FINANCIAL STATEMENT ANALYSIS

Financial statements are prepared primarily for decision-making. They play

a dominant role in setting the framework of managerial decision. But the

information provided in the financial statements is not an end itself as no

meaningful conclusions can be drawn from the statements alone. However, the

information provided in the financial statements is of immense use in making

decisions through analysis and interpretation of financial statements. Financial

analysis is ‘The process of identifying the financial strengths and weakness of the

firm by properly establishing relationship between the items of the balance sheet

and the profit and loss account. There are various methods or techniques used in

analyzing financial statements, such as comparative statements, trend analysis,

common-size statements, schedule of changes in working capital, fund flow and

cash flow analysis, cost-volume-profit analysis and ratio analysis.

Financial statements are mirror which reflects the financial position and

operating strengths and weaknesses of the concern.

SIGNIFICANCE OF FINANCIAL ANALYSIS:

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. Just like a doctor examines his patient by recoding his body temperature,

blood pressure, etc. before making his conclusion regarding the illness and before

giving his treatment, a financial analyst analysis the financial statements with

various tools of analysis before commenting upon the financial health or weakness

of an enterprise. The analysis and interpretation of financial statements is essential

to bring out the mystery behind the figures in financial statements. Financial

statements analysis is an attempt to determine the significance and meaning of the

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financial statements data the forecast may be made of the future earnings, ability to

pay interest and debt maturities (both current and long-term) and profitability of

sound dividend policy.

The term financial statement analysis includes both ‘analysis’ and

‘interpretation’. A distinction should there fore, be made between two firms. While

the term ‘analysis’ is used to mean the simplication of financial data by methodical

classification of the data given in the financial statements, interpretation means,

‘explaining the meaning and significance of the data so simplified’. However, both

analysis and interpretation are interlinked and complimentary to each other

analysis is useless with out interpretation and interpretation with out analysis is

difficult or even impossible. Most of the authors have used the term ‘analysis’ only

to cover the meaning of both analysis and interpretation as the objective of

analysis is to study the relationship between various items of the financial

statements by interpretation. We have also used the term ‘financial statement

analysis’ or simply ‘financial analysis to cover the meaning of both analysis and

interpretation.

CONCEPT OF FINANCIAL STATEMENTS

A financial statement is a collection of data according to logical and

consistence procedures. The financial statements are prepared on the basis of

recorded facts. In the words of Metcalf and Titard. “It is process of evaluating the

relationship between component parts of financial statements to obtain a better

understanding of a firm’s position and performance.

The analysis and interpretation of financial statements is used to determine

the financial position and results of operations as well. A number of methods or

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devices are used to study the relationship between different statements. As effort is

mead to use those devices, which clearly analyze position of the enterprise. The

following methods of analysis are generally used:

1. Comparative Statement

2. Trend Analysis

3. Common-size Statements

4. Fund flow Analysis

5. Cash Flow Analysis

6. Cost-Volume Profit Analysis

7. Ratio Analysis

1. COMPARATIVE STATEMENT:

The comparative financial statement shows the financial position at

different period of time. The elements of financial position at 2 or more

periods. Two financial statements (balance sheet and income statement) are

prepared in a comparative from for financial analysis purposes. These

statements enable an in-depth study of financial position operating results.

Comparative statement can be prepared for both income statements and balance

sheet.

2. TREND ANALYSIS;

Trend analysis is a technique with the help of which the financial

statements can be analyzed by computing trend for a series of information. This

method determines the directions in the data and establishes the percentage

relationship that each item in the statement bears to the same item in the base

year.

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3. COMMON – SIZE STATEMENT:

This statement indicates the relationship of various items with some

common items (expressed as percentage of common item). In the income

statement the sales figure is taken as base and all balance sheets the total is

expressed as percentage of sales. Similarly in the other figures are expressed as

a percentage to this total. The percentages so calculated can be easily compared

with the corresponding percentages in other periods and meaningful conclusion

can be drawn.

4. FUNDS FLOW STATEMENT:

This statement is prepared in order to reveal clearly the various sources

where from the funds are procured to finance the activities of a business

concern during an accounting period.

5. CASH FLOW STATEMENT:

This statement is prepared to know clearly the various sources of cash in

flows and cash outflows. It is helpful in evaluating the current liquidity of a

business concern. Thus it is helpful in short – term financial analysis.

6. COST VOLUME PROFIT ANALYSIS:

Cost volume profit analysis is a technique for studying the relationship

between cost, volume and profit. Profit of an undertaking depends upon a

large number of factors. But the most important of this factor are the cost of

manufacture, volume of sale and the selling prices of the products. In the

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worked of HERMAN C. HERSER, the most significant single factors in profit

planning of the average business is the relationship between the volume of

business, cost and profits. The CVP relationship is an important tool used for

the profit planning of a business.

NEED FOR THE STUDY

In the modern oriented economy “finance” is the basic foundation of all

kinds of economic activities. The success of the company to a great extent depends

upon its financial performance. A careful and well planned financial management

is needed for rising of funds and utilizing them effectively.

The financial performance of a company greatly influences its operational

results and business efficiency.

The financial performance of a company influences its production,

marketing and other functions and consequently efficient rise of the company’s its

growth risk and Profitability.

A Financial ratio is the relationship between two accounting figures

expressed mathematically. Ratio analysis is a widely used tool of financial

analysis. What the ratios do is that they reveal the relationship in more

meaningful way so as to enable us to draw conclusion from them. The rationale of

ratio analysis lies in the fact that it makes related information comparable.

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OBJECTIVES OF THE STUDY:

To evaluate the performance of the organization over the last five years.

To evaluate the profitability of the company.

To evaluate the liquidity position of the company.

To examine the efficiency in the utilization of finance.

To draw conclusions and to suggest suitable measures to overcome

problems, if any to improve its performance.

SCOPE OF THE STUDY:

The present study will reveal the financial performance of the company

covering purely financial data supplied by the company’s financial statements

through RATIO ANALYSIS. The Ratio Analysis are analyzed with financial data

along with interpretation.

METHODOLOGY:

Methodology is a systematic procedure of collecting information. The

collection of data is done through two principles sources viz.,

1. Primary data

2. Secondary data

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PRIMARY DATA: It is the information collected directly without any reference.

In the mainly interviews concerned officers and staff either individually or

collectively. Some of the information had been verified or supplemented with

personnel observation, the data is collected through conducting the personal

discussions with the officers of the SPONGE IRON INDIA LTD.

SECONDARY DATA: The Secondary data was collected from already published

sources such as pamphlets, annual reports, written and internal records.

1. Collection of required data from annual reports of SIIL.

2. Reference from textbook and journals relating to financial management.

3. Articles published in business dailies like Economic times, Business times etc.

PERIOD OF STUDY:

To study the comparative financial statement analysis of SIIL, the research

had chosen five years period from 2004-05 to 2008-09 as period of study.

