COMPARATIVE ANALYSIS OF FINANCIAL STATEMENT OF SAIL WITH OTHER STEEL

COMPANIES IN INDIA

PROJECT REPORTMAY 2010 – JULY 2010

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

InFinance & Control

By Kumar Mayank

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

Prof. S.S. Ahmed Shibaji Dey

Assistant Professor (finance) Dy. Manager (personnel)

Institute of Management & Information science Steel Authority Of India Limited

Bhubaneswar . Ranchi.

Institute of Management & Information Science

Swagat Vihar

Bhubaneswar Orissa – 751002

Declaration

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

SignatureName: Kumar MayankDate: 3rd July 2010Place: Steel Authority of India Limited (Ranchi)

Acknowledgement

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

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

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

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

ABSTRACT

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

CHAPTER

1

INTRODUCTION

1.1 COMPANY PROFILE

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets.

Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated

close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making.

SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organization at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified.

1.2 MAJOR UNITS

Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

Maharashtra Electrosmelt Limited (MEL) in Maharashtra

1.3 JOINT VENTURES

SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce.

NTPC SAIL Power Company Pvt. LtdA 50:50 joint venture between Steel Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (NTPC Ltd.). It manages the captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 314 megawatts (MW)

Bokaro Power Supply Company Pvt. LimitedThis 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant.

Mjunction Services LimitedA joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes e-commerce activities in steel and related areas.

SAIL-Bansal Service Center Ltd.SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service Centre at Bokaro with the objective of adding value to steel.

SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set up a joint venture company to produce Ferro-manganese and silico-manganese at Bhilai.

1.4 OWNERSHIP AND MANAGEMENT

The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational and financial autonomy.

1.5 SHARE HOLDING PATTERN (% OF Equity)

Government of India -85.82% Foreign Institutional Investors-5.41% Financial Institutions-4.64% Individuals (Including Employees & NRIs)-1.91% Mutual Funds-1.42% Companies (including Trust &Clearing Members)-0.59% Banks-0.19% Global Depository Receipts (GDRs)-0.02%

1.6 SHARE HOLDING PATTERN(% OF EQUITY)

CHART 1

Chapter

2

2.1 ORGANIZATION STRUCTURE

CET

2.2 Centre for Engineering & Technology(CET)SAIL , RANCHI

The centre for engineering & technology (CET) was set up in the year 1982 in pursuance of decision taken by SAIL Board in its 83rd meeting held on 28th January 1982. An ISO: 9001 certified organization, is the design, engineering & consultancy unit of SAIL. As a solution provider for all project needs, CET had been rendering complete range of services not only to the Steel Plants under SAIL but also to various clients other than SAIL – both within and outside the country. CET is the nodal agency for acquisition and lateral transfer of technologies within SAIL plants.

The range of services includes conceptualization, project evaluation & appraisal, project consultancy, design & engineering and project management in the areas of iron and steel making. Apart from this, CET has been providing its services in the related areas like mine planning and development, infrastructure development, industrial piping, industrial warehousing, material handling system, industrial pollution control and environment management systems, water supply and sanitation, town planning, power projects, etc.

CET represents a reservoir of technical & managerial expertise inherited over four decades of Indian Steel Industry. It has kept pace with changing times and made continuous efforts for updating skills of engineers through planned HRD programmes, collaborative arrangements with academia and other professional organization of repute and acquiring up-to-date hardware’s & software’s for engineering work. All of these are blended with a concern for client’s profitability to ensure that the clients get the most cost effective solution, tailor- made for their requirement.

2.3 PURPOSE OF FORMING THE CET

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

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

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

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

be developed to save costs for SAIL. Thus CET was formed with headquarters in Ranchi and sub

centers in various steel plants across India for better coordination. Though CET was formed for

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

consultancy services to the other organizations but only on specific requests to earn additional

revenues.

CET has six subcentres at following locations:

1. CET Sub centre Bhilai

2. CET Sub centre Bokaro

3. CET Sub centre Durgapur

4. CET Sub centre Rourkela

5. CET Sub centre Burnpur

6. CET Sub centre Bhadrawati

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

CET’s activities

1. CET, Delhi Unit Office 2. CET, Kolkata Unit Office

The objectives and functions of CET are mainly categorized under following headings as under:

• Consultancy for Design, Engineering and Techno-economics

• Technology improvement• Other Services

Consultancy for Design, Engineering and Techno-economics

Carrying out detailed technical studies of various scheme / projects referred by the

Plants / Units or Corporate Office or SAILCON.

