COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH OTHER STEEL

COMPANIES IN INDIA

PROJECT REPORTMAY 2010 – JULY 2010

Submitted in partial fulfillment of the requirements for the award oftwo year full time, Post Graduate Diploma Management

InFinance & Control

By Kumar Mayank

(Institute of Management & Information Sciences Bhubaneswar)Under the guidance of

Prof. S.S. Ahmed P.S PALAssistant Professor (finance) AGM (Finance)Institute of Management & Information science Steel Authority Of India LimitedBhubaneswar . Ranchi.

Institute of Management & Information ScienceSwagat Vihar

Bhubaneswar Orissa – 751002

Declaration

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I hereby declare that the project entitled “Financial Analysis” is submitted in partial fulfillment of my PGDM (FC) “2009-2011” was carried out with sincere intention of benefiting the organization. The project duration was from 10th May 2010 to 3rd July 2010. To the best of my knowledge it is an original piece of work done by me and it has neither been submitted to any other organization nor published at anywhere before.

Signature Name: Kumar Mayank Date: 3rd July 2010

Place: Steel Authority of India Limited (Ranchi)

Acknowledgement

Whatever I did and whatever I achieved during the course of my limited life is just not done only by my own efforts, but by the efforts contributed by other people associated with me indirectly or directly. I thank all those people who contributed to this from the very beginning till its successful end.

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

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

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

ABSTRACTThe project on comparison of financial statement of SAIL with other steel sectors in INDIA has been a very good experience. Every manufacturing company faces the problem of Financial Management in their day to day processes. An organization’s cost can be reduced and the profit can be increased only if it is able to manage the financial position of its firm. At the same time the company can provide customer satisfaction and hence can improve their overall productivity and profitability. This project is a sincere effort to study and analyze the Financial Management of SAIL. The project work was divided into two phases. The first phase was focused on making a financial overview of the company by conducting a Time series analysis of SAIL for the years 2003 to 2009 and the second phase was conducted on a Comparative analysis of SAIL with its domestic competitors – TATA, ISPAT, JINDAL & ESSAR for the year 2009 taking Balance sheet, Profit & Loss account and ratios showing a comparative analysis between these firms with SAIL. The internship is a bridge between the institute and the organization. This made me to be involved in a project that helped me to employ my theoretical knowledge about how the Analysis of Financial Statement is done by the firm. And in the process I could contribute substantially to the organization’s growth.

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The experience that I gathered over the past two months has certainly provided the orientation, which I believe will help me in shouldering any responsibility in future.

TABLE OF CONTENTS

1.ABOUT THE COMPANY

2.INTRODUCTION TO CET SAIL

3.INTRODUCTION TO THE STUDY

4. LITERATURE REVIEW

5.DATA ANALYSIS AND INTERPRETATION

6.COMPETITOR ANALYSIS

7. RECOMMENDATION AND SUGGESTIONS

8.CONCLUSION

9.BIBLIOGRAPHY

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1. ABOUT THE COMPANY

Company Profile

Established in January 24, 1973 with an authorized capital of Rs. 2000 crores, Steel Authority of

India Limited (SAIL) is the leading steel-making company in India. SAIL is a fully integrated

iron and steel maker company, producing both basic and special steels for domestic construction,

engineering, power, railway, automotive and defense industries and it also produce steel for sale

in export markets.

Steel Authority of India Limited is ranked amongst the top ten companies in public sector

companies in India in terms of its turnover. SAIL produces iron and steel at five integrated plants

and three special steel plants, located principally in the eastern and central regions of India and

situated close to domestic sources of raw materials, including the Company's iron ore, limestone

and dolomite mines.

SAIL have a Central Marketing Organization (CMO) whose job is to transact business through

its network of 37 Branch Sales Offices spread across the four regions, 25

Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices all over

India. CMO’s domestic marketing job is to meet the demands of the smallest customers in the

remotest corners of the country. SAIL has a Consultancy Division (SAILCON) located at New

Delhi whose job is to offer services and consultancy to clients world-wide. SAIL has a well-

equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps

the industries of SAIL to produce quality steel and it also give ideas to develop new technologies

for the steel industry. SAIL has its own in-house Centre for Engineering and Technology (CET),

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Management Training Institute (MTI) and Safety Organization at Ranchi. SAIL captive mines

are control by the Raw Materials Division in Kolkata. Almost all of the plants and major units

of SAIL are ISO Certified.

Sail Today

SAIL today is one of the largest industrial entities in India. Its strength has been the diversified

range of quality steel products catering to the domestic, as well as the export markets and a large

pool of technical and professional expertise. Today, the accent in SAIL is to continuously adapt

to the competitive business environment and excel as a business organization, both within and

outside India.

Type of Organization:

Steel Authority of India' - a Government of India Enterprise and one of the largest and profit

making public sector steel products manufacturing company. Steel Authority of India produces

for both basic and special steels for construction, engineering, power, railway, automotive and

defense industries and caters to Indian and International markets. Steel Authority of India has

five steel plants, one subsidiary, three special steel plants, multi marketing units at all regions and

nine other specialized units to support growth and development of the Steel Industry in India. It

produces Blooms, Billets, Slabs, Crane Rails, Bars, Rods & Re-bars, Wire Rods, HR Coils,

Sheets, Plates, CR Coils & Sheets, GC Sheets, GP Sheets and Coils, Tinplates, Electrical Steel,

Tubular Products, Pipes, Railway Products, Rails, Wheels, Axles, Wheel Sets.

Activities: Steel Authority of India production lines are –

Hot Rolled Coils, Sheets

Cold Rolled Products.

Bars and Rods.

Semi-Finished Products.

Railway Products.

Plates.

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

Domains –

Know-how transfer of technologies developed by its R&D wing.

Consultancy services.

Specialized testing services.

Contract research.

Training.

Integrated Steel Plants

Bhilai Steel

Plant (BSP)

in

Chhattisgar

h

Durgapur

Steel Plant

(DSP) in

West Bengal

Rourkela

Steel Plant

(RSP) in

Orissa

Bokaro

Steel Plant

(BSL) in

Jharkhand

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IISCO Steel

Plant (ISP)

in West

Bengal

Special Steel Plants

Alloy Steels P in West Bengal plants (ASP)

Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

Position of Steel Authority of India Limited (SAIL)

India is ranked as the 5th largest steel producing country in the world, while SAIL is ranked as

the 21st largest steel producer in the world during2008 (Source: WSA) SAIL continues to be the

largest steel producer of finished steel in India with around 1/5th of the market share.

SWOT ANALYSIS

STRENGTHS

The diversified product mix and multi location production units are an area of strength for

the company.

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SAIL as a single source is able to cater to the entire steel requirement of any customer.

Also it has a nation wide distribution network with a presence in every district in India.

This makes quality steel available throughout the length and breadth of the country.

SAIL has the largest captive iron ore operations in India, which takes care of its entire

requirement. With plans in place to expand the mining operations, the company will

continue to be self sufficient in iron ore after completion of the present phase of

expansion.

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

based training in the company.

The company has one of the biggest in-house research and development centres in Asia.

SAIL's RDCIS (Research &Development Centre for Iron & Steel) is a source of regular

product and process innovation.

WEAKNESSES

SAIL is dependent on the market purchase for a key input – coking coal. As India does

not have sufficient coking coal deposits, most of the supply is from external sources.

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

the company. Although there has been significant reduction in manpower through natural

and voluntary separations, the manpower strength in SAIL is still higher than the industry

average.

At present around 20% of the products are in the form of semi -finished steel, resulting in

lower value addition.

SAIL being a Public Sector unit has to follow set procedures in conducting its business.

On occasions, it slows down the decision making with attendant fallout.

