COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH OTHER STEEL

COMPANIES IN INDIA

PROJECT REPORTMAY 2010 – JULY 2010

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

InFinance & Control

By Kumar Mayank

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

Prof. S.S. Ahmed P.S PAL

Assistant Professor (finance) AGM (Finance)

Institute of Management & Information science Steel Authority Of India Limited

Bhubaneswar . Ranchi.

Institute of Management & Information Science

Swagat Vihar

Bhubaneswar Orissa – 751002

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Declaration

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

Signature Name: Kumar Mayank Date: 3rd July 2010

Place: Steel Authority of India Limited (Ranchi)

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Acknowledgement

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

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

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

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

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ABSTRACT

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

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TABLE OF CONTENTS

1.ABOUT THE COMPANY 6-11

2.INTRODUCTION TO CET SAIL 12-19

3.INTRODUCTION TO THE STUDY 20-22

4. LITERATURE REVIEW 23-35

5.DATA ANALYSIS AND INTERPRETATION 36-66

6.COMPETITOR ANALYSIS 67-70

7. RECOMMENDATION AND SUGGESTIONS 71

8.CONCLUSION 72

9.BIBLIOGRAPHY 73

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1. ABOUT THE COMPANY

Company Profile

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

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

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

domestic construction, engineering, power, railway, automotive and defense industries and it

also produce steel for sale in export markets.

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

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

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

India and situated close to domestic sources of raw materials, including the Company's iron

ore, limestone and dolomite mines.

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

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

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

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

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

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

a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi

which helps the industries of SAIL to produce quality steel and it also give ideas to develop

new technologies for the steel industry. SAIL has its own in-house Centre for Engineering

and Technology (CET), Management Training Institute (MTI) and Safety Organization at

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Ranchi. SAIL captive mines are control by the Raw Materials Division in Kolkata. Almost

all of the plants and major units of SAIL are ISO Certified.

Sail Today

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

diversified range of quality steel products catering to the domestic, as well as the export

markets and a large pool of technical and professional expertise. Today, the accent in SAIL is

to continuously adapt to the competitive business environment and excel as a business

organization, both within and outside India.

Type of Organization:

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

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

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

automotive and defense industries and caters to Indian and International markets. Steel

Authority of India has five steel plants, one subsidiary, three special steel plants, multi

marketing units at all regions and nine other specialized units to support growth and

development of the Steel Industry in India. It produces Blooms, Billets, Slabs, Crane Rails,

Bars, Rods & Re-bars, Wire Rods, HR Coils, Sheets, Plates, CR Coils & Sheets, GC Sheets,

GP Sheets and Coils, Tinplates, Electrical Steel, Tubular Products, Pipes, Railway Products,

Rails, Wheels, Axles, Wheel Sets.

Activities: Steel Authority of India production lines are –

Hot Rolled Coils, Sheets

Cold Rolled Products.

Bars and Rods.

Semi-Finished Products.

Railway Products.

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Plates.

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

Domains –

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

Consultancy services.

Specialized testing services.

Contract research.

Training.

Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh

Durgapur Steel Plant (DSP) in West Bengal

Rourkela Steel Plant (RSP) in Orissa

Bokaro Steel Plant (BSL) in Jharkhand

IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels P in West Bengal plants (ASP)

Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

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Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

Position of Steel Authority of India Limited (SAIL)

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

ranked as the 21st largest steel producer in the world during2008 (Source: WSA) SAIL

continues to be the largest steel producer of finished steel in India with around 1/5th of the

market share.

SWOT ANALYSIS

STRENGTHS

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

strength for the company.

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

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

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

breadth of the country.

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

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

company will continue to be self sufficient in iron ore after completion of the

present phase of expansion.

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

skill based training in the company.

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

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Asia. SAIL's RDCIS (Research &Development Centre for Iron & Steel) is a

source of regular product and process innovation.

WEAKNESSES

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

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

sources.

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

turnover for the company. Although there has been significant reduction in

manpower through natural and voluntary separations, the manpower strength in

SAIL is still higher than the industry average.

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

resulting in lower value addition.

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

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

OPPORTUNITIES

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

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

scope for increase in domestic steel consumption.

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

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

infrastructure in the 11th Plan period.

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

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2008 and January 2009 is likely to trigger steel demand.

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

project customers.

THREATS

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

2008. With import duty at 5%, and poor demand from developed countries, cheap

imports are on an increase into the country putting pressure on realization of the

domestic steel producers.

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

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

consuming nation with a positive growth.

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

State and Central levels, are an area of concern.

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

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

overall economics of operation.

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

concern for smooth operations in remote areas.

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2. INTRODUCTION TO CET SAIL

Centre for Engineering & Technology (CET) was formed in 1982 in pursuance of

decision taken by SAIL Board in its 83rd meeting held on 28th January 1982. CET is the

in-house design, engineering and consultancy unit of SAIL. It is also the nodal agency for

acquisition and lateral transfer of technologies pertaining to Iron & Steel within SAIL

plants and units. The range of services provided by CET includes conceptualization,

project reports, project evaluation & appraisal, project consultancy, design & engineering

and project management. CET has been providing its services in all the areas of iron and

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

infrastructure development, industrial piping, industrial warehousing, material handling

system, industrial pollution control and environment management systems, water supply

and sanitation, town planning, small power projects, etc.

