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Page | 1

COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH

OTHER STEEL COMPANIES IN INDIA

PROJECT REPORT

MAY 2010  JULY2010

Submitted in partial fulfillment of the requirements for the award of

two year full time, Post Graduate Diploma Management

In

Finance & Control


By
Kumar Mayank
(Institute of Management & Information Sciences Bhubaneswar)
Under the guidance of

Prof. S.S.Ahmed

P.S PAL

Assistant Professor (finance)

AGM( Fi na n c e )

Institute ofManagement & Informationscien ce

SteelAuthority Of India Limited

Bhubaneswar

Ranchi.

Institute of Management & Information Science

Swagat Vihar

Bhubaneswar Orissa ± 751002


Page | 2

Declaration

I hereby declare that the project entitled ³Financial Analysis´ is submitted in


partial fulfillment of my
PGDM (FC) ³2009-2011´ was carried out with sincere intention of benefiting the
organization. The
project duration was from 10th May 2010 to 3rd July 2010. To the best of my
knowledge it is an
original piece of work done by me and it has neither been submitted to any other
organization nor
published at anywhere before.

Signature

Name: Kumar Mayank


Date:3rd July 2010
Place: Steel Authority of India Limited (Ranchi)
Page | 3

Acknowledgement

Whatever I did and whatever I achieved during the course of my limited life is
just not done only by my own efforts, but by the efforts contributed by other
people associated with me indirectly or directly. I thank all those people who
contributed to this from the very beginning till its successful end.

Sincerely thank Miss. Mannu kalia mam), Person of amiable personality, for
assigning such a challenging project work which has enriched my work
experience. For her extended guidance , encouragement, support and
reviews without whom this project would not have been a success.
Page | 4

ABSTRACT

The project on comparison of financialstatement of SAILwith othersteelsectors in


INDIA

has been a very good experience. Every manufacturing company faces the
problem of

FinancialManagement in their day to day processes.An organizations cost can


be reduced

and the profit can be increased only if it is able to manage the financial position
of its firm.

At the same time the company can provide customer satisfaction and hence can
improve

their overall productivity and profitability.

This project is asincere effort tostudy and analyze the FinancialManagement of


SAIL. The projectworkwas divided into two phases. The first phasewas focused on
making a financial overview of the company by conducting a Time

seriesan al ysis of SAIL for the years 2003 to 2009 and the second phase was
conducted on a

Comparative analysis of SAILwith its domestic competitors  TATA, ISPAT, JINDAL


& ESSAR
for the year 2009 taking Balancesheet, Profit & Loss account and ratios showing
a
comparative analysis between these firms with SAIL.

The internship is a bridge between the institute and the


organization. This made me to be involved in a project that helped me to employ
my
theoretical knowledge about how theAnalysis of Financial Statement is done by
the firm.

And in the process I could contribute substantially to the organizationsg rowth.

The experience that I gathered over the past two months has

certainly provided the orientation, which I believewill help me inshoulder ing any

responsibility in future.
Page | 5

TABLE OF CONTENTS

1.ABOUT THE COMPANY

6-11

2.INTRODUCTION TO CET SAIL

12-19

3.INTRODUCTION TO THE STUDY

20-22

4. LITERATURE REVIEW

23-35

5.DATA ANALYSIS AND INTERPRETATION

36-66

6.COMPETITOR ANALYSIS

67-70

7. RECOMMENDATION AND SUGGESTIONS

71

8.CONCLUSION

72

9.BIBLIOGRAPHY

73
Page | 6

1. ABOUT THE COMPANY

Company Profile

Established in January 24, 1973 with an authorized capital of Rs. 2000 crores,
Steel Authority of India Limited (SAIL) is the leading steel-making company in
India. SAIL is a fully integrated iron and steel maker company, producing both
basic and special steels for domestic construction, engineering, power, railway,
automotive and defense industries and it also produce steel for sale in export
markets.

Steel Authority of India Limited is ranked amongst the top ten companies in
public sector companies in India in terms of its turnover. SAIL produces iron and
steel at five integrated plants and three special steel plants, located principally in
the eastern and central regions of India and situated close to domestic sources
of raw materials, including the Company's iron ore, limestone and dolomite
mines.

SAIL have a Central Marketing Organization (CMO) whose job is to transact


business through its network of 37 Branch Sales Offices spread across the four
regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer
Contact Offices all over India. CMO¶s domestic marketing job is to meet the
demands of the smallest customers in the remotest corners of the country. SAIL
has a Consultancy Division (SAILCON) located at New Delhi whose job is to offer
services and consultancy to clients world-wide. SAIL has a well-equipped
Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which
helps the industries of SAIL to produce quality steel and it also give ideas to
develop new technologies for the steel industry. SAIL has its own in-house Centre
for Engineering and Technology (CET), Management Training Institute (MTI) and
Safety Organization at Ranchi. SAIL captive mines are control by the Raw
Materials Division in Kolkata. Almost all of the plants and major units of SAIL are
ISO Certified.
Page | 7

Sail Today

SAIL today is one of the largest industrial entities in India. Its strength has been
the diversified range of quality steel products catering to the domestic, as well as
the export markets and a large pool of technical and professional expertise.
Today, the accent in SAIL is to continuously adapt to the competitive business
environment and excel as a business organization, both within and outside India.

Type of Organization:

Steel Authority of India' - a Government of India Enterprise and one of the largest
and profit making public sector steel products manufacturing company. Steel
Authority of India produces for both basic and special steels for construction,
engineering, power, railway, automotive and defense industries and caters to
Indian and International markets. Steel Authority of India has five steel plants,
one subsidiary, three special steel plants, multi marketing units at all regions and
nine other specialized units to support growth and development of the Steel
Industry in India. It produces Blooms, Billets, Slabs, Crane Rails, Bars, Rods & Re-
bars, Wire Rods, HR Coils, Sheets, Plates, CR Coils & Sheets, GC Sheets, GP
Sheets and Coils, Tinplates, Electrical Steel, Tubular Products, Pipes, Railway
Products, Rails, Wheels, Axles, Wheel Sets.

Activities: Steel Authority of India production lines are ±

Hot Rolled Coils, Sheets

Cold Rolled Products.

Bars and Rods.

Semi-Finished Products.

Railway Products.

Plates.
Page | 8

Moreover, Steel Authority of India offers technological services in the following

Domains ±

Know-how transfer of technologies developed by its R&D wing.

Consultancy services.

Specialized testing services.

Contract research.

Training.

Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh

Durgapur Steel Plant (DSP) in West Bengal

Rourkela Steel Plant (RSP) in Orissa

Bokaro Steel Plant (BSL) in Jharkhand

IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels P in West Bengal plants (ASP)

y
Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra


Page | 9

Position of Steel Authority of India Limited (SAIL)

India is ranked as the 5th largest steel producing country in the world, while SAIL
is ranked as the 21st largest steel producer in the world during2008 (Source:
WSA) SAIL continues to be the largest steel producer of finished steel in India
with around 1/5th of the market share.

SWOT ANALYSIS

STRENGTHS

The diversified product mix and multi location production units are an area of

strength for the company.

SAIL as a single source is able to cater to the entire steel requirement of any
customer. Also it has a nation wide distribution network with a presence in every
district in India. This makes quality steel available throughout the length and
breadth of the country.

SAIL has the largest captive iron ore operations in India, which takes care of its
entire requirement. With plans in place to expand the mining operations, the
company will continue to be self sufficient in iron ore after completion of the
present phase of expansion.

SAIL's large skilled manpower base is a source of strength. There is emphasis on

skill based training in the company.

The company has one of the biggest in-house research and development centres
in Asia. SAIL's RDCIS (Research &Development Centre for Iron & Steel) is a
source of regular product and process innovation.
Page | 10

WEAKNESSES

SAIL is dependent on the market purchase for a key input ± coking coal. As India
does not have sufficient coking coal deposits, most of the supply is from external
sources.

A large manpower base results in higher manpower cost as a proportion of


turnover for the company. Although there has been significant reduction in
manpower through natural and voluntary separations, the manpower strength in
SAIL is still higher than the industry average.

At present around 20% of the products are in the form of semi -finished steel,

resulting in lower value addition.

SAIL being a Public Sector unit has to follow set procedures in conducting its

business. On occasions, it slows down the decision making with attendant fallout.

OPPORTUNITIES

The current per capita finished steel consumption in the country is approx. 44 kg
as compared to the likely world average of around 190kg. There is a substantial
scope for increase in domestic steel consumption.

Although during 2008-09, steel consumption contracted by 1.2% in the country,


steel demand in India is poised to grow at a modest pace with thrust on
infrastructure in the 11th Plan period.

Approval to 37 infrastructure projects worth Rs.70, 000 crores between August


2008

and January 2009 is likely to trigger steel demand.

The size range and quality makes SAIL'S long products a preferred choice for
project customers.
Page | 11

THREATS

International prices of steel dropped by over 60% from their peak level in July,
2008. With import duty at 5%, and poor demand from developed countries,
cheap imports are on an increase into the country putting pressure on realization
of the domestic steel producers.

With significant excess capacity in the global steel industry during 2009 there is
a threat of dumping cheap steel to India which is likely to be the only major steel
consuming nation with a positive growth.

Clearance and renewal of mining lease, which involve multiple agencies at the
State

and Central levels, are an area of concern.

Delay in opening new mines, and / or expanding existing mines may constrain
raw materials availability, thereby impacting growth in saleable steel production,
and overall economics of operation.

Law and order situation in mining areas in some of the states is also a cause of

concern for smooth operations in remote areas.


Page | 12

2. INTRODUCTION TO CET SAIL

Centre for Engineering & Technology (CET) was formed in 1982 in pursuance of
decision taken by SAIL Board in its 83rd meeting held on 28th January 1982. CET
is the in-house design, engineering and consultancy unit of SAIL. It is also the
nodal agency for acquisition and lateral transfer of technologies pertaining to
Iron & Steel within SAIL plants and units. The range of services provided by CET
includes conceptualization, project reports, project evaluation & appraisal,
project consultancy, design & engineering and project management. CET has
been providing its services in all the areas of iron and steel making including in
the related areas like mine planning and development, infrastructure
development, industrial piping, industrial warehousing, material handling
system, industrial pollution control and environment management systems,
water supply and sanitation, town planning, small power projects, etc.

PURPOSE OF FORMING THE CET

CET was formed in 1982 as an in-house consultancy organization of SAIL.


Previously all the consultancy work was outsourced to various organizations
which could be either govt. organizations like MECON or private organizations.
This led to huge expenditures for SAIL in payment of fees and other
expenditures. So it was decided that an in-house consultancy should be
developed to save costs for SAIL. Thus CET was formed with headquarters in
Ranchi and sub centers in various steel plants across India for better
coordination. Though CET was formed for the purpose of providing consultancy
services only to the plants of SAIL but it also provides consultancy services to the
other
Page | 13

organizations but only on specific requests to earn additional revenues.

CET has six subcentres at following locations:

1. CET Sub centre Bhilai


2. CET Sub centre Bokaro
3. CET Sub centre Durgapur
4. CET Sub centre Rourkela
5. CET Sub centre Burnpur
6. CET Sub centre Bhadrawati

Besides, CET has only two unit offices at following locations to coordinate CET¶s

activities

1. CET, Delhi Unit Office


2. CET, Kolkata Unit Office
It is an ISO 9001:2000 certified organization. It is planning to get certified against
ISO
9001:2008. The objectives and functions of CET are mainly categorized under
following
headings as under:
‡ Consultancy for Design, Engineering and Techno-economics
‡ Technology improvement
‡ Other Services
Page | 14

Technology Improvement

Identification of technology improvement measures in consultation with R&D


Centre in
the various processes and plan for adoption of the same in the various plants by
acquiring
design and know-how capability.
Assisting R&D center in identification of various process routes, production
facilities,
indicating the order of investment involved to match with the corporate
production
targets on short term/long term basis.

Guiding principles of CETw or ki ng:

Following guiding principles are followed for working of CET:


For Technical Matters: Guidelines/Procedure described in Quality Manual.
For Personnel Matters: Personnel Manual issued by SAIL Corporate Office
For Contract Commercial Matters: Guidelines described in Purchase Procedure
2009.
For Financial Matters: Guidelines given in Accounts Manuals

CET-SAIL(FINANCEDEPATRMENT)

Duties ofOfficers and employees inFinanceSection:

‡ Preparation of employee¶s remunerations & benefits and payments thereof.


‡ Statutory recoveries from employees salary like income tax, PF, SCSBF, EPF etc
and
their remittances to the respective funds.
‡ Assessment of Income Tax of employees. Provisional estimate for recoveries &
final
calculations for issuing certificates.
‡ Passing of contractors / parties bills and payments thereof including recoveries
of
income tax from their bills.
‡ Passing of employee¶s bills and advances and payment thereof.
‡ Accounting of all transactions, maintenance and scrutiny thereof.
Page | 15

‡ Closing of accounts and audit thereof.


‡ Dealing with Govt. and Internal Audits
‡ Preparation of budgets ± Revenue and Capital after considering the
requirement of
various departments/ Sub-centres/ Unit Offices.
‡ Preparation of employees HBA, Conveyance Advance budget in consultation
with

P&A.

‡ Periodic monitoring and control of all types of budgets ‡ Issue of TDS


certificates to employees and contractors. ‡ Filing of ETDS return

Fixed and Variable Costs for Finance Department

It can be seen from the role and responsibilities of finance department that most
of the work done by the finance department involves preparation of
remuneration of employees. Even during the preparation of the budget about
85% of the costs are attributed to employee remuneration which contains both
executive pay and non executive pay. It comes under fixed costs while other
expenses like travelling expenses, stationary expenses and other miscellaneous
expenses which come under variable costs.

CALCULATION OF ENGINEERING HOURS RATE

.In accounts booking of expenditure should be done accordance with their


accruals. When CET is renewing services to companies, plants and units it is
necessary to allocate the expenditure incurred by SAIL among the plants and
units to whom services where rendered consultancy wise or project wise. This is
an accounting requirement. In this way the projects of the plants of the units
gets the share of expenditure incurred by CET which in turn are accumulated in
the capital cost of the project

During 1994-95, 1995-96 CET adopted valuation of its assignment of the


project ,on the

basis of fixed percentage of total cost of the project for which services where
rendered.
Page | 16

This system could not be continued because of the following reasons:

1. CET not being a profit center it cannot consider earning which is hypothetical
in

any case, as a basis for allocation of its expenditure on assignments / projects.

2. Since the value of the assignments under this method has no relation with the
expenditure, practical difficulties where experienced in restricting the valuation
to the total expenditure of the CET.

Therefore in 96 -97 engineering hours was found to be more appropriate basis


for the allocation expenditure of CET over the assignment/projects. Engineers
working in assignment record their hours in the assignment they work. In this
way all the assignment of CET in execution get engineering hours spent on them.
Engineering hours rate is calculated every year on an estimated basis in march
every year (detail calculation given below). Rate is applied hours of the individual
assignment/project to find or to determine the value of CET services for the
assignment/projects. Plants and units are being debited on the value of the
assignment
Page | 17

CALCULATION OF ENGINEERING HOURS RATE FOR 2009-2010

1. Total no.of executives

299

2. HOD and above

29

3.Executives working in finance,Personnel

58

,Admn.,Personnel staff etc.ipss,Projects

ED sectt,MTT's

4. Net Executives whose Engg. Hours

212

are clockable

5.No. of days in a year

365

6. Sundays and closed Saturdays

76

7.CLs, Closed &RH

36

8. EL @3% of 253(Sl.No.5,6,7)

9.Average No. of Engineering days

245

Available

10. Avg.No. of Engg. hours available hrs.

1960

available per man a year

(Sl. No.9 *8hrs.)


11. Maximum Engg. Hrs. clockable in a

415520

year(Sl.no.4*Sl. No. 10)

12.Engineering hrs.utilised for development

120474

activities,ISO 9001,other administrative jobs

@30% of max.egg. Hrs. clockable in a year

13.Engg. Hrs. available for assignments (Sl.no.11-

295046

Sl.no.12)

14.Likely expenditure of CET FOR 2009-10 (In Rs.)

492900000

15.Engineering hours rate (In Rs.)

1670.050

16.Engineering hours rate to be adopted (In Rs.)

1670

IMPROVEMENTS SUGGESTED IN CALCULATION OF ENGINEERING HOURS


Page | 18

RATES

The above method is more suitable method for CET being an inhouse
consultancy

organization.This system can still be improved on the following account:

Single rate of engineering hours doesn¶t take into account expenditure of


variable nature.For example expenditure on tools design and drafting
expenditure on these heads varies on the basis of level of activities

It is presumed that expenditure accrues uniformly over the assignments. But


there are certain assignments which need services of senior engineers whose
hourly expenditure may be higher than the avg. rate adopted.

OTHER THINGS LEARNED AT CET SAIL (FINANCEDEPARTMENT)

To prepare engineering hour rate for CET SAIL employee.

Preparation of vouchers

Preparation of T.A.BILLS (Travelling allowance)

Preparation of revenue budget for CET- SAIL.

Preparation of renumeration for employees¶ remuneration & benefits budget.

PERFORMANCE HIGHLIGHTS OF CET 2009-2010

HIGHLIGTS OF PHYSICAL PERFORMANCE

Total sanctioned projects 137 nos. against 135 nos. in corresponding period last

year. Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

y
Highest nos. of assignment handled at 327 in a year, up by 7 nos. over previous

year.