LIMITATIONS:

The study undertaken for the company includes only ratios as a technique of

analysis.

This may not reflect the whole financial position of the company.

The conclusion drawn from the annual figures provided by the company may not

give accurate financial position of the company.

While calculating the percentages, approximations are more to the nearest

figures. They may not give true picture of the study.

The performance shown in the project is limited to the data provided by the

company. Hence it is limited to information provided by them.

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RATIO ANALYSIS

Ratio is an expression of the quantitative relationship that exists between the

two numbers. In simple language ratio is one number expressed in terms of another

and be worked out by dividing one number by the other. It shows the relationship

between two figures.

Ratio analysis is a widely used tool of financial analysis. It is defined as the

systematic use of ratios to interpret the financial statements so that the

strengths and weakness of firm as well as its historical performance and current

condition can be determined.

The relationship between two or more accounting groups is called financial

ratios. A financial ratio helps to summarize a large mass of financial data into a

concise form and to make meaningful interpretation and conclusion about the

performance of the firm.

A ratio may be expressed either in proportion or as rate or as percentage. A

ratio may take the form of proportion. Here the figures of the two items used for

computing the ratio are expressed in common denominator. Examples are current

ratio = 5:3 acid test ratio 1:3:1 etc,.

NATURE:

The ratio analysis of financial statement stands for the process of

arrangements of data computation of ratios, interpretation of the

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ratios .However ratio analysis is not an end itself. It is only a means of better

understanding of financial statements and weakness of a firm. Collection of more

ratios does not serve any purpose, unless several appropriate ratios are

analyzed and interpreted.

The following are the four steps involved in ratio analysis.

Selection of relevant data from the financial statement depending upon the

objectives of the analysis.

Calculation of appropriate ratios from above data

Comparison of calculated ratios with the ratio of the same firm or the

ratios developed from projected financial statements or the ratios of some other

firms or the comparison with the ratios of the industry to which the firm

belongs.

Interpretation of ratios.

MANAGERIAL USE OF RATIO ANALYSIS:

Ratio analysis helps in decision making from the information provided in the

financial statements.

Ratios enable the financial analyst to summarize and simplify the voluminous

financial data.

The trend ratios enable the analyst to find out whether the firm has been

improving its performance or not over the year.

Ratios are helpful in identifying the problem areas of firm and this will make

the management to take necessary corrective measures to improve the results in

future.

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Ration analysis helps to formulate policies for future including the capital

expense decisions.

Ratio analysis is an important tool for minimizing costs.

Advantages of Ratio Analysis:

Useful in financial position analysis.

Useful in simplifying accounting figures.

Useful in assessing the operational efficiency.

Useful in forecasting purposes.

Useful in locating weak spots of business.

Useful in comparison of performance.

Importance of the Ratios:

1. Aid to measure General Efficiency:

Ratios enable the mass of accounting data to be summarized and simplified.

They act as index of the efficiency of the enterprise. As such they serve as an

instrument of management control.

2. Aid to measure Financial Solvency:

Ratios are useful tools in the hands of management and other concerned to

evaluate the firm’s performances over a period of time by comparing the present

ratio with the past ones. They point firm’s liquidity position to meet its short term

obligations and along term solvency.

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3. Aid in Forecasting and planning:

Ratio analysis is an invaluable aid to management in the discharge of its

basic function such as planning, forecasting, control etc. The ratios that are

derived after analyzing and scrutinizing the past result help the management to

prepare budget to formulate policies and to prepare the future plan of action etc.

4. Facilitate decision-making;

It throws light on the degree of efficiency of the management and utilization

of the assets and that is why it is called survey or of efficiency. They help

management in decision-making.

5. Aid in corporative Action:

Ratio analysis provides inter firm comparison. They highlight the factors

associated with successful and unsuccessful firms. If comparison shows an

unfavorable variance, corrective actions can be initiated. Thus, it helps the

management to take corrective action.

6. Aid in Intra Firm comparison:

Intra firm comparisons are facilitated. It is an instrument for diagnosis of

financial health of an enterprise. It facilitates the managements to know whether

the firm’s financial position is improving or deteriorating by setting a trend with

the help or ratios.

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7. Act as a Good Communication:

Ratios are an effective means of communication and play a vital role in

informing the position of and progress made by the business concern to the owners

and other interested parties. The communications by the use of simplified and

summarized ratios are more easy and understandable.

8. Evaluation of Efficiency:

Ratio analysis is an effective instrument which, when properly used, is

useful to assess important characteristics of business liquidity, solvency,

profitability etc. a study of these aspects may enable conclusions to be drawn

relating to capabilities of business.

9. Effective Tool:

Ratio analysis help in making effective control of the business measuring

performances, control of cost etc. Effective control is the keynote of better

management. Ratio ensures secrecy.

Figures, in their absolute forms. Shown in the financial statements are

neither significant nor able to be compared. In fact, they are dump. But ratios have

power to speak.

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DESIGN OF THE STUDY:

CHAPTER-I: Deals with Introduction about RATIO ANALYSIS, its need,

objective, scope, data methodology, limitations and design of the study.

CHAPTER- II: Deals with Industry profile regarding growth and downfalls of

the present iron industry

CHAPTER-III: Deals with introduction to profile of the SPONGE IRON INDIA

LTD, PALVANCHA, KHAMMAM.

CHAPTER-IV: Deals with Analysis and Interpretations. RATIO ANALYSIS

are analyzed and interpreted in a simple and Understandable manner.

CHAPTER-V: Deals with Conclusions and Suggestions. In this Chapter the

company’s performance will be quoted in ratios/ percentages.

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Industry Profile

Sector structure/Market size

The steel industry in India has been moving from strength to strength and

according to the year-end review by the Press Information Bureau, India has

emerged as the fourth largest producer of steel in the world and the second largest

producer of crude steel.

Significantly, state-owned steel maker, Steel Authority of India (SAIL), which

reported a net profit of US$ 571 million in January-June 2009, has become the

most profitable steel company globally, beating steel majors such as ArcelorMittal,

Posco, Bao Steel and Nippon in the half yearly profits.

Production

Steel production reached 28.49 million tonne (MT) in April-September 2009.

The National Steel Policy has a target for taking steel production up to 110 MT by

2019–20. Nonetheless, with the current rate of ongoing greenfield and brownfield

projects, the Ministry of Steel has projected India's steel capacity is expected to

touch 124.06 MT by 2011–12. In fact, based on the status of memoranda of

understanding (MoUs) signed by the private producers with the various state

governments, India's steel capacity is likely to be 293 MT by 2020.

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Consumption

India accounts for around 5 per cent of the global steel consumption. Almost 70

per cent of the total steel used is for kitchenware. However, its use in railway

coaches, wagons, airports, hotels and retail stores is growing immensely.

