Financial Analysis Steel Authority of India Limited (SAIL)

PROJECT REPORT
Financial analysis of
STEEL AUTHORITY OF INDIA LTD (SAIL).
Master of Business Administration
Under the supervision of

Dr. Archana Singh
BY:
1. Aditya Aggarwal (5)

2. Amandeep Kaur Kharbanda(8)
3. Parul Tandon (33)
4. Saurabh Marwah(51)
5. Sumit Gupta(53)
DELHI SCHOOL OF MANAGEMENT

Delhi Technological University, New Delhi.
SEPTEMBER - OCTOBER 2010
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ABSTRACT
Financial statements are formal records of the financial activities of a
business, person, or other entity and provide an overview of a business or
person’s financial condition in both short and long term. They give an
accurate picture of a company’s condition and operating results in a
condensed form. Financial statements are used as a management tool
primarily by company executives and investor’s in assessing the overall
position and operating results of the company.
Analysis and interpretation of financial statements help in determining the
liquidity position, long term solvency, financial viability and profitability of a
firm. Ratio analysis shows whether the company is improving or deteriorating
in past years. Moreover, Comparison of different aspects of all the firms can
be done effectively with this. It helps the clients to decide in which firm the
risk is less or in which one they should invest so that maximum benefit can be
earned.
Steel industries are capital intensive; hence a lot of money is invested in it. So
before investing in such companies one has to carefully study its financial
condition and worthiness.
An attempt has been carried out in this project to analyze and interpret the
financial statements of STEEL AUTHORITY OF INDIA LIMITED (SAIL).
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CONTENTS
S.NO TITLE
CHAPTER 1 INTRODUCTION
1.1 Sector introduction
1.2 About the company
1.3 SWOT analysis
CHAPTER 2 FINANCIAL STATEMENTS
2.1 Balance Sheet

2.1.1 Format of Balance Sheet
2.1.2 Contents of Balance Sheet
2.2 Profit and Loss account
2.2.1 Format of Profit and Loss account
2.2.2 Contents of Profit and Loss account
2.3 Financial Ratios
2.3.1 Objectives
2.3.2 Financial Ratios and their Interpretation
CHAPTER 3 BALANCE SHEETS AND PROFIT AND LOSS ACCOUNT
3.1 Balance sheet (FY ’06 to FY ’10)
3.2 Profit and Loss Account (FY ’06 to FY ’10)
3.3 Trend Analysis
CHAPTER 4 FINANCIAL RATIO ANALYSIS
4.1 Activity Ratio
4.2 Liquidity Ratio
4.3 Profitability Ratio
4.4 Leverage Ratio
CHAPTER 5 THEORY
5.1 Operating Vs. Non operating income.
5.2 Composition of Assets
5.3 Depreciation policy
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CHAPTER 6 COMPETITOR ANALYSIS
6.1 Competitors balance sheet
6.2 Competitors profit and loss statements
6.3 Competitors ratio analysis
6.4 Interpretation
CHAPTER 7 CASH FLOW ANALYSIS
CHAPTER 8 RECOMMENDATIONS AND SUGGESTIONS
CHAPTER 9 BIBLIOGRAPHY
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CHAPTER- 1
INTRODUCTION
1.1 AN OVERVIEW OF STEEL SECTOR
Global Scenario
In 2007 the World Crude Steel output reached 1343.5 million metric tons and
showed a growth of 7.5% over the previous year. It is the fifth consecutive year that
world crude steel production grew by more than 7%. (Source: IISI)
China remained the world’s largest Crude Steel producer in 2007 also (489.00 million
metric tons) followed by Japan (112.47 million metric tons) and USA (97.20 million
metric tons). India occupied the 5 th position (53.10 million metric tons) for the
second consecutive year. (Source: IISI)
The International Iron & Steel Institute (IISI) in its forecast for 2008 has predicted
that 2008 will be another strong year for the steel industry with apparent steel use
rising from 1,202 million metric tonnes in 2007 to 1,282 million metric tonnes in
2008 i.e. by 6.7%. Further, the BRIC (Brazil, Russia, India and China) countries will
continue to lead the growth with an expected increase in production by over 11%
compared to 2007.
Domestic Scenario
The Indian steel industry have entered into a new development stage from 2005-06,
riding high on the resurgent economy and rising demand for steel. Rapid rise in
production has resulted in India becoming the 5th largest producer of steel.
It has been estimated by certain major investment houses, such as Credit Suisse that,
India’s steel consumption will continue to grow at nearly 16% rate annually, till 2012,
fuelled by demand for construction projects worth US$ 1 trillion. The scope for
raising the total consumption of steel is huge, given that per capita steel
consumption is only 40 kg – compared to 150 kg across the world and 250 kg in
China.
The National Steel Policy has envisaged steel production to reach 110 million tonnes
by 2019-20. However, based on the assessment of the current ongoing projects, both
in Greenfield and Brownfield, Ministry of Steel has projected that the steel capacity
in the county is likely to be 124.06 million tonnes by 2011-12. Further, based on the
status of MOUs signed by the private producers with the various State Governments,
it is expected that India’s steel capacity would be nearly 293 million tons by 2020.
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Production
Steel industry was delicensed and decontrolled in 1991 & 1992 respectively.
Today, India is the 7th largest crude steel producer of steel in the world.
In 2008-09, production of Finished (Carbon) Steel was 59.02 million tonnes.
Production of Pig Iron in 2008-09 was 5.299 Million Tonnes.
Last 5 year’s production of pig iron and finished (carbon) steel is given below:
(in million tonnes)
Category 2004-05 2005-06 2006-07 2007-08 2008-09
Pig Iron 3.228 4.695 4.993 5.314 5.289
Finished Carbon Steel 40.055 44.544 55.416 58.233 59.02
(Source: Joint Plant Committee)
Demand - Availability Projection
Demand – Availability of iron and steel in the country is projected by Ministry of

Steel annually.
Gaps in Availability are met mostly through imports.
Interface with consumers by way of a Steel Consumer Council exists, which is
conducted on regular basis.
Interface helps in redressing availability problems, complaints related to quality.
Steel Prices
Price regulation of iron & steel was abolished on 16.1.1992. Since then steel
prices are determined by the interplay of market forces.
There has been an up-trend in the domestic steel prices since 2006-07 and the
trend accentuated since January this year.
Rise in raw material prices, strong demand in the international and domestic
market and up-trend in the global steel prices have been some of the reasons
cited by the industry for increase in the steel prices in the domestic market.
The mismatch in demand and supply is considered to be the main reason on the
demand side for the rise in steel prices. Honorable Steel Minister has held
discussion with all major steel investors including Arcellor-Mittal, POSCO, Tata
Steel, Essar, Ispat and also SAIL, RINL to explore the possibility of expediting the
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ongoing as well as envisaged steel projects.
The Government also took various fiscal and other measures for stabilizing the
steel prices like exempting pig iron, non alloy steel and steel making inputs like
zinc, Ferro-alloys and met coke from customs duty; withdrawing DEPB benefits on
export of various categories of steel products and bringing back railway freight on
iron ore from classification 180 to 170 for domestic steel producers.
In May 2008, the Government imposed 15% export duty on semi-finished
products, and hot rolled coils/sheet, 10% export duty on cold rolled coils/sheets
and pipes and tubes and 5% export duty on galvanized steel in coil/sheet form in
order to further curtail rising prices and increase supply of steel in the domestic
market.
Imports of Iron & Steel
Iron & Steel are freely importable as per the extant policy.
Last five years import of Finished (Carbon) Steel is given below:-
Year Qty. (In Million Tonnes)

2004-2005 2.109
2005-2006 3.850
2006-2007 4.436
(Partly estimated)
2007-08 6.581
2008-2009 5149
(Partly estimated)
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Exports of Iron & Steel
Iron & Steel are freely exportable.

Advance Licensing Scheme allows duty free import of raw materials for exports.
Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports.
Under this scheme exporters on the basis of notified entitlement rates, are
granted due credits which would entitle them to import duty free goods. The
DEPB benefit on export of various categories of steel items scheme has been
temporarily withdrawn from 27th March 2008, to increase availability in the
domestic market.
Exports of finished carbon steel and pig iron during the last five years and the
current year is as :
Exports (Qty. in Million Tonnes)
Year Finished (Carbon) Steel Pig Iron
2004-2005 4.381 0.393
2005-2006 4.478 0.440
2006-2007 4.750 0.350
(Prov.estimated)
2007-2008 4.627 0.560
2008-2009 3.482 0.350
(Prov.estimated)
Opportunities for growth of Iron and Steel in Private Sector
The New Industrial Policy Regime
The New Industrial policy has opened up the iron and steel sector for private investment
by (a) removing it from the list of industries reserved for public sector and (b) exempting
it from compulsory licensing. Imports of foreign technology as well as foreign direct
investment are freely permitted up to certain limits under an automatic route. Ministry
of Steel plays the role of facilitator, providing broad directions and assistance to new
and existing steel plants, in the liberalized scenario.
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The Growth Profile
(i) Steel
The liberalization of industrial policy and other initiatives taken by the Government have
given a definite impetus for entry, participation and growth of the private sector in the
steel industry. While the existing units are being modernized/expanded, a large number
of new/Greenfield steel plants have also come up in different parts of the country based
on modern, cost effective, state of-the-art technologies.
At present, total (crude) steelmaking capacity is over 34 million tonnes and India, the 8th
largest producer of steel in the world, has to its credit, the capability to produce a
variety of grades and that too, of international quality standards. As per the ratings of
the prestigious “World Steel Dynamics”, Indian HR Products are classified in the Tier II
category quality products – a major reason behind their acceptance in the world market.
EU, Japan has qualified for the top slot, while countries like South Korea, USA share the
same class as India.
(ii) Pig Iron
In pig iron also, the growth has been substantial. Prior to 1991, there was only one unit
in the secondary sector. Post liberalization, the AIFIs has sanctioned 21 new projects
with a total capacity of approx 3.9 million tonnes. Of these, 16 units have already been
commissioned. The production of pig iron has also increased from 1.6 million tonnes in
1991-92 to 5.28 million tonnes in 2002-03. During the year 2003-04, the production of
Pig Iron was 5.221 million tonnes.
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1.2 STEEL AUTHORITY OF INDIA LIMITED (SAIL)
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It
is a fully integrated iron and steel maker, producing both basic and special steels for
domestic construction, engineering, power, railway, automotive and defense
industries and for sale in export markets.
Ranked amongst the top ten public sector