PURPOSE OF FORMING THE CET

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

the consultancy work was outsourced to various organizations which could be either govt.

organizations like MECON or private organizations. This led to huge expenditures for

SAIL in payment of fees and other expenditures. So it was decided that an in-house

consultancy should be developed to save costs for SAIL. Thus CET was formed with

headquarters in Ranchi and sub centers in various steel plants across India for better

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coordination. Though CET was formed for the purpose of providing consultancy services

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

organizations but only on specific requests to earn additional revenues.

CET has six subcentres at following locations:

1. CET Sub centre Bhilai

2. CET Sub centre Bokaro

3. CET Sub centre Durgapur

4. CET Sub centre Rourkela

5. CET Sub centre Burnpur

6. CET Sub centre Bhadrawati

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

activities

1. CET, Delhi Unit Office 

2. CET, Kolkata Unit Office

It is an ISO 9001:2000 certified organization. It is planning to get certified against ISO

9001:2008. The objectives and functions of CET are mainly categorized under following

headings as under: 

• Consultancy for Design, Engineering and Techno-economics

• Technology improvement

• Other Services

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Technology Improvement

Identification of technology improvement measures in consultation with R&D Centre in

the various processes and plan for adoption of the same in the various plants by acquiring

design and know-how capability.

Assisting R&D center in identification of various process routes, production facilities,

indicating the order of investment involved to match with the corporate production targets

on short term/long term basis.

Guiding principles of CET working:

Following guiding principles are followed for working of CET:

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

For Personnel Matters: Personnel Manual issued by SAIL Corporate Office

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

For Financial Matters: Guidelines given in Accounts Manuals

CET-SAIL(FINANCE DEPATRMENT)

Duties of Officers and employees in Finance Section: 

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

• Statutory recoveries from employees salary like income tax, PF, SCSBF, EPF etc and

their remittances to the respective funds.

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

calculations for issuing certificates.

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• Passing of contractors / parties bills and payments thereof including recoveries of

income tax from their bills.

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

• Accounting of all transactions, maintenance and scrutiny thereof.

• Closing of accounts and audit thereof.

• Dealing with Govt. and Internal Audits

• Preparation of budgets – Revenue and Capital after considering the requirement of

various departments/ Sub-centres/ Unit Offices.

• Preparation of employees HBA, Conveyance Advance budget in consultation with

P&A.

• Periodic monitoring and control of all types of budgets

• Issue of TDS certificates to employees and contractors.

• Filing of ETDS return

Fixed and Variable Costs for Finance Department

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

work done by the finance department involves preparation of remuneration of employees.

Even during the preparation of the budget about 85% of the costs are attributed to

employee remuneration which contains both executive pay and non executive pay. It

comes under fixed costs while other expenses like travelling expenses, stationary

expenses and other miscellaneous expenses which come under variable costs.

CALCULATION OF ENGINEERING HOURS RATE

.In accounts booking of expenditure should be done accordance with their accruals. When

CET is renewing services to companies, plants and units it is necessary to allocate the

expenditure incurred by SAIL among the plants and units to whom services where

rendered consultancy wise or project wise. This is an accounting requirement. In this way

the projects of the plants of the units gets the share of expenditure incurred by CET which

in turn are accumulated in the capital cost of the project

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

basis of fixed percentage of total cost of the project for which services where rendered.

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

1. CET not being a profit center it cannot consider earning which is hypothetical in

any case, as a basis for allocation of its expenditure on assignments / projects.

2. Since the value of the assignments under this method has no relation with the

expenditure, practical difficulties where experienced in restricting the valuation to

the total expenditure of the CET.

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

allocation expenditure of CET over the assignment/projects. Engineers working in

assignment record their hours in the assignment they work. In this way all the assignment

of CET in execution get engineering hours spent on them. Engineering hours rate is

calculated every year on an estimated basis in march every year (detail calculation given

below). Rate is applied hours of the individual assignment/project to find or to determine

the value of CET services for the assignment/projects. Plants and units are being debited

on the value of the assignment

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CALCULATION OF ENGINEERING HOURS RATE FOR 2009-2010

1. Total no.of executives 299

2. HOD and above 29

3.Executives working in finance,Personnel 58

,Admn.,Personnel staff etc.ipss,Projects

ED sectt,MTT's

4. Net Executives whose Engg. Hours 212

are clockable

5.No. of days in a year 365

6. Sundays and closed Saturdays 76

7.CLs, Closed &RH 36

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

9.Average No. of Engineering days 245

Available

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

available per man a year

(Sl. No.9 *8hrs.)

11. Maximum Engg. Hrs. clockable in a 415520

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

12.Engineering hrs.utilised for development 120474

activities,ISO 9001,other administrative jobs

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

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

Sl.no.12)

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

15.Engineering hours rate (In Rs.) 1670.050

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

IMPROVEMENTS SUGGESTED IN CALCULATION OF ENGINEERING HOURS RATES

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

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

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

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

heads varies on the basis of level of activities

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

are certain assignments which need services of senior engineers whose hourly

expenditure may be higher than the avg. rate adopted.

