availability of natural resources makes an economy strong and developed. Minerals andmetals are very crucial for the economic development of a nation. Government has theownership on the reserves of natural resources of its country. India has abundant reservesof various types of minerals and metals. There are many government undertakings doingbusiness of these natural resources. These companies are categorized as public sectorenterprises and are playing a dominant role in the industrial growth and the developmentof Indian economy. State Trading Corporation (STC), National Minerals DevelopmentCorporation (NMDC), Minerals Exploration Corporation Limited (MECL) and Mineralsand Metals Trading Corporation (MMTC) etc. are the main public sector companies whichare focusing on mining, excavation, trade of these minerals and metals at domestic andinternational level. MMTC Ltd. is one of the leading international trading companies ofIndia. Basically, it is involved in the export and import of minerals and metals and coversdomestic markets also. Being a leading trading company of India it is essential to evaluatethe financial performance of MMTC Ltd.

Performance evaluation of a company is generally related to how well a companycan use its assets, share holder equity and liability, revenue and expenses. Financial analysisembraces the methods used in assessing and interpreting the results of past performanceand current financial position as they relate to the particular factors of interest in investmentand other important decisions taken by the concerned stakeholders and the government.It is very important to assess the past performance to forecast and plan the developmentof the company and future prospects. Financial performance analysis gives an outcomeregarding workings and performance of a company during a specific period. It relates tothe earning capacity and utilization of available resources. In this context, evaluation hasbeen done focusing of financial aspects of the company with the help of its financialstatements, since MMTC Ltd. is a leading international trading company engaged inbusiness at domestic level as well.

The profitability of the business depends on the cost incurred for the production.If the cost increases on one hand and the profit of business decreases on the other, thebusiness may go to the liquidation stage. Moreover, the future development programmeof the company can be designed according to the expenses and investment level.Consequently, the analysis of the profitability of the MMTC gets importance in the presentday context. For measuring the financial performance of MMTC, profitability and liquiditymeasures are to be considered.

The basic aim of this study is to analyze the financial performance of MMTCLtd. It has been observed that the import of minerals and metals by MMTC Ltd. exceedsits exports which mean that the Balance of Payment is going to be negative on a continuousbasis. Moreover, MMTC Ltd. is engaged in domestic trade on a very small scale. Since,it is an international company; its performance should be good enough to contribute inthe economic development of the country. So, the purpose of the Researcher behind thisstudy is to analyze the performance of MMTC Ltd. in order to evaluate how much, it iscontributing in enhancing the efficiency of the economy.

The present paper is divided into five sections. The first section gives thebackground of MMTC and second part related with review of previous studies and researchgap. The third section consists design of the study including objectives, hypotheses andmethodology. The fourth part of the study related to analysis and interpretation. The lastsection of the study gives the concluding remarks.

1.1 Profile of the MMTC Ltd.

Minerals and Metals Trading Corporation (MMTC) Ltd. was established in 1963 with thebasic purpose to increase the trade of minerals and metals at international as well as

50 Journal of Management and Social Sciences

Muhammad Taqi

national level. The principal activities of the company are export of Minerals and importof Precious Metals, Non-ferrous metals, Fertilizers, Agro Products, general trade, coal andhydrocarbon. It is the first Public Sector Enterprise to be accorded the status of five starexport house by the Indian Government for long standing contribution in exports. Tradeactivities of MMTC encompass third country trade, joint ventures, and link deals in allmodern day tools of international trading. Its international trade network spans in allcountries of Asia, Europe, Africa, Oceania and America. It is the largest importer of goldand silver in the Indian sub continent and the largest non-oil importer for India.

MMTC Ltd. is the single largest exporter of minerals, the major fertilizer marketingcompany and the leading exporter and importer of agro products in India. It has acomprehensive infrastructural expertise to handle minerals that provide full logistic supportfrom procurement, quality control to guaranteed timely deliveries of minerals from differentports, through a wide network of regional and port offices in India, as well as internationalsubsidiary. It retains the position of single largest trader in the country for product lineslike Minerals, Metals and Precious Metals. MMTC Ltd. provides support services to themedium and small scale sectors. The company is doing a project, namely, Neelachal IspatNigam Ltd. (NINL) jointly with the Government of Odisha.

MMTC has a wholly owned subsidiary in Singapore i.e. MMTC TransnationalPte. Ltd. Singapore (MTPL).The trading network of the company spans all over the world.MMTC has been manufacturing its own brand of gold and silver medallions since the year1996. MMTC has retail jewellery and its own branded Sterling Silverware (Sanchi)showrooms in all the major cities of India. The total turnover of MMTC Ltd. was Rs.45124 crore in 2009-10 which reached at a level of Rs. 65929 crore in 2011-12. The export,import and domestic trade of MMTC Ltd. was stood at Rs. 3222, 39969 and 1932 crorerespectively in 2009-10 which reached on Rs. 2045, 61042 and 2842 crore respectively.The earning per share of MMTC Ltd. was Rs. 43.25 in 2010 and in 2011-12, it was Rs.0.71.