companies in India in terms of turnover, SAIL
manufactures and sells a broad range of steel
products, including hot and cold rolled sheets
and coils, galvanized sheets, electrical sheets,
structural, railway products, plates, bars and
rods, stainless steel and other alloy steels. 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. The company has the distinction of being India’s second largest producer of
iron ore and of having the country’s second largest mines network. This gives SAIL a
competitive edge in terms of captive availability of iron ore, limestone, and dolomite
which are inputs for steel making.
SAIL’s wide range of long and flat steel products are much in demand in the domestic
as well as the international market. This vital responsibility is carried out by SAIL’s
own Central Marketing Organization (CMO) that transacts 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. CMO’s domestic marketing effort is supplemented by its ever widening
network of rural dealers who meet the demands of the smallest customers in the
remotest corners of the country. With the total number of dealers over 2000, SAIL’s
wide marketing spread ensures availability of quality steel in virtually all the districts
of the country.
SAIL’s International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited
unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five
integrated steel plants.
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With technical and managerial expertise and know-how in steel making gained over
four decades, SAIL’s Consultancy Division (SAILCON) at New Delhi offers 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 to produce quality steel and develop new technologies
for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and
Technology (CET), Management Training Institute (MTI) and Safety Organization at
Ranchi. Our captive mines are under the control of the Raw Materials Division in
Kolkata. The Environment Management Division and Growth Division of SAIL operate
from their headquarters in Kolkata. Almost all our plants and major units are ISO
Certified.
Major Units
1. 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
2. Special Steel Plants
Alloy Steels Plants (ASP) in West Bengal

Salem Steel Plant (SSP) in Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) in Karnataka
3. Subsidiary plants
Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
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Ownership and Management
The Government of India owns about 86% of SAIL’s equity and retains voting
control of the Company. However, SAIL, by virtue of its ‘Maharatna’ status, enjoys
significant operational and financial autonomy.
Current endeavors
SAIL’s ascent in terms of productivity and performance, irrespective of
unfavorable situations, is not a matter of chance. It’s a consequence of decades of
deliberate action, geared towards instilling strength and flexibility in SAIL’s
physical resources and human potential.
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1.3 SWOT ANALYSIS
Strength
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 nationwide 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 on-
going phase of expansion.
SAIL's captive power plants take care of about 70% of its total power need. With
augmentation of capacities of power plants operated under Joint Venture, the
Company will continue to have security in this key input in future as well.
SAIL's large skilled manpower base is a source of strength. There is emphasis on

skill based training in the company. The expanded capacity will be operated with
more or less similar number of employees in future. In fact, with selective
recruitment and regular attrition on account of superannuation, the number of
employees is likely to come down over time; while there will be improvement in
overall skill set.
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.
Low overall borrowings lend strength to the company's balance sheet as it can
mobilize resources while keeping the leveraging at manageable levels.
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Weakness
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. As international practice in purchase of coking coal is through
annual/quarterly price contract, it exposes the company to market risk if the steel
prices crash but input prices remain unchanged.
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 other separations, the manpower strength in SAIL
is still higher than the industry average.
A part of the operations in the company continues to be from energy inefficient

processes viz. open hearth and ingot route of production, which will be
eliminated only after the completion of the current expansion program.
At present around 20% of the products are in the form of semi-finished steel,
resulting in lower value addition. This will continue till new rolling mills planned
under expansion plan contribute to value addition as almost all semis will be
converted to finished steel.
Opportunities
India is likely to emerge as the fastest growing steel market globally. This will
provide opportunities for steel companies to grow and acquire scale of global
giants. SAIL being the dominant producer of steel in India is suitably poised to
avail opportunities offered by the expanding market.
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Threats
Global economic recovery is fragile. The developed economies are under pressure
for reconstructing their financial sectors and achieving fiscal consolidation
without impacting growth.
Emerging economies, on the other hand, have to contend with the threat of
inflation. A slowdown in global economic recovery will impact overall steel
demand adversely.
With significant excess capacity in the global steel industry during 2009-10, cheap
imports from China and CIS continue to pose threats for domestic suppliers. With
growth in developed countries somewhat shaky, India could become the target
for cheap steel exports.
Delays in environmental clearances and renewal of mining leases could lead to

uncertainty with regard to raw material linkages and delay fresh capacity
becoming operational.
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CHAPTER -2
FINANCIAL STATEMENTS
Financial statements (or financial reports) are formal records of the financial activities of
a business, person, or other entity. Financial statements provide an overview of a
business or person’s financial condition in both short and long term. All the relevant
financial information of a business enterprise, presented in a structured manner and in a
form easy to understand is called the financial statements. There are three basic
financial statements:
1. Balance sheet: It is also referred to as statement of financial position or condition,
reports on a company’s assets, liabilities, and Ownership equity as of a given point in
time.
2. Income statement: It is also referred to as Profit and Loss statement (or “P&L”),
reports on a company’s income, expenses, and profits over a period of time. Profit &
Loss account provide information on the operation of the enterprise. These include
sale and the various expenses incurred during the processing state.
3. Cash Flow Statement: It reports on a company’s cash flow activities, particularly its
operating, investing and financing activities.
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2.1 BALANCE SHEET
In financial accounting, a balance sheet or statement of financial position is a
summary of a person’s or organization’s balances. A balance sheet is often
described as a snapshot of a company’s financial condition. It summarizes a
company’s assets, liabilities and shareholders’ equity at a specific point in time.
These three balance sheet segments give investors an idea as to what the
company owns and owes, as well as the amount invested by the shareholders. Of
the four basic financial statements, the balance sheet is the only statement which
applies to a single point in time.
A company balance sheet has three parts: assets, liabilities and ownership equity.
The main categories of assets are usually listed first and are followed by the
liabilities. The difference between the assets and the liabilities is known as equity
or the net assets or the net worth or capital of the company. It’s called a balance
sheet because the two sides balance out. A typical format of the balance sheet
has been given in Table 2.1. It works on the following formula:
Assets = Liabilities + Shareholders’ Equity
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2.1.1 FORMAT OF BALANCE SHEET
Balance Sheet of XYZ Company
LIABILITIES
Share capital (1)
Reserves and surplus (2)
Secured Loans (3)
Unsecured loans (4)
Total Liabilities = (1) + (2) + (3) + (4)
ASSETS
Fixed Assets (5)
Gross Block
Less: Accelerated Depreciation
Net Block
Capital work in progress
Investments
Current Assets (6)

Inventories
Sundry Debtors
Cash and Bank balances
Loans and Advances
Current Liabilities (7)

Current liabilities
Provisions
Net Current Assets (6) – (7) = (8)

Total Assets = (5) + (8)
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2.1.2 CONTENTS OF BALANCE SHEET
(A) Assets
In business and accounting, assets are economic resources owned by business or
company. Any property or object of value that one possesses, usually considered as
applicable to the payment of one’s debts is considered an asset. Simplistically stated,
assets are things of value that can be readily converted into cash.
The balance sheet of a firm records the monetary value of the assets owned by the
firm. It is money and other valuables belonging to an individual or business.
Types of Assets
Two major types:
1. Tangible assets
2. Intangible assets
Tangible Assets
Tangible assets are those have a physical substance, such as equipment and real
estate.
Intangible Assets
Intangible assets lack physical substance and usually are very hard to evaluate. Assets
that do not possess any material value.
They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc.
Types of Tangible Assets