OPPORTUNITIES

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The current per capita finished steel consumption in the country is approx. 44 kg as

compared to the likely world average of around 190kg. There is a substantial scope for

increase in domestic steel consumption.

Although during 2008-09, steel consumption contracted by 1.2% in the country, steel

demand in India is poised to grow at a modest pace with thrust on infrastructure in the

11th Plan period.

Approval to 37 infrastructure projects worth Rs.70, 000 crores between August 2008 and

January 2009 is likely to trigger steel demand.

The size range and quality makes SAIL'S long products a preferred choice for project

customers.

THREATS

International prices of steel dropped by over 60% from their peak level in July, 2008.

With import duty at 5%, and poor demand from developed countries, cheap imports are

on an increase into the country putting pressure on realization of the domestic steel

producers.

With significant excess capacity in the global steel industry during 2009 there is a threat

of dumping cheap steel to India which is likely to be the only major steel consuming

nation with a positive growth.

Clearance and renewal of mining lease, which involve multiple agencies at the State and

Central levels, are an area of concern.

Delay in opening new mines, and / or expanding existing mines may constrain raw

materials availability, thereby impacting growth in saleable steel production, and overall

economics of operation.

Law and order situation in mining areas in some of the states is also a cause of concern

for smooth operations in remote areas.

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2. INTRODUCTION TO CET SAIL

Centre for Engineering & Technology (CET) was formed in 1982 in pursuance of decision taken by SAIL Board in its

83rd meeting held on 28th January 1982. CET is the in-house design, engineering and consultancy unit of SAIL. It is

also the nodal agency for acquisition and lateral transfer of technologies pertaining to Iron & Steel within SAIL plants

and units. The range of services provided by CET includes conceptualization, project reports, project evaluation &

appraisal, project consultancy, design & engineering and project management. CET has been providing its services in all

the areas of iron and steel making including in the related areas like mine planning and development, infrastructure

development, industrial piping, industrial warehousing, material handling system, industrial pollution control and

environment management systems, water supply and sanitation, town planning, small power projects, etc.PURPOSE OF FORMING THE CET

CET was formed in 1982 as an in-house consultancy organization of SAIL. Previously all the consultancy work was

outsourced to various organizations which could be either govt. organizations like MECON or private organizations.

This led to huge expenditures for SAIL in payment of fees and other expenditures. So it was decided that an in-house

consultancy should be developed to save costs for SAIL. Thus CET was formed with headquarters in Ranchi and sub

centers in various steel plants across India for better coordination. Though CET was formed for the purpose of providing

consultancy services only to the plants of SAIL but it also provides consultancy services to the other organizations but

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only on specific requests to earn additional revenues.

CET has six subcentres at following locations:

1. CET Sub centre Bhilai

2. CET Sub centre Bokaro

3. CET Sub centre Durgapur

4. CET Sub centre Rourkela

5. CET Sub centre Burnpur

6. CET Sub centre Bhadrawati

Besides, CET has only two unit offices at following locations to coordinate CET’s activities

1. CET, Delhi Unit Office 

2. CET, Kolkata Unit Office

It is an ISO 9001:2000 certified organization. It is planning to get certified against ISO 9001:2008. The objectives and

functions of CET are mainly categorized under following headings as under: 

• Consultancy for Design, Engineering and Techno-economics

• Technology improvement• Other Services

Technology Improvement

Identification of technology improvement measures in consultation with R&D Centre in the various processes and plan

for adoption of the same in the various plants by acquiring design and know-how capability.

Assisting R&D center in identification of various process routes, production facilities, indicating the order of investment

involved to match with the corporate production targets on short term/long term basis.

Guiding principles of CET working:Following guiding principles are followed for working of CET:

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For Technical Matters: Guidelines/Procedure described in Quality Manual.For Personnel Matters: Personnel Manual issued by SAIL Corporate OfficeFor Contract Commercial Matters: Guidelines described in Purchase Procedure 2009.For Financial Matters: Guidelines given in Accounts Manuals

CET-SAIL(FINANCE DEPATRMENT)

Duties of Officers and employees in Finance Section: 

• Preparation of employee’s remunerations & benefits and payments thereof.

• Statutory recoveries from employees salary like income tax, PF, SCSBF, EPF etc and their remittances to the respective

funds.

• Assessment of Income Tax of employees. Provisional estimate for recoveries & final calculations for issuing

certificates.

• Passing of contractors / parties bills and payments thereof including recoveries of income tax from their bills.

• Passing of employee’s bills and advances and payment thereof.

• Accounting of all transactions, maintenance and scrutiny thereof.

• Closing of accounts and audit thereof.

• Dealing with Govt. and Internal Audits

• Preparation of budgets – Revenue and Capital after considering the requirement of various departments/ Sub-centres/

Unit Offices.

• Preparation of employees HBA, Conveyance Advance budget in consultation with P&A.

• Periodic monitoring and control of all types of budgets

• Issue of TDS certificates to employees and contractors.

• Filing of ETDS return

Fixed and Variable Costs for Finance Department

It can be seen from the role and responsibilities of finance department that most of the work done by the finance

department involves preparation of remuneration of employees. Even during the preparation of the budget about 85% of

the costs are attributed to employee remuneration which contains both executive pay and non executive pay. It comes

under fixed costs while other expenses like travelling expenses, stationary expenses and other miscellaneous expenses

which come under variable costs. CALCULATION OF ENGINEERING HOURS RATE

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.In accounts booking of expenditure should be done accordance with their accruals. When CET is renewing services to

companies, plants and units it is necessary to allocate the expenditure incurred by SAIL among the plants and units to

whom services where rendered consultancy wise or project wise. This is an accounting requirement. In this way the

projects of the plants of the units gets the share of expenditure incurred by CET which in turn are accumulated in the

capital cost of the project

During 1994-95, 1995-96 CET adopted valuation of its assignment of the project ,on the basis of fixed percentage of

total cost of the project for which services where rendered.

This system could not be continued because of the following reasons:

1. CET not being a profit center it cannot consider earning which is hypothetical in any case, as a basis for

allocation of its expenditure on assignments / projects.

2. Since the value of the assignments under this method has no relation with the expenditure, practical difficulties

where experienced in restricting the valuation to the total expenditure of the CET.

Therefore in 96 -97 engineering hours was found to be more appropriate basis for the allocation expenditure of CET

over the assignment/projects. Engineers working in assignment record their hours in the assignment they work. In this

way all the assignment of CET in execution get engineering hours spent on them. Engineering hours rate is calculated

every year on an estimated basis in march every year (detail calculation given below). Rate is applied hours of the

individual assignment/project to find or to determine the value of CET services for the assignment/projects. Plants and

units are being debited on the value of the assignment

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CALCULATION OF ENGINEERING HOURS RATE FOR 2009-2010

1. Total no.of executives 299

2. HOD and above 29

3.Executives working in finance,Personnel 58

,Admn.,Personnel staff etc.ipss,Projects

ED sectt,MTT's

4. Net Executives whose Engg. Hours 212

are clockable

5.No. of days in a year 365

6. Sundays and closed Saturdays 76

7.CLs, Closed &RH 36

8. EL @3% of 253(Sl.No.5,6,7) 8

9.Average No. of Engineering days 245

Available

10. Avg.No. of Engg. hours available hrs. 1960

available per man a year

(Sl. No.9 *8hrs.)

