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INDEX SL NO. TOPIC PAGE NO.

1 Introduction 7 2 Steel scenario 8 3 Company profile 12 4 Objective of study 5 Research methodology 6 Ratio analysis 24 7 Comparison of ratio 8 Inventory management 9 Receivables management 10 Payables management 11 Limitations 80 12 Bibliography 81

22 23 46 58 70 77

Introduction After preparation of the financial statement one may be interested in nowing t he position of an enterprise from different points of view. This can be done by analyzing the financial statements with the help of different tools of analysis

such as ratio analysis, funds flow analysis, cash flow analysis, comparative sta tement analysis, etc. in this process, a meaningful relationship is established between two or more accounting figures for comparison. I have learn about the an alysis of ratio analysis. Inventories are assets of the firm and require investment and hence involve the commitment of firms resources. The inventories need not be viewed as an idle asse t rather these are an integral part of firms operations. But the question usually is as to how much inventories be maintained by a firm? If the inventories are t oo big, they become a strain on the resources, however, if they are too small, t he firm may lose the sales. Therefore, the firm must have an optimum level of in ventories. Inventory eeps changing, but the level may remain the same. The basi c financial problem is to determine the proper level of investment in the invent ories and to decide how much inventory must be acquired during each period to ma intain that level. The receivables are assets as it represents a claim of the firm against its cust omers, expected to be realized in near future. Since a credit sale assumes a siz able proportion of total sales in any firm, the receivable management becomes an area of attention. Every firm has to set of credit terms and policies under whi ch goods are sold on credit, and every policy has a cost and benefit associated with it. When we are managing a growing company, we have to watch expenses carefully. Don t be lulled into complacency by seeing sales increase. Any time and any place w e see expenses growing faster than sales, examine your costs carefully to find p laces to cut or control them.

Steel scenario

COMPANY PROFILE Essar Steel is a global producer of steel with a footprint covering India, Canad a, USA, and Asia. It is a fully integrated flat carbon steel manufacturer--from iron ore to ready-to-mar et products. Its products find wide acceptance in highl y discerning consumer sectors, such as automotive, white goods, construction, en gineering and shipbuilding. It is Indias largest exporter of flat steel products and aims to reach 25 MTPA capacities. Essar is an integrated steel producer, wit h operations all along the value chain. Essar Steel produces some of the world s best steel at its state-of-the-art steel complex in Hazira, Gujarat. It is also India s largest exporter of flat products, sending half of its production abroa d, mainly to the highly demanding mar ets of the West, and the growth mar ets of South East Asia and the Middle East. Essar ensures excellent customer service t hrough a modern distribution networ . No wonder we are India s largest exporter of flat products, selling almost one-t hird of our production to the highly demanding US and European mar ets, and to the growing mar ets of South East Asia and the Middle East. A number of major client companies have approved our steel for their use, includin g Caterpillar, Hyundai, Swaraj Mazda, the Kon an Railway and Maruti Suzu i. Essa r Steel is among the 25 percentile of lowest cost producers world-wide and has a cquired extensive quality accreditations. Our lean team gives us one of the high est productivities and lowest manpower costs among steel plants internationally. Bailadilla ore benefication plant At Bailadilla, where some of the world s richest and finest ore is available, Es sar has set up a beneficiation plant of 8 million tonnes per annum (MTPA) capaci ty, which ensures the highest quality iron ore. The iron ore slurry is pumped th rough a 267 m. pipeline (the second longest in the world) to the pellet plant, yielding advantages of quality, cost and real time inventory management. Visa hapatnam Pelletisation Plant The slurry is received at our Pellet plant at Visa hapatnam, which has a capacit y of 8 MTPA, providing vital raw material for the steel plant at Hazira.

Hazira Steel Complex Our steel complex at Hazira, Gujarat, houses a 5.0 MTPA sponge iron plant, the w orld s largest gas-based HBI producer. The plant provides raw materials for our state-of-the-art 3.0 MTPA hot rolled coil (HRC) plant, the first and largest of India s new generation steel mills. This plant, fed with inputs from three elect ric arc furnaces and three casters, increasing its capacity to 4.6 MTPA. The com plex s sophisticated infrastructure includes independent water supply and power, oxygen and lime plants, a township and a captive port capable of handling up to