OTHER THINGS LEARNED AT CET SAIL (FINANCE DEPARTMENT)

To prepare engineering hour rate for CET SAIL employee.

Preparation of vouchers

Preparation of T.A.BILLS (Travelling allowance)

Preparation of revenue budget for CET- SAIL.

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Preparation of renumeration for employees’ remuneration & benefits budget.

PERFORMANCE HIGHLIGHTS OF CET 2009-2010

HIGHLIGTS OF PHYSICAL PERFORMANCE

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

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

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

year.

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

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

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

furnaces has been floated.

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

Durgapur , Bokaro and Rourkela is being used extensively for quarterly project

reviews , designed reviews , knowledge sharing , technical discussion with

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

coverage and saving in expenditure.

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

of papers/ documents are being done through email system.

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

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

‘analysis and interpretation of financial statements’ refers to the process of determining

financial strength and weakness of the firm by establishing strategic relationship between the

items of the Balance Sheet, Profit and Loss account and other operative data. The purpose of

financial analysis is to diagnose the information contained in financial statements so as to

judge the profitability and financial soundness of the firm.

OBJECTIVES OF THE STUDY

1. To study the financial position of the company.

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

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

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

analysis.

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

IMPORTANCE OF THE STUDY

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

picture of the financial position of SAIL.

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

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

liabilities.

3. Protecting the property of the business.

4. Compliances with legal requirement.

LIMITATIONS OF THE STUDY

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

reports of SAIL for the study period.

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

for a period of 7 years (2003-2009).

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

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

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

RESEARCH METHODOLOGY

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

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

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

research study.

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RESEARCH DESIGN

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

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

available through financial statements of earlier years and analyze these to make critical evaluation of

the available material. Hence by making the type of the research conducted to be both Descriptive and

Analytical in nature.

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

decided.

DATA COLLECTION

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

audited reports of the company.

SOURCES OF DATA

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

METHODS OF DATA ANALYSIS

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

study are:

ANALYTICAL TOOLS APPLIED

The study employs the following analytical tools:

1. Comparative statement.

2. Common Size Statement.

3. Trend Percentage.

4. Ratio Analysis.

5. Cash Flow Analysis

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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.

4. LITERATURE REVIEW

FINANCIAL STATEMENTS ANALYSIS

The financial statements are indicators of the two significant factors:

1. Profitability and

2. Financial soundness

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

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

profitability and financial soundness of the business.

Balance Sheet

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

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

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

listed in the company’s accounting records, is considered to be a fundamental accounting statements.

The income statement summarizes the business operations during the specific period and shows the

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

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

supplemented by a comparative statement of the cost of goods manufactured and sold. It is prepared at

regular intervals and shows what a business enterprise owns and what it owes. It provides information

which helps in the assessment of the three main aspects of an enterprises position – its profitability,

liquidity and solvency. Of these, the later two are concerned with an enterprises ability to meet its

liabilities, while profitability is most useful overall measure of its financial conditions, the balance

sheet is a statements of assets, liabilities capital on specified date. It is therefore a static statement,

indicating resources and the allocation of these resources to various categories of asset. It is so to say

financial photography finance. Liabilities show the claims against its assets.

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

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

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

shareholders, lenders, suppliers and by the retention of income.

This tool suffers from the following limitations:

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

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

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

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

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

enterprise in the future.

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

Income statement

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

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

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

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

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

comparing income statements for successive periods, it is possible to observe the progress of the

business the statement is supplemented by a comparative statement of cost of goods manufactured and

sold. It summarizes firms operating results for the past period.

Comparative balance sheet

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

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

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

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

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

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

are given due weight at the time of comparison.

Common-size statements

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

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

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

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

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

Cash flow statement

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

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

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

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

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

the business.

Ratio Analysis

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

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

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

attractiveness as an investment.

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

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

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

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

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

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

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

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

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

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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.

Solvency Ratios show the long term profitability of the company.

Liquidity Ratios

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

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

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

term obligations.

1. Current Ratio

2. Liquid Ratio

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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

2. Quick Ratio:

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

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

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

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

3. Net Working Capital Ratio

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

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

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

capital requirements.

Net working capital ratio = Net Working Capital / Capital Employed

Page | 28

Turnover Ratios

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

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

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

profitability. Turnover ratios indicate the number of times the capital has been rotated in the

process of doing business.

1. Fixed Asset Turnover Ratio

2. Working Capital Turnover Ratio

3. Debtor Turnover Ratio

4 Stock Turnover Ratio

1. Fixed Assets Turnover Ratio

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

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

assets to generate sales.

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

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

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

Fixed Assets Turnover Ratio = Gross Sales / Net Fixed Assets

2. Working Capital Turnover Ratio

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

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

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

intend to establish a relationship between working capital and salsas the two are closely

Page | 29

related. Through this ratio we are attempting to see that one rupee blocked by the

organization in net working capital is generating how much sales. Higher the ratio better it

is.So, the working capital can be defined either as a gross working capital, which include

funds invested in all current assets, or as net working capital, which denotes the difference

between the current assets current liabilities of an organization.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

3. Debtors Turnover Ratio

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

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

enterprise. This ratio is calculated as follows:

I. Debtors’ turnover ratio

II. Debt collection period.

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

denominator is logically related to credit sales as it arises from credit sales only. Cash sales

do not generate debtors. However, as the information related to credit sales is not separately

available in corporate accounts, so total sales could be taken in the numerator. Average

debtors are calculated by dividing the sum of beginning-of-year and end-of-year balance of

debtors by 2.