India's steel consumption rose by 6.8 per cent during April-November 2009 over

the same period a year ago on account of improved demand from sectors like

automobile and consumer durables.

A Credit Suisse Group study states that India's steel consumption will continue to

grow by 16 per cent annually till 2012, fuelled by demand for construction projects

worth US$ 1 trillion.

The scope for raising the total consumption of steel is huge, given that per capita

steel consumption is only 35 kg – compared to 150 kg across the world and 250 kg

in China.

Steel players like JSW Steel and Essar Steel are increasing their focus on opening

up more retail outlets pan India with growth in domestic demand. JSW Steel

currently has 50 such steel retail outlets called JSW Shoppe and is targetting to

increase it to 200 by March 2010. They expect at least 10-15 per cent of their total

production to be sold by their retail outlets.

Essar Steel which currently has over 300 retail outlets across the country, plans to

set up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through

the retail route in two years.

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Exports

Out of India's annual iron ore production of more than 200 MT, about 50 per cent is exported.

India's iron ore exports more than doubled to 9.3 million tonne in October 2009 as compared to 4.4 million tonne in the same month a year ago on the back of increase in demand from Chinese steel producers, as per a joint study by a group of iron ore exporters.

Iron ore is a key input in steel making. The country’s iron ore exports during April-October 2009 period grew 20 per cent over the year ago period to 53 million tonne, as per the study.

Investments

A host of steel companies have lined up major investment proposals. Furthermore, with an expanding consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments.

The domestic steel sector has attracted a staggering investment of about US$ 236 billion, according to the Minister of State for Steel A Sai Prathap.

This consists of nearly 222 MoUs signed between the investors and various state governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal.

According to the Investment Commission of India investments of over US$ 30 billion in steel are in the pipeline over the next 5 years.

Tata Steel has raised US$ 500 million by issuing 'global depository receipts'

(GDRs) aiming at expansion of its Jamshedpur plant and overseas mining

projects.

The state-owned Steel Authority of India Ltd (SAIL) will invest US$ 724.12

million to set up a 4-million tonne per annum steel mill at its Bhilai Steel

Plant.

SAIL is also planning to set up a 12-million tonne plant in Jharkhand.

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Stainless steel manufacturer and exporter, Varun Industries, is setting up a

US$ 171.63 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.

India’s largest engineering conglomerate Larsen & Toubro (L&T) and state-

owned Nuclear Power Corporation of India Limited (NPCIL) have formed a

US$ 370.09 million joint venture for specialised steel and forging products.

Government Initiative

Subsequent to the recent fall in international prices of commodities and to protect

Indian producers, the Indian government has announced some changes in customs

duty rates, which were effective from November 2008.

The government has removed full exemption of customs duty on some industrial

and agricultural commodities. Iron and steel products like pig iron, spiegeleisen,

semi-finished products, flat products and long products are now subject to a basic

custom duty of 5 per cent ad valorem.

The Indian government plans to invest over US$ 350 billion in industries related to

infrastructure and construction which will give a fillip to the steel sector.

Moreover, in the Union Budget 2009-10, the government has made a 23 per cent

hike in allocation for highway development and US$ 1.034 billion increase in

budgetary support to Railways which will further promote the steel industry.

Road ahead

While the demand for steel will continue to grow in traditional sectors such as

infrastructure, construction, housing, automotive, steel tubes and pipes, consumer

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durables, packaging, and ground transportation, specialised steel will be

increasingly used in hi-tech engineering industries such as power generation,

petrochemicals, fertilizers, etc. The new airports and railway metro projects will

require a large amount of stainless steel.

According to an estimate, with the growing need for oil and gas transportation

infrastructure, a US$ 118 billion opportunity is waiting to be tapped by steel

manufacturers in the next five years. Indian steelmakers are set to make the most of

booming global demand for steel pipes and tubes with the government

withdrawing the 10 per cent duty on the exports of these products. According to a

study by ICICI Direct, Indian steel companies are likely to get 19 per cent of the

total global demand in the years to come.

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COMPANY PROFILE

The sponge iron as of late come up as a major input material for steel

making through electric  furnace route both electric furnace and induction furnace.

The steel industry is slowly diverting itself from blast furnace route to electric

furnace route and the requirement of sponge iron is increasing is very fast. The

steel making furnace in the eastern region use average 70% sponge iron in the feed

material for steel making.

The steel is today considered as the backbone of India economy. The growth

of economy as a direct relation with the demand of steel. With the present steel

intensity index. Considering the GDP projection by the Govt of India, growth of

steel demand will be around 11% annually. It is the universal accepted the Indian

economy is growing at a very high rate presently and the demand for steel is also

showing up ward trend.

No. of     units in operation   - India 283

Now DRI units have spread over the states of Orissa, Jharkahand, Chethisgarh,

West Benagal, Karnataka, Tamilnadu, A.P, Gujarath and Goa .India is the largest

producer of the Sponge Iron in the world. In the year 2006 India produced 13.9

Million Tones. 

Today India produces 13.9 million tons of sponge iron, out of which 4.2 million

ton is as based and remaining 9.7 million ton is coal base.  India has a proven

reserve of 410 million ton of high grade iron ore   another 440 million ton of high

grade iron ore which will be established. India has total 9992 million ton of iron

ore reserves (as per IBM report of 1995).

     

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 India has sufficient non-coking coal through of high ash low fixed carbon

grade. Coal is used as a reducing for sponge iron making in the furnace. The

availability of scrap of required quantum is unlikely and therefore scraps needs to

be replaced more and more by DRI.

Local supply of scrap is diminishing as generation of scrap in India due to

improvement of technology is getting continually minimized. As per World Steel

Dynamics (WSD) - the Global shortage of scrap will reach 68 million ions in the

year 2010.

     Thai means the scrap price will go up and availability will be a problem.

Today the international price for scrap is around US390. Due to soaring price of

iron ore and coke, blast furnace is being set up in the countries where iron ore or

coking coal is available.

      With resources available in India -- Sponge Iron -- Electric Furnace Route is

the most viable option for steel making. As per MARRAK.ESH Round Table - the

bond rate of import duty will go down further.  And foreign countries are likely to

invade Indian market. We must produce steel at a cheaper cost to remain

competitive and control over domestic market. DRI based steel making is therefore

the only answer.

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BACK GROUND OF THE SPONGE IRON INDIA LIMITED

Sponge Iron India Limited (Sill), an undertaking of government of India and

the government of Andhra Pradesh, has successfully set up and commissioned

south East Asia's first sponge iron plant of 30000 tones per annum capacity at

Paloncha, Khammam district Andhra Pradesh in June 1980 with the assistance of

United Nations Development Programmed (UNDP). The capacity of the Plant

subsequently expanded to 60000TP. Taking note of the successful operation of the

plant in establishing of sponge iron from Lump Iron ore and non-cooking coal

locally available. Government of India sanctioned in 1982 a scheme for doubling

the capacity to 60000 tones ore annum by the addition of a second kiln of like

capacity.

