INTRODUCTION

Steel comprises one of the most important inputs in all sectors of economy. Economy of any country depends on the strong base of the iron and steel industry. Steel is a versatile material with multitude of useful properties, making indispensable for furthering and achieving continual growth of the economy be it construction, manufacturing infrastructure or consumables. The level of the steel consumption has long been regarded as an index of industrialization and economic maturity attained by country. Keeping in view the important of steel the integrated steel plant with foreign collaboration was setup in the public sector in the post independence era. marketing resources The and The growth of any organization financial performance of of the the any depends on the overall performance such as productions, organization. financial performance

organization reflects the strength, weakness, opportunities and threats of the organization with respect to profits earned, investment, sales, realization, turn over return on investment, net worth of capital efficient management of financial resources and deliberate analysis of financial results are pre requisite for success of an enterprise. In that financial performance is one of the major and important areas of financial management. Every organization requires study on financial performance about business transactions, which includes managing current assets like cash,

inventory, accounts receivable, loans and advances and current liabilities like sundry creditors. 1.1 Introduction to Financial Analysis Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing between the items of the balance sheet and profit and loss account. There are various methods or techniques used in analysis financial statements such as comparative statements, trend analysis, common size statements, schedule of changes in working capital, funds flow and cash flow analysis Cost Volume Profit Analysis and Ratio Analysis.

Meaning and Concept of Financial Analysis:

The terms financial analysis also known as analysis and interpretation of financial statements refers to the process of determining financial strength and weaknesses of the firm by establishing strategic relationship between the items data. 1.2 Need For The Study: There is a special role of every industry barring up on the need essentiality with where everything that has to be done by in the accordance government. standards are regulated of the balance sheet, profit and loss account and other operative

To understand this, conceptual idea is not only sufficient but also it needs a wide knowledge and understanding of the factors that are affecting them. Especially VISAKHAPATNAM STEEL PLANT has emerged from loss to profit making company. Now, the study is all about analyzing, how this has been possible for a company whose figures were budgeted to negative show finally ended with high positively. At most care was taken in preparing the budget relating to that period of the year. As days passed on, we could see the development in all the sectors is quite appreciable. Coming to out main topic, we need to analyze the factors of the turnaround period (2003-2008) to get as idea of what a major company does in upcoming the pressures from all sides. This study is also focuses on variances shown in that period.

1.3 Scope of the Study:

Financial analysis depends primarily on financial statements to diagnose financial performance there are three principle reasons. 1. As longer as the accounts bases remain more or less the some overtime, meaningful mitered is can be drawn by examining trends in raw data and financial ratios.

2.

Since similar basis characterize various firms in the same industries, incur firm comparisons are useful.

3.

Experience seems to suggest the financial analysis works one is accounting basis and more adjustments for the same.

The following points explain the nature of the financial statement analysis in steel industries. The records are maintained on the boards of actual costs data. a. Certain neither accounts nor conversions are followed while preprimary financial statement. b. Still personal judgment of the accountant phrases on important part.

1.4

Objectives of the Study:

The Study is based upon the part of Financial Performance that is been taken into consideration i.e. Financial Statements and Analysis. The Study predominantly aims at the turn around period (2003-08).

To know the current position of various assets, liabilities and results of operation activities

To find out Financial Strengths and weaknesses of the firm To know the Liquidity Position of a firm To know the causes of changes in the Cash Position To find out important tools of Short-term, Long-term Financial Planning

To know the ability of the firm to meet its current obligations

To know the overall operation efficiency and performance of the firm

To find out foremost important Financial Decisions To know the detailed information about comparative and common size balance sheets

To know about steel scenario in India and world

1.5 Methodology: The information for the study has been obtained from two sources namely: 1 2 Primary Data Secondary Data

1. Primary Data: It is the information collects directly with out any reference. In tills study it was mainly interviews with concerned officers and staff, either individually or collectively, sum of the information has been verified or supplemented with Personal observations. The data includes. 1. Having a discussion with finance manager. 2. Guidelines are taken from Asst. General Manager (F&A). 2. Secondary Data:

This is taken from the annual reports, websites, company journals, magazines and other sources of information of steel plant.

Data Sources

primary Sources

secondary Sources

management

respondents

inside the company

outside the company

personal observance

annual reports

text books, journals

1.6 Limitations of the Study:

The period of study that is 8 weeks was not enough to go in the detailed aspects of the study. The study is carried bearing on the information and documents provided by the organization and based on the

interaction with the various employees of the respective departments. Most of the matters related to budgets were confidential so it not possible together much information.

2.PROFILE OF STEEL INDUSTRY IN INDIA

2.1 Importance of the Steel: Steel is a versatile and indispensable item. Iron and steel comprises one of the most important inputs on all sectors of economy. This industry is both a basic and a core industry. History has shown that The economy of any nation depends on a strong base of iron and steel industry in that nation. countries having a strong potentiality for iron and steel products have played a predominant role in the advancement of civilization in the world. The great investment that has gone in to the fundamental research in iron and steel industry has helped both directly and indirectly many modern fields of todays science and technology. The paid growth and development of steel capacity is indeed a logical corollary of any program of rapid industrialization. Steel forms the back bone of the economy, It has strong background

especially of as industrial country.

and forward linkages, which made steel indispensable. The vital role, which steel industry plays in the growth and development of nations economy is undeniable. The importance of steel of economic activities cannot be over emphasized. Besides, steel provides large employment directly and it is acknowledged that fun every direct steel employee, 15
7

thousand opportunities are created in the linkage industries.

Steel comprises one of the most important inputs in all sectors of economy. material with Economy of any country depends on Steel is versatile making it of useful properties, strong base of the iron and steel industry. multitude

indispensable for furthering and achieving continuous growth of the economy be it construction, manufacturing infrastructure or consumables. The level of steel consumption has been regarded as an index of industrialization and economic maturity attained by country. Keeping in view the importance of steel, the integrated steel plants with foreign collaborations were setup in the public sector in the post-independence era. The growth of any organization depends on the over all performance such as production, marketing, human resource and financial performance of the organization. The financial performance of any organization reflects the strengths, weaknesses, opportunities and threats of the organization with respect to profits earned, investments, sales realization, turnover, returns on investment, net worth of capital

2.2 India's Steel Scenario:

Indian steel industry has always remained isolated and protected by government, where the steel industry was never expected to generate profit from business, but was expected to provide employment to the unemployed. Presently India is operating with open-hearth furnaces. The existing equipment, energy and labor in Indian steel industry are much low than developed countries. Indian steel industry generates a significant amount of waste materials, which can cause environmental problems. The four aspects of "Waste Management" Namely- residue reprocess, recycle and recovery do not hold much ground in the Indian steel industry. The Indian companies cannot spend more for pollution control. The energy consumption per tone is 50-100% higher than that of the international norms. The Indian steel industries have developed a bit in the recent years. The production is growing on properly. Many techniques are being implemented in the steel industries. The country's aim is to sell quality steel. The government is also helping the steel industries in this basis.

2.3 Worlds Demand for Steel:

The total demand for steel in world is expected to grow at an annual rate of 1.7% between 1935 and 2000 A.D. as per the study concerned by china economists. According to their estimation total demand in advanced industrial countries on a whole is expected to grow at 0.6% annual rate following a 2.2% rate between 1974 to1984.

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Steel demand is less developed countries on a whole is expected to grow at a 5.5% annual rate up to 2000 following a 3.1 annual growth rate between 184-1994. Within the controlling plant economy the Eastern Europe erstwhile USSR region may have 0.3% annual steel demand growth.

2.4 Highlights Of Present Steel Scenario:

The world steel shows a low growth demand. There is a threat to steel industry from competitive products like plastics, aluminum, etc. Developed countries slowly reduced the production of steel. Developing countries like China are planning to produce steel as much large quantity then of present output of 80 Mt. per annum. India consciously and strategically decides to invest into steel production. Preference is given to superior quality products and high value item production. Customer oriented approach in view of product oriented approach.

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2.5 The Major Steel and Related Companies in India

Bhart Refectories Ltd.