11. Maximum Engg. Hrs. clockable in a 415520

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year(Sl.no.4*Sl. No. 10)

12.Engineering hrs.utilised for development 120474

activities,ISO 9001,other administrative jobs

@30% of max.egg. Hrs. clockable in a year

13.Engg. Hrs. available for assignments (Sl.no.11- 295046

Sl.no.12)

14.Likely expenditure of CET FOR 2009-10 (In Rs.) 492900000

15.Engineering hours rate (In Rs.) 1670.050

16.Engineering hours rate to be adopted (In Rs.) 1670

IMPROVEMENTS SUGGESTED IN CALCULATION OF ENGINEERING HOURS RATES

The above method is more suitable method for CET being an inhouse consultancy

organization.This system can still be improved on the following account:

Single rate of engineering hours doesn’t take into account expenditure of variable

nature.For example expenditure on tools design and drafting expenditure on these heads

varies on the basis of level of activities

It is presumed that expenditure accrues uniformly over the assignments. But there are

certain assignments which need services of senior engineers whose hourly expenditure

may be higher than the avg. rate adopted.OTHER THINGS LEARNED AT CET SAIL (FINANCE DEPARTMENT)

To prepare engineering hour rate for CET SAIL employee.

Preparation of vouchers

Preparation of T.A.BILLS (Travelling allowance)

Preparation of revenue budget for CET- SAIL.

Preparation of renumeration for employees’ remuneration & benefits budget.PERFORMANCE HIGHLIGHTS OF CET 2009-2010HIGHLIGTS OF PHYSICAL PERFORMANCE

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Total sanctioned projects 137 nos. against 135 nos. in corresponding period last year.

Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

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

During the fiscal 2009-2010, a lot of emphasis was put in the RMD projects and along

with RMD new strategies where formulated for faster execution of projects.

Expression of interest for acquisition of technology for up gradation of blast furnaces has

been floated.

Video conferencing facility which connects Ranchi and sub centers at Bhilai , Durgapur ,

Bokaro and Rourkela is being used extensively for quarterly project reviews , designed

reviews , knowledge sharing , technical discussion with vendors and plant engineers . It

has resulted in faster communication, wider coverage and saving in expenditure.

CET has taken measures for working in a paperless environment. All movements of

papers/ documents are being done through email system.

3.INTRODUCTION TO THE STUDY:

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Finance is one of the most primary requisites of a business and the modern management

obviously depends largely on the efficient management of the finance. Financial statements are

prepared primarily for decision making. They play a dominant role in setting the frame work of

managerial decisions. The finance manager has to adhere to the five R’s with regard to money.

Whether owned or borrowed funds. At the right time to preserve solvency from the right sources

and at the right cost of capital. The term financial analysis is also known as ‘analysis and

interpretation of financial statements’ refers to the process of determining financial strength and

weakness of the firm by establishing strategic relationship between the items of the Balance

Sheet, Profit and Loss account and other operative data. The purpose of financial analysis is to

diagnose the information contained in financial statements so as to judge the profitability and

financial soundness of the firm.

OBJECTIVES OF THE STUDY

1. To study the financial position of the company.

2. To analyze the financial stability and overall performance of SAIL in general.

3. To analyze and interpret the trends as revealed by various ratios of the company in particular.

4. To analyze the profitability and solvency position of the unit with the existing tools of financial

analysis.

5. To study the changes in the assets, liabilities structure of the company during the period of study.

IMPORTANCE OF THE STUDY

1. By “FINANCIAL PERFORMANCE ANALYSIS OF SAIL” we would be able to get a fair picture

of the financial position of SAIL.

2. By showing the financial performance to various lenders and creditors it is possible to get credit in

easy terms if good financial condition is maintained in the company with assets outweighing the

liabilities.

3. Protecting the property of the business.

4. Compliances with legal requirement.

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LIMITATIONS OF THE STUDY

1. The analysis and interpretation are based on secondary data contained in the published annual

reports of SAIL for the study period.

2. Due to the limited time available at the disposable of the researcher the study has been confined for a

period of 7 years (2003-2009).

3. Ratio itself will not completely show the company’s good or bad financial position.

4. The study of financial performance can be only a means to know about the financial condition of the

company and cannot show a through picture of the activities of the company.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be understood as a

science of studying how research is done scientifically. So, the research methodology not only talks about

the research methods but also considers the logic behind the method used in the context of the research

study.

RESEARCH DESIGN

Descriptive research is used in this study because it will ensure the minimization of bias and maximization

of reliability of data collected. The researcher had to use fact and information already available through

financial statements of earlier years and analyze these to make critical evaluation of the available material.

Hence by making the type of the research conducted to be both Descriptive and Analytical in nature.

From the study, the type of data to be collected and the procedure to be used for this purpose were

decided.

DATA COLLECTION

The required data for the study are basically secondary in nature and the data are collected from the

audited reports of the company.

SOURCES OF DATA

The sources of data are from the annual reports of the company from the year 2003 to 2009.

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METHODS OF DATA ANALYSIS

The data collected were edited, classified and tabulated for analysis. The analytical tools used in this study

are:

ANALYTICAL TOOLS APPLIED

The study employs the following analytical tools:

1. Comparative statement.

2. Common Size Statement.

3. Trend Percentage.

4. Ratio Analysis.

5. Cash Flow AnalysisANALYSIS AND INTERPRETATION

Financial statement is an organized collection of data according to logical and consistent accounting

procedures. It purposes is to convey an understanding of some financial aspects of a business firm. It may

show a position at a moment of time as in the case of a balance sheet, or may reveal a series of activities

over a given period of time, as in the case of an Income Statement. Thus the term “Financial Statement

“generally refers to two basic statements: (i) the Income Statement and (ii) the Balance sheet.

4. LITERATURE REVIEW

FINANCIAL STATEMENTS ANALYSIS

The financial statements are indicators of the two significant factors:

1. Profitability and

2. Financial soundness

Analysis and interpretation of financial statement therefore, refers to such a treatment of the information

contained in the Income Statement and Balance Sheet so as to afford full diagnosis of the profitability and

financial soundness of the business.

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Balance Sheet

A balance sheet is the basic financial statement. It presents data on a company’s financial conditions on a

particular date, based on conventions and generally accepted principles of accounting. The amount shown

in the statements on the balances, at the time it was prepared in the various accounts listed in the

company’s accounting records, is considered to be a fundamental accounting statements. The income

statement summarizes the business operations during the specific period and shows the results of such

operations in the form of net income or net loss. By comparing the income statements of successive

periods, it is possible to determine the progress of a business. A statement is supplemented by a

comparative statement of the cost of goods manufactured and sold. It is prepared at regular intervals and

shows what a business enterprise owns and what it owes. It provides information which helps in the

assessment of the three main aspects of an enterprises position – its profitability, liquidity and solvency. Of

these, the later two are concerned with an enterprises ability to meet its liabilities, while profitability is

most useful overall measure of its financial conditions, the balance sheet is a statements of assets,

liabilities capital on specified date. It is therefore a static statement, indicating resources and the allocation

of these resources to various categories of asset. It is so to say financial photography finance. Liabilities

show the claims against its assets.

The shareholders equity comprises the total owner ship claims in a firm. This claim includes net worth of

shareholders equity and preferred stock. The traditional company balance sheet statement of assets valued

on the basis of their original cost and the means by which they have been financed by its shareholders,

lenders, suppliers and by the retention of income.

This tool suffers from the following limitations:

1. A balance sheet gives only a limited picture of state of affairs of a company, because it

includes only those items which can be expressed in monetary terms.

2. The values shown on the balance sheet for some of the assets are never accurate

3. A balance sheet assumes that the real value of money remain constant.

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4. On the basis of balance sheet, it is not possible to arrive at any conclusion about the success of an

enterprise in the future.

5. It is a detailed statement of the financial structure of a business.

Income statement

The results of operations of a business for a period of time are presented in the income statement.

From the accounting point of view, an income statement is subordinate to the balance sheet because the

former simply presents the details of the changes in the retained earnings in balance sheet accounts.