Preparation or Approach Note / Technical Note / Master Note / Study Reports to enable

Plants / Units to take decision for going ahead with particular scheme and for charting

future course of action.

Preparation of feasibility reports, detailed project reports covering the technical,

technological and techno-economic aspects to enable the plants and units to prepare

investment proposals / taking investment decision.

Assisting the plants and units to defend the proposals at the time of scrutiny by

appraising/approving authorities.

Providing detailed engineering support, approval of vendor drawings / documents,

providing designers supervision etc. for implementing the sanctioned schemes and

proposals.

2.4 CET-SAIL(FINANCE DEPATRMENT)

Duties of Officers and employees in Finance Section:  

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

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

remittances to the respective funds.

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

calculations for issuing certificates.

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

from their bills.

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

• Accounting of all transactions, maintenance and scrutiny thereof.

• Closing of accounts and audit thereof.

• Dealing with Govt. and Internal Audits

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

departments/ Sub-centres/ Unit Offices.

• Periodic monitoring and control of all types of budgets

• Issue of TDS certificates to employees and contractors.

FIXED AND VARIABLE COSTS FOR FINANCE DEPARTMENT

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

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

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

remuneration which contains both executive pay and non executive pay. It comes under fixed

costs while other expenses like travelling expenses, stationary expenses and other

miscellaneous expenses which come under variable costs. One of the important responsibilities

of the finance department is the preparation of engineering hour rates for ascertaining and

preparing budgets for each year.

OTHER THINGS LEARNED AT CET SAIL (FINANCE DEPARTMENT)

To prepare engineering hour rate for cet sail employee.

Preparation of vouchers

Preparation of T.A.BILLS (Travelling allowance)

Preparation of revenue budget for cet sail.

Preparation of renumeration for EMPLOYEES REMUNERATION & BENEFITS BUDGET .

2.5 PERFORMANCE HIGHLIGHTS OF CET 2009-2010

HIGHLIGTS OF PHYSICAL PERFORMANCE

Total sanctioned projects 137 nos. against 135 nos. in corresponding period last year. Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

Highest nos. of assignment handled at 327 in a year, up by 7 nos. over previous year. Scheduled compliance for timely submission of documents maintained nearly 100%. Customer satisfaction index (csi) at 4.95 on a scale of 5.

chart 2

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

with RMD new strategies where formulated for faster execution of projects. Expression of interest for acquisition of technology for up gradation of blast furnaces

has been floated. Video conferencing facility which connects Ranchi and sub centers at bhillai , Durgapur ,

bokaro and Rourkela is being used extensively for quarterly project reviews , designed reviews , knowledge sharing , technical discussion with vendors and plant engineers . It has resulted din faster communication, wider coverage and saving in expenditure.

CET has taken measures for working in a paperless environment. All movements of papers/ documents are being done through email system.

CHAPTER

3

3.1 Financial Statement Analysis: Financial statement analysis is defined as the process of identifying financial strengths and weaknesses 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 that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.

The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities and equity are directly related to an organization's financial position. Reported income and expenses are directly related to an organization's financial performance.

Financial statement analysis helps the business owners and with other interested people to analyze the data in financial statement to provide them with better information about such key factors for decision making and ultimate business survival. Financial statement analysis involves analyzing the information provided in financial statement to provides information about the organization past performance , it’s present condition & how the organization will perform in it’s future. It also helps to acess the organization earnings in term of power , persistence , quality & growth along with it’s solvency.

Types of Financial StatementsThere are three types of financial statement:

Income Statement : The income statement shows all items of income and expense of any business. It reflects a specific time period. So, an income statement for the quarter ending March 31, shows revenue and expenses for January, February and March; if the income statement is for the calendar year ending December 31, it would contain all your information from January 1 to December 31.Income statements are also known as statements of profit and loss or P&Ls. The bottom line on an income statement is income less expenses. If income is more than expense, then there happen to be a net profit. And if Expense more than income then there is a net loss.