OTHER HIGHLIGHTS
Page | 19

During the fiscal 2009-2010, a lot of emphasis was put in the RMD projects and

along with RMD new strategies where formulated for faster execution of projects.

Expression of interest for acquisition of technology for up gradation of blast

furnaces has been floated.

Video conferencing facility which connects Ranchi and sub centers at Bhilai ,

Durgapur , Bokaro and Rourkela is being used extensively for quarterly projec

reviews , designed reviews , knowledge sharing , technical discussion with


vendors and plant engineers . It has resulted in faster communication, wider
coverage and saving in expenditure.

CET has taken measures for working in a paperless environment. All movements
o

papers/ documents are being done through email system.

3.INTRODUCTION TO THE STUDY:


Page | 20

Finance is one of the most primary requisites of a business and the modern
management obviously depends largely on the efficient management of the
finance. Financial statements are prepared primarily for decision making. They
play a dominant role in setting the frame work of managerial decisions. The
finance manager has to adhere to the five R¶s with regard to money. Whether
owned or borrowed funds. At the right time to preserve solvency from the right
sources and at the right cost of capital. The term financial analysis is also known
as µanalysis and interpretation of financial statements¶ refers to the process of
determining financial strength and weakness of the firm by establishing strategic
relationship between the items of the Balance Sheet, Profit and Loss account and
other operative data. The purpose of financial analysis is to diagnose the
information contained in financial statements so as to judge the profitability and
financial soundness of the firm.

OBJECTIVES OF THE STUDY

1. To study the financial position of the company.


2. To analyze the financial stability and overall performance of SAIL in general.
3. To analyze and interpret the trends as revealed by various ratios of the
company in particular.

4. To analyze the profitability and solvency position of the unit with the existing
tools of financial

analysis.

5. To study the changes in the assets, liabilities structure of the company during
the period of study.

IMPORTANCE OF THE STUDY

1. By ³FINANCIAL PERFORMANCE ANALYSIS OF SAIL´ we would be able to get a


fair
picture of the financial position of SAIL.
2. By showing the financial performance to various lenders and creditors it is
possible to get credit
in easy terms if good financial condition is maintained in the company with
assets outweighing the
liabilities.
Page | 21

3. Protecting the property of the business.

4. Compliances with legal requirement.

LIMITATIONS OF THE STUDY

1. The analysis and interpretation are based on secondary data contained in the
published annual

reports of SAIL for the study period.

2. Due to the limited time available at the disposable of the researcher the study
has been confined

for a period of 7 years (2003-2009).

3. Ratio itself will not completely show the company¶s good or bad financial
position.

4. The study of financial performance can be only a means to know about the
financial condition of

the company and cannot show a through picture of the activities of the company.

RESEARCH METHODOLOGY

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


may be understood as a science of studying how research is done scientifically.
So, the research methodology not only talks about the research methods but
also considers the logic behind the method used in the context of the research
study.

RESEARCHDESIGN

Descriptive research is used in this study because it will ensure the minimization
of bias and maximization of reliability of data collected. The researcher had to
use fact and information already available through financial statements of earlier
years and analyze these to make critical evaluation of the available material.
Hence by making the type of the research conducted to be both Descriptive and
Analytical in nature.

From the study, the type of data to be collected and the procedure to be used for
this purpose were

decided.
Page | 22

DATA COLLECTION

The required data for the study are basically secondary in nature and the data
are collected from the

audited reports of the company.

SOURCES OFDATA

The sources of data are from the annual reports of the company from the year
2003 to 2009.

METHODS OFDATA ANALYSIS

The data collected were edited, classified and tabulated for analysis. The
analytical tools used in this

study are:

ANALYTICAL TOOLS APPLIED

The study employs the following analytical tools:

1. Comparative statement.
2. Common Size Statement.
3. Trend Percentage.
4. Ratio Analysis.
5. Cash Flow Analysis

ANALYSIS AND INTERPRETATION

Financial statement is an organized collection of data according to logical and


consistent accounting procedures. It purposes is to convey an understanding of
some financial aspects of a business firm. It may show a position at a moment of
time as in the case of a balance sheet, or may reveal a series of activities over a
given period of time, as in the case of an Income Statement. Thus the term
³Financial Statement ³generally refers to two basic statements: (i) the Income
Statement and (ii) the Balance sheet.
Page | 23

4.LITERATURE REVIEW

FINANCIAL STATEMENTS ANALYSIS

The financial statements are indicators of the two significant factors:


1. Profitability and
2. Financial soundness
Analysis and interpretation of financial statement therefore, refers to such a
treatment of the
information contained in the Income Statement and Balance Sheet so as to
afford full diagnosis of the
profitability and financial soundness of the business.

Balance Sheet

A balance sheet is the basic financial statement. It presents data on a


company¶s financial conditions on a particular date, based on conventions and
generally accepted principles of accounting. The amount shown in the
statements on the balances, at the time it was prepared in the various accounts
listed in the company¶s accounting records, is considered to be a fundamental
accounting statements. The income statement summarizes the business
operations during the specific period and shows the results of such operations in
the form of net income or net loss. By comparing the income statements of
successive periods, it is possible to determine the progress of a business. A
statement is supplemented by a comparative statement of the cost of goods
manufactured and sold. It is prepared at regular intervals and shows what a
business enterprise owns and what it owes. It provides information which helps
in the assessment of the three main aspects of an enterprises position ± its
profitability, liquidity and solvency. Of these, the later two are concerned with an
enterprises ability to meet its liabilities, while profitability is most useful overall
measure of its financial conditions, the balance sheet is a statements of assets,
liabilities capital on specified date. It is therefore a static statement, indicating
resources and the allocation of these resources to various categories of asset. It
is so to say financial photography finance. Liabilities show the claims against its
assets.
Page | 24

The shareholders equity comprises the total owner ship claims in a firm. This
claim includes net worth of shareholders equity and preferred stock. The
traditional company balance sheet statement of assets valued on the basis of
their original cost and the means by which they have been financed by its
shareholders, lenders, suppliers and by the retention of income.

This tool suffers from the following limitations:

1. A balance sheet gives only a limited picture of state of affairs of a company,


because it

includes only those items which can be expressed in monetary terms.


2. The values shown on the balance sheet for some of the assets are never
accurate
3. A balance sheet assumes that the real value of money remain constant.

4. On the basis of balance sheet, it is not possible to arrive at any conclusion


about the success of an

enterprise in the future.

5. It is a detailed statement of the financial structure of a business.

Income statement

The results of operations of a business for a period of time are presented in the
income statement.

From the accounting point of view, an income statement is subordinate to the


balance sheet because the former simply presents the details of the changes in
the retained earnings in balance sheet accounts. However, if vital source of
financial information an income statement summarizes the results of business
operations during specific period and shows in the form of net income or net loss
by comparing income statements for successive periods, it is possible to observe
the progress of the business the statement is supplemented by a comparative
statement of cost of goods manufactured and sold. It summarizes firms
operating results for the past period.
Page | 25

Comparative balance sheet

Financial statements are sometimes recast for facility of scrutiny. The effects of
the conductor

businesses are reflected in its balance sheet by changes in assets and liabilities
and in its net worth.

The comparative income statement presents a review of operating activities in


business. A comparative balance sheet shows effect of the operations on the
assets and liabilities. The practice of presenting comparative statement in the
annual report is now becoming wide spread because it is a connection between
balance sheet and income statement. Considerations like price levels and
accounting methods are given due weight at the time of comparison.

Common-size statements

The percentage balance sheet is often known as the common size balance sheet.
Such balance sheet are, in a broad sense ratio analysis general items in the
profit and loss accounts and in the balance sheet are expressed in analytical
percentages when expressed in the form, the balance sheet and profit and loss
account are referred to as a common size statement. Such statements are useful
in comparative analysis of the financial position in operating results of the
business.

Cash flow statement

A cash flow statement is the financial analysis of the net income or profit after
including book expense items which currently do not use cash; for example,
depreciation, depletion and amortization. Revenue items, which do not currently
provide funds, are to be deducted. A gross cash flow is net profit after tax plus
provision for depreciation. A net cash flow is arrived after deducting dividends
from the gross cash flow. The cash flow is very significant because it represents
the actual amount of cash available to the business.
Page | 26

Ratio Analysis

Financial ratio analysis is the calculation and comparison of ratios which are
derived from the information in a company's financial statements. The level and
historical trends of these ratios can be used to make inferences about a
company¶s financial condition, its operations and attractiveness as an
investment.

Financial ratios are calculated from one or more pieces of information from
company¶s financial statements. For example, the "gross margin" is the gross
profit from operations divided by the total sales or revenues of a company,
expressed in percentage terms. In isolation, a financial ratio is a useless piece of
information. In context, however, a financial ratio can give a financial analyst an
excellent picture of a company's situation band the trends that are developing.

A ratio gains utility by comparison to other data and standards. Taking our
example, a gross profit margin for a company of 25% is meaningless by itself. If
we know that this company's competitors have profit margins of 10%, we know
that it is more profitable than its industry peers which are quite favorable. If we
also know that the historical trend is upwards, for example has been increasing
steadily for the last few years, this would also be a favorable sign that
management is implementing effective Business, policies and strategies.

Classification of Ratios

Financial ratio analysis involves the calculation and comparison of ratios which
are derived from the information given in the company's financial statements.
The historical trends of these ratios can be used to make inferences about a
company¶s financial condition, its operations and its investment attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the
different facets of

a company's financial state of affairs. Some of the categories of ratios are


described below:
Page | 27

Liquidity Ratios give a picture of a company's short term financial situation or

solvency

Turnover Ratios show how efficient a company's operations and how well it is
using

its assets.

Solvency Ratios show the long term profitability of the company.

Liquidity Ratios

Liquidity Ratios are ratios that come off the Balance Sheet and hence measure
the Liquidity of the company as on a particular day i.e. the day that the Balance
Sheet was prepared. These ratios are important in measuring the ability of a
company to meet both its short term and long term obligations.

1. Current Ratio
2. Liquid Ratio
3. Net working capital ratio

1. Current Ratio:

An indication of a company's ability to meet short-term debt obligations; the


higher the ratio, the more liquid the company is. Current ratio is equal to current
assets divided by current liabilities. If the current assets of a company are more
than twice the current liabilities, then that company is generally considered to
have good short-term financial strength. If current liabilities exceed current
assets, then the company may have problems meeting its short-term obligations.

Current Ratio = Current assets / Current liability


Page | 28

2. Quick Ratio:

Liquid ratio is also known as µquick¶ or µAcid test µratio. Liquid assets refer to
assets which are quickly convertible into cash. Current Assets other stock and
prepaid expenses are considered as quick assets. The ideal liquid ratio accepted
µnorm¶ for liquid ratio µ1¶.

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

3. Net Working Capital Ratio

Working Capital is more a measure of cash flow than a ratio. The result of this
calculation must be a positive number. Companies look at Net Working Capital
over time to determine a company's ability to weather financial crises. Loans are
often tied to minimum working capital requirements.

Net working capital ratio = Net Working Capital / Capital Employed

Turnover Ratios

The turnover ratio is also known as activity or efficiency ratios. They indicates
the efficiency with which the capital employed is rotated in the business (i.e.) the
speed at which capital employed in the business rotates. Higher the rate of
rotation, the greater will be the profitability. Turnover ratios indicate the number
of times the capital has been rotated in the process of doing business.

1. Fixed Asset Turnover Ratio

2. Working Capital Turnover Ratio

3. Debtor Turnover Ratio

4Stock Turnover Ratio


Page | 29

1. Fixed Assets Turnover Ratio

Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the
value of your
fixed assets (on your balance sheet). It indicates how well your business is usin g
its fixed
assets to generate sales.
Generally speaking, the higher the ratio, the better, because a high ratio
indicates the business
has less money tied up in fixed assets for each dollar of sales revenue. A
declining ratio may
indicate that you've over-invested in plant, equipment, or other fixed assets.

Fixed Assets Turnover Ratio = Gross Sales / Net Fixed Assets

2. Working Capital Turnover Ratio

Working capital refers to investment in current assets. This is also known as


gross concept of working capital. There is another concept of working capital
known as net working capital. Net working capital is the difference between
current assets and current liabilities. Analysts intend to establish a relationship
between working capital and salsas the two are closely related. Through this
ratio we are attempting to see that one rupee blocked by the organization in net
working capital is generating how much sales. Higher the ratio better it is.So, the
working capital can be defined either as a gross working capital, which include
funds invested in all current assets, or as net working capital, which denotes the
difference between the current assets current liabilities of an organization.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

3. Debtors Turnover Ratio

Debtor¶s turnover ratio measures the efficiency with which the debtors are
converted into cash. This ratio indicates both the quality of debtors and the
collection efforts of the business enterprise. This ratio is calculated as follows:
Page | 30I. Debtors¶ turnover ratio

II. Debt collection period.

The numerator of this ratio should preferably be credit sales. This is so because
the denominator is logically related to credit sales as it arises from credit sales
only. Cash sales do not generate debtors. However, as the information related to
credit sales is not separately available in corporate accounts, so total sales could
be taken in the numerator. Average debtors are calculated by dividing the sum
of beginning-of-year and end-of-year balance of debtors by 2.

Debtor¶sTurnoverRatio= Credit sales/ Average accounts receivables

Debt collection period:

The ratio indicates the extent to which the debt has been collected in time. It
gives the
average debt collection period. The ratio is very helpful to lenders because it
explains to them
whether their borrowers are collecting money within a reasonable time. An
increase in the
period will result in greater blockage of funds in debtors.

Debt collection period= Months/Days in a year/ Debtor¶s turnover ratio

4.StockTurnoverRatio:

This ratio indicates whether investment in inventory is efficiently used or not. It


is therefore explains whether investment in inventories is within proper limits or
not. The Inventory turnover ratio signifies the liquidity of the Inventory. A high
inventory turnover ratio indicates brisk sales. The ratio is, therefore a measure to
discover the possible trouble in the form of over stocking or over valuation.
Page | 31

It is difficult to establish a standard ratio of inventory because it will differ from


industry to

industry.

Stock Turnover Ratio = Sales / Average Inventory

Profitability Ratios

Profitability is an indication of the efficiency with which the operation of the


business is carried on. Poor operational performance may indicate poor sales and
hence poor profits. A lower profitability may arise due to lack of control over the
expenses. Bankers, financial institutions and other creditors look at the
profitability ratios as an indicator whether or not the firm earns substantially
more than it pays interest for the use of borrowed funds.

1. Return on Investment
2. Return on Shareholders¶ fund
3. Return on total asset

4. Earnings per Share

5. Net profit Ratio

6. Operating ratio

7. Payout ratio

8. Dividend yield ratio

1. Return on Investment:
Page | 32

It is also called as ³Return on Capital Employed´. It indicates the percentage of


return on the

total capital employed in the business.

The term µoperating profit µ means µprofit before interest and tax¶ and the term
µcapital employed µ means sum-total of long term funds employed in the
business. i.e. Share capital + Reserve and surplus + long term loans ± [non
business assets +fictitious assets]

Return on investment = Operating profit/ Capital employed *100

2. Return on Shareholder¶s Fund:

In case it is desired to work out the productivity of the company from the
shareholder¶s point

of view, it should be computed as follows:

Return on shareholder¶s fund = Net profit after Interest and Tax/Shareholders¶


fund*100

The term profit here means µNet Income after the deduction of interest and
tax¶. It is different from the ³Net operating profit´ which is used for computing
the µReturn on total capital employed¶ in the business. This is because the
shareholders are interested in Total Income after tax including Net non-operating
Income (i.e. Non- Operating Income -Non-Operating expenses).

3. Return on Total Assets:

This ratio is computed to know the productivity of the total assets.The term
µTotal Assets¶ includes the fixed asset, current asset and capital work in
progress of the company. The above table clearly reveals the relationship
between the net profit and Total Assets employed in the business.

Return on Total Assets = Net profit after Tax/Total Assets* 100


Page | 33

4.Earnings perShare:

In order to avoid confusion on account of the varied meanings of the term capital
employed, the overall profitability can also be judged by calculating earnings per
share with the help of the following formula:

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

The earnings per share of the company helps in determining the market price of
the equity shares of the company. A comparison of earning per share of the
company with another will also help in deciding whether the equity share capital
is being effectively used or not. It also helps in estimating the company¶s
capacity to pay dividend to its equity shareholders.

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

5. Net Profit Ratio:

This ratio indicates the Net margin on a sale of Rs.100.This ratio helps in
determining the efficiency with which affairs of the business are being managed.
An increase in the ratio over the previous period indicates improvement in the
operational efficiency of the business. The ratio is thus on effective measure to
check the profitability of business. However, constant increase in the above ratio
after year is a definite indication of improving conditions of the business.

Net Profit Ratio =Net Operating Profit/Net Sales*100

6. Operating Ratio:

This ratio is a complementary of Net Profit ratio. In case the net profit ratio
is20%. It means

that the operating profit ratio is 80%.It is calculated as follows:


Page | 34

Operating Ratio =Operating Cost/Net Sales*100

The operating cost include the cost of direct materials, direct labor and other
overheads, viz.,

factory, office or selling.