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

Debt collection period:

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

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

Page | 30

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

period will result in greater blockage of funds in debtors.

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

4. Stock Turnover Ratio:

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

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

turnover ratio signifies the liquidity of the Inventory. A high inventory turnover ratio

indicates brisk sales. The ratio is, therefore a measure to discover the possible trouble in the

form of over stocking or over valuation.

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

industry.

Stock Turnover Ratio = Sales / Average Inventory

Profitability Ratios

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

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

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

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

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

1. Return on Investment

Page | 31

2. Return on Shareholders’ fund

3. Return on total asset

4. Earnings per Share

5. Net profit Ratio

6. Operating ratio

7. Payout ratio

8. Dividend yield ratio

1. Return on Investment:

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

total capital employed in the business.

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

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

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

Return on investment = Operating profit/ Capital employed *100

2. Return on Shareholder’s Fund:

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

of view, it should be computed as follows:

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

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

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

Page | 32

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

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

expenses).

3. Return on Total Assets:

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

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

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

business.

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

4. Earnings per Share:

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

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

the following formula:

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

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

shares of the company. A comparison of earning per share of the company with another will

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

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

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

5. Net Profit Ratio:

Page | 33

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

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

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

ratio is thus on effective measure to check the profitability of business. However, constant

increase in the above ratio after year is a definite indication of improving conditions of the

business.

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

6. Operating Ratio:

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

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

Operating Ratio =Operating Cost/Net Sales*100

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

factory, office or selling.

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

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

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

investors.

7. Payout Ratio:

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

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

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

back in the business and vice versa.Page | 34

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

8. Dividend Yield Ratio

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

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

value.

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

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

Long Term Financial Position or Solvency Ratios

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

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

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

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

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

1. Capital structure ratios-ex. Debt equity ratio

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

1. Debt-Equity Ratio

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

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

The ratio is calculated as:

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

Page | 35

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

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

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

reserves representing accumulated profits and surpluses.

2. Interest Coverage Ratio

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

Interest coverage ratio = EBIT/Fixed interest charge

5. DATA ANALYSIS AND INTERPRETATION

3. Balance Sheet

Table No.1

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

(Rs. in Crores)PARTICULARS 2003 2004 2005 2006 2007 2008 2009ASSETSFixed Assets 14414 13550 12851 12920 12796 13960 18813

Investment 543 543 606 293 514 538 653

Current Assets 7312 8246 14333 15630 20375 26317 34511

Mis.Expenditure 536 378 294 215 129 59 0.00

P&L a/c 2765 - - - - - -

Total Assets 25570 22717 28084 29058 33854 40874 53977

LIABILITIES

Page | 36

Shareholder’s Funds

5290 5037 10306 12601 17313 23063 27984

Loan Funds 12969 8690 5770 4298 4180 3045 7539

Current Liabilities& Provisions

7311 8990 10166 10675 10949 13198 17122

Deferred Liabilities

- - 1842 1484 1412 1568 1332

TOTAL LIABILITIES

25570 22717 28084 29058 33854 40874 53977

4. Comparative Balance Sheet

Table No.2

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

( Rs. in Crores)

PARTICULARS

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

Cng % cng Cng % cng Cng%

cngCng

% cng

Cng%

cngCng

% cng

ASSETS

Fixed Assets(864) (5.9) (699) (5.1) 69 0.53

(124)

(0.9)

1164 9.09 4853 34.76

Investment 0 0 63 11.6 (313) (51.6)

221 75.4 24 4.66 115 21.37

Current Assets

934 12.77 6087 73.8 1297 9.04 4745

30.3 5942 29.16 8194 31.13

Mis. Expenditure

(158) (29.4) (184) (22) (79) (26.8)

(84) (39) (70) (54) (59) (100)

P&L a/c - - - - - - - - - - - -

LIABILITI

Page | 37

ES

Shareholder’s Funds

(253) (4.78) 5269 104.6 2295 22.26

4712

37.3 5750 33.21 4921 21.33

Loan Funds(4279)

(32.9) (2920) (34)(1472)

(25.5)

(118)

(2.7)

(1135)

(27) 4494 147.6

Current Liabilities& Provisions

1679 22.96 1176 13.08(8682)

(85.4)

(72)(4.8

)2249 20.5 3924 29.73

Deff.

Liabilities- - - - 8833 479 274 2.56 156 11.04 (236) (15)

Interpretation:

Long Term Financial Position:

The comparative Balance Sheet of the company reveals that during the financial year 2008– 2009

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

long term liabilities which contains shareholders funds and long term loans also show growth.

Long term loans show an increase of 147.6% in 2008-09 which means that most of the fixed

assets are financed by long term loans.

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

will increase production capacity of the concern.

Current Financial position and liquidity position:

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

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

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

Page | 38

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

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

profitability of the company.

The overall financial position of the company is very good.