1. Fixed assets.
2. Current assets.
Fixed Assets
This group includes land, buildings, machinery, vehicles, furniture, tools, and certain
wasting resources e.g., timberland and minerals.
It is also referred to as PPE (property, plant, and equipment), these are purchased for
continued and long-term use in earning profit in a business.
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Current Assets
Current assets are cash and other assets expected to be converted to cash, sold, or
consumed either in a year or in the operating cycle. These assets are continually
turned over in the course of a business during normal business activity. There are 5
major items included into current assets:
Cash and Cash Equivalents
It is the most liquid asset, which includes currency, deposit accounts, and negotiable
instruments (e.g., money orders, cheque, and bank drafts).
Short-term Investments
It includes securities bought and held for sale in the near future to generate income
on short term price differences (trading securities).
Receivables
It is usually reported as net of allowance for uncollectible accounts.
Inventory
The raw materials, work-in-process goods and completely finished goods that are
considered to be the portion of a business’s assets those are ready or will be ready
for sale.
Prepaid Expenses
These are expenses paid in cash and recorded as assets before they are used or
consumed (a common example is insurance). The phrase net current assets (also
called working capital) are often used and refer to the total of current assets less the
total of current liabilities.
I. Gross Block
Gross block is the sum total of all assets of the company valued at their cost of
acquisition. This is inclusive of the depreciation that is to be charged on each
asset. Net block is the gross block less accumulated depreciation on assets. Net
block is actually what the asset is worth to the company.
II. Capital Work in Progress
Work that has not been completed but has already incurred a capital
investment from the company. This is usually recorded as an asset on the
balance sheet. Work in progress indicates any good that is not considered to
be a final product, but must still be accounted for because funds have been
invested toward its production.
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III. Investments
Shares and Securities, such as bonds, common stock, or long-term notes
Associate Companies
Fixed deposits with banks/finance companies
Investments in special funds (e.g., sinking funds or pension funds).
Investments in fixed assets not used in operations (e.g., land held for sale).
Remark: While fixed deposits with banks are considered as fixed assets, the
investments in associate concerns are treated as noncurrent assets.
IV. Loans and Advances include
House building advance
Car, scooter, computer etc. advance
Multipurpose advance
Transfer traveling allowance advance
Tour traveling allowance advance
DRS payment.
V. Reserves
Subsidy Received From the Govt.
Development Rebate reserve
Issue of Shares at Premium
General Reserves
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(B) Liability
A liability is a debt assumed by a business entity as a result of its borrowing activities
or other fiscal obligations (such as funding pension plans for its employees).
Liabilities are debts and obligations of the business they represent creditors claim on
business assets.
Types of Liabilities
Current Liabilities
Current liabilities are short-term financial obligations that are paid off within one
year or one current operating cycle. These liabilities are reasonably expected to be
liquidated within a year.
It includes:
Accrued expenses as wages, taxes, and interest payments not yet paid
Accounts payable
Short-term notes
Cash dividends and
Revenues collected in advance of actual delivery of goods or services.
Long-Term Liabilities
Liabilities that are not paid off within a year, or within a business’s operating
cycle, are known as long-term or non-current liabilities. Such liabilities often
involve large sums of money necessary to undertake opening of a business, major
expansion of a business, replace assets, or make a purchase of significant assets.
These liabilities are reasonably expected not to be liquidated within a year. It
includes:
Notes payable- debt issued to a single investor.
Bonds payable – debt issued to general public or group of investors.
Mortgages payable.
Capital lease obligations – contract to pay rent for the use of plant,
property or equipments.
Deferred income taxes payable, and
Pensions and other post-retirement benefits.
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Contingent Liabilities
A third kind of liability accrued by companies is known as a contingent liability.
The term refers to instances in which a company reports that there is a possible
liability for an event, transaction, or incident that has already taken place; the
company, however, does not yet know whether a financial drain on its resources
will result. It also is often uncertain of the size of the financial obligation or the
exact time that the obligation might have to be paid.
Fixed Liability
The liability which is to be paid off at the time of dissolution of firm is called fixed
liability.
Examples are Capital, Reserve and Surplus.
Secured Loans
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or
property) as collateral for the loan, which then becomes a secured debt owed to
the creditor who gives the loan.
Unsecured Loans
An unsecured loan is a loan that is not backed by collateral. Also known as
signature loan or personal loan. Unsecured loans are based solely upon the
borrower’s credit rating. An unsecured loan is considered much cheaper and
carries less risk to the borrower.
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2.2 PROFIT & LOSS STATEMENT
Income statement, also called profit and loss statement (P&L) and Statement of
Operations is financial statement that summarizes the revenues, costs and
expenses incurred during a specific period of time - usually a fiscal quarter or
year. These records provide information that shows the ability of a company to
generate profit by increasing revenue and reducing costs. The purpose of the
income statement is to show managers and investors whether the company made
or lost money during the period being reported. The important thing to
remember about an income statement is that it represents a period of time. This
contrasts with the balance sheet, which represents a single moment in time.
A typical format of the Profit & Loss Statement has been given in Table 2.2.
2.2.1 FORMAT OF PROFIT & LOSS STATEMENT
Profit & Loss Statement of XYZ Company

Turnover
Cost of sales
Gross Profit
Distribution cost
Administration Expenses
Other income
Operating Profit
Income from other investments
Profit before interest
Net interest
Profit before Tax
Tax Payable
Profit after tax
Dividend
Retained profit
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2.2.2 CONTENTS OF PROFIT & LOSS STATEMENT
(a) Revenue - Cash inflows or other enhancements of assets of an entity during a

period from delivering or producing goods, rendering services, or other
activities that constitute the entity’s ongoing major operations.
(b) Expenses - Cash outflows or other using-up of assets or incurrence of liabilities

during a period from delivering or producing goods, rendering services, or
carrying out other activities that constitute the entity’s ongoing major
operations.
(c) Turnover
The main source of income for a company is its turnover, primarily comprised
of sales of its products and services to third-party customers.
(d) Sales
Sales are normally accounted for when goods or services are delivered and
invoiced, and accepted by the customer, even if payment is not received until
sometime later, even in a subsequent trading period.
(e) Cost of Sales (COS)
The sum of direct costs of goods sold plus any manufacturing expenses relating
to the sales (or turnover) is termed cost of sales, or production cost of sales, or
cost of goods sold. These costs include:
Costs of raw materials stocks
Costs of inward-bound freight paid by the company
Packaging costs
Direct production salaries and wages
Production expenses, including depreciation of trading-related fixed assets.
(f) Other Operating Expenses

These are not directly related to the production process, but contributing to
the activity of the company, there are further costs that are termed ‘other
operating expenses’.
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These comprises of costs like:
Distribution costs and selling costs,
Administration costs, and
Research and development costs (unless they relate to specific projects and
the costs may be deferred to future periods).
(g) Other Operating Income
Other operating income includes all other revenues that have not been
included in other parts of the profit and loss account. It does not include sales
of goods or services, reported turnover, or any sort of interest receivable,
reported within the net interest category.
(h) Gross Margin (or Gross Profit)
The difference between turnover, or sales, and COS is gross profit or gross
margin. It needs to be positive and large enough to at least cover all other
expenses.
(i) Operating Profit (OP)
The operating profit is the net of all operating revenues and costs, regardless
of the financial structure of the company and whatever exceptional events
occurred during the period that resulted in exceptional costs. The profit
earned from a firm’s normal core business operations.
Also known as Earnings before Interest and Tax (EBIT).
OP = Turnover - COS - other Operating Expenses + Other Operating Income

(j) Profit before Tax (PBT)
A profitability measure that looks at a company’s profits before the company
has to pay corporate income tax. This measure deducts all expenses from
revenue including interest expenses and operating expenses, but it leaves out
the payment of tax.
(k) Profit after Tax (PAT)
PAT, or net profit, is the profit on ordinary activities after tax. The final charge
that a company has to suffer, provided it has made sufficient profits, is
therefore corporate taxation.
PAT = PBT - Corporation Tax
26
(l) Retained Profit
The retained profit for the year is what is left on the profit and loss account
after deducting dividends for the year. The balance on the profit and loss
account forms part of the capital (or equity, or shareholders’ funds) of the
company.
27
2.3 FINANCIAL RATIOS
2.3.1 OBJECTIVES
The importance of ratio analysis lies in the fact that it presents data on a
comparative basis and enables the drawing of inferences regarding the
performance of the firm. Ratio analysis helps in concluding the following aspects:
Liquidity Position:
Ratio analysis helps in determining the liquidity position of the firm. A firm can be
said to have the ability to meet its current obligations when they become due. It
is measured with the help of liquidity ratios.
Long- Term Solvency:

Ratio analysis helps in assessing the long term financial viability of a firm. Long-
term solvency measured by leverage/capital structure and profitability ratios.
Operating Efficiency:
Ratio analysis determines the degree of efficiency of management and utilization
of assets. It is measured by the activity ratios.
Over-All Profitability:
The management of the firm is concerned about the overall profitability of the
firm which ensures a reasonable return to its owners and optimum utilization of
its assets. This is possible if an integrated view is taken and all the ratios are
considered together.
Inter- firm Comparison:

Ratio analysis helps in comparing the various aspects of one firm with the other.
28
Different Financial Ratios
CATEGORY TYPES OF RATIO INTERPRETATION
1. Liquidity ratios
Net Working Capital = Current assets-current liabilities

It measures the liquidity of a firm.
Current ratio =Current Assets/ Current Liabilities

It measures the short term liquidity of a firm. A firm with a higher ratio has
better liquidity.
A ratio of 2:1 is considered safe.
Acid test or Quick ratio = Quick assets/ Current Liabilities
It measures the liquidity position of a firm.
2. Turnover ratios
Inventory Turnover ratio =Costs of goods sold/ Average inventory
This ratio indicates how fast inventory is sold.
A firm with a higher ratio has better liquidity.
Debtor Turnover ratio =Net credit sales/ Average debtors

This ratio measures how fast debts are collected.
A high ratio indicates shorter time lag between credit sales and cash
collection.
Creditor’s Turnover ratio = Net credit purchases/ Average Creditors
A high ratio shows that accounts are to be settled rapidly.
29
3. Capital Structure Ratios
Debt-Equity ratio = Long term debt/shareholder’s Equity

This ratio indicates the relative proportions of debt and equity in financing
the assets of a firm.
Debt to Total capital ratio = Long term debt/ Permanent Capital

Or
Total debt/ Permanent capital + Current liabilities
Or
Total Shareholder’s Equity/ Total Assets
It indicates what proportion of the permanent capital of a firm consists of
long-term debt.
A ratio 1:2 is considered safe.
It measures the share of the total assets financed by outside funds.
A low ratio is desirable for creditors.
It shows what portion of the total assets is financed by the owners’ capital.
A firm should neither have a high ratio nor a low ratio.
4. Coverage ratios
Interest Coverage = Earning before Interests and Tax interest

A ratio used to determine how easily a company can pay on outstanding
debt.
A ratio of more than 1.5 is satisfactory.
Dividend Coverage = Earnings after tax/ Preference Dividend
It measures the ability of firm to pay dividend on preference shares.
A high ratio is better for creditors.
Total Coverage ratio = Earning before interests and tax/Total fixed charges
It shows the overall ability of the firm to fulfill the liabilities.
A high ratio indicates better ability.
30
5. Profitability ratios
Gross Profit margin = Gross profit ∗ 100/ Sales