DirectMaterial cost to sales=DirectMaterial/NetSales*100

This ratio is the test of the operational efficiency with which the business is being
carried. The operating ratio should be low enough to leave a portion of sales to
give a fair to the investors.

7. Payout Ratio:

This ratio indicates what proportion of earning per share has been used for
paying dividend. The payout ratio is the indicator of the amount of earnings that
have been ploughed back in the business. The lower the payout ratio, the higher
will be the amount of earnings ploughed back in the business and vice versa.

Payout Ratio =Dividend per equity share/Earning per equity share*100

8. Dividend Yield Ratio

This ratio is particularly useful for those investors who are interested only in
dividend income. The ratio is calculated by comparing the ratio of dividend per
share with its market value.

Dividend yield=Dividend perShare/Market price per share*100

And Dividend per share = Dividend paid/ Number of share s.

Long Term Financial Position or Solvency Ratios


Page | 35

The term µsolvency¶ refers to the ability of a concern to meet its long term
obligations. The long term indebtedness of a firm includes debenture holders,
financial institutions providing medium and long term loans and other creditors
selling goods on installment basis. So, the long term Solvency ratios indicate a
firm¶s ability to meet the fixed interest and costs and repayment schedules
associated with its long term borrowings. Two types of ratios are there:

1. Capital structure ratios-ex. Debt equity ratio

2. Coverage ratios-ex. Debt service ratio or Interest coverage ratio

1. Debt-Equity Ratio

Debt ±Equity ratio also known as External- Internal Equity Ratio is calculated to
measure the

relative claims of outsiders and the owners against the firm¶s assets.

The ratio is calculated as:

Debt equity ratio= Outsider¶s funds/ Shareholder¶s funds

Outsiders fund includes all debts/liabilities to outsiders, whether long term or


short term or whatever in the form of debentures bonds, mortgages or bills. The
shareholders fund consist of equity share capital, preference share capital ,
capital reserves, revenue reserves, and reserves representing accumulated
profits and surpluses.

2. Interest Coverage Ratio

This ratio is used to test the debt servicing capacity of a firm. The ratio is
calculated as:

Interest coverage ratio = EBIT/Fixed interest charge


Page | 36

5. DATA ANALYSIS AND INTERPRETATION

3. Balance Sheet

Table No.1

Classification of Balance Sheet of Steel Authority of India Limited from 2003-


2009

(Rs. in Crores)

PARTICULARS 2003

2004

2005

2006

2007

2008

2009

ASSETS

Fixed Assets

14414

13550

12851

12920

12796

13960

18813

Investment

543

543

606

293

514
538

653

Current Assets

7312

8246

14333

15630

20375

26317

34511

Mis.Expenditure

536

378

294

215

129

59

0.00

P&L a/c

2765

Total Assets

25570
22717

28084

29058

33854

40874

53977

LIABILITIES

Shareholder¶s

Funds

5290

5037

10306

12601

17313

23063

27984

Loan Funds

12969

8690

5770

4298

4180

3045

7539

Current Liabilities

& Provisions

7311

8990
10166

10675

10949

13198

17122

Deferred

Liabilities

1842

1484

1412

1568

1332

TOTAL

LIABILITIES

25570

22717

28084

29058

33854

40874

53977
Page | 37

4.Comparative Balance Sheet

Table No.2

Comparative Balance Sheet of Steel Authority of India Limited from 2003-2004 to


2008 ± 2009

( Rs. in Crores)

PARTICUL

ARS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

Cng % cng

Cng

% cng Cng

cngCng

cng

Cng

cng

Cng

cng

ASSETS

Fixed Assets
(864)

(5.9)

(699)

(5.1)

69

0.53(1 2 4

(0.9

1164 9.09 4853 34.76

Investment

nt

63

11.6

(313) (51.

6)

221 75.4

24

4.66

115 21.37

Current

Assets

934

12.77

6087

73.8
1297 9.04474

30.3 5942 29.16 8194 31.13

Mis.

Expenditure(158) (29.4) (184)

(22)

(79)

(26.

8)

(84) (39)

(70)

(54)

(59) (100)

P&L a/c

LIABILITI

ES
Shareholder¶s

Funds

(253) (4.78)

5269

104.6 2295 22.2

471

37.3 5750 33.21 4921 21.33

Loan Funds

(427

9)

(32.9) (2920)

(34)

(147

2)

(25.

5)

(118

(2.7

(113

5)

(27)

4494 147.6

Current
Liabilities&
Provisions
1679 22.96

1176

13.08

(868

2)

(85.

4)

(72)(4 .8

2249 20.5 3924 29.73

Deff.

Liabilities

8833 479 274 2.56

156 11.04 (236) (15)


Page | 38

Interpretation:

Long Term Financial Position:

The comparative Balance Sheet of the company reveals that during the financial
year 2008± 2009 there has been a large increase in fixed assets (34.76%)
compared to 2007-2008(9.09%) while the long term liabilities which contains
shareholders funds and long term loans also show growth. Long term loans show
an increase of 147.6% in 2008-09 which means that most of the fixed assets are
financed by long term loans.

There has been an increase in plant and machinery in 2009 compared to 2008
which means that it

will increase production capacity of the concern.

Current Financial position and liquidity position:

The company has increased its current assets by increasing the level of
inventories at Rs.10121 crores in 2009 compared to Rs.6857 crores in 2008. The
current liabilities highly fluctuate and show continuous increase in 2007-08
(20.5%) and 2008-09 (29.3%).

The Net Working Capital was in peak by the continuous increase after the year
2005. The company got good liquidity position due increase in Current assets but
it may affect the profitability of the company.

The overall financial position of the company is very good.


Page | 39

5. Income Statement

Table No.3

Classification of Income Statement of Steel Authority of India Limited from 2003t


o

2009

(Rs. in crores)

PARTICULARS 2003

2004

2005

2006

2007

2008

2009

Sales

EBIDTA

Less:

Depreciation

19207

2165

1147

24178

4652

1123

31805

11097

1127

32280

7381
1207

39189

10966

1211

45555

12955

1235

48681

10941

1285

EBIT

Less: Interest

Charges

1018

1334

3529

901

9970

605

6174

468

9755

322

11720

251

9656

253

PBT
Less : Tax

(316)

(12)

2628

116

9365

2548

5706

1693

9423

3221

11469

3932

9403

3229

PAT (Net Profit) (304)

2512

6817

4013

6202

7537

6174
Page | 40

6.Comparative Income Statement

Table No.4

Comparative Income Statement of Steel Authority of India Limited from 2003-


2004 to 2008- 2009

( Rs.in Crores)

PARTIC

ULARS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

change

% of

change

change

% of

change

change

% of

change

change

% of

chang

change

% of
change

change

% of

Change

Sales

EBIDT

Less:

Depreci

ation

4971

2487

(24)

25.9

114.8

(2.1)

7627

6445

31.5

138.5

0.35

475

(3716)

80

1.49

(33.4)

7.09

6909
3585

21.4

48.5

0.3

6367

1989

24

16.2

18.1

1.98

3126

(2014)

50

6.86

(15)

0.04

EBIT

Less:

Interest

Charges

2511

(433)

246.6

(32.4

6441

(296)
182.5

(32.7)

(3769)

(137)

(38)

22.64

3581

(146)

58

(31)

1965

(71)

20.1

(22)

(2064)

(17.6)

0.7

PBT

Less :

Tax

2312

104

731.6

866.6

6737

2432

256.3
2096

(3659)

(855)

(39)

(33.5)

3717

1528

65.1

90.2

2046

711

21.7

22

(2066)

(703)

(18)

(17.8)

PAT

(Net

Profit)

2208 726

4305 171.3 (2804) (41.1) 2189 54.5 1335 21.5

(1363) (18)

Interpretation

The Net Sales figure shows an increasing trend. After the year 2003 it shows an

increasing trend which will help to increase in Net Profit.

y
The company has sufficient control over its depreciation which shows an
increase of

only 0.04% in 2009 over 2008.


Page | 41

The company has considerable change in Interest Charges and rather the latter
has

decreased in recent years.

The company has able to attain Profit after Tax of Rs.6174 crores in the year
2009 compare to 7536 crores in 2008 which can be attributed to increase in cost
of goods sold.

It may conclude that there is a sufficient progress in the company and the overall

profitability of the concern is very good.


Page | 42

7.Trend Percentage

Table No.5

Trend Percentage of Steel Authority of India Limited from 2003-2004 to 2008 ±


2009

Base Year 2003

Figure in

Particulars

2003

2004

2005

2006

2007

2008

2009

SALES

100

125.88

165.59

168.06

204.03

237.17

253.45

EBIT

100

346.66

979.37

606.48
958.25

1151.27

948.52

FIXED

ASSETS

100

94.00

89.15

89.63

88.77

96.85

130.51

CURRENT

ASSETS

100

112.77

196.02

213.75

283.57

359.91

471.97

CURRENT

LIABILITIES

100

122.96

139.05

146.01

149.76
180.52

234.19

WORKING

CAPITAL

100

81.83

302.55

370.29

554.05

673.81

889.54

CAPITAL
EMPLOYED
TOTAL

100

92.00

121.29

131.65

154.01

171.99

208.88

TOTAL

ASSETS

100

88.84

109.83

113.64

132.39

159.85
211.09

Interpretation:

The sales of the product have continuously increased in all the years up to
2009.The

increase in sales is quite satisfactory.

The EBIT grows continuously up to 2008 and decreases slightly in 2009 due to
increase

in the cost of goods sold.


Page | 43

8.Common Size Balance Sheet

Table No.6

Common Size Balance Sheet of Steel Authority of India Limited from 2003-2009

( Rs.in Crores)

PARTICULARS 2003

2004

2005

2006

2007

2008

2009

ASSETS

Fixed Assets

56.37

59.64

45.75

44.46

37.90

34.15

34.85

Investment

21.23

2.39

2.15

1.00

1.54

1.31
1.209

Current Assets

28.59

36.29

51.06

53.78

60.18

64.51

63.93

Mis.Expenditure

2.09

1.68

1.04

0.76

0.38

0.144

0.00

P&L a/c

10.72

Total Assets

100.00

100.00
100.00

100.00

100.00

100.00

100.00

LIABILITIES

Shareholder¶s

Funds

20.60

22.17

36.69

43.36

51.14

56.42

51.84

Loan Funds

50.73

38.25

20.54

14.79

12.34

7.44

13.96

Current

Liabilities

& Provisions

28.59

39.58
36.19

5.10

4.17

32.28

31.72

Deferred

Liabilities

6.58

36.75

32.35

3.83

2.46

Total Liabilities

100.00

100.00

100.00

100.00

100.00

100.00

100.00
Page | 44

Interpretation:

Out of the total investment the owners funds is more compare to outsider¶s fund
in the
company which shows that the company has depended more on its own funds. It
shows that the company is traditionally financed.

The proportion of current assets to total assets has increased comparing to


current

liabilities which serve as an evidence for good working capital position of the

company.

Investments, Miscellaneous expenditure and deferred liabilities have their own


limited

contribution to their respective side totals.


Page | 45

RATIO ANALYSIS

Liquidity ratios

1.Current Ratio:

Table No.7

Table showing Current ratio

(Rs. In Crores)

YEAR

CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT RATIO

2003

7282

4777

1.524

2004

8075

6025

1.340

2005

14187

6608

2.146

2006

17384

8108
2.144

2007

20379

6500

2.917

2008

26317

9439

2.788

2009

34511

12228

2.822

An ideal current ratio is 2. The ratio of 2 is considered as a safe margin of


solvency due to the fact that if current assets are reduced to half (i.e.) 1 instead
of 2, then also the creditors will be able to get their payments in full.

Interpretation:

Here, the current ratio fluctuates from year to year but has maintained the ratio
above 2 from

2005 onwards which is positive consideration.


Page | 46

CHART 1

2. Quick Ratio:

Table No.8

Table showing Quick ratio

(Rs. In Crores)

YEAR

LIQUID ASSETS

CURRENT

LIABILITIES

QUICK RATIO

2003

3537

4777

0.740

2004

4993

6025

0.828

2005

9966

6608

1.508

2006

11174

8108

1.378

2007
13728

6984

1.965

2008

19460

9439

2.061

2009

24389

12228

1.994

Interpretation:

The liquid ratio denotes the concern had achieved more than the ideal ratio of
1:1 in the years

2005 onwards.

5000

10000

15000

20000

25000

30000

35000

40000

2003

2004

2005

2006

2007
2008

2009

current assets

current liabilities
Page | 47

CHART 2

3. Net Working Capital Ratio:

Table No.9

Table showing Net Working Capital Ratio

YEAR

Net Working

Capital

Capital Employed

Net Working

Capital Ratio

2003

2505

16541

0.151

2004

2050

15218

0.134

2005

7579

20064

0.377

2006

9276

21438

0.432

2007
13879

24992

0.535

2008

16879

28450

0.593

2009

22283

34552

0.645

5000

10000

15000

20000

25000

30000

2003

2004

2005

2006

2007

2008

2009

liquid assets

current liabilities
Page | 48

CHART 3

Interpretation:

Net Working capital measures the firm¶s potential reserve of funds. It can be
related to net assets. This ratio represents the availability of working capital in
relation with capital employed.

5000

10000

15000

20000

25000

30000

35000

40000

2003

2004

2005

2006

2007

2008

2009

networking capital

capiotal employed
Page | 49

Turnover Ratios

1. Fixed Assets Turnover Ratio:

Table No.10

Table showing fixed asset turnover ratio

YEAR

GROSS SALES

(Rs IN

CRORES)

FIXED

ASSETS (Rs in

crores)

FIXED

TURNOVER

RATIO (In

Times)

2003

19207

14036

1.36

2004

24178

13168

1.83

2005

31805

12485

2.54
2006

32280

12162

2.65

2007

39189

11598

3.37

2008

45555

11571

3.93

2009

48681

12269

3.96

Interpretation:

Here, the value of fixed assets employed in the business shows a reducing trend
which implies that company didn¶t add any more fixed asset during the period
2003 ±2008. Only the depreciation effect had been given to fixed asset. Fixed
turnover ratio has been increasing which is a good sign because the gross sales
have increased considerably without increasing the current assets.
Page | 50

CHART4

2. Working Capital Turnover Ratio:

Table No.11

Table showing Working capital turnover ratio

Interpretation:

Here, the Working Capital ratio shows a increasing trend from 2003 to 2004 and
then slope downwards due to holding high current assets in the form of cash,
bank balances and receivables in the year 2005 to 2009.

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006

2007

2008

2009

SS SALES

FIXED ASSETS

YEAR

GROSS SALES
(Rs IN

CRORES)

WORKING

CAPITAL (Rs in

Crores)

Working capital

turnover ratio

(in times)

2003

19207

2505

7.667

2004

24178

2050

11.79

2005

31805

7579

4.196

2006

32280

9276

3.479

2007

39189

13879

2.823
2008

45555

16879

2.698

2009

48681

22283

2.184
Page | 51

CHART 5

3. Debtors Turnover Ratio:

Table No.12

Table showing Debtors¶ turnover ratio

YEAR

CREDIT SALES

(Rs. In Crores)

DEBTORS

(Rs. In Crores)

Debtors¶ turnover

ratio

(In times)

2003

19207

1660

11.570

2004

24178

1550

15.598

2005

31805

1908

16.669

2006

32280

1882
17.151

2007

39189

2315

16.928

2008

45555

3048

14.945

2009

48681

3024

16.098

Interpretation:

There has been increase in the turnover ratio from 2003-2006 and has stabilized
thereafter .As the ratio is sufficiently high it can be concluded that efficient
management of the debtors has taken place.

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006

2007
2008

2009

GROSS SALES

WORKING CAPITAL
Page | 52

CHART 6

Debt collection period:

Table No.13

Table showing Debt collection period

(In Days)

YEAR

COLLECTION PERIOD

2003

32

2004

23

2005

22

2006

21

2007

22

2008

24

2009

23

Debtors¶ collection period measures the quality of debtors since it measures the
rapidity or

slowness with which money is collected from them.

10000

20000

30000
40000

50000

60000

2003

2004

2005

2006

2007

2008

2009

CREDIT SALES

DEBTORS

Page | 53

CHART 7

INTERPRETATION;

Here, there has been decreasing trend in the debt collection period which is
favorable for the company. Because, the quicker the collection period the better
is the quality of debtors as a short collection period implies quick payment by
debtors. Then more the utilization of cash collected from debtors. It decreased
from 32 days in 2003 to 23 days in 2009.

4.StockTurnoverRatio:

Table No.14

YEAR

SALES (Rs in

crores)

AVERAGE STOCK

(Rs in crores)
STOCK
TURNOVER
RATIO ( in times)

2003

19207

3745

5.128

2004

24178

3082

7.844

2005

31805

4221

7.534

2006

32280

6210

5.198

2007

39189

6651

5.892

2008

45555

6857

6.643

2009

48681
10121

4.809

05

10

15

20

25

30

35

2003

2004

2005

2006

2007

2008

2009

COLLECTION PERIOD

COLLECTION PERIOD
Page | 54

INTERPRETATION:

Here, there has been a lot of fluctuation in the Inventory turnover ratio. There
has been an increase in the ratio in 2004 and 2005 but it shows a decreasing
trend in 2006 and 2007.In 2008 the ratio showed an increase due to a large
increase in sales. But in 2009 there was a large increase in average
stock/inventory which contributed to a lower inventory turnover ratio . This can
be attributed to uncertain economic situation and weak demand of steel in the
market. The overall situation is still good enough.

