CHAPTER 1 1.

1 INTRODUCTION AND DESIGN OF STUDY

Finance is a scare resource and it has to be managed efficiently for the successful functioning of an enterprise. Inefficient financial management has resulted in failure of many business organizations. Irrespective of any difference in structure, ownership and size, the finance organization of the enterprise caught to be capable of ensuring that the various finance functions- Planning and controlling are carried out at the highest degree of efficiency. It is the lifeblood of every business activity without which the wheels of modern business organization system cannot be greased. Thus the finance function assumes an important role in the affairs of business management. The profitability and stability of the business depends upon the manner how the finance function are performed and related with other business functions. Finance has to be systematically controlled and regulated so that it may contribute to different functions of business administration such as purchasing, production and marketing. It is difficult to aggregate the finance function from that of general business management. Simply finance is intertwined with every business function. Before the turn of the present century finance was studied as part of economics. It was only in the beginning of the present century that corporation finance evolved as a separate subject with special emphasis on the study of capital market. The term Corporate Finance was used to describe what is now known in the academic world as Finance Management. Broadly speaking finance serves two important function first it is a means of assembling the funds necessary to inherit a new activity second and much more

important is that, it provides the basis for continued operation furnishing additional capital, covering the cost of operation and generally synchronizing the various factors of a going business. Underlying these two functions is the formulation of policy, which provides a sense of direction and actual plan of operations. Application of various management techniques in the area of finance is essential to use or to employ the scare financial resources available for a business enterprise, in an effective manner. In this connection Haward and Upton observed Financial management involves the application of general management principles to a particular financial operation. It is a scientific evaluation of profitability and financial strength of a business concern. It is a process of scientifically making a proper and corporative evaluation of the profitability and financial health of the given concern on the basis of summarized and analyzed data, i.e., the output of financial analysis. Financial management is the financial activity of accounting cycle, where key financial decisions are taken on the basis of clearly analysed, summarised and manipulated accounting data, according to the required needs. In practice the entire process of financial management is performed by two different functional people, up to preparation and analysis of financial statements comes under accounting department, basing on this information other functional people i.e., management takes decisions. Financial management may be defined as that part of management which is concerned with raising funds in the most economic and suitable manner, using these funds as profitable (for a given risk level) as possible, planning future operations and controlling current performance and future developments through financial accounting, cost accounting, budgeting, statistics and other means. It guides

investment where opportunity is the greatest, producing relatively yardsticks for judging most of a firms operation and projects and is continually concerned with achieving adequate role of return on investment, as this is necessary for survival and altercating of new capital. Finance is the life-blood of all commercial activities. No undertaking can think of promoting, expanding, or stabilizing without adequate financial resources. Financial Management is concerned with raising of funds in the most economic and suitable manner. Financial Management applies to an organization, irrespective of its size, nature or ownership and control whether it is a manufacturing or service organization. According to Raymond chambers the term financial management may be applied to any kind of under-taking or organization regardless of its aims or constitutions. The assessment of business performance is more complex and difficult, since it must deal with effectiveness with which capital is employed. The efficiency and profitability of operations depend on the value and safety of various claims against the business. To know the performance of a company can be done through a careful and critical analysis of financial statements. Financial analysis helps manager in controlling their enterprises performance. It does this by providing them with a system and set of procedures for analysing and understanding financial indicators of performance. The two important financial statements are the Balance sheet and Profit and Loss account. Although any formal statement expressed in money value might be thought of as financial statement , the term has come to be limited by most accounting and business writers to mean the Balance sheet and Profit and loss account. Financial statement indicate the operating results and financial position of

concern, therefore by analysing and interpreting these statements performance can be appraised. For this purpose, analysis of financial statements is made.

Financial statement analysis is a preliminary step towards the final evaluation of the result drawn by the analyst or management accountant. The management makes appraisal or evaluation of such results. The analysis of financial statement spotlights the significant facts and relationship concerning management performance, corporate efficiency, financial strength and weakness, which would have otherwise been hurried in a maze of detail.

Analysing financial statements, according to Metcalf and Titard ,is a process of evaluating the relationship between component parts of financial statement to obtain a better understanding of a firms position and performance. In the words of Myers, Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements, and a study of the trend of these factors as shown in a series of statements. The purpose of financial statements so as to judge the profitability and financial soundness of the firm.

The financial statements contain all the data relating to operating results and financial position of the business. Besides this, other documents such as reports, schedules and explanatory notes are also appended. Overall performance of the business is appraised by analysing these statements. Analysis the financial statements provides a method for assessing the financial strength and weakness of the company. So this study aims to build new methods of analysing the performance of the corporations, by taking cues from accounting, statistics, finance and quantitative method.

1.2. COMPANY PROFILE

ABOUT THE INDUSTRY Steel, the recycled material is one of the top products in the manufacturing sector of the world. The Asian countries have their respective dominance in the production of the steel all over the world. India being one among the fastest growing economies of the world has been considered as one of the potential global steel hub internationally. Over the years, particularly after the adoption of the liberalization policies all over the world, the World steel industry is growing very fast. Steel Industry is a booming industry in the whole world. The increasing demand for it was mainly generated by the development projects that has been going on along the world, especially the infrastructural works and real estate projects that has been on the boom around the developing countries. Steel Industry was till recently dominated by the United Sates of America but this scenario is changing with a rapid pace with the Indian steel companies on an acquisition spree. In the last one year, the world has seen two big M&A deals to take place :

The Mittal Steel, listed in Holland, has acquired the world's largest steel company called Arcelor Steel to become the world's largest producer of Steel named Arcelor-Mittal.

Tata Steel of India or TISCO (as listed in BSE) has acquired the world's fifth largest steel company, Corus, with the highest ever stock price.

It has been observed that Steel Industry has grown tremendously in the last one and a half decade with a strong financial condition. The most significant growth that

can be seen in the Steel Industry has been observed during the period 1960 to 1974 when the consumption of steel around the whole world doubled. Between these years, the rate at which the Steel Industry grew has been recorded to be 5.5 %. This roaring market saw a phase of deceleration from the year 1975 which continued till 1982. After this period, the continuous fall slowed down and again started its upward movement from the early 1990s. Steel Industry is becoming more and more competitive with every passing day. During the period 1960s to late 1980s, the steel market used to be dominated by OECD (Organization for Economic Cooperation and Development) countries. But with the fast emergence of developing countries like China, India and South Korea in this sector has led to slipping market share of OECD countries. The balance of trade line is also tilting towards these countries. The main demand creators for Steel Industry are Automobile industry, Construction Industry, Infrastructure Industry, Oil and Gas Industry, and Container Industry. New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc. In 1991, a substantial number of economic reforms were introduced by the Indian government. These reforms boosted the development process of a number of industries the steel industry in India in particular which has subsequently developed quite rapidly. The 1991 reforms allowed for no slicenses to be required for capacity creation, except for some locations. Also, once Indias steel industry was

moved from the listing of the industries that were reserved exclusively for the public sector, huge foreign investments were made in this industry. India continually posts phenomenal growth records in steel production. In 1992, India produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron. Furthermore, the steel production capacity of the country has increased rapidly since 1991 in 2008, India produced nearly 46.575 million tones of finished steels and 4.393 million tones of pig iron. In 2008, the total amount of domestic steel consumption was 43.925 million tones. With the increased demand in the national market, a huge part of the international market is also served by this industry. Today, India is in seventh position among all the crude steel producing countries.

ABOUT THE SALEM STEEL PLANT

The Steel Authority of India Lts is largest steel manufacturesr in India. The company has four integrated steel plant and three specialized facilities produce a variety of steels used in construction, engineering, utilities, railways, automotive, and defense

industries. SAIL product line includes hot and cold-rolled sheets and cols, galvanized sheets, electrical sheets, structural, railway products, plats, bars and rods, stainless steel, and alloy steels. While Indias government owns approximately 85 percent of the company, SAIL operates under NAVARATHNA status, that is it enjoys substantial operational and financial autonomy.SAIL ranks amongst the biggest corporates in India with a turnover of over Rs. 40,000 cr. and a workforce of around 1.31 lakh. SAIL is the first metal company to cross Rs. one trillion of market capitalization. Salem Steel Plant, a special steels unit of Steel Authority of India Ltd., pioneered the supply of wider width stainless steel sheets / coils in India. The plant can produce Austenitic, ferritic, Martensitic and Low-nickel stainless steel in the form of coils and sheets with an installed capacity of 70,000 tonnes / year of cold rolled stainless steel and 1,86,000 / year tonnes of hot rolled stainless steel / carbon steel flat products. In addition, the country's first top-of-the-line stainless steel Blanking facility with a capacity of 3600 t / year of coin blanks and utility blanks / circles adds to the credit of the plant. The plant is facilitated with hot rolling mill which can roll both stainless & carbon steels and the mill caters mainly to the input needs of stainless steel coils for the cold rolling mills. Special grades of carbon steels other than Structural steels are also rolled from the facility includes Weathering steels, High strength low alloy steels etc., which are extensively used in industrial sectors. Hot rolling mill complex is equipped with walking beam re-heating furnace, primary descaler, 4-hi reversing roughing mill, 4-high reversing steckel mill, down coiler, laminar cooling and roll grinding machines, procured from world renowned suppliers.

The steckel mill, the mother unit of hot rolling with level - 2 automation is provided with hydraulic gauge setting and automatic gauge control. The continuously variable crown(CVC) controls the profile and flatness by roll shifting and Work roll bending system provide additional fine control of flatness of the strip. Cold rolling mill complex is equipped with the most modern stainless steel production lines, sourced from leading manufacturers of the world. Coil build up line, Bell anneal furnaces Continuous annealing and pickling lines, Sendzimer Mills, Skinpass Mill, Strip grinding line, Slitting and shearing lines to produce coils /sheets with precise dimensional tolerance and flatness with superior metallurgical characteristics. Ferritic and Martensitic stainless steel are annealed/softened at bell annealing furnaces and austenitic stainless steel is annealed/softened and descaled in continuous annealing & pickling lines using Ruthner neutral electrolytic pickling process and mixed acid pickling for superior surface finish. The coils are rolled in 20-High computerized sendzimer mills to required dimensional tolerances. A 2-high skin pass mill with elongation control and constant hydraulic roll force system ensures a product of bright finish and high flatness. A shearing line with precision roller levelers, electronic flying shear and vacuum piler facilitates defect-free piling of the leveled cut sheets. Coils of narrow width and smaller weight are produced by a precision slitting line equipped with latest features like in feed car, grip feed device, tension pad and interchangeable slitters. The shearing and slitting lines have online continuous marking system to make the products customer-friendly. Salem Steel Plant's cold rolling mill complex also includes a resquaring shear, a recoiling line, a packing line for slit products and wider coils.