5. Income Statement

Table No.3

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

(Rs. in crores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

Sales

EBIDTA

Less: Depreciation

19207

2165

1147

24178

4652

1123

31805

11097

1127

32280

7381

1207

39189

10966

1211

45555

12955

1235

48681

10941

1285

EBIT

Less: Interest Charges

1018

1334

3529

901

9970

605

6174

468

9755

322

11720

251

9656

253

PBT (316) 2628 9365 5706 9423 11469 9403

Page | 39

Less : Tax (12) 116 2548 1693 3221 3932 3229

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

6. Comparative Income Statement

Table No.4

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

( Rs.in Crores)

PARTICULARS

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

change % of

change

change % of

change

change % of

change

change % of

change

change % of

change

change % of

Change

Sales

EBIDT

Less: Depreciation

4971

2487

(24)

25.9

114.8

(2.1)

7627

6445

4

31.5

138.5

0.35

475

(3716)

80

1.49

(33.4)

7.09

6909

3585

4

21.4

48.5

0.3

6367

1989

24

16.2

18.1

1.98

3126

(2014)

50

6.86

(15)

0.04

EBIT

Less: Interest

2511

(433)

246.6

(32.4

6441

(296)

182.5

(32.7)

(3769)

(137)

(38)

22.64

3581

(146)

58

(31)

1965

(71)

20.1

(22)

(2064)

2

(17.6)

0.7

Page | 40

Charges )

PBT

Less : Tax

2312

104

731.6

866.6

6737

2432

256.3

2096

(3659)

(855)

(39)

(33.5)

3717

1528

65.1

90.2

2046

711

21.7

22

(2066)

(703)

(18)

(17.8)

PAT (Net Profit)

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

Interpretation

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

increasing trend which will help to increase in Net Profit.

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

only 0.04% in 2009 over 2008.

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

decreased in recent years.

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

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

sold.

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

profitability of the concern is very good.

Page | 41

7. Trend Percentage

Table No.5

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

Base Year 2003 Figure in %

Particulars 2003 2004 2005 2006 2007 2008 2009

SALES 100 125.88 165.59 168.06 204.03 237.17 253.45

EBIT 100 346.66 979.37 606.48 958.25 1151.27 948.52

FIXED ASSETS

100 94.00 89.15 89.63 88.77 96.85 130.51

CURRENT ASSETS

100 112.77 196.02 213.75 283.57 359.91 471.97

CURRENT LIABILITIES

100 122.96 139.05 146.01 149.76 180.52 234.19

WORKING CAPITAL

100 81.83 302.55 370.29 554.05 673.81 889.54

Page | 42

CAPITAL EMPLOYEDTOTAL

100 92.00 121.29 131.65 154.01 171.99 208.88

TOTAL ASSETS

100 88.84 109.83 113.64 132.39 159.85 211.09

Interpretation:

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

increase in sales is quite satisfactory.

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

in the cost of goods sold.

8. Common Size Balance Sheet

Table No.6

Common Size Balance Sheet of Steel Authority of India Limited from 2003-2009

( Rs.in Crores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

ASSETS

Fixed Assets 56.37 59.64 45.75 44.46 37.90 34.15 34.85

Investment 21.23 2.39 2.15 1.00 1.54 1.31 1.209

Current Assets 28.59 36.29 51.06 53.78 60.18 64.51 63.93

Mis.Expenditure 2.09 1.68 1.04 0.76 0.38 0.144 0.00

P&L a/c 10.72 - - - - - -

Total Assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00

LIABILITIES

Shareholder’s 20.60 22.17 36.69 43.36 51.14 56.42 51.84Page | 43

Funds

Loan Funds 50.73 38.25 20.54 14.79 12.34 7.44 13.96

Current Liabilities

& Provisions

28.59 39.58 36.19 5.10 4.17 32.28 31.72

Deferred Liabilities

- - 6.58 36.75 32.35 3.83 2.46

Total Liabilities 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Interpretation:

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

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

shows that the company is traditionally financed.

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

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

company.

Investments, Miscellaneous expenditure and deferred liabilities have their own limited

contribution to their respective side totals.

Page | 44

RATIO ANALYSIS

Liquidity ratios

1. Current Ratio:

Table No.7

Table showing Current ratio

(Rs. In Crores)

YEAR CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

2003 7282 4777 1.5242004 8075 6025 1.3402005 14187 6608 2.1462006 17384 8108 2.1442007 20379 6500 2.9172008 26317 9439 2.7882009 34511 12228 2.822

Page | 45

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

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

able to get their payments in full.

Interpretation:

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

2005 onwards which is positive consideration.

CHART 1

2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

35000

40000

current assetscurrent liabilities

Page | 46

2. Quick Ratio:

Table No.8

Table showing Quick ratio

(Rs. In Crores)

YEAR LIQUID ASSETS CURRENT LIABILITIES

QUICK RATIO

2003 3537 4777 0.7402004 4993 6025 0.8282005 9966 6608 1.5082006 11174 8108 1.3782007 13728 6984 1.9652008 19460 9439 2.0612009 24389 12228 1.994

Interpretation:

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

2005 onwards.

