Wednesday, October 7, 2009
How government owned companies work?
I would like to give an example of how government owned companies work. The company involved is MMTC. Looking at the balance sheet of MMTC, it can be seen that the company has fixed deposits worth INR 5762.5 Crore while debt of INR 4305.2 Crore at the end of FY09. Now Annual Report of the company shows that it paid INR 665.869 Crore as interest in FY09 while the interest earned was 782.402 Crore. Thus the interest rate earned on fixed deposit was 782.402/5762.5=13.57% while interest paid on loans was 665.869/4305.2=15.47%. If instead, the company had not borrowed money and utilized its own deposits, the company would have saved INR 81.65 Crore, that's 37.6% of its PBT of 217.11 Crore in FY09. What a waste of money!!!.
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1 comment:
Hi Chinmay,
Most of the profitable PSU have an indirect obligation to remain cash cows for government and hence they prfer to keep huge cash reserves. Business sense is not always the priority for them : )
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