In addition to the common No1, 2D and 2B finishes, a wide range of finishes including No.3, No.4, No.8 (mirror)and special finishes like Moon Rock, Chequered, Honeykom, Macromatt, Aqualine, Frondz, Mystique, Linen, Fabrique finishes are also produced as per requirement. Presently the modernisation and expansion of Salem Steel Plant is on. The expansion envisages installation of Steel Melting and Continuous Casting facilities to produce 1,80,000 tonnes of slabs along with, expansion of Cold Rolling Mill complex, enhancing the capacity from 65,000 TPA to 1,46,000 TPA and an additional Roll Grinding Machine for Hot Rolling Mill for increasing production to 3,70,000 TPA by March 2010. MAJOR UNITS INTEGRATED STEEL PLANTS 1. Bhilai Steel Plant (BSP) in Chhattisgarh 2. Durgapur Steel Plant (DSP) in West Brengal 3. Rourkela Steel Plant (RSP) in Orissa 4. Bokaro Steel Plant (BSL) in Jharkhand 5. IISCO Steel Plant (ISP) in West Bengal SPECIAL STEEL PLANTS 1. Alloy Steel plant (ASP) in West Bengal 2. Salem Steel Plant (SSP) in Tamil Nadu 3. Visvervaraya Iron and Steel Plant (VISL) in Karnataka

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SUBSIDIARY Maharashtra Elektrosmelt limited (MEL) in Maharashtra Importance Features of SSP The most importance features of SSP are 1. The Cold Rolling Mill Complex (CRM) 2. The Hot Rolling Mill Complex (HRM) 3. Stainless Steel Blanking Line Process of SSP The Salem Steel Plant has the latest technology in cold rolling and the most modern equipment, supplied by leading manufactures of machinery from different parts of the world The raw material for the manufacturing process is hot rolled stainless steel coils called hot brands. This is partly imported and taken from Alloy Steel Plant, Durgapur. There coils are built up on a coil build up line. The built up coils are softened and decaled in Annealing and pickling lines (APL). From here the coils are sent for cold rolling in the sendzimir mill (Z-Mill) to get the desired final thickness. The rolled coils are again softened and decaled to obtain the optimum finish and mechincal properties. The coils are then passed through the skin pass mill to give them bright finish and necessary flatness. They are ultimately slit or sheared into finished products in the form the slit / divided cils or cut lengths. The special surface finishes are obtained in sheet form in the sheet finding and in the coil from in the strip grinding lines. 11

Future Outlook Production of 1,244 million tonnes of crude steel in the world in 2006 registered a growth of 8.9% over 2005. Global steel trade also increased by 13% to 395 million tonnes in 2006. This trend has continued in 2007, with world crude steel production for the first seven months of the year reaching 762 million tonnes, registering a growth of 8%. China produced 279 million tonnes in this period, a growth of 18.5% over the corresponding period last year. During 2007, global crude steel production is expected to reach 1,300 million tonnes, of which more than one-third will be contributed by China. With the continued strong demand for steel, the international steel scenario remains buoyant. Strong positive growth trends are foreseen in Africa, Asia and South America in 2007. However, the soaring prices of key inputs such as coal, coke, iron ore, scrap, ferro-alloys, etc., have been the area of major concern for steel producers. In 2006, the top 15 steel producers accounted for one-third of global crude steel production as against 26% ten years ago. The process of consolidation in the global steel industry got a major boost with the Arcelor-Mittal merger, thereby forming a global giant accounting for about 10% of worlds production. This trend is likely to continue and we can expect more transnational mergers and acquisitions. China also has planned consolidation whereby more than 50% of its production by the year 2010 shall be coming from the top 10 steel producers in the country. All these developments would throw up new challenges for your company for which several strategic initiatives are being taken.

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The record turnover & profits during 2007-08 have been achieved on the back of the best ever production, sales, and operating efficiency parameters with capacity utilization at 118%. Production of value added/special grade steel items during 200708, went up by as much as 28% over CPLY. We could also bring about significant reduction in energy consumption by over 3% during the year. This thrust on cost reduction has continued in the current financial year too. Benefits offered presently by the Company include medical facilities for self and family, company accommodation or House Rent Allowance, Provident Fund, Gratuity, LTC/LLTC, Leave Encashment, reimbursement of Local

Travel/HRD/Entertainment Expenses, Production Incentive etc. as per rules.

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1.3. STATEMENT OF PROBLEM

The process of nations growth, say in specific industrial growth not only requires the availability of raw materials and infrastructure but also the adoption of sound financial management practices by individual companies as well as the industry. The improper financial management could lead to loss in profit, loss in human resources and Nations benefits and ultimately resulting in the failure of business. Development of industries depends on several factors such as financial, personnel, technology, quality of the product and marketing. Out of these financial aspect assumes a significant role in determining the growth of industries. All of the companys operations virtually affect its needs for cash. Unless top management appreciates the value of good financial analysis, these will be a continuing problem for the financial executives to know the profitability and liquidity of the concern. The firm whose present operations are inherently difficult should try to make its financial analysis to enable its management to stay on top of its working position. In this context the researcher interested in undertaking an analysis the financial statement of Steel Authority of India Lt., to examine and to understand how management of finance plays a crucial role in the growth. Hence the present study entitled A STUDY ON FINANCIAL PERFORMANCE OF SAIL has been undertaken.

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1.4. NEED FOR THE STUDY

The checking of financial performance in a business deserves much attention in carrying out finance function. It requires retrospective analysis of operating period for the purpose of evaluating the wisdom and efficiency of financial planning. Analysis of what has happened should be of great value in improving the standards, techniques and procedures function.

1.5. OBJECTIVES OF THE STUDY

1. To assess the long term solvency and short-term solvency position of the company during the study period. 2. To analyze the profitability position of the company during the study period.

3. To analyze the trend of production, sales, net profit and net worth of the company. 4. To offer suggestions for betterment of the financial position based on findings of the study.

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1.6. SCOPE OF THE STUDY

The present study highlights the financial performance of the selected company, through statement analysis, especially ratio analysis. All the financial analyses are made from financial data of the SAIL for a period of 5 years from 2003-2004 to 20072008

1.7. LIMITATIONS OF THE STUDY

1. This study is based on secondary data taken from the published annual reports and accounts of company and as such its finding depends entirely on the accuracy of such data. 2. The study period covers only 5 years which restricts to know more about the financial performance of the company. 3. The present study is largely on ratio analysis which has its own limitation

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1.8 Chapter Scheme Chapter - 1: Introduction

1. Introduction 2. Company Profile 3. Statement of the problem 4. Objectives of the Study 5. Scope of the study 6. Limitation of the study

Chapter 2: Research Methodology

1. Research Design 2. Data Collection Method 3. Period of Study 4. Data Analysis

Chapter 3: Review of Literature

Chapter 4: Analysis and Interpretation

Chapter 5: Findings, Suggestion and conclusions

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CHAPTER 2

2. REVIEW OF LITERATURE

Pandey I.M (1984), Conducted a study about Financial Decision; A survey of Management Undertaking the corporate managers attitude by using a sample of 62 companies from engineering industry towards use of borrowings in India revealed that practicing managers generally preferred to borrow instead of using other sources of funds because of low cost of debt due to interest tax deductibility and the complicated procedures for raising the equity capital.

George Paul (1985), studied The Financial Performance of Diversified Companies in India and also it involves a comparative study of Diversified company. The financial performance of 32 relatively mached pairs of diversifying and nondiversifying companies in five Indian industries was compared. The findings indicate that diversifies generally outperform non-diversifiers on indicators of growth, profitability, safety and market evaluation. However, inter-industry differences in the benefits of diversification indicate that diversification is selectively useful

G. Foster(1986) in his study on financial analysis stated that it is the process of identifying financial strength and weakness of firm by properly established relationships between the items of balance sheet and the profit & loss account. Financial analysis can be under taken by the management of firm on by parties outside the firm, viz.., owners, creditors, investors and others.

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Daga V.R(1985) in his thesis entitled, Analysis of Financial Statements of Aluminium Industry in India was aimed at analyzing the complex financial situation in which the Indian Aluminium Industry had sailed during the period of study from 1973 to 1983. Mr. Daga had made an attempt to analyse the financial statements of Aluminium companies in India which was hitherto been a neglected area of study. An attempt had been made to find out the financial problems of different units engaged in industry. The study helped to arrive at useful solutions to major problems associated with them. He has collected data for the study from the published accounting reports of aluminium with facts through correspondence from the Indian Aluminium Manufactures Association. For interpreting data ratio, common size and trend techniques of financial analysis had been applied. The process of analyzing the financial statements involved the competition, comparison and study of financial data. The financial data one concern had been compared with related data of other concern. He reported that the aluminium industry in India had a lot of financial problems and gave many suggestions as solution to the problems.

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Kevin Watson (1986), in his article tiled The effect of manufacturing strategies on financial performance Companies must use their resources effectively and productively if they are to compete in an increasingly competitive globalized economy. Effective performance measurement can support this

competitiveness. To be able to do this, companies must know the factors that influence their performance and manage these factors in an effective manner. This study seeks to investigate the effect of manufacturing strategies of manufacturing companies on their financial performance and also the effect of firm size on the impact of manufacturing strategies.

R.A. Wilmott (1992) in his article tiled Measurement of Financial Performance Increases in productivity have their origins at the level of the individual firm and are reflected through improved efficiency. Improved efficiency is brought about by more effective use of scarce economic resources and unless some satisfactory measure exists for the evaluation of the effectiveness of industry in utilising the resources at its disposal, national objectives aimed at securing growth without inflation cannot be incorporated into the individual objectives of industrial firms themselves. Irrespective of the needs of the economy for growth most industrial firms have their own growth targets the assessment of which equally require a reliable measure of efficiency. To be satisfactory, the measure of efficiency employed must permit comparison of performance by firms over time, as well as comparison with other firms in the same industry and, ideally, in other industries also. There is no unanimity of opinion as to what is the most reliable single yardstick of industrial efficiency.