Hindustan Steel works Construction Ltd Jindal Steel and Power Ltd Manganese ore(India) Ltd Metal scrap Trade corporation Ltd Metallurgical and engineering consultants India Ltd National Mineral Development Corporation Rashtriya Ispat Nigam Ltd Sponge Iron India Ltd Steel Authority of India Ltd TATA Iron steel Company

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2.6 Steel Plants With Foreign Collaborations

S.No 1 2 3

Plant Rourkela Steel Plant Bhilai Steel Plant Durgapur Steel Plant

Collaboration Capacity of Finished Steel Products West Germany Erstwhile USSR Britan

Bokaro Steel Plant

Erstwhile USSR

S No

Plant

Collaboration Capacity of

Annual

Finished Steel Products Production

13

Rourkela Steel Plant

West Germany

7,20,000 Tones 7,70,000 Tones

Bhilai Steel Plant

Erstwhile USSR

Durgapur Steel Plant

Britain

8,00,000 Tones

2.7 Problems of Steel Plant Industry

2.7.1 Lack of Raw Materials:
Non-availability of good quality raw material is another problem faced by iron and steel industry. The modem giant blast furnace needs high-grade iron ore and good metallurgical coal. Further the industry is unable to get good quality coke and manganese is which the principal raw materials next to iron ore are unfortunately most of our resources of manganese ore are of poor quality besides the non availability of good quality raw material, regular supplies of raw materials are very much handicapped due to the absence of good transport facilities. Another problem faced by the steel industry related to the difficulty in getting zinc supplies for the continuous galvanizing line.
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2.7.2 Lack of Technical Problems:

Bhilai had to execute orders for shipment of rails to Iran. South Korea and Malaysia. Because of technical limitations, Rourkela plant is unable to substitute aluminum of zinc for the production of galvanized sheet apart from source internal technical problems; our technology in the field of steel production is not a developed one when compared to other advanced countries.

2.8 Government Control and Pricing Policy

Since 1941, India steel and iron industry was almost completely state regulated. Both prices and distribution of steel were under control of government. The Govt. decided to remove statutory control over the price and distribution of all, but a few categories with effect from 1 st march 26, 1964 the Govt. supervise the steel and iron inducted according to the recommendation of Raja committee. But Raj committee in fixing the steel price didn't regulate the price of raw materials.

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3. PROFILE OF VISAKHAPATNAM STEEL PLANT

Visakhapatnam steel plant the first coast based steel plant of India is located 16 km south west of city of destiny i.e., Visakhapatnam Bestowed with modern technologies, VSP has an installed capacity of 3 million tones per annum of liquid steel and 2.56 million tones of saleable steel. At VSP there is emphasis on total automation, seamless integration and efficient up gradations which results in wide range of long and structural products to meet stringent demands of discerning customers with in India and abroad. BIS, and BS etc. VSP has become the first integrated steel plant in the country to be certified to all the three international standards for quality (ISO-9001) for environment management (ISO14001), for Occupational Health & Safety (OHSAS-18001). The
16

VSP products meet

exacting international quality standards such as JIS, DINAND

certificate

covers

quality

system

of

all

operational,

maintenance and service units besides purchase system, training and marketing functions spreading over 4 regional marketing offices, 24 branch offices and stock yard located all over the country. VSP successfully installing and operating efficiently Rs460 crores worth of pollution control and environment control equipments and converting the barren land scape by planting more than 3 million plants has made the steel plant, steel township and surrounding areas into a heaven of lush greenery.

3.1 Background of VSP:

To meet growing domestic needs of steel, Government of India decide to setup an integrated steel plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979 for co-operation in setting up 3.4mt integrated steel plant at Visakhapatnam. It can be seem from the above table, during the year 2002-03, the company turned around by earned a net profit of Rs 521 crores. In the same year, it bagged the PRIME MINISTER TROPHY for its excellent performance in the steel industry. September 2003, RINL became a DEBT FREE COMPANY. In

17

3.1.1 VSP Technology: State-Of-The-Art

7m tall coke oven batteries with coke dry quenching. Biggest Blast Furnaces in the country Bell less top charging system in blast Furnace. 100% slag granulation at the BF cast house. Suppressed combustion - LD gas recovery system. 100% continuous casting of liquid steel. "Tempore" and "Stelmor" cooling process in LMMM & WRM. Extensive waste heat recovery systems. Comprehensive pollution control measures.

3.1.2 Major Sources of Raw Material

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Iron Ore Lumps & Fines

Bailadilla, M P

B F Lime Stone

Jaggayyapeta, A P

SMS Lime Stone B F Dolomite SMS Dolomite Manganese Ore Boiler Coal Coking Coal Medium Coking Coal

UAE Madharam, A P Madharam, A P Chipurupalli, A P Talcher, Orissa Australia Gidi/Swang/Rajarappa/Kargali

3.1.3Major Units at Vsp

DEPARTMENTS

Coke Ovens Sinter Plant Blast Furnace Steel Melt Shop LMMM

ANNUAL UNITS (3.0 MT STAGE) Cap. ('OOOT) 4 Batteries each of 67 ovens & 7 Mts 2,261 Height

5,256 3,400 3,000 710

2 Sinter machines of 312 Sqm grate area Each 2 Furnaces of 3200 cu m volume each 3 LD Converters each of 133 Cum. Volume and six 4 strand bloom casters 4 Strand Finishing Mill

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WRM MMSM

850 850

2 x 10 Strand Finishing Mill 6 Strand Finishing Mill

3.1.4 Main Products of Vsp

Steel Products Angles Billets Channels Beams Squares Flats Rounds Re Bars Wire rods By Products Nut Coke Coke dust Coal Tar Anthracene Oil HP Naphthalene Benzene Toluene Zylene Wash Oil

3.2 Future Plans 3.2.1 Vision:

To be a continuously growing world-class company. We shall: Harness our growth potential and sustain profitable growth. Deliver high quality and cost competitive products and be the first choice of customers. To create an inspiring work environment to unleash the creative energy of people.
20

 Achieve excellence in enterprise management. Be a respected corporate citizen, ensure clean and green environment and develop vibrant communities around.

3.2.2 Mission:
To attain 16 million tones liquid steel capacity through technological up gradation, operational efficiency and expansion, to produce steel at international standards of cost of quality, and to meet the aspirations of the stakeholders.

3.2.3 Objectives of Vsp:

Expand plant capacity to 6.3 Mt by 2010-11 with the mission to expand further in subsequent phases as per the corporate plan. Towards growth-expand the plant capacity to 7Mt by 2011-12 and 10Mt by 2019-20. Be amongst top five lowest cost steel producers in the world by 2009-2010. Achieve higher competitors. Towards employees-make RINL the employer of choice. Upgrade the skills and efficiency of employees through training and development and maintain high levels of motivation and satisfaction. Be recognized as an excellent business organization by 2009-10.
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levels of customer

satisfaction

than

 Instill right attitude amongst employees and facilitate

them to excel in their professional, personal and social life. Be proactive in conserving environment, maintaining high levels of safety and addressing social concerns. Towards technology upgrade up-gradation tec1mology in and productivitypractice and continuously Adopt latest and

benchmarking to achieve international efficiency levels. developments information communication technology. Towards knowledge management-become a knowledge based and a knowledge sharing company. Towards safety, environment and society-continue efforts towards safety of employees, conversation of environment and be a good corporate citizen.

3.2.4 Core Values:

Commitment Customer Satisfaction Continuous Improvement Concern for Environment
Creativity and innovation

3.3 Policies & Rules of Rinl/Vsp:

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VSP takes all necessary actions for the fulfillment of regulatory requirements. following policies. 3.3.1. Quality Policy:Continuously improve the quality of all materials processes and product services for customers. 3.3.2. Energy Policy:By technologies adopting VSP. appropriate energy conservation of various In this regard VSP follows the

Controls

the consumption

forms of energy. 3.3.3. Environment Policy:Maintain high level of environmental consciousness amongst employees and prevention of pollution by minimizing the emissions and discharge. 3.3.4. OHAS Policy:VSP committed to occupational health and safety of employees and contract workers. 3.3.5. HR Policy:VSP believe that their employees are the most important resources, so it provides good working environment that makes the employees committed and motivated for maximizing productivity.
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3.4 HRD IN RINL

As a deliberate recruitment philosophy, RINL selected young skilled manpower and properly planned to induct them through carefully chalked out training programs to understand about the company. RINL today as young and enthusiastic reservoir of dynamic and highly skilled manpower in the average age group of 35-40 years. It also achieved excellence in production front, working in overlapping shifts, task based performance appraisal.

3.5 A Land Mark Year of Growth:

The year 2005-2006 saw the company registering then best ever sales turnover of Rs.8482 cores a 3.6% growth over previous year. The company stated a record net profit of Rs.1252.37 crores and this is the third consecutive year that the company has been earning net profit with this the accumulated losses have bought down with this accumulated losses have set up to out the Rs.906 crores and your company is all shortly also your 'MINI RATNA' by the government of India. It work under the following Slogan:

Let Excellence not only be our goal. Let us make it our standard

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3.6 Man Power at a Glance as On 31-03-2010 Works 3154 11160 Projects 327 58 Mines 105 262 Total 3586 11480

Executive s Non Executive s

------------Total Employees
-------------------

15066

3.7 Production Facilities

The production facilities in the RINL are most modern amongst the steel industry in the country. The know-how and the technology have been acquired from different parts of the world from the reputed/established manufacturers. Some of the production facilities in RINL are: 7 meter coke ovens of RINL are the tallest so far built in the country. Base Mix Yard for sinter plant introduced for the first time in the country helps in excellent blending of the faced material to sinter machine and production of consistent good quality sinter.

