35035513 Comparative Analysis of Financial Statement of Sail With Other Steel Companies in India

7/27/2019 35035513 Comparative Analysis of Financial Statement of Sail With Other Steel Companies in India

1/74

Page | 1

COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH

OTHER STEEL COMPANIES IN INDIA

PROJECT REPORT

MAY 2010 JULY 2010

Submitted in partial fulfillment of the requirements for the award of

two year full time, Post Graduate Diploma Management

In

Finance & Control

By

Kumar Mayank

(Institute of Management & Information Sciences Bhubaneswar)

Under the guidance of

Prof. S.S. Ahmed P.S PAL

Assistant Professor (finance) AGM (Finance)

Institute ofManagement & Information science Steel Authority Of India Limited

Bhubaneswar . Ranchi.

Institute of Management & Information Science

Swagat Vihar

Bhubaneswar Orissa 751002


2/74

Page | 2

Declaration

I hereby declare that the project entitled Financial Analysis is submitted in partial fulfillment of myPGDM (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 anoriginal piece of work done by me and it has neither been submitted to any other organization nor

published at anywhere before.

Signature

Name: Kumar MayankDate: 3rd July 2010

Place: Steel AuthorityofIndia Limited (Ranchi)


3/74

Page | 3

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).

I acknowledge my gratitude to Mr. S.S Ahmed (Assistance Professor Finance, Institute ofManagement & Information Science), for his extended guidance, encouragement , support and

reviewswithout 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 Centrefor

Engineering & Technology (SAIL) for their cooperation, valuable information and feedback during

my project.


4/74

Page | 4

ABSTRACT

The 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 ratiosshowing a

comparative analysis between these firmswith 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.

The experience that I gathered over the past two months has

certainly provided the orientation,which I believe will help me in shoulder ing any

responsibility in future.


5/74

Page | 5

TABLE OF CONTENTS

1.ABOUT THE COMPANY 6-11

2.INTRODUCTION TO CET SAIL 12-19

3.INTRODUCTION TO THE STUDY 20-22

4. LITERATURE REVIEW 23-35

5.DATA ANALYSIS AND INTERPRETATION 36-66

6.COMPETITOR ANALYSIS 67-70

7. RECOMMENDATION AND SUGGESTIONS 71

8.CONCLUSION 72

9.BIBLIOGRAPHY 73


6/74

Page | 6

1. ABOUT THE COMPANYCompany 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. CMOs 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), 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.


7/74

Page | 7

Sail Today

SAIL today is one of the largest industrial entities in India. Its st rength 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.

TypeofOrganization:

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 AuthorityofIndiaproduction lines are

y Hot Rolled Coils, Sheetsy Cold Rolled Products.y Bars and Rods.y Semi-Finished Products.y Railway Products.y Plates.


8/74

Page | 8

Moreover, Steel AuthorityofIndiaoffers technological services in the following

Domains

y Know-how transfer of technologies developed by its R&D wing.y Consultancy services.y Specialized testing services.y Contract research.y Training.

Integrated Steel Plants

y Bhilai Steel Plant (BSP) in Chhattisgarhy Durgapur Steel Plant (DSP) in West Bengaly Rourkela Steel Plant (RSP) in Orissay Bokaro Steel Plant (BSL) in Jharkhandy IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

y Alloy Steels P in West Bengal plants (ASP)y Salem Steel Plant (SSP) in Tamil Nadu

y Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

y Maharashtra Elektrosmelt Limited (MEL) in Maharashtra


9/74

Page | 9

PositionofSteel AuthorityofIndia 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

y The diversified product mix and multi location production units are an area ofstrength for the company.

y SAIL as a single source is able to cater to the entire steel requirement of anycustomer. Also it has a nation wide distribution network with a presence in ever

district in India. This makes quality steel available throughout the length and breadth

of the country.

y SAIL has the largest captive iron ore operations in India, which takes care of itsentire 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.

y SAIL's large skilled manpower base is a source of strength. There is emphasis onskill based training in the company.

yThe 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.


10/74

Page | 10

WEAKNESSES

y SAIL is dependent on the market purchase for a key input coking coal. As Indiadoes not have sufficient coking coal deposits, most of the supply is from external

sources.

