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Transcript of 21437348 financial-analysis-of-sail-project-report
For more Notes, Presentations, Project Reports visit hrmba.blogspot.commbafin.blogspot.coma2zmba.blogspot.com
ABOUT INDIAN STEEL INDUSTRY
HISTORY OF THE INDUSTRY:
The Indian Steel industry is almost 100 years old now. Till 1990, the Indian steel
industry operated under a regulated environment with insulated markets and large scale
capacities reserved for the public sector. Production and prices were determined and
regulated by the Government, while SAIL and Tata Steel were the main producers, the
latter being the only private player. In 1990, the Indian steel Industry had a production
capacity of 23 MT. 1992 saw the onset of liberalization and the Indian economy was
opened to the world. Indian steel sector also witnessed the entry of several domestic
private players and large private investments flowed into the sector to add fresh
capacities.
Steel Industry in India is on an upswing because of the strong global and domestic
demand. India's rapid economic growth and soaring demand by sectors like
infrastructure, real estate and automobiles, at home and abroad, has put Indian steel
industry on the global map. According to the latest report by International Iron and Steel
Institute (IISI), India is the seventh largest steel producer in the world.
The origin of the Indian steel industry can be traced back to 1953 when a contract
for the construction of an integrated steelworks in Rourkela, Orissa was signed between
the Indian government and the German companies Fried Krupp und Demag AG. The
initial plan was an annual capacity of 500,000 tonnes, but this was subsequently raised to
1 million tonnes. The capacity of Rourkela Steel Plant (RSP), which belongs to the SAIL
(Steel Authority of India Ltd.) group, is presently about 2 million tonnes. At a very early
stage the former USSR and a British consortium also showed an interest in establishing a
modern steel industry in India. This resulted in the Soviet-aided building of a steel mill
with a capacity of 1 million tonnes in Bhilai and the British-backed construction in
Durgapur of a foundry which also has a million tonne capacity.
The Indian steel industry is organized in three categories i.e., main producers,
other major producers and the secondary producers. The main producers and other major
producers have integrated steel making facility with plant capacities over 0.5 MT and
utilize iron ore and coal/gas for production of steel. The main producers are Tata Steel,
SAIL, and RINL, while the other major producers are ESSAR, ISPAT and JVSL. The
secondary sector is dispersed and consists of:
(1) Backward linkage from about 120 sponge iron producers that use iron ore and non-
coking coal, providing feedstock for steel producers;
(2) Approximately 650 mini blast furnaces, electric arc furnaces, induction furnaces and
energy optimizing furnaces that use iron ore, sponge iron and melting scrap to produce
steel; and
(3) Forward linkage with about 1,200 re-rollers that roll out semis into finished steel
products for consumer use.
PRESENT STATUS OF THE STEEL INDUSTRY:
1. Indian economy growing @ 8 to 9 %, is one of the fastest growing economies in the
world.
2. Industrial prodn. Showing encouraging trends. Index of industrial production for
Capital goods is growing @ 8.4% CAGR and growth in index for consumer
durables was @10.5% CAGR during 2005-06.
3. The 10th plan investment in infrastructure has been envisaged at around Rs.880,550
crores.
4. The major sector wise anticipated investment is likely to be Rs.292000 crores in
Power, Rs.145000 crores in Roads & Bridges, irrigation Rs. 111000 crores.
5. During 11th plan (2007-08 to 2011-12), the projected investment towards
infrastructure is likely to be Rs. 2027000 crores, an increase of 180% over 10th
plan.
6. Per capita steel consumption at 35 kg low as compared to world average of 150 kg.
And 300kg for china.
7. National Steel Policy, as formulated by Indian Ministry of Steel envisages the
following -
i. Crude steel production of 110 million tones by 2019-20 at CAGR of 7.1% from
2004-05.
ii. The demand of steel by 2020 is likely to be 90 million tones at CAGR of 6.9%
from 04-05.
iii. Steel exports by 2020 are likely to grow at CAGR of 13.3% from 04-05 to 26
million tones.
iv. Steel imports to the country by 2020 shall grow at CAGR of 7.1% from 04-05 to
6 million tones.
8. Lot of steel projects both Brownfield and Greenfield likely to come up and are in
various stage of execution.
9. As per the news paper reports (Eco. Times dt.14-11-07), Steel Minister has
projected India's steel production to be around 124 million tones by 2012 and a
capacity of around 275 million tones by 2019-20.
10. During the year 06-07, India produced around 49 million tones of finished steel
which was higher by 11 % over 05-06.
11. Imports at 4.1 million tones during 06-07 were higher by 6.5%. Exports at 4.7
million tones grew by 6.1% during 06-07.
12. During 05-06 Iron ore exports at 84 million tones was almost at the previous
year's level of 87 million tones.
13. During April - Sept.'07 following has been the performance-
i. Crude steel prodn. at 25.7 million tones, exhibited a growth of 5 %
over corresponding period last year
ii. Exports at 2.6 million tones shows an increase by around 8% over the
same period of last year.
iii. Imports were around 3.2 million tones which was an increase by 63%
over April-Sept'06.
14. Due to infrastructure focus, production of long products is gradually increasing
and ratio of flat to long products is narrowing.
15. During Ap-Sept'07 non flat steel produced at 12.4 million tones showed an
increase of around 9% over April-Sept'06.
16. In case of flat products prodn. during April-Sept'07 at 12.2 million tones was
almost at same level of last year.
17. Apparent Consumption of steel during April-Sept'07 was 22 million tones which
was an increase by 11 % over April-Sept'06. While long products (excl. semis) at
12.3 million tones registered a growth of 9%, the flat products consumption at
12.5 million tones indicated an increase of 12%.
18. With due focus on infrastructure development and strong economic indicators, the
demand for steel in India shall continue to remain robust.
WAY FORWARD FOR THE INDIAN STEEL INDUSTRY:
"We still have a number of persons in our country in SAIL, TISCO and other big and
small steel plants who have the capabilities. They have the will to excel and transform the
country, given a long term vision."
"We should be ready to compete in outside markets…..If our steel industry gears up in
about 3 to 4 years, Indian steel can be both in Indian and foreign markets. Our vision
should be towards this."
- Indian 2020: A vision for the new millennium by APJ Adbul Kalam and YS Rajan
The Government envisions India becoming a developed nation by 2020 with a per capita
GDP of $1540. For a nation that is economically strong, free of the problems of
underdevelopment and plays a meaningful role in the world as befits a nation of over one
billion people, the groundwork would have to begin right now. The Indian Steel Industry
will be required and is willing to play a critical role in achieving this target.
