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COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH OTHER STEEL COMPANIES IN INDIA

PROJECT REPORT
MAY 2010 JULY 2010 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 Assistant Professor (finance) Institute of Management & Information scien ce Bhubaneswar . P.S PAL AGM (Finance) Steel Authority Of India Limited Ranchi.

Institute of Management & Information Science Swagat Vihar Bhubaneswar Orissa 751002

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Declaration

I hereby declare that the project entitled Financial Analysis is submitted in partial fulfillment of my PGDM (FC) 2009-2011 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)

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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.

I sincerely thank Mr. Shibaji Dey (Dy. Manager Personnel), Person of amiable personality, for assigning such a challenging project work which has enriched my work experience and getting me acclimatized in a fit and final working ambience in the premises of Centre for Engineering & Technology (SAIL).

I acknowledge my gratitude to Mr. S.S Ahmed (Assistance Professor Finance, Institute of Management & Information Science), for his extended guidance, encouragement, support and reviews without whom this project would not have been a success.

Last but not the least I would like to extend my thanks to all the employees at Centre for Engineering & Technology (SAIL) for their cooperation, valuable information and feedback during my project.

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ABSTRACT
The project on comparison of financial statement of SAIL with other steel sectors in INDIA has been a very good experience. Every manufacturing company faces the problem of Financial Management in their day to day processes. An organizations 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 s ame time the company can provide customer satisfaction and hence can improve their overall productivity and profitability. This project is a sincere effort to study and analyze the Financial Management of SAIL. The project work was divided into two phases. The first phase was focused on making a financial overview of the company by conducting a Time series analysis of SAIL for the years 2003 to 2009 and the second phase was conducted on a Comparative analysis of SAIL with its domestic competitors TATA, ISPAT, JINDAL & ESSAR for the year 2009 taking Balance sheet, 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 the Analysis of Financial Statement is done by the firm. And in the process I could contribute substantially to the organizations growth. The experience that I gathered over the past two months has certainly provided the orientation, which I believe will help me in shoulder ing any responsibility in future.

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TABLE OF CONTENTS

1.ABOUT THE COMPANY 2.INTRODUCTION TO CET SAIL 3.INTRODUCTION TO THE STUDY 4. LITERATURE REVIEW 5.DATA ANALYSIS AND INTERPRETATION 6.COMPETITOR ANALYSIS 7. RECOMMENDATION AND SUGGESTIONS 8.CONCLUSION 9.BIBLIOGRAPHY

6-11 12-19 20-22 23-35 36-66 67-70 71 72 73

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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. CMOs 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.
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Sail Today SAIL today is one of the largest industrial entities in India. Its st rength 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 O rganization: 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
y y y y y y

Hot Rolled Coils, Sheets Cold Rolled Products. Bars and Rods. Semi-Finished Products. Railway Products. Plates.

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

Know-how transfer of technologies developed by its R&D wing. Consultancy services. Specialized testing services. Contract research. Training.

Integrated Steel Plants


y y y y y

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


y y

Alloy Steels P in West Bengal plants (ASP) Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary
y

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

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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
y

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.

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WEAKNESSES
y

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
y

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.

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THREATS
y

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.

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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

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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 CETs 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

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Technology I mprovement 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 CET working: 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(FINANCE DEPATRMENT) Duties of Officers and employees in Finance Section: Preparation of employees 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 employees bills and advances and payment thereof. Accounting of all transactions, maintenance and scrutiny thereof.
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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.

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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 allocation expenditure of CET over the assignment/projects. basis for the

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

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CALCULATION OF ENGINEERING HOURS RATE FOR 2009-2010 1. Total no.of executives 2. HOD and above 3.Executives working in finance,Personnel ,Admn.,Personnel staff etc.ipss,Projects ED sectt,MTT's 4. Net Executives whose Engg. Hours are clockable 5.No. of days in a year 6. Sundays and closed Saturdays 7.CLs, Closed &RH 8. EL @3% of 253(Sl.No.5,6,7) 9.Average No. of Engineering days Available 10. Avg.No. of Engg. hours available hrs. available per man a year (Sl. No.9 *8hrs.) 11. Maximum Engg. Hrs. clockable in a year(Sl.no.4*Sl. No. 10) 12.Engineering hrs.utilised for development activities,ISO 9001,other administrative jobs @30% of max.egg. Hrs. clockable in a year 13.Engg. Hrs. available for assignments (Sl.no.11Sl.no.12) 14.Likely expenditure of CET FOR 2009-10 (In Rs.) 15.Engineering hours rate (In Rs.) 16.Engineering hours rate to be adopted (In Rs.) 299 29 58

