Академический Документы
Профессиональный Документы
Культура Документы
PROJECT REPORT
MAY 2010 – JULY 2010
In
By
Kumar Mayank
Bhubaneswar . Ranchi.
Swagat Vihar
Declaration
I hereby declare that the project entitled “Financial Analysis” is submitted in partial fulfillment of my
PGDM (FC) “2009-2011” was carried out with sincere intention of benefiting the organization. The
project duration was from 10th May 2010 to 3rd July 2010. To the best of my knowledge it is an original
piece of work done by me and it has neither been submitted to any other organization nor published at
anywhere before.
Signature
Name: Kumar Mayank
Date: 3rd July 2010
Place: Steel Authority of India Limited (Ranchi)
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.
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
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.
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.
• Preparation of vouchers
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.
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.
3.6RESEARCH 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.
CHAPTER
4
Table No.1
(Rs. in Crores)
PARTICULARS 2003 2004 2005 2006 2007 2008 2009
ASSETS
Fixed Assets 14414 13550 12851 12920 12796 13960 18813
LIABILITIES
Comparative Balance Sheet of Steel Authority of India Limited from 2003-2004 to 2008 – 2009
( Rs. in Crores)
ASSETS
Fixed Assets (864) (5.9) (699) (5.1) 69 0.53 (124 (0.9 1164 9.09 4853 34.76
) )
LIABILITI
ES
Shareholder’s (253) (4.78) 5269 104.6 2295 22.2 471 37.3 5750 33.21 4921 21.33
Funds 6 2
Loan Funds (427 (32.9) (2920) (34) (147 (25. (118 (2.7 (113 (27) 4494 147.6
9) 2) 5) ) ) 5)
Current 1679 22.96 1176 13.08 (868 (85. (72) (4.8 2249 20.5 3924 29.73
Liabilities& 2) 4) )
Provisions
Liabilities
4.1 INTERPRETATION:
• 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.
Table No.3
Classification of Income Statement of Steel Authority of India Limited from 2003 to 2009
(Rs. in crores)
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)
Sales 4971 25.9 7627 31.5 475 1.49 6909 21.4 6367 16.2 3126 6.86
EBIDT 2487 114.8 6445 138.5 (3716) (33.4) 3585 48.5 1989 18.1 (2014) (15)
EBIT 2511 246.6 6441 182.5 (3769) (38) 3581 58 1965 20.1 (2064) (17.6)
Less: (433) (32.4 (296) (32.7) (137) 22.64 (146) (31) (71) (22) 2 0.7
Interest )
Charges
PBT 2312 731.6 6737 256.3 (3659) (39) 3717 65.1 2046 21.7 (2066) (18)
Less : 104 866.6 2432 2096 (855) (33.5) 1528 90.2 711 22 (703) (17.8)
Tax
PAT 2208 726 4305 171.3 (2804) (41.1) 2189 54.5 1335 21.5 (1363) (18)
(Net
Profit)
• 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.
Trend Percentage of Steel Authority of India Limited from 2003-2004 to 2008 – 2009
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)
ASSETS
LIABILITIES
& Provisions
4.4 INTERPRETATION:
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 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
Current Ratio:
Table No.7
(Rs. In Crores)
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’.
Table No.8
(Rs. In Crores)
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.
Table No.9
CHART 5
5.3 TURNOVER RATIO:
Table No.10
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.
Table No.11
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:
Table No.12
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.
Table No.13
(In Days)
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:
Table No.14
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
• Operating ratio
• Payout 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
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:
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
CHART 12
30000
25000
20000
5000
0
2003 2004 2005 2006 2007 2008 2009
-5000
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.
Table No.17
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
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.
Table No.19
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:
The operating cost include the cost of direct materials, direct labor and other
overheads, viz., factory, office or selling.
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
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.
Table No.21
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.
Table No.22
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:
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.
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:
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
14000
12000
10000
8000
EBIT
6000 FIXED INTEREST CHARGES
4000
2000
0
2003 2004 2005 2006 2007 2008 2009
CHAPTER
6
6.1 COMPETITOR ANALYSIS
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.
• 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.
CHAPTER
7
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.
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 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
BOOKS:
• Financial management R.K. SHARMA & SHASHI K GUPTA
• Magazines of SAIL
• 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