Balance Sheet : Accounting is based upon a double entry system - for every entry into the books there has to be an opposite and equal entry. The net effect of the entries is zero, which results your books being balanced. The proof of this balancing act is shown in the balance sheet when Assets = Liabilities + Equity. The balance sheet shows the health of a business from day one to the date on the balance sheet. Balance Sheets are always dated on the late day of the

reporting period. If you’ve been in business since 2009 and the balance sheet is dated as on December 31 of the current year, the balance sheet will show the results of your operations from 2009 to December 31.

Statement of Cash Flows : The statement of cash flows shows the ins and outs of cash during the reporting period. The statement of cash flows takes aspects of the income statement and balance sheet and kind of crams them together to show cash sources and uses for the period.

3.2 OBJECTIVES OF THE STUDY

1.To study the financial position of the Sail.

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

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

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

financial analysis.

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

study.

3.3 IMPORTANCE OF THE STUDY

By “FINANCIAL PERFORMANCE ANALYSIS OF SAIL” we would be able to get a fair picture of the

financial position of SAIL.

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

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

the liabilities.

Protecting the property of the business.

Compliances with legal requirement

3.4 LIMITATIONS OF THE STUDY

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

reports of SAIL for the study period.

Due to the limited time available at the disposable of the researcher the study has been confined for a

period of 7 years (2003-2009).

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

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

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

3.5 RESEARCH METHODOLOGY

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

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

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

research study.

3.6RESEARCH DESIGN

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

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

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

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

Analytical in nature.

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

decided.

3.7 DATA COLLECTION

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

audited reports of the company.

3.8 SOURCES OF DATA

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

3.9METHODS OF DATA ANALYSIS

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

study are:

3.10 ANALYTICAL TOOLS APPLIED

The study employs the following analytical tools:

1. Comparative statement.

2. Common Size Statement.

3. Trend Percentage.

4. Ratio Analysis.

3.11 ANALYSIS AND INTERPRETATION

Financial statement is an organized collection of data according to logical and consistent accounting

procedures. It purposes is to convey an understanding of some financial aspects of a business firm. It

may show a position at a moment of time as in the case of a balance sheet, or may reveal a series of

activities over a given period of time, as in the case of an Income Statement. Thus the term “Financial

Statement “generally refers to two basic statements: (i) the Income Statement and (ii) the Balance sheet.

The financial statements are indicators of the two significant factors:

1. Profitability and

2. Financial soundness

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

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

profitability and financial soundness of the business.

CHAPTER

4

Table No.1

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

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

Investment 543 543 606 293 514 538 653

Current Assets 7312 8246 14333 15630 20375 26317 34511

Mis.Expenditure 536 378 294 215 129 59 0.00

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

Total Assets 25570 22717 28084 29058 33854 40874 53977

LIABILITIES

Shareholder’s Funds

5290 5037 10306 12601 17313 23063 27984

Loan Funds 12969 8690 5770 4298 4180 3045 7539

Current Liabilities& Provisions

7311 8990 10166 10675 10949 13198 17122

Deferred Liabilities

- - 1842 1484 1412 1568 1332

TOTAL LIABILITIES

25570 22717 28084 29058 33854 40874 53977

Table No.2

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

( Rs. in Crores)

PARTICULARS

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

Cng % cng Cng % cng Cng % cng

Cng % cng

Cng % cng

Cng % cng

ASSETS

Fixed Assets (864) (5.9) (699) (5.1) 69 0.53 (124)

(0.9)

1164 9.09 4853 34.76

Investment 0 0 63 11.6 (313) (51.6)

221 75.4 24 4.66 115 21.37

Current Assets

934 12.77 6087 73.8 1297 9.04 4745

30.3 5942 29.16 8194 31.13

Mis. Expenditure

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

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

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

LIABILITIES

Shareholder’s Funds

(253) (4.78) 5269 104.6 2295 22.26

4712

37.3 5750 33.21 4921 21.33

Loan Funds (4279)

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

(25.5)

(118)

(2.7)

(1135)

(27) 4494 147.6

Current Liabilities& Provisions

1679 22.96 1176 13.08 (8682)

(85.4)

(72) (4.8)

2249 20.5 3924 29.73

Deff.