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

y At present around 20% of the products are in the form of semi -finished steel,resulting in lower value addition.

y SAIL being a Public Sector unit has to follow set procedures in conducting itsbusiness. On occasions, it slows down the decision making with attendant fallout.

OPPORTUNITIES

y The current per capita finished steel consumption in the country is approx. 44 kg ascompared to the likely world average of around 190kg. There is a substantial scope

for increase in domestic steel consumption.

y 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.

y Approval to 37 infrastructure projects worth Rs.70, 000 crores between August 2008and January 2009 is likely to trigger steel demand.

y The size range and quality makes SAIL'S long products a preferred choice forproject customers.


11/74

Page | 11

THREATS

y 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.

y With significant excess capacity in the global steel industry during 2009 there is athreat of dumping cheap steel to India which is likely to be the only major steel

consuming nation with a positive growth.

y Clearance and renewal of mining lease, which involve multiple agencies at the Stateand Central levels, are an area of concern.

y Delay in opening new mines, and / or expanding existing mines may constrain rawmaterials availability, thereby impacting growth in saleable steel production, and

overall economics of operation.

y Law and order situation in mining areas in some of the states is also a cause ofconcern for smooth operations in remote areas.


12/74

Page | 12

2. INTRODUCTION TO CET SAILCentre 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 eithe

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 bette

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


13/74

Page | 13

organizations but only on specific requests to earn additional revenues.

CET hassixsubcentresatfollowinglocations:

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 hasonlytwounitofficesatfollowinglocations tocoordinate CETs

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


14/74

Page | 14

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.

GuidingprinciplesofCET working:

Following guiding principles are followed for working of CET:

For Technical Matters: Guidelines/Procedure described in Quality Manual.

For Personnel Matters: Personnel Manual issued by SAIL Corporate Office

For Contract Commercial Matters: Guidelines described in Purchase Procedure 2009.

For Financial Matters: Guidelines given in Accounts Manuals

CET-SAIL(FINANCE DEPATRMENT)

DutiesofOfficersandemployeesin Finance Section:

Preparation of employees 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 employees bills and advances and payment thereof.

Accounting of all transactions, maintenance and scrutiny thereof.


15/74

Page | 15

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

Fixedand Variable Costsfor FinanceDepartment

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

.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.


16/74

Page | 16

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 inany 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 theexpenditure, 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


17/74

Page | 17

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

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


18/74

Page | 18

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:

y Single rate of engineering hours doesnt take into account expenditure of variablenature.For example expenditure on tools design and drafting expenditure on these

heads varies on the basis of level of activities

y It is presumed that expenditure accrues uniformly over the assignments. But thereare 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)

y To prepare engineering hour rate for CET SAIL employee.y Preparation of vouchersy Preparation of T.A.BILLS (Travelling allowance)y Preparation of revenue budget for CET- SAIL.y Preparation of renumeration for employees remuneration & benefits budget.

PERFORMANCE HIGHLIGHTS OF CET 2009-2010

HIGHLIGTS OF PHYSICAL PERFORMANCE

y Total sanctioned projects 137 nos. against 135 nos. in corresponding period lastyear. Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

y Highest nos. of assignment handled at 327 in a year, up by 7 nos. over previousyear.

OTHER HIGHLIGHTS


19/74

Page | 19

y During the fiscal 2009-2010, a lot of emphasis was put in the RMD projects andalong with RMD new strategies where formulated for faster execution of projects.

y Expression of interest for acquisition of technology for up gradation of blastfurnaces has been floated.

y Video conferencing facility which connects Ranchi and sub centers at Bhilai ,Durgapur , Bokaro and Rourkela is being used extensively for quarterly projec

reviews , designed reviews , knowledge sharing , technical discussion with vendors

and plant engineers . It has resulted in faster communication, wider coverage and

saving in expenditure.

y CET has taken measures for working in a paperless environment. All movements opapers/ documents are being done through email system.

3.INTRODUCTION TO THE STUDY:


20/74

Page | 20

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 Rs 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.


21/74

Page | 21

3. Protecting the property of the business.

4. Compliances with legal requirement.

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 companys 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.


22/74

Page | 22

DATA COLLECTION

The required data for the study are basically secondary in nature and the data arecollected 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.

