“A Ratio Analysis Study on JSW Ispat ltd. Kalmeshwer, Nagpur.”

A PROJECT REPORT

Submitted To

RASHTRASANT TUKADOJI MAHARAJ NAGPUR UNIVERSITY, NAGPUR

Submitted In Partial Fulfillment of the Requirement for the Award of the Degree of MBA

SUBMITTED BYSURAJ D. KHADSE

Project GuideProf. ARVIND KHADSE

March 2015

GREEN HEAVEN INSTITUTE OF MANAGEMENT AND RESEARCH, NAGPUR

CERTIFICTE

1

This is to certify that is a benefited student SURAJ D. KHADSE of Master of

Business Administration of Green Heaven Institute of Management and

Research, Nagpur. He / she has completed his / her project entitled RATIO

ANALYSIS STUDY ON JSW ISPAT, KALMESHWAR, NAGPUR,

submitted in partial fulfillment of MBA program of the RASHTRASANT

TUKADOJI MAHARAJ NAGPUR UNIVERSITY, Nagpur, under my

guidance and supervision in the academic year 2014-15.

Project Guide Director

Prof. Arvind Khadse Dr.T. Kalyani

Green Heaven Institute of Management Research, Near Hotel Sun & Sand, Wardha road, Nagpur

Declaration

2

I, SURAJ D. KHADSE hereby declare that the project entitled RATIO

ANALYSIS STUDY ON JSW ISPAT, KALMESHWAR, NAGPUR has

been carried out by me under the guidance of Prof. ARVIND KHADSE

This project is submitted to RASHTRASANT TUKADOJI MAHARAJ

NAGPUR UNIVERSITY, Nagpur in partial fulfillment of the academic

requirement for Master of Business Administration during the academic year

2014-15.

This is the outcome of my own research work based on personal study

and has not been submitted previously for award of any degree or diploma to

this university or any other university.

(SURAJ D. KHADSE)

Acknowledgement

3

Completing a task is never alone journey. It is often the result of a

valuable contribution from a number of individuals in every possible way,

which ultimately helps in achieving the objective.

Firstly I would like to thank Director Dr. T. Kalyani and Guide Prof.

ARVIND KHADSE, for their kind support and giving me the opportunity to

present this project.

I am thankful to all the members of management of the college, who

provided me to all the information that I needed to complete this project. This

project would not have been accomplished without their valuable support.

I would like to acknowledge the contribution of my parents and all my

friends who have been instrumental in successful completion of the project.

Place: Nagpur Name of Student

Date: SURAJ D. KHADSE

INDEX4

SR. NO.

NAME OF CHAPTER PAGE NO

1 COMPANY PROFILE 6 – 18

2 INTRODUCTION TO RATIO ANALYSIS 19 – 27

3OBJECTIVES, IMPORTANCE, ADVANTAGES, LIMITATION

28 – 33

4 RESEARCH METHODOLOGY 34 – 36

5 OVERVIEW OF BALANCESHEET 37 – 41

5 DATA ANALYSIS & INTAPRETATION 42 – 64

6FINDING, SUGGETIONS & CONCLUSIONS

65 – 69

7 BIBLIOGRAPHY 70 – 71

5

CHAPTER 1CHAPTER 1

COMPANY PROFILECOMPANY PROFILE

6

INDUSTRY PROFILE

INDIAN STEEL INDUSTRY

India’s modern iron and steel industry dates back to the first decade of the present century.

The Tata Iron and Steel Company Ltd (TISCO) were registered in and production at

Jamshedpur commenced in 1911-12.

In the years after independence in 1947, the prerogative for the development of the steel

industry, however, came to be vested in the Indian State. Indian industry, as discussed earlier

had grown in a highly protected and controlled environment with massive tariffs,

administrative control over prices, distribution and imports.

India is the world's fifth largest producer of steel which produces 50 MT of crude steel and 52

MT of finished steel. It is believed that by 2016, India is going to be the second largest

producer of steel and its production is going to be around 137 MT.

Major Players in Steel Industry:

1. Steel Authority of India (Public Sector Undertaking)

2. TISCO (Tata Group)

3. JSW Steel Industries ( Jindal Group)

4. JSW Steel Coated Product LTD (Erst while JSW Ispat Steel Ltd.)

5. Bhushan Steel Limited.

7

COMPANY PROFILECompany profile:-

CORPORATE PHILOSOPHY:-

MISSION

To be amongst the world most admired new generation steel companies: in our products, in

the manner in which we service our, in our work ethics, and in our culture of societal

integration.

VISION

To be an organization that continuously achieves economic value by optimizing resources

through operational excellence, powered by technology, driven by innovation creating

customer delight.

VALUES:

We respect the skills and integrity of professionals.

We empower those who belong to us.

We work in tandem with our environment.

We listen to our stakeholders, be they customer or communities.

8

COMPANY PRODUCT

Process flow chart at JSW STEELCOATED PRODUCT , Kalmeshwar unit

JSW Steel Coated Product Ltd. Kalmeshwar is covered within 147 acres of land. It produces

Cold Rolled, Galvanized, Galvalume, and Colour Coated Coils/Sheets. Finishing lines

produces the customer required / application oriented product like corrugated & Tile

profiling. Tile Profiled sheets and is also moving forward by commissioning a Galvalume

Plant and another Colour Coating Line to further make inroads into the export as well as

domestic market.

The company has four main divisions at JSW Steel Coated Product Ltd. Kalmeshwar:

1. Cold Rolling Mill

2. Galvanizing Line

3. Galvalume

4. Colour Coating Line

9

PRODUCTS

I II III

PROFILED

10

C.R.C.A COILS

COLOUR COATED COILS

GALVANIZED COILS

COLOURED PROFILED & TILE PROFILED SHEETS

Product Range:

Cold Rolled

Galvanized

Colour coated coils & sheets are galvanized sheets treated

With chemicals to enhance its paint’s adhesion and corrosion

resistance.

Ispat follows a dual coating process with front and back coating

offering a colour range of different shades.

Company’s focus lies on offering non-standard colours also.

11

Cold Rolled Steel Coils are produced through

various processes including picking, cold rolling,

cleaning, temper rolling, tension levelling and recoiling

Applications: Automotive, Electronic

Appliances, Communication Equipment’s and

Consumer. Galvanized steel coils & sheets are

manufactured using Non-Ox & Thermal Refining &

Annealing process followed by uniform hot dipped

zinc coating.

Galvanized steel strips/ coils have superior

corrosion resistance and formability.

Ispat has recently added Galvalume capacity to

manufacture 96,000 TPA.

Applications: Roofing's, Cladding, Siding,

Shutters, Air Conditioner Housings, Switchbox Panels,

Doors, Wall Panel

Partitions, Chimneys, etc.

Product Range:

1. Cold Rolled Coils

JSW Steel Coated Products Ltd. cold rolled coils are manufactured at the highly

advanced cold rolling mill at Kalmeshwar, and can be used in a wide variety of applications

as follows:

In industrial goods such as automobile components, precision tubes and consumer durables.

In the manufacture of bodies of vehicles as varied as automobiles and railway coaches.

For the production of heavy machinery like earthmoving and material-handling equipment.

Especially suited for panel applications in refrigerator bodies and washing machines.

In bicycle parts, office equipment and furniture.

For basic items such as galvanized sheets, tin plates, drums and barrels. Unique features of

JSW CR coils.

JSW ensures that the material is free from defects, which are harmful to the intended use of

the product. The degree or amount of surface defects in a coil may be expected to be more as

compared to cut sheets because of the impossibility of rejecting the defective portion of the

12

coil. However, Ispat restricts the amount of such defects to a maximum of 5 percent.