CHART 8

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006

2007

2008

2009

CREDIT SALES

AVERAGE ST

£
Page | 55

Profitability Ratios

1. Return on Investment:

Table No.14

Table showing Return on Investment

YEAR

OPERATING

PROFIT (Rs in

crores)

CAPITAL

EMPLOYED (Rs in

crores)

RETURN ON

INVESTMENT (In

%)

2003

1018

16541

6.154

2004

3530

15218

23.196

2005

9970

20064

49.690

2006
6174

21782

28.344

2007

9755

25476

38.290

2008

11720

28450

41.195

2009

9656

34552

27.946

Interpretation:

Return on investment shows an increasing trend from 2003 to 2008.However


there are small fluctuations in 2006 and 2009 due to lower operating profits.
Average Capital employed shows regular increase from 2003 to 2009.
Page | 56

CHART 9

2. Return on Shareholder¶s Fund:

Table No.15

Table showing return on Shareholders¶ Fund

YEAR

NET PROFIT (Rs

in crores)

SHAREHOLDER¶S

FUND (Rs in crores)

RETURN IN

SHAREHOLDER¶S

FUND (IN %)

2003

-304

5290

-5.746

2004

2512

5038

49.861

2005

6817

10307

66.139

2006

4013

12601
31.846

2007

6202

17313

35.822

2008

7537

23063

32.680

2009

6174

27984

22.062

INTERPRETATION:

Here, the Net Profit (i.e.) Profit after Interest and Tax has been in negative in the
year 2003 due to a net loss in the corresponding year because of very high
interest and finance charges of the company. But there was a huge jump in net
profits in the year 2004-2005 compared the shareholders funds which were
responsible for increase in the return on investment. There has

5000

10000

15000

20000

25000

30000

35000

40000

2003

2004
2005

2006

2007

2008

2009

OPERATING PROFIT

APITAL EMPLOYE

¥
Page | 57

been a considerable increase in shareholders funds from 2005 onwards which


has resulted in

stabilizing return on investment.

CHART 10

3. Return on Total Assets:

Table No.16

Table showing return on Total Assets

YEAR

NET PROFIT (Rs

in crores)

TOTAL ASSETS (

IN CRORES)

RETURN ON
TOTAL
ASSETS(IN %)

2003

-304

25570

-1.188

2004

2512

22717

11.057

2005

6817

28084

24.273

2006
4013

29058

13.810

2007

6202

33854

18.319

2008

7537

40874

18.439

2009

6174

53977

11.438

Interpretation:

There has been a considerable in increase in total assets from 2003 to 2009 but
the net profit

has fluctuated which has resulted in the fluctuations in the return on total assets.

-50000

5000

10000

15000

20000

25000

30000

2003

2004

2005
2006

2007

2008

2009

NET PROFIT

SHARE HOLDERS FUND


Page | 58

CHART 11

4.Earnings perShare:

Table No.17

Table showing Earning per Share

YEAR

NET PROFIT (Rs

in crores)

NUMBER OF

EQUITY SHARES

( IN CRORES)

EARNING PER

SHARE (IN %)

2003

-304

413

-0.736

2004

2512

413

6.082

2005

6817

413

16.506

2006

4013

413
9.716

2007

6202

413

15.016

2008

7537

413

18.249

2009

6174

413

14.949

Interpretation:

Here the Earning per Share is the result of Net Profit after Tax. It shows the
positive correlation during the period of study. It shows an increasing trend
except in the year 2004 and 2009 due to lower net profits than previous years.

-10000

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006
2007

2008

2009

NET PROFIT

TOTALASSETS
Page | 59

CHART 12

5. Net Profit Ratio:

Table No.18

Table showing Net Profit Ratio

YEAR

OPERATING

PROFIT (RS IN

CRORES)

SALES (IN

CRORES)

NET PROFIT

RATIO (IN %)

2003

1018

19207

5.300

2004

3530

24178

14.600

2005

9970

31805

31.347

2006

6174

32280
19.126

2007

9755

39189

24.892

2008

11720

45555

25.727

2009

9656

48681

19.835

-10000

1000

2000

3000

4000

5000

6000

7000

8000

2003 2004 2005 2006 2007 2008 2009

NET PROFIT

NUMBER OF EQUITY SHARES


Page | 60

Interpretation:

The operating profit and value of sales are the causes for the fluctuation in the
Net Profit ratio. While sales has constantly increased over the years operating
profit has increased but shows some fluctuations. In 2009 the ratio is lower than
in 2008 due to lower operating profits. The reason can be attributed to uncertain
economic situation and higher cost of goods sold as well as weak demand.

CHART 13

6. Operating Ratio:

Table No.19

Table showing Operating Ratio

YEAR

OPERATING
COST(RS IN
CRORES)

SALES

(Rs. In crores)

OPERATING

RATIO

(In %)

2003

17940

19207

93.403

2004

19512

24178

80.701

2005

20339

31805
63.949

2006

23675

32280

73.342

2007

26483

39189

67.577

2008

30423

45555

66.783

2009

36848

48681

75.692

Interpretation:

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

§
E

ATI

FIT

SALES
Page | 61

A comparison of operating ratio or expenses ratio will indicate whether the cost
components is high or low in the figure of sales. The operating ratio shows a
decrease in trend up to 2008 but shows a slight increase in 2009. Normally 75%
to 85% is considered to be a good ratio for manufacturing undertakings. So the
ratio is good in case for SAIL.

CHART 14

7. Payout Ratio:

Table No.20

Table showing Payout Ratio

YEAR

DIVIDENDPE R

EQUITY

EPS

Dividend pay out

ratio

2005

3.3

16.50

20

2006

2.0

9.71

20.59

2007

3.10

15.01

20.65

2008

3.7
18.25

20.27

2009

2.6

14.95

17.39

Interpretation:

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

DIRECTM ATERIAL

SALES
Page | 62

The pay out ratio for the year 2005 is 20%, 2006 is 20.59, 2007 is 20.65, 2008 is
20.27% which implies that remaining 80% of earning per share is kept as
retained earning by the company. However in 2009 lesser amount of dividend is
given so EPS is 14.95 and pay out ratio is 17.39 this implies that the company
keeps 82% of earning per share as retained earnings.

CHART 15

NOTE: Here the company had paid dividend only after 2005 in the course of
seven years

period from 2003 to 2009.

8. Dividend Yield Ratio:

Table No.21

Table showing Dividend yield

YEAR

DIVIDENDPE R

EQUITY

MARKET PRICE

Dividend yield

2005

3.3

62.87

5.25

2006

2.0

83.30

2.40

2007

3.10

114.30

2.71
2008

3.7

185

2009

2.6

96

2.70

02468

10

12

14

16

18

20

2005

2006

2007

2008

2009

DIVIDENT PER EQUITY

EPS
Page | 63

Interpretation:

This percentage implies that 5.25% of market price of the share was issued as
dividend in the

year 2005 and later on it get decreases due to various economic changes in
SAIL.

CHART 16

Long Term Financial Position or Solvency Ratios

1. Debt-Equity Ratio

TABLE NO: 21

Table showing Debt-Equity ratio

YEAR

OUTSIDER¶S

FUND

SHAREHOLDER¶S

FUND

DEBT EQUITY

RATIO

2003

34385

5290

6.5

2004

9419

5037

1.87

2005

5977

10306
0.58

2006

4410

12601

0.35

2007

4155

17313

0.24

2008

2988

23063

0.13

2009

7555

27984

0.27

20

40

60

80

100

120

140

160

180

200
2005

2006

2007

2008

2009

DIVIDEND PER EQUITY

MAR

ET PRI

E
Page | 64

CHART 17

Interpretation

The debt-equity ratio is calculated to measure the extent to which debt financing
has been used in a business. From 2003 onwards there has been a decrease in
outsiders fund and a corresponding increase in shareholders funds. This
indicates that the firm is traditionally financed and it is considered to be
favorable from a long term creditor¶s point of view as a high proportion of
owner¶s funds provide a larger margin of safety for them.

Interest Coverage Ratio

This ratio is used to test the debt servicing capacity of a firm The ratio is
calculated as:

Interest coverage ratio = Ebit/Fixed interest charge

TABLE NO: 22

YEAR

EBIT

FIXED INTEREST

CHARGES

INTEREST

COVERAGE

RATIO

2003

1018

1339

0.76

2004

3529

910

3.88

5000
10000

15000

20000

25000

30000

35000

40000

2003 2004 2005 2006 2007 2008 2009

OUTSIDER'S FUND

SHARE HOLDER'S FUND


Page | 65

2005

9970

607

16.43

2006

6174

472

13.07

2007

9755

333

29.29

2008

11720

252

46.39

2009

9656

326

29.59

Interpretation:

There has been decreasing trend in the fixed interest charges and corresponding
increase in EBIT from 2003-2008.This has led to increase in interest coverage
ratio which is a good sign for the company. There has been a decrease in EBIT in
2009 and a slight increase in fixed interest charges due to uncertainties in the
market, higher raw material costs and lower steel demand.
Page | 66

CHART 18

2000

4000

6000

8000

10000

12000

14000

2003

2004

2005

2006

2007

2008

2009

EBIT

FI

TE

EST


GES
Page | 67CALCULATION AND INTERPRETATION OF CASH FLOW

STATEMENT

CASH FLOW STATEMENT (in Rs.crores)

PARTICULARS 2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Profit before tax

(315.87)

1246.70

9365.35

5705.74

9422.62

11468.73 9403.45

Net Cash Flow ±

Operating activity

2667.74

7199.45

8899.47

3823.93

5632.91

8378.18

6124.26

Net Cash used in

investing activity
(31.61)

(235.76)

(286.54)

(337.18)

(587.53) (1139.89) (4406.47)

Net Cash used in

Fin. Activity

(2,517.34) (5475.51) (4516.63) (3574.26) (1608.19) (3088.68) 2751.30

Net inc./decrease

in cash or

equivalent

118.79

1488.18

4096.30

(87.51)

3437.19

4149.61

4469.09

Cash and
equivalent at
beginning of the

year

416.37

717.31

2035.82

6260.15

6172.64

9609.83

13759.44
Cash and

equivalent at end

of the year

535.16

2205.49

6132.12

6172.64

9609.83

13759.44 18228.53

INTERPRETATION

1. Cash flow statement shows that the profit before tax increases continuously in
2004,

2005, 2006, 2007, 2008 and decreases in 2009 due to unstable economic
conditions.

2. Net cash flow from operating activities increases continuously in 2007 and
2008 due

to increase in sales and earnings but it came down in 2009.

3. Net cash outflows in investing activities have been growing in SAIL as cash is
being

used to purchase fixed assets like plants and machinery and higher development
costs.
Page | 68

4. Cash flows have been positive for financing activities in 2009 mainly due to
increase

in borrowings.

5. Cash and cash equivalents have been increasing steadily from 2003 to 2009
showing

good liquidity position of the firm

6.COMPETITOR ANALYSIS

BALANCE SHEET FOR 2009

(in crores)

PARTICULARSSAI L

TATA

ISPAT

JINDAL

ESSAR

ASSETS

NET BLOCK

12269

10995

8888

5745

9129

CAPITAL

WORK IN

PROGRESS

6544

3488

103

2318
550

INVESTEMENT 653

42372

233

1233

791

NET CURRENT

ASSETS

17389

(308)

160

1078

1580

TOTAL

ASSETS

36855

56651

9384

10378

12050

LIABILITIES

SHARE

HOLDERS

FUND

27985

29705

2032

5415
4738

TOTAL DEBT

7539

26946

7352

4963

7312

DEFFERED

LIABILITY

1331

TOTAL

LIABILITIES

36855

56651

9384

10378

12050
Page | 69

PROFIT AND LOSS ACCOUNT FOR 2009 (in crores)

SAIL

TATA

ISPAT

JINDAL

ESSAR

SALES

48681

26843

9181

8433

12704

EBIDTA

10941

9779

730

2693

1930

Less:

Depreciation

1285

973

647

433

828

EBIT

9656
8806

83

2260

1102

Less:Int.Charges 253

1489

1129

268

862

Extraordinary

items

24

10

55

PBT

9403

7317

(1023)

2002

240

Less: Tax

3229

2115

(335)

465

110
PAT

6174

5202

(688)

1537

185
Page | 70

COMPETITOR ANALYSIS

(as in2009)

RATIOS

SAIL

TATA

ISPAT

JINDAL

ESSAR
PROFITIBILITY
RATIO

OPERATING

PROFIT

24.31

37.68

13.58

34.35

21.44

GROSS PROFIT

44.14

33.69

5.76

28.71

14.37

NET PROFIT

19.83

21.09

-8.04

19.50
1.56

RETURN ON
CAPITAL
EMPLOYED

27.94

15.01

6.69

23.16

15.01

LIQUIDITY &
SOLVENCY
RATIOS

CURRENT

RATIO

2.82

0.91

1.04

1.04

0.71

QUICK RATIO

1.99

0.57

0.42

0.95

0.62

DEBT EQUITY

RATIO

0.27

1.34

9.04
0.92

1.57

DEBT

COVERAGE

RATIO

INTREST

COVERAGE

RATIO

29.59

5.71

0.52

10.33

3.17

MANAGEMENT
EFFICIENCY
RATIOS

INVENTORY

TURN OVER

RATIO

4.80

9.36

7.59

9.08

8.69

DEBTORS TURN

OVER RATIO

16.09

41.29

14.50
22.62

30.35

FIXED ASSETS

TURN OVER

RATIO

3.96

1.22

0.61

1.04

0.76

CASH FLOW

INDICATOR

RATIO

DIVIDEND PAY

OUT RATIO

17.39

27.15

5.55

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Page | 1

COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH

OTHER STEEL COMPANIES IN INDIA

PROJECT REPORT

MAY 2010  JULY2010

Submitted in partial fulfillment of the requirements for the award of

two year full time, Post Graduate Diploma Management

In

Finance & Control


By
Kumar Mayank
(Institute of Management & Information Sciences Bhubaneswar)

Under the guidance of

Prof. S.S.Ahmed

P.S PAL

Assistant Professor (finance)

AGM( Fi na n c e )

Institute ofManagement & Informationscien ce

SteelAuthority Of India Limited

Bhubaneswar

Ranchi.

Institute of Management & Information Science

Swagat Vihar

Bhubaneswar Orissa ± 751002


Page | 2

Declaration

I hereby declare that the project entitled ³Financial Analysis´ is submitted in


partial fulfillment of my
PGDM (FC) ³2009-2011´ was carried out with sincere intention of benefiting the
organization. The
project duration was from 10th May 2010 to 3rd July 2010. To the best of my
knowledge it is an
original piece of work done by me and it has neither been submitted to any other
organization nor
published at anywhere before.

Signature

Name: Kumar Mayank


Date:3rd July 2010
Place: Steel Authority of India Limited (Ranchi)
Page | 3

Acknowledgement

Whatever I did andwhatever I achieved during the course of my limited life is just
not done only by my own efforts, but by the efforts contributed by other people
associatedwith me indirectly or directly. I thank all those peoplewho contributed
to this from the very beginning till its successful end.

Isincerely thankMr. Shibaji Dey (Dy.Manager Personnel), Person of amiable


personality, for assigningsuch a challenging projectworkwhich has enriched
mywork experience and getting me acclimatized in a fit and finalworking
ambience in the premises of Centre for Engineering &

Technology (SAIL).

I acknowledge my gratitude toMr. S.SAhmed (Assistance Professor Finance,


Institute of

Management & Information Science), for his extended guidance,en cou r ag em


en t, support and

reviews withoutwhom this projectwould not have been asuccess.

Last but not the least Iwould like to extend my thanks to all the employees
atCentre for

Engineering & Technology (SAIL)for their cooperation, valuable information and


feedback during

my project.
Page | 4

ABSTRACT

The project on comparison of financialstatement of SAILwith othersteelsectors in


INDIA

has been a very good experience. Every manufacturing company faces the
problem of

FinancialManagement in their day to day processes.An organizations cost can


be reduced

and the profit can be increased only if it is able to manage the financial position
of its firm.

At the same time the company can provide customer satisfaction and hence can
improve

their overall productivity and profitability.

This project is asincere effort tostudy and analyze the FinancialManagement of


SAIL. The projectworkwas divided into two phases. The first phasewas focused on
making a financial overview of the company by conducting a Time

seriesan al ysis of SAIL for the years 2003 to 2009 and the second phase was
conducted on a

Comparative analysis of SAILwith its domestic competitors  TATA, ISPAT, JINDAL


& ESSAR
for the year 2009 taking Balancesheet, Profit & Loss account and ratios showing
a
comparative analysis between these firms with SAIL.

The internship is a bridge between the institute and the


organization. This made me to be involved in a project that helped me to employ
my
theoretical knowledge about how theAnalysis of Financial Statement is done by
the firm.

And in the process I could contribute substantially to the organizationsg rowth.