2. REVIEW OF LITERATURE

There are a number of studies that have approached to the evaluation the performance ofa company. Some pioneer works have been undertaken to evaluate performance ofcompanies but very few studies have been done on financial aspects and its impact on thegiven economic scenario. None of the study reviewed by the researchers examined thefinancial aspects of any public sector organization especially in mineral sector of India.Hence, the present study attempts to analyses the financial performance of Minerals andMetals Trading Corporation (MMTC) Ltd. Some reviews related to financial performanceevaluation are as follows;

Singh P.K. (2003) evaluate the financial performance of IDBI Bank Ltd. by usingaccounting ratios and applied t test and correlation for check the validity of hypotheses.The study concluded that IDBI Bank is a progressive, technology driven and professionallymanaged entity. Bagchi S.K (2004) analyzed the practical implication of accounting ratiosin risk evaluation. The study concluded that accounting ratios are still dominant factorsin the matter of credit risk evaluation. Tyagi et al (2005) examine the financial performanceof Hindustan Liver Ltd. (HLL). Many accounting ratios were calculated and analyzed inlength to appreciate their impact on company's performance. They used DuPont chart tocheck the overall credibility of company.

The results gave the conclusion that the company has managed its cash positionvery efficiently. Vanitha et al. (2007) examined the financial performance of IndianManufacturing Companies. In order to evaluate the financial performance they used ratioanalysis, mean, standard deviation and't' test as tools of analysis. The study found that inIndia merging companies were taken over by companies with reputed and good management.Gopinathan 2009), used financial ratios to analyze the financial performance. The analysis

51Vol. 9, No. 1, (Spring 2013)

Financial Appraisal and Analysis of Minerals and Metals Trading Corporation (MMTC)

was typically done to make sense of the massive amount of numbers presented in thefinancial statements of the company. It helps to evaluate the performance of a company,so that investors can decide whether to invest in that company. Different ratios categorieslike profitability ratios, liquidity ratios, debt ratios, performance ratios and investmentevaluation ratios are calculated for covering the different aspects of performance.

Jenkins (2009), states in the study that technique of financial ratios analysis canhelp in gaining a complete picture of the financial outlook of a company. The study statesthat the most important thing is cost (fixed as well as variable). Fixed costs are those coststhat are always present, regardless of how much or how little is sold. Variable costs arethe costs that increased or decreased in ratios proportion to sales. DAS S. (2010), analyzedand interpreted the financial statements of different companies viz. ACC Ltd, Tata Steel,Jindal Steel and Power Limited, Hindustan Zinc Ltd. (HZL) and Gujarat MineralDevelopment Corporation (GMDC) with respect to many financial ratios such as currentratio, debt equity ratio, net profit margin, return on investment etc.

Okundamiya and Ojieabu (2010), in their study entitled 'Performance Analysisand Evaluation of Communication System' developed a mathematical approach to obtainclosed formula for generating functions of a systems content from which most importantperformance measures are derived. The derivation of such generating functions was basedon queuing theory. The numerical results of analysis were satisfactory.

According to Asma S. (2010), financial analysis is useful for every businessentity to enhance their performance, competitive strength and access their financial stabilityand profitability of the firm. She investigates the financial analysis of the two multinationalcompanies, Glaxo Smith Kline (GSK) and Sanofi Aventis (SA). It is an attempt to comparetheir financial performance by using ratio analysis. Data is drawn from pharmaceuticalindustry in Pakistan from 2005 to 2009. Analysis include statistical hypothesis test (t-test)with independent sample characteristics through SPSS. The results revealed that theperformance of both companies in the observed period has improved. The current methodreflects that GlaxoSmithKline is leading Sanofi Aventis. Basically these financial ratios-solvency ratios, liquidity ratios, activity ratios, profitability ratios and marketability ratiosare used extensively in this study.

Sheela (2011) reveals in his research paper the financial performance of WheelsIndia Ltd. through various financial tools namely ratio analysis, comparative balance sheetand DuPont analysis and also statistical tools such as trend analysis and correlation. Themain contribution of this study is the use of five power analysis methodology to retrieveratios commonly used in financial analysis to tackle the problems of sample size anddistribution uncertainty.

Mistry (2011), in his paper 'Performance Appraisal of Indian Automotive Industrythrough Production Trend Analysis' endeavored to make performance appraisal of theIndian Automotive Industry through analysis of the production trend with the help of thearithmetic mean, the coefficient of variance, trend indices and Analysis of Variance(ANOVA). He observed from the analysis of the production indices that productionperformances in all segments of the industry improved significantly. The study revealedthat the mean value of production is the highest in two-wheeler segment. Coefficient ofvariation suggested higher fluctuations in commercial vehicle and passenger vehiclesegments as compared to two wheelers and three wheelers segments. Venkataramana, M.N. et al (2012), evaluate the profitability and financial position of selected cement companiesin India through various financial ratio and applied correlation, mean, standard deviationand variance. The study uses liquidity and profitability ratios for assessment of impact ofliquidity ratios on profitability performance of selected cement companies.