25

 3200 cubic meter two blast furnaces i.e., Godavari and Krishna with bell less top charging equipment and 100% cast house slag granulation, the biggest to be setup in the country have done away either the conventional bell charging system. 100% continuous costing of liquid steel into blooms resulted in lowest losses and better quality of blooms. RINL has sophisticated and latest features of automation of large polling mills consisting of Light and Medium Merchant Mill (LMMM) which include billet and bar mill Wire Road Mill (WRM) Medium Merchant and Structure Mill (MMSM) The operations of blast furnace, steel melting shop and rolling mills have been entirely computerized to ensure consistent quality and efficient performance.

3.8 Marketing Network of Visakhapatnam Steel Plant

The products are being sold through 35 marketing centers all over the country with four stock yards at Mumbai, Kolkata, Chennai and Hyderabad. And in other places, consignment agencies have been contracted.

3.9

Pollution

Control

and

Environmental

26

Protection
Elaborate measures have been adapted to combat air and water pollution in Visakhapatnam steel plant. In order to be eco friendly Visakhapatnam steel plant has planted more than 3.4 million trees in area of 35 square kilometers and incorporated various technologies at a cost of Rs.460 crores and control measures.

3.10 Achievements and Awards of Vsp

The efforts of VSP have been recognized in various forms. Some of the major awards received by VSP are in the area of energy conservation, environment protection, safety, Quality, Quality circles, Rajbhasha, MOD, sports related awards and a number of awards at the individual level. Some of the important awards received by VSP are indicated below:
Award Award of 'Certificate of Merit' of Global Human Resource Development of Organization'(IFTDO) NIPM certificae of Merit Udyog Ratan Award by the Delhi Telugu Academy, Hyderabad. RINL bagged third prize in the Event Management category of the Public Relations National Awards-2009 at the 31st All India Public Relations conference held in Chandigarh on 11th December, 2009. VSP won this Quiz successively for 3 in a row (2007, 2008 & 2009) achieving HAT-TRICK which is aNATIONAL RECORD. Purpose Human resources Development Best HR Practices Year 2010-April 2010-March 2010-March

Public Relations National Awards-2009

2009

10th National Management Quiz RINL team won the TATA-Crucible Corporate Quiz on 4th October.

2009

2009 RINL bagged the First Steel Ministers Trophy for the year 2006-07 for being the best integrated steel plant in the country (Runner Up) in November 2009.

Steel Ministers Trophy for the year 2006-07

2010-Feb

27

Enegy Award-CII

VSP was adjudged Energy Efficient Unit award by Confederation of Indian Industry Godrej Green Business Centre at the 10th National award for excellence in energy Management in November 2009 Two QC teams i.e Sraddha from CMM Dept. and Akash from ES&F dept consisting fourteen members and coordinator presented QC case studies during the competition. During October'2009 VSP has achieved a rare distinction of becoming the First Indian Steel Company to be assessed and certified for CMMI Level 3(version 1.2) for its Information Technology Department. for excellent performance of Hindi for the year 2007-08 by Hindi Salahkar Samithi of Ministry of Steel

2009

International Convention on Quality Control Circles (ICQCC) 2009 Convention Organized By: : Productivity Improvement Circles Association, Cebu, Philippines VSP QC teams won Gold & Bronze medals at International QC convention Certification for CMMI Level 3(version 1.2) for its Information Technology Rajbhasha Trophy for excellent performance VSP bags Top Assessee Award for 2007-08 for paying highest central excise on the 65th Anniversary of Central Excise Day, which was celebrated at Vizag on 24th Feb09 by the Visakhapatnam Excise zone. Rajbhasha Gourav Alankaran

2009

2009

2009

Sri PK Bishnoi was awarded Rajbhasha Gourav Alankaran by Rasvarsha Sansthan, Varanasi on this occasion for excellent Support rendered by him in propagation of Hindi India's best companies to work for -Study 2009 by Great Place To Work Institute & Economic Times ( total no of participated companies were 373) Presented by Indian Institution of Industrial Engineering for Financial and Operational Strength for 2006-07 for its e-governance by Government of India during 11th National Conference on eGovernance QC Implementation In group A (Scheme2) for the year 2007 for the zones coal and coke,BF,Slag granulation plant ,SP,RMHP & Rolling mills, in which no fatal accidents occurred during the years 2006 & 2007 for promoting QCs in the organization during QCFI-Silver Jubilee celebrations Best house journal devoted to " Welfare of Employees" 2009

Recognition as one among Indias best companies to work for 2009 , Top 50 best companies to work for in India, Top 2 PSUs to work in India,4th rank in large organizations category (More than 10,000 employees), Top 6 in manufacturing and production Performance Excellence Award 2007 Award for Exemplary usage of ICT by PSU's QCFI-NMDC Award for Best Quality Circle Implementation - PSU Category Ispat Suraksha Puraskar Award by JCSSI

2008 2008 2008 2008

Best Organization Award-QCFI National Award for House journal by Public Relation Society of India VSP bags Top Assessee Award for 2007-08 for paying highest central excise on the 65th Anniversary of Central Excise Day, which was celebrated at Vizag on 24th Feb09 by the Visakhapatnam Excise zone.

2008 2008

28

Total quality, latest technology, sophisticated equipment, up to date knowledge, high skills, cost consciousness, production with less cost and customer satisfaction have become the hallmark of VSP.

3.11 Sources of Funds:

VSP raise its working capital from of 10 Bankers. The following are the 10 banks. Where funds for finance are raised. 1. 2. 3. 4. 5. 6. 7. 8. 9. State Bank of India Canara Bank UCO Bank Bank of Baroda Andhra Bank State Bank of Hyderabad Allahabad Bank. HSBC Industrial Development Bank of India (IDBI)

10. Indian Overseas Bank (IOB)

3.12 The Company Pays:

Excise duty Sales Tax Custom duty Employee salary Iron ore Railway freight Ocean Freight Coal Blast 2 Crores/day 12 Crores/month 12 Crores/month 35 Crores/month 15 Crores/month 50 Crores/month 15 Crores/month 70 crores/month

3.13 Swot Analysis

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BOARD OF DIRECTORS
CHAIRMAN/MANAGING DIRECTOR DIRECTOR (PERSONNEL) DIRECTOR(FINANCE) DIRECTOR (OPERATIONS) DIRECTORS COMPANY SECRETARY REGISTRED OFFICE Sri P.K. BISHNOI Sri Y. MANOHAR Sri P.MADHU SUDHAN Sri UMESH CHANDRA Sri A.K. RATH Sri G. ELIAS, AS & FA Sri P.MOHAN RAO

Strengths:

30

State of the art technology. High commitment to achieve capacity levels. Areas of excellence. Economics of sales. High expansion potential. Strong commitment to conserve environment.

Weakness:
High Capital related charges. Low return product mix. Productivity below international standards. Lack of ore.

Opportunities:
Share based. Sizeable export markets. Access to import sources. Proximity to southern markets. Increasing domestic demand due to thrust on infrastructure development.

Threats:
Rising input cost. Increasing competition. Sensitive to exchange rate variation. Possibility of import duties declining further. Excise duties continue to be high. Lack of alternative sources for major raw materials. Major market place (North & West) far off.

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 Infrastructure continues to be inadequate.

4.THEORATICAL FRAME WORK OF FINANCIAL STATEMENTS ANALYSIS

A financial statement is an organized collection of data according to logical and consistent procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position of a moment is time as in the case of a balance sheet, or may reveal a series of activities of over a given period of time, as in the case of an income statement.

DEFINITION:
According to John N.Myer The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities, and capital as on a certain date and the income statement showing the results of operations during a certain period. The term financial statement generally refers to following
32

basic statements: The income Statement. The Balance Sheet. A Statement of Retained earring. A Statement of Changes in financial position

4.1 Income Statement:

The income statement (also termed as profit and loss account) is generally considered to be the most useful of all financial statements. It explains what has happened to a balance sheet data. For this purpose it matches the revenues and costs incurred in the process of earnings revenues and shows the net profit earned of loss suffered during a particular period.

4.2 Balance Sheet:

It is a statement financial position of a business at a specified name of time and the claims(or equities) of the owners and outsiders against those assets at that line. It is in a way snapshot of the financial condition of the business at that time.

4.3 Statement of Retained Earnings:

The term retained earnings means the accumulated excess earnings over losses and dividends. The balance shown by the income statement is transferred to the balance sheet through this statement after making necessary appropriations.
33

It is fundamentally a display of things that have caused the beginning of the period retained earnings balance to be changed in to the one show in the end-or-the-period balance sheet.