It measures the profit in relation to sales.
Net Profit margin =Net Profit after tax before interest/ Sales
Or
Net Profit after Tax and Interest/ Sales
It measures the net profit of a firm with respect to sale.
6. Expenses ratios
Operating ratio = Cost of Goods sold + other expenses/ Sales

Operating ratio shows the operational efficiency of the business.
Lower operating ratio shows higher operating profit and vice versa .
Cost of Goods sold ratio = Cost of Goods sold/ Sales
It measures the cost of goods sold per sale.
Specific Expenses ratio = Specific Expenses/ Sales
It measures the specific expenses per sale.
7. Return on Investments
Return on Assets (ROA) =

Net Profit after Taxes ∗ 100/ Total Assets
Or
(Net Profit after Taxes + Interest) ∗ 100 /total Assets
It measures the profitability of the total funds per investment of a firm.
31
Return on Capital Employed (ROCE) = (Net Profit after Taxes) ∗ 100 /total capital
employed
Or
(Net Profit after Taxes + Interest) ∗ 100/ Total Capital Employed
Or
(Net Profit after Taxes + Interest) ∗ 100/ Total Capital Employed − Intangible
assets
It measures profitability of the firm with respect to the total capital
employed.
The higher the ratio, the more efficient use of capital employed.
Return on Total Shareholders’ Equity = Net Profit after Taxes ∗ 100/ Total
shareholders’ equity
It reveals how profitably the owner’s fund has been utilized by the firm.
Return on Ordinary shareholders equity = Net profit after taxes and Pref.
dividend ∗ 100 /Ordinary Shareholders’ Equity
It determines whether the firm has earned satisfactory return for its equity
holders or not.
8. Shareholder’s ratios
Earnings per Share (EPS) = Net Profit of Equity holders/ Number of Ordinary
Shares
It measures the profit available to the equity holders on a per share basis.
Dividend per Share (DPS) = Net profits after interest and preference
Dividend paid to ordinary shareholders/ Number of ordinary shares outstanding
It is the net distributed profit belonging to the shareholders divided by the
number of ordinary shares.
32
Dividend Payout ratio (D/P) = Total Dividend to Equity holders/ Total net profit of
equity holders
Or
Dividend per Ordinary Share/ Earnings per Share
It shows what percentage share of the net profit after taxes and preference
dividend is paid to the equity holders. A high D/P ratio is preferred from
investor’s point of view.
Earnings per Yield = Earnings per Share/ Market Value per Share
It shows the percentage of each rupee invested in the stock that was
earned by the company.
Dividend Yield = Dividend per share/ Market Value per share
It shows how much a company pays out in dividends each year relative to
its share price.
Price- Earnings ratio (P/E) = Market value per Share/ Earnings per Share
It reflects the price currently paid by the market for each rupee of EPS.
Higher the ratio better it is for owners.
Earning Power = Net profit after Taxes/ Total Assets
It measures the overall profitability and operational efficiency of a firm.
9. Activity Ratios
Inventory turnover = Sales/ Closing Inventory

It measures how quickly inventory is sold.
Raw Material turnover = Cost of Raw Material used / Average Raw Material
Inventory
Work in Progress turnover = Cost of Goods manufactured/ Average Work in
process inventory
33
Debtors turnover = Cost of Goods manufactured/ Average Work in Process
Inventory
It shows how quickly current assets i.e receivables or debtors are converted
to cash.
10. Assets Turnover Ratios
Total Assets turnover = Cost of Goods Sold/ Total Assets

It measures the efficiency of a firm in managing and utilizing its assets.
Higher the ratio, more efficient is the firm in utilizing its assets.
Fixed Assets turnover = Cost of Goods Sold/ Fixed Assets

Capital turnover =Cost of Goods Sold/ Capital Employed
Current Assets turnover =Cost of Goods Sold/ Current Assets
34
CHAPTER 3
BALANCE SHEETS AND PROFIT AND LOSS ACCOUNT STATEMENTS
3.1 BALANCE SHEETS
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Sources Of Funds
Total Share Capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40
Equity Share Capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 8,471.01 13,182.75 18,933.17 23,853.70 29,186.30
Revaluation Reserves 0 0 0 0 0
Net worth 12,601.41 17,313.15 23,063.57 27,984.10 33,316.70
Secured Loans 1,122.16 1,556.39 925.31 1,473.60 7,755.90
Unsecured Loans 3,175.46 2,624.13 2,119.93 6,065.19 8,755.35
Total Debt 4,297.62 4,180.52 3,045.24 7,538.79 16,511.25
Total Liabilities 16,899.03 21,493.67 26,108.81 35,522.89 49,827.95
Application Of Funds
Gross Block 29,360.46 29,912.71 30,922.73 32,728.69 35,382.49
Less: Accum. Depreciation 17,198.32 18,315.00 19,351.42 20,459.86 21,780.91
Net Block 12,162.14 11,597.71 11,571.31 12,268.83 13,601.58
Capital Work in Progress 757.94 1,236.04 2,389.55 6,544.24 15,039.83
Investments 292 513.79 538.2 652.7 668.83
Inventories 6,210.06 6,651.47 6,857.23 10,121.45 9,027.46
Sundry Debtors 1,881.73 2,314.75 3,048.12 3,024.36 3,493.90
Cash and Bank Balance 341.83 437.36 470.17 347.94 230.76
Total Current Assets 8,433.62 9,403.58 10,375.52 13,493.75 12,752.12
Loans and Advances 4,524.37 3,097.70 3,644.22 4,292.50 5,155.32
Fixed Deposits 5,830.81 9,172.47 13,289.27 17,880.59 22,205.61
Total CA, Loans & Advances 18,788.80 21,673.75 27,309.01 35,666.84 40,113.05
Deffered Credit 0 0 0 0 0
Current Liabilities 8,081.23 8,105.99 8,960.91 10,201.51 13,383.67
Provisions 7,236.44 5,550.78 6,797.83 9,408.21 6,211.67
Total CL & Provisions 15,317.67 13,656.77 15,758.74 19,609.72 19,595.34
Net Current Assets 3,471.13 8,016.98 11,550.27 16,057.12 20,517.71
Miscellaneous Expenses 215.82 129.15 59.48 0 0
Total Assets 16,899.03 21,493.67 26,108.81 35,522.89 49,827.95
35
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.
Loans show an increase which means that most of the fixed assets are
financed by long term loans.
Increase in Fixed assets can be attributed to increase in plant and
machinery which means that SAIL has increased its production capacity
over the years.
The company has sufficient control over its depreciation which shows an
increase of only 0.04% in 2009 over 2008.
Current Financial position and liquidity position:
The company has increased its current assets over the years by increasing
the level of inventories at Rs.10121 crores in 2009 compared to Rs.6857
crores in 2008, though a fall in inventory was seen in 2010. 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 2006. 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.
36
3.2 PROFIT AND LOSS ACCOUNT STATEMENT
Income
Sales Turnover 32,805.96 39,722.59 46,175.85 49,331.47 44,059.72
Excise Duty 4,605.48 5,393.82 6,217.18 5,532.89 3,463.82
Net Sales 28,200.48 34,328.77 39,958.67 43,798.58 40,595.90
Other Income 937.94 1,408.71 1,701.59 2,002.77 2,557.00
Stock Adjustments 1,131.31 289.15 436.28 1,872.87 -1,157.45
Total Income 30,269.73 36,026.63 42,096.54 47,674.22 41,995.45
Expenditure
Raw Materials 15,034.54 16,252.28 17,257.67 23,915.45 18,611.12
Power & Fuel Cost 2,489.74 2,578.84 2,825.56 3,119.42 3,364.30
Employee Cost 4,156.97 5,087.76 7,919.28 8,401.73 5,417.00
Other Manufacturing Expenses 303.71 346.59 492.18 643.35 870.35
Selling and Admin Expenses 1,619.20 1,602.31 1,727.55 1,701.52 1,754.02
Miscellaneous Expenses 524.91 528.71 737.79 878.94 206.62
Preoperative Exp Capitalised -1,352.05 -1,423.08 -1,832.22 -1,930.40 0
Total Expenses 22,777.02 24,973.41 29,127.81 36,730.01 30,223.41
Operating Profit 6,554.77 9,644.51 11,267.14 8,941.44 9,215.04

PBDIT 7,492.71 11,053.22 12,968.73 10,944.21 11,772.04
Interest 467.76 332.13 250.94 253.24 402.01
PBDT 7,024.95 10,721.09 12,717.79 10,690.97 11,370.03
Depreciation 1,207.30 1,211.48 1,235.48 1,285.12 1,337.24
Other Written Off 181.44 128.59 75.49 128.02 10.33
Profit Before Tax 5,636.21 9,381.02 11,406.82 9,277.83 10,022.46
Extra-ordinary items 71.12 60.57 64.61 181.26 184.8
PBT (Post Extra-ord Items) 5,707.33 9,441.59 11,471.43 9,459.09 10,207.26
Tax 1,694.36 3,253.80 3,934.65 3,284.28 3,452.89
Reported Net Profit 4,012.97 6,202.29 7,536.78 6,174.81 6,754.37
Total Value Addition 7,742.48 8,721.13 11,870.14 12,814.56 11,612.29
Preference Dividend 0 0 0 0 0
Equity Dividend 826.08 1,280.42 1,528.25 1,073.90 1,363.03
Corporate Dividend Tax 115.86 197.98 258.91 181.26 227.52
Per share data (annualised)
Shares in issue (lakhs) 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01
Earning Per Share (Rs) 9.72 15.02 18.25 14.95 16.35
Equity Dividend (%) 20 31 37 26 33
Book Value (Rs) 30.51 41.92 55.84 67.75 80.66
37
Interpretation
The Net Sales figure shows an increasing trend. After the year 2006 it shows an
increasing trend which will help to increase in Net Profit.
The company has considerable change in Interest Charges and rather the latter
has decreased in recent years.
The company has been able to increase its net Profit over the years but a
decrease can be seen after 2008 which can be attributed to global economic
downturn.
It may conclude that there is a sufficient progress in the company and the overall
profitability of the concern is very good.
38
3.3 Trend Analysis
Trend analysis reveals the pattern in data over a period of time. It involves determining
the trend percent for a series of financial numbers. Let us take the following numbers
from the P & L Account of SAIL and understand the trend analysis.
Total Income 30,269.73 36,026.63 42,096.54 47,674.22 41,995.45
Total Expenses 22,777.02 24,973.41 29,127.81 36,730.01 30,223.41
Reported Net Profit 4,012.97 6,202.29 7,536.78 6,174.81 6,754.37
Following steps are required to determine the trend percentage:
1. Select a base year: Let FY’06 be the base year

