Financial Statement Analysis of CCL

1. Company Guide:

2. Faculty Guide:

2009-11

Acknowledgement

Master school Of Management, Meerut

I would like to express my gratitude towards the Mr. Utpal Banerjee, GM HRD, Central Coalfields Limited, for providing me an opportunity to undergo summer internship in his organization.

I would sincerely acknowledge the enduring support provided by my project guide Mr. A. D. Wadhwa (Senior Finance Officer, CCL Ranchi) during the course of the project. Without his support, it would not have been possible for me to successfully complete the project.

I also want to pay acknowledgements to my Institute (Master School Of Management, Meerut) for instilling in me the confidence to work on such a wonderful project. I am thankful to my faculty guide Ajay Sharma for guiding me during the course of the project.

Dinesh Kumar Mandal

Table of Contents page no.


Topic 1 .

Acknowledgement 2

Successful Completion Certificate 3

Executive summary 4

Introduction 5

Objectives of the study 6

Brief introduction of Concepts/Models introduced in the study 7-11

Brief about the Organization/Company 12-14

Methodology followed 15

Tabulation and Findings 16-22

Interpretation and Conclusions 23-50

Recommendations 51

Limitations of the study 52

Scope for further improvements 53

Appendices 54-60

Bibliography 61


Executive Summary

Central Coalfields Limited is awarded a Miniratna Company status by the Government of India. This means that the company is productive and Rs. 500 crores can be invested in the company at any moment. Also in India the major amount of electricity is produced by Thermal Power Stations which uses coal as a major raw material, and Coal India Limited has got the sole authority to mine coal in India. Central Coalfields Limited is one of the seven subsidiaries of Coal India Limited. Coal India Limited is also the second largest employer in India after Indian Railways. Besides this Coal India Limited is also one of the highest payers, who pays almost equivalently to ONGC. The main reason for carrying our study in this company is that all the subsidiaries of Coal India Limited were previously running into losses, but over the last few years they are recovering the previous losses and started generating profits. So it was a good opportunity for us to track the changes in the company and how it started making profits.

Analysis of Financial Statements is a major tool to judge the company’s profitability and its financial performance over the years. Also it is helpful in judging the solvency position of the company.


Introduction

The process of Financial Analysis includes various steps like ratio analysis, trend analysis comparative statements, schedule of changes in working capital, common size percentages, funds analysis, etc. Financial statement analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. The main objective of any financial analysis or financial statement analysis will be assessing corporate excellence, judging creditworthiness, forecasting bond ratings, predicting bankruptcy, and assessing market risk.

The detailed methodology is explained further in this project report.


Objectives of Study

In this study we would mainly learn how to do financial analysis of a company. And judge how Central Coalfields Limited is performing financially. Also we will see the solvency position of the firm and its future financial strengths


Introduction of concepts/models used in the Study

In our study we would do the analysis in the following way:

Ratio Analysis Trend Analysis Common Size Statements

And then carrying out multiple discriminate analyses to find out the financial health of the organization in the near future.

The methods used are explained below in details:

Ratio Analysis

Ratio analysis is a powerful tool of financial analysis. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures in the financial statements do not provide a meaningful understanding of the performance of a firm. Ratios help to summarize large quantities of financial data qualitative judgment about the firm’s financial performance. But it should be noted that a ratio reflecting a quantitative relationship helps to form a quantitative judgment. Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis.

Financial ratios are categorized according to the financial aspect of the business which the ratio measures.

Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an

acceptable rate of return.

Liquidity ratio

Liquidity refers to the ability of a firm to meet its obligations in the short run, usually one year. Liquidity ratios are generally based on the relationship between current asset (the sources for meeting short term obligations) and current liabilities. The important liquidity ratios are: current ratio, acid test ratio, and cash ratio.

Current ratio: - it is defined as current asset divided by current liabilities. The current ratio is a measure of the firm’s short term solvency. It indicates the availability of current asset in rupees for every one rupee of current liability. A ratio greater than one is desirable. It is given as

Current Asset / Current Liabilities

Quick ratio: - It is also known as acid test ratio. It establishes a relationship between quick, or liquid, assets and current liabilities. Inventories normally require some time for realizing into cash. Quick ratio is given asQuick ratio = (Current Asset – Inventories) / Current Liabilities


Cash ratio: - Since cash is the most liquid asset. We may examine the cash ratio and its equivalent to current liabilities. This is a very stringent measure of liquidity.

(Cash and Bank Balances + Current Investments) / Current Liabilities

Leverage Ratio

Financial leverage refers to the use of debt finance. While debt capital is a cheaper source of finance, it is also riskier. Leverage ratio help in assessing the risk arising from the use of debt capital. It helps in judging the long term financial position of the firm. Leverage ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations. Following are some of the most important long term solvency or leverage ratios.

Debt Equity Ratio: - The relationship describing the lenders’ contribution for each rupee of the owners’ contribution is called debt-equity ratio. Debt equity ratio is given as

Total Debt / Equity or Net Worth

Debt-Asset Ratio: - The debt-asset ratio measures the extent to which borrowed funds support the firm’s assets. It is

Total Debt / Total Assets

Interest Coverage Ratio: - This ratio is used to test the firm’s debt-servicing capacity. It shows the number of times the interest charges are covered by funds that are ordinarily available for their payment. As funds equal to depreciation (non cash expense) are also available to pay interest charges, they are also taken into account. The ratio is given as

EBITDA / Interest


Fixed Charges Coverage Ratio: - This ratio measures debt servicing ability comprehensively because it considers both the interest and the principal repayment obligations. This ratio shows how many times the cash flow before interest and taxes covers all fixed financing charges. It is defined as

EBITDA / [Interest + Repayment of loan/ (1-tax rate)]

Turnover Ratios

Turnover ratios, also referred as activity ratio or asset management ratios, measure how efficiently the assets are employed by a firm. These ratios are based on the relationship between the level of activity, represented by sales or cost of goods sold, and levels of various assets. The important turnover ratios are: inventory turnover, average collection period, debtor’s turnover, fixed asset turnover and total asset turnover.

Inventory Turnover: - It measures how fast the inventory is moving through the firm and generating sales. The inventory turnover reflects the efficiency of inventory management. It is defined as

Cost of goods sold / Average inventory

Debtors’ Turnover: - This ratio shows how many times sundry debtors turn over during the year. It is defined as

Net Credit Sales / Average Debtors

Average Collection Period: - It represents the number of days’ worth of credit sales that is locked in sundry debtors. The average collection period may be compared with the firm’s credit terms to judge the efficiency of credit management. It is given as

Average sundry debtors / Average daily credit salesor

365 / Debtors’ turnover

Fixed Asset Turnover: - The ratio measures sales per rupee of investment in fixed assets. It measures the efficiency with which the fixed assets are employed. It is defined as

Net Sales / Average net fixed assets

Total Asset Turnover: - this ratio measures how efficiently assets are employed, overall. It is defined as

Net Sales / Average total assets


Profitability Ratios

Profitability reflects the final result of business operations. There are two types of profitability ratios: profit margin ratios and rate of return ratios. Profit margin ratios show the relationship between profit and sales. The most popular profit margin ratios are: gross profit margin, net profit margin, and operating profit margin. Rate of return ratios reflect the relationship between profit and investment. The important rate of return measures are: return on asset, earning power, return on capital employed and return on equity.

Gross Profit Margin: - This ratio shows the margin left after meeting the manufacturing costs. It measures efficiency of production as well as pricing. It is defined as

Gross Profit / Net Sales

EBITDA Margin: - This ratio shows the margin left after meeting manufacturing expenses, selling, general, and administrative expenses. It reflects operating efficiency of the firm. It is defined as

EBITDA / Net sales

Net Profit Margin:-This ratio shows the earnings left for shareholders as a percentage of net sales. It measures overall efficiency of production, administration, selling, financing, pricing, and tax management. It is defined as

Net profit / Net sales

Return on Asset: - it represents the earning generated from the total assets of the firm. It is defined as

PAT / Average total assets

Earning Power: - Earning power is a measure of business performance which is not affected by interest charges and tax burden. It is defined as

PBIT / Average total assets

Return on Capital employed: - ROCE is a post tax version of earning power. It considers the effect of taxation. It is defined as

PBIT (1-Tax rate) / Average total assets

Return on Equity: - ROE measures the profitability of equity funds invested in the firm. Because maximizing shareholder wealth is the dominant financial objective. It is defined as

PAT / Equity or Net worth


Trend Analysis

Besides looking at the ratios for one year, one would like to look at the ratios for several years. This will help in detecting secular changes and avoiding the bias introduced by transitory forces. Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Trend analysis is facilitated by showing changes between years in both rupees and percentage form. Trend analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base. When the resulting figures are shown on a graph, we will get the trend of growth.