4.4 Statement of changes in financial position:

The balance sheet shows the financial condition of the business at a particular moment of time while the income statement discloses the results of operations of business over a period of time for a better understanding of the affairs of the business, it is essential to identify the movement of working capital or cash in the statement of changes in financial position. Change in the firms working capital Change in the firms cash position Change in the firms total financial position The terms funds flow statement and cash flow statement are popularly used for the first and 2nd type of statements while the term statement of changes in financial position used for the 3rd type of statement.

4.5 Nature of Financial Statements:

The financial statements are prepared on the basis of recorded facts. The recorded facts are those which can be The statements are prepared The transactions expressed in monetary terms.

for a particular period, generally one year.

are recorded in a chronological order as and when the events

34

happen. The financial statements by nature are summaries of the items recorded in the business and there statements are prepared periodically generally for the accounting period.

4.6 Recorded Facts:

The term Recorded facts; refers to the data taken out from the accounting records. The records are maintained on the basis of actual cost data. The figures of various accounts such as cash in hand, cash at bank, bills receivables, Sundry debtors, fixed assets are taken as per the figure recorded in the accounting books.

4.7 Accounting Conversions:

Certain accounting converters are followed while preparing financial statements. followed. The conversion of valuating

inventory at cost or market price, whichever is lower, is The valuing of assets at cost less depreciation principle for balance sheet purposes statements comparable, simple and realistic.

4.8 Postulates:
The accountants make certain assumption while making accounting records. One of these assumptions is that the enterprise is treated as a going concern. The other alternative to this postulate is that the concern is to be liquidated the concern. So the assets are shows on a going concern basis. An other important assumption is to presume that the value of money will remain in the same in different periods.

35

4.9 Personal Judgments:

Even though certain standard accounting conversions are followed in preparing financial statement but still personal judgment of the accountant plays on important part.

4.10 Characteristics of financial statement:

The financial statements are prepared with a view to depict financial position of a concern. The financial statements should be prepared in such a way that they are able to give a clear and orderly picture of the concern. The ideal financial statement has the following characteristics.

4.11 Depict true financial position:

The information contained in the financial statements should be such that a true and correct idea is taken about the financial position of the concern.

4.12 Attractive:
The financial statements should be prepared in such a way that important information is underlined so that it attracts the eye of the reader.

4.13 Comparability:
The results of financial analysis should be comparable. The financial statements should be presented in such a way that they can be compared to the previous years statements. Previous years figures in the balance sheet.
36

4.14 Brief:
If possible, the financial statements must be prepared in brief. The reader will be able to form as idea about the figures.

4.15 Importance of Financial Statements:

Financial statements contain a lot of useful and valuable information regarding profitability financial position and future prospective of business concern. The utility of financial statement to different parties may be summarized as follows:

4.15.1 Management:
The financial statements are useful for assessing the efficiency of different cost centers. The management is able to decide the course of action to be adopted in future.

4.15.2 Creditors:
The trade creditors are to be paid in a short period. The CRS will be interested in current solvency of the concerns. The calculations of current ratio and liquid ratio will enable the creditors to assess the current financial position of the concerns in relation to their debts.

4.15.3 Investors:
The investors include both short-term and long term investors. They are interested in the security of the principal amounts of loan and regular payments by the concern. The investors will not only analyze the parent financial position but
37

will also study the future prospectus and expansion plans of the concern.

4.15.4 Governments:
The financial statements are used assess tax liability of business enterprises. The Government studies economic These situation of the country from these statements. business is following various rules and regulations or not.

statements enable the government to find out whether

4.15.5 Trade Associations:

These associations provide service and protection to the members. They may analyze the financial statements for the purpose of providing facilities to these members. develop accounts. standard ratios and design uniform They may system of

4.15.6 Stock Exchange:

The stock exchange deal in purchase and sale of securities of different companies. The financial statements enable the stock broker to judge the financial position of different concerns. The fixation of prices for securities etc. is also based on the statements. 4.16 Limitations of Financial Statements: Financial statements are relevant and useful for the concern, still they do not present a final picture of the concern, and otherwise misleading conclusions may be drawn. The

38

financial statements suffer from following limitation:

Ignoring of non-monetary aspects:

These accounting statements information are prepared mainly with the help of which consider monetary

aspects only. The value of business depends both on qualitative and quantitative factors.

1. Historical cost:
The statements are prepared on the basis of historical cost. The values of fixed assets are at there original cost less depreciation. The balance sheet value are not shown the value of assets may be sold more over they do not reflect the market value which is as important factor in determining the solvency of an enterprise.

2. Personal Judgments:
In preparing financial statements certain items are left to the personal Judgment of the accountant. If any accountant is not following accounting principles correctly his judgment will give wrong picture

3. Conversion of Conservation:
Due to conversion of conservation the income statement may not disclose true income of the business. This is due to ignorance of probable incomes and accounting probable losses. 4.17 Techniques of Financial Analysis:

39

A financial analyst can adopt one or more of the following techniques/ tools of financial analysis: Comparative statement analysis Common-size statement analysis Trend analysis Funds flow analysis Cash flow analysis Ratio analysis C.V.P. analysis These are explained as follows: 1. Comparative Financial Statement: The statements which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements figures for two or more period side by side to facilitate comparison. Both the income statement and balance sheet can be prepared in the form of comparative financial statements 2. Comparative Income Statement: The income statement discloses net profit or net loss on account of operations. A comparative income statement will show the absolute figures for two or more periods, the absolute change from one period to another and if desired the change in terms of percentages. Since the figures for two or more
40

periods are shown side by side, the reader can quickly ascertain whether sales have increased or decreased, whether cost of sales has increased or decreased etc. 3. Comparative Balance Sheet: The balance sheet prepared on a particular date reveals the financial position of the concern on the date to study the trends of business over a period of time comparative balance sheet reveals the cause for changes in the financial position on amount of various transactions. The comparative studies throw light on financial policies adopted by management.

4. Common Size Statements:

Common-size statement is financial tool of studying key changes and trends in financial position of the company. In common-size statement, each item is stated as a percentage of the total of which that is a part, each percentage exhibits the relation of the individual item to its respective total. Therefore, the common-size percentage method represents a type of ratio analysis. 5. Common Size Income Statement: The common-size income statement is designed to exhibit what proportion of the net sales has been absorbed by the various costs and expenses incurred by the enterprise, and the proportion that remains as net income. For preparing commonsize income statement all items in the income statement are expressed in percentage from in terms of total sales.

41

6. Common Size Balance Sheet: Common-size balance sheet is prepared by setting the total assets as 100and percentages of the total. reducing individual assets into Likewise, individual liability items

are expressed as percentages of the total liabilities. Thus, the common-size Balance sheet percentage shows the relation of each asset item to total assets and of each liability and owners equity item to total liabilities and owners equity. 7. Trend Analyses: Trend analysis depicts behavior of the ratios over a period of time and the trends in the operation of the enterprise. The trend figures are index figures giving a birds eye view of the comparative data by presenting it over a period of time. Under this form of analysis, generally financial ratios are studied for a specified number of years. It is a dynamic analysis depicting the changes over a stated period. 8. Cost-Volume-Profit Analysis: Cost Volume Profit analysis is an important tool of profit planning. It studies the relationship between cost, It is not strictly a volume of production, sales and profit.

technique used for analysis of financial statements. 9. Ratio Analysis: This is the most important tool available to financial analysts for their work. All accounting ratios show relationship
42

in mathematical terms between two interrelated accounting figures. The figures have to be interrelated, because no useful purpose will be served if ratios are calculated between two figures, which are not at all related to each other. 10. Cash Flow Analysis: Cash Flow Analysis enables the management to plan and co-ordinate the financial operations of the enterprise, and furnish the basis for evaluating financing policies. It provides a barometer for ensuring the profitability of the business and makes financing problems of the business much more manageable.

11. Funds Flow Analysis:

Funds flow analysis has become an important tool in the analytical kit of and financial managers. This is because the balance sheet of business reveals its financial status at a particular point of time. It does not sharply focus those major financial transactions. Funds flow analysis reveals the change in working capital positions. It tells about the sources from which the working capital was obtained and the purpose for which it was used. Working capital being the life blood of the business. Such an analysis is extremely useful.