CHART 2

Page | 47

2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

liquid assetscurrent liabilities

3. Net Working Capital Ratio:

Table No.9

Table showing Net Working Capital Ratio

YEAR Net WorkingCapital

Capital Employed Net WorkingCapital Ratio

2003 2505 16541 0.1512004 2050 15218 0.1342005 7579 20064 0.3772006 9276 21438 0.4322007 13879 24992 0.5352008 16879 28450 0.5932009 22283 34552 0.645

CHART 3

Page | 48

2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

35000

40000

net working capitalcapiotal employed

Interpretation:

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

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

employed.

Page | 49

Turnover Ratios

1. Fixed Assets Turnover Ratio:

Table No.10 Table showing fixed asset turnover ratio

YEAR GROSS SALES (Rs IN

CRORES)

FIXED ASSETS (Rs in

crores)

FIXED TURNOVER RATIO (In

Times)2003 19207 14036 1.362004 24178 13168 1.832005 31805 12485 2.542006 32280 12162 2.652007 39189 11598 3.372008 45555 11571 3.932009 48681 12269 3.96

Interpretation:

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

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

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

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

the current assets.

Page | 50

CHART 4

2003 2004 2005 2006 2007 2008 20090

10000

20000

30000

40000

50000

60000

GROSS SALESFIXED ASSETS

2. Working Capital Turnover Ratio:

Table No.11Table showing Working capital turnover ratio

Interpretation:

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

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

receivables in the year 2005 to 2009.

Page | 51

YEAR GROSS SALES (Rs IN

CRORES)

WORKING CAPITAL (Rs in

Crores)

Working capital turnover ratio

(in times)2003 19207 2505 7.6672004 24178 2050 11.792005 31805 7579 4.1962006 32280 9276 3.4792007 39189 13879 2.8232008 45555 16879 2.6982009 48681 22283 2.184

CHART 5

2003 2004 2005 2006 2007 2008 20090

10000

20000

30000

40000

50000

60000

GROSS SALESWORKING CAPITAL

3. Debtors Turnover Ratio:

Table No.12

Table showing Debtors’ turnover ratio

YEAR CREDIT SALES(Rs. In Crores)

DEBTORS(Rs. In Crores)

Debtors’ turnoverratio

(In times)2003 19207 1660 11.5702004 24178 1550 15.5982005 31805 1908 16.6692006 32280 1882 17.1512007 39189 2315 16.9282008 45555 3048 14.9452009 48681 3024 16.098

Interpretation:

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

thereafter .As the ratio is sufficiently high it can be concluded that efficient management of

the debtors has taken place.

Page | 52

CHART 6

2003 2004 2005 2006 2007 2008 20090

10000

20000

30000

40000

50000

60000

CREDIT SALESDEBTORS

Debt collection period:

Table No.13

Table showing Debt collection period

(In Days)

YEAR COLLECTION PERIOD2003 322004 232005 222006 212007 222008 242009 23

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

slowness with which money is collected from them.

Page | 53

CHART 7

2003 2004 2005 2006 2007 2008 200905

101520253035

COLLECTION PERIOD

COLLECTION PERIOD

INTERPRETATION;

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

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

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

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

4. Stock Turnover Ratio:

Table No.14

YEAR SALES (Rs in crores)

AVERAGE STOCK (Rs in crores)

STOCK TURNOVER

RATIO ( in times)2003 19207 3745 5.1282004 24178 3082 7.8442005 31805 4221 7.5342006 32280 6210 5.1982007 39189 6651 5.8922008 45555 6857 6.6432009 48681 10121 4.809

Page | 54

INTERPRETATION:

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

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

2008 the ratio showed an increase due to a large increase in sales. But in 2009 there was a

large increase in average stock/inventory which contributed to a lower inventory turnover

ratio . This can be attributed to uncertain economic situation and weak demand of steel in the

market. The overall situation is still good enough.

CHART 8

2003 2004 2005 2006 2007 2008 20090

10000

20000

30000

40000

50000

60000

CREDIT SALESAVERAGE STOCK

Page | 55

Profitability Ratios

1. Return on Investment:

Table No.14

Table showing Return on Investment

YEAR OPERATING PROFIT (Rs in

crores)

CAPITAL EMPLOYED (Rs in

crores)

RETURN ON INVESTMENT (In

%)2003 1018 16541 6.1542004 3530 15218 23.1962005 9970 20064 49.6902006 6174 21782 28.3442007 9755 25476 38.2902008 11720 28450 41.1952009 9656 34552 27.946

Interpretation:

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

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

shows regular increase from 2003 to 2009.

Page | 56

CHART 9

2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

35000

40000

OPERATING PROFITCAPITAL EMPLOYED

2. Return on Shareholder’s Fund:

Table No.15

Table showing return on Shareholders’ Fund

YEAR NET PROFIT (Rs in crores)

SHAREHOLDER’S FUND (Rs in crores)

RETURN IN SHAREHOLDER’S

FUND (IN %)2003 -304 5290 -5.7462004 2512 5038 49.8612005 6817 10307 66.1392006 4013 12601 31.8462007 6202 17313 35.8222008 7537 23063 32.6802009 6174 27984 22.062

INTERPRETATION:

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

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

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

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

Page | 57

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

stabilizing return on investment.