2. Express the financial items of the succeeding years as a percentage of the base
year number
Trend Percent = Current year value – Base year value * 100

Base year value
Total Income 100.00 19.01 39.07 57.50 38.73
Total Expenses 100.00 9.64 27.87 61.25 32.69
Reported Net Profit 100.00 54.58 87.83 53.88 68.34
This shows that except for year 2008 when reported net profit increased highly, over
the given years net profit is increasing which is a good sign for the company’s
performance over these years.
39
Trend Analysis
120.00
100.00
80.00
60.00
40.00
20.00
0.00
Total Income Total Expenses Reported Net Profit
The same can be seen from the graph.

Income and expenses decreased tremendously in the year 2007 whereby the net profit
of the company also declined. For next two years incomes increased and even the
expenses grew to a small extent. The reported net profit was the highest for the year
2008, decreased a little in 2009 and then further increased for year 2010. Net profits are
a respectable value and hence company’s position in the market is good.
40
CHAPTER 4
FINANCIAL RATIO ANALYSIS

I. ACTIVITY RATIOS
These ratios are employed to evaluate the efficiency with which the firm manages
and utilizes its assets. These are also called as turnover ratios because they
indicate the speed with which assets are being turned over into sales. Hence this
ratio helps in finding out how the funds of creditors and owners are invested in
various assets to generate sales and profits. The better the management of
assets, the larger is the amount of sales.
Mar ‘06 Mar ‘07 Mar ‘08 Mar ‘09 Mar ‘10
Inventory 5.19 5.9 6.64 4.8 4.86
T.O. Ratio
No. of 70 62 55 75 74
days,
Inventory
Debtor 17.16 16.9 14.9 16.09 12.57
T.O. Ratio
Average 21 22 24 23 29
collection
period
Asset T.O. 1.75 1.71 1.64 1.32 0.84
Ratio
Working 3.48 2.82 2.7 2.18 1.57
Capital
T.O. Ratio
Fixed Asset 1.09 1.31 1.47 1.48 1.24
T.O. Ratio
Current 1.85 1.92 1.73 1.41 1.12
Asset T.O.
Ratio
41
1. INVENTORY TURNOVER RATIO
INVENTORY TURNOVER RATIO

7
6
5
Inventory T.O. ratio
4
3
2
1
0
INVENTORY
5.19 5.9 6.64 4.8 4.86
TURNOVER RATIO
Interpretation:
The Inventory Turnover ratio tells us how many times a company has gone through
or “turned over”, its inventory during a specified time period, usually a year. It gives
us an indication of how fast a company can sell its products. After Financial year 08
SAIL’s efficiency in turning its inventories is continuously deteriorating. Since
Inventory T.O. is a test of effective inventory management, so the company’s
utilisation of inventories in generating sales is getting poorer.
42
2. NO. OF DAYS
Inventory (No of Days)

80 75 74
70
70 62
60 55
50
Days 40
30
20
10
0
Interpretation:
No. of Days, Inventory gives the average inventory holdings. SAIL holds average
inventory of 74 in Financial Year 2010. When many companies are following JIT,
large value of inventory holdings can pose a problem for the company.
43
4. DEBTOR TURNOVER RATIO
Debtors Turnover Ratio

20
18
16
14
12
DAYS
10
8
6
4
2
0
Series1 17.16 16.9 14.9 16.09 12.57
Interpretation:
The liquidity position of the firm depends on the quality of the debtors to a great
extent. Debtors T.O. indicates the number of times debtors turnover each year.
Debtors T.O. of SAIL is showing an alternating trend since FY07. This is
determining the collectibles of debtors. Thus the credits are not easily realized
from the debtors. Although the provision for bad debts has decreased, but the
similar trends of debtor T.O. can result into more bad debts in the future.
44
4. AVERAGE COLLECTION PERIOD
average collection period

Mar '10
Mar '09
Year
Mar '08
Mar '07 average collection period
Mar '06
0 10 20 30 40
No. of days
Interpretation:
Average collection period gives the average number of days for which debtors
remain outstanding. The increasing trend of average collection period shows that
there is some sort of laxity in accounts receivable by the management.
45
5. ASSET TURNOVER RATIO
asset turnover ratio

2
1.8
1.6
1.4
1.2
Value
1
0.8
0.6 asset turnover ratio
0.4
0.2
0
Year
Interpretation:
This ratio shows the firm’s ability in generating sales from all financial resources
committed to total assets. Asset T.O. curve is declining with each financial year.
This implies that the firm is not able to generate sales from its total assets. Hence
it can be analysed that SAIL holds unutilised assets.
46
6. WORKING CAPITAL TURNOVER RATIO
Working capital turnover ratio

4
3.5
3
2.5
Value
2
1.5 Working capital
1 turnover ratio
0.5
0
Year
Interpretation:
Working Capital T.O. ratio shows that the firm has sufficient cash flow to satisfy
both maturing short-term debt and upcoming operational expenses. The ratio for
SAIL has reduced from 3.48 in FY06 to 1.57 in FY10. In this case current liabilities
of the company are rising which has caused the ratio to decrease.
47
7. FIXED ASSET TURNOVER RATIO
Fixed asset Turnover ratio

1.6
1.4
1.2
1
Value
0.8
0.6
0.4
0.2
0
Year
Interpretation:
The firm can know its efficiency of utilising fixed assets with the help of this ratio.
During Financial years 06, 07, and 08 SAIL is turning over its fixed assets faster than
current assets. Fixed asset T.O. ratio is increasing till financial year 09 after which it
declined to 1.24 in year 2010.
48
8. CURRENT ASSET TURNOVER
current asset turnover ratio

2.5
1.5
Value
1 current asset turnover

ratio
0.5
0
Year
Interpretation:
This ratio gives the firm’s ability in generating sales from its current assets. So the
decline in SAIL’s asset T.O. can be attributed to the decline in its current asset T.O. A
firm’s ability to produce a large volume of sales for a given amount of net assets is
the most important aspect of its operating performance. Under-utilised current
assets can increase the firm’s need for costly financing as well as expenses for
maintenance and upkeep.
49
II. LIQUIDITY RATIOS
Liquidity Ratios measure the firm’s ability to meet current obligations. The
failure of a company to meet its obligations due to lack of sufficient liquidity
will result in poor credit worthiness, loss of creditor’s confidence.
Mar ‘06 Mar ‘07 Mar ‘08 Mar ‘09 Mar ‘10
Current Ratio 2.14 3.14 2.79 2.8 3.52
Quick Ratio 0.90 1.26 1.47 1.42 1.75
Cash Ratio 0.79 1.55 1.51 1.54 2.08
50
1. CURRENT RATIO
Current Ratios
4 3.52
3.5 3.14
2.79 2.8
3
2.5 2.14
2
current ratio
1.5
1
0.5
0
Interpretation:
Current ratio represents a margin of safety for creditors. So from creditors,
viewpoint current ratio of the company is all time high. A large value can also
be analyzed as idling of assets. The major portion of the ratio is being
contributed by inventories. Since Inventory T.O. is declining, so firm have slow-
moving inventories. In FY08 it declined from 3.14 to 2.79 due to an increase in
current liabilities. It again increased in FY10 to 3.52.
51
2. QUICK RATIO
Quick Ratio
1.8
1.6
1.53
1.4
1.2 1.23 1.24
1 1.01
VALUE
0.8
0.72
0.6
0.4
0.2
0
Interpretation:
Quick ratio indicates whether the firm is in a position to pay its current liabilities
within a month or immediately. Liquid asset means those assets, which will yield
cash very shortly. All current assets except stock and prepaid expenses are
included in liquid assets. Quick Ratio is continuously increasing. Also the provision
for bad debts has reduced. This implies that debtors of the firm are not doubtful.
Acid test ratio of 1.53 shows that even if SAIL’s inventories do not sell it can easily
meet its current obligations as it has liquid assets 1.53 times than its current
liabilities.
52
3. CASH RATIOS
Cash Ratios
2.5
2
Cash ratio
1.5
1
CASH RATIO
0.5
0
Year
Interpretation:
Cash ratio gives the measure of the most liquid asset of a firm. Initially the cash
ratio was low but gradually it gained momentum and raised to 2.08 in FY10.
Although the cash ratio is increasing but cash in hand of the company is not
increasing at the same rate. Here the increase in cash ratio is due to increase in
term deposits by the company.
53
III. PROFITABILITY RATIOS
The profitability ratio measures the profitability or the operational efficiency of

the firm. There are two groups of person who are specifically interested in the
analysis of profitability of the firm which are:-
The management which is interested in the overall profitability and
operational efficiency of the firm
Equity shareholders which are interested in ultimate returns available to them
Net Profit Ratio 0.124 0.158 0.165 0.126 0.153
Gross Profit Ratio 0.176 0.24 0.193 0.23
Return on Asset 0.218 0.27 0.27 0.27 0.131
Return on average 35.84 41.95 37.51 24.13 21.98

equity %
Return on average 27.27 39.88 42.54 29.77 26.56

capital employed %
Earnings per share 9.72 15.02 18.25 18.25 16.35
Dividend per share 2 3.1 3.7 2.6 3.3
Price earnings 8.56 10.12 6.45 15.44

ratio(P/E) 7.59
Earning power 0.31 0.31 0.255 0.2
54
1. NET PROFIT RATIO
net profit ratio