Liabilities

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

4.1 INTERPRETATION:

COMPARATIVE BALANCE SHEET

Long Term Financial Position:

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

2008– 2009 there has been a large increase in fixed assets (34.76%) compared to 2007-

2008(9.09%) while the long term liabilities which contains shareholders funds and long

term loans also show growth. Long term loans show an increase of 147.6% in 2008-09

which means that most of the fixed assets are financed by long term loans.

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

means that it will increase production capacity of the concern.

Current Financial position and liquidity position:

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

Rs.10121 crores in 2009 compared to Rs.6857 crores in 2008. The current liabilities

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

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

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

the profitability of the company.

The overall financial position of the company is very good.

Table No.3

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

(Rs. in crores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

Sales

EBIDTA

Less: Depreciation

19207

2165

1147

24178

4652

1123

31805

11097

1127

32280

7381

1207

39189

10966

1211

45555

12955

1235

48681

10941

1285

EBIT

Less: Interest Charges

1018

1334

3529

901

9970

605

6174

468

9755

322

11720

251

9656

253

PBT

Less : Tax

(316)

(12)

2628

116

9365

2548

5706

1693

9423

3221

11469

3932

9403

3229

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

Table No.4

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

( Rs.in Crores)

PARTICULARS

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

change % of

change

change % of

change

change % of

change

change % of

change

change % of

change

change % of

Change

Sales

EBIDT

Less: Depreciation

4971

2487

(24)

25.9

114.8

(2.1)

7627

6445

4

31.5

138.5

0.35

475

(3716)

80

1.49

(33.4)

7.09

6909

3585

4

21.4

48.5

0.3

6367

1989

24

16.2

18.1

1.98

3126

(2014)

50

6.86

(15)

0.04

EBIT

Less: Interest Charges

2511

(433)

246.6

(32.4)

6441

(296)

182.5

(32.7)

(3769)

(137)

(38)

22.64

3581

(146)

58

(31)

1965

(71)

20.1

(22)

(2064)

2

(17.6)

0.7

PBT

Less : Tax

2312

104

731.6

866.6

6737

2432

256.3

2096

(3659)

(855)

(39)

(33.5)

3717

1528

65.1

90.2

2046

711

21.7

22

(2066)

(703)

(18)

(17.8)

PAT (Net Profit)

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

4.2Comparative Income Statement

The Net Sales figure shows an increasing trend. After the year 2003 it shows an increasing trend which will help to increase in Net Profit.

The company has sufficient control over its depreciation which shows an increase of only 0.04% in 2009 over 2008.

The company has considerable change in Interest Charges and rather the latter has decreased in recent years.

The company has able to attain Profit after Tax of Rs.6174 crores in the year 2009 compare to 7536 crores in 2008 which can be attributed to increase in cost of goods sold.

It may conclude that there is a sufficient progress in the company and the overall profitability of the concern is very good.

Table No.5

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

Base Year 2003 Figure in %

Particulars 2003 2004 2005 2006 2007 2008 2009

SALES 100 125.88 165.59 168.06 204.03 237.17 253.45

EBIT 100 346.66 979.37 606.48 958.25 1151.27 948.52

FIXED ASSETS

100 94.00 89.15 89.63 88.77 96.85 130.51

CURRENT ASSETS

100 112.77 196.02 213.75 283.57 359.91 471.97

CURRENT LIABILITIES

100 122.96 139.05 146.01 149.76 180.52 234.19

WORKING CAPITAL

100 81.83 302.55 370.29 554.05 673.81 889.54

CAPITAL EMPLOYEDTOTAL

100 92.00 121.29 131.65 154.01 171.99 208.88

TOTAL ASSETS

100 88.84 109.83 113.64 132.39 159.85 211.09

4.3 INTERPRETATION :

The sales of the product have continuously increased in all the years up to 2009.The increase in sales is quite satisfactory.

The EBIT grows continuously upto 2008 and decreases slightly in 2009 due to increase in the cost of goods sold.