       The second unit was implemented with the in-house engineering expertise

and 95% of the plant and machinery was procured from indigenous sources by

suitably modifying the designs and adopting them to India equipment. The

expansion unit was completed on schedule and went into regular operation by

November 1985. Both the units are presently operating at full rated capacity,

producing high quality sponge iron, which is being use by many electrical Arc

furnaces (EAFS) all over the country for production of steel.

       Since the commencement of operations of the first unit in 1980 and with  the

addition of the  second unit in   1985,  the company's     performance     has    

been     extremely     satisfactory, operations both the' units at near rated capacity.

The financial performance of the company has also been sound with profits being

generated from very first year of operation.

      Subsequently in 1987 the company set up a cold briquette plant for

producing high quality/high density sponge briquettes out of sponge iron fines of 1

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mm to 3mm size fraction which were at that time being considered as waste, as

EAF's find it difficult to use the same unless agglomerated.

      Based on the experience gained in the operation and successful

implementation of the expansion unit designed and engineered by APSSDC, the

company has acquire capability of rendering consultancy services in the field of

establishment of coal based sponge iron plant. In this direction the company has

rendered and his rendering such services to various clients in India and abroad.

Talking into account of extensive laboratory and test facilities available with the

company, UNIDO had accorded recognition to APSSDC as a consultant in this

field.

SUBMERGED ARC FURNACE FACILITY FOR MANUFACTURE OF HIGH GRADE PIG IRON

       For the direct reduction process using lump iron ore, It is necessary that the

fed raw materials i.e., Iron ore and coal arc crushing and-screening to the required

size. In the crushing and screening operations, considerable quantities of fines

(both iron ore and coal) are generated. While the entire quantity of coal fines is

being utilized in the kiln by the special coal injection system developed bf the

company.

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Iron ore fines do not find ready use and are required to be dumped for every turn of

sponge iron produced approximately 0.6 to l.0 tones of iron ore fines being

dumped as waste similarly during sponge iron production, about 250 kgs of un

burnt and partially burnt coal in the form of char and about 50 kgs of sponge iron

fines (below 1 mm size)' are generated per tones of prime sponge iron produced

which also do not have any commercial use and are presently being dumped as

waste.

       In order to utilize the iron are fines the iron ore fines that are generated

during the crushing operations, it is proposed to install a submerged Arc Furnace

(SAF) for production of 45,000 TPA of high grade pig iron, low in phosphorous

content. For reduce energy consumption in the SAF, the iron ore fines are would,

be pre reduced to metallization level of 75-80% in the rotary kiln and the

reproduced fines would then be smelted in the SAF. A trial campaign was

undertaken at APSSDC's plant, which had established that iron ore fines, could be

successfully reduced to the above levels of metallization without any difficulty.

The process of reproduced material would also improve the production levels of

the kiln, since the metallization levels being aimed at are lower.

      Low phosphorous Pig Iron finds a extensive use in the manufacture of

castings. There has been a recurring shortfall in the country between the industries

requirements and the availability of low phosphorous, from the domestic suppliers.

As a result sizeable quantities of low phosphorous Pig Iron are presently being

imported year after year expanding precious foreign exchange.

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WASTE HEAT RECOVERY BASED POWER GENERATED PLANT

       In the Rotary Kiln process the waste gases generated are passed through an

after burning chamber before they are cooled and cleaned in a venture type

scrubber and let off through the stack. The hot waste gasses leaving after

combustion chamber of the rotary kiln are a t temperature of about 100 to 900

degree centigrade and carry considerable amount of sensible heat which could be

utilized for power generation through waste heat recovery boiled and steam turbine

generation system.

       Taking into account the quantum of waste gasses that w9uld be generated

and the minimum sensible heat that would be available, it is anticipate that about

5MW of electric power could be generated which would be adequate to meet the

energy requirement of the Submerged Arc Furnace.

       Fluidized bed combustion boiler of 15tph capacity was set up during 1997.

SPONGE IRON

It is the product obtained upon direct reduction of iron ore with coal

reluctant and fuel.

Has got its name since the products microscopic structure appears to

be like honey comb.

It is used as a substitute material for steel scrap in making steel

through electric arc furnace.

Production process does not involve change of state.

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THE SILL ROUTE OF SPONGE IRON RAW MATERIALS

       The raw materials used in SILL plant are iron ore, non-cooking coal and

limestone. A small quantity of fuel oil is also used for the initial heating of the kiln.

The plants are capable of processing various combinations of iron ore and non-

cooking coal drawn from any location.

 

RAW MATERIAL PREPARATION AND HANDLING

At SILL, the raw materials are fed to a ground level 'hopper 'by dump trucks

and conveyed to the crushing plant through a vibratory feeder and conveyer.

Iron ore: which is received in the size range of up to 100 mm is crushed in a cone

crusher to a size of 5 to 20mm depending upon the basic characteristics of the

materials. The crushed ore is washed in a 'scrubber' and screened to remove the

fines.

Coal; it is crushed between 0 to 15mm size range in an impact or. The coal fines of

below 3mm are used In the burner through discharge end of the kiln.

Limestone: it is crushed to a finer size, up to 3mm, the range being based on the

extent of desulphurization required. The prepared raw materials are conveyed to

the stock house.

STOCK HOUSE:

The stock house has a capacity of storage two days -requirements of coal,

one and half days stock iron ore and about a week's requirement of limestone.

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ROTARY KILN AND COOLER:

       The principal equipment in the reduction plant is a rotary kiln of 3 meters

diameter and 40 meters long, and a rotary cooler of 2.2meters diameter and

20meters long. Metered quantities of prepared raw materials are delivered to the

rotary kiln through weigh feeders, iron ore and coal along with limestone travel

from feed end of the kiln to their discharge end since the kiln is inclined and rotate

at speeds ranging from 0.3 to.0.9 rpm.

MANUFACTURING PROCESS:

      At the start of operations, the kiln is heated by burning fuel oil/coal from

discharge end. Thereafter, the evolved in the chemical reactions inside the kiln is

utilized to maintain chemical reaction inside the kiln is utilized to maintain a

temperature of 'about 1000 degree centigrade inside the kiln.

       Air is admitted into the kiln through air tubes, which are fed, from

electrically driven fans located on the kiln shell. The temperature inside the kiln is

measured by thermo couples. Air admission is regulated so as to maintain a

uniform temperature profile inside the kiln.

       The raw materials are crushed and screened in raw material preparation plant

and stored in a day bin. The processed raw materials are conveyed to the rotary

kiln, which is maintained at 1ooo centigrade

       The air required for combustion inside the kiln is supplied through shell fans

mounted on kiln. Part of coal is burn from the discharge end to maintain the

temperature in kiln. One, which is present inside, travels from one end to the other

end in the kiln and its rotary motion and in process genus reduced to sponge iron

due to presence of carbon in coal.