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Kallu Rao (1991) has made a study of Inter Company Financial Analysis of Tea Industry retrospect and prospect. An attempt has been made in this study to analyse the important variable of tea industry and projected future trends regarding sales and profit for next 10 year period, with a view to help the policy makers to take appropriate decisions. Various financial ratios have been calculated for analysing the financial positon of firm cconstitues analysis of financial statements. Dr. Abhimam Das (1993), in his article titled Profitability of public sectors Bank analysed different profitability ratios and formulated a new profitability

decomposition model. He expressed profitability as a ratio of operating profit to working fund. Jacob M. Rose (1993) in his article titled Performance evaluations based on financial information: how do managers use situational information Organizations regularly use budgets as benchmarks for performance, and budgets represent a key control feature for almost every organization (Brown and Solomon (1993)). Research has demonstrated that outcome effects are pervasive in performance evaluation processes, and that performance evaluators do not interpret situational information consistently. An experiment is conducted to examine the effects of situational information on managers performance and ability attributions under conditions of favorable and unfavorable financial outcomes. The findings indicate that when financial outcomes are unfavorable, outcome effects dominate the performance evaluation process, and situational information has little effect on performance evaluations. The results of cognitive load manipulations indicate that situational information is not ignored, but rather discounted when financial outcomes are favorable.

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Mr.R.P.Rustagi(199!) in his book titled Financial Management Theory, concept and Problems added that the complete figures given in the financial statements are to be dissected into simple and valuable elementns of the same statements. This process of dissection, establishing relationship and interpretation there of to understand the working and financial position of firm constitutes analysis of financial statements. Noel capon and John V.James M. Hulburt (1994) studied the strategic planning and financial performance more evidence. A recently published Meta analysis of the impact of strategic planning on financial performance omitted a major study of corporate planning in fortune 500 manufacturing firms, the overall conclusion is that a small but positive relationship between strategic planning and performance exists and persists.

Navdeep Aggarwal and S.K.Singla (2001) have developed a single index for the appraisal of financial performance. They have analyzed eleven ratios in distinguishing profit making and loss making units. Only four ratios namely net profit to assets, interest coverage ratio, earning per share and inventory turnover ratio was significant as the discriminatory variables. M.Y .Khan and P.K.Jain(2000) in his book on Theory and Problem in Financial Management stated that ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratios to interpret the financial statements, so that strengths and weakness of a firm as well as its historical performance and current financial condition can be determined. Shasi.K.Gupta and R.K.Sharma (2000) in their book stated that finance function of business is closely related to tis other functional areas. Most of the important decisions of business enterprise are taken on basis of availability of funds however

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finance function, in practice should not limit the general running of business. Financial policies of firm should be devised in such manner so as to match the requirement of other functional areas. Prasanna Chandra(2000), in his book Financial Statement Analysis that if properly analysed and interpreted, financial statement can provide valuable insights into a firms performance. Analysis of financial statement is of interest to lenders ( short- term as well as long-term), investors, security analysts, managers and others. Financial statement analysis may be done for a variety of purpose, which may rage from a simple analysis of short-term liquidity position of the firm to a comprehensive assessment of strengths and weaknesses of the firm in various areas, it is helpful in assessing corporate excellence, judging creditworthiness, forecasting bond ratings, predicting bankruptcy and assessing market risk. Apte,P.g(2002) in his book titled International Financial Management pointed that firms globally are subjected to financial decision making problem on a day to day basis, irrespective of the size or nature of business. Solution are mystery, manager attempt in their spirit of success to provide best of solutions. The decision in today scenario range from purchase of raw materials domestically across borders. Corporate finance decisions are perpetually being influences by the globalization and liberation in trade and capital. The product and factor markets are changing and posing intensified competitive platforms for all firms to operate. The skills of labour with the information technology have broken the boundaries of countries to materialize. Totally as capital account convertibility sees its growth in Indian finance and its management has gained new dimensions

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CHAPTER 3

3. RESEARCH METHODOLOGY 3.1 RESEARCH DESIGN The collected data were presented in tables and these tables were analyzed systematically. Ratio analysis and Trend Analysis is the vital tool used to study the Financial performance of Steel Authority of India Limited. Various charts are used to explain the analysis clearly. It is an undisputed truth that graphs and diagrams render any complicated discussion and any intricate subject very simple to any casual reader of the thesis. 3.2 DATA COLLECTION Secondary data are used in the analysis. The main sources of the data are the published financial statements and other reports of the SAIL. In addition a number of standard textbooks, Journals and reports were referred to formulate theoretical background for the study. Applying standard financial tools and relevant ratios makes this analysis. 3.3 PERIOD OF STUDY

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Data of 5 financial years are used for the purpose of study. The 5 years of study ranges from 2004 to 2008. 3.4 TOOLS OF ANALYSIS The researcher used tools to analysis the financial performance of the firm, are used 1. Ratio analysis 2. Trend Percentage

CHAPTER 4 4. THEORETICAL FRAMEWORK OF FINANCIAL STATEMENT ANALYSIS

Meaning and Types of Financial Statements A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment of time as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of an Income Statement. The term financial statements generally refers to two basic statements; (i) the Income Statement, and (ii) the Balance Sheet. Of course, a business may also prepare (iii) a Statement of Retained Earnings, and (iv) a Statement of Changes in Financial Position in addition to the above two Statements.

Types of Financial Analysis

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Financial Analysis can be classified into different categories depending upon (i) the material used, and (ii) the modus operandi of analysis. (i) On the Basis of Material Used According to this basis, financial analysis can be of two types: External analysis: This analysis is done by those who are outsiders for the business. The term outsiders include investors, credit agencies, government agencies and other creditors who have no access to the internal records of the company. These persons mainly depend upon the published financial statements.

Internal analysis: This analysis is done by persons who have access to the books of account and other information related to the business. Such an analysis can, therefore, be done by executives and employees of the organization or by officers appointed for this purpose by the Government or the Court under powers vested in them. The analysis is done depending upon the objective to be achieved through this analysis.

(ii) On the basis of modus operandi According to this, financial analysis can also be of two types:

Horizontal Analysis: In case of this type of analysis, financial statements for a number of years are reviewed and analysed. Such an analysis gives the management considerable insight into levels and areas of strength and weakness. Since this type of analysis is based on the data from year to year rather than on one date, it is also termed as Dynamic Analysis.

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Vertical Analysis: In case of this type of analysis a study is made of the quantitative relationship of the various items in the financial Statements on a particular date. Since this analysis depends on the data for one period, this is not very conducive to a proper analysis of the companys financial position. It is also called Static Analysis as it is frequently used for referring to ratios developed on one date or for one accounting period.

Steps Involved in Financial Statements Analysis The analysis of the financial statements requires: (i) (ii) Methodical classification of the data given in the financial statements. Comparison of the various inter-connected figures with each other by different Tools of Financial Analysis.

Limitations of Financial Analysis Financial analysis is a powerful mechanism which helps in ascertaining the strengths and weaknesses in the operations and financial position of an enterprise. However, this analysis is subject to certain limitations. Most of these limitations are because of the limitations of the financial statements themselves. These limitations are as follows: Financial analysis is a means to an end and not the end itself. Ignores price level changes. Financial statements are essentially interim reports. Accounting concepts and conventions.

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 Influence of personal judgement. Disclose only monetary facts.

Techniques of Financial Analysis A financial analyst can adopt one or more of the following techniques/tools of financial analysis: Ratio Analysis Ratio analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. In financial analysis, a ratio is used as an index or yardstick for evaluating the financial position and Performance of a firm. The relationship between two

accounting figures, expressed mathematically is known as a financial ratio. Ratio means reason in Latin, a ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. Ratio analysis is a process of ascertaining and interpreting numerical relationship based on financial statements. The ratio analysis as a tool of financial management is employed with maximum advantages in order to appraise, interpret and review the effectiveness of working capital. The financial performance of the company is analyzed with the help of above tools under the following two stages: Ratio Analysis 1. Testing of Long - term solvency 2. Testing of short term solvency

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3. Testing of Profitability Trend Analysis 1.Trend percentages Solvency means the ability of the business to repay its outside liabilities. These liabilities are categorized as short-term liabilities and long-term liabilities. The Long term financial plannings of the business is generally made on the basis of past experiences and the Investment proposal are analyzed with reference to Long term solvency ratios. In case of new projects the technique of Investment decisions like Payback period, Discounted Cash flow and Accounting rate of return methods are used on the basis of pre determined assumptions. The relationship between external equities and internal equities are studied by using Solvency ratios. The Long - term requirements must be met out of long term funds such as funds for purchase of fixed assets like Land and Building, Plant and machinery must by financed out of share capital or long term loans. The capital structure of the company can also be analyzed with the help of long term solvency ratios. The following are the important long term solvency ratios: 1. Debt Equity Ratio 2. Capital Gearing Ratio 3. Fixed Assets Ratio and 4. Proprietary Ratio.

1. DEBT EQUITY RATIO:

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As a part of judgment of effectiveness of long - term financial policy of the business the financial managers will use this ratio. This ratio relates the owners stake in the enterprises vis a vis that of outsiders. It reflects the relative claims of creditors and shareholders against the assets of the company. This ratio can also be viewed as indicating the relative proportion of debt and equity in financing the assets of the business house.