Tdc all information contained herein do not purport an offer and are not to be construed as

pre acceptance from Ispat partly or wholly thereof. The tdc are meant for your guidance to

issue your enquiries to obtain specific offer response from Ispat.

Hot Rolled Coils:-

JSW industries limited manufactures international standard hot rolled (HR) coils

at its hot strip mill (HSM), situated at Dolvi in the state of Maharashtra, India. The

production of these coils involves the use of state-of-the-art equipment and manufacturing

processes that ensure products of the highest quality.

JSW has uses a combination of the advanced conarc process and thin slab casting technology,

which facilitates the rolling of coils that are as thin as 1. 2 mm with a width of 1250

mm.These are superior to commercial grade cold rolled (cr) coils, and are quite often a

substitute for cr products in certain applications, due to their thinner gauges and finer surface

quality.  

13

1. Cold Rolled Steel Coils are produced

through various processes including

picking, cold rolling, cleaning, temper

rolling, tension levelling and recoiling

2. Applications: Automotive, Electronic

Appliances, Communication Equipment’s

and Consumer.

    

Applications:  

     

JSW HR coils are used in the most critical engineering applications and also in certain

applications in the automotive sector. In addition, some of the value-added hr. coil products

include steel for lpg cylinders, api grade, corrosion resistant steel, critical structural

application steel, boiler quality, auto grades, precision tubes and medium/high carbon grades,

among others.   

UNIQUE FEATURES OF ISPAT'S HR COILS      

       

1.Superb surface qualityEnhanced by a 400 bar pressure water jet descaler, currently the highest in the world.

superior width to thickness ratio

ensured by a roll separating force of 40 mega Newton’s, making Ispat's ham the most

powerful in the world

2.Ease in cold rollingFacilitated through close control of the finished coil temperature, which in turn regulates the

grain size and other physical properties.

This is achieved through computer controlled laminar cooling.

3. Accurate coil geometryA crown within 30 microns and flatness of within 20 ius is achieved through work roll

bending with a continuously variable crown.

4. Thickness toleranceLaser enabled automatic thickness and width control produces a thickness tolerance of 30

microns and a width tolerance of

+8mm/0mm.

14

Galvanized Sheets:-

JSW Steel Coated Product Ltd. was the first Indian company to set up a Continuous

Galvanizing Line for thin gauge sheets in 1985. In fact, the company pioneered the

manufacture of thin, medium and thick gauge galvanized steel sheets in the country. With

two Galvanizing Lines at its plant at Kalmeshwar, it manufactures coils and GP/GC sheets

that meet the needs of the most demanding customers.     

Colour Coated Sheets:-

JSW manufactures an innovative and exciting product, namely colour coated sheets called

Polysteel, in a variety of shades and designs, such as dark or pastel, printed or plain and

striped or embossed. These Polysteel sheets are painted after galvanizing and apart from

creating a stunning visual impact, bring numerous advantages to end user industries.

Polysteel building sheets, for instance, make it possible to design and construct your choice

15

Galvanized steel coils & sheets are manufactured using

Non-Ox & Thermal Refining & Annealing process

followed by uniform hot dipped zinc coating.

Galvanized steel strips/ coils have superior

corrosion resistance and formability.

JSW has recently added Galvalume capacity to

manufacture 96,000 TPA.

Applications: Roofing's, Cladding, Siding,

Shutters, Air Conditioner Housings, Switchbox Panels,

Doors, Wall Panel

Partitions, Chimneys, etc.

of beautiful structures, save on structural steel and maintenance, and obtain overall cost

effectiveness.

Introduced by Ispat Industries Limited (IIL) in 1990, Polysteel is a premium cold rolled steel

sheet coated with zinc in a continuous Hot-Dip Galvanizing Line and subsequently given

multiple layers of organic coatings in a continuous Coil Coating Line with a Reverse Roller

Coating Process. Polysteel conforms to IS: 14246:95 and other equivalent international

standards and thus, the buyer are assured of the best quality product.

Polysteel is durable, cost-effective and easy to install and use. Hence, it proves to be a

versatile product for various applications. It is virtually a ready-to-use product that can be cut,

bent, pressed, drilled, roll formed, lock-seamed and joined, all without damaging the surface

or the substrate.

This product is available in various forms, namely roll formed panels, trapezoidal profiles,

corrugated sheets, plain sheets, coils and narrow slit strips. Moreover, it is available in a

variety of grades, colours and forms to meet specific customer requirements.    

Colour coated coils & sheets are galvanized sheets treated

With chemicals to enhance its paint’s adhesion and

corrosion resistance.

Ispat follows a dual coating process with front and

back coating offering a colour range of different shades.

Company’s focus lies on offering non-standard colours

also.

16

Galvalume:-

JSW Steel Coated Ltd. in its endeavor to offer superior products to meet its customers’

growing needs has added GALVALUME, a premium metallic-coated steel product, to its

value added products’ basket under technology license from BIEC International Inc., (a

subsidiary of Blue scope steel Australia).

GALVALUME’s revolutionary coating formula was developed by Bethlehem Steel

Corporation, in the year 1972. The coating consists of Aluminum (55% in weight ratio but

80% in surface volume ratio), Zinc (43.5% in weight ratio) and Silicon (1.5% in weight ratio).

The GALVALUME steel coating combines the barrier corrosion protection of aluminums with

the sacrificial protection of zinc, giving the advantages of both metals. The result is a coating

that lasts a long time, a coating that provides cut-edge protection along sheared edges, and

therefore, a coating that offers excellent protection to steel sheet

GALVALUME, in bare as well as pre-painted condition, finds wide application not only where

corrosion resistance is required, but also where high temperature resistance, heat

reflectivity, flexibility, formability and paint ability are required. Color Coated Galvalume,

Essentially a pre-painted GALVALUME, offers the flexibility to create beautiful appearances

in varied colors at the same time packing the superior performance of GALVALUME.

GALVALUME (Bare and Color Coated) will be manufactured at Kalmeshwar Plant

(Maharashtra, India) and the productions were started in 2008.

17

JSW STEEL COATED LTD.

Type Public Company

Traded AS BSE:- 500305

NSE:-ISPATIND

Industry Steel Processing

Founded 1984

Products Cold Rolled Coil, Galvanized Sheets,

Colour Coated Sheet, Galvalume

Sheet.

Revenue   105786.9 million(US$1.8 billion)

(2010)

Net Income   -3223.4 million (US$−54 million)

Employee 3000(2008)

Website www. jsw ispat.in

18

CHAPTER 2CHAPTER 2

INTRODUCTION TOINTRODUCTION TO RATIO ANALYSISRATIO ANALYSIS

19

INTRODUCTION

Ratio analysis is a technique of analyzing the financial statement of industrial concerns.

Now a day this technique is sophisticated and is commonly used in business concerns. Ratio

analysis is not an end but it is only means of better understanding of financial strength and

weakness of a firm.

Ratio analysis is one of the most powerful tools of financial analysis which helps in

analyzing and interpreting the health of the firm. Ratios are proved as the basic instrument in

the control process and act as back bone in schemes of the business forecast.

With the help of ratio we can determine

The ability of the firm to meet its current obligation.

The limit or extent to which the firm has used its borrowed funds.

The efficiency with which the firm is utilizing in generating sales revenue.

The operating efficiency and performance of the company.

Meaning and Definition of Ratio:-A ratio is simple arithmetical expression of relation of one number to another. It may be

defined as the indicated quotient of two mathematical expressions.

According to Wixon, Kell and Bedford, “A ratio is an expression of the quantitative relationship

between two numbers”.

According to Kohler, “A ratio is relation, of the amount, a, to another, b, expressed as the ratio of

a top; a: b (a is top); or as a simple fraction, integer, decimal fraction or percentage”.