0.18
0.16
0.14
0.12
Value
0.1
0.08
0.06 net profit ratio
0.04
0.02
0
Year
Interpretation:
This ratio shows the earning left for shareholders as a percentage of net sales.
It measures the overall efficiency of production, administration, selling,
financing, pricing and tax management. Net profit ratio for SAIL is not varying
much. In FY10 net profit is 15.3% of the sales.
55
2. RETURN ON ASSET
Return on Asset
0.27
0.27
0.218
0.167 0.131
return on asset
Interpretation
It measures the profitability of the total funds per investment of a firm.
Return on asset increased a bit in earlier years from 2007 to 2008 and then
decreased gradually in years 2009 to 2010. This is primarily on account of the fact
that total assets have increased by a very large extent in the last two years
56
3. RETURN ON AVERAGE EQUITY
Return on Average Equity %

45 41.95
40
37.51
35 35.84
30
25 24.13
21.98 return on average
20
equity %
15
10
5
0
Interpretation:
A return on shareholder’s equity is calculated to see the profitability of owner’s
investment.
ROE indicates how well the firm has used the resources of the owners. This
reveals the relative performance and strength of the company in attracting future
investments.
Returns on equity are reducing gradually in following years (41.95 in FY’07 to
21.98 in FY’10) which is a bad prospect for future investments by shareholders.
57
4. RETURN ON AVERAGE CAPITAL EMPLOYED
Return on Average Capital Employed

%
50
40
30
Value
20
return on average capital
10 employed %
0
Year
Interpretation:
It measures profitability of the firm with respect to the total capital employed.
The higher the ratio, the more efficient use of capital employed.
ROCE increases initially showing more efficient use of capital and then decreases
for years 2009 and 2010 which is a bad sign. The company needs to increase the
efficiency of how and where to employ its capital.
58
5. EARNINGS PER SHARE
Earnings per Share

18.25
16.35
15.02 14.94
9.72
Year
earning per share
Interpretation:
This number represents the profit of the company equally split among each share
of the stock. It shows the profitability of the firm on per share basis. EPS has the
highest value of 18.25 in FY08. This is due to 18% increase in PAT in FY08.
59
6. DIVIDEND PER SHARE
dividend per share

dividend per share
3.7
3.3
3.1
2.6
2
Interpretation:
Profit remaining after payment of tax and preference dividends is available to

equity shareholders. Out of these profits a portion is retained in the business and
the remaining is distributed among equity shareholders as dividend. The
difference between EPS and DPS is retained in the business. The DPS of SAIL was
on growth trajectory from 200-06 to 2007-08. But the Dividend per share of the
company decreased by 30 percent from Rs 3.7 in 2007-08 to Rs 2.6 in 2008-09
due to decrease in total profit distributed to equity shareholders.
60
7. PRICE EARNING RATIO
price earning ratio(P/E)
15.44
8.56 10.12
7.59
6.45
Year
price earning ratio(P/E)
Interpretation:
PE ratio establishes the relation between market price of the share and EPS. It
indicates the expectation of equity investor about the earnings of the firm. The PE
ratio increased tremendously in 2009-10 from 6.45 percent in 2008-98 to 15.44 in
2009-10 which is good for the company as it indicates high growth prospects of
the company. It indicates that the share of SAIL has low risk and therefore the
investor are content with low prospective return or the investor expect high
dividend growth and are ready to pay a higher price for the share at present.
61
IV. LEVERAGE RATIOS
Long term creditors are more interested in firm’s long term financial strength
and leverage ratios or capital structure ratios. These ratios are calculated for
the very same reason. These ratios indicate composition of funds provided by
owners and lenders. The debt will be advantageous if the firm earns a rate of
return on the total capital employed higher than the interest rate on the
borrowed funds whereas disadvantageous the other way.
Debt 0.35 0.24 0.13 0.27 0.5

Equity
Ratio
Debt Asset 0.25 0.194 0.11 0.212 0.33

Ratio
Interest 13.20 29.37 46.70 38.13 26.20

Coverage
Ratio
Capital 1.45 1.32 1.2 1.31 1.53
Equity
Ratio
62
1. DEBT EQUITY RATIO
debt equity ratio

0.5
0.35
0.24 0.27
0.13
Year
debt equity ratio
Interpretation
The relationship between borrowed funds and owner’s capital is shown by the debt -
equity ratio. A high debt equity ratio is the danger signal for the long-term lenders.
The ratio of SAIL is on safe side till FY09 as it is 0.27 in FY09. In FY10 the shareholder’s
funds is just double the amount of long term loans. So the firm must take careful
measures so as to bring down the amount of long-term loans.
63
2. DEBT ASSET RATIO
debt asset ratio

0.33
0.25
0.194 0.212
0.11
Year
debt asset ratio
Interpretation:
The ratio shows the proportion of proprietors’ funds to the total assets employed.
Debt Asset Ratio of SAIL is continuously increasing since FY08. This implies that
the firm is improving in its policies of acquiring assets with the help of proprietors’
funds. In FY10 the ratio is just 33%. Therefore SAIL needs to improve this ratio so
that it is less dependent on outside funds and thus does not create any outside
liabilities.
64
3. INTEREST COVERAGE RATIO
interest coverage ratio

46.7
50
38.13
40
29.37
26.2
30
Value
20 13.2
interest coverage ratio
10
0
Mar Mar Mar Mar Mar
'06 '07 '08 '09 '10
Year
Interpretation:
This ratio is used to determine how easily a company can pay interest on
outstanding debt. The ratio for SAIL increased drastically in FY08 due to 17.8%
increase in EBIT and after that the ratio is continuously decreasing over the years.
The interest coverage ratio of SAIL in FY10 is 26.2 which indicates that the firm
will be able to pay the interest on long term loans regularly and for the lenders
the firm is less risky.
65
4. CAPITAL EQUITY RATIO
CAPITAL EQUITY RATIO

1.45 1.53
1.2
1.31
1.32
CAPITAL EQUITY RATIO
Interpretation:
This shows how much funds are being contributed together by lenders and
owners for each rupee of the owner’s contribution.
This ratio has a near constant value over the given years as shown by the graph.
66
CHARTER 5
5.1 OPERATING Vs. NON OPERATING INCOME
Operating income
Income resulting from a firm's primary business operations, excluding extraordinary

income and expenses. Unusual nonrecurring items, such as gains from selling a
subsidiary or losses from closing a plant, are not included in the calculation of
operating income. Also called earnings before interest and taxes, operating profit. It
gives a more accurate picture of a firm's profitability than gross income.
Non operating income
Income received by a business that is not derived from operations, such as

manufacturing. Non-operating income usually does not occur on an ongoing basis,
and is examined separately from operating income. An example of non-operating
income is income generated through the sale a subsidiary or division, since the
company won't be able to resell that division again and the income is a one-time
occurrence.
Most (though not all) non operating income is non-repetitive, and, as such, is
excluded from many measures of profit.
Table showing composition of total incomes generated by SAIL for years 2005-2010
under two heads operating and non operating income is shown below:
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Operating 27837.57 33923.12 39508.45 43176.76 40551.38
Income
Non Operating 1554.6 2000.95 2382.46 3133.1 3383.32
Income
Total 29392.17 35924.07 41890.91 46248.61 43934.7
% Operating 94.71% 94.43% 94.31% 93.36% 92.29%
Income
67
It can be seen that % composition of operating income to the total income is a
very high percentage which is a good sign for the company.
Also the percentage is consistent over the years and tends to decrease a bit over
the years. This is not of much significance till date because the decrease is still
negligible. But the company needs to take care that this decrease remains
restrained over the years for its successful working.
The composition can also be shown in the form of a graph as:
Operating vs Non Operating Income

50000
45000
40000
35000
30000
CRORES 25000
20000
15000
10000
5000
0
2005- 2006- 2007- 2008- 2009-
2006 2007 2008 2009 2010
Non operating Income 1554.6 2000.95 2382.46 3133.1 3383.32
Operating Income 27837.57 33923.12 39508.45 43176.76 40551.38
Major portion of the company’s income comes from its core business which is a
good sign for the company.
68
5.2 COMPOSITION OF ASSETS
FIXED ASSETS:
Fixed asset, also known as a non-current asset or as property, plant, and

equipment (PP&E), is a term used in accounting for assets and property which
cannot easily be converted into cash. This can be compared with current assets
such as cash or bank accounts, which are described as liquid assets. In most cases,
only tangible assets are referred to as fixed.
Moreover, a fixed/non-current asset can also be defined as an asset not directly

sold to a firm's consumers/end-users. As an example, a baking firm's current
assets would be its inventory (in this case, flour, yeast, etc.), the value of sales
owed to the firm via credit (i.e. debtors or accounts receivable), cash held in the
bank, etc. Its non-current assets would be the oven used to bake bread, motor
vehicles used to transport deliveries, cash registers used to handle cash
payments, etc. Each aforementioned non-current asset is not sold directly to
consumers.
These are items of value which the organization has bought and will use for an
extended period of time; fixed assets normally include items such as land and
buildings, motor vehicles, furniture, office equipment, computers, fixtures and
fittings, and plant and machinery. These often receive favorable tax treatment
(depreciation allowance) over short-term assets. According to International
Accounting Standard (IAS) 16, Fixed Assets are assets whose future economic
benefit is probable to flow into the entity, whose cost can be measured reliably.
It is pertinent to note that the cost of a fixed asset is its purchase price, including
import duties and other deductible trade discounts and rebates. In addition, cost
attributable to bringing and installing the asset in its needed location and the
initial estimate of dismantling and removing the item if they are eventually no
longer needed on the location.
The primary objective of a business entity is to make profit and increase the
wealth of its owners. In the attainment of this objective it is required that the
management will exercise due care and diligence in applying the basic accounting
concept of “Matching Concept”. Matching concept is simply matching the
69
expenses of a period against the revenues of the same period.
The use of assets in the generation of revenue is usually more than a year- that is
long term. It is therefore obligatory that in order to accurately determine the net
income or profit for a period depreciation is charged on the total value of asset
that contributed to the revenue for the period in consideration and charge
against the same revenue of the same period. This is essential in the prudent
reporting of the net revenue for the entity in the period.
Net book value of an asset is basically the difference between the historical cost
of that asset and it associated depreciation. From the foregoing, it is apparent
that in order to report a true and fair position of the financial jurisprudence of an
entity it is relatable to record and report the value of fixed assets at its net book
value. Apart from the fact that it is enshrined in Standard Accounting Statement
(SAS) 3 and IAS 16 that value of asset should be carried at the net book value, it is
the best way of consciously presenting the value of assets to the owners of the
business and potential investor.
FIXED ASSETS OF SAIL ARE LISTED BELOW:
A. PLANTS, MINES, OTHERS
Land (including cost of development)

