qwertyuiopasdfghjklzxcvbnmqwerty uiopasdfghjklzxcvbnmqwertyuiopasd fghjklzxcvbnmqwertyuiopasdfghjklzx cvbnmqwertyuiopasdfghjklzxcvbnmq Financial Management Project Ratio Analysis of SAIL (2006-10) wertyuiopasdfghjklzxcvbnmqwertyui opasdfghjklzxcvbnmqwertyuiopasdfg hjklzxcvbnmqwertyuiopasdfghjklzxc vbnmqwertyuiopasdfghjklzxcvbnmq

wertyuiopasdfghjklzxcvbnmqwertyui opasdfghjklzxcvbnmqwertyuiopasdfg hjklzxcvbnmqwertyuiopasdfghjklzxc vbnmqwertyuiopasdfghjklzxcvbnmq wertyuiopasdfghjklzxcvbnmqwertyui opasdfghjklzxcvbnmqwertyuiopasdfg hjklzxcvbnmrtyuiopasdfghjklzxcvbn mqwertyuiopasdfghjklzxcvbnmqwert

18 JAN 2010

GROUP 6

Contents

y Brief profile y Assets (2005 2010) y Liabilities (2005 2010) y Income and expenditure (2005 2010) y Profits (2005 2010) y Profitability Ratios y Liquidity Ratios y Activity Ratios y Long term solvency or Leverage Ratios y Bibliography

All the amounts are in crores except for EPS, Market price and Dividend per share.

HISTORY OF THE INDUSTRY :

The Indian Steel industry is almost 100 years old now. Till 1990, the Indian steel industry operated under a regulated environment with insulated markets and large scale capacities reserved for the public sector. Production and prices were determined and regulated by the Government, while SAIL and Tata Steel were the main producers, the latter being the only private player. In 1990, the Indian steel Industry had a production capacity of 23 MT. 1992 saw the onset of liberalization and the Indian economy was opened to the world. Indian steel sector also witnessed the entry of several domestic private players and large private investments flowed into the sector to add fresh capacities. Steel Industry in India is on an upswing because of the strong global and domestic demand. India's rapid econ omic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian steel industry on the global map. According to the latest report by International Iron and Steel Institute (IISI), India is the seventh largest steel producer in the world. The origin of the Indian steel industry can be traced back to 1953 when a contract for the construction of an integrated steelworks in Rourkela, Orissa was signed between the Indian government and the German companies Fried Krupp und Demag AG. The initial plan was an annual capacity of 500,000 tonnes, but this was subsequently raised to 1 million tonnes. The capacity of Rourkela Steel Plant (RSP), which belongs to the SAIL (Steel Authority of India Ltd.) group, is presently about 2 million tonnes. At a very early stage the former USSR and a British consortium also showed an interest in establishing a modern steel industry in India. This resulted in the Soviet -aided building of a steel mill with a capacity of 1 million tonnes in Bhilai and the British -backed construction in Durgapur of a foundry which also has a million tonne capacity. The Indian steel industry is organized in three categories i.e., main producers, other major producers and the secondary producers. The main producers and other major producers have integrated steel making facility with plant capacities over 0.5 MT and utilize iron ore and coal/gas for production of steel. The main producers are Tata Steel, SAIL, and RINL, while the other major producers are ESSAR, ISPAT and JVSL .

All the amounts are in crores except for EPS, Market price and Dividend per share.

Brief profile
Steel Authority Of India Ltd .
Website:
www.sail.co.in

Industry ROC Reg. No. Ownership

Finished Steel (Non-Alloy Steel)

6454 Central Govt. - Commercial Enterprises

Industry P/E Incorporation Year

15.87

1954

Registered office address: Ispat Bhavan, Lodhi Road, P B No.3049, New Delhi - Delhi Tel no. 24367481 Fax no. 24367015 ISIN Code BSE Demat Code BSE Listing group NSE Scrip Code Face value (Rs) Beta Listed On
INE114A01011 500113

SAIL 10 1.323

Bombay , London , National , Uttar Pradesh (Kanpur)

COMPANY BACKGROUND Steel Authority of India (SAIL) is the largest steel producer in India. It was incorporated in the year 1954 and is one of the Navratnas. It operates five integrated steel plants and three special steel plants. It also owns nine iron ore mines, five limestone mines, two dolomite mines and three collieries. In 2007 --08, its revenues stood at Rs.45, 685 crore, more than twice the sales of Tata Steel, the second largest company in the industry. Earlier on the brink of being declared sick by the BIFR, t he company is one of the biggest turnaround cases in the corporate world.