Common Size Statements

A useful and convenient way of understanding financial statements is to express each item on the profit and loss account as a percentage of sales and each item on the balance sheet as a percentage of total assets. The resulting financial statements are called common size statements. An investigation of the comparative financial statements helps to highlight the significant facts and points out the items which need further analysis. From analytical point of view, such statements are quite useful to investors.


Introduction of C.C.L

C.C.L is a subsidiary company of coal India limited under ministry of coal and mines govt. of India. C.C.L is one of the 7 coal production subsidiaries of Coal India Limited. Company is governed by a board of directors consisting of 5 full time directors and 6 part time directors. Full time directors are responsible for specific functions of operation, project & planning, finance and personnel.

Coal India Limited – A Profile

Coal India limited is the third largest coal producing company in the world. It was formed on 21 st October, 1975 as a Holding Company under the ministry of coal, Govt. of India, for the entire coal industry in the country barring the coal mines in Andhra Pradesh and captive mines of TISCO, IISCO and DVC. Its registered office is located at 10, Netaji Subhash Road, Kolkata. It was declared Public Sector Undertaking in November, 1975 for reorganizing the nationalized coal mines and ensuring integrated development of coal, the prime source of energy.

Coal India Ltd. is a Schedule - A Nav Ratna Company with turnover Rs. 45,796.59 crores during the fiscal year

2008-2009 and gross profit of Rs. 5,744 Crores. It is the single largest coal producing company in the world. It

contributes about 85% of total Coal production in India. Coal India operates 473 mines spread over in eight

states out of which 283 are underground, 155 opencast and 35 mixed mines. It operates 19 Coal Beneficiation

Plants.CIL produces both, coking and non - coking coal. CIL commands 75% of the Indian coal market. CIL

fuels 76 power stations (69812 MW) out of 78 coal-based thermal power stations (71055 MW), which is 75.5%

of total thermal power generating capacity of 92893 MW in the country. 78% of total coal produced by Coal

India is catered to Power Utilities in the country. CIL also fuels Steel, Cement, Fertilizer and a host of other

industries. It is the largest corporate employer in the world with 4.05 lakhs employees (approx) including

15,328 (as on 1.09.09) executives and has its headquarters at Kolkata, West Bengal.

Coal India Limited was formed in 1975 as a holding company has eight subsidiary companies:

Eastern Coalfields Ltd., Sanctoria near Asansol

Bharat Coking Coal Ltd., Dhanbad

Central Coalfields Ltd., Ranchi

Western Coalfields Ltd., Nagpur

South Eastern Coalfields Ltd., Bilaspur

Mahanadi Coalfields Ltd., Sambalpur

Northern Coalfields Ltd., Singrauli

Coal Mine Planning & Design Institute Ltd., Ranchi


Central Coalfields Limited

Central Coalfield Limited has been on the coal map the country as a public sector on October 1956 under different names. In the beginning it was known as National Coal Development Corporation, then Central Division of Coal Mines Authority, and finally under its present nomenclatures at Ranchi, Jharkhand. The Central Coalfield Limited is one of the subsidiaries of Coal India Limited registered under the Company’s Act 1956 in the year 1975. The mining and extraction of coal is entrusted to a public sector organization Coal India Limited. The Company is divided into eight subsidiaries and Central Coalfield Limited is one of them.Like other industries and organization, the affair of CCL too is not settled by its owner (Govt. of India). Rather the professional team of management called Board of Directors (BOD) is appointed by the Govt. of India to manage the affair of CCL. It consists of chairman – cum-Managing Director, four functional Directors in charge of operations, personnel, finance and projects & planning.

CCL is the major source of medium coking coal in India. CCL’s other important activities are beneficiation of medium coking coal for steel plants through its chain of coal washeries and manufacture of soft coke for domestic kitchen. Most of the production (88%) comes from surface mines. The productivity of underground mines and many of the surface mines is low, but because of high priced of coking coal, the company has been making marginal profit and losses with the recent deregulation of coking coal price the profitability of the company is expected to improve. The command area of CCL companies 10 coalfields namely Giridih, East Bokaro, West Bokaro, Ramgarh-kaitha, North Karanpura, South Karanpura, Auranga, Hutar, Daltongang and Giridih/ Jayanti.

Vision of the Company:

"Committed to create eco-friendly mining"

Mission of the Company:

"To become a World class, Innovative, Competitive & Profitable Coal Mining Operation to achieve Customer Satisfaction

as top priority."


Objectives of the Company:

Coal mining through efficiently operated mines. Besides fulfilling coal needs of the customer in terms of quantity, focus on quality, value addition and

beneficiation to the satisfaction of the customers. Marketing of coal as main product

CCL has played a major role in socio-economic growth of Jharkhand region. In 47 years of its existence it has virtually brought out development in many backward areas through its mining activities, employment opportunities and reaching basic infrastructure to several remote and inaccessible areas. CCL also strive to help in establishing Coal based industries in this region and also to reach coal as domestic fuel to homes with an objective of improving forest cover.

Method of Coal Mining

Coal is obtained from the earth’s surface called mines. Mines are of two types:

1. Opencast Mines

In this type of mine with the help of technology attempt is made to reach the level of coal seam by removing the overburden (i.e. after removing everything lying above the coal seam). For this heavy machines like HEMM (Heavy Earth Moving Machine) are used the manpower is reduced.

2. Underground Mines

In this type of mine, technology attempts to reach the coal seam not by removing the overburden but through a pit. These mines are in those areas where coal seam is deep. The overburden remains intact the workers dig the ground. The workers are sent to the level of coal seam either through shaft (an inclination) or through lift, i.e. DOLI. There is optimum utilization of manpower in these mines.

In this type of mines there is high risk of accidents due to the fall of roofs and sides. In order to avoid these accidents thrust is given to provide support of green roof with steel supports like steel cogs, pit props, roof, Bolts, W-straps, etc


Methodology Followed

TrainingThe initial training consisted of gaining the required knowledge about the industry and the working of the company. It also included the working of finance department in the company and a brief about the significance of the industry. How it is helping India to grow.

Information gatheringThe following techniques were used for the information gathering:1. Regular visits to the organization and getting information about the procedures and working of the organization.2. Websites and brochures of the organization and the leading company in this sector

Analysis using quantitative techniquesThe information gathered was compiled and analyzed using quantitative techniques to identify the financing needs of the organization and its financial health. This analysis helped in identifying the weak and strong areas of Central Coalfields Limited. It also helped in identifying the areas of concern for the organization.