Table No.6

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

( Rs.in Crores)

PARTICULARS 2003 2004 2005 2006 2007 2008 2009

ASSETS

Fixed Assets 56.37 59.64 45.75 44.46 37.90 34.15 34.85

Investment 21.23 2.39 2.15 1.00 1.54 1.31 1.209

Current Assets 28.59 36.29 51.06 53.78 60.18 64.51 63.93

Mis.Expenditure 2.09 1.68 1.04 0.76 0.38 0.144 0.00

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

Total Assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00

LIABILITIES

Shareholder’s Funds

20.60 22.17 36.69 43.36 51.14 56.42 51.84

Loan Funds 50.73 38.25 20.54 14.79 12.34 7.44 13.96

Current Liabilities

& Provisions

28.59 39.58 36.19 5.10 4.17 32.28 31.72

Deferred Liabilities

- - 6.58 36.75 32.35 3.83 2.46

Total Liabilities 100.00 100.00 100.00 100.00 100.00 100.00 100.00

4.4 INTERPRETATION:

COMMON-SIZE BALANCE SHEET

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

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

that the company is traditionally financed.

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

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

CHAPTER

5

5.1 RATIO ANALYSIS:

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

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

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

attractiveness as an investment.

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

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

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

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

example has been increasing steadily for the last few years, this would also be a favorable sign

that management is implementing effective Business, policies and strategies.

CLASSIFICATION OF RATIOS:

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

the information given in the company's financial statements. The historical trends of these

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

its investment attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the different facets of

a company's financial state of affairs. Some of the categories of ratios are described below:

Liquidity Ratios give a picture of a company's short term financial situation or solvency

Turnover Ratios show how efficient a company's operations and how well it is using its

assets.

Profitability Ratios show the quantum of debt in a company's capital structure.

5.2 LIQUIDITY RATIOS :

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

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

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

term obligations.

1. Current Ratio

2. Liquid Ratio

3. Net working capital ratio

Current Ratio:

An indication of a company's ability to meet short-term debt obligations; the higher the ratio,

the more liquid the company is. Current ratio is equal to current assets divided by current

liabilities. If the current assets of a company are more than twice the current liabilities, then

that company is generally considered to have good short-term financial strength. If current

liabilities exceed current assets, then the company may have problems meeting its short-term

obligations.

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY

Table No.7

Table showing Current ratio

(Rs. In Crores)

YEAR CURRENT ASSETS CURRENT LIABILITIES

CURRENT RATIO

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

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

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

able to get their payments in full.

INTERPRETATION:

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

2005 onwards which is positive consideration.

CHART 3

LIQUID RATIO:

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

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

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

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

Table No.8

Table showing Quick ratio

(Rs. In Crores)

YEAR LIQUID ASSETS CURRENT LIABILITIES

QUICK RATIO

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

INTREPRETATION:

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

2005 onwards.

CHART 4

NET WORKING CAPITAL RATIO:

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

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

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

requirements.

NET WORKING CAPITAL RATIO = Net Working Capital / Capital Employed

Table No.9

Table showing Net Working Capital Ratio

YEAR Net WorkingCapital

Capital Employed Net WorkingCapital Ratio

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

INTERPRETATION:

Net Working capital measures the firm’s potential reserve of funds. It can be related to net assets. This ratio represents the availability of working capital in relation with capital employed.

CHART 5

5.3 TURNOVER RATIO :

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

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

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

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

process of doing business.

Fixed Asset Turnover Ratio

Working Capital Turnover Ratio

Debtor Turnover Ratio

Stock Turnover Ratio

FIXED ASSETS TURNOVER RATIO:

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

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

to generate sales.

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

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

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

FIXED ASSETS TURNOVER RATIO = GROSS SALES / NET FIXED ASSETS

Table No.10Table showing fixed asset turnover ratio

YEAR GROSS SALES (Rs IN

CRORES)

FIXED ASSETS (Rs in

crores)

FIXED TURNOVER RATIO (In

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

INTERPRETATION:

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

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

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

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

current assets.

CHART 6

WORKING CAPITAL TURNOVER RATIO: Working capital refers to investment in current assets. This is also known as gross concept of

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

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

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

Through this ratio we are attempting to see that one rupee blocked by the organization in net

working capital is generating how much sales. Higher the ratio better it is. In recent years for

operating an industry have not only become scarce, but also costly in the wake of macro level

policies on credit squeeze an increase in Interest rate. So, the working capital can be defined

either as a gross working capital, which include funds invested in all current assets, or as net

working capital, which denotes the difference between the current assets current liabilities of

an organization.