212

365 76 36 8 245

1960

415520

120474

295046

492900000 1670.050 1670

IMPROVEMENTS SUGGESTED IN CALCULATION OF ENGINEERING HOURS


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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 doesnt 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 (FINANCE DEPARTMENT)
y y y y y

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


y

Total sanctioned projects 137 nos. against 135 nos. in corresponding period last year. Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

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

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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 project 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 of papers/ documents are being done through email system.

3.INTRODUCTION TO THE STUDY:


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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 Rs 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 analysis 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 FINANCIAL 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.

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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 companys 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. RESEARCH DESIGN 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.

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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 OF DATA The sources of data are from the annual reports of the company from the year 2003 to 2009. METHODS OF DATA 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 Financial Statement generally refers to two basic statements: (i) the Income Statement and (ii) the Balance sheet.

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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 companys 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 companys 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.

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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.

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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.

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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 companys financial condition, its operations and attractiveness as an investment. Financial ratios are calculated from one or more pieces of information from companys 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 companys 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:

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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

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2. Quick Ratio: Liquid ratio is also known as quick or Acid test ratio. 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 norm for liquid ratio 1. 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 calc ulation 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 E mployed

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 4 Stock Turnover Ratio

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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 using 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 Debtors 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:
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I. 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 numerato r. Average debtors are calculated by dividing the sum of beginning-of-year and end-of-year balance of debtors by 2. Debtors Turnover Ratio = 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/ Debtors turnover ratio 4. Stock Turnover R atio: 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.

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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 I nvestment:

Page | 31

It is also called as Return on Capital Employed. It indicates the percentage of return on the total capital employed in the business. The term operating profit means profit before interest and tax and the term capital employed 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 = O perating profit/ Capital employed *100 2. Return on S hareholders Fund: In case it is desired to work out the productivity of the company from the shareholders point of view, it should be computed as follows: Return on shareholders fund = Net profit after Interest and Tax/Shareholders fund*100 The term profit here means Net Income after the deduction of interest and tax. It is different from the Net operating profit which is used for computing the Return 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 Total 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

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4. Earnings per Share: 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 companys 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:

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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. Direct Material cost to sales =Direct Material/Net Sales*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 R atio: 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 per Share/Market price per share*100 And Dividend per share = Dividend paid/ Number of shares.

Long Term Financial Position or Solvency Ratios

Page | 34

The term solvency 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 firms 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 firms assets. The ratio is calculated as: Debt equity ratio = Outsiders funds / S hareholders 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

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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) 2008 2009 13960 538 26317 59 18813 653 34511 0.00 -

PARTICULARS ASSETS Fixed Assets


Investment Current Assets Mis.Expenditure P&L a/c

2003
14414 543 7312 536 2765

2004
13550 543 8246 378 -

2005
12851 606 14333 294 -

2006
12920 293 15630 215 -

2007
12796 514 20375 129 -

Total Assets
LIABILITIES

25570

22717

28084

29058

33854

40874

53977

Shareholders Funds Loan Funds Current Liabilities & Provisions Deferred Liabilities TOTAL LIABILITIES