Muhammad Taqi

Research Gap

A number of studies have been conducted on financial performance evaluation by usingdifferent financial measurement and statistical tools according to the nature of the studies,but these studies provide mixed results. Many researchers have evaluated the performanceof various companies but still the performance of MMTC Ltd. has not been evaluated tillnow by any researcher as far as researchers gone through various research studies. So,under this study we are going to evaluate the performance of MMTC ltd. As it is a leadinginternational company of India, there is a need to analyze its workings and performance.

After reviewing various studies conducted on financial performance, the researchershave observed that very few researches could focus on evaluation of the financialperformance of a firm. Hence, in the present study the researcher make an attempt toanalyze the financial performance of one of the largest international trading company ofIndia engaged in the export and import of various minerals and metals throughout theworld.

3. RESEARCH DESIGN

3.1 Objectives of the Study

The present study aims at endeavoring to evaluate the financial performance of Mineralsand Metals Trading Corporation (MMTC) for the period from 2000-01 to 2010-11. Themain objective of the study is to analyze the financial performance of Minerals and MetalsTrading Corporation (MMTC) Ltd.

. To evaluate the financial performance of MMTC Ltd.

. To study its business practices i.e. export, import and domestic trade

. To analyze the operational efficiency of MMTC Ltd. by ascertaining the relationshipbetween export, import and domestic trade.

3.2 Hypotheses of the Study

The main hypotheses of the study are as follows:First Hypothesis: Significant difference in Financial Ratios;H0; there is no significant difference in financial ratios of MMTC Ltd. across the years.H1; there is a significant difference in financial ratios of MMTC Ltd. across the years.Second Hypothesis: Relationship between Export and Import;H0; There is no significant relationship between export and import of MMTC Ltd.H2; there is a significant relationship between export and import of MMTC Ltd.Third Hypothesis: Relationship between Import and Domestic Trade;H0; there is no significant relationship between import and domestic trade of MMTC Ltd.H3; there is a significant relationship between import and domestic trade of MMTC Ltd.Fourth Hypothesis: Relationship between Export and Domestic Trade;H0; there is no significant relationship between export and domestic trade of MMTC Ltd.H4; there is a significant relationship between export and domestic trade of MMTC Ltd.

3.3 Methodology of the Study

Present study focuses only one of the important public sector enterprises which is engagedin the business of minerals and metals. The study is primarily based on the secondary datataken from the Annual Reports and other relevant publications of MMTC Ltd. A moderateperiod of ten years from 2001-02 to 2010-11 is adopted to draw the meaningful inferences.Data of last ten years are sufficient to have an idea about the financial performance ofMMTC Ltd. The methodology used under this study in order to evaluate the financialperformance of MMTC Ltd. includes student's t test and spearman's rank correlation test.Before applying these tests, the normality of the data has been checked through descriptive

53Vol. 9, No. 1, (Spring 2013)


statistics. For calculating t test, we used different types of ratios like liquidity ratio,profitability ratio and activity ratios. For calculating rank correlation we have taken export,import and domestic trade of MMTC Ltd. The financial ratios of MMTC Ltd. werecalculated and graphical presentation done by the researcher with the help of MS-Excel.The data was analyzed with the help of SPSS 20.0 also.

Financial performance of MMTC Ltd. analyzed through various financial ratiosi.e. liquidity ratios, profitability ratios and activity ratios. For check the growth in financialratios we used significant test (one sample t test).

3.3.1 Accounting Tools

Liquidity Ratios;Current Ratio = Current Assets / Current LiabilitiesLiquid Ratio = Liquid Assets / Current LiabilitiesCash Position Ratio = Cash + Marketable Securities / Current LiabilitiesWorking Capital Turnover Ratio = Working Capital / Current LiabilitiesProfitability Ratios:Gross Profit Ratio = Gross Profit / Total Sales * 100Operating Profit Ratio = Operating Profit / Total Sales * 100Net Profit Ratio = Net Profit / Total Sales * 100Return on Shareholder's Fund = Net Income after Tax / Total Sales * 100Return on Capital Employed = Net Income after Tax / Total Capital Employed * 100Activity Ratios:Inventory Turnover Ratio = Avg. Stock / SalesDebtors Turnover Ratio = Avg. Debtors / SalesFixed Assets Turnover Ratio = Fixed Assets / SalesTotal Assets Turnover Ratio = Total Assets / Sales

3.3.2 Descriptive Statistics

Descriptive statistics are used to describe the basic features of the data in a study. It givesnumerical and graphic procedures to summarize the data in a clear and understandableway. It helps us to simplify large amounts of data in a sensible way. Each descriptivestatistics reduces lots of data into a simpler summary. The range is simply the highestvalue minus the lowest value. The average may be either mean or median. The standarddeviation is a more accurate and detailed estimate of dispersion because an outlier cangreatly exaggerate the range. The standard deviation shows the relation that set of scoreshas to the mean of the sample. The details of descriptive statistics are as follows:

3.3.3 One Sample t test

One sample t test has been applied to check the significant difference in the variousfinancial ratios of MMTC Ltd. from 2001 to 2011 with the help of SPSS 20. To check thesignificant growth in the ratios during the study period we used one sample t test on 95per cent degree of significant.