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       The exhaust flue gasses from the furnace flow through the high efficiency

venturi scrubber and the clean and cool gasses vented through the 40m high stack.

The kiln out put consists of hot sponge iron and char flow through the rotary cooler

where the product is cooled by indirect spray of water. The cooled product is

screened and magnetically separated and sponge iron and char are stored

separately. Kiln off gasses flow through dust setting chamber and then venture

scrubber where water is'-sprayed for the settlement of dust.

The contaminated water is sent to a thickener where the solids are allowed to settle

and separated water is recycled again to scrubber. The slurry is pumped to sludge

ponds after neutralization.

      All Kiln off gasses before entering wet scrubber they are flown through waste

heat recovery boiler, where the sensible heat 01 the gasses is utilized for generating

the steam of approximately 12 tph at 440c and 48bar pressure from kiln. This

steam combined with steam generator through the fluidized bed boiler of

approximately 15tph (at 440c and 48 bar) and sent to the turbine for generating.

SIGNIFICANCE OF THE TECHNOLOGY

       As against the traditional technology of producing steel in coke oven/blast

furnace route, direct reduction process to produce Sponge Iron using non-cooking

coal in a Rotary kiln and subsequently meeting the same in EAF's has gained

prominence and has received considerable attention in the quantitatively and

qualitatively.  

However this technology option requires a strong electric power supply grid

for meeting the highly fluctuating power requirements of the, EAF's For steel

making. This is of particular relevance of our country where sustained and

27

adequate availability of electric power is a major constraint. Also, due to the fact

that Indian   Iron   Ores   contain   a   high   percentage   of   silica   and

Aluminium.

The   sponge   Iron   thus   produced   contains   a   high proportion of

gangue constituents which need to be removed in steel making, leading to higher

slag volumes and lower yields. This imposes   restrictions   on   the   percentage  

of lower   yields.   This imposes restrictions on the percentage of sponge iron that

can be used along with the scrap for steel making in EAF's. Further, most of the

high-grade iron ores are fragile in nature contributing the generations of fines

during transport and in processing into the sponge iron by direct reduction

technology. Hence there exists a need   to   explore    alternative   and   more  

attractive/economical technologies for steel making using the direct reduction'

process. Where by highly fragile ores could be effectively utilized. The present

proposal initially envisages establishment of the technology for manufacture of

high-grade pig Iron using the specially designed SAF.

The pig iron thus produced could be consumed directly or subjected to

further treatment for making high   quality steel. Therefore besides establishing the

technology for producing high grade (low phosphorous) pig iron, which is very

much demand in the country, there above scheme would pave the way for

developing a new route of steel making.

By this development, the future steel production in the country could also be based

on Direct Reduction Submerged Arc Furnace route where by relieving dependents

on metallurgical coal whose resources are depleting. Also it would not impose a

major pressure on the power grid unlike the DREAF route as the entire power

28

requirement for operating the SAP could be met from. In plant power generation,

using the waste heat in kiln off gases of the reduction plant. 

       The project has been sanctioned by government of India on the 17th

February 1989 at, an estimated cost of Rs. 16.20 crores. The implementation

schedule is 30 months. The unit when it goes into regular operation would provide

employment to about 500 people directly and more than 1200 persons indirectly, in

the tribal areas of Paloncha in Khammam district, Andhra Pradesh.

DIVISION DEPARTMENT

The various Divisions of SILL are furnished hereunder

1) Works Division

2) Engineering & Project Division

3) Personal & Administration Division

4) Finance & Accounts Division

29

I) WORKS DIVISION:

Manpower wise it is the major division in SILL, which takes care of

activities, connected to plant operations, production and day-to-day maintenance

works, the work division has mainly 9 departments they are.

a) Mechanical Department: This department attends all the mechanical works

relating to machineries which include repairs, replacements fitting and other

maintenance works as required from time to time.

b) Electrical Department: This department takes care of electrical works in the

plant as well as colony maintenance.

The electrical department provides adequate lighting in and around the plant

premises and attends the repair works as and when needed.

c) Process Department: The Process Department takes care on manufacturing

process of sponge iron production and other related bye products.

d) Raw Materials Departments: This Department take care of the stock quality

of raw material like coal, iron ore, lime stone etc., being received from different

parties this department has also one contract cell which takes care of purchase of

the require raw materials from the respective mines.

e) Laboratory & Quality Control Department: This Department stocks the

samples ad quality composition of sponge iron after they are produced It measures

the percentage of product and other by products.

30

f) Sales & marketing: the department concentrates mainly on sale of sponge iron

production and other related bye products and plays an important role in

identifying the buyers.

g) Stores Department: this department is responsible to keep the spares,

materials, and tools etc, purchased by the company in safe custody and maintains is

inventory properly.

h) Purchase Department: procurement of all the spare, parts needed to the

company will be purchased through this department by following stipulated

procedure.

i) Civil Department: The civil department attends all the civil maintenance work

like plumbing, masonry, carpentry, sanitary works, supply of drinking water to the

plant and as well as the colony.

2) ENGINEERING & PROJECTS DIVISION:

      The E&P division takes works care of construction of pants, new projects,

fabrication works, erecter, expansion works etc. Apart from the above, it extends

consultation, Engineering technology to the others with in our country and aboard

by the available technocrats.

3) PERSONAL & ADMINISTRATION:

      P&A Division plays vital role in formulating polices, procedures, rules and

regulations and implementing the same for the benefit of the employees as well as

the prosperity of the company. It maintains harmonious industrial relation in the

company. In SILL, p & A division has the following Department.

31

a) Personal Department (established section)

b) Administrative Department

c) Industrial Relations

d) Official Language cell

PERSONAL DEPARTMENT: 

The   department   is   attending the following works

1) Manpower planning, rules regulations, policy, procedures

2) Recruitment, promotion, conformation transfers

3) Sanction of annual increments, other incentives, etc

4) Engagement of trade apprentices and other trainees

5) In plant training /project work.

6) Confidential Dossiers/performance appraisal etc,

7) Pay fixation/anomalies.

8)  Palmist questions/Returns/Reports and other statically data

9) Disciplinary matters

10) DA (Dearness Allowance) and other allowances.

11) Leave travel concession (LTC)

12)  Maintenance of service records/ personal files/confidential files of all the employees 

ADMINISTRATION DEPARTMENT:

1) Furniture's, fixtures, and office accommodation

2) Stationery

32

3) Training matters / works education

4) Housing allotment

5) Guest house

6) Communication

7) Club/ citizens committee/estate matters/township security

8) Township cleaning sanitation

9) No objection certificates/ salaries certificates/services certificates

10) Advance in clouding medical advances

11) School/bank/post    office/LPG outlet/shopping complex etc.