The experience that I gathered over the past two months has

certainly provided the orientation, which I believewill help me inshoulder ing any

responsibility in future.
Page | 5

TABLE OF CONTENTS

1.ABOUT THE COMPANY

6-11

2.INTRODUCTION TO CET SAIL

12-19

3.INTRODUCTION TO THE STUDY

20-22

4. LITERATURE REVIEW

23-35

5.DATA ANALYSIS AND INTERPRETATION

36-66

6.COMPETITOR ANALYSIS

67-70

7. RECOMMENDATION AND SUGGESTIONS

71

8.CONCLUSION

72

9.BIBLIOGRAPHY

73
Page | 6

1. ABOUT THE COMPANY

Company Profile

Established in January 24, 1973 with an authorized capital of Rs. 2000 crores,
Steel Authority of India Limited (SAIL) is the leading steel-making company in
India. SAIL is a fully integrated iron and steel maker company, producing both
basic and special steels for domestic construction, engineering, power, railway,
automotive and defense industries and it also produce steel for sale in export
markets.

Steel Authority of India Limited is ranked amongst the top ten companies in
public sector companies in India in terms of its turnover. SAIL produces iron and
steel at five integrated plants and three special steel plants, located principally in
the eastern and central regions of India and situated close to domestic sources
of raw materials, including the Company's iron ore, limestone and dolomite
mines.

SAIL have a Central Marketing Organization (CMO) whose job is to transact


business through its network of 37 Branch Sales Offices spread across the four
regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer
Contact Offices all over India. CMO¶s domestic marketing job is to meet the
demands of the smallest customers in the remotest corners of the country. SAIL
has a Consultancy Division (SAILCON) located at New Delhi whose job is to offer
services and consultancy to clients world-wide. SAIL has a well-equipped
Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which
helps the industries of SAIL to produce quality steel and it also give ideas to
develop new technologies for the steel industry. SAIL has its own in-house Centre
for Engineering and Technology (CET), Management Training Institute (MTI) and
Safety Organization at Ranchi. SAIL captive mines are control by the Raw
Materials Division in Kolkata. Almost all of the plants and major units of SAIL are
ISO Certified.
Page | 7

Sail Today

SAIL today is one of the largest industrial entities in India. Its strength has been
the diversified range of quality steel products catering to the domestic, as well as
the export markets and a large pool of technical and professional expertise.
Today, the accent in SAIL is to continuously adapt to the competitive business
environment and excel as a business organization, both within and outside India.

Type of Organization:

Steel Authority of India' - a Government of India Enterprise and one of the largest
and profit making public sector steel products manufacturing company. Steel
Authority of India produces for both basic and special steels for construction,
engineering, power, railway, automotive and defense industries and caters to
Indian and International markets. Steel Authority of India has five steel plants,
one subsidiary, three special steel plants, multi marketing units at all regions and
nine other specialized units to support growth and development of the Steel
Industry in India. It produces Blooms, Billets, Slabs, Crane Rails, Bars, Rods & Re-
bars, Wire Rods, HR Coils, Sheets, Plates, CR Coils & Sheets, GC Sheets, GP
Sheets and Coils, Tinplates, Electrical Steel, Tubular Products, Pipes, Railway
Products, Rails, Wheels, Axles, Wheel Sets.

Activities: Steel Authority of India production lines are ±

Hot Rolled Coils, Sheets

Cold Rolled Products.

Bars and Rods.

Semi-Finished Products.

Railway Products.

Plates.
Page | 8

Moreover, Steel Authority of India offers technological services in the following

Domains ±

Know-how transfer of technologies developed by its R&D wing.

Consultancy services.

Specialized testing services.

Contract research.

Training.

Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh

Durgapur Steel Plant (DSP) in West Bengal

Rourkela Steel Plant (RSP) in Orissa

Bokaro Steel Plant (BSL) in Jharkhand

IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels P in West Bengal plants (ASP)

y
Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra


Page | 9

Position of Steel Authority of India Limited (SAIL)

India is ranked as the 5th largest steel producing country in the world, while SAIL
is ranked as the 21st largest steel producer in the world during2008 (Source:
WSA) SAIL continues to be the largest steel producer of finished steel in India
with around 1/5th of the market share.

SWOT ANALYSIS

STRENGTHS

The diversified product mix and multi location production units are an area of

strength for the company.

SAIL as a single source is able to cater to the entire steel requirement of any
customer. Also it has a nation wide distribution network with a presence in every
district in India. This makes quality steel available throughout the length and
breadth of the country.

SAIL has the largest captive iron ore operations in India, which takes care of its
entire requirement. With plans in place to expand the mining operations, the
company will continue to be self sufficient in iron ore after completion of the
present phase of expansion.

SAIL's large skilled manpower base is a source of strength. There is emphasis on

skill based training in the company.

The company has one of the biggest in-house research and development centres
in Asia. SAIL's RDCIS (Research &Development Centre for Iron & Steel) is a
source of regular product and process innovation.
Page | 10

WEAKNESSES

SAIL is dependent on the market purchase for a key input ± coking coal. As India
does not have sufficient coking coal deposits, most of the supply is from external
sources.

A large manpower base results in higher manpower cost as a proportion of


turnover for the company. Although there has been significant reduction in
manpower through natural and voluntary separations, the manpower strength in
SAIL is still higher than the industry average.

At present around 20% of the products are in the form of semi -finished steel,

resulting in lower value addition.

SAIL being a Public Sector unit has to follow set procedures in conducting its

business. On occasions, it slows down the decision making with attendant fallout.

OPPORTUNITIES

The current per capita finished steel consumption in the country is approx. 44 kg
as compared to the likely world average of around 190kg. There is a substantial
scope for increase in domestic steel consumption.

Although during 2008-09, steel consumption contracted by 1.2% in the country,


steel demand in India is poised to grow at a modest pace with thrust on
infrastructure in the 11th Plan period.

Approval to 37 infrastructure projects worth Rs.70, 000 crores between August


2008

and January 2009 is likely to trigger steel demand.

The size range and quality makes SAIL'S long products a preferred choice for
project customers.
Page | 11

THREATS

International prices of steel dropped by over 60% from their peak level in July,
2008. With import duty at 5%, and poor demand from developed countries,
cheap imports are on an increase into the country putting pressure on realization
of the domestic steel producers.

With significant excess capacity in the global steel industry during 2009 there is
a threat of dumping cheap steel to India which is likely to be the only major steel
consuming nation with a positive growth.

Clearance and renewal of mining lease, which involve multiple agencies at the
State

and Central levels, are an area of concern.

Delay in opening new mines, and / or expanding existing mines may constrain
raw materials availability, thereby impacting growth in saleable steel production,
and overall economics of operation.

Law and order situation in mining areas in some of the states is also a cause of

concern for smooth operations in remote areas.


Page | 12

2. INTRODUCTION TO CET SAIL

Centre for Engineering & Technology (CET) was formed in 1982 in pursuance of
decision taken by SAIL Board in its 83rd meeting held on 28th January 1982. CET
is the in-house design, engineering and consultancy unit of SAIL. It is also the
nodal agency for acquisition and lateral transfer of technologies pertaining to
Iron & Steel within SAIL plants and units. The range of services provided by CET
includes conceptualization, project reports, project evaluation & appraisal,
project consultancy, design & engineering and project management. CET has
been providing its services in all the areas of iron and steel making including in
the related areas like mine planning and development, infrastructure
development, industrial piping, industrial warehousing, material handling
system, industrial pollution control and environment management systems,
water supply and sanitation, town planning, small power projects, etc.

PURPOSE OF FORMING THE CET

CET was formed in 1982 as an in-house consultancy organization of SAIL.


Previously all the consultancy work was outsourced to various organizations
which could be either govt. organizations like MECON or private organizations.
This led to huge expenditures for SAIL in payment of fees and other
expenditures. So it was decided that an in-house consultancy should be
developed to save costs for SAIL. Thus CET was formed with headquarters in
Ranchi and sub centers in various steel plants across India for better
coordination. Though CET was formed for the purpose of providing consultancy
services only to the plants of SAIL but it also provides consultancy services to the
other
Page | 13

organizations but only on specific requests to earn additional revenues.

CET has six subcentres at following locations:

1. CET Sub centre Bhilai


2. CET Sub centre Bokaro
3. CET Sub centre Durgapur
4. CET Sub centre Rourkela
5. CET Sub centre Burnpur
6. CET Sub centre Bhadrawati

Besides, CET has only two unit offices at following locations to coordinate CET¶s

activities

1. CET, Delhi Unit Office


2. CET, Kolkata Unit Office
It is an ISO 9001:2000 certified organization. It is planning to get certified against
ISO
9001:2008. The objectives and functions of CET are mainly categorized under
following
headings as under:
‡ Consultancy for Design, Engineering and Techno-economics
‡ Technology improvement
‡ Other Services
Page | 14

Technology Improvement

Identification of technology improvement measures in consultation with R&D


Centre in
the various processes and plan for adoption of the same in the various plants by
acquiring
design and know-how capability.
Assisting R&D center in identification of various process routes, production
facilities,
indicating the order of investment involved to match with the corporate
production
targets on short term/long term basis.

Guiding principles of CETw or ki ng:

Following guiding principles are followed for working of CET:


For Technical Matters: Guidelines/Procedure described in Quality Manual.
For Personnel Matters: Personnel Manual issued by SAIL Corporate Office
For Contract Commercial Matters: Guidelines described in Purchase Procedure
2009.
For Financial Matters: Guidelines given in Accounts Manuals

CET-SAIL(FINANCEDEPATRMENT)

Duties ofOfficers and employees inFinanceSection:

‡ Preparation of employee¶s remunerations & benefits and payments thereof.


‡ Statutory recoveries from employees salary like income tax, PF, SCSBF, EPF etc
and
their remittances to the respective funds.
‡ Assessment of Income Tax of employees. Provisional estimate for recoveries &
final
calculations for issuing certificates.
‡ Passing of contractors / parties bills and payments thereof including recoveries
of
income tax from their bills.
‡ Passing of employee¶s bills and advances and payment thereof.
‡ Accounting of all transactions, maintenance and scrutiny thereof.
Page | 15

‡ Closing of accounts and audit thereof.


‡ Dealing with Govt. and Internal Audits
‡ Preparation of budgets ± Revenue and Capital after considering the
requirement of
various departments/ Sub-centres/ Unit Offices.
‡ Preparation of employees HBA, Conveyance Advance budget in consultation
with

P&A.

‡ Periodic monitoring and control of all types of budgets ‡ Issue of TDS


certificates to employees and contractors. ‡ Filing of ETDS return

Fixed and Variable Costs for Finance Department

It can be seen from the role and responsibilities of finance department that most
of the work done by the finance department involves preparation of
remuneration of employees. Even during the preparation of the budget about
85% of the costs are attributed to employee remuneration which contains both
executive pay and non executive pay. It comes under fixed costs while other
expenses like travelling expenses, stationary expenses and other miscellaneous
expenses which come under variable costs.

CALCULATION OF ENGINEERING HOURS RATE

.In accounts booking of expenditure should be done accordance with their


accruals. When CET is renewing services to companies, plants and units it is
necessary to allocate the expenditure incurred by SAIL among the plants and
units to whom services where rendered consultancy wise or project wise. This is
an accounting requirement. In this way the projects of the plants of the units
gets the share of expenditure incurred by CET which in turn are accumulated in
the capital cost of the project

During 1994-95, 1995-96 CET adopted valuation of its assignment of the


project ,on the

basis of fixed percentage of total cost of the project for which services where
rendered.
Page | 16

This system could not be continued because of the following reasons:

1. CET not being a profit center it cannot consider earning which is hypothetical
in

any case, as a basis for allocation of its expenditure on assignments / projects.

2. Since the value of the assignments under this method has no relation with the
expenditure, practical difficulties where experienced in restricting the valuation
to the total expenditure of the CET.

Therefore in 96 -97 engineering hours was found to be more appropriate basis


for the allocation expenditure of CET over the assignment/projects. Engineers
working in assignment record their hours in the assignment they work. In this
way all the assignment of CET in execution get engineering hours spent on them.
Engineering hours rate is calculated every year on an estimated basis in march
every year (detail calculation given below). Rate is applied hours of the individual
assignment/project to find or to determine the value of CET services for the
assignment/projects. Plants and units are being debited on the value of the
assignment
Page | 17

CALCULATION OF ENGINEERING HOURS RATE FOR 2009-2010

1. Total no.of executives

299

2. HOD and above

29

3.Executives working in finance,Personnel

58

,Admn.,Personnel staff etc.ipss,Projects

ED sectt,MTT's

4. Net Executives whose Engg. Hours

212

are clockable

5.No. of days in a year

365

6. Sundays and closed Saturdays

76

7.CLs, Closed &RH

36

8. EL @3% of 253(Sl.No.5,6,7)

9.Average No. of Engineering days

245

Available

10. Avg.No. of Engg. hours available hrs.

1960

available per man a year

(Sl. No.9 *8hrs.)


11. Maximum Engg. Hrs. clockable in a

415520

year(Sl.no.4*Sl. No. 10)

12.Engineering hrs.utilised for development

120474

activities,ISO 9001,other administrative jobs

@30% of max.egg. Hrs. clockable in a year

13.Engg. Hrs. available for assignments (Sl.no.11-

295046

Sl.no.12)

14.Likely expenditure of CET FOR 2009-10 (In Rs.)

492900000

15.Engineering hours rate (In Rs.)

1670.050

16.Engineering hours rate to be adopted (In Rs.)

1670

IMPROVEMENTS SUGGESTED IN CALCULATION OF ENGINEERING HOURS


Page | 18

RATES

The above method is more suitable method for CET being an inhouse
consultancy

organization.This system can still be improved on the following account:

Single rate of engineering hours doesn¶t take into account expenditure of


variable nature.For example expenditure on tools design and drafting
expenditure on these heads varies on the basis of level of activities

It is presumed that expenditure accrues uniformly over the assignments. But


there are certain assignments which need services of senior engineers whose
hourly expenditure may be higher than the avg. rate adopted.

OTHER THINGS LEARNED AT CET SAIL (FINANCEDEPARTMENT)

To prepare engineering hour rate for CET SAIL employee.

Preparation of vouchers

Preparation of T.A.BILLS (Travelling allowance)

Preparation of revenue budget for CET- SAIL.

Preparation of renumeration for employees¶ remuneration & benefits budget.

PERFORMANCE HIGHLIGHTS OF CET 2009-2010

HIGHLIGTS OF PHYSICAL PERFORMANCE

Total sanctioned projects 137 nos. against 135 nos. in corresponding period last

year. Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

y
Highest nos. of assignment handled at 327 in a year, up by 7 nos. over previous

year.

OTHER HIGHLIGHTS
Page | 19

During the fiscal 2009-2010, a lot of emphasis was put in the RMD projects and

along with RMD new strategies where formulated for faster execution of projects.

Expression of interest for acquisition of technology for up gradation of blast

furnaces has been floated.

Video conferencing facility which connects Ranchi and sub centers at Bhilai ,

Durgapur , Bokaro and Rourkela is being used extensively for quarterly projec

reviews , designed reviews , knowledge sharing , technical discussion with


vendors and plant engineers . It has resulted in faster communication, wider
coverage and saving in expenditure.

CET has taken measures for working in a paperless environment. All movements
o

papers/ documents are being done through email system.

3.INTRODUCTION TO THE STUDY:


Page | 20

Finance is one of the most primary requisites of a business and the modern
management obviously depends largely on the efficient management of the
finance. Financial statements are prepared primarily for decision making. They
play a dominant role in setting the frame work of managerial decisions. The
finance manager has to adhere to the five R¶s with regard to money. Whether
owned or borrowed funds. At the right time to preserve solvency from the right
sources and at the right cost of capital. The term financial analysis is also known
as µanalysis and interpretation of financial statements¶ refers to the process of
determining financial strength and weakness of the firm by establishing strategic
relationship between the items of the Balance Sheet, Profit and Loss account and
other operative data. The purpose of financial analysis is to diagnose the
information contained in financial statements so as to judge the profitability and
financial soundness of the firm.

OBJECTIVES OF THE STUDY

1. To study the financial position of the company.


2. To analyze the financial stability and overall performance of SAIL in general.
3. To analyze and interpret the trends as revealed by various ratios of the
company in particular.

4. To analyze the profitability and solvency position of the unit with the existing
tools of financial

analysis.

5. To study the changes in the assets, liabilities structure of the company during
the period of study.

IMPORTANCE OF THE STUDY

1. By ³FINANCIAL PERFORMANCE ANALYSIS OF SAIL´ we would be able to get a


fair
picture of the financial position of SAIL.
2. By showing the financial performance to various lenders and creditors it is
possible to get credit
in easy terms if good financial condition is maintained in the company with
assets outweighing the
liabilities.
Page | 21

3. Protecting the property of the business.

4. Compliances with legal requirement.

LIMITATIONS OF THE STUDY

1. The analysis and interpretation are based on secondary data contained in the
published annual

reports of SAIL for the study period.

2. Due to the limited time available at the disposable of the researcher the study
has been confined

for a period of 7 years (2003-2009).

3. Ratio itself will not completely show the company¶s good or bad financial
position.

4. The study of financial performance can be only a means to know about the
financial condition of

the company and cannot show a through picture of the activities of the company.

RESEARCH METHODOLOGY

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


may be understood as a science of studying how research is done scientifically.
So, the research methodology not only talks about the research methods but
also considers the logic behind the method used in the context of the research
study.