43

5. DATA ANALYSIS & INTERPRETATION

5.1 Comparative analysis of Balance Sheets has been presented here. 5.1.1 Comparative Balance Sheet (2008, 2009): Table No: 5.1.1 Comparative Balance Sheet for the Years 2008-09
Rs. Crs PARTICULARS

2008

2009

INCREASE /DECREASE AMOUNT(Rs PERCENTAGE )

ASSETS:

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current

7699.11 93.41 1761.15 1958.49 292.43

6624.17 191.27 3215.28 1569.69 258.91

-1074.94 +97.86 +1454.13 -388.80 -33.52

-13.96% +104.76 +82.56% -19.85% -11.46%

44

Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets
TOTAL ASSETS

0.00 0.05 ---3471.92

15276.51

0.00 0.05 ---5874.11

17733.43

0.00 0.00 ---2402.24

+2456.97

0.00 0.00% ---+69.19%

+16.08%

LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax

1610.15 1581.47 332.78 107.95 163.12

2560.79 1620.53 907.72 100.04 124.49 7827.32 4592.59 17733.4 8

950.64 +39.06 +574.94 -7.91 -38.63 0.00 +938.87 2456.97

59.04% +2.46% +172.76% -7.33% -23.68% 0.00% +25.69% +16.08%

Liability Share capital 7827.32 Reserves & Surplus 3653.72 TOTAL 15276.5 LIABILITIES 1

45

2 0 0 .0 0 % 1 5 0 .0 0 % Percentage 1 0 0 .0 0 % 5 0 .0 0 % 0 .0 0 %
Ba nk Su Bala n n Sto dry ces ck Deb Lo (Inv tors an e n De Ot s & torie f er he A red r C dva s) Re urr nce en ve nu tA s eE ss ets xp en dIint u Pr vreest ofi t & men ts L Fix oss a Cu ed /c rre Ass nt Lia ets bi Prolities Se v cu ision r ed s Un De secu Loa n f er red red L s Ta oan x s ShLiabi Re se are clity rve a s & pita Su l rpl us

-5 0 .0 0 %

Ca sh &

P a rtic u la rs

Interpretation
During the financial year 2009, the long term liabilities were increased by Rs. 567.46 i.e., 25.96% comparison to the previous year 2008. In comparison to the previous year i.e., 2008 the current liabilities were increased by Rs.950.64 i.e., by 59.04% The fixed assets have been increased by Rs 2402.24 in comparison to the previous year i.e., by 69.19%

46

 Current assets have been increased by Rs.54.73% in comparison to previous year i.e., 0.46% shows which that the working capital of the company is strengthened. The liquidity position of the company during the year 2008-2009 is satisfactory. 5.1.2 Comparative Balance Sheet for the Years 20072008 Table No: 5.1.2 Comparative Balance Sheet of Vsp Ltd for the Years 2007-2008
Rs. Crs PARTICULARS ASSETS:

2007
7194.68 216.80 1203.24 1518.90 314.48 14.95 0.05 ---2402.65
12850.75

2008
7699.11 93.41 1761.15 1958.49 292.43 0.00

INCREASE /DECREASE AMOUNT PERCENTAGE

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets
TOTAL ASSETS

+504.43 -123.39 +557.91 +439.59 -22.05 -14.95

+7.01% -56.91% +46.37% +28.94% -7.01% -100.00% 0.00% ---+44.50%

+18.88%

0.05 0.00 ------3471.92 +1069.27

15276.51 +2425.76

47

LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES 1011.53 1092.77 604.45 312.51 291.29 7827.32 1710.88 12850.7 5 1610.15 1581.47 332.78 107.95 163.12 +598.62 +488.70 -271.67 -204.56 -128.17 +59.18% +44.72% -44.94% -65.46% -44.00% 0.00% +113.56% +18.88%

7827.32 0.00 3653.72 +1942.84 15276.5 1 +2425.7 6

48

1 5 0 .0 0 % 1 0 0 .0 0 % 5 0 .0 0 % Percentage 0 .0 0 % Provisions Cash & Bank Balances Stock (Inventories) Investments Unsecured Loans Other Current Assets Fixed Assets Share capital LIABILITIES: TOTAL LIABILITIES -5 0 .0 0 %

-1 0 0 .0 0 % -1 5 0 .0 0 %

P a r tic u la r s

Interpretation
During the financial year 2008, the long-term liabilities were decreased by Rs 115.70 i.e., 5.03% comparison to the previous year 2007.

In comparison to the previous year i.e., 2007 the current liabilities were increased by Rs.598.62 i.e., by 59.18%

The fixed assets have been increased by Rs.1069.27 in comparison to the previous year i.e., by 44.50%

49

 Current assets have been increased by Rs.1356.49 in comparison to previous year i.e., 12.98% The liquidity position of the company during the year 2007-2008 is satisfactory. 5.1.3 Comparative Balance Sheet of Vsp Ltd Table No: 5.1.3 Comparative Balance Sheet of Vsp Ltd for the Years 2006-2007
Rs. Crs PARTICULARS ASSETS:

2006
5621.70 166.27 1218.35 1061.32 184.36 24.87

2007
7194.68 216.80 1203.24 1518.90 314.48 14.95

INCREASE /DECREASE AMOUNT PERCENTAGE

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets

+1572.98 +50.53 -15.11 +457.58 +130.12 -9.92

+27.98% +30.39% -1.24% +43.11% +70.58% -39.89%

0.00 ---2283.87

0.05 ---2402.65

+0.05 ---+118.78

+100% ---+5.20%

50

TOTAL ASSETS

10535.8 7

12850.7 +2314.88 5

+21.97%

LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES
450.00% 400.00% 350.00% 300.00% 250.00% Ratios 200.00% 150.00% 100.00% 50.00% 0.00%

785.77 716.37 173.87 369.44 316.72 7827.32 346.38 10535.8 7

1011.53 1092.77 604.45 312.51 291.29 7827.32 1710.88

+225.76 +376.40 +430.58 -56.93 -25.43 0.00 +1364.50

+28.73% +52.54% +247.64% -15.41% -8.03% 0.00% +393.93% +21.97%

12850.7 +2314.88 5

LIABILITIES:

Share capital

Stock (Inventories)

-100.00%

Particulars

Interpretation
During the financial year 2007, the long-term liabilities were increased by Rs 724.62 i.e., 45.97% comparison to the previous year 2006.
51

TOTAL LIABILITIES

Investments

Fixed Assets

Unsecured Loans

Cash & Bank

Provisions

-50.00%

Other Current

 In comparison to the previous year i.e., 2006 the current liabilities were increased by Rs.225.76 i.e., by 28.73% The fixed assets have been increased by Rs.118.73 in comparison to the previous year i.e., by 5.20% Current assets have been increased by Rs.2196.10 in comparison to previous year i.e., 26.61% shows which that the working capital of the company is strengthened. The liquidity position of the company during the year 2006-2007 is satisfactory. 5.1.4 Comparative Balance Sheet of Vsp Ltd Table No: 5.1.4 Comparative Balance Sheet of Vsp Ltd. for the Years 2005- 2006
PARTICULARS ASSETS:

2005
3932.61 49.30 1257.53 710.12 100.18

2006

INCREASE /DECREASE AMOUNT PERCENTAGE

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets

5621.70 +1689.09 166.27 1218.35 1061.32 184.36 +116.27 -39.18 +351.20 +84.18

+42.95% +235.84% -15.21% +49.46% +84.03%

52

Deferred Revenue Expenditure Investments Fixed Assets TOTAL ASSETS

43.01

24.87

-18.14

-42.18%

0.00 3449.16 9498.9 0

0.00 2283.87 10535.8 7 785.77 716.37 173.87 369.44 316.72 7827.32 346.38 10535.8 7

0.00 -1165.29 +1036.9 7 +73.31 +447.10 +84.93 -72.98 +158.23 0.00 +346.38 +1036.9 7

0.00% -33.78% +10.92%

LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES

712.46 269.27 88.94 442.42 158.49 7827.32 0.00 9498.9 0

+10.29% +166.04% +95.49% -16.49% +99.83% 0.00% +100% +10.92%

53

3 0 0 .0 0 % 2 5 0 .0 0 % 2 0 0 .0 0 % 1 5 0 .0 0 % Ratios 1 0 0 .0 0 % 5 0 .0 0 % 0 .0 0 % Other Current Cash & Bank Fixed Assets Investments Unsecured Loans Provisions Share capital Stock (Inventories) LIABILITIES: TOTAL LIABILITIES -5 0 .0 0 %

-1 0 0 .0 0 % -1 5 0 .0 0 %

P a r tic u la r s

Interpretation
During the financial year 2006, the long-term liabilities were increased by Rs 617.28 i.e., 64.36% comparison to the previous year 2005. In comparison to the previous year i.e., 2004-05 the current liabilities were increased by Rs.73.31 i.e., by 10.29% The fixed assets have been decreased by Rs.1165.29 in comparison to the previous year i.e., by 33.78%

54

Current assets have been increased by Rs.2202.36 in comparison to previous year i.e., 36.40% shows which that the working capital of the company is strengthened.