12) Reimbursement of local travel expenses (RLTE)

13) Medical loans /medical scheme/ interest subsidy on housing loans^

INDUSTRIAL RELATION:

1) Matters connected to contract Labours(R&A) act, 1970

2) Maters connected with labours enactments

3) Accident settlement

4) Liveries

5) Employees participation in management

6) Union matters/ collective bargaining

7) Statutory returns /ir reports/statistics

8) Time office/ canteen/ security/transport/statistic

9) First aid centre/township dispensary

33

10) Suggestion scheme

11) Death claims/settlements

12) GSLI scheme/death benevolent scheme

14) Central dispatch.

OFFICIAL LANGUAGE CELL:

F&A DIVISION:

The division has mainly 3 sections. They are

1)  Finance and accounts

2)  EDP

3)  Legal cell

F&A: -

1) Financial concurrence

2) Payments, suppliers, contractors

3) Salaries

4) Provident fund

5) Cash distribution, bank transaction

6) Internal   stock verification   (RM stores and spares fixed assets and furniture)

7) Trail balance and general ledger

8) Bank reconciliation

9) Attending    statutory    audit    /internal    audit    and proprietary audit

10) Penalization of accounts (profit & loss, balance sheet}

34

EDP:

1) Liaison work with out side agencies

2) Computer used out put of PSL, subsidiary ledgers day books etc

3) Balance sheet, trail balance

4) Liaison work with weigh bridge system

5) Liaison work with marketing (developing programs, software)

LEGAL:

    1) All matters connected to legal/court cases

2) Board information

35

THE COMPANY RECIEVEP FOLLOWING AWARDS IN THE FIELD SHOWING BELOW:

1982 -> Productivity and best industrial relation award from Govt. of

Andhra Pradesh

1983 -> Productivity and best industrial relation award from Govt. of

Andhra Pradesh

1983 -> Best industrial relation award to employees union

1983 -> Best technological development in Research and Development -By

an industrial organization from APCCI.

1985 -> Best productivity and best industrial relation award from

Government of Andhra Pradesh

1985 -> National Safety Award from National Safety Council.

1992 -> India Gandhi Memorial best Industrial award.

1993 ->   Awards for its outstanding contribution towards Harmonious

industrial relation and labour welfare.

1993 -> 33rdAll Indian National Unity Award,

36

1997   ->   Commendation   certificates   for   its   outstanding towards

harmonious Industrial relation and lab our welfare.

Merit certificate for Excellency in the achievement of MOV target in the

year 20023 - 2004 from Ministry

Classification of Ratios:-

Ratios are classified in a no of ways keeping in view the practical purpose.

1. Liquidity Ratios

2. Leverage Ratios

3. Turnover Ratios

4. Profitability Ratios

37

LIQUIDITY OR SHORT TERM SOLVENCY RATIOS

CURRENT RATIO:

Meaning:This ratio establishes the relationship between Current Assets and Current

Liabilities.

Components:

1 Current Assets: This means the assets which are held for their conversion

into cash within a year.

2 Current Liabilities: This means the liabilities which are expected to be

matured with in a year.

Computation:

This ratio is computed by dividing the current assets by current liability.

Generally 2:1 is considered ideal for a concern.

Formula:

Current Assets

Current ratio = --------------------------------

Current Liabilities

Significance:

It indicates the amount of current assets available for each current liability.

Higher the ratio greater the margin of safety for creditors and vice versa. However

too high or too low ratio calls for further investigation since the too high ratio may

indicate the presence of idle funds and too low ratio may indicate the over trading

or under capitalization. Traditionally a current ratio of 2:1 is considered to be a

satisfactory ratio.

38

CURRENT RATIO

Years Current Assets Current Liabilities

Ratios

2004-05 6010510047 14165933.9 0.42462005-06 23035251.82 18163160.9 1.2682006-07 32645136.92 24730663.1-5 1.322007-08 27046258.46 31251597.44 0.862008-09 30422408.57 33351639.85 0.912

INTERPRETATION:

1. The current ration of SIIL is 2004-2009, 0.4246 - 0.912,

2. the current ratio is less than 2

3. It indicates that the business doesn’t enjoy adequate liquidity.

39

QUICK RATIO:

Meaning:

This ratio establishes the relationship between quick assets and current

liabilities.

Components:

1 Quick Assets: This means those current assets, which can be converted into,

cash immediately or at a short notice without a loss of value.

2 Current Liabilities: This means the liabilities which are expected to be

matured with a year.

Computation:

This ratio is computed by dividing the quick assets by current liabilities.

Generally 1:1 is considered ideal for a concern.

Formula:

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Significance:

It indicates the amount of current assets available for each current liability.

Traditionally a quick ratio of 1:1 is considered to be a satisfactory ratio.

40

QUICK RATIO

Years Quick Assets Quick Liabilities Ratios2004-05 2016292.53 14165933.9 0.1422005-06 14458546.82 18163160.9 0.792006-07 24018074.92 24730663.15 0.9712007-08 19958634.46 31251597.44 0.6382008-09 22605879.57 33351639.85 0.677

INTERPRETATION:

1. The quick ratio of SIIL in 2004-09, 0.142-0.677.

2. Quick ration of 1 is usually considered as ideal.

3. A quick ratio of less than 1 is indicative of inadequate liquidity of the

business.

4. A very high quick ratio is also advisable as funds can be more

profitably employed.

41

ABSOLUTE LIQUID RATIO:

Meaning:

This ratio establishes the relationship between absolute liquid assets and

current liabilities.

Components:

1. Absolute quick assets (cash in hand, cash at bank, short term or temporary

investment).

2. Current Liabilities: This means the liabilities which are expected to be matured

with a year.

Computation:

This ratio is computed by dividing the absolute quick assets by the current

liabilities.

Formula:

Absolute Liquid Assets

Absolute Liquid Ratio = ------------------------------

Current Liabilities

Significance:

The cash ratio of magnitude 0.5:1 may be satisfactory firm need to

maintain too much of high super liquid asset. If the super liquid assets are too

much in relation to the current liabilities then it may be affect the profitability of

the firm, as the super liquid assets are the most unproductive assets of all.

42

ABSOLUTE LIQUID RATIO

Years Absolute LiquidAssets

Current Liabilities

Ratios

2004-05 3653207 14165933.9 0.257

2005-06 3752741 18163160.9 0.206

2006-07 4137274 24730663.15 0.167

2007-08 1105939 31251597.44 0.0353

2008-09 1169381 33351639.85 0.0350

INTERPRETATION:

1. The absolute liquid ratio of SIIL in 2004-05, it is 0.257.

2. In the year 2005-06 the ratio decreased to 0.206.

3. The ratio in the year 2006-07 was still decreased to 0.167.

4. Next year i.e. 2007-08 the absolute liquid ratio is 0.0353.

5. The absolute liquid ratio in the year 2008-09 is 0.0350.

6. The calculation purposes it is taken as ratio of absolute liquid asset to

current liabilities.