RESEARCHDESIGN

Descriptive research is used in this study because it will ensure the minimization
of bias and maximization of reliability of data collected. The researcher had to
use fact and information already available through financial statements of earlier
years and analyze these to make critical evaluation of the available material.
Hence by making the type of the research conducted to be both Descriptive and
Analytical in nature.

From the study, the type of data to be collected and the procedure to be used for
this purpose were

decided.
Page | 22

DATA COLLECTION

The required data for the study are basically secondary in nature and the data
are collected from the

audited reports of the company.

SOURCES OFDATA

The sources of data are from the annual reports of the company from the year
2003 to 2009.

METHODS OFDATA ANALYSIS

The data collected were edited, classified and tabulated for analysis. The
analytical tools used in this

study are:

ANALYTICAL TOOLS APPLIED

The study employs the following analytical tools:

1. Comparative statement.
2. Common Size Statement.
3. Trend Percentage.
4. Ratio Analysis.
5. Cash Flow Analysis

ANALYSIS AND INTERPRETATION

Financial statement is an organized collection of data according to logical and


consistent accounting procedures. It purposes is to convey an understanding of
some financial aspects of a business firm. It may show a position at a moment of
time as in the case of a balance sheet, or may reveal a series of activities over a
given period of time, as in the case of an Income Statement. Thus the term
³Financial Statement ³generally refers to two basic statements: (i) the Income
Statement and (ii) the Balance sheet.
Page | 23

4.LITERATURE REVIEW

FINANCIAL STATEMENTS ANALYSIS

The financial statements are indicators of the two significant factors:


1. Profitability and
2. Financial soundness
Analysis and interpretation of financial statement therefore, refers to such a
treatment of the
information contained in the Income Statement and Balance Sheet so as to
afford full diagnosis of the
profitability and financial soundness of the business.

Balance Sheet

A balance sheet is the basic financial statement. It presents data on a


company¶s financial conditions on a particular date, based on conventions and
generally accepted principles of accounting. The amount shown in the
statements on the balances, at the time it was prepared in the various accounts
listed in the company¶s accounting records, is considered to be a fundamental
accounting statements. The income statement summarizes the business
operations during the specific period and shows the results of such operations in
the form of net income or net loss. By comparing the income statements of
successive periods, it is possible to determine the progress of a business. A
statement is supplemented by a comparative statement of the cost of goods
manufactured and sold. It is prepared at regular intervals and shows what a
business enterprise owns and what it owes. It provides information which helps
in the assessment of the three main aspects of an enterprises position ± its
profitability, liquidity and solvency. Of these, the later two are concerned with an
enterprises ability to meet its liabilities, while profitability is most useful overall
measure of its financial conditions, the balance sheet is a statements of assets,
liabilities capital on specified date. It is therefore a static statement, indicating
resources and the allocation of these resources to various categories of asset. It
is so to say financial photography finance. Liabilities show the claims against its
assets.
Page | 24

The shareholders equity comprises the total owner ship claims in a firm. This
claim includes net worth of shareholders equity and preferred stock. The
traditional company balance sheet statement of assets valued on the basis of
their original cost and the means by which they have been financed by its
shareholders, lenders, suppliers and by the retention of income.

This tool suffers from the following limitations:

1. A balance sheet gives only a limited picture of state of affairs of a company,


because it

includes only those items which can be expressed in monetary terms.


2. The values shown on the balance sheet for some of the assets are never
accurate
3. A balance sheet assumes that the real value of money remain constant.

4. On the basis of balance sheet, it is not possible to arrive at any conclusion


about the success of an

enterprise in the future.

5. It is a detailed statement of the financial structure of a business.

Income statement

The results of operations of a business for a period of time are presented in the
income statement.

From the accounting point of view, an income statement is subordinate to the


balance sheet because the former simply presents the details of the changes in
the retained earnings in balance sheet accounts. However, if vital source of
financial information an income statement summarizes the results of business
operations during specific period and shows in the form of net income or net loss
by comparing income statements for successive periods, it is possible to observe
the progress of the business the statement is supplemented by a comparative
statement of cost of goods manufactured and sold. It summarizes firms
operating results for the past period.
Page | 25

Comparative balance sheet

Financial statements are sometimes recast for facility of scrutiny. The effects of
the conductor

businesses are reflected in its balance sheet by changes in assets and liabilities
and in its net worth.

The comparative income statement presents a review of operating activities in


business. A comparative balance sheet shows effect of the operations on the
assets and liabilities. The practice of presenting comparative statement in the
annual report is now becoming wide spread because it is a connection between
balance sheet and income statement. Considerations like price levels and
accounting methods are given due weight at the time of comparison.

Common-size statements

The percentage balance sheet is often known as the common size balance sheet.
Such balance sheet are, in a broad sense ratio analysis general items in the
profit and loss accounts and in the balance sheet are expressed in analytical
percentages when expressed in the form, the balance sheet and profit and loss
account are referred to as a common size statement. Such statements are useful
in comparative analysis of the financial position in operating results of the
business.

Cash flow statement

A cash flow statement is the financial analysis of the net income or profit after
including book expense items which currently do not use cash; for example,
depreciation, depletion and amortization. Revenue items, which do not currently
provide funds, are to be deducted. A gross cash flow is net profit after tax plus
provision for depreciation. A net cash flow is arrived after deducting dividends
from the gross cash flow. The cash flow is very significant because it represents
the actual amount of cash available to the business.
Page | 26

Ratio Analysis

Financial ratio analysis is the calculation and comparison of ratios which are
derived from the information in a company's financial statements. The level and
historical trends of these ratios can be used to make inferences about a
company¶s financial condition, its operations and attractiveness as an
investment.

Financial ratios are calculated from one or more pieces of information from
company¶s financial statements. For example, the "gross margin" is the gross
profit from operations divided by the total sales or revenues of a company,
expressed in percentage terms. In isolation, a financial ratio is a useless piece of
information. In context, however, a financial ratio can give a financial analyst an
excellent picture of a company's situation band the trends that are developing.

A ratio gains utility by comparison to other data and standards. Taking our
example, a gross profit margin for a company of 25% is meaningless by itself. If
we know that this company's competitors have profit margins of 10%, we know
that it is more profitable than its industry peers which are quite favorable. If we
also know that the historical trend is upwards, for example has been increasing
steadily for the last few years, this would also be a favorable sign that
management is implementing effective Business, policies and strategies.

Classification of Ratios

Financial ratio analysis involves the calculation and comparison of ratios which
are derived from the information given in the company's financial statements.
The historical trends of these ratios can be used to make inferences about a
company¶s financial condition, its operations and its investment attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the
different facets of

a company's financial state of affairs. Some of the categories of ratios are


described below:
Page | 27

Liquidity Ratios give a picture of a company's short term financial situation or

solvency

Turnover Ratios show how efficient a company's operations and how well it is
using

its assets.

Solvency Ratios show the long term profitability of the company.

Liquidity Ratios

Liquidity Ratios are ratios that come off the Balance Sheet and hence measure
the Liquidity of the company as on a particular day i.e. the day that the Balance
Sheet was prepared. These ratios are important in measuring the ability of a
company to meet both its short term and long term obligations.

1. Current Ratio
2. Liquid Ratio
3. Net working capital ratio

1. Current Ratio:

An indication of a company's ability to meet short-term debt obligations; the


higher the ratio, the more liquid the company is. Current ratio is equal to current
assets divided by current liabilities. If the current assets of a company are more
than twice the current liabilities, then that company is generally considered to
have good short-term financial strength. If current liabilities exceed current
assets, then the company may have problems meeting its short-term obligations.

Current Ratio = Current assets / Current liability


Page | 28

2. Quick Ratio:

Liquid ratio is also known as µquick¶ or µAcid test µratio. Liquid assets refer to
assets which are quickly convertible into cash. Current Assets other stock and
prepaid expenses are considered as quick assets. The ideal liquid ratio accepted
µnorm¶ for liquid ratio µ1¶.

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

3. Net Working Capital Ratio

Working Capital is more a measure of cash flow than a ratio. The result of this
calculation must be a positive number. Companies look at Net Working Capital
over time to determine a company's ability to weather financial crises. Loans are
often tied to minimum working capital requirements.

Net working capital ratio = Net Working Capital / Capital Employed

Turnover Ratios

The turnover ratio is also known as activity or efficiency ratios. They indicates
the efficiency with which the capital employed is rotated in the business (i.e.) the
speed at which capital employed in the business rotates. Higher the rate of
rotation, the greater will be the profitability. Turnover ratios indicate the number
of times the capital has been rotated in the process of doing business.

1. Fixed Asset Turnover Ratio

2. Working Capital Turnover Ratio

3. Debtor Turnover Ratio

4Stock Turnover Ratio


Page | 29

1. Fixed Assets Turnover Ratio

Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the
value of your
fixed assets (on your balance sheet). It indicates how well your business is usin g
its fixed
assets to generate sales.
Generally speaking, the higher the ratio, the better, because a high ratio
indicates the business
has less money tied up in fixed assets for each dollar of sales revenue. A
declining ratio may
indicate that you've over-invested in plant, equipment, or other fixed assets.

Fixed Assets Turnover Ratio = Gross Sales / Net Fixed Assets

2. Working Capital Turnover Ratio

Working capital refers to investment in current assets. This is also known as


gross concept of working capital. There is another concept of working capital
known as net working capital. Net working capital is the difference between
current assets and current liabilities. Analysts intend to establish a relationship
between working capital and salsas the two are closely related. Through this
ratio we are attempting to see that one rupee blocked by the organization in net
working capital is generating how much sales. Higher the ratio better it is.So, the
working capital can be defined either as a gross working capital, which include
funds invested in all current assets, or as net working capital, which denotes the
difference between the current assets current liabilities of an organization.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

3. Debtors Turnover Ratio

Debtor¶s turnover ratio measures the efficiency with which the debtors are
converted into cash. This ratio indicates both the quality of debtors and the
collection efforts of the business enterprise. This ratio is calculated as follows:
Page | 30I. Debtors¶ turnover ratio

II. Debt collection period.

The numerator of this ratio should preferably be credit sales. This is so because
the denominator is logically related to credit sales as it arises from credit sales
only. Cash sales do not generate debtors. However, as the information related to
credit sales is not separately available in corporate accounts, so total sales could
be taken in the numerator. Average debtors are calculated by dividing the sum
of beginning-of-year and end-of-year balance of debtors by 2.

Debtor¶sTurnoverRatio= Credit sales/ Average accounts receivables

Debt collection period:

The ratio indicates the extent to which the debt has been collected in time. It
gives the
average debt collection period. The ratio is very helpful to lenders because it
explains to them
whether their borrowers are collecting money within a reasonable time. An
increase in the
period will result in greater blockage of funds in debtors.

Debt collection period= Months/Days in a year/ Debtor¶s turnover ratio

4.StockTurnoverRatio:

This ratio indicates whether investment in inventory is efficiently used or not. It


is therefore explains whether investment in inventories is within proper limits or
not. The Inventory turnover ratio signifies the liquidity of the Inventory. A high
inventory turnover ratio indicates brisk sales. The ratio is, therefore a measure to
discover the possible trouble in the form of over stocking or over valuation.
Page | 31

It is difficult to establish a standard ratio of inventory because it will differ from


industry to

industry.

Stock Turnover Ratio = Sales / Average Inventory

Profitability Ratios

Profitability is an indication of the efficiency with which the operation of the


business is carried on. Poor operational performance may indicate poor sales and
hence poor profits. A lower profitability may arise due to lack of control over the
expenses. Bankers, financial institutions and other creditors look at the
profitability ratios as an indicator whether or not the firm earns substantially
more than it pays interest for the use of borrowed funds.

1. Return on Investment
2. Return on Shareholders¶ fund
3. Return on total asset

4. Earnings per Share

5. Net profit Ratio

6. Operating ratio

7. Payout ratio

8. Dividend yield ratio

1. Return on Investment:
Page | 32

It is also called as ³Return on Capital Employed´. It indicates the percentage of


return on the

total capital employed in the business.

The term µoperating profit µ means µprofit before interest and tax¶ and the term
µcapital employed µ means sum-total of long term funds employed in the
business. i.e. Share capital + Reserve and surplus + long term loans ± [non
business assets +fictitious assets]

Return on investment = Operating profit/ Capital employed *100

2. Return on Shareholder¶s Fund:

In case it is desired to work out the productivity of the company from the
shareholder¶s point

of view, it should be computed as follows:

Return on shareholder¶s fund = Net profit after Interest and Tax/Shareholders¶


fund*100

The term profit here means µNet Income after the deduction of interest and
tax¶. It is different from the ³Net operating profit´ which is used for computing
the µReturn on total capital employed¶ in the business. This is because the
shareholders are interested in Total Income after tax including Net non-operating
Income (i.e. Non- Operating Income -Non-Operating expenses).

3. Return on Total Assets:

This ratio is computed to know the productivity of the total assets.The term
µTotal Assets¶ includes the fixed asset, current asset and capital work in
progress of the company. The above table clearly reveals the relationship
between the net profit and Total Assets employed in the business.

Return on Total Assets = Net profit after Tax/Total Assets* 100


Page | 33

4.Earnings perShare:

In order to avoid confusion on account of the varied meanings of the term capital
employed, the overall profitability can also be judged by calculating earnings per
share with the help of the following formula:

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

The earnings per share of the company helps in determining the market price of
the equity shares of the company. A comparison of earning per share of the
company with another will also help in deciding whether the equity share capital
is being effectively used or not. It also helps in estimating the company¶s
capacity to pay dividend to its equity shareholders.

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

5. Net Profit Ratio:

This ratio indicates the Net margin on a sale of Rs.100.This ratio helps in
determining the efficiency with which affairs of the business are being managed.
An increase in the ratio over the previous period indicates improvement in the
operational efficiency of the business. The ratio is thus on effective measure to
check the profitability of business. However, constant increase in the above ratio
after year is a definite indication of improving conditions of the business.

Net Profit Ratio =Net Operating Profit/Net Sales*100

6. Operating Ratio:

This ratio is a complementary of Net Profit ratio. In case the net profit ratio
is20%. It means

that the operating profit ratio is 80%.It is calculated as follows:


Page | 34

Operating Ratio =Operating Cost/Net Sales*100

The operating cost include the cost of direct materials, direct labor and other
overheads, viz.,

factory, office or selling.

DirectMaterial cost to sales=DirectMaterial/NetSales*100

This ratio is the test of the operational efficiency with which the business is being
carried. The operating ratio should be low enough to leave a portion of sales to
give a fair to the investors.

7. Payout Ratio:

This ratio indicates what proportion of earning per share has been used for
paying dividend. The payout ratio is the indicator of the amount of earnings that
have been ploughed back in the business. The lower the payout ratio, the higher
will be the amount of earnings ploughed back in the business and vice versa.

Payout Ratio =Dividend per equity share/Earning per equity share*100

8. Dividend Yield Ratio

This ratio is particularly useful for those investors who are interested only in
dividend income. The ratio is calculated by comparing the ratio of dividend per
share with its market value.

Dividend yield=Dividend perShare/Market price per share*100

And Dividend per share = Dividend paid/ Number of share s.

Long Term Financial Position or Solvency Ratios


Page | 35

The term µsolvency¶ refers to the ability of a concern to meet its long term
obligations. The long term indebtedness of a firm includes debenture holders,
financial institutions providing medium and long term loans and other creditors
selling goods on installment basis. So, the long term Solvency ratios indicate a
firm¶s ability to meet the fixed interest and costs and repayment schedules
associated with its long term borrowings. Two types of ratios are there:

1. Capital structure ratios-ex. Debt equity ratio

2. Coverage ratios-ex. Debt service ratio or Interest coverage ratio

1. Debt-Equity Ratio

Debt ±Equity ratio also known as External- Internal Equity Ratio is calculated to
measure the

relative claims of outsiders and the owners against the firm¶s assets.

The ratio is calculated as:

Debt equity ratio= Outsider¶s funds/ Shareholder¶s funds

Outsiders fund includes all debts/liabilities to outsiders, whether long term or


short term or whatever in the form of debentures bonds, mortgages or bills. The
shareholders fund consist of equity share capital, preference share capital ,
capital reserves, revenue reserves, and reserves representing accumulated
profits and surpluses.

2. Interest Coverage Ratio

This ratio is used to test the debt servicing capacity of a firm. The ratio is
calculated as:

Interest coverage ratio = EBIT/Fixed interest charge


Page | 36

5. DATA ANALYSIS AND INTERPRETATION

3. Balance Sheet

Table No.1

Classification of Balance Sheet of Steel Authority of India Limited from 2003-


2009

(Rs. in Crores)

PARTICULARS 2003

2004

2005

2006

2007

2008

2009

ASSETS

Fixed Assets

14414

13550

12851

12920

12796

13960

18813

Investment

543

543

606

293

514
538

653

Current Assets

7312

8246

14333

15630

20375

26317

34511

Mis.Expenditure

536

378

294

215

129

59

0.00

P&L a/c

2765

Total Assets

25570
22717

28084

29058

33854

40874

53977

LIABILITIES

Shareholder¶s

Funds

5290

5037

10306

12601

17313

23063

27984

Loan Funds

12969

8690

5770

4298

4180

3045

7539

Current Liabilities

& Provisions

7311

8990
10166

10675

10949

13198

17122

Deferred

Liabilities

1842

1484

1412

1568

1332

TOTAL

LIABILITIES

25570

22717

28084

29058

33854

40874

53977
Page | 37

4.Comparative Balance Sheet

Table No.2

Comparative Balance Sheet of Steel Authority of India Limited from 2003-2004 to


2008 ± 2009

( Rs. in Crores)

PARTICUL

ARS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

Cng % cng

Cng

% cng Cng

cngCng

cng

Cng

cng

Cng

cng

ASSETS

Fixed Assets
(864)

(5.9)

(699)

(5.1)

69

0.53(1 2 4

(0.9

1164 9.09 4853 34.76

Investment

nt

63

11.6

(313) (51.