However, if vital source of financial information an income statement summarizes the results of business

operations during specific period and shows in the form of net income or net loss by comparing income

statements for successive periods, it is possible to observe the progress of the business the statement is

supplemented by a comparative statement of cost of goods manufactured and sold. It summarizes firms

operating results for the past period.

Comparative balance sheet

Financial statements are sometimes recast for facility of scrutiny. The effects of the conductor

businesses are reflected in its balance sheet by changes in assets and liabilities and in its net worth.

The comparative income statement presents a review of operating activities in business. A comparative

balance sheet shows effect of the operations on the assets and liabilities. The practice of presenting

comparative statement in the annual report is now becoming wide spread because it is a connection

between balance sheet and income statement. Considerations like price levels and accounting methods are

given due weight at the time of comparison.

Common-size statements

The percentage balance sheet is often known as the common size balance sheet. Such balance

sheet are, in a broad sense ratio analysis general items in the profit and loss accounts and in the

balance sheet are expressed in analytical percentages when expressed in the form, the balance

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sheet and profit and loss account are referred to as a common size statement. Such statements

are useful in comparative analysis of the financial position in operating results of the business.

Cash flow statement

A cash flow statement is the financial analysis of the net income or profit after including book expense

items which currently do not use cash; for example, depreciation, depletion and amortization. Revenue

items, which do not currently provide funds, are to be deducted. A gross cash flow is net profit after tax

plus provision for depreciation. A net cash flow is arrived after deducting dividends from the gross cash

flow. The cash flow is very significant because it represents the actual amount of cash available to the

business.

Ratio Analysis

Financial ratio analysis is the calculation and comparison of ratios which are derived from the

information in a company's financial statements. The level and historical trends of these ratios can

be used to make inferences about a company’s financial condition, its operations and attractiveness

as an investment.

Financial ratios are calculated from one or more pieces of information from company’s financial

statements. For example, the "gross margin" is the gross profit from operations divided by the total

sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a

useless piece of information. In context, however, a financial ratio can give a financial analyst an

excellent picture of a company's situation band the trends that are developing.

A ratio gains utility by comparison to other data and standards. Taking our example, a gross

profit margin for a company of 25% is meaningless by itself. If we know that this company's

competitors have profit margins of 10%, we know that it is more profitable than its industry peers

which are quite favorable. If we also know that the historical trend is upwards, for example has

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been increasing steadily for the last few years, this would also be a favorable sign that management

is implementing effective Business, policies and strategies.

Classification of Ratios

Financial ratio analysis involves the calculation and comparison of ratios which are derived from

the information given in the company's financial statements. The historical trends of these ratios

can be used to make inferences about a company’s financial condition, its operations and its

investment attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the different facets of a

company's financial state of affairs. Some of the categories of ratios are described below:

Liquidity Ratios give a picture of a company's short term financial situation or solvency

Turnover Ratios show how efficient a company's operations and how well it is using its

assets.

Solvency Ratios show the long term profitability of the company.

Liquidity Ratios

Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the Liquidity of the

company as on a particular day i.e. the day that the Balance Sheet was prepared. These ratios are

important in measuring the ability of a company to meet both its short term and long term

obligations.

1. Current Ratio

2. Liquid Ratio

3. Net working capital ratio

1. Current Ratio:

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the

more liquid the company is. Current ratio is equal to current assets divided by current liabilities.

If the current assets of a company are more than twice the current liabilities, then that company is

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generally considered to have good short-term financial strength. If current liabilities exceed

current assets, then the company may have problems meeting its short-term obligations.

Current Ratio = Current assets / Current liability

2. Quick Ratio:

Liquid ratio is also known as ‘quick’ or ‘Acid test ‘ratio. Liquid assets refer to assets which are

quickly convertible into cash. Current Assets other stock and prepaid expenses are considered as

quick assets. The ideal liquid ratio accepted ‘norm’ for liquid ratio ‘1’.

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

3. Net Working Capital Ratio

Working Capital is more a measure of cash flow than a ratio. The result of this calculation must

be a positive number. Companies look at Net Working Capital over time to determine a

company's ability to weather financial crises. Loans are often tied to minimum working capital

requirements.

Net working capital ratio = Net Working Capital / Capital Employed

Turnover Ratios

The turnover ratio is also known as activity or efficiency ratios. They indicates the efficiency

with which the capital employed is rotated in the business (i.e.) the speed at which capital

employed in the business rotates. Higher the rate of rotation, the greater will be the profitability.

Turnover ratios indicate the number of times the capital has been rotated in the process of doing

business.

1. Fixed Asset Turnover Ratio

2. Working Capital Turnover Ratio

3. Debtor Turnover Ratio

4 Stock Turnover Ratio

1. Fixed Assets Turnover Ratio

Page | 25

Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the value of your

fixed assets (on your balance sheet). It indicates how well your business is using its fixed assets

to generate sales.

Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has

less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate

that you've over-invested in plant, equipment, or other fixed assets.

Fixed Assets Turnover Ratio = Gross Sales / Net Fixed Assets

2. Working Capital Turnover Ratio

Working capital refers to investment in current assets. This is also known as gross concept of

working capital. There is another concept of working capital known as net working capital. Net

working capital is the difference between current assets and current liabilities. Analysts intend to

establish a relationship between working capital and salsas the two are closely related. Through

this ratio we are attempting to see that one rupee blocked by the organization in net working

capital is generating how much sales. Higher the ratio better it is.So, the working capital can be

defined either as a gross working capital, which include funds invested in all current assets, or as

net working capital, which denotes the difference between the current assets current liabilities of

an organization.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

3. Debtors Turnover Ratio

Debtor’s turnover ratio measures the efficiency with which the debtors are converted into cash.

This ratio indicates both the quality of debtors and the collection efforts of the business

enterprise. This ratio is calculated as follows:

I. Debtors’ turnover ratio

II. Debt collection period.

The numerator of this ratio should preferably be credit sales. This is so because the denominator

is logically related to credit sales as it arises from credit sales only. Cash sales do not generate

Page | 26

debtors. However, as the information related to credit sales is not separately available in

corporate accounts, so total sales could be taken in the numerator. Average debtors are calculated

by dividing the sum of beginning-of-year and end-of-year balance of debtors by 2.

Debtor’s Turnover Ratio = Credit sales / Average accounts receivables

Debt collection period:

The ratio indicates the extent to which the debt has been collected in time. It gives the average

debt collection period. The ratio is very helpful to lenders because it explains to them whether

their borrowers are collecting money within a reasonable time. An increase in the period will

result in greater blockage of funds in debtors.

Debt collection period = Months/Days in a year/ Debtor’s turnover ratio

4. Stock Turnover Ratio:

This ratio indicates whether investment in inventory is efficiently used or not. It is therefore

explains whether investment in inventories is within proper limits or not. The Inventory turnover

ratio signifies the liquidity of the Inventory. A high inventory turnover ratio indicates brisk sales.

The ratio is, therefore a measure to discover the possible trouble in the form of over stocking or

over valuation.

It is difficult to establish a standard ratio of inventory because it will differ from industry to

industry.

Stock Turnover Ratio = Sales / Average Inventory

Profitability Ratios

Profitability is an indication of the efficiency with which the operation of the business is carried

on. Poor operational performance may indicate poor sales and hence poor profits. A lower

profitability may arise due to lack of control over the expenses. Bankers, financial institutions

and other creditors look at the profitability ratios as an indicator whether or not the firm earns

substantially more than it pays interest for the use of borrowed funds.

Page | 27

1. Return on Investment

2. Return on Shareholders’ fund

3. Return on total asset

4. Earnings per Share

5. Net profit Ratio

6. Operating ratio

7. Payout ratio

8. Dividend yield ratio

1. Return on Investment:

It is also called as “Return on Capital Employed”. It indicates the percentage of return on the

total capital employed in the business.