3.3.4 Spearman Rank Correlation

To study business practices i.e. export, import and domestic trade we used trend analysisof growth during the year and check the relationship between trade practices, spearmanrank correlation has been used. Spearman's Rank Correlation is a technique used to testthe direction and strength of the relationship between two variables. It's a device to showwhether any one set of numbers has an effect on another set of numbers. Calculation oftrends and Spearman Rank Correlation has been done with the data of export, import anddomestic trade using MS-Excel.


Muhammad Taqi

Where, di = difference in paired ranks and n = number of cases. The formula to use whenthere are tied ranks.

4. ANALYSIS AND INTERPRETATION

The analysis and interpretation of the financial statements results in the presentation ofinformation that will aid the decision making by investors, creditors, managers as well asother groups who are interested in the financial position and operating results of a concern.The financial performance of MMTC Ltd. is evaluated mainly from three facets namelyliquidity performance through current, liquid, cash position and working capital turnoverratio, profitability performance via gross profit, operating profit, net profit, return on capitalemployed and return on shareholders fund ratio and activity ratios through inventoryturnover, debtors turnover ratio and total assets turnover ratio. The relevant ratios arecomputed to make effective judgments about the financial performance of MMTC Ltd.

Financial ratios indicate the accurate financial position of a firm. Liquidity isdefined as the capacity to meet short term financial commitments, i.e. short term solvency.One of the important measures of liquidity for the business enterprise is current ratio whichis obtained by dividing current assets by current liabilities of a firm and is widely acceptablefor measuring the business firm's short term solvency.

Table 1Liquidity Ratios of MMTC Ltd. (in times)

Source: Annual Reports of MMTC Ltd. from 2000-01 to 2010-11

Where: CR= Current Ratio,QR= Quick Ratio,CPR = Cash Position Ratio, WCTR= Working Capital Turnover Ratio

The table shows that the current ratio of the company has a fluctuating trendduring the study period. It is to be at its highest level of 2.53 in the year 2010-11, and atits lowest level in the year 2004-05. The analysis of liquidity position of MMTC Ltd.through liquid ratio and the results are presented in the above table. The ratio has beenbound at its highest level of 2.07 during the year 2001-02, and at the lowest level of 1.14in the year 2004-05. From the analysis, it is evident that the quick ratio of the MMTC Ltd.is very sound which indicates that the company can meet the short term obligations. Cashposition of the company is likely to be satisfactory during the study period as it shows the

55Vol. 9, No. 1, (Spring 2013)


Year2000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11

CR2.472.381.801.261.161.552.131.902.112.292.53

LR2.072.181.611.201.141.442.021.781.991.862.40

CPR0.540.580.350.890.890.650.941.311.211.221.39

WCTR0.150.100.080.080.050.060.070.140.140.130.10

higher ratio to the standard i.e. 0.50:1. Working capital turnover ratio indicates the proportionof working capital as current liabilities and it was fluctuating during the study period.

Figure 1

Source: Drawn from the Table 1

Figure 1 displays the graph of the liquidity ratios of MMTC Ltd. from 2000-01to 2010-11. The values of ratios are plotted on the X-axis and the numbers of years areplotted on the Y-axis. The figure shows exhibit the actual position of current ratio, liquidratio, cash position ratio and working capital turnover ratio of MMTC Ltd.

Before employing any test it is very important to find out the normality of thedata which can be found out by statistical description of the data. Table-2 presents statisticaldescription of liquidity ratios of MMTC Ltd. Under this mean, standard deviation, variance,minimum, maximum, skewness and kurtosis have been calculated. Statistical descriptionis made in order to find out whether the data shows normality or not.

Table 2Statistical Description of Liquidity Ratios of MMTC Ltd. (from 2000-01 to 2010-11)

The above table presents the statistical description of liquidity ratios of MMTCLtd. On an average, current ratio of the MMTC Ltd. was 1.96 times during the studyperiod. From the analysis, it is also evident that the current ratio of MMTC Ltd. is notequal to the standard which indicates that the MMTC Ltd. cannot meet its short termobligations within time and does not have a sufficient amount of working capital for thesmooth running of the business activities. On an average, the ratio of cash position ofMMTC Ltd. stood at .91.

Statistical description is being calculated on the basis of the data collected fromthe annual reports of MMTC Ltd. since 2000-01. The mean value of current ratio, liquidityratio, cash position ratio and working capital turnover ratio is 1.96, 1.79, .91 and .10respectively. It is observed that the mean value of current ratio is lower than the standard.The mean value of liquid ratio is more than its standard. The values of skewness andkurtosis determine the normality of the data. The critical values for skewness and kurtosisof current ratio, liquid ratio, cash position ratio and working capital ratio are shown inTable 2 which represents that the observed data is perfectly normally distributed.


