COMPARATIVE ANALYSIS OF FINANCIAL

STATEMENT OF SAIL WITH OTHER STEEL

COMPANIES IN INDIA

PROJECT REPORT
MAY 2010 – JULY 2010

Submitted in partial fulfillment of the requirements for the award of

two year full time, Post Graduate Diploma Management

In

Finance & 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.
 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.

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. Ltd

A 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 Limited

A 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 Statements

There 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 2009
ASSETS
Fixed 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 5290 5037 10306 12601 17313 23063 27984

Funds

Loan Funds 12969 8690 5770 4298 4180 3045 7539

Current Liabilities 7311 8990 10166 10675 10949 13198 17122

& Provisions
Deferred - - 1842 1484 1412 1568 1332
Liabilities
TOTAL 25570 22717 28084 29058 33854 40874 53977
LIABILITIES
 Table No.2

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

( Rs. in Crores)

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

ARS

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. 221 75.4 24 4.66 115 21.37

6)
Current 934 12.77 6087 73.8 1297 9.04 474 30.3 5942 29.16 8194 31.13
Assets 5
Mis. (158) (29.4) (184) (22) (79) (26. (84) (39) (70) (54) (59) (100)
Expenditure 8)
P&L a/c - - - - - - - - - - - -

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

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

Liabilities

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 19207 24178 31805 32280 39189 45555 48681

EBIDTA 2165 4652 11097 7381 10966 12955 10941

Less: 1147 1123 1127 1207 1211 1235 1285

Depreciation

EBIT 1018 3529 9970 6174 9755 11720 9656

Less: Interest 1334 901 605 468 322 251 253

Charges

PBT (316) 2628 9365 5706 9423 11469 9403

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

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

ULARS

change % of change % of change % of change % of change % of change % of

change change change chang change Change

e

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)

Less: (24) (2.1) 4 0.35 80 7.09 4 0.3 24 1.98 50 0.04

Depreci
ation

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)

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 100 94.00 89.15 89.63 88.77 96.85 130.51

ASSETS

CURRENT 100 112.77 196.02 213.75 283.57 359.91 471.97

ASSETS

CURRENT 100 122.96 139.05 146.01 149.76 180.52 234.19

LIABILITIES

WORKING 100 81.83 302.55 370.29 554.05 673.81 889.54

CAPITAL

CAPITAL 100 92.00 121.29 131.65 154.01 171.99 208.88

EMPLOYED
TOTAL

TOTAL 100 88.84 109.83 113.64 132.39 159.85 211.09

ASSETS

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 20.60 22.17 36.69 43.36 51.14 56.42 51.84

Funds

Loan Funds 50.73 38.25 20.54 14.79 12.34 7.44 13.96

Current 28.59 39.58 36.19 5.10 4.17 32.28 31.72

Liabilities

& Provisions

Deferred - - 6.58 36.75 32.35 3.83 2.46

Liabilities

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 CURRENT RATIO

LIABILITIES
2003 7282 4777 1.524
2004 8075 6025 1.340
2005 14187 6608 2.146
2006 17384 8108 2.144
2007 20379 6500 2.917
2008 26317 9439 2.788
2009 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 QUICK RATIO

LIABILITIES
2003 3537 4777 0.740
2004 4993 6025 0.828
2005 9966 6608 1.508
2006 11174 8108 1.378
2007 13728 6984 1.965
2008 19460 9439 2.061
2009 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 Working Capital Employed Net Working

Capital Capital Ratio
2003 2505 16541 0.151
2004 2050 15218 0.134
2005 7579 20064 0.377
2006 9276 21438 0.432
2007 13879 24992 0.535
2008 16879 28450 0.593
2009 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.10

Table showing fixed asset turnover ratio

YEAR GROSS SALES FIXED FIXED

(Rs IN ASSETS (Rs in TURNOVER
CRORES) crores) RATIO (In
Times)
2003 19207 14036 1.36
2004 24178 13168 1.83
2005 31805 12485 2.54
2006 32280 12162 2.65
2007 39189 11598 3.37
2008 45555 11571 3.93
2009 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.11