All the amounts are in crores except for EPS, Market price and Dividend per share.

Its product portfolio includes a wide range of items, viz, hot rolled and cold rolled sheets/coils, galvanised sheets, structurals, railway products, plates, pipes, bars, rods alloy and stainless steel products. These classified under the saleable steel category contributed 95 per cent to the total sales in 2007 --08. The rest was chipped in by secondary items like ingots, pig iron, scrap and chemicals. In February 2006, SAIL amalgamated its wholly owned subsidiary, Indian Iron and Steel Company. The steel ministry has accorded in--principal approval to merge Nilachal Ispat Nigam, National Iron and Steel Company and Maharashtra Elektrosmelt with SAIL. The company has a capacity to produce 15.2 million tonnes of hot metal and 14 million tonnes of crude steel. It intends to expand the capacity of the former to 26 million tonnes by 2010, entailing an estimated cost of over Rs.54, 000 crore. This expansion would be undertaken through de--bottlenecking and modernisation of its existing facilities. During this period, SAIL plans to eliminate the production of low --margin semi--finished steel, which presently constitute 17 per cent of its total produc tion. SAIL has one of the largest mining networks in the country with captive mines of iron ore, limestone and dolomite under its belt. The company is the largest iron ore producer in India and has sufficient iron ore reserves to feed its capacities. IISCO's merger with SAIL in 2005--06 provided the latter with access to iron ore mines in Chiria having a potential reserve of around two billion tonnes. However, the company is locked in a legal battle with the Jharkhand government over the cl aim of these mines. SAIL sources its entire coal requirement from outside suppliers. The company imports nearly 70 per cent of these and the rest is being sourced from Coal India. In a bid to augment supplies of key inputs, the company joined hands with Coal India, National Thermal Power Corpn and National Mineral Development Corpn for the formation of a special purpose vehicle to acquire coal mines abroad. Additionally, it formed a joint venture with Tata Steel for development of coal mines in India. The company's other strategic alliances include setting up a ferro alloy plant at Bhilai with Manganese Ore India and setting up a 2.2 million tonne slag based cement plant.

All the amounts are in crores except for EPS, Market price and Dividend per share.

PROFITABLITY RATIOS It offers several different measures of the success of the firm at generating profits. GROSS PROFIT RATIO Gross profit/ sales * 100 Gross profit = Sales - COGS

Year 2006 2007 2008 2009 2010

Gross profit 4771.22 8783.71 10004.21 6065.63 9714.54

Sales 32299.53 39301.49 45671.21 48794.04 44022.06

GP Ratio 14.77179 22.34956 21.90485 12.43109 22.06744

It shows to what extend the company can reduce its selling price so as to not make losses. Thus it shows the operational efficiency of the company. SAIL s ratio seems to be increasing showing increasing margins. It may either be due to increasing selling price or decrease in COGS. NET PROFIT RATIO PAT / Sales * 100
Year 2006 2007 2008 2009 2010 Net Profit 4012.3 6202.29 7536.78 6170.4 6754.37 Sales 32299.53 39301.49 45671.21 48794.04 44022.06 NP Ratio 12.42216 15.78131 16.50226 12.64581 15.34315

It is mostly used by owners since PAT is used. Pat is considered the earnings available to them. Hence it is very important to them. But this alone cannot be used to judge the overall

All the amounts are in crores except for EPS, Market price and Dividend per share.

profitability of the firm. It shows to what extend the company can survive in competition how much is the profits available for retaining. OPERATING PROFIT RATIO COGS / SALES * 100

Year 2006 2007 2008 2009 2010

COGS 27528.31 30517.78 35667 42728.41 34307.52

Sales 32299.53 39301.49 45671.21 48794.04 44022.06

Operating Ratio 85.23 77.65 78.10 87.57 77.93

It shows what percentage of sales does the total Expenses form. It helps to know the operating profit of the company. But it depends on a lot of uncontrollable factors. Hence a fall in it cannot solely mean operational efficiency.

All the amounts are in crores except for EPS, Market price and Dividend per share.

EXPENSE RATIO Indirect expense includes Compensation to employees, Indirect taxes, Royalties and technical knowhow, lease rent and other rent, repair and maintenance, Insurance premium paid, outsourced professional jobs, Director s fees, Selling and distribution expense , travelling expense, communication expense, Printing and stationery and miscellaneous.