METHODS OF DATA ANALYSIS

The data collected were edited, classified and tabulated for analysis. Theanalytical 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 Analysis

ANALYSIS 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.


23/74

Page | 23

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.

Balance Sheet

A balance sheet is the basic financial statement. It presents data on a companys 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 companys 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.


24/74

Page | 24

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.

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.

Incomestatement

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.


25/74

Page | 25

Comparativebalancesheet

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-sizestatements

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

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.

Cashflowstatement

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.


26/74

Page | 26

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 companys financial condition, its operations and

attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from companys 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 been increasing steadily for the last few years, this would also be a favorable sign

that management is implementing effective Business, policies and strategies.

ClassificationofRatios

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 companys 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:


27/74

Page | 27

y Liquidity Ratios give a picture of a company's short term financial situation orsolvency

y Turnover Ratios show how efficient a company's operations and how well it is usingits assets.

y 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 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 = Currentassets / Currentliability


28/74

Page | 28

2. QuickRatio:

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.

QuickRatio = Total QuickAssets/ Total Current Liabilities

QuickAssets = 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.

Networkingcapitalratio = 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 Ratio2. Working Capital Turnover Ratio3. Debtor Turnover Ratio4 StockTurnover Ratio


29/74

Page | 29

1. Fixed Assets Turnover RatioFixed 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 RatioWorking 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 RatioDebtors 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:


30/74

Page | 30

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 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.

Debtors Turnover Ratio = Creditsales / Averageaccountsreceivables

Debtcollectionperiod:

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.

Debtcollectionperiod = Months/Daysinayear/ Debtorsturnoverratio

4. StockTurnover 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.


31/74

Page | 31

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

industry.

StockTurnover 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.

1. Return on Investment2. Return on Shareholders fund3. Return on total asset4. Earnings per Share5. Net profit Ratio6. Operating ratio7. Payout ratio8. Dividend yield ratio1. Returnon Investment:


32/74

Page | 32

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]

Returnoninvestment = Operatingprofit/ Capitalemployed *100

2. Returnon Shareholders Fund:In case it is desired to work out the productivity of the company from the shareholders point

of view, it should be computed as follows:

Return on shareholders 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. Returnon 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

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

business.

Returnon Total Assets = Netprofitafter Tax/Total Assets* 100


33/74

Page | 33

4. Earningsper 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 companys capacity to pay dividend to its equity shareholders.

Earning Per Equity Share = Net Profitafter Tax / NumberofEquity 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:


34/74

Page | 34

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 Materialcosttosales =Direct Material/Net Sales*100

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 =Dividendperequityshare/Earningperequityshare*100

8. Dividend Yield RatioThis 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.

Dividendyield =Dividendper Share/Marketpricepershare*100

AndDividendpershare = Dividendpaid/ Numberofshares.

Long Term Financial Positionor Solvency Ratios


35/74

Page | 35

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 firms 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 ratio2. Coverage ratios-ex. Debt service ratio or Interest coverage ratio1. 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 firms assets.

The ratio is calculated as:

Debtequityratio = Outsidersfunds / Shareholdersfunds

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

Interestcoverageratio = EBIT/Fixedinterestcharge


36/74

Page | 36

5.DATA ANALYSIS AND INTERPRETATION

3. Balance SheetTable No.1

ClassificationofBalance SheetofSteel AuthorityofIndia Limitedfrom 2003-2009

(Rs.in Crores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

ASSETS

Fixed Assets 14414 13550 12851 12920 12796 13960 18813

Investment 543 543 606 293 514 538 653

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

Shareholders

Funds

5290 5037 10306 12601 17313 23063 27984

Loan Funds 12969 8690 5770 4298 4180 3045 7539

Current Liabilities& Provisions

7311 8990 10166 10675 10949 13198 17122

Deferred

Liabilities

- - 1842 1484 1412 1568 1332

TOTALLIABILITIES

25570 22717 28084 29058 33854 40874 53977


37/74


38/74

Page | 38

Interpretation:

Long Term Financial Position:

y The comparative Balance Sheet of the company reveals that during the financial year 2008 2009there 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.

y There has been an increase in plant and machinery in 2009 compared to 2008 which means that itwill increase production capacity of the concern.