Total Long-term debt Debt-equity ratio = Share holders funds

Table 4.1 Debt Equity Ratio

(Rs. In crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Total Long Term Debt 8689 5770 4298 4180 3045

Share Holders Fund 4659 10011 12386 17184 23004

Ratio in Times 1.86 0.58 0.35 0.24 0.13

Source: Published Annual Report of the company The table 4.1 showed that the amount of debt during the first year a increasing trend and thereafter decreasing trend and the same situation are also found in case of 30

net worth. The trend in debt and Shareholders funds in absolute terms is also presented in chart 4.1 for the quick understanding of the changes. The healthy reserve position helped the company to maintain the Debt equity ratio in an improved level that is 1.86 times in the year 2003-04 as against 0.13 times in the current year 2007-08.. Hence, the Debt-Equity ratio of the company was maintained highest level of 1.86 times in the year 2003-2004

Chart 4.1

DEBT-EQUITY RATIO
2 1.8 1.6 1.4 R ATIOS 1.2 1 0.8 0.6 0.4 0.2 0 2003-2004 2004-2005 2005-2006 YEARS 2006-2007 2007-2008 0.58 0.35 0.24 1.86

0.13

31

2. CAPITAL GEARING RATIO: Capital-gearing ratio and is also known as capitalization ratio or leverage ratio. The relation of equity capital including all reserves and undistributed profits as may be regarded the share of equity shareholders to preference share capital and the other types of fixed interest bearing loans is described as Capital gearing.

In other words, the technique of raising finances for the company by resorting to fixed interest or dividend carrying securities is called gearing the capital. Therefore, if company collects capital by issuing debentures or preference shares or by inviting public debts, which bear fixed rates of interest, the company is said to have geared the capital. Capital gearing ratio, therefore, establishes a meaningful relationship between the equity shareholders funds on the one hand, and the funds bearing fixed interest or fixed dividend on the other.

If an organization is having large funds bearing fixed interest and/or fixed dividends as compared to the equity shareholders funds, the organizations is said to be highly geared. On the other hand, the organization is said to be low geared, if the fixed interest and/or fixed dividend bearing funds are lower than the equity shareholders funds, If both the components are equal, the organization is said to be evenly geared. In the case of high-geared capital, market value of equity shares via dividend rates becomes too much sensitive to the fluctuation in profit and thus there are considered to be paradise for the speculators. Under this circumstance there will be a direct positive relationship between the fluctuations in profit and fluctuations in value of equity shares can also be identified. In the case of low-geared capital, financial

32

management may not be able to avail the benefit of low cost of preference share capital or debenture capital. The utility of the gearing ratio lies in indicating the extra residual benefit accruing to the equity shareholders. This benefit accrues because the company earns a certain percentage on the total funds employed but pays only a fixed return against loans and preference capital. This would result in a high percentage return, even higher than the percentage earned by the company. Thus, if the company earns a 20 percentage of rate of return, the equity shareholders may get a 30 percentage of rate of return. Such a situation is known as Trading on equity or Leverage. Even if an organization is having an evenly geared ratio, there may be a trading on equity or leverage depending upon the overall profitability, tax rate and rates of interest and dividend to preference shareholders. The trading on equity or leverage is a necessary reward for the risk taken by the equity shareholders. But this reward is uncertain. Further there is an uncertainty about the dividend and they may also have to forego their capital. It can be calculated as shown below.

Preference share capital + long - term bearing fixed interest Capital gearing ratio = -----------------------------------------------------Equity share capital

33

Table 4.2 Capital Gearing Ratio Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Fixed Return on Securities 8689 5770 4298 4180 3045 Equity Share Capital 413.04 413.04 413.04 413.04 413.04 (Rs. in Crores) Ratio ( in times) 21 14 10.4 10.1 7.37

Source: Published Annual Report of the company The table 4.2 shows In the year 2003-04 the Capital Gearing Ratio is 21.00 times which is the maximum during the study period and this level is decreased year by year and by the end of current year 2007-08 the ratio is 7.37 times. A minimum of 7.37 has been maintained by the company in the year 2007-08. At present the financial institutions and Banks are interested in extending more finance to the needed persons on the basis of sound securities and the rate of interest is also deregulated, so the management has to think to borrow funds to make a new investment. Before deciding the new proposal the viability and rate of return required must be studied with the help of modern technologies. Hence, it is clear from the table in the year 2003-04 the Capital Gearing ratio was 21.00 times which is maximum during the study period.

34

Chart 4.2
CAPIT GEARINGRATIO AL
25 21.04 20

15

13.97 10.41 10.12 7.37

O I T A R

10

0 2003-2004 2004-2005 2005-2006 YE S AR 2006-2007 2007-2008

35

3. FIXED ASSETS RATIO: The ratio of long-term funds to fixed assets is analyzed. One of the key principles of financial policy is that fixed assets acquisitions should be financed by long-term funds only. Short terms funds should not be used in purchasing the fixed assets. The fixed assets ratio indicates the extent to which the Net fixed assets are financed by long term funds of the firm.

The net fixed assets will mean cost less depreciation. It will also include trade investments and shares in subsidiaries. Long-term funds or Capital Employed will mean equity share capital, preference share capital, reserves, debentures and longterm loans. This ratio will be 1 if long-term funds are equal to fixed assets. If this ratio is less than 1, it may be concluded that the concern has followed a policy of inefficiency and short sightedness in the use of short-term fund. On the other hand, a very high ratio would indicate that long-term funds are being used for short-term purposes i.e., for financing working capital. It is not good from the firms point of view because it is usually more difficult to raise long-term funds. This ratio also indicates as to what extent fixed assets are financed out of longterm solvency. Generally, the total of fixed assets should be equal to the total of the long term funds and the ratio should be 1. If it is less than 1, it means that the firm has followed the wrong policy of using short-term funds for long term needs.

This ratio is calculated with the help of the following formula: Fixed assets ratio = Net fixed asset -----------------------------------------------Long-term funds or Capital employed

36

Table 4.3 Fixed Assets Ratio

(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Fixed Assets 13168 12485 12162 11598 11571

Long Term Funds 13726 16077 16899 21494 26109

Ratio (in times) 0.96 0.78 0.72 0.54 0.44

Source: Published Annual Report of the company The table 4.3shows during the period of study, in the first and last year the company maintained a normal level of 0.96 and 0.44 times. But in the last two years the company fails to maintain such norms and the value also shows a declining trend. In the year 2007-08 the ratio is 0.44 times is not advisable. The company has to take immediate step to overcome this improper matching of fixed asset level with the longterm funds. Hence, fixed assets ratio was observed from the table in the first and Preceding year of the company maintained a normal level of 0.96 and 0.72 times. In the year 2007-08 the ratio is 0.44 times is not advisable.

37

Chart 4.3

FIXED ASSETS RATIO

1.2 1 0.8 0.6 0.96 0.78 0.72 0.54 0.44 0.4 0.2 0 20032004 20042005 20052006 YEARS 20062007 20072008 -

4. PROPRIETARY RATIO: 38

O I T A R

This ratio establishes the relationship between the proprietors funds and total tangible assets. Proprietary ratio throws long on the general financial position of the concern. As the ratio represents the relationship of owners funds to total tangible assets, higher the ratio or the share of the shareholders in the total capital of the company better is the long-term solvency position of the company. This ratio is of importance to the creditors who can ascertain the proportion of shareholders funds in the total assets employed in the firm. While a high proprietary ratio indicates a relatively secure position to the creditors in the event of liquidation, a low proprietary ratio will include greater risk to the creditors. As a very rough guide, it may be suggested that 2/3 to of total assets should be financed by proprietors fund. The optimum ratio is different in different lines of business. A ratio below 50 per cent may be alarming for the creditors since they may have to lose heavily in the event of companys liquidation on account of heavy losses. Therefore the company has to take much effort to maintain this ratio in a required level then only the longterm solvency position can be improved. The formula for this ratio is as follows.

Proprietors funds (or) Shareholders funds Proprietary ratio = --------------------------------------------------------Total tangible assets

Table 4.4
39

Proprietary Ratio
(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Share Holders Fund 4659 10011 12386 17184 23004

Total Tangible Assets 21786 27289 29838 32491 38427

Ratio (in times) 0.21 0.37 0.42 0.53 0.60

Source: Published Annual Report of the company The table 4.4 highlights the result of the above ratio and it can be identified that in the year 2004-05 the ratio was 0.37 times only which is not desirable one. In the year 2007-08 highest level of 0.60 times was maintained. But from the year 200405 and 2005-06 on wards the company made an effort to strengthen this ratio position. Hence, the Proprietary ratio of the company was maintained highest level of 0.60 times in the year 2007-2008.

40

Chart 4.4

PROPRIETARY RATIO
0.7 0.6 0.5 0.4 0.37 0.42 0.60 0.53

O I T A R

0.3 0.2 0.1 0

0.21

2003 -2004

2004 -2005

2005 -2006 YEARS

2006 -2007

2007 -2008

SHORT TERM SOLVENCY OR WORKING CAPITAL RATIOS

41

Working capital ratios are useful or valuable aid to management and also to banks and creditors. Working capital ratios are useful in checking the efficiency with which working capital is being employed in the business. They help to analyze the liquidity and the technical solvency position of the business. The following working capital ratios are studied here to diagnose the financial strength of the selected unit and to give some clues about its future conditions with respect to the working capital management. They are, 1. Current ratio 2. Quick ratio 3. Absolute Liquid ratio 4. Working capital turnover ratio 5. Inventory turnover ratio 6. Debtor Turnover Ratio 7. Fixed Assets Trunover Ratio Each of these ratios is analyzed in detail. 1. CURRENT RATIO: Current ratio will test the solvency and determine the short-term financial strength of the firm. Current assets include cash and those assets, which can be converted into cash within a year. Current liabilities include creditors, bills payable, accrued

expenses and long-term debt maturing in the current year. It is a quantitative test. The ratio is 2:1 of current assets and current liabilities is regarded as a satisfactory standard of financial soundness. A big and successful organization operates

efficiently on current ratio of 1:1. A firm with a quick turnover of stocks and quick collection requires less working capital than the firm having longer turnover of stocks and slow collection.

42

A relatively high value of the current ratio is considered as an indication that the firm is liquid and has the ability to pay its bills. On the other hand, a relatively low value of the current ratio is considered as an indication that the firm will find difficulty in paying its bills. The current ratio represents a margin of safety, i.e., a cushion of protection for creditors, the higher the current ratio, greater the margin of safety to the creditors. The larger the amount of current assets in relation to current liabilities, the more the firms ability to meet its current obligations. However, from the management point of view, higher current ratio is an indication of poor planning since an excessive amount of funds are invested in current assets and lie idle. It is not always correct that a firm maintaining a high current ratio will be able to meet its obligations or it may also be possible that a firm maintaining a high current ratio below 2:1 standard may feel no difficulty in meeting its obligations. This is because the current ratio is a measure of quantity and not of quality.