Year 2006 2007 2008 2009 2010

Indirect Expense 8680.89 9683.79 11437.09 11601.18 8962.41

Sales 32299.53 39301.49 45671.21 48794.04 44022.06

Expense ratio 26.88 24.64 25.04 23.78 20.36

This ratio finds out the percentage of sales does indirect expense takes. It should always be at the minimum. SAIL s ratio remains around 25% throughout and reduces to 20% in 2010 which is a good signal.

RETURN ON INVESTMENT
ROI = PAT/Shareholders fund Shareholders fund = Equity capital + Preference capital + Reserves Year 2006 2007 2008 2009 2010 PAT 4012.3 6202.29 7536.78 6170.4 6754.37 Shareholders fund 12601.41 17313.15 23063.57 28148.22 33316.7 Return on investment 31.84% 35.8% 32.67% 21.92% 20.27%

All the amounts are in crores except for EPS, Market price and Dividend per share.

This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary objective of businesses being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As the ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. Inter firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher.

RETURN ON EQUITY CAPITAL

ROE = PAT- Preference dividend/ Equity capital Year 2006 2007 2008 2009 2010 PAT 4012.3 6202.29 7536.78 6170.4 6754.37 Equity capital 4130.4 4130.4 4130.4 4130.4 4130.4 Return on equity .971 1.50 1.82 1.49 1.635

This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them. Interpretation of the ratio is similar to the interpretation of return on shareholder's investments and higher the ratio better is.

RETURN ON NET CAPITAL EMPLOYED

(Profits after interest before tax/ Net Capital employed) * 100 Net Capital employed = Issued share capital (Equity & Preference) + Reserves and surplus + PAT + Debentures + Other long term loans

All the amounts are in crores except for EPS, Market price and Dividend per share.

Year 2006 2007 2008 2009 2010

PBT 5707.33 9456.52 11471.43 9454.53 10207.26

Capital Employed 18062.61 12379.81 31628.99 39530.13 43112.38

Return on Net Capital Employed (%) 31.60 76.39 36.27 23.92 23.68

The above formula indicates how well the company has utilised its funds. It s one of the ratios the investors look into because retained earnings and borrowed money along with their capital is included. The higher the percentage, it shows the amount is used judiciously. In the above table it is understood that the ratio increases but falls in 2009. This is not due to fall in profits but due to increase in capital employed. It reduces to 23.68% in 2010 which is not healthy for the company.

90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00
1 2 3 4 5

DIVIDEND YILED RATIO OF SAIL: Dividend Yield Ratio = Dividend per share / Market price of the share It gives the return for every one rupee invested. DIVIDEND YIELD PERCENTAGE implies that (20062.26%) of market price of the share was issued as dividend in the year 2006 and later on it get decreases due to various economic changes in SAIL.

All the amounts are in crores except for EPS, Market price and Dividend per share.

Year

Dividend Per Share

Market Share Per Year

Dividend Yield Ratio

Percentage

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

2 3.1 3.7 2.6 3.3

88.3 114.3 146.32 142.11 206.32

0.0226 0.027 0.0252 0.0182 0.0159

2.26% 2.71% 2.52% 1.82% 1.59%

DIVIDEND PAYOUT RATIO

Dividend per share / Earnings per share Earnings per share = PAT/ No. of Outstanding equity shares Year 2006 2007 2008 2009 2010 Dividend per share 2 3.1 3.7 2.6 3.3 EPS 9.71 15.016 18.24 14.93 16.35 Dividend payout ratio .205 .205 .2028 .174 .202

The payout ratio and the ratio are the indicators 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. A lower payout ratio or higher retained earnings ratio means a stronger financial position of the company.

0.21 0.2 0.19

0.18 0.17

0.16 0.15
2006 2007 2008 2009 2010

All the amounts are in crores except for EPS, Market price and Dividend per share.

EARNINGS PER SHARE RATIO

EPS= (Net profit after tax and Preference dividend) / No. of equity shares No. of equity shares = Equity Capital / Face value

Year 2006 2007 2008 2009 2010

PAT 4012.97 6202.29 7536.78 6170.4 6754.37

No. of Equity shares 413.04 413.04 413.04 413.04 413.04

EPS 9.71 15.016 18.24 14.93 16.35

EPS is a very important ratio while trading. It shows the earning per every share that belongs to the investor who has a share of SAIL. If the company is planning to retain its earnings, the Dividend Payout ratio and EPS will be different. A company should try to increase its EPS to attract investors. SAIL s EPS is seen to increase till 2008 with a slight fall in 2009 and then it s increasing.