The term ‘operating profit ‘ means ‘profit before interest and tax’ and the term ‘capital employed

‘ means sum-total of long term funds employed in the business. i.e. Share capital + Reserve and

surplus + long term loans – [non business assets +fictitious assets]

Return on investment = Operating profit/ Capital employed *100

2. Return on Shareholder’s Fund:

In case it is desired to work out the productivity of the company from the shareholder’s point of

view, it should be computed as follows:

Return on shareholder’s fund = Net profit after Interest and Tax/Shareholders’ fund*100

The term profit here means ‘Net Income after the deduction of interest and tax’. It is different

from the “Net operating profit” which is used for computing the ‘Return on total capital

employed’ in the business. This is because the shareholders are interested in Total Income after

tax including Net non-operating Income (i.e. Non- Operating Income -Non-Operating expenses).

3. Return on Total Assets:

This ratio is computed to know the productivity of the total assets.The term ‘Total Assets’

includes the fixed asset, current asset and capital work in progress of the company. The above

Page | 28

table clearly reveals the relationship between the net profit and Total Assets employed in the

business.

Return on Total Assets = Net profit after Tax/Total Assets* 100

4. Earnings per Share:

In order to avoid confusion on account of the varied meanings of the term capital employed, the

overall profitability can also be judged by calculating earnings per share with the help of the

following formula:

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

The earnings per share of the company helps in determining the market price of the equity shares

of the company. A comparison of earning per share of the company with another will also help in

deciding whether the equity share capital is being effectively used or not. It also helps in

estimating the company’s capacity to pay dividend to its equity shareholders.

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

5. Net Profit Ratio:

This ratio indicates the Net margin on a sale of Rs.100.This ratio helps in determining the

efficiency with which affairs of the business are being managed. An increase in the ratio over the

previous period indicates improvement in the operational efficiency of the business. The ratio is

thus on effective measure to check the profitability of business. However, constant increase in

the above ratio after year is a definite indication of improving conditions of the business.

Net Profit Ratio =Net Operating Profit/Net Sales*100

6. Operating Ratio:

This ratio is a complementary of Net Profit ratio. In case the net profit ratio is20%. It means that

the operating profit ratio is 80%.It is calculated as follows:

Operating Ratio =Operating Cost/Net Sales*100

The operating cost include the cost of direct materials, direct labor and other overheads, viz.,

factory, office or selling.

Direct Material cost to sales =Direct Material/Net Sales*100

Page | 29

This ratio is the test of the operational efficiency with which the business is being carried. The

operating ratio should be low enough to leave a portion of sales to give a fair to the investors.

7. Payout Ratio:

This ratio indicates what proportion of earning per share has been used for paying dividend. The

payout ratio is the indicator of the amount of earnings that have been ploughed back in the

business. The lower the payout ratio, the higher will be the amount of earnings ploughed back in

the business and vice versa.

Payout Ratio =Dividend per equity share/Earning per equity share*100

8. Dividend Yield Ratio

This ratio is particularly useful for those investors who are interested only in dividend income.

The ratio is calculated by comparing the ratio of dividend per share with its market value.

Dividend yield =Dividend per Share/Market price per share*100

And Dividend per share = Dividend paid/ Number of shares.

Long Term Financial Position or Solvency Ratios

The term ‘solvency’ refers to the ability of a concern to meet its long term obligations. The long

term indebtedness of a firm includes debenture holders, financial institutions providing medium

and long term loans and other creditors selling goods on installment basis. So, the long term

Solvency ratios indicate a firm’s ability to meet the fixed interest and costs and repayment

schedules associated with its long term borrowings. Two types of ratios are there:

1. Capital structure ratios-ex. Debt equity ratio

2. Coverage ratios-ex. Debt service ratio or Interest coverage ratio

1. Debt-Equity Ratio

Debt –Equity ratio also known as External- Internal Equity Ratio is calculated to measure the

relative claims of outsiders and the owners against the firm’s assets.

The ratio is calculated as:

Debt equity ratio = Outsider’s funds / Shareholder’s funds

Page | 30

Outsiders fund includes all debts/liabilities to outsiders, whether long term or short term or

whatever in the form of debentures bonds, mortgages or bills. The shareholders fund consist of

equity share capital, preference share capital , capital reserves, revenue reserves, and reserves

representing accumulated profits and surpluses.

2. Interest Coverage Ratio

This ratio is used to test the debt servicing capacity of a firm. The ratio is calculated as:

Interest coverage ratio = EBIT/Fixed interest charge

5. DATA ANALYSIS AND INTERPRETATION

3. Balance Sheet Table No.1

Classification of Balance Sheet of Steel Authority of India Limited from 2003-2009

(Rs. in Crores)

PARTICULARS

2003

2004

2005

2006

2007

2008

2009

ASSETSFixed Assets

14414

13550

12851

12920

12796

13960

18813

In 54 54 60 29 51 53 65

Page | 31

vestment

3 3 6 3 4 8 3

Current Assets

7312

8246

14333

15630

20375

26317

34511

Mis.Expenditure

536

378

294

215

129

59 0.00

P&L a/c

2765

- - - - - -

Total Assets

25570

22717

28084

29058

33854

40874

53977

LIABILITIES

Shareholder’s Funds

5290

5037

10306

12601

17313

23063

27984

Lo 12 86 57 42 41 30 75

Page | 32

an Funds

969

90 70 98 80 45 39

Current Liabilities& Provisions

7311

8990

10166

10675

10949

13198

17122

Deferred Liabilities

- - 1842

1484

1412

1568

1332

TOTAL LIABILITIES

25570

22717

28084

29058

33854

40874

53977

4. Comparative Balance SheetTable No.2

Comparative Balance

Page | 33

Sheet of Steel Authority of India Limited from 2003-2004 to 2008 – 2009

( Rs. in Crores)2003-2004

2004-2005

2005-2006

2006-2007

2007-

2008

2008-

2009

Cng

% cng

Cng

% cng

Cng

% cng

Cng

% cng

Cng

% cng

Cng

% cng

ASSETSFixed Assets

(864)

(5.9)

(699)

(5.1)

69

0.53

(124)

(0.9)

1164

9.09

4853

34.76

Investmen

0 0 63

11.6

(313)

(51.6)

221

75.4

24

4.66

115

21.37

Page | 34

tntCurrent Assets

934

12.77

6087

73.8

1297

9.04

4745

30.3

5942

29.16

8194

31.13

Mis. Expenditure

(158)

(29.4)

(184)

(22)

(79)

(26.8)

(84)

(39)

(70)

(54)

(59)

(100)

P&L a/c

- - - - - - - - - - - -

LIAB

Page | 35

ILITIESShareholder’s Funds

(253)

(4.78)

5269

104.6

2295

22.26

4712

37.3

5750

33.21

4921

21.33

Loan Funds

(4279)

(32.9)

(2920)

(34)

(1472)

(25.5)

(118)

(2.7)

(1135)

(27)

4494

147.6

Current Li

1679

22.96

1176

13.08

(8682)

(85.4)

(72)

(4.8)

2249

20.5

3924

29.73

Page | 36

abilities& ProvisionsDeff.Liabilities

- - - - 8833

479

274

2.56

156

11.04

(236)

(15)

Interpretation:

Long Term Financial Position:

Page | 37

The comparative Balance Sheet of the company reveals that during the financial year 2008–

2009 there has been a large increase in fixed assets (34.76%) compared to 2007-2008(9.09%)

while the long term liabilities which contains shareholders funds and long term loans also

show growth. Long term loans show an increase of 147.6% in 2008-09 which means that

most of the fixed assets are financed by long term loans.

There has been an increase in plant and machinery in 2009 compared to 2008 which means

that it will increase production capacity of the concern.