WORKING CAPITAL TURNOVER RATIO = NET SALES / NET WORKING CAPITAL

Table No.11Table showing Working capital turnover ratio

YEAR GROSS SALES (Rs IN

CRORES)

WORKING CAPITAL (Rs in

Crores)

Working capital turnover ratio

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

INTERPRETATION:

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

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

receivables in the year 2005 to 2009.

CHART 7

DEBTORS TURNOVER RATIO:

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

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

enterprise. This ratio is calculated as follows:

I. Debtors’ turnover ratio

II. Debt collection period.

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

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

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

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

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

DEBTOR’S TURNOVER RATIO = CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLES

Table No.12

Table showing Debtors’ turnover ratio

YEAR CREDIT SALES(Rs. In Crores)

DEBTORS(Rs. In Crores)

Debtors’ turnoverratio

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

INTERPRETATION:

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

the ratio is sufficiently high it can be concluded that efficient management of the debtors has

taken place.

CHART 8

Debt collection period:

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

debt collection period. The ratio is very helpful to lenders because it explainsto them whether

their borrowers are collecting money within a reasonable time. Anincrease in the period will

result in greater blockage of funds in debtors.

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

Table No.13

Table showing Debt collection period

(In Days)

YEAR COLLECTION PERIOD2003 322004 232005 222006 212007 222008 242009 23

Debtors’ collection period measures the quality of debtors since it measures the rapidity or slowness with which money is collected from them.

INTERPRETATION;

Here, there has been decreasing trend in the debt collection period which is favorable for the company. Because, the quicker the collection period the better is the quality of debtors as a short collection period implies quick payment by debtors. Then more the utilization of cash collected from debtors. It decreased from 32 days in 2003 to 23 days in 2009.

CHART 9

STOCK TURNOVER RATIO:

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

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

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

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

stocking or over valuation.

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

industry.

Stock Turnover Ratio = Sales / Average Inventory

Table No.14

YEAR SALES (Rs in crores)

AVERAGE STOCK (Rs in crores)

STOCK TURNOVER

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

INTERPRETATION:

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

increase in the ratio in 2004 and 2005 but it shows a decreasing trend in 2006 and 2007.In 2008

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

increase in average stock/inventory which contributed to a lower inventory turnover ratio . This

can be attributed to uncertain economic situation and weak demand of steel in the market. The

overall situation is still good enough.

CHART 10

5.4 PROFITABILITY RATIO

Profitability is an indication of the efficiency with which the operation of the business is carried on. Poor operational performance may indicate poor sales and hence poor profits. A lower profitability may arise due to lack of control over the expenses. Bankers, financial institutions and other creditors look at the profitability ratios as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds.

Return on Investment

Return on Shareholders’ fund

Return on total asset

Earning per Share

Net profit Ratio

Operating ratio

Payout ratio

Dividend yield ratio

RETURN ON INVESTMENT:

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

total capital employed in the business.

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

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

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

Return on investment = Operating profit/ Capital employed *100

Table No.15

Table showing Return on Investment

YEAR OPERATING PROFIT (Rs in

crores)

CAPITAL EMPLOYED (Rs in

crores)

RETURN ON INVESTMENT (In

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

INTERPRETATION:

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

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

regular increase from 2003 to 2009.

CHART 11

RETURN ON SHAREHOLDER’S FUND:

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

view, it should be computed as follows:

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

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

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

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

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

Table No.16

Table showing return on Shareholders’ Fund

YEAR NET PROFIT (Rs in crores)

SHAREHOLDER’S FUND (Rs in crores)

RETURN IN SHAREHOLDER’S

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

INTERPRETATION:

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

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

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

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

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

stabilizing return on investment.

CHART 12

RETURN ON TOTAL ASSETS:

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

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

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

business.

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

Table No.17

Table showing return on Total Assets

YEAR NET PROFIT (Rs in crores)

TOTAL ASSETS ( IN CRORES)

RETURN ON TOTAL ASSETS(IN

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

INTERPRETATION:

There has been a considerable in increase in total assets from 2003 to 2009 but the net profit has fluctuated which has resulted in the fluctuations in the return on total assets.