Table showing Working capital turnover ratio

 YEAR GROSS SALES WORKING Working capital
(Rs IN CAPITAL (Rs in turnover ratio
CRORES) Crores) (in times)
2003 19207 2505 7.667
2004 24178 2050 11.79
2005 31805 7579 4.196
2006 32280 9276 3.479
2007 39189 13879 2.823
2008 45555 16879 2.698
2009 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 DEBTORS Debtors’ turnover

(Rs. In Crores) (Rs. In Crores) ratio
(In times)
2003 19207 1660 11.570
2004 24178 1550 15.598
2005 31805 1908 16.669
2006 32280 1882 17.151
2007 39189 2315 16.928
2008 45555 3048 14.945
2009 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 PERIOD

2003 32
2004 23
2005 22
2006 21
2007 22
2008 24
2009 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 AVERAGE STOCK STOCK

crores) (Rs in crores) TURNOVER
RATIO ( in times)
2003 19207 3745 5.128
2004 24178 3082 7.844
2005 31805 4221 7.534
2006 32280 6210 5.198
2007 39189 6651 5.892
2008 45555 6857 6.643
2009 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 CAPITAL RETURN ON

PROFIT (Rs in EMPLOYED (Rs in INVESTMENT (In
crores) crores) %)
2003 1018 16541 6.154
2004 3530 15218 23.196
2005 9970 20064 49.690
2006 6174 21782 28.344
2007 9755 25476 38.290
2008 11720 28450 41.195
2009 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 SHAREHOLDER’S RETURN IN

crores) FUND (Rs in crores) SHAREHOLDER’S
FUND (IN %)
2003 -304 5290 -5.746
2004 2512 5038 49.861
2005 6817 10307 66.139
2006 4013 12601 31.846
2007 6202 17313 35.822
2008 7537 23063 32.680
2009 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

30000

25000

20000

15000 NET PROFIT

10000 SHARE HOLDERS FUND

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.

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 TOTAL ASSETS RETURN ON

crores) ( IN CRORES) TOTAL ASSETS(IN
%)
2003 -304 25570 -1.188
2004 2512 22717 11.057
2005 6817 28084 24.273
2006 4013 29058 13.810
2007 6202 33854 18.319
2008 7537 40874 18.439
2009 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 NUMBER OF EARNING PER

crores) EQUITY SHARES SHARE (IN %)
( IN CRORES)
2003 -304 413 -0.736
2004 2512 413 6.082
 2005 6817 413 16.506
2006 4013 413 9.716
2007 6202 413 15.016
2008 7537 413 18.249
2009 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 SALES (IN NET PROFIT

PROFIT (RS IN CRORES) RATIO (IN %)
CRORES)
2003 1018 19207 5.300
2004 3530 24178 14.600
2005 9970 31805 31.347
 2006 6174 32280 19.126
2007 9755 39189 24.892
2008 11720 45555 25.727
2009 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 SALES OPERATING
COST(RS IN (Rs. In crores) RATIO
CRORES) (In %)
2003 17940 19207 93.403
2004 19512 24178 80.701
2005 20339 31805 63.949
2006 23675 32280 73.342
2007 26483 39189 67.577
2008 30423 45555 66.783
2009 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 PER EPS Dividend pay out

EQUITY ratio
2005 3.3 16.50 20
2006 2.0 9.71 20.59
2007 3.10 15.01 20.65
2008 3.7 18.25 20.27
2009 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 PER MARKET PRICE Dividend yield

EQUITY
2005 3.3 62.87 5.25
2006 2.0 83.30 2.40
2007 3.10 114.30 2.71
2008 3.7 185 2
2009 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 SHAREHOLDER’S DEBT EQUITY

FUND FUND RATIO
2003 34385 5290 6.5
2004 9419 5037 1.87
2005 5977 10306 0.58
2006 4410 12601 0.35
2007 4155 17313 0.24
2008 2988 23063 0.13
2009 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 INTEREST