Tabulation and Findings

Consolidated Balance Sheet of Central Coalfields Limited (2005-2009)2009 2008 2007 2006 2005(Rs. In Lakhs)

(Rs. In Lakhs)

(Rs. In Lakhs)

(Rs. In Lakhs)

(Rs. In Lakhs)

Sources of FundsShareholder's Funds

Share Capital 94000.00 94000.00 94000.00 94000.00 94000.00Reserve & Surplus 120682.60 94617.20 74627.82 38247.52 -4363.37

214682.60 188617.20 168627.82 132247.52 89636.63

Loan FundsSecured 0.00 0.00 0.00 0.00 0.00Unsecured 29397.58 42287.77 58312.80 89593.76 105870.10

29397.58 42287.77 58312.80 89593.76 105870.10

TOTAL 244080.18 230904.97 226940.62 221841.28 195506.73

Application of FundsFixed Assets

Gross Block 448490.81 437863.79 419881.08 403692.50 381103.31Less: Depreciation 303800.93 298292.52 278372.96 269641.86 246728.25Net Block 144689.88 139571.27 141508.12 134050.64 134375.06Capital Work in Progress(net) 31135.31 32338.15 26707.89 27174.13 43635.33

175825.19 171909.42 168216.01 161224.77 178010.39Investments 6596.12 7538.42 8480.72 9423.02 9423.02Deferred Tax Assets 56499.53 34356.89 21405.78 16619.36 12972.16Current Assets, Loans & Advances

Inventories 96806.32 99117.94 81363.51 71584.55 60586.29Debtors 74526.48 54130.98 47217.31 61106.59 65984.02Cash & Bank Balances 181588.39 111546.67 33408.78 23482.02 18411.43Loans & Advances(incl. other C/A) 274092.26 223695.97 207696.63 188181.52 79648.42

Total Current Assets, Loans & Advances 627013.45 488491.56 369686.23 344354.68 224630.16Less: Current Liabilities & Provisions 621854.11 471391.32 340848.12 309780.55 229529.00

Net Current Assets 5159.34 17100.24 28838.11 34574.13 -4898.84

TOTAL 244080.18 230904.97 226940.62 221841.28 195506.73


Consolidated Profit & Loss Account of Central Coalfields Limited (2005-2009)

2009 2008 2007 2006 2005(Rs. in Lakhs)

(Rs. in Lakhs)

(Rs. in Lakhs)

(Rs. in Lakhs)

(Rs. in Lakhs)

INCOMESales 521088.78 436294.37 390072.61 391000.70 349211.69Coal issued for other purposes 103844.53 107800.14 105972.03 102938.85 103702.98Accretion/Decretion in Stock -6993.82 13657.74 7269.90 13762.05 10910.82Other Income 46457.60 36553.39 41848.03 26012.33 22139.49

Total Income 664397.09 594305.64 545162.57 533713.93 485964.98

EXPENDITUREColliery consumption 102017.24 103772.84 102489.02 104293.66 103242.22consumption of stores & spares 47980.00 48155.31 41668.62 43457.49 41467.01Employee remuneration & benefits 258928.00 179092.14 145125.14 132292.09 171845.58Social overhead 19300.53 16527.31 14360.09 11977.50 11645.39Power & Fuel 25628.66 22595.23 22651.97 21952.80 21151.64Repairs & Contractual expenses 49277.63 43891.84 38097.30 37076.98 31927.87Miscellaneous Expenses 37535.06 28045.58 18355.66 24951.43 16255.91Overburden Removal Adjustment 7198.27 10356.62 26383.39 2179.12 5921.83

Total Expenditure 547865.39 452436.87 409131.19 378181.07 403457.45Gross Operating Profit 116531.70 141868.77 136031.38 155532.86 82507.53Interest 4351.05 6425.70 8918.16 9798.43 10961.70Financial Charges 330.60 174.32 202.10 235.99 265.83Depreciation 19005.30 21774.76 19488.79 32573.48 19223.46Provisions/Write-off 18593.48 9190.90 5209.21 9748.06 9515.44

PROFIT FOR THE YEAR 74251.27 104303.09 102213.12 103176.90 42541.10Prior Period Adjustment(credit) 2129.12 -778.58 -182.73 14331.81 1240.35PROFIT BEFORE TAX 76380.39 103524.51 102030.39 117508.71 43781.45

Provision for income tax 48341.00 46122.51 40931.45 44566.10 22892.10Provision for deferred tax -22142.64 -6206.47 -4786.42 -3647.20 -7097.05Fringe benefit tax 1189.12 1050.51 911.48 752.02 0.00PROFIT AFTER TAX 48992.91 62557.96 64973.88 75837.79 27986.40APPROPRIATION

General reserve 7974.00 10352.00 10578.00 11650.00 0.00Proposed dividend(incl. taxes) 22927.51 29275.66 28593.58 33226.90 0.00Profit up to the previous year 62037.20 39106.90 26597.52 -4363.37 -32349.77

BALANCE CARRIED TO BALANCE SHEET 80128.60 62037.20 52399.82 26597.52 -4363.37


Accounting Ratios of Central Coalfields Limited for last 5 years

Liquidity Ratios 2005 2006 2007 2008 2009

Current ratio 0.978657 1.111608 1.084607 1.036276 1.008297

Acid test ratio 0.714698 0.880527 0.845898 0.826009 0.852623

Cash ratio 0.121268 0.10622 0.122898 0.252625 0.302618

Leverage ratio

Debt-equity ratio 1.181103 0.67747 0.345808 0.224199 0.136935

Debt-asset ratio 0.541516 0.403864 0.256952 0.183139 0.120442

Interest coverage ratio 6.747732 16.31696 14.62604 20.49971 22.92245

Fixed charges coverage ratio 2.195798 4.916037 4.122286 4.51894 3.683737

Turnover ratio

Inventory turnover 7.157438 5.874913 5.377572 4.849146 5.900666

Debtor's turnover 4.233894 5.118933 6.608976 6.44798 5.593596

Average collection period 86.20905 71.30392 55.22792 56.60687 65.25319

Fixed assets turnover 1.961749 2.42519 2.318879 2.537932 2.963675

Total assets turnover 1.786188 1.762525 1.718831 1.889498 2.134908

Profitability ratio

Gross profit margin 0.236268 0.397782 0.348733 0.325168 0.223631

EBITDA margin 0.21181 0.408901 0.334392 0.301918 0.191401

Net profit margin 0.080142 0.193958 0.166569 0.143385 0.09402

Return on asset 0.143148 0.341856 0.286303 0.270925 0.200725

Earning power 0.280006 0.573866 0.488888 0.476171 0.330758

Return on capital employed 0.184832 0.378809 0.322715 0.31432 0.218333

Return on equity 0.312221 0.573453 0.385309 0.331666 0.228211


Common Size Balance Sheet of CCL for last 5 years (2005-09)

2005 2006 2007 2008 2009Sources of FundsShareholder's Funds

Share Capital 48.08 42.37 41.42 40.71 38.51Reserve & Surplus -2.23 17.24 32.88 40.98 49.44

45.85 59.61 74.30 81.69 87.96

Loan FundsSecuredUnsecured 54.15 40.39 25.70 18.31 12.04

54.15 40.39 25.70 18.31 12.040.00 0.00 0.00 0.00 0.00

TOTAL 100.00 100.00 100.00 100.00 100.00


Gross Block 194.93 181.97 185.02 189.63 183.75Less: Depreciation 126.20 121.55 122.66 129.18 124.47Net Block 68.73 60.43 62.35 60.45 59.28Capital Work in Progress(net) 22.32 12.25 11.77 14.00 12.76

91.05 72.68 74.12 74.45 72.04Investments 4.82 4.25 3.74 3.26 2.70Deferred Tax Assets 6.64 7.49 9.43 14.88 23.15Current Assets, Loans & Advances

Inventories 30.99 32.27 35.85 42.93 39.66Debtors 33.75 27.55 20.81 23.44 30.53Cash & Bank Balances 9.42 10.59 14.72 48.31 74.40Loans & Advances(incl. other C/A 40.74 84.83 91.52 96.88 112.30

Total Current Assets, Loans & Advances 114.90 155.23 162.90 211.56 256.89Less: Current Liabilities & Provisions 117.40 139.64 150.19 204.15 254.77

Net Current Assets -2.51 15.59 12.71 7.41 2.11

TOTAL 100.00 100.00 100.00 100.00 100.00


Common Size Profit & Loss Account of CCL for last 5 years (2005-09)

2005 2006 2007 2008 2009INCOME

Sales 100.00 100.00 100.00 100.00 100.00Coal issued for other purposes 29.70 26.33 27.17 24.71 19.93Accretion/Decretion in Stock 3.12 3.52 1.86 3.13 -1.34Other Income 6.34 6.65 10.73 8.38 8.92

Total Income 139.16 136.50 139.76 136.22 127.50

EXPENDITUREColliery consumption 29.56 26.67 26.27 23.79 19.58consumption of stores & spares 11.87 11.11 10.68 11.04 9.21Employee remuneration & benefits 49.21 33.83 37.20 41.05 49.69Social overhead 3.33 3.06 3.68 3.79 3.70Power & Fuel 6.06 5.61 5.81 5.18 4.92Repairs & Contractual expenses 9.14 9.48 9.77 10.06 9.46Miscellaneous Expenses 4.66 6.38 4.71 6.43 7.20Overburden Removal Adjustment 1.70 0.56 6.76 2.37 1.38