In simple language ratio is one number expressed in terms of another and can be worked out by

dividing one number into another.

20

Mode of Expression:-This relationship (i.e., ratio) may be expressed in either of the following way:

A. In Proportion

B. In Rate or Times or Coefficient

C. In Percentage

1. In Proportion: In this form the amount of two items are being expressed in a common

denominator. The example of this form of expression is relationship between current asset

and current liability as “2:1”.

2. In Rate or Times or coefficient: In this form, a quotient obtained by dividing one item by

another item is taken as unit of expression. The example of this form is sales divided by

stock. It comes 60; thus 6 times ratio between sales and stock. It is important to note that

when ratio is expressed in this form, it is called as ‘turnover’ and it is written in ‘times’.

3. In Percentage: In this form, a quotient obtained by dividing one item by another is

multiplied by one hundred and it becomes the ‘percentage’ form of expression. For

example, the relationship between gross profit and sales may be expressed as 25%.

Meaning and Definition of Ratio Analysis:-One of the most important financial tools which have come to be used very frequently for

analyzing the financial strengths and weaknesses of enterprise is ratio analysis. Ratio Analysis is

technique of analysis and interpretation of financial statement. It is process of establishing and

interpreting various ratios for helping in making certain decision.

According to Myer, “Ratio analysis is a study of relationship among the various financial factors

in businesses”.

Ratio analysis represents the figure of financial statement in simple and intangible form. Ratio

analysis, in this way, is the process of establishing meaningful relationship between two figure and

financial statement.

21

Nature of Ratio Analysis:-Though ratio analysis is ‘all the rage’ among the user of accounting information, it is better to

understand the ratio so that they can be employed judiciously under appropriate condition. They

are:

1. The relation between two or more financial data brought out by an accounting ratio is

not an end in itself. They are means to get to know the financial position of an

organization.

2. An individual ratio may not be capable of providing the answer required for the

various problem facing an executive

3. Ration analysis will tend to be more meaningful when certain standard and norms are

laid down so that what the ratio indicate can be compared with the said standards.

This provides a base for decision-making and assist in taking measures to rectify any

drawback or deficiency.

Steps in Ratio Analysis There are five step involved in the ratio analysis:

1. Selection of relevant data from the financial statement depending upon the objective of

analysis.

2. Calculation of appropriate ratio from the above data.

3. Comparison of calculated ratios with the ratio of the same firm in the past, or the ratios

developed from projected financial statement or ratio of some other firms or the

comparison with ratios of the industry to which the firm belongs.

4. Interpretation of ratios.

5. Projection through ratios.

22

Classification of Ratios:-

Ratios can be classified into different categories depending upon the basis of

classification.

I. TRADITIONAL CLASSIFICATION

Traditional Classification has been on the basis of financial statements, on which ratio

may be classified as follows.

1. Profit & Loss account ratios.

E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio, Operating Profit Ratio,

Expenses Ratio, Stock Turnover Ratio, etc.

2. Balance sheet ratio.

E.g. Current Ratio, Quick Ratio, Absolute Liquid Ratio, Working Capital Turnover

Ratio Debt Equity Ratio, Proprietary Ratio, Capital Gearing Ratio etc.

3. Composite/Mixed ratio.

E.g. Return on Capital Employed, Return on Equity or Shareholder Fund, Earning Per

Share (EPS), Price Earnings Ratio, Capital Turnover Ratio, Debtors Turnover Ratios,

Creditors Turnover Ratio, Fixed Assets Turnover Ratio etc.

FUNCTIONAL CLASSIFICATION OF RATIOS

Functional ratios

1. Liquidity ratios

a) Current Ratio

b) Quick Ratio

2. Leverage Ratios

i. Debt-equity Ratio

ii. Current Asset to Proprietor’s fund Ratio

23

iii. Total Debt Ratio

iv. Proprietary/Equity Ratio

v. Capital Gearing Ratio

III. PROBABILITY RATIOS

i. Gross profit Ratio

ii. Operating profit Ratio

iii. Return on investment

iv. Operating Ratio

v. Earnings Per Share

vi. Price Earnings Ratio

IV. ACTIVITY RATIO

i. Inventory Turnover Ratio

ii. Asset Turnover Ratio

a. Fixes Asset Turnover Ratio

b. Current Asset Turnover Ratio

iii. Working Capital Turnover Ratio.

iv. Debtors/Receivable Turnover Ratio

v. Creditors/Payable Turnover Ratio

vi. Capital Turnover Ratio

1. Liquidity Ratio: These are the ratios, which measures the short term solvency or

financial position of a firm. These ratios are calculated to comment upon the short

term paying capacity of a concern or at the firm’s ability to meet its current obligation.

The various liquidity ratios are current ratio, liquid ratio and absolute liquid ratio.

Further to see the efficiency with which the liquid resources have been employed by

the firm, debtor’s turnover and creditor’s turnover ratios are calculated.

2. Solvency/Leverage Ratio: Leverage ratios are the financial statement ratio which

shows the degree to which the business is leveraging itself through its use of borrowed

money. By using a combination of assets, debt, equity and interest payment, leverage

ratio are used to understand a company’s ability to meet it long term obligations.

3. Turnover/Activity Ratio: Activity ratio are calculated to measure the efficiency with

which the recourses of the firm have been employed. These ratio are also called

24

activity ratio because they indicate the speed with which asset are being turned over

into sales, e.g., debtors turnover ratio.

4. Profitability Ratio: These ratio measures the result of business operations or overall

performance and effectiveness of the firm, e.g., gross profit ratio, operating ratio,

return on capital employed.

Ratio Analysis enables the business owner/manager to spot trends in a business and to

compare its performance and condition with the average performance of similar businesses in

the same industry. To do this compare your ratios with the average of businesses similar to

yours and compare your own ratios for several successive years, watching especially for any

unfavorable trends that may be starting. Ratio analysis may provide the all-important early

warning indications that allow you to solve your business problems before your business is

destroyed by them.

The Balance Sheet and the Statement of Income are essential, but they are only the starting

point for successful financial management. Apply Ratio Analysis to Financial Statements to

analyze the success, failure, and progress of your business.

Importance of financial statement analysis in an organization

In our money-oriented economy, Finance may be defined as provision of money at the time it

is needed. To everyone responsible for provision of funds, it is problem of securing

importance to so adjust his resources as to provide for a regular outflow of expenditure in

face of an irregular inflow of income.

1. The profit and loss account (Income Statement).

2. The balance sheet

In companies, these are the two statements that have been prescribed and their contents have

been also been laid down by law in most countries including India.

25

There has been increasing emphasis on

(a) Giving information to the shareholder in such a manner as to enable them to grasp it

easily.

(b) Giving much more information e.g. funds flow statement, again with a view to facilitating

easy understanding and to place a year results in perspective through comparison with post

year results.

(c) The directors report being quite comprehensive to cover the factors that have been

operating and are likely to operate in the near future as regards to the various functions of

production, marketing, finance, labor, government policies, environment in general.

Financial statements are being made use of increasingly by parties like Bank, Governments,

Institutions, and Financial Analysis etc. The statement should be sufficiently informative so

as to serve as wide a curia as possible.

The financial statement is prepared by accounts based on the activities that take place in

production and non-production wings in a factory. The accounts convert activities in

monetary terms to the help know the position.

26

Uses of Financial Statement Analysis.

The main uses of accounting statements for; -

Executives: - To formulate policies.

Bankers: - To establish basis for Granting Loans.

Institutions \ Auditors: - To extend Credit facility to business.

Investors: - To assess the prospects of the business and to know

whether they can get a good return on their investment.