-Freehold Land
-Leasehold Land
Buildings
Railway Lines & Sidings
Plant & Machinery
-Steel Plant
-Others
Furniture & Fittings
Vehicles
Roads, Bridges & Culverts
Mining Rights (Intangible)
Miscellaneous Articles
70
B. SOCIAL FACILITIES
Land (including cost of development)

-Freehold Land
-Leasehold Land
Buildings
Plant & Machinery-Others
Water Supply & Sewerage
EDP Equipment's
Software (Intangible)
Miscellaneous Articles
Sub-total 'B'
Figures for the previous year
C. ASSETS RETIRED FROM ACTIVE USE

Unserviceable / Obsolete Assets
D. CAPITAL EXPENDITURE NOT

REPRESENTED BY ASSETS
Total ('A'+'B'+'C'+'D')
71
CURRENT ASSETS
In accounting, a current asset is an asset on the balance sheet which is expected

to be sold or otherwise used up in the near future, usually within one year, or one
operating cycle whichever is longer. Typical current assets include cash, cash
equivalents, accounts receivable, inventory, the portion of prepaid accounts
which will be used within a year, and short-term investments.
Operating cycle is the average time that is required to go from cash to cash in
producing revenues.
On the balance sheet, assets will typically be classified into current assets and
long-term assets.
The current ratio is calculated by dividing total current assets by total current
liabilities. It is frequently used as an indicator of a company's liquidity, its ability to
meet short-term obligations.
Current Assets = Cash +Bank + Debtors + Bills Receivable + Short Term Investment
+ Inventory + Prepaid Expenses.
CURRENT ASSETS FOR SAIL ARE LISTED BELOW:
Semi-finished/Finished Products
Stores & Spares
Raw Materials
Total Inventories
Sundry Debtors
Gross Debtors
Less: Provision for
Doubtful debts
Net Debtors
Cash & Bank Balances
Other Current Assets
Loans & Advances
72
Following is a table showing composition of total asset under two heads “current
asset” and “fixed assets”:
2006 2007 2008 2009 2010

Current 17384 20379 26318 34676 39081
asset
Fixed asset 12162 11598 11571 12305 13615
Total asset 29546 31977 37889 46780 52696
%current 58.84 63.73 69.46 73.77 74.16
asset
%fixed 41.16 36.27 30.54 26.22 25.83
asset
Graph showing total assets under two heads of fixed and current assets is shown
as:
Fixed Assets vs Current Assets

60000
50000
40000
30000
20000
10000
0
2006 2007 2008 2009 2010
Fixed asset 12162 11598 11571 12305 13615
Current asset 17384 20379 26318 34676 39081
73
Current assets comprise a huge composition of total assets which shows that
company’s ability to repay all current liabilities is large. Current assets can be
easily converted to cash and hence can be used for day to day transactions.
Whereas Fixed assets cannot be converted into cash easily and hence do not
contribute to working capital of a firm.
For SAIL the value of current assets is tremendously high and its percentage to
total assets is also very high which is a good sign for the company. Also since the
trend is increasing over the years, this is also favourable towards the relaibility of
the company.
74
5.3 DEPRECIATION POLICY
Depreciation refers to two very different but related concepts:
1. Decline in value of assets, and

2. Allocation of the cost of tangible assets to periods in which the assets are used.
The former affects values of businesses and entities. The latter affects net income.
Generally the cost is allocated, as depreciation expense, among the periods in which
the asset is expected to be used. Such expense is recognized by businesses for
financial reporting and tax purposes. Methods of computing depreciation may vary
by asset for the same business. Methods and lives may be specified in accounting
and/or tax rules in a country. Several standard methods of computing depreciation
expense may be used, including fixed percentage, straight line, and declining balance
methods. Depreciation expense generally begins when the asset is placed in service.
Example: a depreciation expense of 100 per year for 5 years may be recognized for
an asset costing 500.
In economics, depreciation is the decrease in the economic value of the capital stock
of a firm, nation or other entity, either through physical depreciation, obsolescence
or changes in the demand for the services of the capital in question. If capital stock is
C0 at the beginning of a period, investment is I and depreciation D, the capital stock
at the end of the period, C1, is C0 + I - D.
Depreciation is an important item on the profit and loss account; its nature is often
not properly understood by non-finance managers.
This article clarifies what deprecation is, explains the manner in which the
depreciation schedule is prepared, presents information on the methods and rates of
depreciation under the Companies Act and the Income Tax Act, and dispels some of
the myths surrounding depreciation.
Nature of Depreciation:
A fixed asset is used over a number accounting periods. So it is necessary to allocate
its costs to various accounting periods that benefit from its use. Such an allocation is
called depreciation. Accountants normally allocate the cost of an asset over its useful
life using a well-defined procedure.
75
Depreciation Schedule:
Three steps are involved in calculating the depreciation schedule.
1. Determine the depreciable base.

2. Estimate the useful life of the asset
3. Choose the depreciation method
Depreciation method: There are several methods of depreciation. The two most
commonly used depreciation methods in India are:
1. STRAIGHT LINE METHOD
2. WRITTEN DOWN VALUE METHOD.
SAIL uses straight line method. Its depreciation policy is written below:
Depreciation is provided on straight-line method at the rates specified in Schedule

XIV to the Companies Act, 1956. However, where the historical cost of a depreciable
asset undergoes a change, the depreciation on the revised unamortized depreciable
amount is provided over the residual useful life of the asset. Classification of plant
and machinery into continuous and non continuous is made on the basis of technical
opinion and depreciation provided accordingly. Depreciation on addition/deletion
during the year is provided on pro-rata basis with reference to the month of
addition/deletion.
76
CHAPTER 6
COMPETITOR ANALYSIS
6.1 BALANCE SHEETS
Tata Steel SAIL JSW Steel Visa Steel Steel Exchange
Sources Of Funds
Total Share Capital 887.41 4,130.40 527.11 110 39.85
Equity Share Capital 887.41 4,130.40 248.08 110 39.3
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 279.03 0 0.55
Reserves 36,281.34 29,186.30 9,179.23 204.69 91.54
Revaluation Reserves 0 0 0 0 0
Networth 37,168.75 33,316.70 9,706.34 314.69 131.39
Secured Loans 2,259.32 7,755.90 8,987.51 1,107.70 202.45
Unsecured Loans 22,979.88 8,755.35 2,597.59 35.04 32.55
Total Debt 25,239.20 16,511.25 11,585.10 1,142.74 235
Total Liabilities 62,407.95 49,827.95 21,291.44 1,457.43 366.39
Application Of Funds
Gross Block 22,306.07 35,382.49 21,795.58 926.56 150.36
Less: Accum. Depreciation 10,143.63 21,780.91 4,929.44 112.93 17.66
Net Block 12,162.44 13,601.58 16,866.14 813.63 132.7
Capital Work in Progress 3,843.59 15,039.83 6,684.27 770.07 18.36
Investments 44,979.67 668.83 1,768.35 60.04 0
Inventories 3,077.75 9,027.46 2,585.77 341.71 119.88
Sundry Debtors 434.83 3,493.90 563.25 64.88 93.38
Cash and Bank Balance 500.3 230.76 117.4 83.34 27.18
Total Current Assets 4,012.88 12,752.12 3,266.42 489.93 240.44
Loans and Advances 6,678.55 5,155.32 2,216.05 143.39 186.35
Fixed Deposits 2,733.84 22,205.61 169.71 0 0
Total CA, Loans & Advances 13,425.27 40,113.05 5,652.18 633.32 426.79
Deffered Credit 0 0 0 0 0
Current Liabilities 8,699.34 13,383.67 9,415.28 808.13 203.62
Provisions 3,303.68 6,211.67 264.22 13.95 9.14
Total CL & Provisions 12,003.02 19,595.34 9,679.50 822.08 212.76
Net Current Assets 1,422.25 20,517.71 -4,027.32 -188.76 214.03
Miscellaneous Expenses 0 0 0 2.46 1.32
Total Assets 62,407.95 49,827.95 21,291.44 1,457.44 366.41
Contingent Liabilities 13,184.61 28,382.46 6,990.48 273.18 1.91
Book Value (Rs) 418.94 80.66 504 28.61 33.29
77
Investments by Competitors of SAIL
Investments
50,000.00
45,000.00
40,000.00
c 35,000.00
r 30,000.00 Tata Steel
o SAIL
25,000.00
r
20,000.00 JSW Steel
e
s 15,000.00 Visa Steel
10,000.00 Steel Exchange
5,000.00
0.00
Tata Steel SAIL JSW Steel Visa Steel Steel
Exchange
Assets of Competitors
Total Assets
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
Steel
Tata Steel SAIL JSW Steel Visa Steel
Exchange
Total Assets 62,407.95 49,827.95 21,291.44 1,457.44 366.41
78
6.2 PROFIT AND LOSS ACCOUNT STATEMENTS
Steel
Tata Steel SAIL JSW Steel Visa Steel Exchange
Income
Sales Turnover 26,757.60 44,059.72 19,456.64 1,198.31 709.23
Excise Duty 1,816.95 3,463.82 1,289.18 41.37 12.25
Net Sales 24,940.65 40,595.90 18,167.46 1,156.94 696.98
Other Income 1,241.08 2,557.00 474.25 14.54 19.29
Stock Adjustments -134.97 -1,157.45 64.74 17.52 -7.12
Total Income 26,046.76 41,995.45 18,706.45 1,189.00 709.15
Expenditure
Raw Materials 8,356.45 18,611.12 11,415.86 852.77 619.56
Power & Fuel Cost 1,383.44 3,364.30 1,014.82 16.12 4.92
Employee Cost 2,361.48 5,417.00 365.2 32.79 6.24
Other Manufacturing
Expenses 2,419.89 870.35 249.6 4.27 19.41
Selling and Admin Expenses 417.9 1,754.02 724.63 0 0
Miscellaneous Expenses 1,287.04 206.62 188.53 85.42 12.46
Preoperative Exp Capitalised -326.11 0 0 0 0
Total Expenses 15,900.09 30,223.41 13,958.64 991.37 662.59
Operating Profit 8,905.59 9,215.04 4,273.56 183.09 27.27