Current Financialpositionandliquidityposition:

y The company has increased its current assets by increasing the level of inventories at Rs.10121crores 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%).

y The Net Working Capital was in peak by the continuous increase after the year 2005. Thecompany got good liquidity position due increase in Current assets but it may affect the

profitability of the company.

y The overall financial position of the company is very good.


39/74

Page | 39

5. Income StatementTable No.3

ClassificationofIncome StatementofSteel AuthorityofIndia Limitedfrom 2003 to2009

(Rs.incrores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

Sales

EBIDTA

Less:

Depreciation

19207

2165

1147

24178

4652

1123

31805

11097

1127

32280

7381

1207

39189

10966

1211

45555

12955

1235

48681

10941

1285

EBIT

Less: Interest

Charges

1018

1334

3529

901

9970

605

6174

468

9755

322

11720

251

9656

253

PBT

Less : Tax

(316)

(12)

2628

116

9365

2548

5706

1693

9423

3221

11469

3932

9403

3229

PAT (Net Profit) (304) 2512 6817 4013 6202 7537 6174


40/74

Page | 40

6. Comparative Income StatementTable No.4

Comparative Income StatementofSteel AuthorityofIndia Limitedfrom 2003-2004to 2008- 2009

( Rs.in Crores)

PARTIC

ULARS

2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

change % of

change

change % of

change

change % of

change

change % of

chang

e

change % of

change

change % of

Change

Sales

EBIDT

Less:Depreci

ation

4971

2487

(24)

25.9

114.8

(2.1)

7627

6445

4

31.5

138.5

0.35

475

(3716)

80

1.49

(33.4)

7.09

6909

3585

4

21.4

48.5

0.3

6367

1989

24

16.2

18.1

1.98

3126

(2014)

50

6.86

(15)

0.04

EBIT

Less:

Interest

Charges

2511

(433)

246.6

(32.4

)

6441

(296)

182.5

(32.7)

(3769)

(137)

(38)

22.64

3581

(146)

58

(31)

1965

(71)

20.1

(22)

(2064)

2

(17.6)

0.7

PBT

Less :

Tax

2312

104

731.6

866.6

6737

2432

256.3

2096

(3659)

(855)

(39)

(33.5)

3717

1528

65.1

90.2

2046

711

21.7

22

(2066)

(703)

(18)

(17.8)

PAT

(Net

Profit)

2208 726 4305 171.3 (2804) (41.1) 2189 54.5 1335 21.5 (1363) (18)

Interpretation

y The Net Sales figure shows an increasing trend. After the year 2003 it shows anincreasing trend which will help to increase in Net Profit.

y The company has sufficient control over its depreciation which shows an increase ofonly 0.04% in 2009 over 2008.


41/74

Page | 41

y The company has considerable change in Interest Charges and rather the latter hasdecreased in recent years.

y The company has able to attain Profit after Tax of Rs.6174 crores in the year 2009compare to 7536 crores in 2008 which can be attributed to increase in cost of goods

sold.

y It may conclude that there is a sufficient progress in the company and the overallprofitability of the concern is very good.


42/74

Page | 42

7. Trend PercentageTable No.5

Trend PercentageofSteel AuthorityofIndia Limitedfrom 2003-2004to 2008 2009

Base Year 2003 Figurein%

Particulars 2003 2004 2005 2006 2007 2008 2009

SALES 100 125.88 165.59 168.06 204.03 237.17 253.45

EBIT 100 346.66 979.37 606.48 958.25 1151.27 948.52

FIXEDASSETS

100 94.00 89.15 89.63 88.77 96.85 130.51

CURRENTASSETS 100 112.77 196.02 213.75 283.57 359.91 471.97

CURRENT

LIABILITIES

100 122.96 139.05 146.01 149.76 180.52 234.19

WORKING

CAPITAL

100 81.83 302.55 370.29 554.05 673.81 889.54

CAPITALEMPLOYED

TOTAL

100 92.00 121.29 131.65 154.01 171.99 208.88

TOTALASSETS

100 88.84 109.83 113.64 132.39 159.85 211.09

Interpretation:

y The sales of the product have continuously increased in all the years up to 2009.Theincrease in sales is quite satisfactory.

y The EBIT grows continuously up to 2008 and decreases slightly in 2009 due to increasein the cost of goods sold.