20 15

10 5
0

2006

2007

2008

2009

2010

PRICE EARNINGS RATIO

PE Ratio = Market Price per equity share/ EPS The market price of the equity share is assumed as the average price of the share throughout the year. PE ratio is the amount the investor has to pay for every one rupee of earnings of the company. All the amounts are in crores except for EPS, Market price and Dividend per share.

Market price seems to be increasing. This ratio is usually used by potential investors while deciding whether to invest in the company would be worth it. SAIL s PE ratio does not vary much even though the market price seems to increase and also the EPS.

Year 2006 2007 2008 2009 2010

Market price 83.3 114.3 146.32 142.11 206.32

EPS 9.71 15.016 18.24 14.93 16.35

PE Ratio 8.58 7.61 8.02 9.52 12.62

14.00

12.00 10.00
8.00

6.00 4.00
2.00

0.00
2006 2007 2008 2009 2010

All the amounts are in crores except for EPS, Market price and Dividend per share.

LIQUIDITY RATIOS It measures the short term solvency of the firm. It measures the company s ability to pay off short term debt obligations. Higher the ratio, larger the margin of safety the company possess. CURRENT RATIO
Current Assets / Current Liabilities Year 2006 2007 2008 2009 2010 Current Assets 15525.72 20212.23 26049.33 34341.17 38685.01 Current Liabilities 11765.05 11957.99 14254.62 18131.99 18093.54 Current Ratio 1.32 1.69 1.83 1.89 2.14

This ratio is also known as Working capital ratio. It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety available to the creditors. It is an index of the firm s financial stability. It is also an index of technical solvency and an index of the strength of working capital. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. A ratio equal to or near 2:1 is considered as a standard or normal or satisfactory.
2.00 1.50 1.00 0.50 0.00 2006 2007 2008 2009 2010

All the amounts are in crores except for EPS, Market price and Dividend per share.

Here for SAIL current ratio is increasing steadily from 1.36 to 2.1 during the period 2006 to 2010. This shows that the firm has a good level of working capital. So the firm is said to be growing in stability.

QUICK RATIO OR LIQUID RATIO Liquid Assets / Current Liabilities

Year 2006 2007 2008 2009 2010 Liquid Assets 9305.43 13550.26 19180.48 24112.91 29516.71 Current Liabilities 11765.05 11957.99 14254.62 18131.99 18093.54 Quick Ratio 0.79 1.13 1.35 1.33 1.63

The two components of quick ratio are liquid assets and current liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and marketable securities or temporary investments. In other words they are current assets minus inventories (stock) and prepaid expense s. The quick ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. Generally, a quick ratio of 1:1 is considered to be satisfactory. In the case of SAIL, the quick ratio is also increasing from .79 to 1.63, during the period 2006 to 2010. This also clearly shows that the firm is stable as the liquidity state of the firm is good.

All the amounts are in crores except for EPS, Market price and Dividend per share.

ACTIVITY RATIOS Also called efficiency ratios these ratios tell how quickly a company converts its non cash assets to cash. INVENTORY TURNOVER RATIO Cost of goods sold / Average inventory at cost or Net Sales / Average inventory at Selling Price
Raw material turnover Finished goods turnover 4.67 13.33 4.38 14.41 4.57 13.33 5.49 13.44 3.90 11.25

Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit; a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively a high profit. SAIL has a good turnover ratio, such as showing that the firm is able to convert the money invested to that many times in sales.

All the amounts are in crores except for EPS, Market price and Dividend per share.

DEBTORS TURNOVER RATIO

Debtor s turnover ratio measures the efficiency with which the debtors are converted into cash. This ratio indicates both the quality of debtors and the collection efforts of the business enterprise. Debtor s turnover ratio can be calculated using the following formula.

Debtors Turnover Ratio = (Credit Sales) / (Average Accounts Receivables)

The following table gives the Debtors turnover ratio for the past 5 years. Years Debtors turnover ratio(In times) 2006 15.45 2007 17.06 2008 15.80 2009 15.08 2010 12.82

Debtors turnover ratio indicates the efficiency of the company to collect the amount due from debtors. In other words it determines the efficiency with which the trade debtors are managed. Higher the ratio, better it is as it proves that the debts are being collected very quickly. On close evaluation of the five years results that are mentioned above, in 2007 SAIL had the largest ratio and hence the most efficient collection system. However in 2010 the efficiency level had dropped tremendously as the ratio is the smallest here.

