1.

1 Introduction
Financial analysis is a process of identifying the strength and weakness of the firm by properly
establishing relationship. Analysis of financial statements means establishing relationship between the
items in financial statements for determining the financial strength and weakness of the business.
Therefore, the main purpose of financial statement analysis is to utilise information about the past
performance of the company in order to predict how it will fare in the future. Another important purpose
of the analysis of financial statements is to identify potential problem areas and troubleshoot those. The
ultimate aim of any business enterprise is to earn maximum profit. A firm should earn profits to survive
and grow over a long period of time. Profit is an excess of revenues over associated expenses for an
activity over a period of time. Profit is an excess of revenues ov er associated expenses for an activity
over a period of time. Management should try to maximise its profit keeping in mind the welfare of the
society. The creditors want to get interest regularly and principle regularly. Owners want to get
reasonable retur n on investment. At the end of accounting period financial statements are prepared by the
business enterprise to know the result of the business operation and the financial position. The financial
statement provides a summarised view of financial position and operation of a firm. Therefore, much can
be learned about a firm from careful examination of its financial statement. Mahindra and Mahindra
Limited has marked its presence with significant achievements and commands a market leadership status
with rega rd to its service. It is one of the largest manufactures in Indian automotive industry. Over the
years the company improved with regard to its service. This project is thus an earnest attempt to analyse
profitability of Mahindra and Mahindra Limited.

1.2 Statement of problem

The analysis of financial statement is a process of evaluating the relationship between component parts of
financial statements to obtain and understanding of the firm's position and performance. Here the
financial performance of Mahindra and Mahindra Limited is analysed by using ratio analysis. It includes
ratio analysis in this environment, a study on financial performance of Mahindra and Mahindra Limited is
helpful in determining the financial strength and weaknes s of the firm by establishing strategic
relationship between the items of the balance sheet and profit and loss account. Here the problem is to
analyse the financial performance of the company is satisfactory or not.

1.3 Scope of study

The scope of the study is limited to India. An attempt is made to make a study of financial statements of
Mahindra and Mahindra Ltd. The analysis of profitability will help one to understand the financial
strength and weakness of the company. This study will provide the necessary information of financial and
operational result over a period of time. This will facilitate the evaluation of the financial position,
efficiency and performance easily.

1.4 Objectives of the study

To analyse overall profitability of Mahindra and Mahindra Limited over the last five years.

To study the trend of profit of Mahindra and Mahindra Limited over the past five years.
Achieve the overall financial position of the company

Research Design

➢ 1.5.1 Nature of study :-Analytical research is used for the purpose of study.

➢ 1.5.2 Nature of data :- The present study is based on secondary data

➢ 1.5.3 Sources of data :- Source of data are collected from the annual report published on the official
website of the company, magazine, books and journals.

➢ 1.5.4 Period of study :- The present study analyses the profitability of Mahindra and Mahindra Limited
are a period of five years from 20152016 to 2019-2020

1.5 Tools for Analysis

• Ratio analysis

• Comparative balance sheet

1.6 Chapterization

➢ Chapter-1-Introduction

➢ Chapter-2-Review of literature

➢ Chapter-3-Industry and company profile

➢ Chapter-4-Data analysis and interpretation

➢ Chapter-5-Findings, suggestions & conclusion

2.1 Introduction

This chapter deals with review of literature. This chapter includes conceptual literature and empirical
literature. Conceptual literature includes different concepts used in the study. Empirical literature includes
studies done by different authors

2.2 Conceptual literature

2.1.1 Meaning of Finance

Business concern needs finance to meet their requirements in the economic world. Any kind of business
activity depends on the finance. Hence, it is called as life blood of business organization. Whether the
business concerns are small or big, they need finance to fulfil their business activities. In the modern
world, all the activities are concerned with the economic activities and very particular to earning profit
through any venture or activities. The entire business activities are directly related with making profit. A
business concern needs finance to meet all the requirements. Hence finance may be called as capital,
investment, fund etc., but each item is having different meanings and unique characters. Increasing the
profit is the main aim of any kind

2.1.2 Financial Performance

"Financial performance is scientific evaluation of profitability and financial strength of any business
concern" according to Kennedy and Macmillan financial statement analysis attempt to unveil the meaning
and significance of the items composed in profit and loss account and balance sheet. The assists are the
management in the formation of sound operating and financial policies. According to accounting point of
view financial statement are prepared by a business enterprise at the end of every financial year.
"Financial statements are end products of financial accounting." They are capsulated periodical reports of
financial and operating data accumulated by a firm in its books of accounts General Ledger. One of the
most fundamental facts about businesses is that the operating performance of the firm shapes its financial
structure. It is also true that the financial situation of the firm can also determine its operating
performance. The financial statements are therefore important diagnostic tools for the informed manager

2.1.3 Financial Efficiency

Financial Efficiency is a measure of the organization's ability to translate its financial resources into
mission related activities. Financial Efficiency is desirable in all organizations regardless of individual
mission or structure. It measures the intensity with which a business uses its assets to generate gross
revenues and the effectiveness of producing, purchasing, pricing, financing and marketing decisions. At
the micro level, Financial Efficiency refers to the efficiency with which resources are correctly allocated
among competing uses at a point of time. Financial Efficiency is a measure of how well an organization
has managed certain trade Financial Efficiency is regarded offs in the use of its financial resources.
efficiency and is a management guide to greater efficiency the extent of profitability, productivity,
liquidity and capital strength can be taken as a final proof of financial efficiency. It is interesting to note
that sometimes, even sufficient profits can mask inefficiency and conversely, a good degree financial
efficiency could be dressed with the absence & profit.