43/74

Page | 43

8. Common Size Balance SheetTable No.6

Common Size Balance SheetofSteel AuthorityofIndia Limitedfrom 2003-2009

( Rs.in Crores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

ASSETS

Fixed Assets 56.37 59.64 45.75 44.46 37.90 34.15 34.85

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

LIABILITIES

Shareholders

Funds

20.60 22.17 36.69 43.36 51.14 56.42 51.84

Loan 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


44/74

Page | 44

Interpretation:

y Out of the total investment the owners funds is more compare to outsiders fund in thecompany which shows that the company has depended more on its own funds. It

shows that the company is traditionally financed.

y The proportion of current assets to total assets has increased comparing to currentliabilities which serve as an evidence for good working capital position of the

company.

yInvestments, Miscellaneous expenditure and deferred liabilities have their own limited

contribution to their respective side totals.


45/74

Page | 45

RATIO ANALYSIS

Liquidityratios

1. Current Ratio:Table No.7

Tableshowing Currentratio

(Rs. In Crores)

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT RATIO

2003 7282 4777 1.524

2004 8075 6025 1.340

2005 14187 6608 2.146

2006 17384 8108 2.144

2007 20379 6500 2.917

2008 26317 9439 2.788

2009 34511 12228 2.822

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.


46/74

Page | 46

CHART 1

2. QuickRatio:

Table No.8

Tableshowing Quickratio

(Rs. In Crores)

YEAR LIQUID ASSETS CURRENTLIABILITIES

QUICK RATIO

2003 3537 4777 0.740

2004 4993 6025 0.828

2005 9966 6608 1.508

2006 11174 8108 1.378

2007 13728 6984 1.965

2008 19460 9439 2.061

2009 24389 12228 1.994

Interpretation:

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

2005 onwards.

0

5000

10000

15000

20000

25000

30000

35000

40000

2003 2004 2005 2006 2007 2008 2009

current assets

current liabilities


47/74

Page | 47

CHART 2

3. Net Working Capital Ratio:

Table No.9

Tableshowing Net Working Capital Ratio

YEAR Net Working

Capital

Capital Employed Net Working

Capital Ratio

2003 2505 16541 0.151

2004 2050 15218 0.134

2005 7579 20064 0.377

2006 9276 21438 0.4322007 13879 24992 0.535

2008 16879 28450 0.593

2009 22283 34552 0.645

0

5000

10000

15000

20000

25000

30000

2003 2004 2005 2006 2007 2008 2009

liquid assets

current liabilities


48/74

Page | 48

CHART 3

Interpretation:

Net Working capital measures the firms potential reserve of funds. It can be related to net

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

employed.

0

5000

10000

15000

20000

25000

30000

35000

40000

2003 2004 2005 2006 2007 2008 2009

net working capital

capiotal employed


49/74

Page | 49

Turnover Ratios

1. Fixed Assets Turnover Ratio:

Table No.10

Tableshowingfixedassetturnoverratio

YEAR GROSS SALES

(Rs IN

CRORES)

FIXED

ASSETS (Rsin

crores)

FIXED

TURNOVER

RATIO (In

Times)

2003 19207 14036 1.36

2004 24178 13168 1.83

2005 31805 12485 2.54

2006 32280 12162 2.65

2007 39189 11598 3.37

2008 45555 11571 3.93

2009 48681 12269 3.96

Interpretation:

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

implies that company didnt 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.


50/74

Page | 50

CHART 4

2. Working Capital Turnover Ratio:

Table No.11

Tableshowing Workingcapitalturnoverratio

Interpretation:

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.

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

G

SS SALES

FIXED ASSETS

YEAR GROSS SALES

(Rs INCRORES)

WORKING

CAPITAL (RsinCrores)

Workingcapital

turnoverratio(intimes)

2003 19207 2505 7.667

2004 24178 2050 11.79

2005 31805 7579 4.196

2006 32280 9276 3.479

2007 39189 13879 2.823

2008 45555 16879 2.698

2009 48681 22283 2.184


51/74

Page | 51

CHART 5

3.Debtors Turnover Ratio:

Table No.12

TableshowingDebtors turnoverratio

YEAR CREDIT SALES

(Rs. In Crores)

DEBTORS

(Rs. In Crores)

Debtors turnover

ratio

(Intimes)

2003 19207 1660 11.570

2004 24178 1550 15.598

2005 31805 1908 16.669

2006 32280 1882 17.151

2007 39189 2315 16.928

2008 45555 3048 14.945

2009 48681 3024 16.098

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.