Total Expenditure 115.53 96.72 104.89 103.70 105.14

Gross Operating Profit 23.63 39.78 34.87 32.52 22.36Interest 3.14 2.51 2.29 1.47 0.83Financial Charges 0.08 0.06 0.05 0.04 0.06Depreciation 5.50 8.33 5.00 4.99 3.65Provisions/Write-off 2.72 2.49 1.34 2.11 3.57

PROFIT FOR THE YEAR 12.18 26.39 26.20 23.91 14.25Prior Period Adjustment(credit) 0.36 3.67 -0.05 -0.18 0.41PROFIT BEFORE TAX 12.54 30.05 26.16 23.73 14.66

Provision for income tax 6.56 11.40 10.49 10.57 9.28Provision for deferred tax -2.03 -0.93 -1.23 -1.42 -4.25Fringe benefit tax 0.00 0.19 0.23 0.24 0.23

PROFIT AFTER TAX 8.01 19.40 16.66 14.34 9.40APPROPRIATION

General reserve 0.00 2.98 2.71 2.37 1.53Proposed dividend(incl. taxes) 0.00 8.50 7.33 6.71 4.40Profit up to the previous year -9.26 -1.12 6.82 8.96 11.91

BALANCE CARRIED TO BALANCE SHEET -1.25 6.80 13.43 14.22 15.38


Balance Sheet of Northern Coalfields Limited year ended 31st Mar’ 09

2009(Rs. In Lakhs)


Share Capital 17767.28Reserve & Surplus 648320.08

666087.36Deferred Tax Liabilities 8555.78Loan Funds

SecuredUnsecured 96380.45

96380.45

TOTAL 771023.59


Gross Block 650833.29Less: Depreciation 459396.48Net Block 191436.81Capital Work in Progress(net) 26374.50

217811.31Investments 8019.20Deferred Tax AssetsCurrent Assets, Loans & Advances

Inventories 35935.07Debtors 7372.85Cash & Bank Balances 550602.46Loans & Advances(incl. other C/A) 333831.50

Total Current Assets, Loans & Advances 927741.88Less: Current Liabilities & Provisions 382548.80

Net Current Assets 545193.08

TOTAL 771023.59


Profit & Loss Account of Northern Coalfields Limited year ended 31st Mar’ 09

2009 (Rs. in Lakhs)

INCOMESales 655194.21Coal issued for other purposesAccretion/Decretion in Stock -3452.90Other Income 83900.88

Total Income 735642.19

EXPENDITUREColliery consumption 0.00consumption of stores & spares 119326.32Employee remuneration & benefits 102783.21Social overhead 21677.81Power & Fuel 17993.58Repairs & Contractual expenses 87093.95Miscellaneous Expenses 24359.22Overburden Removal Adjustment 2886.50

Total Expenditure 376120.59Gross Operating Profit 359521.60Interest 2436.10Financial Charges 2335.34Depreciation 42208.67Provisions/Write-off 17.14

PROFIT FOR THE YEAR 312524.35Prior Period Adjustment(credit) 576.74PROFIT BEFORE TAX 313101.09

Provision for income tax 121762.12Provision for deferred tax -5223.56Fringe benefit tax 470.00

PROFIT AFTER TAX 196092.53APPROPRIATION

General reserve 19609.25Proposed dividend(incl. taxes) 137651.07Profit up to the previous year 429315.29

BALANCE CARRIED TO BALANCE SHEET 468147.50


Interpretations and ConclusionsLiquidity Ratios:

2005 2006 2007 2008 2009

Current ratio 0.978657 1.111608 1.084607 1.036276 1.008297

The standard current ratio is 2:1 and bankers in India have used a norm of 1.33:1 but in CCL we have seen that the ratio is around 1:1 over the last five financial years, being highest in 2006 i.e. 1.11:1. The ratio indicates that firm is able to meet exactly its current liabilities with its current assets. This is a good sign for creditors as they can entrust the company that there advances will be recovered. Also this show that the firm is maintaining a lesser amount in current asset and investing more in fixed assets, as it is visible from the Balance Sheet.


Acid Test Ratio

2005 2006 2007 2008 2009

Acid test ratio 0.714698 0.880527 0.845898 0.826009 0.852623

The standard norm for acid test ratio is 1:1 and CCL is maintaining almost equal. As the inventories require a considerable time to be converted into cash and fulfill the current liabilities. And CCL is maintaining a lesser inventory which shows an improvement in its inventory management as well as it may be a result of liberal credit terms which in turn increases the sales and a decrease in inventory level. This point is visible through increasing average collection period.


Cash Ratio

2005 2006 2007 2008 2009

Cash ratio 0.121268 0.10622 0.122898 0.252625 0.302618

There is a considerable rise in the cash ratio, which shows that the company is becoming more able to fulfill its liabilities directly through almost purely liquid asset. But it also shows that the company is holding huge cash in hand and not utilizing it for earning more profit. The reason behind this is that CCL cannot invest in any kind of investments as directed by Government. Its investment only involves tax free bonds and securities given to it by its suppliers or customers in order to pay back their debts.


Leverage Ratios

Debt-Equity Ratio

Leverage ratio 2005 2006 2007 2008 2009

Debt-equity ratio 1.181103 0.67747 0.345808 0.224199 0.136935

The ideal value for Debt-equity ratio is 2:1. As the cost of equity is higher than cost of debt and it is suggested to make investment more through debt to achieve the optimum cost of capital. But as we can see that the Debt-equity ratio is decreasing every year, this shows that company is getting stronger and financing its projects through own funds and relying less on loans. Also a reason for this is the Government regulations on the company, the company cannot borrow funds from any organization, there are a limited number of organization who can lend to CCL. There has been a significant decrease in the ratio because the company is repaying its long term loan taken from Coal India Limited (150 crores every year).


Debt-Asset Ratio

2005 2006 2007 2008 2009

Debt-asset ratio 0.541516 0.403864 0.256952 0.183139 0.120442

The ratio indicates that the company’s assets are supported through mainly owner’s fund and very less through borrowed funds. This is a good indication from the company’s point of view as it is holding all its assets under its own control.


Interest Coverage Ratio

2005 2006 2007 2008 2009

Interest coverage ratio 6.747732 16.31696 14.62604 20.49971 22.92245

Over the last five years the company shows a lot of improvement in its interest coverage ratio, which indicates that the company can easily meet its interest burden even if earning before interest and taxes suffer a considerable decline. The reason being the decrease in the total amount for loan and so is the interest.


Fixed Charges Coverage Ratio

2005 2006 2007 2008 2009Fixed charges coverage ratio 2.195798 4.916037 4.122286 4.51894 3.683737

This ratio shows that how much the company is able to pay back its fixed expenses including interest and the principal amount of the loan. As we see the ratio is continuously improving per year showing the company’s efficiency in meeting its fixed expenses.


Activity Ratio

Inventory Turnover Ratio

2005 2006 2007 2008 2009Inventory turnover 7.157438 5.874913 5.377572 4.849146 5.900666

The inventory turnover reflects the efficiency of inventory management. The higher the ratio more efficient the management of inventories is and vice-versa. But over the year we have seen that the company trend shows that the ratio was declining but there is an improvement in the last year which indicates that the company is paying more attention in converting its inventory into sales.


Debtors Turnover Ratio

Turnover ratio 2005 2006 2007 2008 2009

Debtor's turnover 4.233894 5.118933 6.608976 6.44798 5.593596

There is downward trend in the Debtors turnover ratio over the last three years showing liberal credit terms of the company. But this can be interpreted as good if the marginal increase in sales due to liberal credit terms is higher than the average amount of funds locked up with the debtors and vice versa.


Average Collection Period

2005 2006 2007 2008 2009

Average collection period 86.20905 71.30392 55.22792 56.60687 65.25319

The average collection period compared with the firm’s credit terms to judge the efficiency of credit management. An average collection period of 86 days means that the collection is slow and average collection period of 56 days means the collection is prompt. Also seeing through the consumers of CCL which comprises mainly government companies the average collection period of 2 months is very prompt. And the increase in average collection period in last year is due to liberal credit term which is strategically done to increase the inventory turnover as well as the overall sales of the company.