CHART 10

2003 2004 2005 2006 2007 2008 2009-5000

0

5000

10000

15000

20000

25000

30000

NET PROFITSHARE HOLDERS FUND

3. Return on Total Assets:

Table No.16

Table showing return on Total Assets

YEAR NET PROFIT (Rs in crores)

TOTAL ASSETS ( IN CRORES)

RETURN ON TOTAL

ASSETS(IN %)2003 -304 25570 -1.1882004 2512 22717 11.0572005 6817 28084 24.2732006 4013 29058 13.8102007 6202 33854 18.3192008 7537 40874 18.4392009 6174 53977 11.438

Interpretation:

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

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

Page | 58

CHART 11

2003 2004 2005 2006 2007 2008 2009-10000

0

10000

20000

30000

40000

50000

60000

NET PROFITTOTAL ASSETS

4. Earnings per Share:

Table No.17

Table showing Earning per Share

YEAR NET PROFIT (Rs in crores)

NUMBER OF EQUITY SHARES

( IN CRORES)

EARNING PER SHARE (IN %)

2003 -304 413 -0.7362004 2512 413 6.0822005 6817 413 16.5062006 4013 413 9.7162007 6202 413 15.0162008 7537 413 18.2492009 6174 413 14.949

Interpretation:

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

correlation during the period of study. It shows an increasing trend except in the year 2004

and 2009 due to lower net profits than previous years.

Page | 59

CHART 12

2003 2004 2005 2006 2007 2008 2009-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

NET PROFITNUMBER OF EQUITY SHARES

5. Net Profit Ratio:

Table No.18

Table showing Net Profit Ratio

YEAR OPERATING PROFIT (RS IN

CRORES)

SALES (IN CRORES)

NET PROFIT RATIO (IN %)

2003 1018 19207 5.3002004 3530 24178 14.6002005 9970 31805 31.3472006 6174 32280 19.1262007 9755 39189 24.8922008 11720 45555 25.7272009 9656 48681 19.835

Page | 60

Interpretation:

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

ratio. While sales has constantly increased over the years operating profit has increased but

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

profits. The reason can be attributed to uncertain economic situation and higher cost of goods

sold as well as weak demand.

CHART 13

2003 2004 2005 2006 2007 2008 20090

10000

20000

30000

40000

50000

60000

OPERATING PROFITSALES

6. Operating Ratio:

Table No.19

Table showing Operating Ratio

YEAR OPERATING COST(RS IN

CRORES)

SALES(Rs. In crores)

OPERATINGRATIO(In %)

2003 17940 19207 93.4032004 19512 24178 80.7012005 20339 31805 63.9492006 23675 32280 73.3422007 26483 39189 67.5772008 30423 45555 66.7832009 36848 48681 75.692

Interpretation:Page | 61

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

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

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

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

CHART 14

2003 2004 2005 2006 2007 2008 20090

10000

20000

30000

40000

50000

60000

DIRECT MATERIALSALES

7. Payout Ratio:

Table No.20

Table showing Payout Ratio

YEAR DIVIDEND PEREQUITY

EPS Dividend pay out ratio

2005 3.3 16.50 202006 2.0 9.71 20.592007 3.10 15.01 20.652008 3.7 18.25 20.272009 2.6 14.95 17.39

Interpretation:

Page | 62

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

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

company. However in 2009 lesser amount of dividend is given so EPS is 14.95 and pay out

ratio is 17.39 this implies that the company keeps 82% of earning per share as retained

earnings.

CHART 15

2005 2006 2007 2008 20090

2

4

6

8

10

12

14

16

18

20

DIVIDENT PER EQUITYEPS

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

8. Dividend Yield Ratio:

Table No.21

Table showing Dividend yield

YEAR DIVIDEND PEREQUITY

MARKET PRICE Dividend yield

2005 3.3 62.87 5.252006 2.0 83.30 2.402007 3.10 114.30 2.712008 3.7 185 22009 2.6 96 2.70

Page | 63

Interpretation:

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

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

CHART 16

2005 2006 2007 2008 20090

20

40

60

80

100

120

140

160

180

200

DIVIDEND PER EQUITYMARKET PRICE

Long Term Financial Position or Solvency Ratios

1. Debt-Equity Ratio

TABLE NO: 21

Table showing Debt-Equity ratio

YEAR OUTSIDER’S FUND

SHAREHOLDER’S FUND

DEBT EQUITY RATIO

2003 34385 5290 6.52004 9419 5037 1.872005 5977 10306 0.582006 4410 12601 0.352007 4155 17313 0.242008 2988 23063 0.132009 7555 27984 0.27

Page | 64

CHART 17

2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

35000

40000

OUTSIDER'S FUNDSHARE HOLDER'S FUND

Interpretation

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

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

corresponding increase in shareholders funds. This indicates that the firm is traditionally

financed and it is considered to be favorable from a long term creditor’s point of view as a

high proportion of owner’s funds provide a larger margin of safety for them.

Interest Coverage Ratio

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

Interest coverage ratio = Ebit/Fixed interest charge

TABLE NO: 22

YEAR EBIT FIXED INTEREST CHARGES

INTEREST COVERAGE RATIO

2003 1018 1339 0.762004 3529 910 3.88

Page | 65

2005 9970 607 16.432006 6174 472 13.072007 9755 333 29.292008 11720 252 46.392009 9656 326 29.59

Interpretation:

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

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

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

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

demand.