AVERAGE 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 Average collection period can be calculated using the following formula:

Average Collection Period = (Days in A Year) / (Debtors Turnover Ratio)

The following is a table showing the Average collection period for the past five years The average collection period first decreased and then steadily increased from 2008 to 2010 The . decrease is favourable to the company as the quicker is the collection period the more is the utilization of cash collected from debtors.

All the amounts are in crores except for EPS, Market price and Dividend per share.

Year

Debtors Turnover Ratio (DTR) 15.4539146 17.0645707 15.80294162 15.08906569 12.82823277

Average Collection Period= 365/DTR 24 21 23 24 28

2006 2007 2008 2009 2010

CREDITORS TURNOVER RATIO

Creditor s turnover ratio compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. It can be calculated using the following formula:

Creditors Turnover Ratio = (Credit Purchase) / (Average Trade Creditors)

The following is a table showing the creditors turnover ratio for the past five years:

Years Creditors Turnover Ratio

2006 9.37173285

2007 9.93651008

2008 10.66191396

2009 11.78394454

2010 7.377804545

A high creditor s turnover ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favourable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors. The credit turnover ratio had increased steadily till 2009 and it is a very healthy situation for the company however in 2010 there is a major dip in the value showing that the credit worthiness of the company has decreased. WORKING CAPITAL TURNOVER RATIO Cost of goods sold / Net working capital COGS = All expenses except miscellaneous expenses All the amounts are in crores except for EPS, Market price and Dividend per share.

Net WC = Current Assets Current liabilities

Year 2006 2007 2008 2009 2010

COGS 27528.31 30517.78 35667 42728.41 34307.52

Net WC 7521.92 16508.48 23589.42 32418.36 41182.94

Net WC Turnover Ratio 2.57 1.29 1.05 0.99 0.64

This ratio is used to find the relation between the money used for the operations and amount of goods sold out from these operations. It is mostly used for inter company comparison so that the company can know whether a large amount is blocked up in the working capital. If it s too high it means insufficient working capital and if it s too low it means too much of working capital is blocked up.

FIXED ASSETS TURNOVER RATIO Cost of sales / Net Fixed Assets

Year 2006 2007 2008 2009 2010 COGS 27528.31 30517.78 35667 42728.41 34307.52 FA 12920.08 12796.23 13960.86 18855.1 28641.41 FA Turnover Ratio 2.13 2.38 2.55 2.27 1.20

Higher the ratio, it shows better utilization of fixed assets. If the ratio is too low, it shows that sales is too low and investment is fixed assets is too high.

All the amounts are in crores except for EPS, Market price and Dividend per share.

LONG TERM SOLVENCY OR LEVERAGE RATIOS It shows the extent to which a firm relies on debt financing and to how much can a company honour its long term obligations. It indicates about the long term solvency of the firm. DEBT EQUITY RATIO
DE Ratio = Outsiders funds/ Shareholders funds or External equities/ internal equities External equities = Total borrowings + current liabilities Year 2006 2007 2008 2009 2010 External equities 15153.5 15249.51 16391.91 24832.2 33782.16 Internal equities 12601.41 17313.15 23063.57 28148.22 33316.7 DE ratio 1.20 0.88 0.71 0.88 1.01

The ratio seems to remain constant throughout the past 5 years with no major variations. The ideal ratio is considered as 1:1. The owners always want borrowings to fund the projects and minimum investment from their side while the creditors want the owners too to contribute to the company so as to the risk the share the ratio seems to be around 1 except in years 2007, 2008 and 2009 where the external equities is low. This might be due the company s reserves & surplus increasing because the share capital is the same throughout these years.

PROPRIETARY OR EQUITY RATIO

Equity ratio = Shareholders funds/ Total assets Year 2006 2007 2008 2009 2010 Shareholders funds 12601.41 17313.15 23063.57 28148.22 33316.7 Total Assets 29461.54 35270.45 42015.47 55476.02 69545.67 Equity ratio 0.43 0.49 0.55 0.51 0.48

All the amounts are in crores except for EPS, Market price and Dividend per share.