The liquidity position of the company during the year 2005-2006 is satisfactory. 5.1.5 Comparative Balance Sheet Table No: 5.1.5 Comparative Balance Sheet of Vsp Ltd. for the Years 2004-2005
PARTICULARS

2004

2005

INCREASE /DECREASE AMOUNT(Rs ) PERCENTAGE

ASSETS:

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Investments Fixed Assets TOTAL ASSETS
LIABILITES:

1359.71 3932.61 85.62 49.30 706.34 1257.53 550.90 710.12 24.31 100.18 0.00 0.00 6372.94 3449.16 9099.8 9498.9 2 0

+2572.90 -36.32 +551.19 +159.22 +75.87 0.00 -2923.78 +399.08

+189.22% -42.42% +78.03% +28.90% +312.09% 0.00% -45.88% +4.38%

Current Liabilities

1078.82

712.46

-366.36

-33.96%

55

Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital TOTAL LIABILITIES

156.51 37.17 0.00 0.00

269.27 88.94 442.42 158.49

+112.76 +51.77 +442.42 +158.49 +0.01 +399.08

+72.05% +139.28% +100.00% +100.00% +0.01% +4.38%

7827.31 7827.32 9099.8 9498.9 2 0

350.00% 300.00% 250.00% Percentage 200.00% 150.00% 100.00% 50.00% Stock (Inventories) LIABILITES: TOTAL LIABILITIES Investments 0.00% Cash & Bank -50.00% -100.00% Unsecured Loans Other Current Provisions Fixed Assets Share capital

Particulars

Interpretation
During the financial year 2005, the long-term liabilities were increased by Rs 765.44 i.e., 395.21 comparison to the previous year 2004. In comparison to the previous year i.e., 2005the current liabilities were decreased by Rs.366.36 i.e., by 33.96%

56

The fixed assets have been decreased by Rs.2923.78 in comparison to the previous year i.e., by 45.88%

Current assets have been decreased by Rs.3322.86 in comparison to previous year i.e., 12.85% shows which that the working capital of the company is strengthened. The liquidity position of the company during the year 2004-2005 is satisfactory.

57

58

5.2.2Common Size Balance Sheet of Vsp Ltd. for the Years 2008-2009(Rs. Crs)

Particulars
ASSETS:

2008 Amount

Percentag e 50.40% 0.61% 11.53% 12.82% 1.91% -0.01% ---22.73% 100.00%

2009 Amount 6624.17 191.27 3215.28 1569.69 258.91 ---5874.11 17733.4 3

Percentag e 37.35% 1.08% 18.13% 8.85% 1.46% ---26.04% 100.00%

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets TOTAL ASSETS LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES

7699.11 93.41 176.15 1958.49 292.43 -0.05 ---3471.92 15276.5 1 1610.15 1581.47 332.78 107.95 163.12 7827.32 3658.72 15276.5 1

10.54% 10.35% 2.18% 0.71% 1.07% 51.23% 23.92% 100.00%

2560.79 1620.53 907.72 100.04 124.49 7827.72 4592.59 17733.4 8

14.431% 9.13% 5.12% 0.56% 0.70% 44.14% 25.89% 100.00%

59

200.00% 150.00% Percentage 100.00% 50.00% 0.00% -50.00%

B C as h & an k Ba la un nc dr S es y to D ck eb ( In to Lo rs an ven D to s O ef ri e & t er A re her dv s) d C a R ev urre nce s en nt ue As s E xp ets en di In tu re P r ve s tm of it en & Lo ts ss Fi a/ xe C c d ur A re ss nt et Li s ab ili tie Pr s Se ovi cu s i o ns re U d ns Lo ec D an ef er ur e s d re Lo d Ta an x s Li ab Sh R ili ar es ty e er ca ve pi s ta & Su l rp lu s S

Particulars

Interpretation
During the year 2008-09 the company is less traditionally financed as compared to previous year. In 2008-09 the share capital consists of 70.03% of total investment while the percentage is in previous year 75.15 %. The company has relied less on shareholders fund in the current year. The working capital position of the company in both the years is good. In the previous year the company has 77.27% of current assets while current liabilities are 10.54% of total investment. In the current year current assets are 66.87 % while current liabilities are 14.43%. The working capital of the company in the year 2009 is not much better than the year 2008. The analysis of various figures shows that the company for both the years has satisfactory long-term and short term financial position in comparisons the previous year 5.2.3Common Size Balance Sheet of Vsp Ltd
60

Table No 5.2.3 Common Size Balance Sheet of Vsp Ltd. for the Years 2007-2008 (Rs. Crs) 2007 Amount
ASSETS:

Particulars

Percen tage

2008 Amount

Percent age

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets TOTAL ASSETS LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES

7194.68 216.80 1203.24 1518.90 314.48 14.95 0.05

55.98% 1.69% 9.36% 11.82% 2.45% 0.11% 0.01%

7699.11 93.41 1761.15 1958.49 292.43 ---0.05 ---3471.92 15276.5 1 1610.15 1581.47 332.78 107.95 163.12 7827.32 3653.72 15276.5 1

50.40% 0.61% 11.53% 12.82% 1.91% ---0.01% ---22.73% 100.00 % 10.54% 10.35% 2.18% 0.71% 1.07% 51.23% 23.92% 100.00 %

------2402.65 18.70% 12850.7 100.00 5 1011.53 1092.77 604.45 312.51 291.29 % 7.87% 8.50% 4.70% 2.44% 2.27%

7827.32 60.91% 1710.88 13.31% 12850.7 100.00 5 %

61

120.00% Percentage 100.00% 80.00% 60.00% 40.00% 20.00% Investments Share capital Cash & Bank Balances Fixed Assets LIABILITIES: Stock (Inventories) Unsecured Loans TOTAL LIABILITIES Other Current Provisions 0.00%

Particulars

Interpretation
During the year 2007-08 the company is more traditionally financed as compared to previous year. In 2007-08 the share capital consists of 74.24% of total investment while the percentage is in previous year 74.21 %. The company has relied more on shareholders fund in the current year. The working capital position of the company in both the years is good. In the previous year the company has 81.41% of current assets while current liabilities are 16.37% of total investment. In the current year current assets are77.27 % while current liabilities are 21.48%. The working capital of the company in the year 2008 is much better than the year2007.

The analysis of various figures shows that the company for both the years has satisfactory long-term and short term financial position in comparisons the previous year.

62

5.2.4 Common Size Balance Sheet Table No 5.2.4 Common Size Balance Sheet of Vsp Ltd. for the Years 2006-2007 (Rs. Crs) Percent age 53.36% 1.58% 11.56% 10.07% 1.75% 0.24% 0.00% 0.00% 21.68% 100% 2007 Amount 7194.68 216.80 1203.24 1518.90 314.48 14.95 0.05 0.00 2402.65 12850.7 5 7.45% 6.80% 1.65% 3.51% 3.01% 74.29% 3.29% 100% 1011.53 1092.77 604.45 312.51 291.29 7827.32 1710.88 12850.7 Percen tage 55.98% 1.69% 9.36% 11.82% 2.45% 0.11% 0.01% ---18.70% 100.00 % 7.87% 8.50% 4.70% 2.44% 2.27% 60.91% 13.31% 100.00

Particulars
ASSETS:

2006 Amount 5621.70 166.27 1218.35 1061.32 184.36 24.87 0.00 0.00 2283.87 10535.8 7

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets TOTAL ASSETS LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL

785.77 716.37 173.87 369.44 316.72 7827.32 346.38 10535.8

63

LIABILITIES

1 2 0 .0 0 % 1 0 0 .0 0 % 8 0 .0 0 % Percentage 6 0 .0 0 % 4 0 .0 0 % 2 0 .0 0 % 0 .0 0 % Cash & Bank Sundry Debtors Stock (Inventories) Loans & Advances Other Current Deferred Revenue Investments Profit & Loss a/c Fixed Assets TOTAL ASSETS LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES P a r t ic u la r s

Interpretation

During the year, i.e. 2007 the company is less traditionally financed as compared to previous year. In 2007 the share capital consists of 74.21% of total investment while the percentage is in previous year 77.58 %. The company has relied less on shareholders fund in the current year.

The working capital position of the company in both the years is good. In the current year the company has 76.31% of current assets while current liabilities are 14.25% of total investment.

64

 In the year 2007 current assets are 86.42% and current liabilities are 16.37%. The working capital of the company in the year 2007 is much better than the year 2006. The analysis of various figures shows that the company for both the years has satisfactory long-term and short term financial position in comparisons the previous year. 5.2.5 Common Size Balance Sheet of Vsp Ltd Table No 5.2.5 Common Size Balance Sheet of Vsp Ltd. for the Years 2005-2006 Crs) (Rs.