With abundant iron ore resources and well-established base for steel production in
the country, steel is poised for growth in the coming decades. Production has increased
from 17 MT in 1990 to 36 MT in 2003 and 66 MT is targeted for 2011. While steel will
continue to have a stronghold in traditional sectors such as construction, housing, ground
transportation, special steels will be increasingly used in hi-tech engineering industries
such as power generation, petrochemicals, fertilisers etc. Steel will continue to be the
most popular, versatile and dominant material for wide ranging applications. While India
may not become a leader in world steel market, it can become a powerful force.
To help the Indian Steel Industry achieve its potential and play a meaningful role
in India’s development some steps need to be taken:
Steel is yet to touch the lives of millions of people in India. Per capita
consumption of steel in India is only 29 kg and has to go a long way to
reach consumption levels of around 400 kg in developed countries like
USA and world average of 140 kg.
There is a need to continue the current thrust on infrastructure related
activities and extend them to rural India. Rural Indian today presents a
challenge for development of the country and the opportunity to increase
usage of steel in these areas through projects such as rural housing etc.
Current shortage of inputs has pushed up the costs for the steel industry.
Government should ensure that quality raw material such iron-ore and
coke are available to the industry. With Ministry of Steel targeting an
output of 100 MT of steel by 2020 there is an urgent need to develop raw
material resources for inputs like iron-ore and coal within or outside the
country. Countries like Japan have already taken similar steps to safeguard
their industries.
Adequate enabling infrastructure such as power, ports, roads, rail transport
is pre-requisite for the Indian steel industry to remain competitive.
Government should not regulate prices and free market forces should
prevail. Intervention by the Government is only a short-term solution to
the issue of steel prices in the country. Once left alone, market dynamics
will automatically ensure price corrections and determine the optimum
price of steel.
The Indian steel Industry is amongst the least protected in the world.
While developed countries have put numerous tariff and non-tariff barriers
on steel exports from the country, the domestic industry is exposed to
cheaper imports from competing nations. As in case of other important
industries, the Government should give reasonable levels of protection to
the domestic steel industry, which is just starting to get back on its feet.
Industry should be allowed to have a fair return on investment and
contribute to the overall health of the Indian manufacturing segment. The
steel industry has invested a capital of over Rs 90, 000 crores. CRISIL in a
recent study has concluded that given the large exposure that banks and
financial institutions have to the steel industry.
Today, Indian producers employ world-class standards of technology.
Steel from Indian finds growing acceptability in international markets. But
despite this India’s share in world trade steel is a miniscule 2%. Given the
capabilities of the Indian steel industry there is tremendous scope to
increase this share further. While the steel industry will continue servicing
the domestic demand there is a lot of untapped export potential with the
industry. The Government, in line with EXIM policy 2002-07, should take
steps to make Indian exports more competitive.
STRUCTURAL WEAKNESSES OF INDIAN STEEL INDUSTRY:
Although India has modernized its steelmaking considerably, however, nearly 6%
of its crude steel is still produced using the outdated open-hearth process.
Labour productivity in India is still very low. According to an estimate crude steel
output at the biggest Indian steelmaker is roughly 144 tonnes per worker per year,
whereas in Western Europe the figure is around 600 tonnes.
India has to do a lot of catching in the production of stainless steel, which is
primarily required by the plant and equipment, pharmaceutical and chemical
industries.
Steel production in India is also hampered by power shortages.
India is deficient in raw materials required by the steel industry. Iron ore deposits
are finite and there are problems in mining sufficient amounts of it. India's hard
coal deposits are of low quality.
Insufficient freight capacity and transport infrastructure impediments too hamper
the growth of Indian steel industry.
STRENGTHS OF INDIAN STEEL INDUSTRY
Low labour wage rates.
Abundance of quality manpower.
Mature production base.
Positive stimuli from construction industry.
Booming automobile industry.
ABOUT STEEL AUTHORITY OF INDIA
HISTORY OF THE SAIL:
THE PRECURSOR: SAIL traces its origin to the formative years of an emerging nation
- India. After independence the builders of modern India worked with a vision - to lay the
infrastructure for rapid industrialization of the country. The steel sector was to propel the
economic growth. Hindustan Steel Private Limited was set up on January 19, 1954. The
President of India held the shares of the company on behalf of the people of India.
EXPANDING HORIZON (1959-1973):
Hindustan Steel (HSL) was initially designed to manage only one plant that was
coming up at Rourkela. For Bhilai and Durgapur Steel Plants, the preliminary work was
done by the Iron and Steel Ministry. From April 1957, the supervision and control of
these two steel plants were also transferred to Hindustan Steel. The registered office was
originally in New Delhi. It moved to Calcutta in July 1956 and ultimately to Ranchi in
December 1959.
A new steel company, Bokaro Steel Limited, was incorporated in January 1964 to
construct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela
Steel Plants were completed by the end of December 1961. The 1 MT phase of Durgapur
Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle
plant. The crude steel production of HSL went up from .158 MT (1959-60) to 1.6 MT.
The second phase of Bhilai Steel Plant was completed in September 1967 after
commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of Rourkela - the
Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage of Durgapur
Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS.
Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT
at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT in
1968-69 and subsequently to 4MT in 1972-73.
The Ministry of Steel and Mines drafted a policy statement to evolve a new model
for managing industry. The policy statement was presented to the Parliament on
December 2, 1972. On this basis the concept of creating a holding company to manage
inputs and outputs under one umbrella was mooted. This led to the formation of Steel
Authority of India Ltd. The company, incorporated on January 24, 1973 with an
authorized capital of Rs. 2000 crore, was made responsible for managing five integrated
steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and
the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.
Since its inception, SAIL has been instrumental in laying a sound infrastructure
for the industrial development of the country. Besides, it has immensely contributed to
the development of technical and managerial expertise. It has triggered the secondary and
tertiary waves of economic growth by continuously providing the inputs for the
consuming industry.
SAIL Today
SAIL today is one of the largest industrial entities in India. Its strength has been
the diversified range of quality steel products catering to the domestic, as well as the
export marketsanda large pool of technical and professional expertise. Today, the accent
in SAIL is to continuously adapt to the competitive business environment and excel as a
business organization, both within and outside India.
TYPE OF ORGANISATION:
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. Its
produces are Blooms, Billets, Slabs, Crane Rails, Bars, Rods & Re-bars, Wire Rods,
HR Coils, Sheets, Plates, CR Coils & Sheets,GC Sheets,GP Sheets and Coils,
Tinplates, Electrical Steel, Tubular Products, Pipes, Railway Products, Rails,
Wheels, Axles, Wheel Sets.
Activities: Steel Authority of India production lines are -
Hot Rolled Coils, Sheets
Cold Rolled Products.
Bars and Rods.
Semi-Finished Products.
Railway Products.
Specialty Products.
Plates.
Structurals.
Alloy and Stainless Products.