5290

5037

10306

12601

17313

23063

27984

12969 7311 -

8690 8990 -

5770 10166 1842

4298 10675 1484

4180 10949 1412

3045 13198 1568

7539 17122 1332

25570

22717

28084

29058

33854

40874

53977

Page | 36

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
Cng % cng

2004-2005
Cng % cng

2005-2006
% cng

2006-2007
% cng

2007-2008
% cng

2008-2009
% cng

Cng

Cng

Cng

Cng

ASSETS
Fixed Assets (864) Investment nt Current Assets Mis. Expenditure P&L a/c 0 934 (158) (5.9) 0 12.77 (29.4) (699) 63 6087 (184) (5.1) 11.6 73.8 (22) 69 (313) 1297 (79) 0.53 (51. 6) 9.04 (26. 8) (124 ) 221 474 5 (84) (0.9 ) 75.4 30.3 (39) 1164 9.09 4853 34.76

24 5942 (70) -

4.66 29.16 (54) -

115 8194 (59) -

21.37 31.13 (100) -

LIABILITI ES
Shareholders Funds Loan Funds Current Liabilities& Provisions Deff. Liabilities 8833 479 274 2.56 156 11.04 (236) (15) (253) (427 9) (4.78) 5269 104.6 2295 (147 2) (868 2) 22.2 6 (25. 5) (85. 4) 471 2 (118 ) 37.3 (2.7 ) (4.8 ) 5750 (113 5) 33.21 4921 21.33

(32.9)

(2920)

(34)

(27)

4494

147.6

1679

22.96

1176

13.08

(72)

2249

20.5

3924

29.73

Page | 37

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 curren t 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 | 38

5. Income Statement Table No.3

Classification of Income Statement of Steel Authority of India Limited from 2003 to 2009 (Rs. in crores) PARTICULARS 2003 Sales EBIDTA Less: Depreciation EBIT Less: Interest Charges PBT Less : Tax PAT (Net Profit) 19207 2165 1147 2004 24178 4652 1123 2005 31805 11097 1127 2006 32280 7381 1207 2007 39189 10966 1211 2008 45555 12955 1235 2009 48681 10941 1285

1018 1334

3529 901

9970 605

6174 468

9755 322

11720 251

9656 253

(316) (12) (304)

2628 116 2512

9365 2548 6817

5706 1693 4013

9423 3221 6202

11469 3932 7537

9403 3229 6174

Page | 39

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
change % of change

2004-2005
change % of change

2005-2006
change % of change

2006-2007
change % of chang e

2007-2008
change % of change

2008-2009
change % of Change

Sales EBIDT Less: Depreci ation EBIT Less: Interest Charges PBT Less : Tax PAT (Net Profit)

4971 2487 (24)

25.9

7627

31.5 138.5 0.35

475

1.49

6909 3585 4

21.4 48.5 0.3

6367 1989 24

16.2 18.1 1.98

3126

6.86

114.8 6445 (2.1) 4

(3716) (33.4) 80 7.09

(2014) (15) 50 0.04

2511 (433)

246.6 6441 (32.4 ) (296)

182.5 (32.7)

(3769) (38) (137) 22.64

3581 (146)

58 (31)

1965 (71)

20.1 (22)

(2064) (17.6) 2 0.7

2312 104

731.6 6737 866.6 2432

256.3 2096

(3659) (39) (855) (33.5)

3717 1528

65.1 90.2

2046 711

21.7 22

(2066) (18) (703) (17.8)

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. The company has sufficient control over its depreciation which shows an increase of only 0.04% in 2009 over 2008.

Page | 40

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 | 41

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 % 2003
100 100 100

Particulars
SALES EBIT FIXED ASSETS CURRENT ASSETS CURRENT LIABILITIES WORKING CAPITAL CAPITAL EMPLOYED TOTAL TOTAL ASSETS

2004
125.88 346.66 94.00

2005
165.59 979.37 89.15

2006
168.06 606.48 89.63

2007
204.03 958.25 88.77

2008
237.17 1151.27 96.85

2009
253.45 948.52 130.51

100

112.77

196.02

213.75

283.57

359.91

471.97

100

122.96

139.05

146.01

149.76

180.52

234.19

100

81.83

302.55

370.29

554.05

673.81

889.54

100

92.00

121.29

131.65

154.01

171.99

208.88

100

88.84

109.83

113.64

132.39

159.85

211.09

Interpretation:
y

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.