6)

221 75.4

24

4.66

115 21.37

Current

Assets

934

12.77

6087

73.8
1297 9.04474

30.3 5942 29.16 8194 31.13

Mis.

Expenditure(158) (29.4) (184)

(22)

(79)

(26.

8)

(84) (39)

(70)

(54)

(59) (100)

P&L a/c

LIABILITI

ES
Shareholder¶s

Funds

(253) (4.78)

5269

104.6 2295 22.2

471

37.3 5750 33.21 4921 21.33

Loan Funds

(427

9)

(32.9) (2920)

(34)

(147

2)

(25.

5)

(118

(2.7

(113

5)

(27)

4494 147.6

Current
Liabilities&
Provisions
1679 22.96

1176

13.08

(868

2)

(85.

4)

(72)(4 .8

2249 20.5 3924 29.73

Deff.

Liabilities

8833 479 274 2.56

156 11.04 (236) (15)


Page | 38

Interpretation:

Long Term Financial Position:

The comparative Balance Sheet of the company reveals that during the financial
year 2008± 2009 there has been a large increase in fixed assets (34.76%)
compared to 2007-2008(9.09%) while the long term liabilities which contains
shareholders funds and long term loans also show growth. Long term loans show
an increase of 147.6% in 2008-09 which means that most of the fixed assets are
financed by long term loans.

There has been an increase in plant and machinery in 2009 compared to 2008
which means that it

will increase production capacity of the concern.

Current Financial position and liquidity position:

The company has increased its current assets by increasing the level of
inventories at Rs.10121 crores in 2009 compared to Rs.6857 crores in 2008. The
current liabilities highly fluctuate and show continuous increase in 2007-08
(20.5%) and 2008-09 (29.3%).

The Net Working Capital was in peak by the continuous increase after the year
2005. The company got good liquidity position due increase in Current assets but
it may affect the profitability of the company.

The overall financial position of the company is very good.


Page | 39

5. Income Statement

Table No.3

Classification of Income Statement of Steel Authority of India Limited from 2003t


o

2009

(Rs. in crores)

PARTICULARS 2003

2004

2005

2006

2007

2008

2009

Sales

EBIDTA

Less:

Depreciation

19207

2165

1147

24178

4652

1123

31805

11097

1127

32280

7381
1207

39189

10966

1211

45555

12955

1235

48681

10941

1285

EBIT

Less: Interest

Charges

1018

1334

3529

901

9970

605

6174

468

9755

322

11720

251

9656

253

PBT
Less : Tax

(316)

(12)

2628

116

9365

2548

5706

1693

9423

3221

11469

3932

9403

3229

PAT (Net Profit) (304)

2512

6817

4013

6202

7537

6174
Page | 40

6.Comparative Income Statement

Table No.4

Comparative Income Statement of Steel Authority of India Limited from 2003-


2004 to 2008- 2009

( Rs.in Crores)

PARTIC

ULARS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

change

% of

change

change

% of

change

change

% of

change

change

% of

chang

change

% of
change

change

% of

Change

Sales

EBIDT

Less:

Depreci

ation

4971

2487

(24)

25.9

114.8

(2.1)

7627

6445

31.5

138.5

0.35

475

(3716)

80

1.49

(33.4)

7.09

6909
3585

21.4

48.5

0.3

6367

1989

24

16.2

18.1

1.98

3126

(2014)

50

6.86

(15)

0.04

EBIT

Less:

Interest

Charges

2511

(433)

246.6

(32.4

6441

(296)
182.5

(32.7)

(3769)

(137)

(38)

22.64

3581

(146)

58

(31)

1965

(71)

20.1

(22)

(2064)

(17.6)

0.7

PBT

Less :

Tax

2312

104

731.6

866.6

6737

2432

256.3
2096

(3659)

(855)

(39)

(33.5)

3717

1528

65.1

90.2

2046

711

21.7

22

(2066)

(703)

(18)

(17.8)

PAT

(Net

Profit)

2208 726

4305 171.3 (2804) (41.1) 2189 54.5 1335 21.5

(1363) (18)

Interpretation

The Net Sales figure shows an increasing trend. After the year 2003 it shows an

increasing trend which will help to increase in Net Profit.

y
The company has sufficient control over its depreciation which shows an
increase of

only 0.04% in 2009 over 2008.


Page | 41

The company has considerable change in Interest Charges and rather the latter
has

decreased in recent years.

The company has able to attain Profit after Tax of Rs.6174 crores in the year
2009 compare to 7536 crores in 2008 which can be attributed to increase in cost
of goods sold.

It may conclude that there is a sufficient progress in the company and the overall

profitability of the concern is very good.


Page | 42

7.Trend Percentage

Table No.5

Trend Percentage of Steel Authority of India Limited from 2003-2004 to 2008 ±


2009

Base Year 2003

Figure in

Particulars

2003

2004

2005

2006

2007

2008

2009

SALES

100

125.88

165.59

168.06

204.03

237.17

253.45

EBIT

100

346.66

979.37

606.48
958.25

1151.27

948.52

FIXED

ASSETS

100

94.00

89.15

89.63

88.77

96.85

130.51

CURRENT

ASSETS

100

112.77

196.02

213.75

283.57

359.91

471.97

CURRENT

LIABILITIES

100

122.96

139.05

146.01

149.76
180.52

234.19

WORKING

CAPITAL

100

81.83

302.55

370.29

554.05

673.81

889.54

CAPITAL
EMPLOYED
TOTAL

100

92.00

121.29

131.65

154.01

171.99

208.88

TOTAL

ASSETS

100

88.84

109.83

113.64

132.39

159.85
211.09

Interpretation:

The sales of the product have continuously increased in all the years up to
2009.The

increase in sales is quite satisfactory.

The EBIT grows continuously up to 2008 and decreases slightly in 2009 due to
increase

in the cost of goods sold.


Page | 43

8.Common Size Balance Sheet

Table No.6

Common Size Balance Sheet of Steel Authority of India Limited from 2003-2009

( Rs.in Crores)

PARTICULARS 2003

2004

2005

2006

2007

2008

2009

ASSETS

Fixed Assets

56.37

59.64

45.75

44.46

37.90

34.15

34.85

Investment

21.23

2.39

2.15

1.00

1.54

1.31
1.209

Current Assets

28.59

36.29

51.06

53.78

60.18

64.51

63.93

Mis.Expenditure

2.09

1.68

1.04

0.76

0.38

0.144

0.00

P&L a/c

10.72

Total Assets

100.00

100.00
100.00

100.00

100.00

100.00

100.00

LIABILITIES

Shareholder¶s

Funds

20.60

22.17

36.69

43.36

51.14

56.42

51.84

Loan Funds

50.73

38.25

20.54

14.79

12.34

7.44

13.96

Current

Liabilities

& Provisions

28.59

39.58
36.19

5.10

4.17

32.28

31.72

Deferred

Liabilities

6.58

36.75

32.35

3.83

2.46

Total Liabilities

100.00

100.00

100.00

100.00

100.00

100.00

100.00
Page | 44

Interpretation:

Out of the total investment the owners funds is more compare to outsider¶s fund
in the
company which shows that the company has depended more on its own funds. It
shows that the company is traditionally financed.

The proportion of current assets to total assets has increased comparing to


current

liabilities which serve as an evidence for good working capital position of the

company.

Investments, Miscellaneous expenditure and deferred liabilities have their own


limited

contribution to their respective side totals.


Page | 45

RATIO ANALYSIS

Liquidity ratios

1.Current Ratio:

Table No.7

Table showing Current ratio

(Rs. In Crores)

YEAR

CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT RATIO

2003

7282

4777

1.524

2004

8075

6025

1.340

2005

14187

6608

2.146

2006

17384

8108
2.144

2007

20379

6500

2.917

2008

26317

9439

2.788

2009

34511

12228

2.822

An ideal current ratio is 2. The ratio of 2 is considered as a safe margin of


solvency due to the fact that if current assets are reduced to half (i.e.) 1 instead
of 2, then also the creditors will be able to get their payments in full.

Interpretation:

Here, the current ratio fluctuates from year to year but has maintained the ratio
above 2 from

2005 onwards which is positive consideration.


Page | 46

CHART 1

2. Quick Ratio:

Table No.8

Table showing Quick ratio

(Rs. In Crores)

YEAR

LIQUID ASSETS

CURRENT

LIABILITIES

QUICK RATIO

2003

3537

4777

0.740

2004

4993

6025

0.828

2005

9966

6608

1.508

2006

11174

8108

1.378

2007
13728

6984

1.965

2008

19460

9439

2.061

2009

24389

12228

1.994

Interpretation:

The liquid ratio denotes the concern had achieved more than the ideal ratio of
1:1 in the years

2005 onwards.

5000

10000

15000

20000

25000

30000

35000

40000

2003

2004

2005

2006

2007
2008

2009

current assets

current liabilities
Page | 47

CHART 2

3. Net Working Capital Ratio:

Table No.9

Table showing Net Working Capital Ratio

YEAR

Net Working

Capital

Capital Employed

Net Working

Capital Ratio

2003

2505

16541

0.151

2004

2050

15218

0.134

2005

7579

20064

0.377

2006

9276

21438

0.432

2007
13879

24992

0.535

2008

16879

28450

0.593

2009

22283

34552

0.645

5000

10000

15000

20000

25000

30000

2003

2004

2005

2006

2007

2008

2009

liquid assets

current liabilities
Page | 48

CHART 3

Interpretation:

Net Working capital measures the firm¶s potential reserve of funds. It can be
related to net assets. This ratio represents the availability of working capital in
relation with capital employed.

5000

10000

15000

20000

25000

30000

35000

40000

2003

2004

2005

2006

2007

2008

2009

networking capital

capiotal employed
Page | 49

Turnover Ratios

1. Fixed Assets Turnover Ratio:

Table No.10

Table showing fixed asset turnover ratio

YEAR

GROSS SALES

(Rs IN

CRORES)

FIXED

ASSETS (Rs in

crores)

FIXED

TURNOVER

RATIO (In

Times)

2003

19207

14036

1.36

2004

24178

13168

1.83

2005

31805

12485

2.54
2006

32280

12162

2.65

2007

39189

11598

3.37

2008

45555

11571

3.93

2009

48681

12269

3.96

Interpretation:

Here, the value of fixed assets employed in the business shows a reducing trend
which implies that company didn¶t add any more fixed asset during the period
2003 ±2008. Only the depreciation effect had been given to fixed asset. Fixed
turnover ratio has been increasing which is a good sign because the gross sales
have increased considerably without increasing the current assets.
Page | 50

CHART4

2. Working Capital Turnover Ratio:

Table No.11

Table showing Working capital turnover ratio

Interpretation:

Here, the Working Capital ratio shows a increasing trend from 2003 to 2004 and
then slope downwards due to holding high current assets in the form of cash,
bank balances and receivables in the year 2005 to 2009.

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006

2007

2008

2009

SS SALES

FIXED ASSETS

YEAR

GROSS SALES
(Rs IN

CRORES)

WORKING

CAPITAL (Rs in

Crores)

Working capital

turnover ratio

(in times)

2003

19207

2505

7.667

2004

24178

2050

11.79

2005

31805

7579

4.196

2006

32280

9276

3.479

2007

39189

13879

2.823
2008

45555

16879

2.698

2009

48681

22283

2.184
Page | 51

CHART 5

3. Debtors Turnover Ratio:

Table No.12

Table showing Debtors¶ turnover ratio

YEAR

CREDIT SALES

(Rs. In Crores)

DEBTORS

(Rs. In Crores)

Debtors¶ turnover

ratio

(In times)

2003

19207

1660

11.570

2004

24178

1550

15.598

2005

31805

1908

16.669

2006

32280

1882
17.151

2007

39189

2315

16.928

2008

45555

3048

14.945

2009

48681

3024

16.098

Interpretation:

There has been increase in the turnover ratio from 2003-2006 and has stabilized
thereafter .As the ratio is sufficiently high it can be concluded that efficient
management of the debtors has taken place.

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006

2007
2008

2009

GROSS SALES

WORKING CAPITAL
Page | 52

CHART 6

Debt collection period:

Table No.13

Table showing Debt collection period

(In Days)

YEAR

COLLECTION PERIOD

2003

32

2004

23

2005

22

2006

21

2007

22

2008

24

2009

23

Debtors¶ collection period measures the quality of debtors since it measures the
rapidity or

slowness with which money is collected from them.

10000

20000

30000
40000

50000

60000

2003

2004

2005

2006

2007

2008

2009

CREDIT SALES

DEBTORS
Page | 53

CHART 7

INTERPRETATION;

Here, there has been decreasing trend in the debt collection period which is
favorable for the company. Because, the quicker the collection period the better
is the quality of debtors as a short collection period implies quick payment by
debtors. Then more the utilization of cash collected from debtors. It decreased
from 32 days in 2003 to 23 days in 2009.

4.StockTurnoverRatio:

Table No.14

YEAR

SALES (Rs in

crores)

AVERAGE STOCK

(Rs in crores)

STOCK
TURNOVER
RATIO ( in times)

2003

19207

3745

5.128

2004

24178

3082

7.844

2005

31805

4221

7.534

2006
32280

6210

5.198

2007

39189

6651

5.892

2008

45555

6857

6.643

2009

48681

10121

4.809

05

10

15

20

25

30

35

2003

2004

2005

2006

2007

2008
2009

COLLECTION PERIOD

COLLECTION PERIOD
Page | 54

INTERPRETATION:

Here, there has been a lot of fluctuation in the Inventory turnover ratio. There
has been an increase in the ratio in 2004 and 2005 but it shows a decreasing
trend in 2006 and 2007.In 2008 the ratio showed an increase due to a large
increase in sales. But in 2009 there was a large increase in average
stock/inventory which contributed to a lower inventory turnover ratio . This can
be attributed to uncertain economic situation and weak demand of steel in the
market. The overall situation is still good enough.

CHART 8

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006

2007

2008

2009

CREDIT SALES

AVERAGE ST

£
Page | 55

Profitability Ratios

1. Return on Investment:

Table No.14

Table showing Return on Investment

YEAR

OPERATING

PROFIT (Rs in

crores)

CAPITAL

EMPLOYED (Rs in

crores)

RETURN ON

INVESTMENT (In

%)

2003

1018

16541

6.154

2004

3530

15218

23.196

2005

9970

20064

49.690

2006
6174

21782

28.344

2007

9755

25476

38.290

2008

11720

28450

41.195

2009

9656

34552

27.946

Interpretation:

Return on investment shows an increasing trend from 2003 to 2008.However


there are small fluctuations in 2006 and 2009 due to lower operating profits.
Average Capital employed shows regular increase from 2003 to 2009.
Page | 56

CHART 9

2. Return on Shareholder¶s Fund:

Table No.15

Table showing return on Shareholders¶ Fund

YEAR

NET PROFIT (Rs

in crores)

SHAREHOLDER¶S

FUND (Rs in crores)

RETURN IN

SHAREHOLDER¶S

FUND (IN %)

2003

-304

5290

-5.746

2004

2512

5038

49.861

2005

6817

10307

66.139

2006

4013

12601
31.846

2007

6202

17313

35.822

2008

7537

23063

32.680

2009

6174

27984

22.062

INTERPRETATION:

Here, the Net Profit (i.e.) Profit after Interest and Tax has been in negative in the
year 2003 due to a net loss in the corresponding year because of very high
interest and finance charges of the company. But there was a huge jump in net
profits in the year 2004-2005 compared the shareholders funds which were
responsible for increase in the return on investment. There has

5000

10000

15000

20000

25000

30000

35000

40000

2003

2004
2005

2006

2007

2008

2009

OPERATING PROFIT

APITAL EMPLOYE

¥
Page | 57

been a considerable increase in shareholders funds from 2005 onwards which


has resulted in

stabilizing return on investment.

CHART 10

3. Return on Total Assets:

Table No.16

Table showing return on Total Assets

YEAR

NET PROFIT (Rs

in crores)

TOTAL ASSETS (

IN CRORES)

RETURN ON
TOTAL
ASSETS(IN %)

2003

-304

25570

-1.188

2004

2512

22717

11.057

2005

6817

28084

24.273

2006
4013

29058

13.810

2007

6202

33854

18.319

2008

7537

40874

18.439

2009

6174

53977

11.438

Interpretation:

There has been a considerable in increase in total assets from 2003 to 2009 but
the net profit

has fluctuated which has resulted in the fluctuations in the return on total assets.