Moreover, Steel Authority of India offers technological services in the following
domains -
Know-how transfer of technologies developed by its R&D wing.
Consultancy services.
Specialized testing services.
Contract research.
Training
ABOUT SALEM STEEL PLANT
A steel plant in Salem was a long cherished dream. Government of India decided in
May 15, 1972 to set up an integrated special steel plant in Salem in the state of Tamil Nadu
for the production of sheets and stripe of electrical , stainless and other special and mild steel
on the basis of sound techno- economic consideration.
The construction of plant was inaugurated in June 143, 1972 by the late Shri Mohan
Kumaramanglam, the minister of steels and mines. Thus a dream of having a steel plant in
Salem started taking shape in the foot hills of kanjamalai. The company “SALEM STEEL
LIMITED” was registered on Oct25, 1972. it was Government of India undertaking
subsidiary of Steel authority of India limited (SAIL).The plant was designed to roll out
32000 tonnes of cold rolled stainless steel strips and wide sheets per annum in the first phase.
In the second phase, the production capacity was increased to 70000 tonnes per annum by
installing Sendzimir mill.
As one steps ahead in reaching the goal of backward integration. HOT ROLLING
STECKEL MILL was commissioned during Nov 3, 1995 with an installed capacity of
around 2 lakhs tonnes with an appropriate investment of Rs.839 crores. The mill is capable of
rolling both stainless and non stainless steels. On Sep 13 1977 the detailed project was
approved by the government and sanction was accorded for implementation of the first stage
to the completed in sep 1981.Salem steel plant is premier producer of international quality
stainless steel in India. The plant has capacity to roll out 1,86,000 tonnes of Hot Rolled
carbon and stainless steel flat products and 70000 tonnes of Cold rolled stainless steel sheets
and coils per annum.
A blanking line, the first of its kind in India, was established in 1993, with an annual
capacity to produce 3000 tonnes of ferritic grade coin blanks or 3600 tonnes of utility blanks.
Coinage of Re 1, 50paise, and 25 paise denomination are minted from the blanks supplied by
SSP to the government Mint in Noida, Mumbai, Kolkata and Hyderabad.
IMPORTANT DATA:-
Go a head - 13.09.77
Commissioning
Phase I - 13.03.82
Phase II - 26.03.91
Blanking line - 24.12.93
Hot rolling mill - 11.09.95
EXPANSION PROJECT:-
In SSP had expansion of CRM on 13.03.82 on phase I at cost 181.90 crores for
sendimir mill, slitting line etc. At next phase II on 26.03.91 costing 76.27 crores. After that
India only one blanking line for production blank coins on 24.12.93. On 11.09.95 expanding
the Hot Rolling Mill on 11.09.95 at a cost of 838.97 crores.
MAN POWER:-
As on 1.05.07 the man power of SSP is 1352 employees are working at Salem
steel plant.
AREA ACQUIRED:-
Nearly 15.5 sq.kms are cover by SSP.
ISO CERTIFICATE:
The company has got ISO 9000, ISO 9001 and 9002. This is got from RWTUV,
Germany. Another one the total SAIL industry, the Salem steel plant is first unit got ISO
certificate.
The ISO 9000 certificate relates to quality management and quality assurance, standard,
guidance for selection.
The ISO 9001 certificate relates to quality specification for design, development, product,
installation and servicing.
The ISO 9002 certificate for assurance, production insulation.
MISSION OF THE ORGANISATION:
Sustained growth through internal generation of resources is the hallmark of the corporate
mission.
VISSION OF THE ORGANISATION:
To be respected world class corporation and the leader in Indian Steel business in
Quality, productivity, profitability and customer satisfaction.
BOARD OF DIRECTORS:
Shri S.K. Roongta - Chairman of SAIL
Managing director:
Shri Nilotpal Roy - Burnpur
Shri V. Shyamsundar - Durgapur
Shri B.N. Singh - Rourkela
Shri V.K. Srivastava - Bokaro
Shri R. Ramaraju - Bhilai
FUNCTIONAL DIRECTORS:
Shri Shoeb Ahmed - Commercial
Shri S. Bhattacharya - Finance
Shri G. Ojha - Personnel
Shri K.K. Khanna - Technical
ADDRESS OF REGISTER OFFICE AND ITS BRANCHES:
Corporate Office Ispat Bhawan,
Lodi Road, New Delhi – 110003
Phone : 011-24367481-86 Fax : 011-24367015
E-mail : [email protected]
SCOPE Minar, North Tower,
Laxmi Nagar District Centre, New Delhi -110092
Phone: (011) 22467360
Fax: (011) 22467458
E-mail : [email protected]
Salem Steel Plant
Salem – 636013 (Tamil Nadu)
Phone: 0427-2383 021
Fax: 0427-2382800 (Admn), 2383249 (Mktg),
E-mail: [email protected]
INTRODUCTION TO THE STUDY
Finance is one of the most primary requisites of a business and the modern
management obviously depends largely on the efficient management of the finance.
Financial statements are prepared primarily for decision making. They play a
dominant role in setting the frame work of managerial decisions. The finance manager
has to adhere to the five R’s with regard to money. This right quantity of money for
liquidity consideration of right quality. 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
To study the financial position of the company.
To analyse the financial stability and overall performance of SAIL in general.
To analyse and interpret the trends as revealed by various ratios of the company in
particular.
To analyse the profitability and solvency position of the unit with the existing
tools of financial analysis.
To study the changes in the assets, liabilities structure of the company during the
period of study.
IMPROTANCE OF THE STUDY
By “FINANCIAL PERFORMANCE ANALYSIS OF SAIL” we would be able to
get a fair picture of the financial position of SAIL.
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.
Protecting the property of the business.
Compliances with legal requirement,
LIMITATIONS OF THE STUDY
The analysis and interpretation are based on secondary data contained in the
published annual reports of SAIL for the study period.
Due to the limited time available at the disposable of the researcher the study has
been confined for a period of 7 years (2001-2007).
Ratio itself will not completely show the company’s good or bad financial
position.
Inter firm comparison was not possible due to the non availability of competitors
data.
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
analyse these to make critical evaluation of the available material. Hence by making the
type of the research conducted to be both Descriptive and Analytical in nature.
From the study, the type of data to be collected and the procedure to be used for
this purpose were decided.
DATA COLLECTION:
The required data for the study are basically secondary in nature and the data are
collected from the audited reports of the company.
SOURCES OF DATA:
The sources of data are from the annual reports of the company from the year
2000-2001 to 2006-2007.
METHODS OF DATA ANALYSIS:
The data collected were edited, classified and tabulated for analysis. The
analytical tools used in this study are:
ANALYTICAL TOOLS APPLIED:
The study employs the following analytical tools:
1. Comparative statement.
2. Common Size Statement.
3. Trend Percentage.
4. Ratio Analysis.
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.