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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
ASSETS Fixed Assets Investment Current Assets Mis.Expenditure P&L a/c 56.37 21.23 28.59 2.09 10.72 100.00 59.64 2.39 36.29 1.68 100.00 45.75 2.15 51.06 1.04 100.00 44.46 1.00 53.78 0.76 100.00 37.90 1.54 60.18 0.38 100.00 34.15 1.31 64.51 0.144 100.00 34.85 1.209 63.93 0.00 100.00

2004

2005

2006

2007

2008

2009

Total Assets

LIABILITIES Shareholders Funds Loan Funds Current Liabilities & Provisions Deferred Liabilities 6.58 36.75 32.35 3.83 2.46 20.60 22.17 36.69 43.36 51.14 56.42 51.84

50.73 28.59

38.25 39.58

20.54 36.19

14.79 5.10

12.34 4.17

7.44 32.28

13.96 31.72

Total Liabilities

100.00

100.00

100.00

100.00

100.00

100.00

100.00

Page | 43

Interpretation:
y

Out of the total investment the owners funds is more compare to outsiders 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 | 44

RATIO ANALYSIS Liquidity ratios


1. Current Ratio: Table No.7 Table showing Current ratio (Rs. In Crores) YEAR 2003 2004 2005 2006 2007 2008 2009 CURRENT ASSETS 7282 8075 14187 17384 20379 26317 34511 CURRENT LIABILITIES 4777 6025 6608 8108 6500 9439 12228 CURRENT RATIO 1.524 1.340 2.146 2.144 2.917 2.788 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 | 45

CHART 1
40000 35000
30000

25000 20000 15000


10000 current a ssets

current liabilitie s

5000 0
2003 2004 2005 2006 2007 2008 2009

2. Quick Ratio: Table No.8 Table showing Quick ratio (Rs. In Crores) YEAR 2003 2004 2005 2006 2007 2008 2009 Interpretation: The liquid ratio denotes the concern had achieved more than the ideal ratio of 1:1 in the years 2005 onwards. LIQUID ASSETS 3537 4993 9966 11174 13728 19460 24389 CURRENT LIABILITIES 4777 6025 6608 8108 6984 9439 12228 QUICK RATIO 0.740 0.828 1.508 1.378 1.965 2.061 1.994

Page | 46

CHART 2

30000

25000

20000

15000

liquid a ssets current liabilitie s

10000

5000

0
2003 2004 2005 2006 2007 2008 2009

3. Net Working Capital R atio: Table No.9 Table showing Net Working Capital Ratio

YEAR 2003 2004 2005 2006 2007 2008 2009

Net Working Capital 2505 2050 7579 9276 13879 16879 22283

Capital E mployed 16541 15218 20064 21438 24992 28450 34552

Net Working Capital Ratio 0.151 0.134 0.377 0.432 0.535 0.593 0.645

Page | 47

CHART 3
40000 35000
30000

25000 20000 15000


10000 5000 net w orking capital

capiotal employed

0
2003 2004 2005 2006 2007 2008 2009

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

Page | 48

Turnover R atios
1. Fixed Assets Turnover R atio:

Table No.10 Table showing fixed asset turnover ratio YEAR GROSS SALES (Rs IN CRORES) 19207 24178 31805 32280 39189 45555 48681 FIXED ASSETS (Rs in crores) 14036 13168 12485 12162 11598 11571 12269 FIXED TURNOVER RATIO (In Times) 1.36 1.83 2.54 2.65 3.37 3.93 3.96

2003 2004 2005 2006 2007 2008 2009 Interpretation:

Here, the value of fixed assets employed in the business shows a reducing trend which implies that company didnt 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 | 49

CHART 4
60000

50000

40000

30000

G SS SALES FIXED ASSETS

20000

10000

2003

2004

2005

2006

2007

2008

2009

2. Working Capital Turnover R atio: Table No.11 Table showing Working capital turnover ratio YEAR GROSS SALES (Rs IN CRORES) 19207 24178 31805 32280 39189 45555 48681 WORKING CAPITAL (Rs in Crores) 2505 2050 7579 9276 13879 16879 22283 Working capital turnover ratio (in times) 7.667 11.79 4.196 3.479 2.823 2.698 2.184

2003 2004 2005 2006 2007 2008 2009 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.