8 MTPA of cargo with modern handling equipment li e barges and floating cranes. Cold Rolling Complex At the other end of the value chain, the Company s downstream facilities include a 1.2 MTPA Cold Rolling Complex, adds further muscle to our steel ma ing facili ties. The complex comprises two pic ling lines of 1.4 MTPA capacity, a reversing mill and a 1.2 MTPA Tandem Mill, two Galvanizing lines of 0.5 MTPA, Batch Annea ling Furnace of 0.5 MTPA, a S in Pass Mill of 1.0 MTPA , Cold Rolling and Tandem mills and a Galvanizing plant. This enables Essar Steel to get into the genre o f products that are tailor-made for automotive, white goods, shipbuilding, agric ulture and construction industries - segments that were the exclusive domain of a few international manufacturers. P.T. Essar Indonesia - Our cold rolling complex in Indonesia P T Essar is Indonesia s largest private sector flat products company, with a do mestic mar et share of 35% and a history of process and product innovation. Afte r a major expansion drive, its CR capacity has been enhanced to 400,000 TPA and its newly set up galvanising capacity is 1,50,000 TPA. Customer-driven excellence Customer delight drives everything we do at Essar Steel. To allow customers to c onsistently choose the best, we became the first Indian company to brand flat pr oducts, under the name 24-carat steel with a full range including hot and cold rolled coils, galvanized sheets and plates. From order boo ing to delivery, our information technology systems are integrated between processes and with suppli ers and customers. Our major customers can simply go online to place orders or c hec details li e their order status, dispatch details, accounts and due payment s. Our Systems Applications & Products (SAP R/3) installation is India s biggest and has been judged the best-implemented Indian SAP site by SAP AG Germany. Product overview 1) Hot rolled products a) coils b) plates c) sheets d) Shot Blasted and Primed 2) Cold rolled products 3) Galvanized products Hot Rolled Coils Essar Steel is the largest steel producer in western India, with a current capac ity of 4.6 MTPA at Hazira, Gujarat, and plans to increase this to 9 MTPA. The In dian operations also include an 8 MTPA beneficiation plant at Bailadilla, Chatti sgarh, and an 8 MTPA pellet complex at Visa hapatnam. The complex also houses the steel plant. and the 1.4 MTPA cold rolling complex. The steel complex has a complete infrastructure setup, including a captive port, lime plant and oxygen plant. The dedicated infrastructure of Hazira Complex includes an independent water sup ply, power, lime & oxygen plant, a township and a captive port that can handle u p to 6 MTPA of cargo, with modern handling equipment including barges and floati ng cranes. Cold Rolling Complex Essar Steel adds substantial value to its world-class hot rolled coils through a sophisticated Cold Rolling complex for further processing. The complex includes two flying shear lines of capacity 0.2 MTPA each, and two slitting lines of cap acity 0.2 MTPA each, catering to the mar et of plates and sheets. Essar is also the only Indian steel ma er with a 1.2 MTPA hot s in pass mill, from Clecim, the leading manufacturer from France. The mill allows it to enhance the steel s sur face quality to match international standards. Its "service centre" concept, uni

que in India, reduces multiple handling costs for customers because it allows Es sar Steel s plates and sheets to be used directly by the end-user. Essar Steel produces highly customised value-added products catering to a variet y of product segments and is Indias largest exporter of flat products, selling cl ose to half of its production to the highly demanding US and European mar ets, a nd to the growing mar ets of South East Asia and the Middle East. The companys pr oducts conform to quality specifications of international quality certification agencies, li e ABS, API, TUV Rhine Land and Lloyds Register. Essar Steel is the f irst Indian steel company to receive an ISO 14001 certification for environment management practices. Essar Steel Algoma Inc. Established in 1901, Essar Steel Algoma Inc. is an integrated steel producer bas ed in Sault Ste. Marie, Ontario, Canada. Formerly operating as Algoma Steel, it was acquired in June 2007 by Essar Steel Holdings Ltd (a wholly owned subsidiary of Essar Global Ltd). Capacity: Essar Steel Algomas current production capacity is 2.4 million tonnes p er annum (MTPA). Wor on expanding capacity to 4 MTPA is underway. Facilities: Essar Steel Algoma is a fully integrated steelma ing operation that features a flexible manufacturing process and produces a mix of hot and cold rol led sheet and plate. Algomas cornerstone asset, the Direct Strip Production Compl ex (DSPC) is the newest continuous, thin slab caster in North America, positioni ng Algoma as a leading supplier of high strength, light gauge steel. In addition , Algomas heat-treat plate facility provides a full range of quality steel grades for abrasion resistant, ballistic and other specialty plate applications. Other ey mills at the plant include a slabcaster, a 106-inch strip mill (one of the widest in North America), a 166-inch plate mill, a cold mill, a just-in-time bla n ing facility and a welded shapes and profiles division. Strengths: High-end, custom-made products, as well as proximity to the demand-dr iven North American mar et and Fortune 500 customers ma e Essar Steel Algoma a s ignificant element of Essars global expansion plans. History The Essar Group was founded in 1969 by brothers Shri Shashi Ruia and Shri Ravi R uia.