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:
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.
Classification of Balance Sheet of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001 2002 2003 2004 2005 2006 2007
ASSETS
Fixed Assets
Investment
Current Assets
Mis.Expenditure
P&L a/c
16398
435
8376
372
754
15354
539
7129
578
2460
14414
543
7312
536
2765
13550
543
8246
378
-
12851
606
14333
294
-
12920
293
15630
215
-
12834
514
20375
131
-
Total Assets 26335 26060 25570 22717 28084 29058 33854
LIABILITIES
Shareholder’s Funds
Loan Funds
Current Liabilities
& Provisions
Deferred Liabilities
5290
14250
6795
-
5290
14019
6751
-
5290
12969
7311
-
5037
8690
8990
-
10306
5770
10166
1842
12601
4298
1484
10675
17313
4180
1412
10949
TOTAL LIABILITIES 26335 26060 25570 22717 28084 29058 33854
Classification of Income Statement of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001 2002 2003 2004 2005 2006 2007
Sales
EBIDT
Less: Depreciation
16233
2167
1144
15502
1011
1156
19207
2165
1147
24178
4652
1123
31805
11097
1127
32280
7381
1207
39189
10966
1211
EBIT
Less: Interest Charges
1023
1752
(145)
1562
1018
1334
3529
901
9970
605
6174
468
9755
322
PBT
Less : Tax
(729)
-
(1707)
-
(316)
(12)
2628
116
9365
2548
5706
1693
9423
3221
PAT (Net Profit)
(729)
(1707) (304) 2512 6817 4013 6202
Comparative Income Statement of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
Absolute
Change
% of
Change
Absolute
Change
% of
Change
Absolute
Chang
% of
Change
Absolute
Chang
% of
Change
Absolute
Chang
% of
Change
Absolute
Chang
% of
Change
Sales
EBIDT
Less: Depreciation
(731)
(1156)
12
(4.50)
(53.34)
1.04
3705
1154
(9)
23.90
114
(0.77)
4971
2487
(24)
25.88
114.8
(2.09)
7627
6445
4
31.54
138.54
0.35
475
(3716)
80
1.49
(33.4)
7.09
6909
3585
4
21.40
48.57
0.33
EBIT
Less: Interest Charges
(878)
(190)
(85.82)
(10.84)
873
(228)
602
(14.5)
2511
(433)
246.6
(32.4)
6441
(296)
182.51
(32.70)
(3769)
(137)
(38)
22.64
3581
(146)
58.00
(31.1)
PBT
Less : Tax
978
-
134.1
-
(1391)
12
(81.4)
0
2312
104
731.6
866.6
6737
2432
256.3
2096
(3659)
(855)
(39)
(33.5)
3717
1528
65.1
90.25
PAT (Net Profit) 978 134.15 (1403) (82.1) 2208 726 4305 171.3 (2804) (41.1) 2189 54.54
COMPARATIVE INCOME STATEMENT:
1. The Net Sales figure shows a fluctuation i.e. it is negative in the year 2001 & 2002. After the
year 2003 it shows an increasing which will help to make increase in Net Profit.
2. The company has sufficient control over its depreciation which shows a decreasing from the
period of 2003 and it has 0.33% in 2007.
3. The company has considerable change in Interest Charges and rather the latter has decreased
in recent years.
4. The company has able to attain Profit after Tax of Rs.6202 in the year 2007 compare to 2189
more from the previous year 2006.
5. It may conclude that there is a sufficient progress in the company and the overall profitability
of the concern is very good.
Comparative Balance Sheet of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
Absolute
Change
% of
Change
Absolute
Change
% of
Change
Absolute
Chang
% of
Change
Absolute
Chang
% of
Change
Absolute
Change
% of
Change
Absolute
Change
% of
Change
ASSETS
Fixed Assets
Investment
Current Assets
Mis.Expenditure
P&L a/c
LIABILITIES
Shareholder’s Funds
Loan Funds
Current Liabilities
& Provisions
Deferred Liabilities
(1044)
104
(1247)
206
1706
(6.36)
23.90
(14.88)
55.37
226.2
(940)
4
183
(42)
305
(6.12)
0.74
2.56
(7.26)
12.39
(864)
0
934
(158)
-
(5.9)
0
12.77
(29.4)
-
699
63
6087
(184)
-
(5.15)
11.60
73.81
(22.22)
-
69
(313)
1297
(79)
-
0.53
(51.6)
9.04
(26.8)
-
(86)
221
4745
(84)
-
(0.6)
75.4
30.3
(39)
-
0
(231)
(44)
-
0
(1.62)
(6.47)
-
0
(1050)
560
-
0
(7.48)
8.29
-
(253)
(4279)
1679
-
(4.78)
(32.9)
22.96
-
5269
(2920)
1176
-
104.6
(33.6)
13.08
-
2295
(1472)
(8682)
8833
22.26
(25.5)
(85.4)
479.5
4712
(118)
(72)
274
37.3
(2.7)
(4.8)
2.56
INTERPRETATION:
COMPARATIVE BALANCE SHEET
Long Term Financial Position:
1. The comparative Balance Sheet of the company reveals that during the financial year
2005 – 2006 there has been an increase in fixed assets and 2006-2007 it gets to decrease
to Rs. 86 crores i.e. (.66)% due to modification in various plants while the long term
liabilities to outsiders have decreased by 118 cores i.e.2.74% but the contribution by the
owners has shows continuous increase by Rs. 4712 crores i.e.37.39.
Current Financial position and liquidity position:
2. The company has increased its current assets by increasing the level of inventories of
Rs.4745 crores i.e.30.35%. The current liabilities highly fluctuate and show continuous
decrease in the year 2006-2007 by Rs.72 crores i.e.4.85% decreased. The Net Working
Capital was in peak by the continuous increase after the year 2005. The company got
good liquidity position due increase in Current assets but it may affect the profitability of
the company.
3. The overall financial position of the company is very good.
Common Size Balance Sheet of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001 2002 2003 2004 2005 2006 2007
ASSETS
Fixed Assets
Investment
Current Assets
Mis.Expenditure
P&L a/c
62.21
1.65
31.80
1.41
2.88
58.91
2.12
27.38
2.21
9.38
56.37
21.23
28.59
2.09
10.72
59.64
2.39
36.29
1.68
-
45.75
2.15
51..06
1.04
-
44.46
1.00
53.78
0.76
-
37.90
1.54
60.18
0.38
-
Total Assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00
LIABILITIES
Shareholder’s Funds
Loan Funds
Current Liabilities
& Provisions
Deferred Liabilities
20.08
54.11
25.81
-
20.29
53.79
25.92
-
20.60
50.73
28.59
-
22.17
38.25
39.58
-
36.69
20.54
36.19
6.58
43.36
14.79
5.10
36.75
51.14
12.34
4.17
32.35
TOTAL LIABILITIES 100.00 100.00 100.00 100.00 100.00 100.00 100.00
INTERPRETATION:
COMMON-SIZE BALANCE SHEET
1. Out of the total investment the owners funds is more compare to outsider’s fund
in the company which shows that the company has depended more on its own
funds. It shows that the company is traditionally financed
2. The proportion of current assets to total assets has increased comparing to
current liabilities which serve as an evidence for good working capital position
of the company.