PBDIT 10,146.67 11,772.04 4,747.81 197.63 46.56
Interest 1,848.19 402.01 900.26 65.14 31.59
PBDT 8,298.48 11,370.03 3,847.55 132.49 14.97
Depreciation 1,083.18 1,337.24 1,123.41 46.82 3.18
Other Written Off 0 10.33 0 0 0
Profit Before Tax 7,215.30 10,022.46 2,724.14 85.67 11.79
Extra-ordinary items 0 184.8 96.03 0 -0.01
PBT (Post Extra-ord Items) 7,215.30 10,207.26 2,820.17 85.67 11.78
Tax 2,168.50 3,452.89 797.43 38.26 6.81
Reported Net Profit 5,046.80 6,754.37 2,022.74 47.42 4.96
Total Value Addition 7,543.64 11,612.29 2,542.78 138.6 43.03
Preference Dividend 45.88 0 28.92 0 0.06
Equity Dividend 709.77 1,363.03 177.7 11 0
Corporate Dividend Tax 122.8 227.52 34.31 1.87 0
Per share data (annualised)
Shares in issue (lakhs) 8,872.14 41,304.01 1,870.49 1,100.00 393
Earning Per Share (Rs) 56.37 16.35 106.59 4.31 1.25
Equity Dividend (%) 80 33 95 10 0
Book Value (Rs) 418.94 80.66 504 28.61 33.29
79
Comparison of Market share
Visa Steel MARKET SHARE Steel

1% Exchange
1%
JSW Steel
21%
SAIL
48%
TATA Steel
29%
Market share allocations to various big firms in the steel sector show that SAIL
occupies the highest market share in this sector which is a little less than half the
total market i.e. 48%. Tata steel comes next with 29% share of the steel market.
Operating and net profit earned by SAIL is also the largest even though that of
Tata Steel is very close.
In short SAIL and Tata Steel are the forerunners of the Indian steel sector.
80
6.3 RATIO ANALYSIS
RATIOS SAIL TATA JSW VISA STEEL STEEL EXCHANGE

PROFITIBILITY
RATIO
GROSS PROFIT 0.23 0.27 0.17 0.12 .04
NET PROFIT 0.153 0.19 0.11 .04 .007
RETURN ON 26.56 14.25 15.08 10.34 14.96
CAPITAL
EMPLOYED (%)
LIQUIDITY
RATIOS
QUICK RATIO 2.7 1.08 0.31 0.35 0.98
CURRENT RATIO 3.52 1.12 0.58 0.77 0.73
ACTIVITY
RATIOS
INVENTORY 4.86 10.9 8.95 3.51 7.18
TURN OVER
RATIO
DEBTORS TURN 12.57 61.5 37.79 15.71 7.93
OVER RATIO
ASSETS TURN 0.84 1.17 0.85 0.79 2.49
OVER RATIO
FIXED ASSETS 1.24 1.67 0.83 1.25 10.74
TURN OVER
RATIO
LEVERAGE
RATIOS
DEBT EQUITY 0.5 0.61 1.26 3.63 1.54
RATIO
INTEREST 26.26 4.41 3.57 2.32 2.55
COVERAGE
RATIO
81
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 greater for SAIL which shows that overall
profitability and efficiency of the business is good.
The current ratio for SAIL is more than TATA Steel which shows that it has enough
liquidity in comparison to other competitors.
The debt equity ratio is 0.5 which is lower than TATA Steel. 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 TATA Steel which shows
that the debtors are less liquid implying inefficient management of debtors/sales.
82
CHAPTER 7
CALCULATION AND INTERPRETATION OF CASH FLOW STATEMENT
CASH FLOW STATEMENT (in Rs.crores)
PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10
Profit before tax 5705.74 9422.62 11468.73 9403.45 10132.03
Net Cash Flow – 3823.93 5632.91 8378.18 6124.26 4800.48

Operating activity
Net Cash used in 337.18 587.53 (139.89 4406.47 8021.15

investing activity
Net Cash used in 3574.26 (608.19 3088.68 2751.30 7395.00
Fin. Activity
Net inc./dec. in 87.51 3437.19 4149.61 4469.09 4174.33

cash or
equivalent
Cash and 6260.15 6172.64 9609.83 13759.44 18264.67
equivalent at
beginning of the
year
Cash and 6172.64 9609.83 13759.44 18228.53 22439.00
equivalent at end
of the year
83
INTERPRETATION
Cash flow statement shows that the profit before tax increases continuously in 2006,
2007, 2008 and decreases in 2009 due to unstable economic conditions.
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 and further reduced in
2010.
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.
Cash flows have been positive for financing activities in 2009 mainly due to increase
in borrowings.
Cash and cash equivalents have been increasing steadily from 2006 to 2010 showing
good liquidity position of the firm
84
CHAPTER 8
RECOMMENDATIOND AND SUGGESTIONS
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.
85
CHAPTER 9
BIBLIOGRAPHY
BOOKS:
Financial management by I M PANDEY
Annual Report of SAIL
Magazines of SAIL
INTERNET WEB SITES:
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
86

Financial Analysis Steel Authority of India Limited (SAIL)

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Financial Analysis Steel Authority of India Limited (SAIL)

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PROJECT REPORT

Master of Business Administration

Under the supervision of

1. Aditya Aggarwal (5)

DELHI SCHOOL OF MANAGEMENT

2.1 Balance Sheet

CHAPTER 7 CASH FLOW ANALYSIS

CHAPTER 8 RECOMMENDATIONS AND SUGGESTIONS

Demand - Availability Projection

Demand – Availability of iron and steel in the country is projected by Ministry of

Imports of Iron & Steel

Last five years import of Finished (Carbon) Steel is given below:-

Year Qty. (In Million Tonnes)

(Source: Joint Plant Committee)

Iron & Steel are freely exportable.

(Source: Joint Plant Committee)

Opportunities for growth of Iron and Steel in Private Sector

The New Industrial Policy Regime

(ii) Pig Iron

Ranked amongst the top ten public sector

1. Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh

2. Special Steel Plants

Alloy Steels Plants (ASP) in West Bengal

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

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

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

A part of the operations in the company continues to be from energy inefficient

Delays in environmental clearances and renewal of mining leases could lead to

Assets = Liabilities + Shareholders’ Equity

Balance Sheet of XYZ Company

Current Assets (6)

Current Liabilities (7)

Net Current Assets (6) – (7) = (8)

Types of Tangible Assets

2.2.1 FORMAT OF PROFIT & LOSS STATEMENT

Profit & Loss Statement of XYZ Company

(a) Revenue - Cash inflows or other enhancements of assets of an entity during a

(b) Expenses - Cash outflows or other using-up of assets or incurrence of liabilities

(f) Other Operating Expenses

OP = Turnover - COS - other Operating Expenses + Other Operating Income

PAT = PBT - Corporation Tax

Long- Term Solvency:

Inter- firm Comparison:

CATEGORY TYPES OF RATIO INTERPRETATION

Net Working Capital = Current assets-current liabilities

Current ratio =Current Assets/ Current Liabilities

Debtor Turnover ratio =Net credit sales/ Average debtors

Debt-Equity ratio = Long term debt/shareholder’s Equity

Debt to Total capital ratio = Long term debt/ Permanent Capital

Interest Coverage = Earning before Interests and Tax interest

Gross Profit margin = Gross profit ∗ 100/ Sales

Operating ratio = Cost of Goods sold + other expenses/ Sales

Return on Assets (ROA) =

Inventory turnover = Sales/ Closing Inventory

10. Assets Turnover Ratios

Total Assets turnover = Cost of Goods Sold/ Total Assets

Fixed Assets turnover = Cost of Goods Sold/ Fixed Assets

3.1 BALANCE SHEETS

Long Term Financial Position:

Current Financial position and liquidity position:

Operating Profit 6,554.77 9,644.51 11,267.14 8,941.44 9,215.04

Following steps are required to determine the trend percentage:

1. Select a base year: Let FY’06 be the base year