It is calculated by the following formula.

Current assets Current ratio = ---------------------Current liabilities

Table 4.5 Current Ratio

43

(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Current Assets 8075 14187 17384 20379 26318

Current Liabilities 6025 6608 8108 6984 9439

Ratio (in Times) 1.34 2.15 2.14 2.92 2.79

Source: Published Annual Report of the Company Table 4.5 shows the current ratio of the Steel Authority of India Limited, for the study period. The highest and lowest ratio of 2.92 and 1.34 were reported in 2006-07 and 2003-2004 respectively. The highest ratio was due to increase in current assets in relation to current liabilities. But the lowest ratio was due to the company would have diverted their shortterm finances towards long-term investments because of urgency and lack of longterm finances. Another reason for the lowest ratio was increase in current liabilities. Thus when compared with the table, during the study period the Steel Authority of India Limited has maintained better current ratio in all the year except 2003-2004. In the case of industries like Steel Authority of India Limited, the ratio cannot be same throughout the year. Hence, the Current ratio of the company was maintained highest level of 2.92 times in the year 2006-2007. But Cleared from the table has maintained better current ratio in all the year except 2003-04.

44

Chart 4.5
CURRENTRA TIO
3.5 3 2.5 2 2.15 2.14 2.92 2.79

O I T A R

1.5 1 0.5 0

1.34

2003-2004

2004-2005

2005-2006 YE AR

2006-2007

2007-2008

2. QUICK RATIO: The quick, liquid or acid test ratio is a measure of the firms liquidity. This ratio establishes a relationship between quick or liquid assets and current liabilities. An

45

asset is liquid if it is converted into cash immediately or reasonably soon without a loss of value. The quick ratio is found out by dividing quick assets by total current liabilities. Quick assets include cash and book debts (debtors and bills receivables only. Inventory including finished products namely steel is excluded from the quick assets. Inventories are excluded because it takes time to convert them into cash. In actual practice steel is almost a quick assets in the sense that it could be easily converted into cash as and when the release order is issued. Under existing market conditions of steel, it may be presumed that it is not locked up in the company for unduly long periods. Of course, item like stores and spare parts, etc., are not liquid. Prepaid expenses are also excluded in quick assets because they cannot be converted in to cash. Quick Ratio indicates that ability of the firm to meet its current obligations. It provides a more stringent test of solvency. It is a qualitative test. Generally, Quick Ratio 1:1 represents a satisfactory one. It indicates that the firm has short-term finance strength to pay off its current liabilities. In general, the firms are not

considered sound in financial position, unless quick assets are equal to or more than quick liabilities. In the analysis the term quick liability value and current liability value are taken as same since there is no bank overdraft. The quick or acid test ratio is sometimes called Liquidity ratio. Quick or liquid assets Quick ratio = ---------------------------Current liabilities

Table 4.6 Quick Ratio

46

(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Liquid Assets 4994 9967 11174 13728 19461

Current Liabilities 6025 6608 8108 6984 9439

Ratio (in Times) 0.83 1.51 1.38 1.97 2.06

Source: Published Annual Report of the Company. The analysis of the quick ratio Steel Authority of India Limited shown in Table 4.6, the ratio varies widely from year to year. The ratio varies 0.83 to 2.06. The highest ratio was in the year 2007-2008 and the lowest ratio was in 2003-04. The highest ratio was due to increase in accrued incomes, loans and advances and deposits, decreasing in outstanding liabilities. The lowest ratio was due to the company would have directed their short-term finances towards long-term finances. It is concluded that the standard quick ratio was not maintained in the Steel Authority of India Limited in the first two years of the period study and in the year 2005-06, 2006-07 and 2007-08 the ratio of quick assets to current liability was more than the standard required. Hence, observed from the table highest quick ratio was 2.06 in the year 20072008 and the lowest ratio was 0.83 in 2003-04.

47

Chart 4.6

QUICK RATIO
2.5 2 1.5 1.51 1.38 1.97 2.06

O I T A R

1 0.5 0

0.83

2003 -2004

2004 -2005

2005 -2006

2006 -2007

2007 -2008

YEARS

3. ABSOLUTE LIQUID RATIO: Absolute Liquid ratio is calculated to measure the current debts with cash in hand. The Absolute liquid ratio indicates liquidity position of the company to pay off its current liabilities within a shorter period. It is calculated as Cash + short term securities 48

Absolute Liquid Ratio =

or Absolute Liquid asset -------------------------------------Current liabilities

Table 4.7 Absolute Liquid Ratio

(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Cash and Bank Balances + Marketable Securities 2560 6739 6465 10124 14297

Current Liabilities 6025 6608 8108 6984 9439

Ratio ( in times) 0.42 1.02 0.8 1.45 1.51

Source: Published Annual Report of the Company. Table 4.7 shows Steel Authority of India Limited during the period of under study the Absolute liquid ratio was as high as 1.51 in 2007-2008 and as low as 0.42 in 2003-04. It fluctuates widely during the period under study. The high percentage was due to the keeping of the idle cash. investments. The funds are not used in the long-term

The low percentage was due to repayment of bills in time, low

collection of cash and the short term funds are diverted into long term investments. Thus proper cash management should be evolved to avoid the idle keeping of the cash and also to repay the bills in time. Hence, the absolute liquid ratio of the company was maintained highest level of 1.51 times in the year 2007-2008 and also lowest level of 0.42 times in 2003-04.

49

Chart 4.7

50

CAS POS H ITION RATIO

1.6 1.4 1.2 1 0.8 1.02 0.80 1.45 1.51

O I T A R

0.6 0.4 0.2 0

0.42

2003-2004

2004-2005

2005-2006 YEARS

2006-2007

2007-2008

4. WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates whether the net working capital has been effectively utilized in making sales. It is calculated as Working capital Turnover Ratio = Net sales ----------------------Net working capital

The higher ratio is indication of favourable one and vice versa.

Table 4.8

51

Working Capital Turnover Ratio

(Rs. in Crores)

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Sales 24178 31805 32280 39189 45555

Net Working Capital 2050 7579 9276 13395 16879

Ratio (in Times) 11.8 4.20 3.48 2.93 2.70

Source: Published Annual Report of the Company. Table 4.8 shows the working capital turnover ratio of the Steel Authority of India Limited it was widely varied from year to year. The highest turnover ratio is 11.8 in 2003-2004 and the lowest ratio of 2.70 in 2007-08. The highest ratio was due to increase sales, decreases in stock-in-trade, accrued income, sundry debtors, loans and advances, deposits and also increases in current liabilities. The lowest ratio was due to sales was not increased in proportionate with working capital level. Hence, the working capital turnover ratio was maintained highest turnover ratio 11.8 in 2003-2004 and the lowest ratio of 2.70 in 2007-08

52

Chart 4.8

53

WORKINGCAPIT TURNOVERRATIO AL
14 12 10 8 11.79

S O I T A R

6 4 2 0 2003-2004

4.20

3.48

2.93

2.70

2004-2005

2005-2006 YEARS

2006-2007

2007-2008

5. INVENTORY TURNOVER RATIO: Inventory turnover ratio indicates that efficiency of the firms inventory management. It is found out by dividing cost of goods sold by average inventory.

54

Inventory turnover ratio =

Cost of goods sold ----------------------------Average inventory

The cost of goods sold is computed by sales minus gross profit. The average inventory is average of opening and closing inventory. A high inventory turnover ratio indicates brisk sales. It measures to discover the possible trouble in the form of overstocking or overvaluation. A low inventory ratio results in blocking of funds in inventory which may ultimately result in heavy losses due to inventory becoming obsolete or deteriorate in quality.

Table 4.9 Inventory Turnover Ratio

(Rs. in Crores)

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Cost of Goods Sold 555 1005 770 1181 1272

Average Inventory 103 173 276 246 228

Ratio in times 5.38 5.80 2.79 4.80 5.58

Source: Published Annual Report of the Company. The Table 4.9 shows the inventory turnover ratio trend over a period of five year was analyzed and it was found that the inventory turnover ratio has fluctuated every year and has decreased in the following year from 2007 to 2008. This shows that an idle turnover ratio was maintained and this is considered as a positive indicator of operating efficiency and good from the point of view of liquidity. The average inventory turn over days will come around days 80.56

55

Chart 4.9
56

INVENTORY TURNOVER RATIO

7 6 5 RATIO 4 3 2 1 0 2003-2004 2004-2005 2005-2006 YEAR 2006-2007 2007-2008 2.79 5.39 5.81 4.80 5.58

6. DEBTORS TURNOVER RATIO: The term working Capital includes debtors as a one of the important component and the ageing of receivables affects the working capital structure and 57

therefore it is essential to measure the

liquidity of the receivable or to find out the

period over which receivables remain uncollected. The amount of trade debtors at the end of the accounting period should not exceed a reasonable proportion of net sales. The larger the amount of trade debtors in relation to net sales, the greater would be the expense in connection with uncontrollable accounts. Sales Debtors Turnover Ratio = Debtors

Table 4.10 Debtor Turnover Ratio

(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Total Sales 24178 31805 32280 39189 45555

Debtors 1550 1908 1882 2315 3048

RatiO (in times) 15.6 16.7 17.2 16.9 14.9

In Days 23 22 21 22 24

Source: Published Annual Report of the Company.

Table 4.10 presents the sales to total debtors ratio of the Steel Authority of India Limited. The highest ratio was reported at 17.20 times in 2005-06 and lowest ratio was reported at 14.97 times in 2007-2008. The remaining period varied between 15.6 times and 16.9 times it fluctuated by normal business causes. An over investment in receivables may be the result of over extension of credit, liberalization of credit 58

terms, ineffective credit investigation, lack of effective collection policies or the inability of the collection department to make collection in periods of depression. In case of the company which is under study there is no over investment in receivables and almost which is under the control.