CHART 13

EARNING PER SHARE:

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

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

following formula:

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

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

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

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

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

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

Table No.18

Table showing Earning per Share

YEAR NET PROFIT (Rs in crores)

NUMBER OF EQUITY SHARES

( IN CRORES)

EARNING PER SHARE (IN %)

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

INTERPRETATION:

Here the Earning per Share is the result of Net Profit after Tax. It shows the positive correlation during the period of study. It shows an increasing trend except in the year 2004 and 2009 due to lower net profits than previous years.

CHART 14

NET PROFIT RATIO:

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

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

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

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

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

business.

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

Table No.19

Table showing Net Profit Ratio

YEAR OPERATING PROFIT (RS IN

CRORES)

SALES (IN CRORES)

NET PROFIT RATIO (IN %)

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

INTERPRETATION:

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

While sales has constantly increased over the years operating profit has increased but shows

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

reason can be attributed to uncertain economic situation and higher cost of goods sold as well

as weak demand.

CHART 15

OPERATING RATIO:

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

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

Operating Ratio =Operating Cost/Net Sales*100

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

factory, office or selling.

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

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

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

Table No.20

Table showing Operating Ratio

YEAR OPERATING COST(RS IN

CRORES)

SALES(Rs. In crores)

OPERATINGRATIO(In %)

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

INTERPRETATION:

A comparison of operating ratio or expenses ratio will indicate whether the cost components is high or low in the figure of sales. The operating ratio shows a decrease in trend up to 2008 but shows a slight increase in 2009. Normally 75% to 85% is considered to be a good ratio for manufacturing undertakings. So the ratio is good in case for SAIL.

CHART 16

PAYOUT RATIO:

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

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

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

back in the business and vice versa.

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

Table No.21

Table showing Payout Ratio

YEAR DIVIDEND PEREQUITY

EPS Dividend pay out ratio

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

INTRPRETATION:

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

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

However in 2009 lesser amount of dividend is given so EPS is 14.95 and pay out ratio is 17.39

this implies that the company keeps 82% of earning per share as retained earnings.

CHART 17

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

DIVIDEND YIELD RATIO:

This ratio is particularly useful for those investors who are interested only in dividend income. The ratio is calculated by comparing the ratio of dividend per share with its market value.

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

And Dividend per share = Dividend paid/ Number of shares

Table No.22

Table showing Dividend yield

YEAR DIVIDEND PEREQUITY

MARKET PRICE Dividend yield

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

INTERPRETATION:

This percentage implies that 5.25% of market price of the share was issued as dividend in the year 2005 and later on it get decreases due to various economic changes in SAIL.

CHART 18

5.5 LONG TERM FINANCIAL POSITION OR SOLVENCY RATIOS

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

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

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

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

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

1. Capital structure ratios-ex. Debt equity ratio

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

DEBT-EQUITY RATIO

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

relative claims of outsiders and the owners against the firms assets.

The ratio is calculated as:

DEBT EQUITY RATIO = OUTSIDER’S FUNDS / SHAREHOLDER’S

FUNDS

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

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

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

representing accumulated profits and surpluses.

TABLE NO: 23

Table showing Debt-Equity ratio

YEAR OUTSIDER’S FUND

SHAREHOLDER’S FUND

DEBT EQUITY RATIO

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

INTERPRETATION

The debt-equity ratio is calculated to measure the extent to which debt financing has been used in a business. From 2003 onwards there has been a decrease in outsiders fund and a corresponding increase in shareholders funds. This indicates that the firm is traditionally financed and it is considered to be favorable from a long term creditor’s point of view as a high proportion of owner’s funds provide a larger margin of safety for them.