Muhammad Taqi

CRLRCPRWCTR

N11111111

Range1110

Minimum

1100

Maximum

3210

Mean1.961.79.91.10

Std.Deviation

0.4740.403.347.035

Variance.225.163.121.001

Statistic-.578-.373-.103.134

Std.Error.661.661.661.661

Statistic-.905-.783

-1.276-1.529

Std.Error1.2791.2791.2791.279

Skewness Kurtosis

57Vol. 9, No. 1, (Spring 2013)


Table 3t Statistics of Liquidity Ratios of MMTC Ltd

In the present table the test of significance has been applied on liquidity ratios.Our null hypothesis stands for rejection and alternate hypothesis is accepted. Since thesignificant t value is less than 0.05 at 95 per cent level of significance. It means there isa significant difference in liquidity ratios of MMTC Ltd. across various years measuredthrough current ratio, liquidity ratio, cash position ratio, working capital turnover ratio.

Table 4Profitability Ratios (in percent)

Source: Annual Reports of MMTC Ltd. since 2000-01 to 2010-11

Whereas: GPR= Gross Profit Ratio,OPR = Operating Profit Ratio, NPR= Net ProfitRatio, ROSF = Return on Shareholder's Fund, ROCE = Return on Capital Employed

The present table shows a fluctuating cum decreasing trend in gross profit ratioof MMTC Ltd since 2000-01. It decreased continuously from 2.9 per cent in 2002-03 toreach 0.48 per cent in 2010-11. The main reason behind the continuous decline is theincrease in cost of sales because of an increase in purchases and opening stock and adecrease in closing stock.

Return on Shareholder's Fund shows the company's return to the ordinaryshareholders' investment. A return of at least 10 per cent will be necessary to ensure thatshareholders hold on to their shares. Return on shareholder's fund of MMTC Ltd. was3.24 per cent in 2000-01 which increase over the year and reached at its highest level of19.71 per cent in 2007-08 and further it was declined. On an average, this company'sreturn on shareholder's fund is maintained at a satisfactory level.

CRLRCPRWCTR

t-value

13.72014.7238.6609.419

Df

10101010

Sig. (2-tailed)

<0.001<0.001<0.001<0.001

MeanDifference

1.9621.7900.9060.100

Lower1.641.52.67.08

Upper2.282.061.14.12

95% ConfidenceInterval of

the Difference

Test Value = 0

Year2000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11

GPR2.621.742.091.781.691.361.071.630.870.700.48

OPR0.280.350.580.881.161.030.811.230.590.740.28

NPR0.230.260.400.560.710.660.550.760.380.480.18

ROSF3.243.064.2511.0115.0113.8115.0819.7112.4716.868.84

ROCE2.022.013.296.90

10.668.586.614.802.583.361.63


Muhammad Taqi

Return on Capital Employed shows the profit generated by the company consideringthe total capital invested. A constant return of 10 per cent or above would be considereda healthy trend. The return on capital employed of the company was 2.02 per cent in2000-01. It was reached at a level of 10.66 per cent in 2004-05. Net profit ratio has alsoshown a fluctuating trend during the whole study period. MMTC Ltd. has a very low trendof this ratio. It was 0.23 per cent in 2000-01 that fluctuated continuously during the studyperiod to finally stand at 0.18 per cent in 2010-11.

Table 5Statistical Descriptions of Profitability Ratios of MMTC Ltd. (from 2001 to 2011)

Table 5 shows the descriptive statistics of profitability ratios of MMTC Ltd. forthe period from 2001 to 2011. In this table mean, standard deviation, variance, minimum,maximum, skewness and kurtosis have been calculated which shows the important statisticalaspects related to profitability ratios of MMTC Ltd. The mean value of ROSF is higheras compare to other profitability ratios at the same time the standard deviation of ROSFis also high which means it implies the more variability.

Figure 2

Source: Drawn from Table 4

Figure 2 exhibit the graphical presentation of profitability ratio of MMTC Ltd.from 2000-01 to 2010-11 which consists Gross Profit Ratio, Operating Profit Ratio, NetProfit Ratio, Return on Shareholders Fund and Return on Capital Employed. All the ratiosare stable up to 2002-03 and later ROSF start increasing at a higher rate till 2007-08 andROCE increased till 2004-05. GPR, NPR and OPR were stable over the study period. The

GPROPRNPRROSFROCE

N1111111111

Range211

179

Minimum0.480.280.183.061.63

Maximum2.621.230.76

19.7110.66

Mean1.46.72.47

11.214.77

Std.Deviation

.637

.338

.1985.7093.019

Variance.405.114.039

32.5989.115

Statistic.128.074-.035-.311.830

Std.Error.661.661.661.661.661

Statistic-.382

-1.236-1.265-1.139-.432

Std.Error1.2791.2791.2791.2791.279

Skewness Kurtosis

59Vol. 9, No. 1, (Spring 2013)


ROCE was its maximum level in 2004-05 and later it declined. The graph shows that thereturn in terms of investment is more than the return in terms of sale.