Current Financial position and liquidity position:

The company has increased its current assets by increasing the level of inventories at

Rs.10121 crores in 2009 compared to Rs.6857 crores in 2008. The current liabilities highly

fluctuate and show continuous increase in 2007-08 (20.5%) and 2008-09 (29.3%).

The Net Working Capital was in peak by the continuous increase after the year 2005. The

company got good liquidity position due increase in Current assets but it may affect the

profitability of the company.

The overall financial position of the company is very good.

5. Income StatementTable No.3

Classification of Income Statement of Steel Authority of India Limited from 2003 to 2009

(Rs. in crores)PA 20 20 20 20 20 20 20

Page | 38

RTICULARS

03 04 05 06 07 08 09

SalesEBIDTALess: Depreciation

1920721651147

2417846521123

31805110971127

3228073811207

39189109661211

45555129551235

48681109411285

EBITLess: Interest Charges

10181334

3529901

9970605

6174468

9755322

11720251

9656253

PBTLess : Tax

(316)(12)

2628116

93652548

57061693

94233221

114693932

94033229

PAT (Net Profit)

(304)

2512

6817

4013

6202

7537

6174

Page | 39

6. Comparative Income StatementTable No.4

Comparative Income Statement of Steel Authority of India Limited from 2003-2004 to 2008- 2009

( Rs.in Crores)2 2

004-2005

2005-2006

2006-2007

2007-2008

2008-2009

ch

% ch

ch

% ch

ch

% ch

ch

% ch

ch

% ch

ch

% Ch

SEL

42(

21(

764

310

4(8

1(7

634

240

612

111

3(5

6(0

EL

2(

2(

6(

1(

((

(2

3(

5(

1(

2(

(2

(0

PL

21

78

62

22

((

((

31

69

27

22

((

((

P 2 7 4 1 ( ( 2 5 1 2 ( (

Interpretation

The Net Sales figure shows an increasing trend. After the year 2003 it shows an

increasing trend which will help to increase in Net Profit.

The company has sufficient control over its depreciation which shows an increase of only

0.04% in 2009 over 2008.

Page | 40

The company has considerable change in Interest Charges and rather the latter has

decreased in recent years.

The company has able to attain Profit after Tax of Rs.6174 crores in the year 2009

compare to 7536 crores in 2008 which can be attributed to increase in cost of goods sold.

It may conclude that there is a sufficient progress in the company and the overall

profitability of the concern is very good.

7. Trend Percentage Table No.5Trend Percentage of Steel Authority of India Limited from 2003-2004 to 2008 – 2009

Base Year 2003 Figure in %Particulars 2003 2004 2005 2006 2007SALES 100 125.88 165.59 168.06 204.03

EBIT 100 346.66 979.37 606.48 958.25

FIXED ASSETS 100 94.00 89.15 89.63 88.77

CURRENT 100 112.77 196.02 213.75 283.57

Page | 41

ASSETS

CURRENT LIABILITIES

100 122.96 139.05 146.01 149.76

WORKING CAPITAL

100 81.83 302.55 370.29 554.05

CAPITAL EMPLOYEDTOTAL

100 92.00 121.29 131.65 154.01

TOTAL ASSETS 100 88.84 109.83 113.64 132.39

Interpretation:

The sales of the product have continuously increased in all the years up to 2009.The increase

in sales is quite satisfactory.

The EBIT grows continuously up to 2008 and decreases slightly in 2009 due to increase in

the cost of goods sold.

8. Common Size Balance Sheet Table No.6Common Size Balance Sheet of Steel Authority of India Limited from 2003-2009

( Rs.in Crores)PARTICULARS

2003

2004

2005

2006

2007

2008

2009

ASSETSFi 56 59 45 44 37 34 34

Page | 42

xed Assets

.37

.64

.75

.46

.90

.15

.85

Investment

21.23

2.39

2.15

1.00

1.54

1.31

1.209

Current Assets

28.59

36.29

51.06

53.78

60.18

64.51

63.93

Mis.Expenditure

2.09

1.68

1.04

0.76

0.38

0.144

0.00

P&L a/c

10.72

- - - - - -

Total Assets

100.00

100.00

100.00

100.00

100.00

100.00

100.00

LIABILITIESShareholder’s Fund

20.60

22.17

36.69

43.36

51.14

56.42

51.84

Page | 43

sLoan Funds

50.73

38.25

20.54

14.79

12.34

7.44

13.96

Current Liabilities& Provisions

28.59

39.58

36.19

5.10

4.17

32.28

31.72

Deferred Liabilities

- - 6.58

36.75

32.35

3.83

2.46

Total Liabilities

100.00

100.00

100.00

100.00

100.00

100.00

100.00

Interpretation:

Out of the total investment the owners funds is more compare to outsider’s fund in the

company which shows that the company has depended more on its own funds. It shows

that the company is traditionally financed.

Page | 44

The proportion of current assets to total assets has increased comparing to current

liabilities which serve as an evidence for good working capital position of the company.

Investments, Miscellaneous expenditure and deferred liabilities have their own limited

contribution to their respective side totals.

RATIO ANALYSISLiquidity ratios

1. Current Ratio:Table No.7

Table showing Current ratio(Rs. In Crores)

YEAR CURRENT ASSETS CURRENT LIABILITIES2003 7282 47772004 8075 60252005 14187 66082006 17384 81082007 20379 65002008 26317 94392009 34511 12228

Page | 45

An ideal current ratio is 2. The ratio of 2 is considered as a safe margin of solvency due to the

fact that if current assets are reduced to half (i.e.) 1 instead of 2, then also the creditors will be

able to get their payments in full.

Interpretation:

Here, the current ratio fluctuates from year to year but has maintained the ratio above 2 from

2005 onwards which is positive consideration.

CHART 1

2. Quick Ratio:Table No.8

Table showing Quick ratio(Rs. In Crores)

YEAR LIQUID ASSETS CURRENT LIABILITIES2003 3537 47772004 4993 60252005 9966 66082006 11174 81082007 13728 69842008 19460 94392009 24389 12228

Interpretation:

The liquid ratio denotes the concern had achieved more than the ideal ratio of 1:1 in the years

2005 onwards.

CHART 2

3. Net Working Capital Ratio:Table No.9

Page | 46

Table showing Net Working Capital Ratio

YEAR Net WorkingCapital

Capital Employed

2003 2505 165412004 2050 152182005 7579 200642006 9276 214382007 13879 249922008 16879 284502009 22283 34552

CHART 3

Interpretation:

Net Working capital measures the firm’s potential reserve of funds. It can be related to net assets.

This ratio represents the availability of working capital in relation with capital employed.

Turnover Ratios1. Fixed Assets Turnover Ratio:

Table No.10 Table showing fixed asset turnover ratio

GROSS SALES (Rs IN CRORES) FIXED ASSETS (Rs in crores) FIXED TURNOVER RATIO (In Times)19207 14036 1.3624178 13168 1.8331805 12485 2.5432280 12162 2.65

Page | 47

39189 11598 3.3745555 11571 3.9348681 12269 3.96

Interpretation:

Here, the value of fixed assets employed in the business shows a reducing trend which implies

that company didn’t add any more fixed asset during the period 2003 –2008. Only the

depreciation effect had been given to fixed asset. Fixed turnover ratio has been increasing which

is a good sign because the gross sales have increased considerably without increasing the current

assets.

CHART 4

2. Working Capital Turnover Ratio:

Table No.11Table showing Working capital turnover ratio

YEAR GROSS SALES (Rs IN CRORES) WORKING CAPITAL (Rs in Crores)2003 19207 25052004 24178 20502005 31805 75792006 32280 92762007 39189 138792008 45555 168792009 48681 22283

Interpretation:

Page | 48

Here, the Working Capital ratio shows a increasing trend from 2003 to 2004 and then slope

downwards due to holding high current assets in the form of cash, bank balances and receivables

in the year 2005 to 2009.