3. Investments, Miscellaneous expenditure and deferred liabilities have their own
limited contribution to their respective side totals.
Trend Percentage of Steel Authority of India Limited from
2000-2001 to 2006 - 2007
Base Year 2000-2001 Figure in %
Particulars 2001 2002 2003 2004 2005 2006 2007
SALES
PBIT
FIXED ASSETS
CURRENT ASSETS
CURRENT LIABILITIES
WORKING CAPITAL
CAPITAL EMPLOYED
TOTAL ASSETS
100
100
100
100
100
100
100
100
96
(14)
98
85
92
73
93
91
118
99
92
87
91
81
91
88
149
345
87
97
114
66
83
87
196
975
82
170
125
245
110
109
199
604
80
208
154
300
117
122
242
954
76
243
132
434
137
134
INTERPRETATION:
The sales of the product was very low in the year 2002 because of the competition
existing in the field and general economics constraints but later it recovered and moved in
the favorable direction there onwards.
INTERPRETATION:
The profit after tax (PAT) which is also known as Net Profit slopes downwards in
the year 2002 but moves in the favorable direction due to less financial and interest
charges and high sales value.
TREND PERCENTAGE:
Trend percentage is immensely helpful in making a comparative study of the
financial statement for several years. The method of calculating trend percentages
involves the calculating of percentages relationship that each item bears to the same item
in the base years.
The method of trend percentage is a useful analytical device for the management
since by substitutes percentages for large amounts; the brevity and readability are
achieved
Year Wise (2001 – 2007) Sales Figures
CHART SHOWING SALES
Chart No.1
16233 15502
19207
24178
31805 32280
39189
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2001 2002 2003 2004 2005 2006 2007
Year wise (2001-2007) Profit Figures:
Chart No.2
CHART SHOWING NET PROFIT
-1707
2512
6817
4013
6202
-304-729
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000
2001 2002 2003 2004 2005 2006 2007
years
Prof
it in
Rs.
Cro
res
RATIO ANALYSIS:
Financial ratio analysis is the calculation and comparison of ratios which are
derived from the information in a company's financial statements. The level and historical
trends of these ratios can be used to make inferences about a company's financial
condition, its operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a
company's financial statements. For example, the "gross margin" is the gross profit from
operations divided by the total sales or revenues of a company, expressed in percentage
terms. In isolation, a financial ratio is a useless piece of information. In context, however,
a financial ratio can give a financial analyst an excellent picture of a company's situation
and 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.
CLASSIFICATION OF RATIOS:
Financial ratio analysis involves the calculation and comparison of ratios which
are derived from the information given in the company's financial statements. The
historical trends of these ratios can be used to make inferences about a company's
financial condition, its operations and its investment attractiveness.
Financial ratio analysis groups the ratios into categories that tell us about the
different facets of a company's financial state of affairs. Some of the categories of ratios
are described below:
Liquidity Ratios give a picture of a company's short term financial situation or
solvency
Turnover Ratios show how efficient a company's operations and how well it is using
its assets.
Profitability Ratios : show the quantum of debt in a company's capital structure.
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 = CURRENT ASSETS / CURRENT LIABILITY
Table No.1Table showing Current ratio
(Rs. In Crores)
YEARCURRENT ASSETS CURRENT
LIABILITIESCURRENT RATIO
2001 8362 5274 1.59
2002 7107 4849 1.47
2003 7282 4777 1.52
2004 8075 6025 1.34
2005 14187 6608 2.15
2006 17384 8108 2.14
2007 20379 6984 2.91
An ideal solvency 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 below the ideal ratio of 2. But
reaches the Ideal ratio from after the year 2005 which is positive consideration
Chart No.3
CURRENT RATIO OF SAIL FOR THE PERIOD OF 2001-2007
1.591.47 1.52
1.34
2.15 2.14
2.91
0
0.5
1
1.5
2
2.5
3
3.5
2001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
2. LIQUID RATIO:
Liquid ratio is also known as ‘quick’ or ‘Acid test ‘ratio. Liquid assets refer to assets
which are quickly convertible into cash. Current Assets other stock and prepaid expenses are
considered as quick assets. The ideal liquid ratio accepted ‘norm’ for liquid ratio ‘1’.
Quick Ratio = Total Quick Assets/ Total Current Liabilities
Quick Assets = Total Current Assets (minus) Inventory
Table No.2Table showing Quick ratio
(Rs. In Crores)
YEARLiquid ASSETS CURRENT
LIABILITIESQuick RATIO
2001 33843 5274 6.412002 3065 4849 0.062003 3537 4777 0.742004 4993 6025 0.822005 9966 6608 1.502006 11174 8108 1.372007 13728 6984 1.96
INTREPRETATION:
The liquid ratio denotes the concern had achieved more than the ideal ratio of 1:1
in the years 2001,2005,2006,2007 and lower liquid ratio in the remaining years. If
inventories do not sell and the company has to meet its current obligations
Chart No.4
LIQUID RATIO OF SAIL FOR THE PERIOD OF 2001-2007
6.41
0.06
0.74 0.82
1.5 1.37
1.96
0
1
2
3
4
5
6
7
2001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
3. NET WORKING CAPITAL RATIO:
Working Capital is more a measure of cash flow than a ratio. The result of this
calculation must be a positive number. Companies look at Net Working Capital over time to
determine a company's ability to weather financial crises. Loans are often tied to minimum
working capital requirements.
NET WORKING CAPITAL RATIO = Net Working Capital / Capital Employed
Table No.3Table showing Net Working Capital Ratio
(Rs. In Crores)
YEARNet Working
CapitalCapital Employed Net Working
Capital Ratio2001 3088 18205 0.162002 2258 17056 0.132003 2505 16541 0.152004 2050 15218 0.132005 7579 20064 0.372006 9276 21438 0.432007 13395 24992 0.53
INTERPRETTION:
Net Working capital measures the firm’s potential reserve of funds. It can be related to
net assets. This ratio represents the availability of working capital in relation with capital
employed.