Table 6t Test Statistics of Profitability Ratio

In this Table student t test has been applied for testing the significance level ofprofitability ratios of MMTC Ltd. from 2001 to 2011. The result shows that there is asignificant difference in the profitability ratios of MMTC Ltd. among the various years.The P value in all the ratios is less than 0.05 which means our null hypothesis is rejectedand alternative hypothesis is accepted.

Table 7Activity Ratios (in times)

Source: Annual Reports of MMTC Ltd. since 2000-01 to 2010-11

Whereas: ITR = Inventory Turnover Ratio, DTOR = Debtors Turnover Ratio, TATR= Total Assets Turnover Ratio, FATR = Fixed Assets Turnover Ratio

Activity ratios measure how effectively a firm is using its assets. These ratioshelp us gauge how effectively the company is at putting its investment to work. InventoryTurnover Ratio measure how quickly inventory is sold. A firm should neither have a highratio nor a low ratio. ITR of MMTC Ltd. was 4.30 times in 2000-01 which was fluctuatingamong the years and it was reached on its lowest at 0.76 on 2006-07.

DTOR shows how quickly current assets i.e. receivables or debtors are convertedto cash. A firm should neither have a high ratio nor a low ratio. Debtor's turnover of MMTCLtd. was 24.66 in 2000-01 which was fluctuating during the study period and finally it

GPROPRNPRROSFROCE

t-value

7.5927.0687.8816.5135.237

Df

1010101010

Sig. (2-tailed)

<0.001<0.001<0.001<0.001<0.001

MeanDifference

1.457.721.470

11.2134.767

Lower1.03.49.34

7.382.74

Upper1.88.95.60

15.056.80


the Difference

Test Value = 0

Year2000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11

ITR4.301.622.021.790.731.520.762.091.574.730.94

DTOR24.6623.3725.6219.9522.1122.1720.8218.2919.3129.0727.11

TATR3.484.694.382.162.384.516.382.933.483.825.43

FATR2.321.893.982.551.671.551.711.500.990.880.57


Muhammad Taqi

reached on 27.11 in 2010-11. Total Asset Turnover Ratio (TATR) and Fixed Assets TurnoverRatio (FATR) measure the efficiency of a firm in managing and utilizing its long termassets. Higher the ratio, more efficient is the firm in utilizing its assets. As per results showthe assets turnover ratio is very low it may be stated that company is using the long termassets in very low quantity.

Table 8Statistical Descriptions of Activity Ratios of MMTC Ltd. (from 2001 to 2011)

Table - 9 gives the statistical description of activity ratios of MMTC Ltd. from 2001to 2011. The average, standard deviation, variance, minimum, maximum, skewness andkurtosis of activity ratios have been calculated in this table which shows the importantstatistical aspects related to activity ratios of MMTC Ltd. The mean value of ITR, DTOR,TATR and FATR is 2.01, 22.95, 3.97 and 1.78 respectively. The standard deviation ofDTOR is high among the activity ratios which mean it implies the more variability.

Figure 3

Figure 3 presents the activity ratios of MMTC Ltd. from 2000-01 to 2010-11 includingInventory Turnover Ratio, Debtors Turnover Ratio, Total Assets Turnover Ratio and FixedAssets Turnover Ratio. Debtor's turnover ratio is very high during the whole study periodas compare to other activity ratios. Fixed assets turnover ratio shows the lowest proportionduring the study period. Inventory position shows the trading activity of the company.

ITRDTORTATRFATR

N11111111

Range41143

Minimum0.76

18.002.001.00

Maximum4.73

29.006.004.00

Mean2.01

22.953.971.78

Std.Deviation

1.3283.3881.277.937

Variance1.76311.4811.631.878

Statistic1.398.431.383

1.212

Std.Error.661.661.661.661

Statistic1.094-.676-.2272.243

Std.Error1.2791.2791.2791.279

Skewness Kurtosis

61Vol. 9, No. 1, (Spring 2013)


Table 9t Statistics of Activity Ratios of MMTC ltd.

From the table it can be observed that the significant value of each and every ratiois less than 0.05 which leads to the rejection of the null hypothesis that there is no significantimprovement in activity ratios of MMTC Ltd. since 2000-01 and acceptance of alternatehypothesis that there is a significant improvement in financial ratios of MMTC Ltd. since2000-01.

Analysis of Trade Practices of MMTC Ltd

Minerals and Metals Trading Corporation (MMTC) Ltd. is the largest international tradingcompany of India involved in the exports, imports and domestic trade of a number ofminerals and metals. In order to evaluate the financial performance of MMTC Ltd., threevariables have been taken i.e. export, imports and domestic trade. To draw a clear pictureof the working and business of MMTC Ltd., we can go through the tabular and graphicalpresentation of the variables and can interpret them.

Table 10Statement Showing Total Trade of MMTC Ltd.