Page | 66

CHART 18

2003 2004 2005 2006 2007 2008 20090

2000

4000

6000

8000

10000

12000

14000

EBITFIXED INTEREST CHARGES

Page | 67

CALCULATION AND INTERPRETATION OF CASH FLOW STATEMENT

CASH FLOW STATEMENT (in Rs.crores)

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

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

Net Cash Flow –Operating activity

2667.74 7199.45 8899.47 3823.93 5632.91 8378.18 6124.26

Net Cash used in investing activity

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

Net Cash used in Fin. Activity

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

Net inc./decrease in cash or equivalent

118.79 1488.18 4096.30 (87.51) 3437.19 4149.61 4469.09

Cash and equivalent at

beginning of the year

416.37 717.31 2035.82 6260.15 6172.64 9609.83 13759.44

Cash and equivalent at end

of the year

535.16 2205.49 6132.12 6172.64 9609.83 13759.44 18228.53

INTERPRETATION

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

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

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

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

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

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

Page | 68

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

in borrowings.

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

good liquidity position of the firm

6.COMPETITOR ANALYSIS

BALANCE SHEET FOR 2009 (in crores)

PARTICULARS SAIL TATA ISPAT JINDAL ESSARASSETSNET BLOCK 12269 10995 8888 5745 9129CAPITAL WORK IN PROGRESS

6544 3488 103 2318 550

INVESTEMENT 653 42372 233 1233 791NET CURRENT ASSETS

17389 (308) 160 1078 1580

TOTAL ASSETS

36855 56651 9384 10378 12050

LIABILITIESSHARE HOLDERS FUND

27985 29705 2032 5415 4738

TOTAL DEBT 7539 26946 7352 4963 7312DEFFERED LIABILITY

1331 - - - -

TOTAL LIABILITIES

36855 56651 9384 10378 12050

Page | 69

PROFIT AND LOSS ACCOUNT FOR 2009 (in crores)SAIL TATA ISPAT JINDAL ESSAR

SALES 48681 26843 9181 8433 12704

EBIDTA 10941 9779 730 2693 1930Less: Depreciation

1285 973 647 433 828

EBIT 9656 8806 83 2260 1102Less:Int.Charges

253 1489 1129 268 862

Extraordinary items

- - 24 10 55

PBT 9403 7317 (1023) 2002 240Less: Tax 3229 2115 (335) 465 110PAT 6174 5202 (688) 1537 185

Page | 70

COMPETITOR ANALYSIS

(as in2009)

RATIOS SAIL TATA ISPAT JINDAL ESSARPROFITIBILITY RATIOOPERATING PROFIT

24.31 37.68 13.58 34.35 21.44

GROSS PROFIT 44.14 33.69 5.76 28.71 14.37NET PROFIT 19.83 21.09 -8.04 19.50 1.56RETURN ON CAPITAL EMPLOYED

27.94 15.01 6.69 23.16 15.01

LIQUIDITY & SOLVENCY RATIOSCURRENT RATIO

2.82 0.91 1.04 1.04 0.71

QUICK RATIO 1.99 0.57 0.42 0.95 0.62DEBT EQUITY RATIO

0.27 1.34 9.04 0.92 1.57

DEBT COVERAGE RATIOINTREST COVERAGE RATIO

29.59 5.71 0.52 10.33 3.17

MANAGEMENT EFFICIENCY RATIOSINVENTORY TURN OVER RATIO

4.80 9.36 7.59 9.08 8.69

DEBTORS TURN OVER RATIO

16.09 41.29 14.50 22.62 30.35

FIXED ASSETS TURN OVER RATIO

3.96 1.22 0.61 1.04 0.76

CASH FLOW INDICATOR RATIODIVIDEND PAY 17.39 27.15 - 5.55 -

Page | 71

OUT RATIO

Interpretation

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

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

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

and efficiency of the business is good.

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

enough liquidity in comparison to other competitors.

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

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

can easily raise debt in future

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

a source of finance to increase earnings per share.

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

indicates inefficient management of inventories.

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

shows that the debtors are less liquid implying inefficient management of

debtors/sales.

Page | 72

7.RECOMMENDATION AND SUGGESTION

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

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

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

up in debtors. In order to improve the quality of debtors and also to bring down the

amount tied-up in debtors, a periodical report of the overdue may be prepared and

effective action may be taken by the management time to time to expedite the collections.

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

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

minimize costs and improve efficiency.

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

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

of 1:1.

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

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

quantum of liquidity all the times.

Page | 73

8. CONCLUSION

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

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

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

2007-08 whereas profit before tax has decreased by 18% i.e. Rs. 2064 crores in the FY

2008-09 from Rs. 11469 crores in the FY 2007-08 indicating increase in cost of goods sold.

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

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

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

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

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

liquidity in comparison to other competitors.

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

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

raise debt in future.

SAIL is more efficient and effective to utilize its fund.

Page | 74

9. BLIOGRAPHY

BOOKS:

Financial management by R.K. SHARMA & SHASHI K GUPTA

Annual Report of SAIL Magazines of SAIL

INTERNET WEB SITES:

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

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