Accountants: - To study the statement for comparative purposes.

Government Agencies: - To study from an angle of tax collection duty levee etc.

27

CHAPTER3

OBJECTVESIMPORTANCEADVANTAGESLIMITATION

28

OBJECTIVES

The main objectives of resent study aimed as:

To evaluate the performance of the company by using ratios as yardstick to measure

the efficiency of the company.

To understand the Liquidity, profitability and efficiency positions of the company

during the Study period.

To evaluate and analyze various facts of the financial Performance of the company.

To make comparisons between the ratios during different periods.

Objectives:-

To evaluate financial position and growth of the company.

To study the profitability of the company.

To study the balance sheet of the company.

To study the current position.

Calculation of various ratios and determining financial condition of the company through balance sheet

29

IMPORTANCE Ratio analysis is an important technique of financial analysis. It is a means for judging the

financial health of a business enterprise. It determines and interprets the liquidity, solvency,

profitability, etc. of a business enterprise.

o It becomes simple to understand various figures in the financial statements through

the use of different ratios. Financial ratios simplify, summaries, and systemize the

accounting figures presented in financial statements.

o With the help of ratio analysis, comparison of profitability and financial soundness

can be made between one industry and another. Similarly comparison of current year

figures can also be made with those of previous years with the help of ratio analysis

and if some weak points are located, remedial measures are taken to correct them.

o If accounting ratios are calculated for a number of years, they will reveal the trend of

costs, sales, profits and other important facts. Such trends are useful for planning.

o Financial ratios, based on a desired level of activities, can be set as standards for

judging actual performance of a business. For example, if owners of a business aim at

earning profit @ 25% on the capital which is the prevailing rate of return in the

industry then this rate of 25% becomes the standard. The rate of profit of each year is

compared with this standard and the actual performance of the business can be judged

easily.

o Ratio analysis discloses the position of business with different viewpoint. It discloses

the position of business with liquidity viewpoint, solvency view point, profitability

viewpoint, etc. with the help of such a study, we can draw conclusion regarding the

financial health of business enterprise.

30

ADVANTAGES

Ratio analysis is an important and age-old technique of financial analysis. The following are

some of the advantages of ratio analysis:

Simplifies financial statements: It simplifies the comprehension of financial

statements. Ratios tell the whole story of changes in the financial condition of the

business.

Facilitates inter-firm comparison: It provides data for inter-firm comparison.

Ratios highlight the factors associated with successful and unsuccessful firm.

They also reveal strong firms and weak firms, overvalued and undervalued firms.

Helps in planning: It helps in planning and forecasting. Ratios can assist

management, in its basic functions of forecasting. Planning, co-ordination, control

and communications.

Makes inter-firm comparison possible: Ratios analysis also makes possible

comparison of the performance of different divisions of the firm. The ratios are

helpful in deciding about their efficiency or otherwise in the past and likely

performance in the future.

Help in investment decisions: It helps in investment decisions in the case of

investors and lending decisions in the case of bankers etc.

31

LIMITATION

The ratios analysis is one of the most powerful tools of financial management. Though ratios

are simple to calculate and easy to understand, they suffer from serious limitations.

Limitations of financial statements: Ratios are based only on the

information which has been recorded in the financial statements. Financial

statements themselves are subject to several limitations. Thus ratios derived,

there from, are also subject to those limitations. For example, non-financial

changes though important for the business are not relevant by the financial

statements. Financial statements are affected to a very great extent by

accounting conventions and concepts. Personal judgment plays a great part in

determining the figures for financial statements.

Comparative study required: Ratios are useful in judging the efficiency of

the business only when they are compared with past results of the business.

However, such a comparison only provide glimpse of the past performance

and forecasts for future may not prove correct since several other factors like

market conditions, management policies, etc. may affect the future operations.

Problems of price level changes: A change in price level can affect the

validity of ratios calculated for different time periods. In such a case the ratio

analysis may not clearly indicate the trend in solvency and profitability of the

company. The financial statements, therefore, be adjusted keeping in view the

price level changes if a meaningful comparison is to be made through

accounting ratios.

Lack of adequate standard: No fixed standard can be laid down for ideal

ratios. There are no well accepted standards or rule of thumb for all ratios

which can be accepted as norm. It renders interpretation of the ratios difficult.

32

Limited use of single ratios: A single ratio, usually, does not convey much of

a sense. To make a better interpretation, a number of ratios have to be

calculated which is likely to confuse the analyst than help him in making any

good decision.

Personal bias: Ratios are only means of financial analysis and not an end in

itself. Ratios have to interpret and different people may interpret the same

ratio in different way.

Incomparable: Not only industries differ in their nature, but also the firms of

the similar business widely differ in their size and accounting procedures etc.

It makes comparison of ratios difficult and misleading.

33

CHAPTER 4 CHAPTER 4

RESEARCHRESEARCH METHODOLOGYMETHODOLOGY

34

RESEARCH METHODOLOGY

INTRODUCTION:-

Research methodology is a way to systematically solve the research problem. It May be

understood as a science of studying now research is done systematically. In that various steps,

those are generally adopted by a researcher in studying his problem along with the logic

behind them.

“The procedures by which researcher goes about their work of describing, explaining

and predicting phenomenon are called methodology”

TYPE OF RESEARCH:-

This project “A Study of Ratio Analysis in JSW Ispat, kameshwer, Nagpur Ltd” is

considered as an analytical research.

Analytical Research is defined as the research in which, researcher has to use facts or

information already available, and analyze these to make a critical evaluation of the facts,

figures, data or material.

SOURCE OF RESEARCH DATA :-

There are mainly two through which the data required for the research is collected.

PRIMARY DATA:

The primary data is that data which is collected fresh or first hand, and for first time which is

original in nature.

SECONDARY DATA:

The secondary data are those which have already collected and stored. Secondary data easily

get those secondary data from records, annual reports of the company etc. It will save the

time, money and efforts to collect the data.

35

The major source of data for this project was collected through annual reports, profit and loss

account of year period from 2011-2015 & some more information collected from internet and

text sources.

SAMPLING DESIGN

Sampling Unit : Financial Statements.

Sampling Size : Last five years financial statements.

Tool Used for calculations: MS-Excel.

LIMITATION OF THE STUDY:-

1) The study is limited to few ratios because of non availability of detailed financial

data.

2) The study is used on secondary data such as annual report of the company

3) The reliability and accuracy of calculation depends more on information found in

profit and loss a/c and balance sheet.

4) The study is confined only to a period of 5 years.

36

CHAPTER 5CHAPTER 5

OVERVIEW OFOVERVIEW OF

BALANCE SHEETBALANCE SHEET

37

BALANCE SHEET:-

The Balance sheet shows the financial status of a business. The registered companies are to

follow part 1 of schedule VI of company‘s \ act 1956 for recording Assets and Liabilities in

the Balance Sheet.

Format of Balance Sheet as prescribed by companies Act.

Liabilities Assets

Share Capital Fixed Assets

Reserve &Surplus Investments

Secured loans Current Assets, Loan

Unsecured Loans Advances

Current Liabilities & provision Misc. Expenditures & Losses

Liabilities: -

Liabilities defined very broadly represent what the business entity owes to other.

Share capital: -

There are two type of share capital: -

Equity Capital

Preference Capital

Equity Capital represents the contribution of the owners of the firm.

Preference capital represents the contribution of preference shareholders and the

dividend rate payable on it is fixed.

38

Reserve & Surplus: -

Reserve & Surplus are profits, which have been retained by the firm reserves, are two types,

revenue Reserve and Capital Reserve.

Revenue Reserve represents accumulated retained earnings from the profits of

normalbusiness operations. Capital reserve arises out of gains, which are not related to

normalbusiness operations.