Page | 50

CHART 5
60000 50000 40000 30000 20000 10000 0
2003 2004 2005 2006 2007 2008 2009 G ROSS SA LES WORKIN G C A PITA L

3. Debtors Turnover Ratio: Table No.12 Table showing Debtors turnover ratio YEAR CREDIT SALES (Rs. In Crores) 19207 24178 31805 32280 39189 45555 48681 DEBTORS (Rs. In Crores) 1660 1550 1908 1882 2315 3048 3024 Debtors turnover ratio (In times) 11.570 15.598 16.669 17.151 16.928 14.945 16.098

2003 2004 2005 2006 2007 2008 2009 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.
Page | 51

CHART 6
60000 50000
40000 30000

CREDIT SALES DEBTORS

20000 10000
0 2003 2004 2005 2006 2007 2008 2009

Debt collection period: Table No.13 Table showing Debt collection period (In Days) YEAR 2003 2004 2005 2006 2007 2008 2009 COLLECTION PERIOD 32 23 22 21 22 24 23

Debtors collection period measures the quality of debtors since it measures the rapidity or slowness with which money is collected from them.

Page | 52

CHART 7

COLLECTION PERIOD
35 30 25 20 15 10 5 0

COLLECTION PERIOD

2003

2004

2005

2006

2007

2008

2009

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. Stock Turnover R atio: Table No.14

YEAR

SALES (Rs in crores) 19207 24178 31805 32280 39189 45555 48681

AVERAGE STOCK (Rs in crores) 3745 3082 4221 6210 6651 6857 10121

2003 2004 2005 2006 2007 2008 2009

STOCK TURNOVER RATIO ( in times) 5.128 7.844 7.534 5.198 5.892 6.643 4.809

Page | 53

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
60000

50000

40000

30000

CREDIT SALES AVERAGE STC

20000

10000

2003

2004

2005

2006

2007

2008

2009

Page | 54

Profitability Ratios
1. Return on Investment: Table No.14 Table showing Return on Investment

YEAR

2003 2004 2005 2006 2007 2008 2009 Interpretation:

OPERATING PROFIT (Rs in crores) 1018 3530 9970 6174 9755 11720 9656

CAPITAL EMPLOYED (Rs in crores) 16541 15218 20064 21782 25476 28450 34552

RETURN ON INVESTMENT (In %) 6.154 23.196 49.690 28.344 38.290 41.195 27.946

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 | 55

CHART 9
40000 35000 30000 25000
20000 15000 10000 5000

OPER ATING PROFIT

APITAL EMPLOYE

0
2003 2004 2005 2006 2007 2008 2009

2. Return on Shareholders Fund: Table No.15 Table showing return on Shareholders Fund YEAR NET PROFIT (Rs in crores) -304 2512 6817 4013 6202 7537 6174 SHAREHOLDERS FUND (Rs in crores) 5290 5038 10307 12601 17313 23063 27984 RETURN IN SHAREHOLDERS FUND (IN %) -5.746 49.861 66.139 31.846 35.822 32.680 22.062

2003 2004 2005 2006 2007 2008 2009 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

Page | 56

been a considerable increase in shareholders funds from 2005 onwards which has resulted in stabilizing return on investment. CHART 10
30000

25000 20000
15000 10000 NET PROFIT SHARE HOLDERS FUND

5000
0 -5000

2003

2004

2005

2006

2007

2008

2009

3. Return on Total Assets: Table No.16 Table showing return on Total Assets YEAR NET PROFIT (Rs in crores) -304 2512 6817 4013 6202 7537 6174 TOTAL ASSETS ( IN CRORES) 25570 22717 28084 29058 33854 40874 53977 RETURN ON TOTAL ASSETS(IN %) -1.188 11.057 24.273 13.810 18.319 18.439 11.438

2003 2004 2005 2006 2007 2008 2009 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.