Table 10 describes the exports value of MMTC Ltd. It has grown steadily at aCompound Annual Growth Rate (CAGR) of 7.88 per cent from Rs. 1604 crore in 2000-01 to Rs. 3693 crore in 2010-11. The table shows the waving cum increasing trend ofexport by MMTC Ltd. The value of export was Rs. 1604 crore in 2000-01 which reachedon Rs. 32331 crore in 2010-11 with an increasing trend throughout the study period. In2003-04 and 2009-10, the export decreased due to various financial and economic problemsfaced by the corporation but finally in 2010-11, the export increased by 15 per cent. Themean value of the export throughout the period under study is Rs. 2939 crore.

CRLRCPRWCTR

t-value

5.01222.46710.3046.309

Df

10101010

Sig. (2-tailed)

<0.001<0.001<0.001<0.001

MeanDifference

2.00622.9533.9671.783

Lower1.11

20.683.111.15

Upper2.90

25.234.832.41


the Difference

Test Value = 0

Year2000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11CAGR

Exports16041729233618913031292534133911457632223693

Inc/Decin %

-8

35-1960-3171517-3015

Imports364154813732667911033117861860820450306963996963301

Inc/Decin %

-51-3279657

5810503058

DomesticTrade

5734

158529

1060152112812062155019321860

Inc/Dec in%-

-4036523510043-1661-2525-4

7.88 29.64 37.28


Muhammad Taqi

Figure 4

Figure 2 gives the graphical presentation of export of MMTC Ltd. from 2000-01 to2010-11. It shows an increasing trend of export during the study period. The export ofMMTC Ltd. was stood at Rs. 1604 crore in 2000-01 which reached Rs. 3693 in 2010-11.

Figure 5

Table 10 reveals that the imports of MMTC Ltd. has grown steadily at a compoundannual growth rate (CAGR) of 29.64 per cent from Rs. 3641 crore in 2000-01 to Rs. 63301crore in 2010-11. This table also depicts that the value of imports registered a rising trendfrom 2003-04 onwards. It also reveals that the growth of imports by MMTC Ltd. is veryhigh as compared to exports. The value of imports was Rs. 3641 crore in 2000-01 whichreached at Rs. 63301 crore in 2010-11 at a very fast growing trend. From 2003-04, thevalue of imports increased regularly. The mean value of the imports during the periodunder study is Rs. 19580 crore. The growth line is going upward during the whole studyperiod which indicates the imports of minerals and metals of the corporation are verysound and growing rapidly.

63Vol. 9, No. 1, (Spring 2013)


Figure 6

Table 10 demonstrates the value of domestic trade of MMTC Ltd. which grew at acompound annual growth rate (CAGR) of 37.28 per cent from Rs.57 crore in 2000-01 toRs. 1860 crore in 2010-11. It also describes the value of domestic trade which registereda rising trend from 2000-01 to 2005-06 and for rest of the period, showed a fluctuatingtrend. The value of domestic trade was Rs. 57 crore in 2000-01 which reached at Rs. 1860crore in 2010-11 with a waving trend throughout the study period. Since 2003-04, theimports increased regularly due to the expansion of its business. The mean value of theimport was Rs. 19580 crore throughout the period under review. From 2000-01 the domestictrade grew highly but after that, it had changing trend throughout the study period.

Figure shows the growth in domestic trade of MMTC Ltd. during the period understudy. The growth line went upward till 2005-06 and then it started fluctuating. It indicatesthat the position of MMTC Ltd. in domestic trade of the minerals and metals is good.

Table 11Descriptive statistics of export, import and domestic trade of MMTC ltd.

Descriptive statistics gives numerical procedures to summarize a collection of datain a clear and understandable way. It helps us to simplify large amounts of data in a sensibleway. Each descriptive statistics reduces lots of data into a simpler summary. Table 7 revealsthe various aspects related to descriptive statistics of trade practices of MMTC Ltd.

Table 12Spearman Rank Correlation between Export, Import and Domestic Trade of MMTC ltd.

Particulars

ExportsImportsDomesticTrade

N1111

11

Minimum16043641

34

Maximum4576

63301

2062

Mean2939

19580

1095

Std.Deviation

959.9318592.28

777.60

Variance921473.16

345673037.26

604669.49

Statistic.0471.51

-.312

Std.Error.661.661.661.661

Statistic-.9042.041

-1.617

Std.Error1.2791.2791.2791.279

Skewness Kurtosis

ExportImportDomestic Trade

Export1

0.86360.8636

Import0.8636

10.9181

Domestic Trade0.86360.9181

1


Muhammad Taqi

Spearman's rank correlation coefficient measures the strength of relationship betweentwo variables. Trade practices of MMTC Ltd. mainly are exports, imports and domestictrade of various minerals, metals and fertilizers at international as well as national level.In table 8 the relationship between exports and imports is 0.86364 which reveals positiverelationship between both variables. The relationship between import and domestic tradeis 0.91818 shows the highly positive relationship between them. In the table 8 the relationshipbetween export and domestic trade is 0.86364 which depicts positive relations betweenexport and domestic trade of the company.