CHART 5

3. Debtors Turnover Ratio:Table No.12

Table showing Debtors’ turnover ratioYEAR CREDIT SALES

(Rs. In Crores)DEBTORS

(Rs. In Crores)

2003 19207 16602004 24178 15502005 31805 19082006 32280 18822007 39189 23152008 45555 30482009 48681 3024

Interpretation:

There has been increase in the turnover ratio from 2003-2006 and has stabilized thereafter .As

the ratio is sufficiently high it can be concluded that efficient management of the debtors has

taken place.

CHART 6

Debt collection period:

Table No.13

Table showing Debt collection period(In Days)

YEAR COLLECTION PERIOD2003 322004 232005 22

Page | 49

2006 212007 222008 242009 23

Debtors’ collection period measures the quality of debtors since it measures the rapidity or

slowness with which money is collected from them.

CHART 7

INTERPRETATION;

Here, there has been decreasing trend in the debt collection period which is favorable for the

company. Because, the quicker the collection period the better is the quality of debtors as a short

collection period implies quick payment by debtors. Then more the utilization of cash collected

from debtors. It decreased from 32 days in 2003 to 23 days in 2009.

4. Stock Turnover Ratio:Table No.14

YEAR SALES (Rs in crores) AVERAGE STOCK (Rs in crores)

2003 19207 37452004 24178 30822005 31805 42212006 32280 62102007 39189 66512008 45555 68572009 48681 10121

INTERPRETATION:

Here, there has been a lot of fluctuation in the Inventory turnover ratio. There has been an

increase in the ratio in 2004 and 2005 but it shows a decreasing trend in 2006 and 2007.In 2008

the ratio showed an increase due to a large increase in sales. But in 2009 there was a large

Page | 50

increase in average stock/inventory which contributed to a lower inventory turnover ratio . This

can be attributed to uncertain economic situation and weak demand of steel in the market. The

overall situation is still good enough.

CHART 8

Profitability Ratios1. Return on Investment:

Table No.14Table showing Return on Investment

YEAR OPERATING PROFIT (Rs in crores) CAPITAL EMPLOYED (Rs in crores)2003 1018 165412004 3530 152182005 9970 200642006 6174 217822007 9755 254762008 11720 284502009 9656 34552

Interpretation:

Return on investment shows an increasing trend from 2003 to 2008.However there are small

fluctuations in 2006 and 2009 due to lower operating profits. Average Capital employed shows

regular increase from 2003 to 2009.

CHART 9

Page | 51

2. Return on Shareholder’s Fund:Table No.15

Table showing return on Shareholders’ FundYEAR NET PROFIT (Rs in crores) SHAREHOLDER’S FUND (Rs in crores)2003 -304 52902004 2512 50382005 6817 103072006 4013 126012007 6202 173132008 7537 230632009 6174 27984

INTERPRETATION:

Here, the Net Profit (i.e.) Profit after Interest and Tax has been in negative in the year 2003 due

to a net loss in the corresponding year because of very high interest and finance charges of the

company. But there was a huge jump in net profits in the year 2004-2005 compared the

shareholders funds which were responsible for increase in the return on investment. There has

been a considerable increase in shareholders funds from 2005 onwards which has resulted in

stabilizing return on investment.CHART 10

3. Return on Total Assets:Table No.16

Table showing return on Total AssetsYEAR NET PROFIT (Rs in crores) TOTAL ASSETS ( IN CRORES)2003 -304 255702004 2512 227172005 6817 280842006 4013 290582007 6202 338542008 7537 408742009 6174 53977

Interpretation:

There has been a considerable in increase in total assets from 2003 to 2009 but the net profit has

fluctuated which has resulted in the fluctuations in the return on total assets.

Page | 52

CHART 11

4. Earnings per Share:Table No.17

Table showing Earning per ShareYEAR NET PROFIT (Rs in crores) NUMBER OF EQUITY SHARES ( IN CRORES)2003 -304 4132004 2512 4132005 6817 4132006 4013 4132007 6202 4132008 7537 4132009 6174 413

Interpretation:

Here the Earning per Share is the result of Net Profit after Tax. It shows the positive correlation

during the period of study. It shows an increasing trend except in the year 2004 and 2009 due to

lower net profits than previous years.

CHART 12

5. Net Profit Ratio:Table No.18

Table showing Net Profit Ratio

YEAR OPERATING PROFIT (RS IN CRORES) SALES (IN CRORES)2003 1018 192072004 3530 241782005 9970 318052006 6174 322802007 9755 391892008 11720 45555

Page | 53

2009 9656 48681

Interpretation:

The operating profit and value of sales are the causes for the fluctuation in the Net Profit ratio.

While sales has constantly increased over the years operating profit has increased but shows

some fluctuations. In 2009 the ratio is lower than in 2008 due to lower operating profits. The

reason can be attributed to uncertain economic situation and higher cost of goods sold as well as

weak demand. CHART 13

6. Operating Ratio:Table No.19

Table showing Operating RatioYEAR OPERATING COST(RS IN CRORES) SALES

(Rs. In crores)

2003 17940 192072004 19512 241782005 20339 318052006 23675 322802007 26483 391892008 30423 455552009 36848 48681

Interpretation:

A comparison of operating ratio or expenses ratio will indicate whether the cost components is

high or low in the figure of sales. The operating ratio shows a decrease in trend up to 2008 but

shows a slight increase in 2009. Normally 75% to 85% is considered to be a good ratio for

manufacturing undertakings. So the ratio is good in case for SAIL.CHART 14

7. Payout Ratio:Table No.20

Table showing Payout RatioYEAR DIVIDEND PER EPS

Page | 54

EQUITY2005 3.3 16.502006 2.0 9.712007 3.10 15.012008 3.7 18.252009 2.6 14.95

Interpretation:

The pay out ratio for the year 2005 is 20%, 2006 is 20.59, 2007 is 20.65, 2008 is 20.27% which

implies that remaining 80% of earning per share is kept as retained earning by the company.

However in 2009 lesser amount of dividend is given so EPS is 14.95 and pay out ratio is 17.39

this implies that the company keeps 82% of earning per share as retained earnings.

CHART 15

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

8. Dividend Yield Ratio:Table No.21

Table showing Dividend yield

YEAR DIVIDEND PEREQUITY

MARKET PRICE

2005 3.3 62.872006 2.0 83.302007 3.10 114.302008 3.7 1852009 2.6 96

Interpretation:

This percentage implies that 5.25% of market price of the share was issued as dividend in the

year 2005 and later on it get decreases due to various economic changes in SAIL.CHART 16

Long Term Financial Position or Solvency Ratios1. Debt-Equity Ratio

TABLE NO: 21

Page | 55

Table showing Debt-Equity ratioYEAR OUTSIDER’S FUND SHAREHOLDER’S FUND2003 34385 52902004 9419 50372005 5977 103062006 4410 126012007 4155 173132008 2988 230632009 7555 27984

CHART 17

Interpretation

The debt-equity ratio is calculated to measure the extent to which debt financing has been used in

a business. From 2003 onwards there has been a decrease in outsiders fund and a corresponding

increase in shareholders funds. This indicates that the firm is traditionally financed and it is

considered to be favorable from a long term creditor’s point of view as a high proportion of

owner’s funds provide a larger margin of safety for them.Interest Coverage RatioThis ratio is used to test the debt servicing capacity of a firm The ratio is calculated as:Interest coverage ratio = Ebit/Fixed interest charge

TABLE NO: 22YEAR EBIT FIXED INTEREST CHARGES2003 1018 13392004 3529 9102005 9970 6072006 6174 4722007 9755 3332008 11720 2522009 9656 326

Interpretation:

There has been decreasing trend in the fixed interest charges and corresponding increase in EBIT

from 2003-2008.This has led to increase in interest coverage ratio which is a good sign for the

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company. There has been a decrease in EBIT in 2009 and a slight increase in fixed interest

charges due to uncertainties in the market, higher raw material costs and lower steel demand.