CHART 19

INTEREST COVERAGE RATIO

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

Interest coverage ratio = Ebit/Fixed interest charge

TABLE NO: 24

YEAR EBIT FIXED INTEREST CHARGES

INTEREST COVERAGE RATIO

2003 1018 1339 0.762004 3529 910 3.882005 9970 607 16.432006 6174 472 13.072007 9755 333 29.292008 11720 252 46.392009 9656 326 29.59

INTERPRETATION

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

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

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

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

CHART 20

CHAPTER

6

6.1 COMPETITOR ANALYSIS

BALANCE SHEET FOR THE YEAR 2009

BALANCE SHEET FOR 2009 (in crores)

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

6544 3488 103 2318 550

INVESTEMENT 653 42372 233 1233 791NET CURRENT ASSETS

17389 (308) 160 1078 1580

TOTAL ASSETS

36855 56651 9384 10378 12050

LIABILITIESSHARE HOLDERS FUND

27985 29705 2032 5415 4738

TOTAL DEBT 7539 26946 7352 4963 7312DEFFERED LIABILITY

1331 - - - -

TOTAL LIABILITIES

36855 56651 9384 10378 12050

PROFIT AND LOSS ACCOUNT FOR THE YEAR 2009

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

SALES 48681 26843 9181 8433 12704

EBIDTA 10941 9779 730 2693 1930Less: Depreciation

1285 973 647 433 828

EBIT 9656 8806 83 2260 1102Less:Int.Charges 253 1489 1129 268 862Extraordinary items

- - 24 10 55

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

6.2 COMPETITOR ANALYSIS

(as in2009)

RATIOS SAIL TATA ISPAT JINDAL ESSARPROFITIBILITY RATIOOPERATING PROFIT

24.31 37.68 13.58 34.35 21.44

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

27.94 15.01 6.69 23.16 15.01

LIQUIDITY & SOLVENCY RATIOSCURRENT RATIO

2.82 0.91 1.04 1.04 0.71

QUICK RATIO 1.99 0.57 0.42 0.95 0.62DEBT EQUITY RATIO

0.27 1.34 9.04 0.92 1.57

DEBT COVERAGE RATIOINTREST COVERAGE RATIO

29.59 5.71 0.52 10.33 3.17

MANAGEMENT EFFICIENCY RATIOSINVENTORY TURN OVER RATIO

4.80 9.36 7.59 9.08 8.69

DEBTORS TURN OVER RATIO

16.09 41.29 14.50 22.62 30.35

FIXED ASSETS TURN OVER RATIO

3.96 1.22 0.61 1.04 0.76

CASH FLOW INDICATOR RATIODIVIDEND PAY OUT RATIO

17.39 27.15 - 5.55 -

INTERPRETATION

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

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

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

efficiency of the business is good.

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

enough liquidity in comparison to other competitors.

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

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

can easily raise debt in future

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

source of finance to increase earnings per share.

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

inefficient management of inventories.

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

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

CHAPTER

7

7.1 RECOMMENDATION AND SUGGESTION

SAIL should always try to maintain an adequate quantum of net current assets in relation of current liabilities as to keep a good amount of liquidity throughout the year.

SAIL should tighten the debt collection efforts and should reduce the amount tied up in debtors. In order to improve the quality of debtors and also to bring down the amount tied-up in debtors, a periodical report of the overdue may be prepared and effective action may be taken by the management time to time to expedite the collections.

Inventory turnover ratio is lesser in SAIL compared to other competitors which indicates inefficient management of inventories. So it is advisable to keep less inventories to minimize costs and improve efficiency.

SAIL is more traditionally financed with low debt and more of equity financing, so in future debt should be preferred for financing to bring the ratio close to the ideal ratio of 1:1.

The management of SAIL should also try to maintain a definite proportion among various components of working capital in relation to overall current assets to keep an adequate quantum of liquidity all the times.

7.2 CONCLUSION

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

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

6.86% i.e. Rs. 48681 crores in the FY 2008-09 from Rs. 45555 crores in the FY 2007-08 whereas

profit before tax has decreased by 18% i.e. Rs. 2064 crores in the FY 2008-09 from Rs. 11469

crores in the FY 2007-08 indicating increase in cost of goods sold.

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

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

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

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

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

liquidity in comparison to other competitors.

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

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

debt in future

SAIL is more efficient and effective to utilize its fund.

7.3 BIBLIOGRAPHY

BOOKS: Financial management R.K. SHARMA & SHASHI K GUPTA Annual Report of SAIL Magazines of SAIL

INTERNET WEB SITES:

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