43

LEVERAGE OR CAPITAL STRUCTURE RATIOS

DEBT EQUITY RATIO:

Meaning:

This ratio establishes the relationship between long term debts and

shareholders fund.

Components:

1 Long Term Debts that mean long term loans whether secured or unsecured.

Ex: Debentures, bonds, loans from financial institutions.

2 Shareholders Funds (equity share capital+ Preference share capital+ reserves

&surplus-Fictitious assets[if any]

Computation:

This ratio is computed by dividing the loan term debts by shareholders fund.

This ratio is usually expressed ass a proportion of 2:1

Formula:

Long Term Debts

Debt Equity Ratio = ----------------------

Shareholders funds

Significance:

It indicates the margin of the safety to long term creditors. A low debt equity

ratio implies the use of more equity than debts which means a larger safety margin

for creditors since owners equity is treated as a margin of safety by creditors and

vice versa.

44

DEBT EQUITY RATIO

Years Long term Liabilities Share holder

funds

Ratios

2004-05 16239318.50 520000 31.22

2005-06 17195765.50 527000 32.62

2006-07 12026470.50 725860 16.56

2007-08 3862588 1063000 3.633

2008-09 4670470 1102800 4.235

INTERPRETATION:

1. The debt equity ratio of SIIL is 2004-09, 31.22 to 4.23.

2. The debt equity ratio of 2:1 is considered ideal.

3. A firm with debt equity ratio of 2 or less its creditors to relatively less

risk.

4. A firm with high debt equity ratio exposes its creditors to greater risk.

45

FIXED ASSET RATIO:

Meaning:

This Ratio indicates the mode of financing the fixed assets. It is calculated as :

Formula:

Components:

Fixed assets

Capital Employed

Capital Employed = Shareholders funds + Long Term Liabilities

46

FIXED ASSET RATIO

Years Fixed Assets Capital

Employed

Ratios

2004-05 7770295.75 16759313.5 0.46

2005-06 7062220.75 17722765.5 0.39

2006-07 9638560.75 12752330.5 0.75

2007-08 8997008.75 4925588 1.82

2008-09 8410416.75 5773270 1.45

INTERPRETATION:

1. The fixed asset ratio of SIIL in 2004-05 is 0.46

2. In the year 2005-06 it is decreased to 0.39

3. The next year the fixed asset ratio is increased to0.75

4. In the year the ratio is increased to 1.82.

47

5. ACTIVITY RATIOS & TURN OVER RATIOS

INVENTORY TURNOVER RATIO:

Meaning:

This ratio establishes a relationship between cost of goods sold or sales and

average inventory.

Components:

1 Sales or Cost of Goods Sold

2 Average Inventory (average of opening and closing balance of inventory)

Computation:

This ratio is computed by dividing the sales or COGS by average inventory.

Formula:

SalesInventory turn over ratio = ----------------

Inventory

Significance:

A high inventory turnover ratio indicates good inventory management at a very

high ratio calls for a careful analysis as it may be an indication of low of inventory

or under investment in inventory, which results in frequent stock outs. Similarly, a

low inventory includes dangerous to management. It signifies excessive inventory

or over investment in inventory in term resulting excessive inventory carrying cost.

48

INVENTORY TURNOVER RATIO

Years Cost of Goods

Sold

Average Stock Ratios

2004-05 93346134 2533705.5 37.23

2005-06 117567909.8 5597249 21.00

2006-07 157741431 8601883.5 18.33

2007-08 264974139 136030881.5 1.947

2008-09 287644159.1 7452076.5 38.59

INTERPRETATION :

1. The stock turnover ratio of SIIL is 2004-09, 37.23- 38.59

2. A high stock turnover ratio indicates that the stocks are fast moving

and get converts into sales quickly

3. However it may also an account of holding low amount of stocks and

replenishing stocks in larger no. of installments.

49

DEBTOR’S TURNOVER RATIO:

Meaning:

This ratio establishes a relationship between Net credit sales and average

debtors.

Components:

1 Net Credit Sales

2 Average Debtor’s (average of opening and closing balance of

debtors)

Computation:

This ratio is computed by dividing the net credit sales by average debtors.

Formula:

Net Credit SalesDebtors turnover ratio = --------------------------------

Average debtors

Significance:

It candidates the number of times on the average that the debtors turnover

each year generally the higher the debtors turnover ratio the more efficient is the

management of current assets.

50

DEBTOR’S TURNOVER RATIO:YEARS NET CREDIT

SALES

(Rs in crores)

AVERAGE

ACCOUNTS

RECEIVABLE

(DEBTORS)

(Rs in crores)

RATIO

(%)

2004-05 8437733 809943 10.41

2005-06 9375259 899937 10.41

2006-07 13948190 1506952 9.25

2007-0819087482

3143461 6.07

2008-09 20996230 4431292 4.73

INTERPRETATION:

1. The ratio in the 2004 was 10.41

2. The ratio further in the year 2006 is same

3. Later year by year decreased to 9.25 in 2007

4. It decreased in the year 2008 to 6.07 and

5. Finally it was 4.73 in the year 2009

51

FIXED ASSETS TURNOVER RATIO:

Meaning:

This ratio establishes a relationship between net sales and fixed assets.

Components:

1 Net sales (gross sales – sales returns)

2 Net fixed assets (fixed asset – depreciation)

Computation:

This ratio is computed by dividing the net sales by the net fixed assets. This

ratio is usually expressed as ‘X’ no of times.

Formula:

Net salesFixed Asset Turnover Ratio = -----------------------

Net fixed assets

Significance:

It indicates the firm’s ability to generate sales per rupee of investment in

fixed assets. In general higher the ratio, the more efficient the management and

utilization of fixed assets and vice versa

52

FIXED ASSETS TURNOVER RATIO

Years Net Sales Fixed Assets Ratios

2004-05 114979416.46 7770295.75 14.79

2005-06 151216459.29 7062220.75 21.41

2006-07 202674378.60 9638560.75 21.02

2007-08 299356188.63 8997088.75 33.27

2008-09 335429379 8410416.75 39.88

INTERPRETATION:

1. The fixed asset turnover ratio of SIIL organization 2004-09, 14.79 -

39.88.

2. A high fixed asset turnover ratio indicates better utilization of the

firms fixed assets.

3. A ratio of around the 5 is considered ideal.

53

WORKING CAPITAL TURNOVER RATIO:

Meaning:

This ratio establishes a relationship between net sales and working capital.

Components:

1. Net sales (Gross sales – sales returns)

2 Working capital (CA – CL)

Computation:

This ratio is computed by dividing the net sales by the net working capital.

Formula:

Net salesWorking capital Turnover Ratio = ----------------------

Working capital

Significance:

It indicates the firm’s ability to generate sales per rupee of investment in

working capital. In general higher the ratio, the more efficient the management and

utilization of fixed assets and vice versa.