Fixed Asset Turnover Ratio

Turnover ratio 2005 2006 2007 2008 2009

Fixed assets turnover 1.961749 2.42519 2.318879 2.537932 2.963675

The fixed asset turnover ratio of CCL is growing consistently for last five years except some depression in 2007. This shows that the company is efficiently using its fixed assets in producing sales. Also as we saw that company is relying more on fixed asset for generating profits than current assets.


Total Asset Turnover

2005 2006 2007 2008 2009

Total assets turnover 1.786188 1.762525 1.718831 1.889498 2.134908

This ratio indicates that how efficiently the overall assets are employed. And over the years we find that CCL is efficiently utilizing its assets to contribute to the profitability of the firm.


Profitability Ratios:

Gross profit Margin

Profitability ratio 2005 2006 2007 2008 2009

Gross profit margin 0.236268 0.397782 0.348733 0.325168 0.223631

Over the years the sales of CCL is increasing but the expenditure is increasing at a faster pace than sales resulting in lesser profit margin. The company is not able to effectively control its cost or expenditure.


EBITDA Margin

2005 2006 2007 2008 2009

EBITDA margin 0.21181 0.408901 0.334392 0.301918 0.191401

As mentioned earlier, the earnings or income of the company is increasing approximately at the rate of 10% but the expenditure had increased at the rate of 20% approximately. The major increases in the expenses are due to employee remuneration and contractual expenses. As the company is facing a shortage of workers, the company instead of recruiting new workers, it is giving them to contractors to extract the coal from the mines and supply it to the company. Therefore, there has been a huge increase in the contractual expenses.


Net Profit Margin

2005 2006 2007 2008 2009

Net profit margin 0.080142 0.193958 0.166569 0.143385 0.09402

This shows the overall efficiency of the Company net of taxes. The impact of increase in cost which is reflected in gross profit margin is also impacting the net profit margin as well. Over the year other income of the company and sales is also improving but the expenditure of the company is too much high as compared to revenue, the major reason being employee remuneration. As there has been the sixth pay revision due to which the remuneration expenses have doubled approximately leading to increased expenditure.


Return on Asset

2005 2006 2007 2008 2009

Return on asset 0.143148 0.341856 0.286303 0.270925 0.200725

Over the years the return on asset is decreasing because as seen earlier the profit margins are decreasing and the investments made in the assets is increasing, leading to a decrease in the ratio.


Earning Power

2005 2006 2007 2008 2009

Earning power 0.280006 0.573866 0.488888 0.476171 0.330758

Earning power abstracts away the effect of capital structure and tax factor and focusing on operating performances as we have seen over the five years that company’s operating performance is declining which leads impact on tax structure as well as capital structure. Due to this, the whole earning power is declining.


Return on Capital Employed

2005 2006 2007 2008 2009

Return on capital employed 0.184832 0.378809 0.322715 0.31432 0.218333

Return on capital employed is the post tax version of the earning power. So it shows the same trend as earning power.


Return on Equity

2005 2006 2007 2008 2009

Return on equity 0.312221 0.573453 0.385309 0.331666 0.228211

There is a decline because of the operational inefficiency that the company is not able to generate higher profits. Main factors affecting the operations, of the company, are external and cannot be regulated. As the company cannot go against the government for Pay revision or the regulations that it cannot invest it funds in anywhere else.


Common Size Balance Sheet of CCL and NCL for the year ended 31st Mar’ 09

CCL NCL(Rs. In Lakhs) % (Rs. In Lakhs) %


Share Capital 94000.00 38.51 17767.28 2.30Reserve & Surplus 120682.60 49.44 648320.08 84.09

214682.60 87.96 666087.36 86.39Deferred Tax Liabilities 0.00 0.00 8555.78 1.11Loan Funds

Secured 0.00 0.00 0.00 0.00Unsecured 29397.58 12.04 96380.45 12.50

29397.58 12.04 96380.45 12.50

TOTAL 244080.18 100.00 771023.59 100.00


Gross Block 448490.81 183.75 650833.29 84.41Less: Depreciation 303800.93 124.47 459396.48 59.58Net Block 144689.88 59.28 191436.81 24.83Capital Work in Progress(net) 31135.31 12.76 26374.50 3.42

175825.19 72.04 217811.31 28.25Investments 6596.12 2.70 8019.20 1.04Deferred Tax Assets 56499.53 23.15 0.00 0.00Current Assets, Loans & Advances

Inventories 96806.32 39.66 35935.07 4.66Debtors 74526.48 30.53 7372.85 0.96Cash & Bank Balances 181588.39 74.40 550602.46 71.41Loans & Advances(incl. other C/A 274092.26 112.30 333831.50 43.30

Total Current Assets, Loans & Advances 627013.45 256.89 927741.88 120.33Less: Current Liabilities & Provisions 621854.11 254.77 382548.80 49.62

Net Current Assets 5159.34 2.11 545193.08 70.71

TOTAL 244080.18 100.00 771023.59 100.00


Comparative Analysis of Central Coalfields Limited and Northern Coalfields Limited

CIL is holding very less amount or value of share of NCL i.e. only 2.3 % of the total asset as compared to CCL where it is holding 38% of the total assets. Besides this both the companies are investing around equal proposition of owner’s fund i.e. 87% approximately. NCL is carrying a huge amount in reserve and surplus as compared to CCL as it is carrying a lot of previous year profits as well as it is generating higher profits than CCL.

Both the companies have no amount as secured loans and both are holding around 13% of total capital employed as unsecured loans which is from CIL, SBI (guaranteed by CIL), etc.

CCL is holding a huge amount of fixed assets as compared to NCL. This shows that CCL believes in investing more on fixed assets. As we see that NCL is generating higher revenue than CCL and holding very less amount in fixed assets, this shows that NCL is efficiently using its fixed asset but CCL is not. Also CCL have a higher capital work in progress than NCL which shows some operational inefficiency on the part of CCL to convert its work in progress to final sales.

Both the companies are having a very less amount of investments due to the regulations led down by government that they can invest in only a limited number of options. And as compared to NCL, CCL is holding a higher value of investments.

Looking at the current assets holding of both the companies we see that CCL is holding a lot of inventories as compared to NCL, showing its inability to convert inventories into sales. Also it has a lot of amount in debtors than NCL indicating the liberal credit terms of CCL. This also raises question about the type of customer CCL has and that NCL has. Behind this we can say that CCL is not efficient in collection of its bills receivable.

As far as cash & bank balance is concerned both the companies are maintaining a huge amount of cash balance to meet out their current liabilities.

CCL is holding a huge amount of current assets in the form of Loans & advances as compared to NCL. The loans and advances of CCL mainly consist of loans given to its employees.

Along with holding a huge amount in total current assets than NCL, CCL is also having a huge amount in current liabilities which results in a very lower net current asset. As NCL is having a lesser amount in current liabilities, it has a higher net current asset value than CCL. This also shows the preference of NCL to hold higher amount as current asset than fixed asset.


Common Size Profit & Loss A/C OF CCL& NCL for the year ended 31st Mar 2009

CCL NCL(Rs. in Lakh) % (Rs. InLakh) %

INCOMESales 521088.78 100.00 655194.21 100.00Coal issued for other purposes 103844.53 19.93 0.00 0.00Accretion/Decretion in Stock -6993.82 -1.34 -3452.90 -0.53Other Income 46457.60 8.92 83900.88 12.81

Total Income 664397.09 127.50 735642.19 112.28

EXPENDITUREColliery consumption 102017.24 19.58 0.00 0.00consumption of stores & spares 47980.00 9.21 119326.32 18.21Employee remuneration & benefits 258928.00 49.69 102783.21 15.69Social overhead 19300.53 3.70 21677.81 3.31Power & Fuel 25628.66 4.92 17993.58 2.75Repairs & Contractual expenses 49277.63 9.46 87093.95 13.29Miscellaneous Expenses 37535.06 7.20 24359.22 3.72Overburden Removal Adjustment 7198.27 1.38 2886.50 0.44

Total Expenditure 547865.39 105.14 376120.59 57.41

Gross Operating Profit 116531.70 22.36 359521.60 54.87Interest 4351.05 0.83 2436.10 0.37Financial Charges 330.60 0.06 2335.34 0.36Depreciation 19005.30 3.65 42208.67 6.44Provisions/Write-off 18593.48 3.57 17.14 0.00