Surplus is the balance in the profit and loss account, which has not been appropriated to any

particular reserve account. Reserve and surplus along with equity capital represent Owners

equity.

Secured Loans: -

These denote borrowings of the firm against which specific securities have been provided.

The important components of secured loans are debentures, loans from financial institutions

and loans from commercial banks.

Unsecured Loans: -

These are borrowing of the firm against which no specific security has been provided.The

major components of unsecured loans are fixed deposits, loans and advances from Promoters,

Inter-Corporate borrowings and unsecured loans from Banks.

Current Liabilities and Provision: -

Current Liabilities and Provision as per the classification under the companies Act, Consists

of the Following amounts due to the suppliers of goods and services brought on credit,

advance payments received, accrued expenses. Unclaimed dividends, Provisions for taxed,

Dividends, Gratuity, Pension etc.

Assets: -

Assets have been acquired at a specific monetary cost by the firm for the conduct of its

operation.

39

Fixed Assets: -

These assets have two characteristics. They are acquired for use over relatively long period

for carrying on the operations of the firm and they are ordinarily not meant for resale.

Examples for fixed assets are land, building, plant, Machinery, patent & Copyrights.

Investments: -

These are financial securities owned by the firm. Some investments represent long-term

commitments of funds. Usually those are the equity shares of other firms held for income and

control purpose. Other investments are short term in nature and are rightly classified under

current assets for managerial purpose.

Current Assets, Loans and Advances: -

This category consists of cash and other resources, which get converted into cash during the

operating cycle of the firm current assets, are held for a short period of time as against fixed

assets, which are held for relatively longer periods. The major components of current Assets

are: cash, debtors, inventories, loans and advances and pre-paid expenses.

Miscellaneous expenditure and losses: -

The consist of two items miscellaneous expenditure and losses miscellaneous expenditure

represent outlays such as preliminary expenses and pre-operative expenses, which outlays

such as preliminary expenses which have not written off loss is shown on the right hand side

(Assets side) of the balance sheet.

40

BALANCE SHEET

Mar '11 Mar '12 Mar '13 Mar '14 Mar '15

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of FundsTotal Share Capital 2.35 2.35 2.35 2.20 2.20

Equity Share Capital 2.35 2.35 2.35 2.20 2.20

Share Application Money 0.00 0.00 0.99 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 58.60 55.16 47.84 44.12 34.39

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Net worth 60.95 57.51 51.18 46.32 36.59Secured Loans 20.30 21.97 25.75 23.79 8.80

Unsecured Loans 28.65 26.60 27.21 22.23 21.93

Total Debt 48.95 48.57 52.96 46.02 30.73Total Liabilities 109.90 106.08 104.14 92.34 67.32

Mar '11 Mar '12 Mar '13 Mar '14 Mar '15

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of FundsGross Block 76.94 71.81 69.68 61.40 55.91

Less: Accum. Depreciation 44.82 39.96 35.41 29.68 25.36

Net Block 32.12 31.85 34.27 31.72 30.55Capital Work in Progress 25.10 19.44 13.04 10.36 4.60

Investments 3.84 0.28 0.28 0.28 1.65Inventories 52.17 50.28 61.42 45.80 27.39

Sundry Debtors 40.10 29.93 23.63 15.56 16.02

Cash and Bank Balance 22.51 22.05 1.02 2.88 3.30

Total Current Assets 114.78 102.26 86.07 64.24 46.71

Loans and Advances 15.61 10.26 11.46 10.83 5.56

Fixed Deposits 0.00 0.00 17.54 20.49 12.80

Total CA, Loans & Advances 130.39 112.52 115.07 95.56 65.07

Deferred Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 77.57 54.63 55.62 43.61 31.42

Provisions 3.98 3.37 2.89 1.98 3.13

Total CL & Provisions 81.55 58.00 58.51 45.59 34.55

41

Net Current Assets 48.84 54.52 56.56 49.97 30.52Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 109.90 106.09 104.15 92.33 67.32

Contingent Liabilities 4.45 3.93 4.84 2.67 1.62

Book Value (Rs) 259.38 244.73 213.58 210.54 166.31

Balance Sheet of JSW Ispat, Nagpur ------------------- in Rs. Cr. -------------------

CHAPTER 6CHAPTER 6

DATA ANALYSIS ANDDATA ANALYSIS AND INTERERTATIONINTERERTATION

42

INTRODUCTION

Ratio analysis is a technique of analyzing the financial statement of industrial concerns.

Now a day this technique is sophisticated and is commonly used in business concerns. Ratio

analysis is not an end but it is only means of better understanding of financial strength and

weakness of a firm.

Ratio analysis is one of the most powerful tools of financial analysis which helps in

analyzing and interpreting the health of the firm. Ratio’s are proved as the basic instrument in the

control process and act as back bone in schemes of the business forecast.

With the help of ratio we can determine

The ability of the firm to meet its current obligation.

The limit or extent to which the firm has used its borrowed funds.

The efficiency with which the firm is utilizing in generating sales revenue.

The operating efficiency and performance of the company.

Classification of Ratios

Ratios can be classified into different categories depending upon the basis of

classification.

I.TRADITIONAL CLASSIFICATION

Traditional Classification has been on the basis of financial statements, on which ratio

may be classified as follows.

1. Profit & Loss account ratios.

E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc

43

2. Balance sheet ratio.

E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc

3. Composite/Mixed ratio.

E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets

Turnover Ratio etc.

II. FUNCTIONAL CLASSIFICATION OF RATIOS

Functional ratios

1. Liquidity ratios

c) Current Ratio

d) Quick Ratio

2. Leverage Ratios

a) Debt-equity Ratio

b) Current Asset to Proprietor’s fund Ratio

III. PROBABILITY RATIOS

a. Gross profit Ratio

b. Operating profit Ratio

c. Return on investment

IV. ACTIVITY RATIO

i. Inventory Turnover Ratio

ii. Asset Turnover Ratio:

a. Fixed Asset Turnover Ratio

b. Current Asset Turnover Ratio

44

iii. Working Capital Turnover Ratio.

ANALYSIS & INTREPRETATION

I. Liquidity Ratio

Liquidity ratio measures the ability of the firm to meet its current obligation

(liabilities). In fact analysis of liquidity needs the preparation of cash budget and cash and

fund flow statement but liquidity ratio, by establishing a relationship between cash and other

current asset to current obligation, to provide a quick measure of liquidity. A firm should

ensure that it doesn’t suffer lack of liquidity and also that it does not have excess liquidity.

The common liquidity ratios are:-

1. Current Ratio

Current ratio may be defined as the relationship between current asset and current

liabilities. This is a measure of general liquidity & is most widely used to make analysis of

short-turn financial position or liquidity of firm. It is calculated by dividing the total current

assets by total current liabilities.

Current Ratio = Current Assets

Current Liabilities

TABLE-1.1 Current Ratio

Year CA (In. Rs Cr) CL (In. Rs Cr) CR(In. Rs

Cr)

2011 65.07 34.55 1.88

2012 95.56 45.59 2.09

45

2013 115.07 58.51 1.96

2014 112.52 58 1.94

2015 130.39 81.55 1.59

1 2 3 4 50

500

1000

1500

2000

2500

1.88 2.09 1.96 1.94 1.59

Chart showing Current Ratio

YearCA CL CR

INTERPRETATION

The above table shows that JSW Ispat, Nagpur, current ratio has increased from 1.88 to 2.09

in the year 2011 and 2012 and in the year 2013 it was decreased to 1.96 and then the year

2014 it keep decreasing to 1.94 butit decreased direct to 1.59 in 2015 . All Rs. In Cr.