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

GROSS SALES

WORKING CAPITAL


52/74

Page | 52

CHART 6

Debtcollectionperiod:

Table No.13

TableshowingDebtcollectionperiod

(InDays)

YEAR COLLECTION PERIOD

2003 32

2004 23

2005 22

2006 21

2007 22

2008 24

2009 23

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

slowness with which money is collected from them.

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

CREDIT SALES

DEBTORS


53/74

Page | 53

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. StockTurnover Ratio:

Table No.14

YEAR SALES (Rsin

crores)

AVERAGE STOCK

(Rsincrores)

STOCK

TURNOVER

RATIO ( intimes)

2003 19207 3745 5.128

2004 24178 3082 7.844

2005 31805 4221 7.5342006 32280 6210 5.198

2007 39189 6651 5.892

2008 45555 6857 6.643

2009 48681 10121 4.809

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007 2008 2009

COLLECTION PERIOD

COLLECTION PERIOD


54/74

Page | 54

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 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

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

CREDIT SALES

AVERAGE ST C


55/74

Page | 55

Profitability Ratios

1. Returnon Investment:Table No.14

Tableshowing Returnon Investment

YEAR OPERATING

PROFIT (Rsin

crores)

CAPITAL

EMPLOYED (Rsin

crores)

RETURN ON

INVESTMENT (In

%)

2003 1018 16541 6.154

2004 3530 15218 23.196

2005 9970 20064 49.690

2006 6174 21782 28.344

2007 9755 25476 38.290

2008 11720 28450 41.1952009 9656 34552 27.946

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.


56/74

Page | 56

CHART 9

2. Returnon Shareholders Fund:Table No.15

Tableshowingreturnon Shareholders Fund

YEAR NET PROFIT (Rs

incrores)

SHAREHOLDERS

FUND (Rsincrores)

RETURN IN

SHAREHOLDERS

FUND (IN %)

2003 -304 5290 -5.746

2004 2512 5038 49.861

2005 6817 10307 66.139

2006 4013 12601 31.846

2007 6202 17313 35.822

2008 7537 23063 32.680

2009 6174 27984 22.062

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

0

5000

10000

15000

20000

25000

30000

35000

40000

2003 2004 2005 2006 2007 2008 2009

OPERATING PROFIT

APITAL EMPLOYE


57/74

Page | 57

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

stabilizing return on investment.

CHART 10

3. Returnon Total Assets:Table No.16

Tableshowingreturnon Total Assets

YEAR NET PROFIT (Rs

incrores)

TOTAL ASSETS (

IN CRORES)

RETURN ON

TOTALASSETS(IN %)

2003 -304 25570 -1.188

2004 2512 22717 11.057

2005 6817 28084 24.273

2006 4013 29058 13.810

2007 6202 33854 18.319

2008 7537 40874 18.439

2009 6174 53977 11.438

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.

-5000

0

5000

10000

15000

20000

25000

30000

2003 2004 2005 2006 2007 2008 2009

NET PROFIT

SHARE HOLDERS FUND


58/74

Page | 58

CHART 11

4. Earningsper Share:Table No.17

Tableshowing Earningper Share

YEAR NET PROFIT (Rs

incrores)

NUMBER OF

EQUITY SHARES

( IN CRORES)

EARNING PER

SHARE (IN %)

2003 -304 413 -0.736

2004 2512 413 6.082

2005 6817 413 16.506

2006 4013 413 9.716

2007 6202 413 15.016

2008 7537 413 18.249

2009 6174 413 14.949

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.