PROFIT FOR THE YEAR 74251.27 14.25 312524.35 47.70Prior Period Adjustment(credit) 2129.12 0.40859064 576.74 0.08802581PROFIT BEFORE TAX 76380.39 14.66 313101.09 47.79

Provision for income tax 48341.00 9.28 121762.12 18.58Provision for deferred tax -22142.64 -4.25 -5223.56 -0.80Fringe benefit tax 1189.12 0.23 470.00 0.07

PROFIT AFTER TAX 48992.91 9.40 196092.53 29.93APPROPRIATION

General reserve 7974.00 1.53 19609.25 2.99Proposed dividend(incl. taxes) 22927.51 4.40 137651.07 21.01Profit up to the previous year 62037.20 11.91 429315.29 65.52

BALANCE CARRIED TO BALANCE SHEET 80128.60 15.38 468147.50 71.45


Comparative Analysis of Central Coalfields Limited and Northern Coalfields Limited

The total income generated as compared with the sales is higher for CCL than NCL. As CCL is generating huge revenue through ‘coal issued for other purpose’ whereas that value is zero for NCL, and NCL has a higher value of other income as compared to CCL.

CCL has a major expenditure which is not present for NCL i.e. colliery consumption.CCL does not realize any revenue for this purpose. CCL is more efficient in the consumption of stores and spares as compared to NCL. The biggest expenditure born by CCL is employee remuneration. as it can be seen that it is almost 50% of the expenditure, whereas NCL have a very low expenditure on this as compared to CCL. The reason for such a higher remuneration is the sixth Pay revision combined with the 11th pay revision of CIL which occurred just the previous year. This led to almost doubling of the remuneration. NCL has a good stand on this expenditure and is performing well. Both the companies incur almost the same proportion of expenditure on social overheads & overburden removal. CCL incurs higher power and fuel cost than NCL. NCL incurs higher contractual expenses but lower miscellaneous expenses than CCL. Overall expenses of NCL is very low as compared to CCL, this shows the cost efficiency production of NCL. And CCL is not able to control its cost mainly due to employee remuneration and coal issued for other purpose. Also these costs cannot be controlled much as they are governed by the Government and also influenced by labor unions.

Thus the gross profit of NCL is much higher than CCL i.e. around 2.5 times that of CCL. After this interest charges borne by CCL is almost double that of NCL. NCL has a high value of depreciation than CCL which is quite evident as the value of fixed assets held by NCL is almost 1.5 times that of CCL. And CCL keeps a considerable amount as provision for contingent liabilities but that for NCL is almost negligible.

After the adjustments the profit left for taxation of NCL is much higher than CCL this is due to the savings on expenditure by NCL. Also this leads to higher net profit for NCL.

Looking at the appropriation we can see that NCL has a huge amount of profit carried up to previous year. NCL is paying much higher dividend than CCL this must because it is generating a lot of profit. Both the companies transfer almost the same proportion of amount to their general reserves. At the end NCL is still left with a higher amount to be transferred to the balance sheet than CCL.


Common Size Balance Sheet of CCL and ECL for the year ended 31st Mar’ 09

CCL ECL2009 % 2009 %

Sources of Funds (Rs.inlakh) (Rs.inlakh)Shareholder's Funds

Share Capital 94000 38.51 221845.00 76.29Reserve & Surplus 120682.6 49.44 0.00 0

214682.6 87.96 221845.00 76.29Deferred Tax LiabilitiesLoan Funds

Secured 0 0.00 0Unsecured 29397.58 12.04 68925.49 23.70

29397.58 12.04 68925.49 23.70

TOTAL 244080.18 100.00 290770.49 100


Gross Block 448490.81 183.75 521733.65 179.43Less: Depreciation 303800.93 124.47 398367.02 137.01Net Block 144689.88 59.28 123366.63 42.42Capital Work in Progress(net) 31135.31 12.76 3984.85 1.37

175825.19 72.04 127351.48 43.79Investments 6596.12 2.70 31.10 0.01Deferred Tax Assets 56499.53 23.15 0.00 0.00Current Assets, Loans & Advances

Inventories 96806.32 39.66 32383.41 11.14Debtors 74526.48 30.53 33810.94 11.62Cash & Bank Balances 181588.39 74.40 68897.84 23.69Loans & Advances(incl. other C/A 274092.26 112.30 17867.75 6.15

Total Current Assets, Loans & Advances 627013.45 256.89 152959.94 52.60Less: Current Liabilities & Provisions 621854.11 254.77 846311.67 291.05

Net Current Assets 5159.34 2.11 -693351.73 -238.45Profit & Loss Account 0.00 0.00 856739.64 294.64TOTAL 244080.18 100.00 290770.49 100


Comparative Analysis of Central Coalfields Limited and Eastern Coalfields Limited

As ECL is running in losses for last several years it has no amount in reserve and surplus and has only share capital as shareholder’s fund. But CCL is holding much amount as reserve and surplus which is more than its share capital. ECL is more dependent on the outside funds than CCL for their operations, this is visible from the figures of unsecured loans which is almost double that of CCL.

ECL and CCL are having almost equal amount of gross block as a percentage of total capital employed. But ECL is charging higher rate of depreciation, this may be due to the type of asset held by ECL. Due to this the net block value of ECL is much lower than that of CCL.

CCL is holding a huge amount as Capital work in Progress as compared to ECL; reason being CCL is always searching for new mines but the operations of ECL is limited. Also CCL is having higher amount as Investments than ECL, which has almost nil amount as investments.

As expected from the operation level of CCL as compared to ECL, CCL is holding larger inventories as well as cash and bank balance. Also CCL has more debtors and also extending much loans and advances as compared to ECL. This all leads to a huge current asset for CCL but ECL looks weaker in its current asset holdings.

In spite of lesser current asset ECL is having huge current liabilities even higher than that of CCL. This also means that ECL is not able to meet is current liabilities with its current assets showing a weak liquidity position.


Common Size Profit & Loss Account of CCL and ECL for the year ended 31st Mar’ 09

CCL ECL2009 2009

(Rs.in Lakh) % (Rs.inLakh) %INCOME

Sales 521088.8 100.0 383740.3 100.0Coal issued for other purposes 103844.5 19.9 7052.4 1.8Accretion/Decretion in Stock -6993.8 -1.3 -1190.0 -0.3Other Income 46457.6 8.9 25228.1 6.6

Total Income 664397.1 127.5 414830.7 108.1

EXPENDITUREColliery consumption 102017.2 19.6 4237.1 1.1consumption of stores & spares 47980.0 9.2 46659.9 12.2Employee remuneration & benefits 258928.0 49.7 430921.5 112.3Social overhead 19300.5 3.7 29607.7 7.7Power & Fuel 25628.7 4.9 25925.3 6.8Repairs & Contractual expenses 49277.6 9.5 32582.2 8.5Miscellaneous Expenses 37535.1 7.2 14794.7 3.9Overburden Removal Adjustment 7198.3 1.4 15586.3 4.1

Total Expenditure 547865.4 105.1 600314.6 156.4

Gross Operating Profit 116531.7 22.4 -185484.0 -48.3Interest 4351.1 0.8 7.3 0.0Financial Charges 330.6 0.1 2095.6 0.5Depreciation 19005.3 3.6 20685.8 5.4Provisions/Write-off 18593.5 3.6 2019.5 0.5PROFIT FOR THE YEAR 74251.3 14.2 -210292.1 -54.8Prior Period Adjustment(credit) 2129.1 0.4 -278.3 -0.1PROFIT BEFORE TAX 76380.4 14.7 -210570.5 -54.9

Provision for income tax 48341.0 9.3 0.0 0.0Provision for deferred tax -22142.6 -4.2 0.0 0.0Fringe benefit tax 1189.1 0.2 338.4 0.1PROFIT AFTER TAX 48992.9 9.4 -210908.9 -55.0APPROPRIATION

General reserve 7974.0 1.5 0.0 0.0Proposed dividend(incl. taxes) 22927.5 4.4 0.0 0.0Profit up to the previous year 62037.2 11.9 -645830.8 -168.3

BALANCE CARRIED TO BALANCE SHEET 80128.6 15.4 -856739.6 -223.3


Comparative Analysis of Central Coalfields Limited and Eastern Coalfields Limited

CCL as compared to ECL issued much more coal for other purposes; due to this the total income generated by CCL is higher than that of ECL as a percentage of sales. ECL and CCL both are providing coal for colliery consumption which is not the case with other subsidiary firms. But here also CCL is providing higher amount for colliery consumption. Looking at the employee remuneration figures of ECL, it is quite amazing that the firm is paying much higher than the total sales to its employees, which is the main reason for its running in losses. Also the figures of ECL are more than double that of CCL.