Page | 57

CHART 11
60000

50000 40000
30000 NET PROFIT

20000
10000

TOTAL ASSETS

0
-10000 2003 2004 2005 2006 2007 2008 2009

4. Earnings per Share: Table No.17 Table showing Earning per Share YEAR NET PROFIT (Rs in crores) -304 2512 6817 4013 6202 7537 6174 NUMBER OF EQUITY SHARES ( IN CRORES) 413 413 413 413 413 413 413 EARNING PER SHARE (IN %) -0.736 6.082 16.506 9.716 15.016 18.249 14.949

2003 2004 2005 2006 2007 2008 2009 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.

Page | 58

CHART 12
8000
7000

6000
5000

4000
3000

NET PROFIT NU M BER OF EQUITY SH ARES

2000
1000

0
-1000 2003 2004 2005 2006 2007 2008 2009

5. Net Profit Ratio: Table No.18 Table showing Net Profit Ratio

YEAR

2003 2004 2005 2006 2007 2008 2009


Page | 59

OPERATING PROFIT (RS IN CRORES) 1018 3530 9970 6174 9755 11720 9656

SALES (IN CRORES) 19207 24178 31805 32280 39189 45555 48681

NET PROFIT RATIO (IN %) 5.300 14.600 31.347 19.126 24.892 25.727 19.835

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
60000 50000 40000
30000 20000

E ATI G FIT
SALES

10000 0
2003 2004 2005 2006 2007 2008 2009

6. Operating Ratio: Table No.19 Table showing Operating Ratio YEAR OPERATING COST(RS IN CRORES) 17940 19512 20339 23675 26483 30423 36848 SALES (Rs. In crores) 19207 24178 31805 32280 39189 45555 48681 OPERATING RATIO (In %) 93.403 80.701 63.949 73.342 67.577 66.783 75.692

2003 2004 2005 2006 2007 2008 2009 Interpretation:


Page | 60

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
60000

50000
40000 30000

DIRECT MATERI AL SALES

20000
10000

0 2003 2004 2005 2006 2007 2008 2009

7. Payout R atio: Table No.20 Table showing Payout Ratio YEAR 2005 2006 2007 2008 2009 Interpretation: DIVIDEND PER EQUITY 3.3 2.0 3.10 3.7 2.6 EPS 16.50 9.71 15.01 18.25 14.95 Dividend pay out ratio 20 20.59 20.65 20.27 17.39

Page | 61

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

20 18 16 14 12 10 8 6 4 2 0

DIVIDENT PER EQUITY EPS

2005

2006

2007

2008

2009

NOTE: Here the company had paid dividend only after 2005 in the course of seven years period from 2003 to 2009.

8. Dividend Yield R atio: Table No.21 Table showing Dividend yield

YEAR 2005 2006 2007 2008 2009


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DIVIDEND PER EQUITY 3.3 2.0 3.10 3.7 2.6

MARKET PRICE 62.87 83.30 114.30 185 96

Dividend yield 5.25 2.40 2.71 2 2.70

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
200
180 160

140
120

100 80
60

DIVIDEND PER EQUITY


MAR ET PRI E

40 20
0

2005

2006

2007

2008

2009

Long Term Financial Position or Solvency R atios


1. Debt-Equity Ratio TABLE NO: 21 Table showing Debt-Equity ratio YEAR 2003 2004 2005 2006 2007 2008 2009
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OUTSIDERS FUND 34385 9419 5977 4410 4155 2988 7555

SHAREHOLDERS FUND 5290 5037 10306 12601 17313 23063 27984

DEBT EQUITY RATIO 6.5 1.87 0.58 0.35 0.24 0.13 0.27

CHART 17
40000 35000 30000

25000 20000 15000 10000 5000


0

OUTSIDER'S FUND SHARE HOLDER'S FUND

2003

2004

2005

2006

2007

2008

2009

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 creditors point of view as a high proportion of owners 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 1339 910 INTEREST COVERAGE RATIO 0.76 3.88

2003 2004
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1018 3529

2005 2006 2007 2008 2009 Interpretation:

9970 6174 9755 11720 9656

607 472 333 252 326

16.43 13.07 29.29 46.39 29.59

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.