54

WORKING CAPITAL TURNOVER RATIO

Years Cost Goods Sold Working Capital Ratios

2004-05 94346134 8150833.43 11.57

2005-06 117567909.8 4872090.92 24.13

2006-07 157741431 7914473.77 19.93

2007-08 264974131 4205338.98 63.00

2008-09 287644159.1 2929231.28 98.19

INTERPRETATION:

1. The working capital turnover ratio of SIIL 2004-09, 11.57-98.19.

2. A high working capital turnover ratio indicates efficient utilization of

firm’s funds.

3. However it should not result in over trading.

55

PROFITABILITY RATIO

GROSS PROFIT RATIO:

Meaning:

The first profitability ratio in relation to sales in the gross profit margin or simply

gross profit ratio.

Components:

Gross Profit

Interest Income

Formula:

Gross Profit Ratio =

Gross Profit = Net Sales - Cost of goods sold

Net Sales = Total Sales - Sales Revenue

Significance:

Gross Profit reveals the gross income of the company which is

available to the management to meet the non interest cost commitments.

56

GROSS PROFIT RATIO

Years Gross Profit Net Sales Ratios

2004-05 15234836.46 114979416.46 0.13

2005-06 24206082.46 151216459.29 0.16

2006-07 32807244.60 202674378.60 0.16

2007-08 15691929.63 299356188.63 0.052

2008-09 29407231.86 335429379 0.087

INTERPRETATION:

1. The gross profit ratio of SIIL 2004-09 and it is 0.13 -0.087.

2. There is no ideal or standard gross profit ratio.

3. The higher the ratio the better will be performance of the business.

4. Gross profit ratio years to know the change in performance.

57

OPERATING RATIO:

Meaning:

This ratio establishes a relation between operating expenses and interest income.

Components:

Operating Expenses

Interest Income

Formula:

Operating expenses

Operating Expenses = ------------------------- * 100

Interest Income

Significance:

Gross Profit reveals the efficiency in reducing the expenses though

they cannot be avoided, as they are necessary for smooth functioning of company

58

OPERATING RATIO

Years Operating Cost Net Sales Ratios

2004-05 17137127 114979416.46 0.14

2005-06 21102113.75 151216459.29 0.13

2006-07 18531351 202674378.60 0.09

2007-08 23105500.5 299356188.63 0.077

2008-09 45398696.39 335429379 0.135

INTERPRETATION:

1. The operating ratio of SIIL 2004-08, 0.14 - 0.135.

2. A low operation ratio is an indication of operating efficiency of the business.

3. Lower the ratio is better it is.

59

RETURN ON TOTAL ASSETS RATIO

Meaning:

The return on total assets measures the profitability in terms of assets in the It shows as to how much is the profit strives per rupee of assets utilized.

Formula: Net profit

Return on Total Assets Ratio =

Total Assets

Components:Net ProfitTotal Assets

Significance:

This ratio establishes relationship of net profit and total assets.

60

RETURN ON TOTAL ASSETS RATIO

Year Net Profit Total Assets Ratios

2004-05 105.55 4550.70 0.023

2005-06 109.73 5503.50 0.019

2006-07 104.31 6256.50 0.02

2007-08 121.12 6973.96 0.017

2008-09 100.00 8493.24 0.01

INTERPRETATION:

1. By observing the table the highest ratio is 0.023 during the period 2004-05.

2. The ratio followed in the next year is as 0.019 for 05-06.

3. Next the ratio is 0.02 for 2006-07, and in year 2007-08 it is 0.017.

4. The ratio declined to 0.01% during 2008-09 and the average ratio for the

period of study is 0.02.

61

CONCLUSIONS

1. The current ratio of firms is 0.20 in the year 2005-06 and it is 0.912

and standard current ratio is 1:2 and company is not meeting their

requirement.

2. The company ratio in 2004-05 is 0.211 and 2008-09 0.677. The

company quick ratio is decreasing it should maintain more quick for

easy convertibility.

3. The Company absolute liquid ratio 0.717 in 2004-05 and it is 0.035

in 2008-09. It should be decreasing the firm.

4. On the basis of Debt equity ratio the company was following trend.

In 2004-05 the ratio is 39.37 and it is 4,235 in 2007-08. It has

decreasing trend.

5. The company fixed asset turnover ratio in 2004-05 is 0.33 and it is

fixed asset ratio 0.46, 0.39, 0.75, 0.82, 1.82 increased trend. Hence

the fixed asset position is satisfactory for the firms operations.

6. In this Turnover ratio 2004- 2005 is 30.48 and it is 38.59 in 2008-09.

It is only the seasonal fluctuations. It is increased up to 38.59.

7. Working Capital. Turnover ratio is 0.11 in 2004-05, and 98.19 in

2008-09. It is increased efficient utilization of firm’s funds.

8. Fixed Asset turnover ratio is 12.11 in 2004-05 and 39.88 in 2008-09.

It should be increased better utilization firm's fixed assets.

9. The ratio in the 2004 was 10.41 the ratio further in the year

2006 is same, year by year decreased to 9.25 in 2007 It

decreased in the year 2008 to 6.07 and finally it was 4.73 in the

year 2009.

62

10. The Company has following trend in 2004-05, in this gross profit

ratio of 0.19, 0.13, 0.16, 0.52, and 0.087. It’s showed that decreasing

trend.

11. On the basis of operating ratio is 0.20 in 2004-05 and it is 2008-09 is

0.135. The operating efficiency of the business lower the ratio

betters it is.

12. By observing the table the highest ratio is 0.023 during the

period 2004-05.The ratio declined to 0.01% during 2008-09 and

the average ratio for the period of study is 0.02.

63

SUGGESTIONS

1. The overall performance of the company is good and management should

try to acquire more funds to expand the firm.

2. Though the short-term solvency of the concern is good, the firm needs to

increase its current ratio to the ideal standard of 2:1 to avoid the uncertainty

related to the market conditions.

3. Since the sales are increasing year by year the firm needs to maintain better

customer service and try to meet the demand. It is suggested that the firm

has to take necessary steps in regard to increase the cash liquidity.

4. It is suggested that the capital structure has to be modified to earn

more returns.

5. It is suggested to the firm that the cash inflows must be properly

deployed in working capital by decreasing its investment in current

assets to increase the working capital position.

64

BIBILIOGRAPHY:

I.M PANDEY : FINANCIAL MANAGEMENT.

M.Y.KHAN&P.K.JAIN : FINANCIAL MANAGEMENT.

PRASANNA CHANDRA : FINANCIAL MANAGEMENT.

VANHOME, JAMES : FINANCIAL MANAGEMENT

&POLICY

WEBSITES;

WWW.GOOGLE.COM

WWW.WIKIPEDIA.COM

WWW.CITEFINANCE.COM

WWW.INDIAFINANCE.COM

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