Particulars
ASSETS:

2005 Amount 3932.61 49.30 1257.53 710.12 100.18 43.01 0.00 0.00 3449.16 9498.90

Percen tage 41.40% 0.52% 13.24% 7.48% 1.05% 0.45% 0.00% 0.00% 36.31% 100%

2006 Amount 5621.70 166.27 1218.35 1061.32 184.36 24.87 0.00 0.00 2283.87 10535.87

Percen tage 53.36% 1.58% 11.56% 10.07% 1.75% 0.24% 0.00% 0.00% 21.68% 100%

Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets TOTAL ASSETS LIABILITIES:

65

Current Liabilities 712.46 Provisions 269.27 Secured Loans 88.94 Unsecured Loans 442.42 Deferred Tax Liability 158.49 Share capital 7827.32 Reserves & Surplus 0.00 TOTAL LIABILITIES 9498.90

7.50% 2.83% 0.94% 4.66% 1.67% 82.40% 0.00% 100%

785.77 716.37 173.87 369.44 316.72 7827.32 346.38 10535.87

7.45% 6.80% 1.65% 3.51% 3.01% 74.29% 3.29% 100%

1 2 0 .0 0 % 1 0 0 .0 0 % 8 0 .0 0 % Percentage 6 0 .0 0 % 4 0 .0 0 % 2 0 .0 0 % 0 .0 0 % Other Current Assets Cash & Bank Balances Fixed Assets Unsecured Loans Provisions Share capital Stock (Inventories) LIABILITIES: TOTAL LIABILITIES Investments

P a rtic u la rs

Interpretation

During the year, i.e. 2006 the company

is less

traditionally financed as compared to previous year. In 2006 the share capital consists of 77.58% of total investment while the percentage is in previous year 82.50%. The company has relied less on shareholders fund in the current year.

66

 The working capital position of the company in both the years is good. In the current year the company has 73.67% of current assets while current liabilities are 10.33% of total investment. In the year 2006 current assets are 76.31% and the current liabilities are 15.75%. The analysis of various figures shows that the company for both the years has satisfactory long-term and short term financial position in comparisons the previous year. 5.2.6 Common Size Balance Sheet of Vsp Ltd Table No 5.2.6Common Size Balance Sheet of Vsp Ltd. for the Years 2004-2005 Crs) (Rs.

Particulars
ASSETS: Cash & Bank Balances Sundry Debtors Stock (Inventories) Loans & Advances Other Current Assets Deferred Revenue Expenditure Investments Profit & Loss a/c Fixed Assets

2004 Amount 1359.71 85.62 706.34 550.90 24.31 61.45 0.00 0.00 6372.94

Percent age 14.94% 0.94% 7.76% 6.05% 0.28% 0.67% 0.00% 0.00% 70.03%

2005 Amount 3932.61 49.30 1257.53 710.12 100.18 43.01 0.00 0.00 3449.16

Percent age 41.40% 0.52% 13.24% 7.48% 1.05% 0.45% 0.00% 0.00% 36.31%

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TOTAL ASSETS LIABILITIES: Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Share capital Reserves & Surplus TOTAL LIABILITIES

9099.82 1078.82 156.51 37.17 0.00 0.00 7827.31 0.00 9099.82

100% 11.85% 1.72% 0.41% 0.00% 0.00% 86.02% 0.00% 100%

9498.90 712.46 269.27 88.94 442.42 158.49 7827.32 0.00 9498.90

100% 7.50% 2.83% 0.94% 4.66% 1.67% 82.40% 0.00% 100%

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1 2 0 .0 0 % 1 0 0 .0 0 % 8 0 .0 0 % Percentage 6 0 .0 0 % 4 0 .0 0 % 2 0 .0 0 % 0 .0 0 %
Ba nk SuBalan n c Sto dry Des ck ebt Lo (Inve ors an n De Oth s & A tories fer ) er red Cu dvanc Re rre ven nt es As ue set Ex s pen dituI n Pro revestm fit & en Lo ts ss Fix a TO ed A /c s TA L A set s S LIA SETS B Cu rre ILITI nt E Lia S: bili Proties v Se cur ision s U n ed De secu Loan s fer r red ed L Ta oans xL ia Re Sharbeility ser ca v TO es & pital TA Su L L rpl IAB us ILIT IES

Ca sh &

P a r tic u la r s

Interpretation

During the year i.e.; 2004 is less traditionally financed compared to previous year. In 2005 the share capital consists of 82.40% of total investment while the percentage in previous year 86.01%.

The company has less relied on shareholders' funds in the current year compared to previous year. The working capital of the company is good in both the years. The current assets comprise 62.45% and current liabilities are 13.56%. In the year 2005 current assets are 72.42% and current liabilities are 14.99%. The working capital of the company in the year 2005 is much better than the year 2004. The analysis of figures shows that the company for both

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the years has satisfactory long-term and short-term financial position in comparison of previous year.

5.3 Ratio Analysis:

Various ratios are calculated in the following tables to understand the performance of the company. 5.3.1 Liquidity Ratios
Current Ratio:

FORMULA: Current Assets Current Ratio = -----------------------Current Liabilities Year Wise Current assets and Current liabilities

Years
2004-05 2005-06 2006-07 2007-08 2008-09

Current Assets (Cr)

6047.52 8252.00 10448.1 11804.6 11859.32

Current Liabilities (Cr)

1424.15 1587.86 2104.3 3191.62 2560.79

Ratio
4.25 5.20 4.97 3.70 4.63

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6 5 4 Ratios 3 2 1 0 2 0 0 4 -0 5 4 .2 5

5 .2

4 .9 7 3 .7

4 .6 3

2 0 0 5 -0 6

2 0 0 6 -0 7 Y e a rs

2 0 0 7 -0 8

2 0 0 8 -0 9

Interpretation
The current ratio for the year 2008-09 was 4.63.that is for every rupee of current liability the firm is holding 4.63 of Current Assets. It shows that the firm was able to meet its obligations. The current ratio of the year 2005-06 was highest current ratio 5.2 compare the all years, but coming to years it was falling down to 4.63 in the year 2008-09.

Quick Ratio:
Formula: Quick Assets Quick Ratio = -----------------------Current Liabilities

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Year wise quick assets and current liabilities

Years
2004-05 2005-06 2006-07 2007-08 2008-09

Quick Assets
4082.09 5971.71 7725.96 10043.4 8644.04

Current Liabilities (Cr)

1424.15 1587.86 2104.30 3191.62 4181.32 2.87 3.76 3.67 3.14 2.06

Ratio

4 3 .5 3 2 .5 Ratios 2 1 .5 1 0 .5 0 2 0 0 4 -0 5 2 .8 7

3 .7 6

3 .6 7 3 .1 4

2 .0 6

2 0 0 5 -0 6

2 0 0 6 -0 7 Ye a rs

2 0 0 7 -0 8

2 0 0 8 -0 9

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Interpretation:
The quick ratio for the year 2008-09 was 2.06. That is, for every one rupee of quick liabilities the firm holding 2.06 of quick assets. Quick ratio was highest in the year 2005-06 was 3.76, but now was falling down to 2.06

Cash Ratio:
Formula: Cash & Marketable Securities Cash Ratio = ---------------------------------------Current Liabilities Year wise current liabilities and cash position
(Rs in Crores)

Years

Cash

Current Liabilities
1335.55 1587.86 2104.30 3191.62 4181.32

Ratio

2004-05 2005-06 2006-07 2007-08 2008-09

3932.6 5621.70 7194.66 7699.11 6624.17

2.76 3.54 3.42 2.41 1.58

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4 3.5 3 Ratios 2.5 2 1.5 1 0.5 0 2004-05 2.76

3.54

3.42

2.41 1.58

2005-06

2006-07 Years

2007-08

2008-09

Interpretation:
The cash ratio for the year 2008-09 was 1.58 that is for every one rupee of current liabilities the firm is holding 1.58 cash in its current assets. That is, the firm is able to maintain nearly 50% of cash reserves in its current assets. This could be obtained due to increase in its turnover. This indicates thats the firms cash position is satisfactory.

5.3.2 Leverage Ratios

Debt Equity Ratio: Formula: Total Debt Debt ratio = -----------------------Equity

Debt Equity Ratio for last 5 years

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(Rs in Crores)

Years
2004-05 2005-06 2006-07 2007-08 2008-09

Total Debt
531.36 457.59 916.96 440.73 1007.76

Equity
7827.31 7827.31 7827.31 7827.31 7827.31

Ratio
0.067 0.059 0.0117 0.056 0.12

0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2004-05 2005-06 2006-07 2007-08 2008-09 0.0117 0.067 0.12

0.059

0.056

Interpretation
The Debt-Equity ratio for the year 2008-09 was 0.12. It is clear that from debt-equity ratio that VSP`s lenders have contributed fewer funds than owners have. Lenders contribution is times of owners contribution for 2007-08.