To analyze the ageing of debtors the average collection period technique is also used and depicted in Table 4.10 and it shows that the receivable having an average age of less than 60 days. In the year 2005-06 the ageing period was 21 days, which is the minimum period of collection during the period of study and the highest collection period during the study period was 24 days in the year 2007-08. This shows the company having enough control over its debtors and undue delay in recovery of debt is avoided. Hence, the Debtors turnover ratio cleared from the table highest ratio was reported at 17.2 times in 2005-06 and lowest ratio was reported at 14.9 times in 20072008. And also the highest average collection period during the study period was 24 days in the year 2007-08.

59

Chart 4.10

D T EB ORSTURNOVERRA TIO
17.5 17 16.5 16 15.60 14.95 16.67 17.15 16.93

O I T A R

15.5 15 14.5 14 13.5 2003-2004 2004-2005 2005-2006 2006-2007

2007-2008

YE S AR

7.FIXED ASSETS TURNOVER RATIO: The ratio determines efficiency of utilisation of fixed assets and profitability of business concern. Higher the ratio indicates more in efficiency in utilization of fixed asset. A lower ratio is the indication of under utilization of fixed assets. Generally , the higher ratio better because high ratio indicates your business has less

60

money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that you have over invested in plant, equipment or other fixed assets. Net Sales Fixed Assets Turnover Ratio = Net Fixed Assets

Table 4.11 Fixed Assets Turnover Ratio

(Rs. in Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Sales 24178 31805 32280 39189 45555

Average Net Fixed Asset 13168 12485 12162 11598 11571

Ratio (in times) 1.84 2.55 2.65 3.38 3.94

Source: Published Annual Report of the Company. From above table Fixed assets turnover ratio shown an increasing trend during the study period 2003-2004 to 2007-2008. In the year 2003-2004, it was 1.84 times and it has increased gradually year by year and reached upto 3.94 times in the year 2007-2008

Chart 4.11
61

F EDAS ETSTURNOVERRA IX S TIO

4.5 4 3.5 3 2.5 2.55 1.84 2.65 3.38 3.94

O I T A R

2 1.5 1 0.5 0

2003-2004

2004-2005

2005-2006 YE S AR

2006-2007

2007-2008

PROFITABILITY PERFORMANCE According to Sam R. Goodman, Profit is a residual. It is a static historical term more geared to a reporting function than to decision marking. He further differentiates profit from profitability saying, Profit is an owners-oriented concept and is tied in to the ownership shares of national income and the provision. On the other hand, as a concept is akin to levels of profits, which lead themselves to be least 62

number of alternative accounting measures, the profit is directly attributable to the existence of a product and identifies marginal contributions. It is essentially an internal measure of new wealth creation. Thus, whereas the accounting concept of profit measures what have been accumulated, the analytical concept of profitability is concerned with future accumulation of wealth. Profits alone justify the survival and growth of the business as most of the key operational activities of the business are carried on at the different unit level, major contributions to the profit-poll emanates from the units. Since the substantial portion of the working funds are invested in fixed assets, it is imperative on the part of the units to maximize their earnings so that not only the interest cost of funds and also the operating costs are recovered, thereby resulting in a substantial amount of earnings for further growth. Profit is the simplest and the most convenient measuring rod for appraising the performance and efficiency of the business. The survival and sustained growth are possible only when there is a regular flow of profits. Above all, the service value being often elusive and intangible, profit may be only the justification for the existence of business. The efficiency of a business concern is measured by the amount of profit it earned. A business cannot continue to exist if it loses money, or if the money it makes is not sufficient to meet the normal risk to be taken. Profits are useful The

intermediate beacon towards which a firms capital should be directed.

profit of a concern not only affects its proprietors but also the Income Tax authorities, Managers, Directors, etc, who are to be paid a percentage of the net profit. Therefore the question is: What is profit? Law has not defined the word profit. Even the accountants are not unanimous on this matter. The word profit is variously defined.

63

It is said, Generally speaking, the profit of a business during a given period is the excess of income over expenditure for the period. Profit is the positive and fruitful difference between total revenue and total expenses over a period of time. The word profits has been viewed in a number of ways. The meanings profit differs according to use and purpose of the figures. In the view of financial management, profits are the test of efficiency and investment; to the creditors, a margin of safety; to the employees, a sources of fringe benefits; to the government, a measure of taxable capacity and the basis of legislative action; to the customers, a demand for price cut and finally to the country, an index to the economic powers, national income generated and raise in the standard of living. Profit is

the primary motivating force for an economic activity. Business undertaking essentially being an economic organization has to maximize the welfare or the interest of the members associated with it. To this end, the business undertaking has to earn surplus or profit or savings from its operations. In other words, its receipts from operations should be more than the expenses over a period of time, usually an accounting year. Profits are essential for a company to survive and grow over a long period of time. But, it would be wrong to assume that every action initiated by the management of a company should be aimed at maximization of profits, irrespective of social consequences. Profits are the report card of the past, the inventive gold star for the future. If an enterprise fails to make profit, capital invested is eroded and if this situation prolongs the enterprise ultimately ceases to exist. ACCOUNTING PROFIT In accounting, the word profit is almost invariably with some qualifying words of phrases. In the report of a special committee of the American Institute of

64

Accountants, the word profit is modified in thirty different ways. According this report the accountants usually means by the term profit the excess of the selling price over the cost of anything. In the assets and liabilities view, earnings (profit) are equal to the difference between revenue a cost of earning that revenue. In this sense, accounting profit is known as the excess of total revenues over their total costs of during a given period. Thus, accounting profit lies in the difference between the current value of sales minus the historic costs expenses plus the retained capital gains i.e. the difference between the proceeds from irregular disposal of assets minus historic cost minus deprecation of irregularly disposed assets. TYPES OF ACCOUNTING PROFIT In business the term profit. Income and earnings are similar and they are used interchangeably. Generally the income statement can be Multiple steps income statement or single step income statement. The profit under multiple steps income statement is determined in various steps like gross profit, the operating profit, or the operating profit before interest and taxes, the net profit viz; the net profit before tax and the net profit after tax and the profit available to share holders. GROSS PROFIT Sales and other direct revenues are compared with the cost of goods sold to give gross profit (if cost of goods sold goods sold exceeds the sale revenue and other operating revenue then there will be a gross loss). OPERATING PROFIT Operating profit includes all net income before taxes produced by operating assets and excludes any items of non- operating income, such as rental income from

65

leased property, and non-operating expenses, such as interest payments. In other words, the operating asset produces a stream of income known as operating income. NET PROFIT To the operating profit other non-operating incomes are added and there from non-operating expenses are deducted, the resulting figure is net profit before tax. If the provision for tax is deducted from the net profit before tax, the result is net profit after tax. If the preference dividend is deducted from the net profit after tax, the rest income is profit available to equity shareholders. Financial Management is concerned with the efficient use of an important economic resource, namely, capital funds. Modern micro economic theory on now the private firm should and does behave is based on profit maximization as a decision criterion. Actions that increase the firms profit are under taken and those that decrease profit are avoided. To maximize profit the firm maximizes output for a given set of scarce inputs or equivalently, minimizes the cost of production of a given output. As pointed out by Mc Alpine, profit cannot be ignored since it is both a measure of the success of the business and the means of its survival and growth. Profitability of total capital employed is the objective of an enterprise and a criterion of efficient operations. PROFITABILITY RATIO Profit making is the main objective of business. Aim of every business concern is to earn maximum profits in absolute terms and also in relative terms. i.e., Profit is to be maximum in terms of risk undertaken and capital employed. Ability to make maximum profit from optimum utilization of resources by a business concern is termed as Profitability. Profit is an absolute measure of earning capacity.

66

Profitability depends on sales, costs and utilization of resources. The following are various ratio used to analyze profitability. 1. RETURN ON INVESTMENT RATIO This ratio measures the sufficiency or other wise profit in relation to capital employed. It is used to measure the operational and managerial efficiency. Return on investment in calculated by using the following formula.

Operating Profit Return on Investment Ratio = -----------------------Capital Employed

Table 4.12 Return on Investment Ratio

(Rs. In Crores)

Years 2003-2004

Operating profit 4652

Capital Employed 15218

Ratio ( in times) 0.31

67

2004-2005 2005-2006 2006-2007 2007-2008

11097 7381 10966 12955

20064 21782 25476 28450

0.55 0.34 0.43 0.46

Source: Published Annual Report of the company From above table4.12, the ratio of return on investment in the year 2002-2004 was 0.31. In the next year 2004-2005 it has gradually increased to 0.55. But in the next year it decreased to 0.34 times in the year in 2005-2006, the ratio reached to 0.46 in year 2007-2008 the years 2004-2005 and 2007-2008 shows a higher value than the other periods, it indicates higher performance during the study periods. Hence the company maintained a high level return 0.55 times in the year 2004-2005 due to low interest and finance charges.

Chart 4.12

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RETURNON INVES TMENT RA TIO

0.6 0.5 0.4 0.31 0.34 0.55 0.43 0.46

O I T A R

0.3 0.2 0.1 0 2003-2004 2004-2005 2005-2006 YE S AR 2006-2007 2007-2008

2. RETURN ON SHAREHOLDERS FUND This ratio determines the profitability from the shareholders point of view. Return on shareholders fund, which is the relationship between profits of the company and its shareholders fund. Return on Shareholders Fund Ratio = Net Profit after Interest & Tax -------------------------------------Shareholders Fund

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Table 4.13 Return on Shareholders Fund

(Rs. In Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Net Profit 2512 6817 4013 6202 7537

Shareholders Fund 4659 10011 12386 17184 23004

Ratio (in Times) 0.54 0.68 0.32 0.36 0.33

Source: Published Annual Report of the company From the above table4.13, return on shareholders fund ratio in the year 20042005 was 0.68 which was the highest and 0.32 was the lowest in the year in 20052006. But in the next years its shows a decreasing trend. It shows that in year 20032004 and 2004-2005 it indicates the performance was good during the study period.