CHART 18

CALCULATION AND INTERPRETATION OF CASH FLOW STATEMENTCASH FLOW STATEMENT (in Rs.crores)

PART

2002-03

2003-04

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

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ICULARS

Profit before tax

(315.87)

1246.70

9365.35 5705.74 9422.62 11468.73 9403.45

Net Cash Flow –Operating a

2667.74

7199.45

8899.47 3823.93 5632.91 8378.18 6124.26

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ctivityNet Cash used in investing activity

(31.61)

(235.76)

(286.54) (337.18) (587.53) (1139.89) (4406.47)

Net Cash used in F

(2,517.34)

(5475.51)

(4516.63)

(3574.26) (1608.19) (3088.68) 2751.30

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in. Activity

Net inc./decrease in cash or equivalent

118.79

1488.18

4096.30 (87.51) 3437.19 4149.61 4469.09

Cas

416.37

717.31

2035.82 6260.15 6172.64 9609.83 13759.44

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h and equivalent at beginning of the yearCash and equiv

535.16

2205.49

6132.12 6172.64 9609.83 13759.44 18228.53

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alent at end of the year

INTERPRETATION

1. Cash flow statement shows that the profit before tax increases continuously in 2004,

2005, 2006, 2007, 2008 and decreases in 2009 due to unstable economic conditions.

2. Net cash flow from operating activities increases continuously in 2007 and 2008 due to

increase in sales and earnings but it came down in 2009.

3. Net cash outflows in investing activities have been growing in SAIL as cash is being used

to purchase fixed assets like plants and machinery and higher development costs.

4. Cash flows have been positive for financing activities in 2009 mainly due to increase in

borrowings.

5. Cash and cash equivalents have been increasing steadily from 2003 to 2009 showing

good liquidity position of the firm6.COMPETITOR ANALYSIS

BALANCE SHEET

FOR 2009

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(in crores)PARTICULARS

SAIL

TATA

ISPAT

JINDAL

ESSAR

ASSETSNET BLOCK

12269

10995

8888

5745

9129

CAPITAL WORK IN PR

6544

3488

103

2318

550

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OGRESSINVESTEMENT

653

42372

233

1233

791

NET CURRENT ASSETS

17389

(308)

160

1078

1580

TOTAL ASSET

36855

56651

9384

10378

12050

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SLIABILITIESSHARE HOLDERS FUND

27985

29705

2032

5415

4738

TOTAL DEBT

7539

26946

7352

4963

7312

DEFFER

1331

- - - -

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ED LIABILITYTOTAL LIABILITIES

36855

56651

9384

10378

12050

PROFIT AND LOSS ACCOUNT FOR 2009 (in crores)

SAIL

TATA

ISPA

JIND

ESSA

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T AL

R

SALES

48681

26843

9181

8433

12704

EBIDTA

10941

9779

730

2693

1930

Less: Depreciation

1285

973

647

433

828

EBIT

9656

8806

83

2260

1102

Less:Int.C

253

1489

1129

268

862

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hargesExtraordinary items

- - 24

10

55

PBT

9403

7317

(1023)

2002

240

Less: Tax

3229

2115

(335)

465

110

PAT

6174

5202

(688)

1537

185

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COMPETITOR ANALYSIS(as in2009)

RATIOS

SAIL TATA ISPAT JINDAL ESSAR

PROFITIBILITY RATIOOPERATING PROFIT

24.31 37.68 13.58 34.35 21.44

GROSS PROFIT

44.14 33.69 5.76 28.71 14.37

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NET PROFIT

19.83 21.09 -8.04 19.50 1.56

RETURN ON CAPITAL EMPLOYED

27.94 15.01 6.69 23.16 15.01

LIQUIDITY & SOLVENCY RATIOSCURRENT RATIO

2.82 0.91 1.04 1.04 0.71

QUICK RATIO

1.99 0.57 0.42 0.95 0.62

DEBT EQ

0.27 1.34 9.04 0.92 1.57

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UITY RATIODEBT COVERAGE RATIOINTREST COVERAGE RATIO

29.59 5.71 0.52 10.33 3.17

MANAGEMENT EFFICIENCY RATIOSINVENTORY

4.80 9.36 7.59 9.08 8.69

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TURN OVER RATIODEBTORS TURN OVER RATIO

16.09 41.29 14.50 22.62 30.35

FIXED ASSETS TURN OVER RATIO

3.96 1.22 0.61 1.04 0.76

CASH FLOW INDICATOR RATIODIVI

17.39 27.15 - 5.55 -

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DEND PAY OUT RATIO

Interpretation

Net Profit ratio of SAIL is better than most of the competitors except TATA Steel. This

can be attributed to lower earnings of SAIL in comparison to their earnings.

Return on Capital employed is highest for SAIL which shows that overall profitability

and efficiency of the business is good.

The current ratio for SAIL is more than other competitors which shows that it has enough

liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means that it is

more traditionally financed in comparison to other competitors. It has lower debt so it can

easily raise debt in future

Interest coverage ratio is too high for SAIL which shows that debt is not being used as a

source of finance to increase earnings per share.

Inventory turnover ratio is lesser in SAIL compared to other competitors which indicates

inefficient management of inventories.

The debtors turnover ratio is lower for SAIL compared to its competitors which shows

that the debtors are less liquid implying inefficient management of debtors/sales.

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7.RECOMMENDATION AND SUGGESTION

SAIL should always try to maintain an adequate quantum of net current assets in relation of

current liabilities as to keep a good amount of liquidity throughout the year.

The company should tighten the debt collection efforts and should reduce the amount tied up

in debtors. In order to improve the quality of debtors and also to bring down the amount tied-

up in debtors, a periodical report of the overdue may be prepared and effective action may be

taken by the management time to time to expedite the collections.

Inventory turnover ratio is lesser in SAIL compared to other competitors which indicates

inefficient management of inventories. So it is advisable to keep less inventories to minimize

costs and improve efficiency.

The company is more traditionally financed with low debt and more of equity financing, so

in future debt should be preferred for financing to bring the ratio close to the ideal ratio of

1:1.

The management of SAIL should also try to maintain a definite proportion among various

components of working capital in relation to overall current assets to keep an adequate

quantum of liquidity all the times.

8. CONCLUSION

On the basis of analysis of financial statements of SAIL we may conclude that the overall

working stability – soundness have improved over the years. Sales turnover of SAIL increased

by 6.86% i.e. Rs. 48681 crores in the FY 2008-09 from Rs. 45555 crores in the FY 2007-08

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whereas profit before tax has decreased by 18% i.e. Rs. 2064 crores in the FY 2008-09 from Rs.

11469 crores in the FY 2007-08 indicating increase in cost of goods sold.

The debtors’ turnover ratio is lower for SAIL compared to its competitors which shows that the

debtors are less liquid implying inefficient management of debtors/sales.

The proportion of current assets to total assets has increased comparing to current liabilities

which serve as an evidence for good working capital position of the company.

The current ratio for SAIL is more than other competitors which shows that it has enough

liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means that it is more

traditionally financed in comparison to other competitors. It has lower debt so it can easily raise

debt in future.

SAIL is more efficient and effective to utilize its fund.

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9. BLIOGRAPHY

BOOKS: Financial management by R.K. SHARMA &

SHASHI K GUPTA Annual Report of SAIL Magazines of SAIL

INTERNET WEB SITES:

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

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