All the other expenditure items are more or less comparable or at the same level, major difference being in employee remuneration and OBR which is three times that of CCL. As ECL is running in losses it has no provisions for taxation. ECL has a huge amount of carried forward losses which leads to a total negative profit carried to the final Balance Sheet.


Constraints of Central Coalfields Limited

Employee Remuneration- As CCL is operating at a large scale; total number of employees working here is also large approx. fifty thousand.

Traditional Method of Production- As CCL is less mechanized than NCL and most of the work is done by workers here. So the productivity is lesser as compared to NCL.

Political Forces- The political environment plays a vital role in CCL which is not fruitful for the organization, e.g.- allocation of tenders, employee recruitment, etc.

Trade Unions- There are many trade unions in spite of a single trade union and the management has to deal with each one of them. The union leaders are very much active here and they are less concerned for the organization than their personal gains. There are regular strikes and bandhs.

Mindset of Employees- The employees here are very less motivated towards their work. Also they had a feeling that once they are recruited, company cannot lay off them before their retirement. The culture of the region is also inhibiting the productivity as the people her have not the zeal to improve their skills, they just want a regular source of income and no extra work.

Colliery Consumption- As other subsidiary firms is not providing any coal for colliery consumption but CCL is providing a huge amount of coal for colliery consumption for the welfare of its employees. CCL does not realize any income in return to the coal issued for colliery consumption.

Customer Profile of CCL- We have seen that the customers of CCL mainly consist of government bodies and are distributed over a large area as well. So they realize the revenue after a long duration and they face a problem in transporting the coal to a diverse region. This increases the cost and the amount remaining as Bills receivables.

Advantages of Northern Coalfields Limited

Highly Mechanized- NCL uses advanced machinery to extract coal from mines. This improves its productivity and reduces the cost.

Motivated Employees- The number of employees working in NCL are motivated and also the number of employees working is also low due to which the expenses in employee remuneration is low.

Colliery Consumption- NCL does not issue any amount of coal for colliery consumption. All its production is sent for sale.

Customer Profile- The main customer of NCL is NTPC which is close to the company premises, so the expenditure on transportation is nil and cash is immediately realized from the debtor.

Type of Mines- NCL mainly operates surface or open cast mines; this facilitates the use of machines and thus increasing productivity and efficiency of the coal mines.


Recommendations

1. CCL should stop issuing coal for colliery consumption as this is a major source of expense but the company is getting nothing in return for it.

2. Company should launch a performance based payment system to control the remuneration expenses.3. The company should have a single labor union to take care of the issues of employment and other

decisions.4. There should be centralized recruitment of all the officers as well as blue collar employees. As we have

seen that in one subsidiary there is shortage of worker and its hiring but there is surplus in another subsidiary but it cannot downsize its employees. So there should be relocation of workers and officers.

5. There should be mechanization of the company; this would help in extraction of coal with higher efficiency and reduced cost as well.

6. The company should launch new training programs for its employee to improve their skill as well as increase their motivation.

7. The company should be allowed to make investments as it is holding a lot of idle funds which can be used to earn more profits.


Limitations of the Study

Current Data: As the annual reports for the year ending March 2010 is not out for the company. This study is limited to the study of financial statements till last year

Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations.

Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company.


Scope for further improvements

a. We could have taken the latest data of 2009-10 for comparison. This would reveal some new facts as well as improvements in the company over the last year.

b. While comparing with other subsidiary we could compare the financial results of surface mines and underground mines separately, as there is a large difference in their productivity as well operations. But obtaining data for each mine separately would have been very difficult and almost impossible to obtain data for its subsidiary company.

c. We could have reached to the place of actual production i.e. mines and collieries and done the analysis. This would have thrown light on some new prospects of the company.

d. We could take into account all the subsidiaries and calculate the industry average and compare the performance of the company.


APPENDICES

Significant Accounting Policies of CCL

Basis for Preparation of Financial Statement

The financial statements are prepared and presented under the historical cost convention on an accrual basis of accounting following going concern concept and complying with generally accepted Accounting Principles, the accounting standards (AS) issued by ICAI to the extent applicable and the relevant provisions of the Companies Act, 1956.

Use of Estimates

The presentation of financial statements in the conformity with the generally accepted Accounting Principles requires that the management of the Company makes estimates and assumptions that affect the reported amounts of Assets and Liabilities, revenue and expenses of the period and the disclosure relating to contingent liabilities as at the date of the financial statements. Actual results could differ from those estimates, but the management of the Company believes that the estimates used in the preparation of financial statements are prudent and reasonable. Any revision to the accounting estimates is recognized prospectively in the current and future periods.

Revenues and Expenditures

All Income and Expenditures having a material bearing on the financial statements are recognized on the accrual basis and provision is made for all known losses and liabilities except in the following cases:-

Liquidated damages, interest on delayed payment and escalation claims from customers are recognized on the basis of final settlement.

Insurances/Railway claims are accounted for on admission/final settlement.

Sale of Scraps is accounted for on delivery of the scraps.

Refund/Adjustment of Tax Authorities is accounted for on cash basis. Additional demands for income tax, royalty, cess, sales tax, entry tax, etc. are accounted for after final order. In appeal, payments made against additional demand are treated as advance claim.

Interest payable on account of income tax/sales tax as, demanded by the tax authorities, and is accounted for in the year of payment. Similarly, interest receivable, if any, are accounted for in the year of receipt.

Demands/ claims against the companies, which are not likely to materialize into actual liabilities, are regarded as contingent liabilities. To disclose claims against the company not acknowledged as debts after a careful evaluation of the facts and legal aspects of the matter involved.

Pending finalization of investigation, no adjustment is carried out in the books in respect of contingent nature of assets and liabilities.


Revenue Recognition

Revenue from sale of coal is recognized when all the significant risks and rewards of ownership of the products are passed on to the customers i.e. on the basis of D notes for dispatch by rail and weightment cards in respect of road dispatches.

Sales exclude royalty, SED, CST/JST/JVAT and accepted deductions made by customers on account of quality of coal and shortage etc.

The revenue recognition is done where there is a reasonable certainty of collection. On the other hand revenue recognition is postponed in the case of uncertainty as assessed by management.

Bonus claims on customers in the case of sale of coal, as a result of joint sampling, are accounted for in sales in the year of settlement irrespective of period of dispatch.

Fixed Assets

Land includes the cost of acquisition, compensation, cash rehabilitation and resettlement expenses. Other expenditure incurred on acquisition of land viz. compensation in lieu of employment etc. is, however, treated as revenue expenditure.

Plant & machinery include cost and expenses incurred for erection/installation and other costs attributable to bring those assets, to working conditions for their intended use.

Capital work in progress includes the advances paid to acquire fixed assets and the cost of the assets not put to use during the year.

Gross block as well as the accumulated depreciation on surveyed off P&M, vehicles etc. are taken out of Fixed assets and provision for depreciation respectively and the residual value at 5% of Book value are transferred to ‘surveyed off assets for disposal’. In case of premature survey off of assets the difference between the WDV and residual value of 5% is charged to Profit & Loss account, as loss on surveyed off assets.

Development Expenses net of income of the projects/ mines under development are booked to development account and grouped under Capital work in progress till the projects/mines are brought to revenue account, except otherwise specially stated in the Project report to are brought to revenue account, except otherwise specially stated in the project report to determine the commercial readiness of the project to yield production on a sustainable basis and completion of required development activity during the period of construction, projects and mines under development are brought to revenue:-

(a) From beginning of the financial year immediately after the year in which the project achieves physical output of 25% of rated capacity as per approved project report, or

(b) 2 years of touching of coal or(c) From the beginning of the financial year in which the value of production is more than total expenses,

Whichever event occurs first.