-50000

5000

10000

15000

20000

25000

30000

2003

2004

2005
2006

2007

2008

2009

NET PROFIT

SHARE HOLDERS FUND


Page | 58

CHART 11

4.Earnings perShare:

Table No.17

Table showing Earning per Share

YEAR

NET PROFIT (Rs

in crores)

NUMBER OF

EQUITY SHARES

( IN CRORES)

EARNING PER

SHARE (IN %)

2003

-304

413

-0.736

2004

2512

413

6.082

2005

6817

413

16.506

2006

4013

413
9.716

2007

6202

413

15.016

2008

7537

413

18.249

2009

6174

413

14.949

Interpretation:

Here the Earning per Share is the result of Net Profit after Tax. It shows the
positive correlation during the period of study. It shows an increasing trend
except in the year 2004 and 2009 due to lower net profits than previous years.

-10000

10000

20000

30000

40000

50000

60000

2003

2004

2005

2006
2007

2008

2009

NET PROFIT

TOTALASSETS
Page | 59

CHART 12

5. Net Profit Ratio:

Table No.18

Table showing Net Profit Ratio

YEAR

OPERATING

PROFIT (RS IN

CRORES)

SALES (IN

CRORES)

NET PROFIT

RATIO (IN %)

2003

1018

19207

5.300

2004

3530

24178

14.600

2005

9970

31805

31.347

2006

6174

32280
19.126

2007

9755

39189

24.892

2008

11720

45555

25.727

2009

9656

48681

19.835

-10000

1000

2000

3000

4000

5000

6000

7000

8000

2003 2004 2005 2006 2007 2008 2009

NET PROFIT

NUMBER OF EQUITY SHARES


Page | 60

Interpretation:

The operating profit and value of sales are the causes for the fluctuation in the
Net Profit ratio. While sales has constantly increased over the years operating
profit has increased but shows some fluctuations. In 2009 the ratio is lower than
in 2008 due to lower operating profits. The reason can be attributed to uncertain
economic situation and higher cost of goods sold as well as weak demand.

CHART 13

6. Operating Ratio:

Table No.19

Table showing Operating Ratio

YEAR

OPERATING
COST(RS IN
CRORES)

SALES

(Rs. In crores)

OPERATING

RATIO

(In %)

2003

17940

19207

93.403

2004

19512

24178

80.701

2005

20339

31805
63.949

2006

23675

32280

73.342

2007

26483

39189

67.577

2008

30423

45555

66.783

2009

36848

48681

75.692

Interpretation:

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

§
E

ATI

FIT

SALES
Page | 61

A comparison of operating ratio or expenses ratio will indicate whether the cost
components is high or low in the figure of sales. The operating ratio shows a
decrease in trend up to 2008 but shows a slight increase in 2009. Normally 75%
to 85% is considered to be a good ratio for manufacturing undertakings. So the
ratio is good in case for SAIL.

CHART 14

7. Payout Ratio:

Table No.20

Table showing Payout Ratio

YEAR

DIVIDENDPE R

EQUITY

EPS

Dividend pay out

ratio

2005

3.3

16.50

20

2006

2.0

9.71

20.59

2007

3.10

15.01

20.65

2008

3.7
18.25

20.27

2009

2.6

14.95

17.39

Interpretation:

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

DIRECTM ATERIAL

SALES
Page | 62

The pay out ratio for the year 2005 is 20%, 2006 is 20.59, 2007 is 20.65, 2008 is
20.27% which implies that remaining 80% of earning per share is kept as
retained earning by the company. However in 2009 lesser amount of dividend is
given so EPS is 14.95 and pay out ratio is 17.39 this implies that the company
keeps 82% of earning per share as retained earnings.

CHART 15

NOTE: Here the company had paid dividend only after 2005 in the course of
seven years

period from 2003 to 2009.

8. Dividend Yield Ratio:

Table No.21

Table showing Dividend yield

YEAR

DIVIDENDPE R

EQUITY

MARKET PRICE

Dividend yield

2005

3.3

62.87

5.25

2006

2.0

83.30

2.40

2007

3.10

114.30

2.71
2008

3.7

185

2009

2.6

96

2.70

02468

10

12

14

16

18

20

2005

2006

2007

2008

2009

DIVIDENT PER EQUITY

EPS
Page | 63

Interpretation:

This percentage implies that 5.25% of market price of the share was issued as
dividend in the

year 2005 and later on it get decreases due to various economic changes in
SAIL.

CHART 16

Long Term Financial Position or Solvency Ratios

1. Debt-Equity Ratio

TABLE NO: 21

Table showing Debt-Equity ratio

YEAR

OUTSIDER¶S

FUND

SHAREHOLDER¶S

FUND

DEBT EQUITY

RATIO

2003

34385

5290

6.5

2004

9419

5037

1.87

2005

5977

10306
0.58

2006

4410

12601

0.35

2007

4155

17313

0.24

2008

2988

23063

0.13

2009

7555

27984

0.27

20

40

60

80

100

120

140

160

180

200
2005

2006

2007

2008

2009

DIVIDEND PER EQUITY

MAR

ET PRI

E
Page | 64

CHART 17

Interpretation

The debt-equity ratio is calculated to measure the extent to which debt financing
has been used in a business. From 2003 onwards there has been a decrease in
outsiders fund and a corresponding increase in shareholders funds. This
indicates that the firm is traditionally financed and it is considered to be
favorable from a long term creditor¶s point of view as a high proportion of
owner¶s funds provide a larger margin of safety for them.

Interest Coverage Ratio

This ratio is used to test the debt servicing capacity of a firm The ratio is
calculated as:

Interest coverage ratio = Ebit/Fixed interest charge

TABLE NO: 22

YEAR

EBIT

FIXED INTEREST

CHARGES

INTEREST

COVERAGE

RATIO

2003

1018

1339

0.76

2004

3529

910

3.88

5000
10000

15000

20000

25000

30000

35000

40000

2003 2004 2005 2006 2007 2008 2009

OUTSIDER'S FUND

SHARE HOLDER'S FUND


Page | 65

2005

9970

607

16.43

2006

6174

472

13.07

2007

9755

333

29.29

2008

11720

252

46.39

2009

9656

326

29.59

Interpretation:

There has been decreasing trend in the fixed interest charges and corresponding
increase in EBIT from 2003-2008.This has led to increase in interest coverage
ratio which is a good sign for the company. There has been a decrease in EBIT in
2009 and a slight increase in fixed interest charges due to uncertainties in the
market, higher raw material costs and lower steel demand.
Page | 66

CHART 18

2000

4000

6000

8000

10000

12000

14000

2003

2004

2005

2006

2007

2008

2009

EBIT

FI

TE

EST


GES
Page | 67CALCULATION AND INTERPRETATION OF CASH FLOW

STATEMENT

CASH FLOW STATEMENT (in Rs.crores)

PARTICULARS 2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Profit before tax

(315.87)

1246.70

9365.35

5705.74

9422.62

11468.73 9403.45

Net Cash Flow ±

Operating activity

2667.74

7199.45

8899.47

3823.93

5632.91

8378.18

6124.26

Net Cash used in

investing activity
(31.61)

(235.76)

(286.54)

(337.18)

(587.53) (1139.89) (4406.47)

Net Cash used in

Fin. Activity

(2,517.34) (5475.51) (4516.63) (3574.26) (1608.19) (3088.68) 2751.30

Net inc./decrease

in cash or

equivalent

118.79

1488.18

4096.30

(87.51)

3437.19

4149.61

4469.09

Cash and
equivalent at
beginning of the

year

416.37

717.31

2035.82

6260.15

6172.64

9609.83

13759.44
Cash and

equivalent at end

of the year

535.16

2205.49

6132.12

6172.64

9609.83

13759.44 18228.53

INTERPRETATION

1. Cash flow statement shows that the profit before tax increases continuously in
2004,

2005, 2006, 2007, 2008 and decreases in 2009 due to unstable economic
conditions.

2. Net cash flow from operating activities increases continuously in 2007 and
2008 due

to increase in sales and earnings but it came down in 2009.

3. Net cash outflows in investing activities have been growing in SAIL as cash is
being

used to purchase fixed assets like plants and machinery and higher development
costs.
Page | 68

4. Cash flows have been positive for financing activities in 2009 mainly due to
increase

in borrowings.

5. Cash and cash equivalents have been increasing steadily from 2003 to 2009
showing

good liquidity position of the firm

6.COMPETITOR ANALYSIS

BALANCE SHEET FOR 2009

(in crores)

PARTICULARSSAI L

TATA

ISPAT

JINDAL

ESSAR

ASSETS

NET BLOCK

12269

10995

8888

5745

9129

CAPITAL

WORK IN

PROGRESS

6544

3488

103

2318
550

INVESTEMENT 653

42372

233

1233

791

NET CURRENT

ASSETS

17389

(308)

160

1078

1580

TOTAL

ASSETS

36855

56651

9384

10378

12050

LIABILITIES

SHARE

HOLDERS

FUND

27985

29705

2032

5415
4738

TOTAL DEBT

7539

26946

7352

4963

7312

DEFFERED

LIABILITY

1331

TOTAL

LIABILITIES

36855

56651

9384

10378

12050
Page | 69

PROFIT AND LOSS ACCOUNT FOR 2009 (in crores)

SAIL

TATA

ISPAT

JINDAL

ESSAR

SALES

48681

26843

9181

8433

12704

EBIDTA

10941

9779

730

2693

1930

Less:

Depreciation

1285

973

647

433

828

EBIT

9656
8806

83

2260

1102

Less:Int.Charges 253

1489

1129

268

862

Extraordinary

items

24

10

55

PBT

9403

7317

(1023)

2002

240

Less: Tax

3229

2115

(335)

465

110
PAT

6174

5202

(688)

1537

185
Page | 70

COMPETITOR ANALYSIS

(as in2009)

RATIOS

SAIL

TATA

ISPAT

JINDAL

ESSAR
PROFITIBILITY
RATIO

OPERATING

PROFIT

24.31

37.68

13.58

34.35

21.44

GROSS PROFIT

44.14

33.69

5.76

28.71

14.37

NET PROFIT

19.83

21.09

-8.04

19.50
1.56

RETURN ON
CAPITAL
EMPLOYED

27.94

15.01

6.69

23.16

15.01

LIQUIDITY &
SOLVENCY
RATIOS

CURRENT

RATIO

2.82

0.91

1.04

1.04

0.71

QUICK RATIO

1.99

0.57

0.42

0.95

0.62

DEBT EQUITY

RATIO

0.27

1.34

9.04
0.92

1.57

DEBT

COVERAGE

RATIO

INTREST

COVERAGE

RATIO

29.59

5.71

0.52

10.33

3.17

MANAGEMENT
EFFICIENCY
RATIOS

INVENTORY

TURN OVER

RATIO

4.80

9.36

7.59

9.08

8.69

DEBTORS TURN

OVER RATIO

16.09

41.29

14.50
22.62

30.35

FIXED ASSETS

TURN OVER

RATIO

3.96

1.22

0.61

1.04

0.76

CASH FLOW

INDICATOR

RATIO

DIVIDEND PAY

OUT RATIO

17.39

27.15

5.55

-
Page | 71

Interpretation

Net Profit ratio of SAIL is better than most of the competitors except TATA Steel.

This can be attributed to lower earnings of SAIL in comparison to their earnings.

Return on Capital employed is highest for SAIL which shows that overall
profitability

and efficiency of the business is good.

The current ratio for SAIL is more than other competitors which shows that it has

enough liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means
that it is more traditionally financed in comparison to other competitors. It has
lower debt so it can easily raise debt in future

Interest coverage ratio is too high for SAIL which shows that debt is not being
used as

a source of finance to increase earnings per share.

Inventory turnover ratio is lesser in SAIL compared to other competitors which

indicates inefficient management of inventories.

The debtors turnover ratio is lower for SAIL compared to its competitors which
shows that the debtors are less liquid implying inefficient management of
debtors/sales.
Page | 72

RECOMMENDATION AND SUGGESTION

1. HAVELLS INDIA LIMITED should always try to maintain an adequate quantum


of net current assets in relation of current liabilities as to keep a good amount of
liquidity throughout the year.

2. The company should tighten the debt collection efforts and should reduce the
amount tied up in debtors. In order to improve the quality of debtors and also to
bring down the amount tied-up in debtors, a periodical report of the overdue
may be prepared and effective action may be taken by the management time to
time to expedite the collections.

3. Inventory turnover ratio is lesser 2010 in HAVELLS compared to 2009 which


indicates inefficient management of inventories. So it is advisable to keep fewer
inventories to minimize costs and improve efficiency.

4. The company is more traditionally financed with low debt and more of equity
financing, so in future debt should be preferred for financing to bring the ratio
close to the ideal ratio of 1:1.

5. The management of HAVELLS INDIA LIMITED should also try to maintain a


definite proportion among various components of working capital in relation to
overall current assets to keep an adequate quantum of liquidity all the times.
Page | 73

8. CONCLUSION

On the basis of analysis of financial statements of SAIL we may conclude that the
overall working stability ± soundness have improved over the years. Sales
turnover of SAIL increased by 6.86% i.e. Rs. 48681 crores in the FY 2008-09 from
Rs. 45555 crores in the FY 2007-08 whereas profit before tax has decreased by
18% i.e. Rs. 2064 crores in the FY 2008-09 from Rs. 11469 crores in the FY 2007
-08 indicating increase in cost of goods sold.

The debtors¶ turnover ratio is lower for SAIL compared to its competitors which
shows that

the debtors are less liquid implying inefficient management of debtors/sales.

The proportion of current assets to total assets has increased comparing to


current liabilities

which serve as an evidence for good working capital position of the company.

The current ratio for SAIL is more than other competitors which shows that it has
enough

liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means
that it is more traditionally financed in comparison to other competitors. It has
lower debt so it can easily raise debt in future.

SAIL is more efficient and effective to utilize its fund.


Page | 74

9. BLIOGRAPHY

BOOKS:

yFinancial management by R.K. SHARMA & SHASHI K

GUPTA

yAnnual Report of SAIL

yMagazines of SAIL

INTERNET WEB SITES:

ywww.google.co.in

ywww. sail.co.in

ywww.moneycon tr ol. com


ywww.tatasteel.co.in
ywww.essar.com

ywww.i spat.com

ywww.jindal.com

Comparative Analysis of Financial Statement of Sail With Other Steel Companies


in India

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Page | 71

Interpretation

Net Profit ratio of SAIL is better than most of the competitors except TATA Steel.

This can be attributed to lower earnings of SAIL in comparison to their earnings.

Return on Capital employed is highest for SAIL which shows that overall
profitability

and efficiency of the business is good.

The current ratio for SAIL is more than other competitors which shows that it has

enough liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means
that it is more traditionally financed in comparison to other competitors. It has
lower debt so it can easily raise debt in future

Interest coverage ratio is too high for SAIL which shows that debt is not being
used as

a source of finance to increase earnings per share.

Inventory turnover ratio is lesser in SAIL compared to other competitors which

indicates inefficient management of inventories.

The debtors turnover ratio is lower for SAIL compared to its competitors which
shows that the debtors are less liquid implying inefficient management of
debtors/sales.
Page | 72

7.RECOMMENDATION AND SUGGESTION

SAIL should always try to maintain an adequate quantum of net current assets in
relation

of current liabilities as to keep a good amount of liquidity throughout the year.

The company should tighten the debt collection efforts and should reduce the
amount tied up in debtors. In order to improve the quality of debtors and also to
bring down the amount tied-up in debtors, a periodical report of the overdue
may be prepared and effective action may be taken by the management time to
time to expedite the collections.

Inventory turnover ratio is lesser in SAIL compared to other competitors which


indicates inefficient management of inventories. So it is advisable to keep less
inventories to minimize costs and improve efficiency.

The company is more traditionally financed with low debt and more of equity
financing, so in future debt should be preferred for financing to bring the ratio
close to the ideal ratio of 1:1.

The management of SAIL should also try to maintain a definite proportion among
various components of working capital in relation to overall current assets to
keep an adequate quantum of liquidity all the times.
Page | 73

8. CONCLUSION

On the basis of analysis of financial statements of SAIL we may conclude that the
overall working stability ± soundness have improved over the years. Sales
turnover of SAIL increased by 6.86% i.e. Rs. 48681 crores in the FY 2008-09 from
Rs. 45555 crores in the FY 2007-08 whereas profit before tax has decreased by
18% i.e. Rs. 2064 crores in the FY 2008-09 from Rs. 11469 crores in the FY 2007
-08 indicating increase in cost of goods sold.

The debtors¶ turnover ratio is lower for SAIL compared to its competitors which
shows that

the debtors are less liquid implying inefficient management of debtors/sales.

The proportion of current assets to total assets has increased comparing to


current liabilities

which serve as an evidence for good working capital position of the company.

The current ratio for SAIL is more than other competitors which shows that it has
enough

liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means
that it is more traditionally financed in comparison to other competitors. It has
lower debt so it can easily raise debt in future.

SAIL is more efficient and effective to utilize its fund.


Page | 74

9. BLIOGRAPHY

BOOKS:

yFinancial management by R.K. SHARMA & SHASHI K

GUPTA

yAnnual Report of SAIL

yMagazines of SAIL

INTERNET WEB SITES:

ywww.google.co.in

ywww. sail.co.in

ywww.moneycon tr ol. com


ywww.tatasteel.co.in
ywww.essar.com

ywww.i spat.com

ywww.jindal.com

Comparative Analysis of Financial Statement of Sail With Other Steel Companies


in India

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