5. CONCLUSION AND SUGGESTIONS

The present study has been conducted with a view to assessing the financial performanceof Minerals and Metals Trading Corporation (MMTC) Ltd. since 2000-01. The availabledata of MMTC Ltd. has been analyzed and interpreted through various financial ratios,trends and graphical presentations of total trade activities as well as applied statisticaltools. It can be summed up that the financial position of the company is sound in termsof short term solvency. The profitability position of the corporation is not very impressive.The gross and net profit ratio does not show a good indication regarding profitability. Themain reason of low profit is very high cost of sales and other related direct expenses. Thereturn on capital employed and shareholders fund is quite satisfactory as compared toother profit ratios.

MMTC is giving preference to trading on equity as shown through the analysis ofdebt equity ratio. The imports are growing rapidly in comparison to other trade activitiesof the corporation. It is observed that MMTC has focused on imports since 2000-01.Exports are escalating but not as much as imports necessitating it to focus on exports.Since 2000-01, MMTC Ltd. has grown its business at domestic level through variousbusiness strategies like outlets, exhibitions etc. From the analysis it may be stated that thefinancial position of MMTC Ltd. is good but some steps should be taken by the Governmentfor improving the position of this corporation.

After analysis and interpretation of the available data it can be concluded that MMTCLtd. primarily focuses on foreign trade (exports and imports) instead of the domestic trade.In trade activities of MMTC Ltd. the domestic trade has not played any significant rolebecause exports and imports were the main trade practices during the period under study.MMTC Ltd. has promoted its domestic trade through exhibitions and by opening someoutlets in major cities of India. It has also been found that it mainly focused on importswhich grew rapidly throughout the study period. It should focus on the national marketas well as international market and expand their business at domestic level also.

After analysis and interpretation of the data we find some indications regarding theperformance of Minerals and Metals Trading Corporation (MMTC) Ltd. which are asfollows:

. The study reveals the fluctuations in the trend of liquidity and profitability positionof the company.

. The profitability position of the company is not comfortable in terms of sales butthe return on capital employed and return on shareholders' fund is satisfactory ascompare to gross profit and net profit ratios.

. The growth in liquidity ratio of the company is significant as it was checked by thestudent t test.

. The growth in solvency ratio, activity ratio and profitability ratio of MMTC Ltd.is also more significant.

. The relationship between exports and imports is highly correlated which showsthat both variables impact each other.

. The relationship between export and domestic trade is also positively correlatedwhich reveals the export trend impact on domestic trade of the company.

. As per analysis of available data of MMTC Ltd. it can be revealed that the import

65Vol. 9, No. 1, (Spring 2013)


of the company is highly escalated as compared to export.. The trade practices of the company include exports, imports and domestic trade.

Out of these, the company mainly focuses on import and export as compared todomestic trade practices.

Suggestions and Recommendations

There is need to secure the confidence of stakeholders providing them with the resultsfrom financial analyses. Every company carries out financial appraisal of its performanceon a periodical basis. More awareness and education be provided to the public with regardto evaluation of financial performance of a company. Government undertakings shouldbe advised more on how to increase their working efficiency through adoption of besttrade practices. There are some suggestions for the company is as follows:

. The company's ability to meet its current obligations is satisfactory. This companymaintains current assets more than the amount of current liabilities and it shouldbe advised to increase the value of current assets to achieve the optimum level.

. Liquidity position of the corporation is quite satisfactory and it should be maintainedto meet short term obligations.

. The corporation does not earn significant profit on sales. There should be reductionin the cost of sales and other expenses.

. The export should be promoted by the corporation for earning long term profitsand meet domestic needs as it is a public sector enterprise.

. It is notable that the import is growing as compared to export. The company shouldfocus on exports.

. The corporation is involved in domestic trade at very low level. It is needed toaccelerate the domestic trade activities by the corporation.

Since MMTC Ltd. is an international trading corporation, it should focus on exportas compared to other trade activities because the export volume of the company is lowerthan its import. The domestic trade of the company is very low and not as much as othertrade activities. So the company should increase its trade at domestic level for properutilization of the available resources and fulfillment of domestic requirements.

6. REFERENCES

1. Agrawal, N. K. (2003). Management of Working Capital. New Delhi: SterlingPublishers Pvt. Ltd. pp. 17-62.

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3. Bagechi S K (2004), Accounting Ratios For Risk Evaluation, The ManagementAccountant, New Delhi, Vol.39, No.7, p 571-573

4. Chandarana, H. M., 2008, Performance Evaluation of Life Insurance Corporationof India. Thesis PhD. Saurashtra University, Gujarat, India. pp. 141. Retrievedfrom: http://etheses.saurashtrauniversity.edu/43/1/chandarana_hm_ thesis_com.pdfon 14/04/2013.

5. Das, S. (2010), Analysis and Interpretation of Financial Statements: Case Studies,Thesis submitted in Department of Mining Engineering National Institute OfTechnology, Rourkela

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Muhammad Taqi

through Production Trend Analysis. Invertis Journal of Management. Vol. 3,No. 1, pp. 33-46

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17. Ret r ieved From: h t tp : / /www.infobarre l .com/Unders tand_and_Interpret_Descriptive_ Statistics #bVCe6Ymv4tZwQUCb.99

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