The current ratio is below the standard ratio i.e., 2:1. Hence it can be said that there is lack of

enough current assets in JSW Ispat, Kalamesher, Nagpur Industries Ltd. to meet its current

liabilities.

2. ACID TEST RATIO / QUICK RATIO / LIQUIDITY RATIO:-

This ratio establishes a relationship between quick/liquid assets and current liabilities. It

measures the firms’ capacity to pay off current obligations immediately. An asset is liquid if it can be

converted in to cash immediately without a loss of value; Inventories are considered to be less liquid.

Because inventories normally require some time for realizing into cash. This ratio is also known as

acid-test ratio. The standard quick ratio is 1:1. Is considered satisfactory.

46

Quick Ratio = Quick Assets (current assets - Inventory)

Current Liabilities

TABLE-1.2 Quick Ratio

Year CA

(In. Rs Cr)

Inventories

(In. Rs Cr)

Quick Assets

(In. Rs Cr)

CL

(In. Rs Cr)

Quick

Ratio

(In. Rs Cr)

2011 65.07 27.39 37.68 34.55 1.09

2012 95.56 45.8 49.76 45.59 1.09

2013 115.07 61.42 53.65 58.51 0.91

2014 112.52 50.28 62.24 58 1.07

2015 130.39 52.17 78.22 81.55 0.95

Year CA

Inventorie

s

Quick Asse

ts CL

Quick Rati

o0

500

1000

1500

2000

2500

2015

130.39 52.17 78.22 81.55 0.95

Chart Showing Quick Ratio

Series1Series2Series3Series4Series5Series6

INTERPRETATION:

47

The above table shows that the quick assets of JSW Ispat, Nagpur has constant 1.09 in the

year 2011 and 2012 and had drastically fluctuation to 0.91 and 1.07 in the year 2013 and

2014 and had slightly decline to 0.95 in the year 2015. All Rs. In Cr

This ratio measures firm’s ability to serve short term liabilities. The ideal quick ratio is “1”. A

low quick ratio represents that firm’s liquidity poison is not good.

II. Leverage Ratios

Leverage ratios are also known as capital structure ratio. These ratios indicate mix of

funds provided by owners & lenders. As a general rule these should be appropriate mix debt

& owners equity in financing the firm’s assets.

Leverage ratios are calculated to judge the long long-term financial position of the

company. Some of the popular leverage ratios are:

a. Debt-Equity Ratio

Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-

Equity also known as External-Internal equity ratio. It is calculated to measure the relative

claims of outsiders against firm assets.

Debt-Equity Ratio = Total Debt

Net Worth

TABLE-2.1 Debt Equity Ratio

Year Total Debt (In.

Rs Cr)

Net Worth (In.

Rs Cr)

Ratio

2011 30.73 36.59 0.84

2012 46.02 46.32 0.99

48

2013 52.96 51.18 1.03

2014 48.57 57.51 0.84

2015 48.95 60.95 0.80

1 2 3 4 50

500

1000

1500

2000

2500

0.84 0.99 1.03 0.84 0.8

Chart Showing Dept Equity Ratio

YearTotal DebtNet Worth Ratio

INTERPRETATION

The table shows that the total debt ratio of JSW Ispat, Nagpur had increase in the year

2011 and 2012 from 0.84 to 0.99 andfurther increased to 1.03 in the year 2013 and had

fluctuation to 0.84 in the 2013 and 0.80 in the year 2014. The company had increase inthe

total debt by 37.22 and 39.97 in net worth in the year 2015. All Rs. In Cr.

Debt equity ratio measures ultimate solvency of the company. It provides a margin of safety

to creditors, thus when the ratio is smaller the creditors are more secured. An appropriate debt

equity ratio is 0.33. A ratio higher than this is an indication of risky financial policies.

b. Current Assets to Proprietor’s funds ratio

This ratio is calculated by dividing total current assets by shareholders funds. It

indicates the extent to which proprietor funds are invested in current assets. There is no rule

of thumb for this ratio & depending upon the nature of the business there may be different

ratios for different firms.

49

CA to PF ratio = Current Assets

Proprietors Fund

TABLE-2.2 Current Assets to Proprietors Fund

Year Current Asset

(In. Rs Cr)

Net Worth (In.

Rs Cr)

Ratio

2011 65.07 36.59 1.78

2012 95.56 46.32 2.06

2013 115.07 51.18 2.24

2014 112.52 57.51 1.96

2015 130.39 60.95 2.14

1 2 3 4 50

500

1000

1500

2000

2500

1.78 2.06 2.24 1.96 2.14

Chart Showing CA to PF Ratio ( In. Rs Cr)

YearCurrent Asset Net Worth Ratio

INTERPRETATION

The table of JSW Ispat, Nagpur current assets to proprietary ratio shows that the ratio has been

increased by 1.78 to 1.2.06 in the year 2011 and 2012 and 2.24 in the year 2013 and then decline to

1.96 in the year 2014 and then again increased to 2.14 in the year 2015. All Rs. In Cr.

50

This ratio indicates the extent to which proprietors fund are invested in current asset.

III.Profitability Ratios

The primary objective of a business undertaking is to earn profits. Profit is the

difference between revenue & expenses over a period of time. Profit is output of a company

& company will have no further if it fails to make sufficient profit. Profits are thus a useful

measure of overall efficiency of a firm.

These ratios are calculated to measure the operating efficiency of the company.

Beside management, creditors, owners are also interested in the profitability of the company.

Generally profitability ratios are calculated either in relation to sales or in relation to

investment. The various profitable ratios are:

I In Relation to Sales

a) Gross Profit Ratio

Gross Profit Ratio measures the relationship between gross profits & sales; it is

usually represented in percentage. Thus Gross profit margin highlights the production

efficiency at a concern

G.P.Ratio = Gross Profit X 100

Sales

G.P.Ratio indicate the extent to which selling price of goods per unit may decline

without resulting in losses on operations of firm. It reflect efficiency with which firm

produces the product.

TABLE-3.1 Gross Profit Ratio

Year Gross Profit

(In. Rs Cr)

Sales(In. Rs Cr) Ratio

2011 22.5404 229.07 9.84

2012 17.8193 210.88 8.45

51

2013 6.2869 203.46 3.09

2014 14.4477 131.4 4.61

2015 8.5854 285.23 3.01

1 2 3 4 50

500

1000

1500

2000

2500

9.84 8.45 3.09 4.61 3.01

Chart Showin GPR

YearGross Profit Sales Ratio

INRTEPRETATION

The above table shows the gross profit ratio of JSW Ispat, Nagpur the table indicates that the

ratio in the year 2011 was 9.84 and in the year 2012 it falls to 8.45 further it had drastically

change in gross profit to 3.09 in the year 2013 and 4.61 in the year 2014, but it again

decreased to 3.01 in the year 2015. All Rs. In Cr.

The gross profit indicates the degree to which the selling price of goods per unit may decline

without resulting in losses on operation of the firm. It reflects the efficiency with which firm

produces its products

b) Operating Profit Ratio

A ratio used to measure a company's pricing strategy and operating efficiency.

Operating ratio is a measurement of what proportion of a company's revenue is left over after

paying for variable costs of production such as wages, raw materials, etc. A healthy operating

margin is required for a company to be able to pay for its fixed costs, such as interest on debt.

It is also known as "operating profit margin."