CHARGES COVERAGE
RATIO
2003 1018 1339 0.76
2004 3529 910 3.88
2005 9970 607 16.43
2006 6174 472 13.07
2007 9755 333 29.29
2008 11720 252 46.39
2009 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

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

BALANCE SHEET FOR THE YEAR 2009

BALANCE SHEET FOR 2009
(in crores)
PARTICULARS SAIL TATA ISPAT JINDAL ESSAR
ASSETS
NET BLOCK 12269 10995 8888 5745 9129
CAPITAL 6544 3488 103 2318 550
WORK IN
PROGRESS
INVESTEMENT 653 42372 233 1233 791
NET CURRENT 17389 (308) 160 1078 1580
ASSETS
TOTAL 36855 56651 9384 10378 12050
ASSETS
LIABILITIES
SHARE 27985 29705 2032 5415 4738
HOLDERS
FUND
TOTAL DEBT 7539 26946 7352 4963 7312
DEFFERED 1331 - - - -
LIABILITY
TOTAL 36855 56651 9384 10378 12050
LIABILITIES
PROFIT AND LOSS ACCOUNT FOR THE YEAR 2009

PROFIT AND LOSS ACCOUNT (in crores) For 2009

SAIL TATA ISPAT JINDAL ESSAR
SALES 48681 26843 9181 8433 12704

EBIDTA 10941 9779 730 2693 1930

Less: 1285 973 647 433 828
Depreciation
EBIT 9656 8806 83 2260 1102
Less:Int.Charges 253 1489 1129 268 862
Extraordinary - - 24 10 55
items
PBT 9403 7317 (1023) 2002 240
Less: Tax 3229 2115 (335) 465 110
PAT 6174 5202 (688) 1537 185
 6.2 COMPETITOR ANALYSIS
(as in2009)

RATIOS SAIL TATA ISPAT JINDAL ESSAR

PROFITIBILITY
RATIO
OPERATING 24.31 37.68 13.58 34.35 21.44
PROFIT
GROSS PROFIT 44.14 33.69 5.76 28.71 14.37
NET PROFIT 19.83 21.09 -8.04 19.50 1.56
RETURN ON 27.94 15.01 6.69 23.16 15.01
CAPITAL
EMPLOYED
LIQUIDITY &
SOLVENCY
RATIOS
CURRENT 2.82 0.91 1.04 1.04 0.71
RATIO
QUICK RATIO 1.99 0.57 0.42 0.95 0.62
DEBT EQUITY 0.27 1.34 9.04 0.92 1.57
RATIO
DEBT
COVERAGE
RATIO
INTREST 29.59 5.71 0.52 10.33 3.17
COVERAGE
RATIO
MANAGEMENT
EFFICIENCY
RATIOS
INVENTORY 4.80 9.36 7.59 9.08 8.69
TURN OVER
RATIO
DEBTORS TURN 16.09 41.29 14.50 22.62 30.35
OVER RATIO
FIXED ASSETS 3.96 1.22 0.61 1.04 0.76
TURN OVER
RATIO
CASH FLOW
INDICATOR
RATIO
DIVIDEND PAY 17.39 27.15 - 5.55 -
OUT RATIO

INTERPRETATION

• Net Profit ratio of SAIL is better than most of the competitors except
TATA Steel. This can be attributed to lower earnings of SAIL in
comparison to their earnings.

• Return on Capital employed is highest for SAIL which shows that

overall profitability and efficiency of the business is good.

• The current ratio for SAIL is more than other competitors which shows
that it has enough liquidity in comparison to other competitors.

• The debt equity ratio is 0.27 which is lower than the competitors. This
means that it is more traditionally financed in comparison to other
competitors. It has lower debt so it can easily raise debt in future

• Interest coverage ratio is too high for SAIL which shows that debt is not
being used as a source of finance to increase earnings per share.

• Inventory turnover ratio is lesser in SAIL compared to other

competitors which indicates inefficient management of inventories.
• The debtors turnover ratio is lower for SAIL compared to its
competitors which shows that the debtors are less liquid implying
inefficient management of debtors/sales.

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