Chart 4.13
70

RETURNON S AREH D H OL ERSF UNDRA TIO

0.8 0.7 0.6 0.5 0.54 0.68

O I T A R

0.4 0.3 0.2 0.1 0 2003-2004 2004-2005

0.32

0.36

0.33

2005-2006 YE S AR

2006-2007

2007-2008

3.OPERATING PROFIT RATIO It is the ratio of profit made from operating sources to the sales. It shows the operational efficiency of the sales. It determines the operational efficiency of the firm and is measure of the managements efficiency in running operation of firm. Operating Profit ----------------------Sales

Operating Profit Ratio =

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Table 4.14 Operating Profit Ratio

(Rs. In Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Operating Profit 4652 11097 7381 10966 12955

Sales 24178 31805 32280 39189 45555

Ratio (in times) 0.19 0.35 0.23 0.28 0.28

Source: Published Annual Report of the company Table 4.14 highlights the details regarding amount of profit before payment of interest on borrowed capital and tax to the government and the rate of profit on sales. From the table it is ascertained that the company earned a profit of Rs.4652 crores in the year 2003-04, Rs.11,097 in the year 2004-05, Rs.7381 in the year 2005-06, Rs.10,966 in the year 2006-07 and Rs.12,955 in the year 2007-08.

In all the company performance showing increasing trend in the recent past track record of sales revenue and the profit rate is showing increasing trend. Hence, it is clear from the table profit before Interest and Tax ratio of the company earned a maximum rate of profit in the year 2007-08, which were 0.28 times and a minimum rate 0.19 per cent in the year 2003-04.

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Chart 4.14

73

OPERA TINGPROF RA IT TIO

0.4 0.35 0.3 0.25 0.23 0.19 0.35 0.28 0.28

O I T A R

0.2 0.15 0.1 0.05 0

2003-2004

2004-2005

2005-2006 YE S AR

2006-2007

2007-2008

4. NET PROFIT RATIO This ratio is also called net profit to sales ratio. It is a measure of management efficiency in operating the business successfully from owners point of view. It indicates the return on shareholders investments. Higher the ratio better is the operational efficiency of business concern.

Net Profit Ratio =

Net Profit after Tax ---------------------------

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Net Sales

Table 4.15 Net Profit Ratio

(Rs. In Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Net Profit After Tax 2512 6817 4013 6202 7537

Net Sales 24178 31805 32280 39189 45555

Ratio ( in times) 0.10 0.21 0.12 0.16 0.17

Source: Published Annual Report of the company It is worth to analyze the net result of the company, which will enable one to have idea of investment in any business they will think about the net result of the company in general is traditional one, in such a way the table 4.15 reflects the relevant details of the company during the period of study. It is found in the table that the rate of net profit on sales showed an increasing trend in all the years. In the year 2004-05 the net profit ratio was 0.21 which is highest and in the year 2003-04 it was 0.10 which was lowest due fluctuation in sales

75

Chart 4.15

76

NETPROF RA IT TIO
0.25 0.21 0.2 0.16 0.15 0.17

O I T A R

0.12 0.10

Series1

0.1

0.05

0 2003-2004 2004-2005 2005-2006 YE S AR 2006-2007 2007-2008

5. EARNING PER SHARE This ratio measures the profit available to the equity shareholders on a per share basis. It is calculated by dividing the profit available to shareholders by the numbers of outstanding shares. A comparison of EPS of the company with others will also help in deciding whether the equity share capital is being effectively used or not. Net Profit after Tax Earning per Share = ---------------------------No of Equity Shares

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Table 4.16 Earning Per Share

(Rs. In Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Net Profit After Tax 2512 6817 4013 6202 7537

No of Equity Share 413.04 413.04 413.04 413.04 413.04

Ratio ( in times) 6.082 16.5 9.716 15.02 18.25

Source: Published Annual Report of the company From the above table 4.16, the earning per share in year 2003-04 it was 6.08 and it shoew a increasing trend in preceding years. In the year 2007-08 the earning per share was 18.25 which was the highest due to increasing the net profit the overall performance was satisfactory during the study period.

Chart 4.16

78

EARNINGPERS ARE H
20 18 16 14 12 9.72 Series1 6.08 16.50 15.02 18.25

O I T A R

10 8 6 4 2 0 2003-2004 2004-2005

2005-2006 YE S AR

2006-2007

2007-2008

6. INTEREST COVERAGE RATIO This ratio is meaningful to debenture holders and tenders of longterm loans. It highlights the ability of the concern to meet interest commitments and its capacity to raise additional funds in future. Higher the ratio, better is the position of long-term creditors and the companys risk is lesser.

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Profit before Interest & Tax Interest Coverage Ratio = -------------------------------------Fixed Interest Charges

Table 4.17 Interest Coverage Ratio

(Rs. In Crores)

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Profit Before Interest and Tax 3529 9970 6174 9755 11720

Fixed Interest Charges 901 605 468 332 251

Ratio ( in times) 3.91 16.48 13.19 29.38 46.69

Source: Published Annual Report of the company From the above table 4.17, interest coverage ratio in the year 2003-04 it was 3.91 but in the next years 2004-05 it has gradually increased to 16.48 but in next

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year it was decreased to 13.19 but in next years it was increased to 29.38 and 46.69 in years in 2006-07 and 2007-08. Hence the company maintained a high level of interest coverage in the year 2007-08 was 46.69.

Chart 4.17
INTERES COVERAGERA T TIO
50 45 40 35 30 29.38 Series1 16.48 13.19 3.92 46.69

O I T A R

25 20 15 10 5 0 2003-2004 2004-2005 2005-2006 YE S AR 2006-2007 2007-2008

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TREND ANALYSIS The Trend Analysis is Carried out mainly to focus on Values of the Variables for the next three years from 2008 based on the past five year data. The variables selected for the forecast are as follows 1. Net profit 2. Net Worth 3. Production 4. Sales

1. NET PROFIT

Table 4.18 Net Profit Trend Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Net Profit 2512 6817 4013 6202 7537 Trend Value ( in Crores) 3529 4473 5416 6360 7303

Source: Published Annual Report of the company

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The table 4.21 analyses the changes happened in the variable under the study Net Profit. The result indicates that Net Profit has increased Rs.943 crores per year and also forecast the value by carrying out trend analysis

Forecasted Trend Value Year 2008-2009 2009-2010 Trend Value ( in Crores) 8247 9190

Chart 4.18

83

NET PROFIT TREND

9400 9200 9000 TREND VALUE 8800 8600 8400 8200 8000 7800 7600 2008-2009 YEAR 2009-2010 8247 9190

2. NET WORTH TREND

Table 4.19 Net Worth Trend Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Net Worth 4659 10011 12386 17184 23004 Trend Value (in Crores) 4676 9063 13449 17835 22221

84

Source: Published Annual Report of the company The table 4.19 analyses the changes happened in the variable under the study Net Worth.The result indicates that Net Worth has increased Rs.4387 crores per year and also forecast the value by carrying out trend analysis

Forecasted Trend Value Year 2008-2009 2009-2010 Trend Value (in Crores) 26608 30994

85

Chart 4.19

NET WORTH TREND

32000 31000 30000 TREND VALUE 29000 28000 27000 26000 25000 24000 2008-2009 YEAR 2009-2010 26608 30994

3. PRODUCTION TREND

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Table 4.20 Production Trend

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Production 11026 11030 12051 12581 13044

Trend Value ( in Crores) 10829 11388 11946 12505 13064

Source: Published Annual Report of the company The table 4.20 analyses the changes happened in the variable under the study Production. The result indicates that Production has increased Rs.559 crores per year and also forecast the value by carrying out trend analysis.

87

Forecasted Trend Value Year 2008-2009 2009-2010 Trend Value ( in Crores) 13623 14181

Chart 4.20

88

PRODUCTION TREND
14300 14200 14100 TREND VALUE 14000 13900 13800 13700 13600 13500 13400 13300 2008-2009 YEAR 2009-2010 13623 14181

4. SALES TREND

Table 4.21 Sales Trend

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Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Sales 24178 31805 32280 39189 45555

Trend Value ( in Crores) 24610 29606 34601 39597 44593

Source: Published Annual Report of the company The table 4.21 analyses the changes happened in the variable under the study sales. The result indicates that sales has increased Rs.4996 crores per year and also forecast the value by carrying out trend analysis

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Forecasted Trend Value Year 2008-2009 2009-2010 Trend Value 49589 54585

Chart 4.21
SALES TREND
55000 54000 53000 TREND VALUE 52000 51000 50000 49000 48000 47000 2008-2009 YEAR 2009-2010

54585

49589

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FINANCIAL TREND PERCENTAGES:

Trend percentages are immensely helpful in making a comparative study of the financial statements for several years. The method of calculating trend percentages involves the calculation of percentage relationship that each item bears to the same item in the base year. Any year may be taken as the base year. It is usually the earliest year. Any intervening year may also be taken as the base year. Each item of base year is taken as 100 and on that basis the percentages for each of the items of each of the years are calculated. These percentages can also be taken as Index Numbers showing relative changes in the financial data resulting with the passage of time. The method of trend percentages is a useful analytical device for the management since by substituting percentages for large amounts, the brevity and readability are achieved. However, trend percentages are not calculated for all of the items in the financial statements. They are usually calculated only for major items since the purpose is to highlight important changes.

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1. NET PROFIT TREND PERCENTAGE

Table 4.22
NET PROFIT TREND PERCENTAGE

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Net Profit 2512 6817 4013 6202 7537

Trend Percentage 100 271.37 159.75 246.89 300.03

Source: Published Annual Report of the company The above table shows the Net profit trend percentage it shows an increasing trend except the year 2005-2006 where it was 159.75 percentage which is less than previous year. The year 2003-2004 is taken has base year i.e 100 from that year rest of years are calculated and it reached upto 300 percentage in year 2007-2008

Chart 4.22

93

NET PROFIT TREND PERCENTAGE

350 300 TREND PERCENTAGE 271.38 250 200 150 100 50 0 2003-2004 2004-2005 2005-2006 YEAR 2006-2007 2007-2008 100.00 159.75 246.89 300.04

2. NET WORTH TREND PERCENTAGE

Table 4.23
NET WORTH TREND PERCENTAGE

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Net worth 4659 10011 12386 17184 23004

Trend percentage 100 214.8744 265.851 368.8345 493.754

Source: Published Annual Report of the company The above table shows net worth of company it shows an increasing trend during the study period. The net worth calculated by taking 2003-2004 as the base year. From 100 percentages in 2003-2004 it has reached to 493 percentage in the year 2007-2008.