Calculated as:

52

Operating Profit Ratio = Operating Profit X 100

Sales

TABLE-3.2 Operating Profit Ratio

Year Operating

Profit (In. Rs

Cr)

Net Sales(In. Rs

Cr)

Ratio

2011 26.85 229.07 11.72

2012 22.98 210.88 10.89

2013 12.03 203.46 5.91

2014 21.02 131.4 6.7

2015 14.53 285.23 5.09

1 2 3 4 50

500

1000

1500

2000

2500

11.72 10.89 5.91 6.7 5.09

Chart Showing Operating Profit Ratio

YearOperating Profit Net SalesRatio

INRTEPRETATION

53

The above table shows the Operating profit ratio of JSW Ispat, Nagpur the table indicates that

the ratio in the year 2011 was 11.72 and in the year 2012 it falls to 10.89 further it had

drastically change in operating profit to 5.91 in the year 2013 and increased to 6.70 in the

year 2014, but it again decreased to 5.09 in the year 2015. All Rs. In Cr.

Operating profit ratio gives analysts an idea of how much a company makes (before interest

and taxes) on each Rupee of sales. When looking at operating profit margin to determine the

quality of a company, it is best to look at the change in operating profit margin over time and

to compare the company's yearly or quarterly figures to those of its competitors. If a

company's margin is increasing, it is earning more per Rupee of sales. The higher the

margin,the better

b) Net Profit Ratio

The Net Profit Ratio determines the between Net profit and sales of business firm. This

relationship is also known as net margin. This ratio shows the earning left for shareholder

(both equity and preference) as percentage of Net sales.

Net Margin Ratio measures the overall efficiency of production, Administration selling,

financing, pricing and Time Management.

Thus,

Net profit Ratio: Net Profit X 100

Net Sales

TABLE-3.3 Net Profit Ratio

Year Net Profit (In.

Rs Cr)

Net Sales(In. Rs

Cr)

Ratio

2011 15.11 226.16 6.68

2012 10.24 226.81 4.51

2013 0.46 215.9 0.22

54

2014 7.15 304.61 2.35

2015 4.26 288.08 1.47

1 2 3 4 50

500

1000

1500

2000

2500

6.68 4.51 0.22 2.35 1.47

Chart Showing Net Profit Ratio

YearNet Profit Net SalesRatio

INTERPRETATION

The above table shows that JSW Ispat, Nagpur Net Profit ratio has decreased from 6.68 to

4.51 in the year 2011 and 2012 and in the year 2013 it was drastically decreased to 0.22 and

then the year 2014 it increases to 2.35 but it again decreased to 1.47 in 2015. All Rs. In Cr.

A high Net profit ratio indicates adequate return to the owners as well as enables a firm to

withstand adverse economic conditions when selling price is decanting, cost of production is

rising and demand for product is falling.

A low Net Profit ratio has opposite implications. A firm with low net profit ratio can earn a

high rate of return on investment it has a higher inventory turnover.

Jointly considering gross and net profit ratio provides a valuable understanding of the cost

and profit structure of the firm and enables the analyst to identify the source of business

efficiency of inefficiency.

55

2. Profitability in relation to Investment

a. Return on shareholders’ Investment:

Return on shareholders’ investments, popularly known as ROI. It is the relationship

between net profit after tax & shareholders’ funds. Thus this ratio is considered as affective

indicator of the company’s profitability because it reflects the success of management in the

efficient utilization of the owner’s investment.

ROI = Net Profit after Tax X 100

Shareholders fund

TABLE-3.4 Return on shareholders’ Investment

Year Net Profit (In.

Rs Cr)

Investment (In.

Rs Cr)

Ratio

2011 15.11 65.07 23.22

2012 10.24 95.56 10.72

2013 0.46 115.07 0.4

2014 7.15 112.52 6.35

2015 4.26 130.39 3.27

56

1 2 3 4 50

500

1000

1500

2000

2500

23.22 10.72 0.4 6.35 3.27

Chart Showing RSI

YearNet Profit Investment Ratio

INTERPRETATION

The above table shows that JWS Ispat, Nagpur Return on Investment ratio has decreased

from 23.22 to 10.72 in the year 2011 and 2012 and in the year 2013 it was drastically

decreased to 0.40 and then the year 2014 it increases to 6.35 but it again decreased to 3.27 in

2015. All Rs. In Cr

This ratio is used to measure the overall efficiency of a concern, the higher the ratio the better

the results will be as this ratio reveals how well the resources of a concern are being used.

IV. Activity Ratios:

Funds are invested in various assets in business to make sales & earn profit. The

efficiency with which assets are managed directly affects the volume of sales. The better the

management of assets, the larger is the amount of sales & the profit. Activity ratio measures

the efficiency or effectiveness with which a firm manages its resources or assets. These ratios

are also called turnover ratio because they indicate the speed with which assets are converted

or turned over into sales.

The various activity ratios are:

a. Inventory Turnover Ratio:

57

Inventory turnover ratio indicates the number of times stock has been turned over

during the period & evaluates efficiency with which a firm is able manage inventory.

The ratio is calculated by dividing the net sales divided by average inventory at cost.

ITR = Net Sales

Average Inventory at Cost

Average inventory should be taken for calculating stock turnover ratio. Adding the stock in

the beginning & at the end of period & dividing it by 2 to calculate average inventory

TABLE-4.1 Inventory Turnover Ratio

Year NetSales (In.

Rs Cr)

Inventory (In. Rs

Cr)

Ratio

2011 256.02 27.39 9.34

2012 224.58 45.8 4.9

2013 221.12 61.42 3.6

2014 337.88 50.28 6.72

2015 285.23 52.17 5.47

58

1 2 3 4 50

500

1000

1500

2000

2500

9.34 4.9 3.6 6.72 5.47

Chart Showing ITR

YearNetSales Inventory Ratio

INTERPRETATION

The above table shows that JSW Ispat, Nagpur Inventory Turnover Ratio has decreased from

9.34 to 4.90 in the year 2011 and 2012 and in the year 2013 it was again decreased to 3.60

and then the year 2014 it increases to 6.72 but it again decreased to 5.47 in 2015. All Rs. In

Cr.

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

inventory management, a low ratio results in blocking of funds in inventory. The reference

value of this ratio 9 and the maximum conversion period is 388.

b. Assets Turnover Ratio:

Assets are used to generate sales. Therefore a firm should manage its assets

efficiency to maximum sales. Assets turnover ratio shows relationship between sales &

assets. The various assets turnover ratio are:

i. Fixed Assets Turnover Ratio:

This ratio establishes the relationship between the costs of goods sold and fixed assets. It can

be calculated by,

Fixed Assets Turnover Ratio = Sales

Fixed Assets

59

TABLE-4.2 Fixed Asset Turnover Ratio

Year Sales (In. Rs

Cr)

Fixed Asset (In.

Rs Cr)

Ratio

2011 229.07 55.91 4.1

2012 210.88 61.4 3.43

2013 203.46 69.68 2.92

2014 313.4 71.81 4.36

2015 285.23 76.94 3.71

1 2 3 4 50

500

1000

1500

2000

2500

4.1 3.43 2.92 4.36 3.71

Chart Showing FATR

YearSales Fixed Asset Ratio

INTERPRETATION

The above table shows that JSW Ispat, Nagpur Fixed Asset Turnover Ratio has decreased

from 4.10 to 3.43 in the year 2011 and 2012 and in the year 2013 it was again decreased to

2.92 and then the year 2014 it drastically increases to 4.36 but it again decreased to 3.71 in

2015. All Rs. In Cr

One of the cautions to be keep in mind that when fixed assets are old and substantially

depreciated the ratio tenders to be high because the denominator of the ratio will be low

ii. Current Assets Turnover Ratio:

60

This ratio is indicates how many net sales are made for every rupee of investment in current

assets.