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CHART 18
14000 12000
10000 8000

EBIT
6000 FI E  I TE EST A GES

4000 2000 0
2003 2004 2005 2006 2007 2008 2009

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CALCULATION AND INTERPRETATION OF CASH FLOW STATEMENT


CASH FLOW STATEMENT (in Rs.crores) PARTICULARS Profit before tax 2002-03 (315.87) 2003-04 1246.70 2004 -05 9365.35 2005-06 5705.74 2006-07 9422.62 2007-08 11468.73 2008-09 9403.45

Net Cash Flow Operating activity Net Cash used in investing activity Net Cash used in Fin. Activity Net inc./decrease in cash or equivalent Cash and equivalent at beginning of the year Cash and equivalent at end of the year

2667.74 (31.61)

7199.45 (235.76)

8899.47 (286.54)

3823.93 (337.18)

5632.91 (587.53)

8378.18

6124.26

(1139.89) (4406.47) 2751.30

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

118.79

1488.18

4096.30

(87.51)

3437.19

4149.61

4469.09

416.37

717.31

2035.82

6260.15

6172.64

9609.83

13759.44

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.

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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

PARTICULARS ASSETS NET BLOCK CAPITAL WORK IN PROGRESS INVESTEMENT NET CURRENT ASSETS TOTAL ASSETS LIABILITIES SHARE HOLDERS FUND TOTAL DEBT DEFFERED LIABILITY TOTAL LIABILITIES

SAIL 12269 6544

BALANCE SHEET FOR 2009 (in crores) TATA ISPAT JINDAL 10995 3488 8888 103 5745 2318

ESSAR 9129 550

653 17389 36855

42372 (308) 56651

233 160 9384

1233 1078 10378

791 1580 12050

27985

29705

2032

5415

4738

7539 1331 36855

26946 56651

7352 9384

4963 10378

7312 12050

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SALES

PROFIT AND LOSS ACCOUNT FOR 2009 (in crores) SAIL TATA ISPAT JINDAL 48681 26843 9181 8433 10941 1285 9656 253 9403 3229 6174 9779 973 8806 1489 7317 2115 5202 730 647 83 1129 24 (1023) (335) (688) 2693 433 2260 268 10 2002 465 1537

ESSAR 12704 1930 828 1102 862 55 240 110 185

EBIDTA Less: Depreciation EBIT Less:Int.Charges Extraordinary items PBT Less: Tax PAT

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COMPETITOR ANALYSIS
(as in2009)

RATIOS PROFITIBILITY RATIO OPERATING PROFIT GROSS PROFIT NET PROFIT RETURN ON CAPITAL EMPLOYED LIQUIDITY & SOLVENCY RATIOS CURRENT RATIO QUICK RATIO DEBT EQUITY RATIO DEBT COVERAGE RATIO INTREST COVERAGE RATIO MANAGEMENT EFFICIENCY RATIOS INVENTORY TURN OVER RATIO DEBTORS TURN OVER RATIO FIXED ASSETS TURN OVER RATIO CASH FLOW INDICATOR RATIO DIVIDEND PAY OUT RATIO
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SAIL

TATA

ISPAT

JINDAL

ESSAR

24.31 44.14 19.83 27.94

37.68 33.69 21.09 15.01

13.58 5.76 -8.04 6.69

34.35 28.71 19.50 23.16

21.44 14.37 1.56 15.01

2.82 1.99 0.27

0.91 0.57 1.34

1.04 0.42 9.04

1.04 0.95 0.92

0.71 0.62 1.57

29.59

5.71

0.52

10.33

3.17

4.80

9.36

7.59

9.08

8.69

16.09 3.96

41.29 1.22

14.50 0.61

22.62 1.04

30.35 0.76

17.39

27.15

5.55

Interpretation
y

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.

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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.

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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.

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9. BLIOGRAPHY BOOKS: y Financial management by R.K. SHARMA & SHASHI K GUPTA y Annual Report of SAIL y Magazines of SAIL INTERNET WEB SITES :

y y y y y y y

www.google.co.in www.sail.co.in www.money control.com www.tata steel.co.in www.essar.com www.ispat.com www.jindal.com

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