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This relationship describes the lenders contribution for each rupee of the owners contribution. Public sector companies are expected to maintain 1:1 ratio. Under unfavorable conditions, firms desire to use a low debt-equity ratio. shareholders. This ratio shows that debt is of the equity. This less debt indicates less risk to

Proprietary Ratio:
Formula:

Equity share capital Proprietary Ratio = ------------------------ X 100 Total tangible Assets Proprietary Ratio for last 5 years Shareholders funds 7827.31 7827.31 7827.31 7827.31 7827.31 Total net Assets 8549.89 1051.99 12836.46 15276.46 17733.43

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Ratio 91.54 744.04 60.97 51.24 44.13

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800 700 600 Ratios 500 400 300 200 100 0 2004-05 91.54

744.04

60.97

51.24 2007-08

44.13 2008-09

2005-06

2006-07 Years

Interpretation
The Proprietary ratio for the year 2008-2009 was 44.13. This relation describes shareholders contribution for each rupee of the total net assets. This ratio reflects that the shareholders contribution was 44.13 of the total net assets. This shows that the firm has increased its contribute to the assets.

Inventory Turnover Ratio

Inventory Turnover Ratio =

Net Sales ------------Inventories

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Year Wise Inventory Turnover Ratio Years 2004-05 2005-06 2006-07 2007-08 2008-09 Net Sales 7359.84 7305.71 7932.66 9088.37 9128.38 Inventories 980.82 1236.99 1210.80 1761.15 3215.28 Ratio 7.50 5.91 6.55 5.16 2.83

8 7 6 5 Ratios 4 3 2 1 0

7.5 6.55 5.91 5.16

2.83

2004-05

2005-06

2006-07 Y e ars

2007-08

2008-09

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Interpretation:
The Inventory turnover ratio for the year 2008-09 was 2.83 times. That is, the firm is able to convert its inventory for nearly 6 times within a year. Normally, higher the ratio indicates the better inventory management. Though the ratio is not so high it is reasonably high. It shows that there is a rapid turning of the inventory into receivables through sales. Hence, it is evident that the increase in the ratio is obtained due to increase in its turnover

Debtors Turnover Ratio

Net Sales Debtors Turnover Ratio = ----------------Debtors Year Wise Debtors Turnover Ratio

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Years 2004-05 2005-06

Net Sales 7359.84 7305.71

Debtors 49.30 165.65

Ratio 149.29 44.10

2006-07

7932.66

216.80

36.60

2007-08

9088.37

93.41

97.30

2008-09

9128.38

191.27

47.72

160 140 120 100 Ratios 80 60 40 20 0

149.29

97.3

44.1

36.6

47.72

2004-05

2005-06

2006-07 Y e ars

2007-08

2008-09

Interpretation:
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The Debtors turnover ratio for the year 2008-09 was 47.92 times. That is, the firm is able to convert Credit Sales (Debtors) into Cash.

Debtors Collection Period Ratio

Debtors Collection Period Ratio =

365 __________

Debtors Turnover Ratio

Year Wise Debtors Collection Period Ratio Debtors Turnover Ratio 149.29 44.10 36.60 97.30 47.72

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Days 365 365 365 365 365

Ratio 2.44 8.25 9.97 3.75 7.64

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12 10 8.25 8 Ratios 6 4 2 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 3.75 2.44 9.97 7.64

Interpretation:
The firm is able to turnover its Debtors for 7.64 times in a year. This shows that the debt from the debtors is collected very soon. Debtors Collection Period Ratio was highest in 2006-07, but it was falling next years.

Fixed Assets Turnover Ratio

Net Sales Fixed Assets Turnover Ratio = ----------------Net Fixed Assets Year Wise Fixed Assets Turnover Ratio

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Years
2004-05 2005-06 2006-07 2007-08 2008-09

Net Sales
7359.84 7305.71 7932.66 9088.37 9128.38

Net Fixed Assets

2441.30 2078.26 1790.46 1384.64 1256.25

Ratio
3.01 3.52 4.43 6.56 7.24

8 7 6 Ratios 5 4 3 2 1 0 2004-05 2005-06 2006-07 Years 2007-08 3.01 3.52 4.43 6.56

7.24

2008-09

Interpretation:
The ratio for the year 2008-09 was 7.24 times. Interpreting the reciprocal of this ratio, one may say that for generating a sale of one rupee, the company needs 0.43 times investment in fixed assets.

Working Capital Turnover Ratio

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Working Capital Turnover Ratio = Net Sales ____________ Net Working Capital Year Wise Working Capital Turnover Ratio Net Working Capital 4623.37 6664.14 8343.80 8612.97 7678.00

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Net Sales 7359.84 7305.71 7932.66 9088.37 9128.38

Ratio 1.59 1.10 0.95 1.06 1.18

1 .8 1 .6 1 .4 Ratios 1 .2 1 0 .8 0 .6 0 .4 0 .2 0

1 9 .5 1 8 .1

1 .1 0 5 .9

1 6 .0

20- 5 0 40

20- 6 0 50

20- 7 0 60 Y as er

20- 8 0 70

20- 9 0 80

Interpretation:
The ratio for the year 2008-09 was 1.18 times. Interpreting the reciprocal for the year 2007-08 only 1.06 of net current assets is used to generate 1 rupee of sales.

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5.2.3 Profitability ratios 5.2.3.1 Return on Capital

Return on Capital = Net Profit after Interest Before Tax -------------------------------------Share Capital

Year Wise Return on Capital Ratio

Years
2004-05 2005-06 2006-07 2007-08 2008-09

Profit Before Tax

2253.77 1889.51 2222.34 2995.36 2026.59

Share Capital
7827.31 7827.31 7827.31 7827.31 7827.31

Ratio
28.79 24.14 28.39 38.27 25.89

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45 40 35 30 Ratios 25 20 15 10 5 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 28.79 24.14 28.39 25.89 38.27

Interpretation:
The Return on capital in the year 2008-09 was 25.89%. This ratio indicates that the firm is able to generate 25.89% of return earned on the book value of share capital.

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6.FINDINGS & SUGGESTIONS

Findings
Fixed assets forms more than 25% to the total assets in the financial year 2008-09. The debt capital is less than the share capital so, it reveals that the company in the high liquidity position. Working capital position of the company is in

satisfactory position. Debt capital is less than the equity and it shows the economical strength of the company. The analysis for the purpose of the investing in shares generally concentrates on the return on equity of vsp, which is increasing; therefore it is a good bet for investment subjected to availability of shares. Even though profit before tax (PBT) reduced by 969 crores in year 2008-09 compared to last year, the company is in a good financial position. Finally total assets of the company increased by 16% as whole the financial position is satisfied.

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Suggestions:
High profit realization by selling the products at higher

margins will eventually result in higher cash accrual and hence higher credit rating.
Since

the

firm of

performance raw materials.

is In

largely order

dependent to avoid

on the

availability

uncertainties in acquiring the raw materials, new and innovative steps has to be taken to effectively utilize the surplus funds.
The present level of the cash is Rs.6624 crores, this can be

used in expansion II in order to maintain the current ratio i.e., between current assets and current liabilities at the optimum level.
The other main area where RINL has tremendous scope for

improvement in manufacturing value added products. This will result in better sales realization and higher profits.
Standardization of general stores material and spares will

reduce the number of items.

The

company should take proper steps to reduce the

expenses and thoroughly seek for maximum gains.

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ABBREVATIONS
RINL: HRD: APSEB: LMMM: WRM: MMSM: CMA: BF: SP: RM: TPP: MT: SMS: RMHP:
Rashtriya Ispat Nigam limited. Human resource development. Andhra Pradesh state electricity Board. Light and medium merchant mill. Wire Road Mill. Medium Merchant and structure mill. Credit monitoring and appraisal. Blast furnaces. Sinter plant. Rolling mills. Thermal power plant. Management trainees. Steel melting shop. Raw material handling process.

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GLOSSARY
Financial Management Financial management is the operation activity of a business that is responsible for the obtaining and effectively utilizing the funds necessary for efficient operations. Scenario: Synthetic Description of an Event or Series of Actions. Proximity: Nearness to something Financial Statements: It provides a summary of the accounts of a business enterprise, the balance sheet reflecting the assets liabilities, and capital as on a certain date and the income statement showing the results of operations during a certain period. Financial Analysis: It is the process of identifying financial strengths and weakness of the firm by properly establishing between items of the balance sheet and profit and loss account.

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BIBLOGRAPY

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