Current Assets Turnover Ratio = Sales

Current Assets

TABLE-4.3 Current Asset Turnover Ratio

Year Sales (In. Rs

Cr)

Current Asset

(In. Rs Cr)

Ratio

2011 229.07 65.07 3.52

2012 210.88 95.56 2.21

2013 203.46 115.07 1.77

2014 313.4 112.52 2.79

2015 285.23 130.39 2.19

61

1 2 3 4 50

500

1000

1500

2000

2500

3.52 2.21 1.77 2.79 2.19

Chart Showing CATR

YearSalesCurrent Asset Ratio

INTERPRETATION

The above table shows that JSW Ispat, Nagpur Current Asset Turnover Ratio has decreased

from 3.52 to 2.21 in the year 2011 and 2012 and in the year 2013 it was again decreased to

1.77 and then the year 2014 it increases to 2.79 but it again decreased to 2.19 in 2015.

d. Working Capital turnover Ratio:

A firm may also related net current assets to sales. Working capital turnover ratio

indicates the velocity of the utilization of net working capital.

Working Capital Turnover Ratio = Sales

Net Current Assets

TABLE: 4.4 Working Capital Turnover Ratios

Year Sales (In. Rs

Cr)

Net Current

Asset (In. Rs Cr)

Ratio

62

2011 229.07 30.52 7.56

2012 210.88 49.97 4.22

2013 203.46 56.56 3.6

2014 313.4 54.52 5.75

2015 285.23 48.84 5.84

1 2 3 4 50

500

1000

1500

2000

2500

7.56 4.22 3.6 5.75 5.84

Chart Showing WCTR

YearSales Net Current AssetRatio

INTERPRETATION

The above table shows that JSW Ipat, Nagpur Current Asset Turnover Ratio has drastically

decreased from 7.56 to 4.22 in the year 2011 and 2012 and in the year 2013 it was again

decreased to 3.60 and then the year 2014 it increases direct to 5.75 and it again increased to

5.84 in 2015. All Rs. In Cr

This ratio indicates the number of times the working capital is turned over in the course of the

year. This ratio measures the efficiency with which the working capital is used by the firm. A

higher ratio indicates efficient utilization of working capital and a low ratio indicates

otherwise. But a very high working capital turnover is not a good situation for any firm.

d. Debtors turnover Ratio:

63

Debtor’s turnover ratio indicates the speed of debt collection of the firm. This ratio computes

the number of times debtors (receivables) has been turned over during the particular period.

Debtors Turnover Ratio = Net Sales Average Debtors

Note: in BSIL, we have taken the total net sales instead of the credit sales, because the credit

sales information has not available for the calculation of DTR.

TABLE: 4.5 Debtors Turnover Ratio

Year Sales (In. Rs

Cr)

Average Debtors

(In. Rs Cr)

Ratio

2011 229.07 16.02 14.3

2012 210.88 15.56 13.55

2013 203.46 23.63 8.61

2014 313.4 29.93 10.47

2015 285.23 40.1 7.11

1 2 3 4 50

500

1000

1500

2000

2500

14.3 13.55 8.61 10.47 7.11

Chart Showing CATR

YearSales Average Debtors Ratio

INTERPRETATION

64

The above table shows that JSW Ispat, Nagpur Current Asset Turnover Ratio has

decreased from 14.30 to 13.55 in the year 2011 and 2012 and in the year 2013 it was again

decreased to 8.61 and then the year 2014 it increased to 10.41 but it again decreased to 7.11

in 2015. This shows the company is not collecting debt rapidly. All Rs. In Cr.

The assets turnover ratio measures the efficiency of a firm in managing and utilizing the

assets. Higher turnover ratio, more efficient is the management utilization of the assets while

low turnover are indicative of under utilization of available resources and presence of idle

capacity. In operational terms, it implies that firm can expand its activity level without

requiring additional capital investments.

65

CHAPTER 7CHAPTER 7

FINDING,FINDING,

SUGGETIONS, & SUGGETIONS, &

CONCLUSION

FINDINGS

I . LIQUIDITY RATIO:

1. From the current ratio it is found that the ratio is not satisfactory because the %

increase in current assets is less than the % increase in current liabilities during the

year 2014-2015.The highest ratio recorded is 2.09 in 2012 and the lowest ratio

recorded is 1.59 in the year 2015. And less than the standard ratio i.e. 2:1.

2. From the quick ratio it is found that the ratio is satisfactory because the ratios

recorded during the year were nearby the standard ratio i.e. 1. In the year 2013 the

ratio recorded is 0.91 and the ratio recorded highest was 1.09 in the year 2011 and it

remains constant in the year 2012.

66

II . LEVERAGE RATIO:

1. From the debt equity ratio it is found that the ratio recorded during the year 2011,

2014, & 2015 is satisfactory as the ratios are near to the standard ratio but during the

year 2012 & 2013 it is not satisfactory as the ratios are very high compared to the

standard ratio.

2. From the current assets to proprietors fund ratio is satisfactory as the proprietor funds

invested in the current assets is more in the year 2015 is more compared to previous

years. The highest ratio recorded is 2.24 in the year 2013 and the lowest ratio

recorded is 1.78 in the year 2011.

III. PROFITABILITY RATIOS:

1. From the gross profit ratio it is found that the ratio is not satisfactory during the last

three years from 2012 to 2015. The highest ratio recorded in the year 2011 is 9.84 and

the lowest ratio recorded is 3.01 in the year 2015.

2. From the operating profit ratio it is found that the ratio is not satisfactory because it

continuously decreasing during the considered financial years. The highest ratio

recorded is 11.72 in the year 2011 and the lowest is 5.09 in the year 2015.

3. From the return on investment it is found that the ratio calculated for the considered

financial years is bad. The ratio is not satisfactory as the return on investment is

67

ineffective and bad, comparing the previous years.The highest ratio recorded is 23.22

in the year 2011 and the lowest is 0.40 in the year 2013.

IV. ACTVITY RATIOS:

1. From the inventory turnover ratio it is found that the ratio is not satisfactory as the

inventory holding period is very high, compared during the financial years.

2. From the fixed assets turnover ratio it s found that the ratio is satisfactory as the ratios

are less volatile yearly during the comparative years.

3. Debtor’s turnover ratio is very high in the year 2011. In the year 2012 it has decreased

by 2.75 as compared to 2011 and in the last year 2015 it has again decreased by 3.36

as compared to 2014.

Suggestion

1. The company may improve its current ratio by decreasing the current liabilities

because in the year 2014-15 current assets are decreased and it may also improve its

quick ratio.

2. The company may decrease its total debt as there is increase in total debt the year

2012-13. The company may increase its investment in current assets.

68

3. Long terms solvency of the company has to be improved by limiting amount invested

by outsiders to the amount invested by the owner of the company. This can be

achieved by purchasing the shares gradually.

4. The proper management of the inventory can improve liquidity position and

efficiency of the company.

CONCLUSION

Study of ratio analysis of JSW Ispat, Nagpur Reveals the performance of the company

in terms of financial aspects. It is found that there is decrease in sales gross profit during 2011

to 2015. The cash balance is also decreased for the above Saied years this is due to

company’s revised policy in debt collection. It is also observed that the current ratio is not so

satisfactory which creates chunks in the current assets in the form of sundry debtors and

inventory.

69

70

CHAPTER8

BIBLIOGRAPHY

BIBLIOGRAPHY

The references for the study include the various sources from where data is collected. The

various sources which comes under references includes-

Balance sheets of JSW Ispat, Nagpur. (2011, 2012, 2013, 2014, 2015)

Internet:

www.bajajngp.com

71

www.moneycontrol.com

www.slideshare.net

Books:

1) Khan M.Y.; Financial Management; Tata McGraw Hill Education

Pvt. Ltd., New Delhi.

2) In P.K.; Financial Management; Tata McGraw Hill Education Pvt.

Ltd., New Delhi.

72