Chart No.5
NET WORKING CAPITAL RATIO OF SAIL FOR THE
PERIOD OF 2001-2007
0.160.13
0.150.13
0.37
0.43
0.53
0
0.1
0.2
0.3
0.4
0.5
0.6
2000 2001 2002 2003 2004 2005 2006 2007
years
Ratio
TURNOVER RATIO:
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.
Fixed Asset Turnover Ratio
Working Capital Turnover Ratio
Debtor Turnover Ratio
Stock Turnover Ratio
1. FIXED ASSETS TURNOVER RATIO:
Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the
value of your fixed assets (on your balance sheet). It indicates how well your business is
using its fixed assets to generate sales.
FIXED ASSETS TURNOVER RATIO = NET SALES / NET FIXED ASSETS
Generally speaking, the higher the ratio, the better, because a high ratio indicates
your 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
ass
Table No.4
Table showing fixed asset turnover ratio
YEAR
NET SALES
(Rs. In Crores)
FIXED ASSETS
(Rs. In Crores)
FIXED ASSET
TUENOVER RATIO
(In times)
2001 16223 15177 1.07
2002 15502 14798 1.04
2003 19207 14036 1.37
2004 24178 13168 1.84
2005 31805 12485 2.55
2006 32280 12162 1.65
2007 39189 11598 3.37
INTERPRETATION:
Here, the value of fixed assets employed in the business shows a reducing trend
which implies that company didn’t occur any more fixed asset during the period 2002 –
2007. Only the depreciation effect had been given to fixed asset.
There has been a decline in the year 2002 but rising there onwards favorably
which indicates that the net fixed assets is used more effectively to increase the sales
without additional investment in the period of study.
Chart No.5
FIXED ASSETS RATIO OF SAIL FOR THE PERIOD OF 2001-2007
1.07 1.04
1.37
1.84
2.55
1.65
3.37
0
0.5
1
1.5
2
2.5
3
3.5
4
2001 2002 2003 2004 2005 2006 2007
YEARS
RATIO
2. WORKING CAPITAL TURNOVER RATIO:
Working capital refers to investment in current assets. This is also known as gross
concept of working capital. There is another concept of working capital known as net
working capital. Net working capital is the difference between cur-rent 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.
WORKING CAPITAL TURNOVER RATIO = NET SALES / NET WORKING CAPITAL
In recent years for operating an industry have not only become scarce, but also costly in
the wake of macro level policies on credit squeeze an increase in Interest rate. 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.
Table No.5
Table showing Working capital turnover ratio
YEARNET SALES
(Rs. In Crores)WORKING CAPITAL
(Rs. In Crores)WORKING CAPITAL TURNOVER RATIO
(In times)
2001 16223 3088 5.26
2002 15502 2258 6.87
2003 19207 2505 7.67
2004 24178 2050 11.79
2005 31805 7579 4.19
2006 32280 9276 3.47
2007 39189 13395 2.96
INTERPRETATION:
Here, the Working Capital ratio shows a increasing trend from 2001 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 2007.
Chart No.6
WORKING CAPITAL TURNOVER RATIO OF SAIL FOR THE
PERIOD OF 2001-2007
5.26
6.877.67
11.79
4.193.47 2.96
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006 2007
YEARS
RATIO
3. DEBTORS TURNOVER RATIO:
Debtor’s turnover ratio measures the efficiency with which the debtors are
converted into cash. This ratio indicates both the quality of debtors and the collection
efforts of the business enterprise. This ratio is calculated as follows:
I. Debtors’ turnover ratio
II. Debt collection period.
DEBTOR’S TURNOVER RATIO = CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLES
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.
Table No.6Table showing Debtors’ turnover ratio
(Rs. In Crores)
YEARCREDIT SALES (Rs. In Crores)
DEBTORS(Rs. In Crores)
Debtors’ turnover ratio
(In times)
2001 16223 1688 9.62
2002 15502 1390 11.16
2003 19207 1660 11.57
2004 24178 1550 15.60
2005 31805 1908 16.67
2006 32280 1882 17.15
2007 39189 2315 16.92
INTERPRETATION:
There has been increase in the turnover ratio which shows the efficiency of the
collection department
Chart No.7
DEBTOR’S TURNOVER RATIO OF SAIL FOR THE PERIOD
OF 2001-2007
9.6211.16 11.57
15.616.67 17.15 16.92
0
2
4
6
8
10
12
14
16
18
20
2001 2002 2003 2004 2005 2006 2007
YEARS
RA
TIO
Debt collection period:
The ratio indicates the extent to which the debt has been collected in time. It gives
the average debt collection period. The ratio is very helpful to lenders because it explains
to them whether their borrowers are collecting money within a reasonable time. An
increase in the period will result in greater blockage of funds in debtors.
Debt collection period = Months/Days in a year/ Debtor’s turnover ratio
Table No.7 Table showing Debt collection period (In Days)
YEAR COLLECTION PERIOD
2001 38
2002 33
2003 32
2004 23
2005 22
2006 21
2007 21
Debtors’ collection period measures the quality of debtors since it measures the
rapidity or slowness with which money is collected from them
INTERPRETATION;
Here, there has been decreasing trend in the debt collection period which is
favorable for the company. Because, the quicker the collection period. Then more the
utilization of cash collected from debtors. It moves from 38 days in 2001 to 21 days in
2007.
Chart No.8
DEBTOR’S COLLECTION PERIOD OF SAIL FOR THE PERIOD
OF 2001-2007
38
33 32
23 22 21 21
0
5
10
15
20
25
30
35
40
2001 2002 2003 2004 2005 2006 2007
YEARS
DAYS
4. STOCK TURNOVER RATIO:
This ratio indicates whether investment in inventory is efficiently used or not. It is
therefore explains whether investment in inventories is within proper limits or not. This
ratio is calculated as follows.
Stock Turnover Ratio = Net Sales / Average Inventory
Table No.8Table showing Stock turnover ratio
YEARCREDIT SALE
(Rs. In Crores)S AVERAGE STOCK (Rs. In Crores)
STOCK TURNOVER RATIO
(In times)
2001 16223 4519 3.59
2002 15502 4042 3.84
2003 19207 3745 5.13
2004 24178 3082 7.91
2005 31805 4221 7.53
2006 32280 6210 5.19
2007 39189 6651 5.89
The Inventory turnover ratio signifies the liquidity of the Inventory. A high
inventory turnover ratio indicates brisk sales. The ratio is, therefore a measure to discover
the possible trouble in the form of over stocking or over valuation.
It is difficult to establish a standard ratio of inventory because it will differ from
industry to industry.
INTERPRETATION:
Here, there has been a rising trend in the Inventory turnover ratio which implies
that the inventories are efficiently managed and utilized which directly contributes to
companies’ productivity. The stock position is known as the graveyard of the balance
sheet. A low inventory turnover ratio results in blocking of funds in Inventory which may
ultimately result in heavy losses due to inventory becoming obsolete or deteriorate in
quality.