-10000

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

NET PROFIT

TOTAL ASSETS


59/74

Page | 59

CHART 12

5. Net Profit Ratio:Table No.18

Tableshowing Net Profit Ratio

YEAR OPERATING

PROFIT (RS IN

CRORES)

SALES (IN

CRORES)

NET PROFIT

RATIO (IN %)

2003 1018 19207 5.3002004 3530 24178 14.600

2005 9970 31805 31.347

2006 6174 32280 19.126

2007 9755 39189 24.892

2008 11720 45555 25.727

2009 9656 48681 19.835

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

2003 2004 2005 2006 2007 2008 2009

NET PROFIT

NUMBER OF EQUITY SHARES


60/74

Page | 60

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

Tableshowing Operating Ratio

YEAR OPERATING

COST(RS IN

CRORES)

SALES

(Rs. Incrores)

OPERATING

RATIO

(In %)

2003 17940 19207 93.403

2004 19512 24178 80.701

2005 20339 31805 63.9492006 23675 32280 73.342

2007 26483 39189 67.577

2008 30423 45555 66.783

2009 36848 48681 75.692

Interpretation:

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

E ATI G FIT

SALES


61/74

Page | 61

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

Tableshowing Payout Ratio

YEAR DIVIDEND PER

EQUITY

EPS Dividendpayout

ratio

2005 3.3 16.50 20

2006 2.0 9.71 20.59

2007 3.10 15.01 20.65

2008 3.7 18.25 20.27

2009 2.6 14.95 17.39

Interpretation:

0

10000

20000

30000

40000

50000

60000

2003 2004 2005 2006 2007 2008 2009

DIRECTMATERIAL

SALES


62/74

Page | 62

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

TableshowingDividendyield

YEAR DIVIDEND PER

EQUITY

MARKET PRICE Dividendyield

2005 3.3 62.87 5.25

2006 2.0 83.30 2.40

2007 3.10 114.30 2.71

2008 3.7 185 2

2009 2.6 96 2.70

0

2

4

6

8

1012

14

16

18

20

2005 2006 2007 2008 2009

DIVIDENT PER EQUITY

EPS


63/74

Page | 63

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 Positionor Solvency Ratios

1. Debt-Equity RatioTABLE NO: 21

TableshowingDebt-Equityratio

YEAR OUTSIDERS

FUND

SHAREHOLDERS

FUND

DEBT EQUITY

RATIO

2003 34385 5290 6.5

2004 9419 5037 1.87

2005 5977 10306 0.58

2006 4410 12601 0.35

2007 4155 17313 0.24

2008 2988 23063 0.13

2009 7555 27984 0.27

0

20

40

60

80

100

120

140

160

180

200

2005 2006 2007 2008 2009

DIVIDEND PER EQUITY

MAR

ET PRI

E


64/74

Page | 64

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 creditors point of view as a

high proportion of owners funds provide a larger margin of safety for them.

Interest Coverage Ratio

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

Interestcoverageratio = Ebit/Fixedinterestcharge

TABLE NO: 22

YEAR EBIT FIXED INTEREST

CHARGES

INTEREST

COVERAGE

RATIO

2003 1018 1339 0.76

2004 3529 910 3.88

0

5000

10000

15000

20000

25000

30000

35000

40000

2003 2004 2005 2006 2007 2008 2009

OUTSIDER'S FUND

SHARE HOLDER'S FUND


65/74

Page | 65

2005 9970 607 16.43

2006 6174 472 13.07

2007 9755 333 29.29

2008 11720 252 46.39

2009 9656 326 29.59

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 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.


66/74

Page | 66

CHART 18

0

2000

4000

6000

8000

10000

12000

14000

2003 2004 2005 2006 2007 2008 2009

EBIT

FI

E

I

TE

EST

A

GES


67/74

Page | 67

CALCULATION AND INTERPRETATION OF CASH FLOW

STATEMENT

CASH FLOW STATEMENT (in Rs.crores)

PARTICULARS 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Profit before tax (315.87) 1246.70 9365.35 5705.74 9422.62 11468.73 9403.45

Net Cash Flow

Operating activity

2667.74 7199.45 8899.47 3823.93 5632.91 8378.18 6124.26

Net Cash used in

investing activity

(31.61) (235.76) (286.54) (337.18) (587.53) (1139.89) (4406.47)