2.1.4 Financial Performance Analysis

In short, the firm itself as well as various interested groups such as managers, shareholders, creditors, tax
authorities, and others seeks answers to the following important questions: (1) what is the financial
position of the firm at a given point of time? (2) How is the Financial Performance of the firm over a
given period of time? T hese questions can be answered with the help of financial analysis of a firm.
Financial analysis involves the use of financial statements. Thus, the term „financial statements" generally
refers to two basic statements: The Balance Sheet shows the financial position of the firm at a given point
of time. The income statement referred to in India as the profit and loss statement reflects the
performance of the firm over a period of time However, financial statements do not reveal all the
information related to the financial operations of a firm. The financial performance analysis identifies the
financial strengths and weaknesses of the firm by properly establishing relations hips between the items
of the balance sheet and profit and loss account. The first task is to select the information relevant to the
decision under consideration from the total information contained in the financial statements. The second
is to arrange the information in a way to highlight significant relationships. The final is interpretati on and
drawing of inferences and conclusions. In short, "financial performance analysis is the process of
selection, relation, and evaluation."

2.1.5 Ratio Analysis

The term accounting ratios is used to describe significant relationship between figures shown on balance
sheet, in a profit and loss account, in a budgetary control system or in any, other part of the accounting
organization. Ratio simply refers to one number expressed in terms of another number. Ratio analysis is a
technique of analysis and interpretation of financial statement. It is the process of establishing and
interpreting the various ratios for helping in making certain decision. However, ratio analysis is not an
end to itself. It is only a means of better understanding of financial strength, weakness of a firm.
Calculation of mere accounting ratios does not serve any purpose unless several appropriate ratios are
analysed and interpreted

Objectives of Ratio Analysis

 To study the short term solvency of a firm.

 To study the long term solvency of a firm.
 To determine the profitability of a firm.
 To measure the performance of a firm.
 To facilitate the process of financial forecasting.
 To communicate the strength and weakness of a firm.
 To enable managerial decision making

2.1.6 Profitability ratios

Net profit ratio

Net profit ratio is the ratio of net profit earned by business and its net sales. The objective of calculating
net profit ratio is to measure the overall profitability of the concern. It determines the return to the
owners. This ratio indicates how much of sales are left after meeting all the expenses. Net profit ratio
calculated by using the following formula.

Ne t Profit /Net Sales *100

The ideal N/P ratio is 5% to 10%. However, in order to understand the real ability of management to earn
profit, this ratio should be used along with working capita turnover ratio. Higher the ratio is the
profitability. This means higher returns to shareholders.

Gross profit ratio

Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns. The ratio thus reflects
the margin of profit that a concern is able to earn on its trading and manufacturing activity. It is the most
commonly calculated ratio. It is employed for inter-firm and inter-firm comparison of trading results.
Gross profit is what is revealed by the trading account. It results from the difference between net sales and
cost of goods sold without taking into account expenses generally charged to the profit and loss account.
The larger the gap, the greater is the scope for absorbing various expenses on administration,
maintenance, arranging finance, selling and distribution and yet leaving net profit for the proprietors or
shareholders.

Formula: Gross Profit / Net Sales *100

Operating profit ratio

Operating profit ratio explains the relationship between operating profit and net sales. The operating
profit ratio indicates that every result of operation of business. It measures the operational efficiency
Operating ratio is calculated by using following formula:-

Operating Profit Ratio = Operating Profit/Net sales * 100

Operating profit = Net sales- Cost of goods sold- Operating expenses Or Gross profit- Operating expenses

Operating profit can be ascertained from net profit in the following manner. Operating profit = Net profit
+ Non-Operating expenses and Interest on long term Loans and debentures - Non operating income

Operating ratio

The operating ratio is a financial term defined as a company's operating expenses as a percentage of
revenue. This financial ratio is most commonly used for industries which require a large percentage of
revenues to maintain operations, such as railroads. In railroading, an operating ratio of 80 or lower is
considered desirable. The operating ratio can be used to determine the efficiency of a company's
management by comparing operating expenses to net sales. It is calculated by dividing the operating
expenses by the net sales. The smaller the ratio, the greater the organization's ability to generate profit.
The ratio does not factor in expansion or debt repayment. Alternatively, it may be expressed as a ratio of
sales to cost. In such case a higher ratio indicates a better ability to generate revenue. The ideal ratio of
manufacturing concern is 75% to 85%. The operating ratio is calculated by the following formula;

Operating Ratio = Operating cost / Net sales * 100

Operating cost = Cost of goods sold + Operating expenses

Return on equity

Return on net worth is a ratio developed from the perspective of the investor and not the company. By
looking at this, the investor sees if entire net profit was passed on to him, how much return would he be
getting. It explains the efficiency of the shareholder’s capital to generate profit