Chart No.9
STOCK TURNOVER RATIO OF SAIL FOR THE PERIOD
OF 2001-2007
3.59 3.84
5.13
7.917.53
5.195.89
0
1
2
3
4
5
6
7
8
9
20001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
PROFITABILITY RATIO
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.
Return on Investment
Return on Shareholders’ fund
Return on total asset
Earning per Share
Net profit Ratio
Operating ratio
Payout ratio
Dividend yield ratio
RETURN ON INVESTMENT:
It is also called as “Return on Capital Employed”. It indicates the percentage of
return on the total capital employed in the business.
Operating profit
RETURN ON INVESTMENT ------------------------------- X 100
Capital employed
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]
Table No.9Table showing Return on Investment
YEAROPERATING
PROFIT (Rs. In Crores
CAPTITAL EMPLOYED (Rs. In Crores)
RETURN ON INVESTMENT
(In %)
2001 1023 18265 5.60
2002 -145 17056 -0.85
2003 1018 16541 6.15
2004 3530 15218 23.19
2005 9970 20064 50
2006 6174 21438 29
2007 9755 24992 39
INTERPRETATION:
Here the Return on Investment of the firm is moving in a row as 5.60, -0.85, 6.15,
23.19, 50, 29 and 39 during the period 2001 to 2007. In 2002, the return on investment is
negative, because the profit before interest and tax is also in negative due to low sales
value in the corresponding year. But the year 2005, 2006 and 2007 shows a good rate
return due to low interest and finance charges and selling price of the steel is also
contributing factor.
Chart No.10
RETURN ON INVESTMENT OF SAIL FOR THE PERIOD
OF 2001-2007
5.6 6.15
23.19
50
29
39
-0.85
-10
0
10
20
30
40
50
60
2001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
RETURN ON SHAREHOLDER’S FUND:
In case it is desired to work out the productivity of the company from the
shareholder’s point of view, it should be computed as follows:
Net profit after Interest and TaxReturn on shareholder’s fund = ------------------------------------------------------ X 100
Shareholders’ fund
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).
Table No.10Table showing return on Shareholders’ Fund
YEARNET
PROFIT(Rs. In Crores)
SHAREHOLDERS’ FUNDS
(Rs. In Crores)
RETURN ON SHAREHOLDERS’
FUNDS(In %)
2001 -729 5291 -14
2002 -1707 5290 -32
2003 -304 5290 -6
2004 2512 5038 50
2005 6817 10307 66
2006 4013 12601 32
2007 6202 17313 36
INTERPRETATION:
Here, the Net Profit (i.e.) Profit after Interest and Tax has been in negative
during the year 2001 to 2003 due to net losses in the corresponding year because of very
high interest and finance charges of the company. But the Repayment of loan Funds and
increase in the sales value has contributed for the rise in the return on shareholder’s fund
from the year 2004 onwards.
Chart No.11
RETURN ON SHAREHOLDER’S FUND OF SAIL FOR THE PERIOD OF 2001-2007
-14
50
66
3236
-32 -6
-40
-20
0
20
40
60
80
2001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
RETURN ON TOTAL ASSETS:
This ratio is computed to know the productivity of the total assets.
Net profit after Tax Return on Total Assets = --------------------------------- X 100
Total Assets
Table No.11
Table showing return on Total Assets
(Rs. In Crores)
YEARNET
PROFIT (Rs. In Crores)
TOTAL ASSETS (Rs. In Crores)
RETURN ON TOTAL ASSETS
(In %)
2001 -729 24760 -2.94
2002 -1707 22461 -7.59
2003 -304 21679 -1.40
2004 2512 21625 11.58
2005 6817 27058 25.19
2006 4013 30304 13.24
2007 6202 33213 18.67
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.
INTERPRETATION:
Here the Return on Total Assets shows the Negative points due to net loss on
the corresponding year. But the Return on Total Assets turns into positive as soon as Net
Profit occurs
Chart No.12
RETURN ON TOTAL ASSETS OF SAIL FOR THE PERIOD OF 2001-2007
11.58
25.19
13.24
18.67
-7.59
-2.94 -1.4
-10
-5
0
5
10
15
20
25
30
2001 2002 2003 2004 2005 2006 2007
YEARS
RETU
RN O
N TO
TAL
ASSE
TS
EARNING PER SHARE:
In order to avoid confusion on account of the varied meanings of the term capital
employed, the overall profitability can also be judged by calculating earning per share
with the help of the following formula:
Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100
The earning per share of the company helps in determining the market price of the
equity shares of the company. A comparison of earning per share of the company with
another will also help in deciding whether the equity share capital is being effectively
used or not. It also helps in estimating the company’s capacity to pay dividend to its
equity shareholders.
Table No.12
Table showing Earning per Share
(Rs. In Crores)
YEAR
NET PROFIT
(Rs. In Crores)
NUMBER OF EQUITY SHARES(Rs. In Crores)
EARNING PER SHARE(In %)
2001 -729 413 -1.76
2002 -1707 413 -4.13
2003 -304 413 -0.73
2004 2512 413 6.08
2005 6817 413 16.50
2006 4013 413 9.71
2007 6202 413 15.01
INTERPRETATION:
Here the Earning per Share is the result of Net Profit after Tax. It shows the
positive correlation during the period of study.
Earning Per share for the year 2005 is 150% higher than 2004 due to more Net
Profit as the consequence of high sales value and low interest charges. In the year 2006
and 2007 earning per share is comparatively less with compare to 2005 due to economic
conditions.
Chart No.13
EARNING PER SHARE OF SAIL FOR THE PERIOD
OF 2001-2007
6.08
16.5
9.71
15.01
-0.73-4.13
-1.76
-10
-5
0
5
10
15
20
2001 2002 2003 2004 2005 2006 2007
YEARS
EZAR
NING
PER
SHA
RE
NET PROFIT RATIO:
This ratio indicates the Net margin on a sale of Rs.100. It is calculated as follows:
Net Operating Profit
Net Profit Ratio = ----------------------------------------- X 100
Net Sales
Table No.13
Table showing Net Profit Ratio
(Rs. In Crores)
YEAROPERATING
PROFIT(Rs. In Crores)
SALES (Rs. In Crores)
NET PROFIT RATIO(in %)
2001 1023 16223 6.30
2002 -145 15502 -0.94
2003 1018 19207 5.30
2004 3530 24178 14.60
2005 9970 31805 3.35
2006 6174 32280 19.12
2007 9755 39189 24.89
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.
INTERPRETATION:
The operating profit and value of sales are the causes for the fluctuation in the Net
Profit ratio. The Net Profit Ratio declines more during 2002 but recovers later and
managed to move in the favorable direction. It occurs due to low sales value and change
in economic policy.