Net Cash used in

Fin. Activity

(2,517.34) (5475.51) (4516.63) (3574.26) (1608.19) (3088.68) 2751.30

Net inc./decreasein cash or

equivalent

118.79 1488.18 4096.30 (87.51) 3437.19 4149.61 4469.09

Cash and

equivalent at

beginning of the

year

416.37 717.31 2035.82 6260.15 6172.64 9609.83 13759.44

Cash and

equivalent at end

of the year

535.16 2205.49 6132.12 6172.64 9609.83 13759.44 18228.53

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


68/74

Page | 68

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

5. Cash and cash equivalents have been increasing steadily from 2003 to 2009 showinggood liquidity position of the firm

6.COMPETITOR ANALYSIS

BALANCE SHEET FOR 2009

(incrores)

PARTICULARS SAIL TATA ISPAT JINDAL ESSAR

ASSETS

NET BLOCK 12269 10995 8888 5745 9129

CAPITAL

WORK IN

PROGRESS

6544 3488 103 2318 550

INVESTEMENT 653 42372 233 1233 791

NET CURRENT

ASSETS

17389 (308) 160 1078 1580

TOTALASSETS

36855 56651 9384 10378 12050

LIABILITIESSHARE

HOLDERSFUND

27985 29705 2032 5415 4738

TOTAL DEBT 7539 26946 7352 4963 7312

DEFFERED

LIABILITY

1331 - - - -

TOTAL

LIABILITIES

36855 56651 9384 10378 12050


69/74

Page | 69

PROFIT AND LOSS ACCOUNT FOR 2009 (incrores)

SAIL TATA ISPAT JINDAL ESSAR

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.Charges 253 1489 1129 268 862

Extraordinary

items

- - 24 10 55

PBT 9403 7317 (1023) 2002 240

Less: Tax 3229 2115 (335) 465 110

PAT 6174 5202 (688) 1537 185


70/74

Page | 70

COMPETITOR ANALYSIS

(asin2009)

RATIOS SAIL TATA ISPAT JINDAL ESSAR

PROFITIBILITY

RATIO

OPERATING

PROFIT

24.31 37.68 13.58 34.35 21.44

GROSS PROFIT 44.14 33.69 5.76 28.71 14.37

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

RATIOS

CURRENT

RATIO

2.82 0.91 1.04 1.04 0.71

QUICK RATIO 1.99 0.57 0.42 0.95 0.62

DEBT EQUITY

RATIO

0.27 1.34 9.04 0.92 1.57

DEBT

COVERAGE

RATIO

INTREST

COVERAGERATIO

29.59 5.71 0.52 10.33 3.17

MANAGEMENT

EFFICIENCY

RATIOS

INVENTORY

TURN OVERRATIO

4.80 9.36 7.59 9.08 8.69

DEBTORS TURNOVER RATIO

16.09 41.29 14.50 22.62 30.35

FIXED ASSETSTURN OVER

RATIO

3.96 1.22 0.61 1.04 0.76

CASH FLOW

INDICATORRATIO

DIVIDEND PAYOUT RATIO

17.39 27.15 - 5.55 -


71/74

Page | 71

Interpretation

y 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.

y Return on Capital employed is highest for SAIL which shows that overall profitabilityand efficiency of the business is good.

y The current ratio for SAIL is more than other competitors which shows that it hasenough liquidity in comparison to other competitors.

y The debt equity ratio is 0.27 which is lower than the competitors. This means that it ismore traditionally financed in comparison to other competitors. It has lower debt so it

can easily raise debt in future

y Interest coverage ratio is too high for SAIL which shows that debt is not being used asa source of finance to increase earnings per share.

y Inventory turnover ratio is lesser in SAIL compared to other competitors whichindicates inefficient management of inventories.

y The debtors turnover ratio is lower for SAIL compared to its competitors whichshows that the debtors are less liquid implying inefficient management of

debtors/sales.


72/74

Page | 72

7.RECOMMENDATION AND SUGGESTION

y SAIL should always try to maintain an adequate quantum of net current assets in relationof current liabilities as to keep a good amount of liquidity thr

35035513 Comparative Analysis of Financial Statement of Sail With Other Steel Companies in India

Documents

Transcript of 35035513 Comparative Analysis of Financial Statement of Sail With Other Steel Companies in India