Chart 4.23

94

NET WORTH TREND PERCENTAGE

600

500 TREND PERCENTAGE

493.75

400 368.83 300 265.85 200 214.87

100

100.00

0 2003-2004 2004-2005 2005-2006 YEAR 2006-2007 2007-2008

3. SALES TREND PERCENTAGE

Table 4.24
SALES TREND PERCENTAGE

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Sales 24178 31805 32280 39189 45555

Trend Percentage 100 131.54 133.50 162.08 188.41

Source: Published Annual Report of the company The table 4.22 shows sales trend percentage it shows increasing trend during increasing trend during the study period. The year 2003-2004 is taken as base year. It shows increase trend from 100 percentage it reached to 188 in year 2007-2008

Chart 4.24

95

SALES TREND PERCENTAGE

200 180 TREND PRECENTAGE 160 140 120 100 80 60 40 20 0 2003-2004 2004-2005 2005-2006 YEARS 2006-2007 2007-2008 100.00 131.55 133.51 162.09 188.42

4. PRODUCTION TREND PERCENTAGE

Table 4.25
PRODUCTION TREND PERCENTAGE

Year 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Production 11026 11030 12051 12581 13044

Trend Percentage 100 100.03 109.29 114.10 118.30

Source: Published Annual Report of the company The table 4.25shows Production trend percentage it shows increasing trend during the study period. The year 2003-2004 is taken as base year. It shows increase trend from 100 percentages it reached to 118 in year 2007-2008

Chart 4.25

96

PRODUCTION TREND PERCENTAGE

120 118.30 115 TREND PERCENTAGE 110 105 100 95 90 2003-2004 2004-2005 2005-2006 YEAR 2006-2007 2007-2008 100.00 100.04 114.10 109.30

5. FINDINGS:
1. The Debt-Equity ratio of the company in comparing the five years starting from 2003-2004 to 2007-2008 as per table 4.1 ,only in the year 2003-2004 it was higher 1.86 times but the debt equity ratio start reducing in the next four years and remain 0.13 times in 2007-2008. hence the company has to pay more interest for its debt 2. As per the table no 4.2 in the year 2004-05 the Capital Gearing ratio was 14.02 times which is maximum during the study period but in rest of year it was lower. 3. Fixed assets ratio was observed from the table no 4.3 in the first and last year of the company maintained a normal level of 0.67 and 0.55 times. In the year 2005-06 the ratio is 0.46 times is not advisable. Hence the fixed asset ratio is at satisfactory level. 97

4. The Proprietary ratio of the company was maintained highest level of 0.60 times in the year 2007-2008 as per the table no 4.4. 5. The Current ratio of the company was maintained highest level of 2.92 times in the year 2006-2007. But cleared from the table no 4.5 that it has maintained better current ratio in all the year except 2003-04. hence the standard ratio was 2:1but in the year 2003-2004 it was 1.34 was not satisfactory ,rest of the years it was satisfactory . 6. Observed from the table no 4.6 the highest quick ratio was 2.06 in the year 2007-2008 and the lowest ratio was 0.83 in 2003-04. In 2006-2007 and 2007 -2008 funds remains ideal and it can be invested to earn returns. 7. The absolute liquid ratio of the company was maintained highest level of 1.51 times in the year 2007-2008 and also lowest level of 0.42 times in 2003-04 as per table no 4.7. 8. The working capital turnover ratio was maintained highest turnover ratio 11.8 in 2003-2004 and shows a slope downward trend due to holding of high cash and bank balance. 9. The Debtors turnover ratio cleared from the table no 4.10 highest ratio was reported at 17.26 times in 2005-06 and lowest ratio was reported at 14.97 times in 2007-2008. In 2007-2008 company adopted a liberal collection policy but as per table liquid position is good. 10. Fixed asset turnover ratio shows a increasing trend and maintained a high level of 3.94 times in the year 2007-2008 as per table no 4.11

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11. The return on investment fluctuates more due to the charges in operating profit of the company the company maintained a high level return 0.55 times in the year 2004-2005 as per table no 4.12 due to low interest and finance charges 12. Net Profit ratio shows a increasing trend. It depicts that efficiency is maintained in sales and operating expenses.

13. The Trend analysis of SAIL shows that here was an increasing trend of Net Profit, Net Worth, Production and Sales during the study period.

SUGGESTIONS:

1. The company may increase the performance by reducing their borrowed capital, so that the interest on finance charges will be less. 2. The company has to increase the Return on Investments. This can be done by increasing the operating profit through bringing down the operating expenses and increasing the sales.. 3. The company has to increase the sales by entering into export market etc. 4. The company should go for the technological modernization to increase its efficiency and there by increasing it productivity and profitability. 5. To use ideal fund profitability which remains highly liquid in some of the years 6. Collection policy has to made strict in the company.

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CONCLUSION:
The overall position appears to satisfactory for the years under studied 2003 -2004 to 2007-2008. Still there remains area of improvement in the company. If proper improvement are carried out in areas like cost control, cost reduction, modernization, communication, product techniques etc. there will be more efficiency in productivity and profitability.

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BIBLIOGRAPHY Books: 1. Pandey I.M., Financial Management, Vikas Publishing House Private Ltd. 2. Khan,M.Y and Jain.P.K, Financial Management, Tata McGraw-Hill Publishing Company Ltd. 3. Pransanna Chandra, Financial Management, Tata McGraw-Hill Publishing Company Ltd. 4. Kothari C.R., Research Methodology ,Vishwa Publication, New Delhi. WebSites: 1. www.Sail.co.in 2. www.geojit.com 3. www.financialtimes.com 4. www.indiabulls.com 5. www.bseindia.com

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BALANCE SHEET OF SAIL

102

Particulars Particulars
Sales Turnover Share Capital Other Income Stock Adjustments Reserves & Surplus Total Income Total Shareholders Funds Raw Materials Secured Excise Duty Loans Power & Fuel Cost Unsecured Loans Other Manufacturing Expenses Total Debt Employee Cost

Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 07- Mar 06- Mar 05- Mar 04- Mar 0345,985.36 39,481.80 32,686.89 32,023.87 24,137.02 08 07 06 05 04
4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 1,957.31 1,716.46 1,151.99 1,072.69 976.05 436.28 285.21 1,131.31 367.72 907.27 -485.84 18,933.17 13,182.75 8,471.01 6,176.25 48,378.95 41,483.47 34,970.19 33,464.28 24,627.23 23,063.57 17,313.15 12,601.41 10,306.65 5,037.67 13,963.77 13,272.37 12,391.12 9,358.92 6,904.25 925.31 6,217.18 1,556.39 1,122.16 1,603.98 3,400.78 5,393.82 4,605.48 3,455.12 2,881.66 2,860.75 2,609.50 2,526.97 2,227.62 2,187.95 2,119.93 2,624.13 3,175.46 4,165.81 5,289.28 4,281.79 3,730.51 3,268.56 2,607.77 2,164.42 3,045.24 4,180.52 4,297.62 5,769.79 8,690.06 7,917.78 5,083.57 4,156.28 3,811.91 4,757.90

Total Liabilities 13,727.73 Selling and Administration Expenses 26,108.81 21,493.67 16,899.03 16,076.44 1,550.26 1,375.59 1,467.62 1,167.04 1,176.07 Miscellaneous Expenses 465.42 497.12 525.41 613.33 741.80 Gross Block 30,922.73 29,912.71 29,360.46 28,043.48 27,683.63 Less: Preoperative Expenditure Capitalised 1,832.48 1,445.24 1,352.05 921.71 893.07 Less: Accum. Depreciation 19,351.42 18,315.00 17,198.32 15,558.41 14,515.73 Profit before Interest, Depreciation & Tax 12,954.48 10,966.23 7,380.80 11,144.28 4,706.25 Interest Block Net & Financial Charges Profit before Depreciation & Tax Capital Work in Progress Depreciation Investments Profit Before Tax TaxInventories Profit After Tax Sundry Debtors Adjustment below Net Profit P &Cash and Bank Balance L Balance brought forward AppropriationsAdvances Loans and P & L Bal. carried down Current Liabilities Equity Dividend Provisions Preference Dividend 250.94 332.13 467.76 651.98 13,167.90 955.45 11,571.31 11,597.71 12,162.14 12,485.07 12,703.54 10,634.10 6,913.04 10,492.30 3,750.80 2,389.55 1,198.52 757.94 366.48 382.20 1,235.48 1,211.48 1,207.30 1,126.95 1,122.59 538.20 11,468.06 9,422.62 513.79 292.005,705.74 606.71 543.17 9,365.35 2,628.21 3,931.28 3,220.33 1,692.77 2,548.38 116.13 7,018.10 6,814.10 6,371.66 4,220.69 3,057.06 7,536.78 6,202.29 4,012.97 6,816.97 2,512.08 3,048.12 2,314.75 1,881.73 1,908.45 1,549.96 0.00 -14.50 -910.27 0.00 0.00 13,759.44 9,609.83 6,172.64 6,132.12 10,811.65 6,698.84 4,758.77 22.69 2,035.82 -2,764.93 2,470.77 2,074.98 1,162.63 2,080.89 -275.54 3,644.22 3,097.70 2,771.47 3,260.11 1,603.36 15,877.66 10,811.65 6,698.84 4,758.77 22.69 8,960.91 8,105.56 8,081.23 7,812.72 4,412.32 1,528.25 1,280.42 826.08 1,363.03 0.00 6,958.70 0.00 5,676.32 0.00 5,645.14 0.00 5,385.40 0.00 4,577.92 0.00

Corporate Dividend Tax 258.91 197.98 115.862,323.25 185.24 -744.04 0.00 Net Current Assets 11,550.27 8,054.50 3,471.13 Equity Dividend (%) 37.00 31.00 20.00 33.00 0.00 Miscellaneous Expenses not w/o 59.48 129.15 215.82 294.93 378.50 Earning Per Share (Rs.) 17.62 14.54 9.44 16.06 6.08 Total Assets 26,108.81 21,493.67 16,899.03 16,076.44 Book Value 55.84 41.92 30.51 24.95 13,727.73 12.20 Extraordinary Items Contingent Liabilities 239.53 371.79 38.69 4,056.90 -4.72 3,739.82 3,635.18 3,730.45 50.06 3,159.22

PROFIT AND LOSS ACCOUNTS

103

104