Prospecting & Boring and other Development expenditure: the cost of exploration and other development expenditure incurred in one “five year” plan period will be kept in capital work in progress till the end of subsequent two “five year” plan periods for formulation of projects before it is written off except in the case of Blocks identified for sale or proposed to be sold to outside agency where the expenditures are kept under inventory at cost till finalization of sale

To charge off as a revenue expenditure all up-gradation/enhancements unless they bring significant additional benefits.

Investments

Investments are stated at cost.

Inventories

Book stock of coal/coke is considered in the accounts where the variance between book stock and measured stock is up to +/- 5% and in cases where the variance is beyond +/- 5% the measured stock is considered. Such stock are valued at Net realizable value or cost whichever is lower. Cost of inventories to their present location and condition.

The allocation of fixed production overheads for the purpose of their inclusion in the costs of conversion is based on the normal capacity i.e. Annual Action Plan (AAP). The actual production is considered where it approximates to AAP and in case where the actual production exceeds AAP, the actual production is considered.

Coking slurry, middlings of washeries are valued at net realizable value except in the case of the stock of coking slurry on the basis of E-auction price for the quantity booked through E-auction sale.

Stocks of stores & spare parts (including loose tools) at Central & Area stores are generally valued at weighted average basis after providing for cost of obsolescence and other anticipated losses. The year end inventory of stores & spare parts lying at collieries/sub-stores/consuming centers, which have been initially charged off, are valued at issue price of Area stores. Workshop jobs i.e. manufactured items in progress are valued at cost plus appropriate production overeads.

Provisions are made at the rate of 100% for unserviceable, damaged and obsolete stores and 50% for stores and spare parts not moved for 5 years.

Stock of stationary (other than lying at printing press), bricks, sand, medicine (except at Central Hospitals), and scraps are not considered in inventory.

Depreciation

Depreciation on fixed assets is provided on straight line method at the rates and manner prescribed in Schedule XIV of the Companies Act, 1956. However, in respect of the following assets depreciation is provided at the higher rates in line with their estimated useful life.


Particular of the asset Rate of Depreciation

Telecommunication equipment 15.83% or 10.55%

Dumper up to 35T 15.83%

Dumper up to 50T 13.57%

Hydraulic Shovels>5-10 CUM 11.87%

Hydraulic Shovels up to 1.2 CUM 13.57%

Hydraulic Shovels>1.2-2.2 CUM 13.57%

Hydraulic Shovels>2.2-5 CUM 13.57%

B.H. Drills less than 160 MM 13.57%

LHD 15.83%

SDL 19.00%

Depreciation for additions to/deductions from owned assets during the year is provided with reference to the month of addition/deduction. Extra shift depreciation is provided on a location basis except the cases pointed out further.

Capital asset whose ownership does not vest in the company is depreciated over their estimated useful life.

Provisions equivalent to the amount of depreciation is made against machinery/assets which could not be put to use for more than three years from the date of purchase/acquisition after three years i.e. from fourth year prospectively.

Prospecting, boring and development expenditure are amortized over 20 years from the year when the mine is brought under Revenue or over the estimated useful working life of the project whichever is lower.

Individual assets costing Rs. 5000/- or less and in case of 100% depreciable assets are entirely depreciated in the year of acquisition. Assets attracting 100% depreciation, other than items costing Rs. 5000/- are taken out from the Accounts after expiry of two years following the year in which these are fully depreciated.

In case of impairment of assets, the depreciation is on the adjusted cost computed after impairment.

Effect of exchange fluctuation

The reporting currency of the Company is Indian rupee.

Balances of dues from /to overseas parties at the end of the year are translated at the rate of exchange prevailing at the year end date and the resultant net losses or net gains relating to revenue items as well as the fixed assets are charged to P&L Accounts as the case may be.


Balance with Coal India Limited (Holding Company)

Amount due to Coal India Limited on account of loan is shown as unsecured loan. Amount due/receivable arising out of the transaction of revenue nature under Current account is shown as Current liabilities/Current assets/ Short term deposit, as the case may be.

Apex office charges and interest to Holding Company

Apex office charges by holding company are allocated to revenue mines on the basis of coal production.

Interest on loans from CIL is allocated to the units on the basis of Net Fixed Assets (excluding the assets procured against specific loan) at the beginning of the year.

In the terms of CIL letter no. CGM (F)/126/07 dated 08.04.2004 an additional charge at the rate of Rs. 6/- per tone of coal released towards rehabilitation fund for dealing with fire, shifting and stabilization of unstable areas of ECL & BCCL is accounted for on the basis of debit advice received from CIL.

Overburden Removal (OBR) expenses

For opencast mines which have been brought to revenue and have rated capacity of 1 million tones or above, the cost of OBR is charged on technically evaluated average ratio (coal: OB) at each mine with due adjustment for advance stripping and ratio variance account.

The net balance of advance stripping and ratio variance at the end of the year is shown as cost of removal of Overburden.

Lease Transactions

Assets given on operating lease are capitalized at cost. Rental receipts are recognized in Profit & Loss Account when becomes due.

Impairment of Assets

The carrying amount of the assets, other than inventories is received at each Balance Sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of assets is estimated.

Provisions, Contingent Liabilities and Contingent Assets

Provisions are recognized for the liabilities that can be measured only by using a substantial degree of estimation, if

(a) The company has a present obligation as a result of a past event(b) A probable outflow of resources is expected to settle the obligation :and(c) The amount of the obligation can be reliably estimated.


Reimbursements by another party expected in respect of expenditure required to settle a provision is recognized when it is virtual certain that the reimbursement will be received if obligation is settled.

Contingent liability is disclosed in case of:

(a) A present obligation arising from past events, when it is not probable than an outflow of resources will be required to settle the obligation.

(b) A present obligation when no reliable estimate is possible: and(c) A possible obligation arising from past events where the probability of outflow is not remote.(d) Contingent asset are neither recognized nor disclosed.(e) Provisions, Contingent liabilities and Contingent Assets are reviewed at each Balance Sheet date.

Employee Benefits

Company’s contribution paid/ payable during the year to provident fund arre recognized in the profit and loss accounts on actual liability basis.

Company’s liabilities towards gratuity, leave encashment, LLTC/LTC,LCS, Personal Accident Insurance and settlement allowance, are determined using the projected unit credit method which considers each period of service as giving rise to additional unit of benefit entitlement and measures each unit separately to build up the final obligation and is accrued on the basis of actuarial valuation.

Taxes on Income

Tax on income for the current period is determined on the basis of estimated taxable income and tax credits computed in accordance with the provisions of the Income tax Act,1961 and based on the expected outcome of assessments /appeals.

Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

Deferred tax assets are recognized and carried forward only to the extent that there is reasonable certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized.

Deferred tax is quantified using the tax rates and laws enacted or substantively enacted as on the balance sheet date.

General

Securities by way of deposit in the form of Fixed Deposit Receipts, National Saving Certificates, and Bank Guarantee etc. received from the suppliers, contractors etc. are kept in Company’s custody and are not accounted for.


Research and Development Expenditure of revenue nature are charged to various natural revenue head of accounts in the year the expenses are incurred. Expenses of capital nature are treated ass fixed assets.

The Mandatory Accounting Standards on Segment Reporting (AS-17), related Party Transactions (AS-18), Discounting Operation (AS-24), Interim Financial Report (AS-25) and Financial Reporting of Interest in Joint Ventures (AS-27) are not applicable to the Company.


Bibliography

References:

1. Financial Management, Prasanna Chandra, pg- 79-952. Financial Management, I M Pandey, pg- 579-6153. Annual Report of Central Coalfields Limited 2008-094. Annual Report of Northern Coalfields Limited 2008-095. Annual Report of Eastern Coalfields Limited 2008-09

Web References:

1. www. ccl .gov.in 2. www. coalindia .in 3. www.ncl.nic.in 4. www.easterncoal.gov.in


http://www.easterncoal.gov.in/

http://www.ncl.nic.in/

http://www.coalindia.in/

http://www.ccl.gov.in/

Financial Statement Analysis of CCL

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