This ratio helps the creditors to find out the contribution of owners to the business. It is almost similar in usage with debt equity ratio. Higher the contribution by owners, better the solvency and less risk for creditors. It throws light on the strength of the capital structure of the company. In 2006, for every Re. 1 of assets shareholders contribution is 0.43 while 0.57 by creditors. SAIL has a very weak Equity ratio because most of the years it is below 0.5 showing increasing risk to creditors.
60.00 50.00 40.00 30.00 20.00 10.00
0.00

2006

2007

2008

2009

2010

RATIO OF FIXED ASSETS TO SHAREHOLDERS FUNDS

Fixed assets/ Shareholders funds YEAR 2006 2007 2008 2009 2010 FIXEDASSETS(FA) 12920.08 12796.23 13960.86 18855.1 28641.41 SHARE HOLDERS FUND(SHF) 12601.41 17313.15 23063.57 28148.22 33316.7 RATIO=FA/SHF 1.03 0.74 0.61 0.67 0.86

FIXED ASSETS = Land & Building + Plant & Machinery + Transport & Comm. Equipment / Infrastructure + Furniture, Amenities & other fixed assets + Capital work-in-progress + Intangible assets + Net pre-operative expenses pending allocation + Net lease reserve adjustmentLess: Cumulative depreciation SHARE HOLDERS FUND = Paid up equity capital + Reserves & Surplus All the amounts are in crores except for EPS, Market price and Dividend per share.

In 2006, the ratio of fixed assets to shareholders fund is more than 100%, which implies that the owner s funds are not sufficient to finance the fixed assets. But for the operating years 2007, 08, 09 and 10, the owners funds were sufficient enough and a part of working capital is provided by the shareholders fund.

RATIO OF CURRENT ASSETS TO SHAREHOLDERS FUNDS

YEAR CURRENT ASSETS(CA) SHARE HOLDERS FUND(SHF) RATIO = CA/SHF

2006 2007 2008 2009 2010

15525.72 20212.23 26049.33 34341.17 38685.01

12601.41 17313.15 23063.57 28148.22 33316.7

1.23 1.17 1.13 1.22 1.16

CURRENT ASSETS = Cash & Bank balance + Inventories + Receivables + Expenses paid in advance SHARE HOLDERS FUND = Paid up equity capital + Reserves & Surplus The ratio of current assets to share holder s ratio shows percentage of proprietors fund invested in current assets.

INTEREST COVERAGE RATIO

Net profit before interest and tax/ Fixed Interest charges

Year 2006 2007 2008 2009 2010

PBIT 6141.74 9772.68 11709.9 9778.59 10923.01

Fixed Interests 434.41 316.16 238.47 324.07 715.75

IC Ratio 14.14 30.91 49.10 30.17 15.26

All the amounts are in crores except for EPS, Market price and Dividend per share.

This ratio shows how many times a company s interest is covered. Before creditors lend, this is one of the ratio that shows the financial strength of the company. It acts as a safety gauge for them. It shows whether there will be a default in the payment of the interest. Generally it is said that the minimum interest coverage ratio should be 1.5. An Interest coverage ratio below 1 show a company will have difficulties generating the cash necessary. SAIL s interest coverage ratio is very much high showing the company is able to earn to pay interest. It is the maximum in 2008 at 49.10 times.

CAPITAL GEARING RATIO

Equity share capital/ fixed interest bearing funds It refers to the proportion of equity and preference and other fixed interest funds. Shareholders feel the ratio is to be higher otherwise a majority of profits will go for interest in times of low profits. This ratio describes the mix in the capital structure. It also refers to a company s ability to pay dividends. Total borrowings and preference capital is assumed as fixed interest bearing funds. Year 2006 2007 2008 2009 2010 Equity Capital 4130.4 4130.4 4130.4 4130.4 4130.4 Fixed interest funds 3388.45 3291.52 2137.29 6700.21 15688.62 CG Ratio 1.22 1.25 1.93 0.62 0.26

2.50 2.00
1.50 1.00

0.50 0.00
2006 2007 2008 2009 2010

The ratio seems to be decreasing sharply which shows an unhealthy capital structure. All the amounts are in crores except for EPS, Market price and Dividend per share.

OVER TRADING AND UNDER CAPITALIZATION

Over trading symptoms are seen in SAIL s ratio analysis through low current ratio and high turnover ratios. Over trading occurs when the company has insufficient cash with them but has strict credit policies and thereby turnover ratios are very high. On the other hand under capitalization is also seen in SAIL because of low equity ratio and low current ratio. This happens when the company does not invest enough equity at the tme of i formation. Due to under capitalization, over trading occurs. When the company depends too much on borrowed capital and has less owners capital it results in low current ratio and low equity ratio leading to high turnover ratios.

All the amounts are in crores except for EPS, Market price and Dividend per share.

Bibliography
y CMIE Database y www.accountingformanagement.com

All the amounts are in crores except for EPS, Market price and Dividend per share.