The above said may be due to increase in operating profit and increase in
selling price of the saleable steel of the company.
Chart No.14
NET PROFIT RATIO OF SAIL FOR THE PERIOD
OF 2001-2007
6.35.3
14.6
3.35
19.12
24.89
-0.94
-5
0
5
10
15
20
25
30
2001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
OPERATING RATIO:
This ratio is a complementary of Net Profit ratio. In case the net profit ratio is
20%. It means that the operating profit ratio is 80%. It is calculated as follows:
Operating Cost
Operating Ratio = ----------------------------------------- X 100
Net Sales
The operating cost include the cost of direct materials, direct labour and other
overheads, viz., factory, office or selling.
Direct Material
Direct Material cost to sales = ----------------------------------- X 100
Net Sales
Table No.14Table showing Operating Ratio
(Rs. In Crores)
YEARDIRECT
MATERIAL (Rs. In crores)
SALES (Rs. In crores)
OPERATING RATIO
(In %)
2001 5420 16223 33.39
2002 5656 15502 36.48
2003 6226 19207 32.42
2004 6892 24178 28.50
2005 9351 31805 29.40
2006 12326 32280 38.18
2007 13275 39189 33.87
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.
INTERPRETATION:
A comparison of operating ratio or expenses ratio will indicate whether the cost
components is high or low in the figure of sales. In case comparison shows that there is
increase in this ratio, the reason for such increase should be found out and management
be advised to check the increase.
Chart No.15
OPERATING RATIO OF SAIL FOR THE PERIOD
OF 2001-2007
33.39
36.48
32.42
28.5 29.4
38.18
33.87
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007
YEARS
RATI
O
PAYOUT RATIO:
This ratio indicates what proportion of earning per share has been used for paying
dividend.
Dividend per equity share
Pay Out Ratio = --------------------------------------- X 100
Earning per equity share
Here the company had paid dividend only after 2005 in the course of seven years
period from 2001 to 2007. The company has paid 33%,20% and 31% of dividend for the
face value of Rs.10 in the year of 2005, 2006 and 2007 which comprises Rs. 3.3 ,2.0 and
3.10 as dividend.
Table No.15Table showing Pay out Ratio
(In %)
YEARDIVIDEND PER
EQUITYEARNING PER
EQUITYPAY OUT RATIO
2005 3.3 16.50 20
2006 2.0 9.71 20.59
2007 3.10 15.01 20.65
The pay out ratio is the indicator of the amount of earnings that have been
ploughed back in the business. The lower the pay out ratio, the higher will be the amount
of earnings ploughed back in the business and vice versa.
INTERPRETATION:
The pay out ratio for the year 2005 is 20%, 2006 is 20.59 and 2007 is 20.65
which implies that remaining 80% of earning per share is kept as retained earning by the
company
Chart No.16
PAYOUT RATIO OF SAIL FOR THE PERIOD
OF 2001-2007
20
20.5920.65
19.6
19.8
20
20.2
20.4
20.6
20.8
2005 2006 2007
YEARS
PAYO
UT R
ATIO
DIVIDEND YIELD RATIO:
This ratio is particularly useful for those investors who are interested only in
dividend income. The ratio is calculated by comparing the ratio of dividend per share
with its market value.
Dividend per Share
Dividend yield = ----------------------------------- X 100
Market price per share
Since, company had issued dividend only after 2005 in last seven years period.
We can calculate this ratio only for that period as follows:
Table No.16Table showing Dividend yield
(In %)
YEARDIVIDEND PER
EQUITYMARKET PRICE Dividend yield
2005 3.3 62.87 5.25
2006 2.0 83.30 2.40
2007 3.10 114.30 2.71
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 No.17
DIVIDEND YIELD RATIO OF SAIL FOR THE PERIOD
OF 2001-2007
5.25
2.42.71
0
1
2
3
4
5
6
2005 2006 2007
YEARS
DIV
IDEN
D Y
IELD
RA
TIO
FINDINGS
This study is carried out with the objective of analyzing the financial performance
of SAIL to examine and understand the role of finance in the growth of the company.
This chapter attempts to highlight the findings of the study.
1. The comparative statement shows that the sales of the year 2007 are very high
compared to the past.
2. The profit before interest and tax is in positive during the period of study
excluding the year 2002 because of low sales value in the corresponding year.
3. The sales, PBIT, PBT, PAT all shows the increasing trend during the period under
review. It depicts that the company is working with more efficiency.
4. The repayment of loan funds which reduces the interest charges and increase in
the selling price of the steel contributes the rising trend.
5. The interest and finance charges in the year 2007 are one third of 2001. It made a
favorable impact towards the company.
6. Return on Investment fluctuates more due to the charges in the operating profit of
the company.
7. Net Profit ratio shows increasing trend. It depicts that the efficiency is maintained
in sales value and operating expenses.
8. Payout ratio and Dividend Yield ratio had been shown only after the year 2005
because dividend was paid only during after that year.
9. Fixed Assets turnover ratio shows the increasing trend. It depicts that the
company’s fixed assets are utilized properly in relation to the sales.
10. Working Capital turnover ratio depicts the increasing trend shows from 2002 to
2004 and then slope downwards due to holding high cash and bank balance after
the year 2005.
11. Debtor turnover ratio and debt collection period shows increasing trend. It
depicts the higher performance of debt collection department of the company.
12. Stock turnover ratio depicts the efficiency of the inventory utilization in relation
to the corresponding sales value.
13. The ideal current ratio is 2 which the firm obtains only after the year 2005 it
shows the positive impact.
14. The ideal liquid ratio is 1 which is also obtained by the firm only after the year
2005, which enables the company to meet the emergency requirements.
15. Proprietary ratio of the company fluctuates during the period of study. It shows
the change in the value of reserves and surplus in the form of shareholders’ fund.
RECOMMENDATION AND SUGGESTIONS
1. The company may increase the performance by reducing the borrowed capital, so
that the interest an finance charges will be less.
2. The company may increase the sales if it attempts to move into export market.
3. The company may reduce the operating inefficiencies through effective utilization
of all the resources.
4. The company may strike a balance between the current assets and current
liabilities to maintain the solvency position.
5. Optimum utilization of Working Capital can be planned so as to result in sound
financial position.
6. There is an urgent need to upgrade and modernize the plants for improving the
profitability of SAIL.
CONCLUSION
Finance is the life blood of every business. Without effective financial
management a company cannot in this competitive world. A Prudent financial Manager
has to measure the working capital policy followed by the company.
SAIL continues to play an important role in the industrial development of
country. There is every possibility that SAIL would establish for itself a permanent and
unshakable position in the industrial map of India and also in the emerging international
market for steel.
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