The Ruia familys origins are in Rajasthan. Sometime in the 19th century, it moved to Mumbai and set up its own business. In 1956, Shri Nand ishore Ruia, father t o Shri Shashi and Ravi Ruia, moved to Chennai, capital of the south Indian state of Tamil Nadu, to begin independent business activities. He mentored his two so ns in the intricacies of business. When Shri Nand ishore Ruia passed away in 196 9, the brothers laid the foundation of the Group. The Essar Group began its operations with the construction of an outer brea wate r in Chennai port. It quic ly moved to capitalise on every emerging business opp ortunity, becoming Indias first private company to buy a tan er in 1976. The Grou p also invested in a diverse shipping fleet and oil rigs, when the Government of India opened up the shipping and drilling businesses to private players in the 1980s. Then, in the 1990s, Essar began its steelma ing business by setting up Indias fir st sponge iron plant in Hazira, a coastal town in the western Indian state of Gu jarat. The Group went on to build a pellet plant in Visa hapatnam and eventually a fully integrated steel plant in Hazira. Through the 1990s, with the gradual liberalisation of the Indian economy, Essar

seized every opportunity that came its way. It diversified its shipping fleet, s tarted oil & gas exploration and production, laid the foundation of its oil refi nery at Vadinar, Gujarat, and set up a power plant near the steel complex in Haz ira. The Construction business helped the Group build most of its business asset s. Essar also entered the GSM telephony business, establishing Indias first mobil e phone service in Delhi (branded Essar Cellphone) with Swiss PTT as the joint v enture partner. The 21st century for the Essar Group has been all about consolidating and growin g the businesses, with M&As, new revenue streams and strategic geographical expa nsion.

Vision We will be a respected global entrepreneur, through the power of Positive Action.

Mission We are committed to innovative growth, through our personal passion, reinforced by a professional mindset, creating value for all those we touch.

Management Team Shashi Ruia, chairman, essar global ltd, is a first generation entrepreneur indu strialist. Mr ruia began his career in the family business in1965 under the guid ance of his father, the late nand ishore ruia, Along with his brother ravi . Mr ruia is on several international bodies and industry associations. He was on the managing committee of federation of Indian chambers of commerce and industry (FICCI), an apex body of Indias trade and business associations. He has also bee n the chairman of the prestigious indo-us joint business council and is a former president of Indian national shi powners association (INSA). Ravi Ruia, Vice Chairman, Essar Global Limited, belongs to the generation of ind ustrialists, who have played a significant role in leading Indias industrial rena issance. An engineer by training, his entrepreneurial abilities have enabled the Essar Group to become one of theleading names in global industry, Essar employs more than 50,000 people across offices in Asia, Africa, Europe and the Americas . Mr Ravi Ruia has been the mastermind behind the Groups globalisation plans, inclu

ding new ventures in Trinidad & Tobago, Vietnam and the Middle East, as well as the recent acquisitions of Algoma Steel (now called Essar Steel Algoma), Canada, and Minnes ota Steel, USA (now called Essar Steel Minnesota). Prashant Ruia is the Promoter Director and Group Chief Executive of Essar Global Limited. He has been involved with the Groups operation and management since 198 5.Prashant Ruia is on the Board of the International Iron and Steel Institute. H e is also a member of Confederation Indian Industry (CII) National Committee on Steel & Non Ferrous Metals and Chairman of CII National Committee on Hydro carbo n and Petroleum. Mr. Ruia is also on the Board of Trade of the Ministry of Comme rce and Industry, Government of India. He is also a member of the Young Presiden ts Organisation, Mumbai Chapter. Anshuman Ruia is a Director on the Board of major companies of Essar Global Limi ted. Essar Global Limited is a diversified business corporation operating in the manufacturing and services sectors of Steel, Energy, Power, Communications,Shi pping Ports & Logistics, Construction and Mining & Minerals. Essar has an asset base of USD 14.5 billion and employs more than 50,000 people across offices in A sia, Africa, Europe and the Americas. He currently oversees Essars Shipping Ports & Logistics, Telecom & BPO,and Power businesses. He is responsible for the expansi on and diversification of the Power business into new, renewable energy sources and its entry into the transmission and distribution segment. Mr Ruia is also in volved in new business ventures of the Group in India and overseas. Scion of the Ruia family, Smiti Kanodia, promoter director, received her bachelo rs degree in Finance & Mar eting from New Yor Universitys Stern School of Busines s. Ms Kanodia wor ed as a Mergers & Acquisitions analyst in the telecommunicatio ns sector at Lehman Brothers in New Yor , after which she pursued a postgraduate degree in publishing at the London College of Printing. Ms Kanodia is involved in providing strategic direction to HR branding and commu nication initiatives at the Essar Group. Rewant Ruia is the youngest member of the family of the Promoter Directors of Es sar Global Limited. He began his career in the Essar Group with a short training stint in the Steel and Oil businesses. His responsibilities include managing the aviation division and protocol functio ns for the Group. He is part of the management thin tan for new business devel opment opportunities in Steel, Petroleum and Petrochemicals, and the pursuit of global opportunities in all the businesses. Mr Ruia completed his schooling from the Hac ley School, New Yor , in 1999,and h olds a degree in Business Management from Bentley College, Boston, USA. He has a een interest in music and sports.

Management Team - Steel Business

Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr.

J Mehra Chief Executive Officer Steel Business Vi ram Amin Director, Sales & Mar eting Alain Davezac EVP - Strategy & Business Development Dilip Oommen Chief Executive Officer - Essar Steel (India) Armando Plastino Chief Executive Officer - Essar Steel Algoma K B Trivedi President Director & CEO - PT Essar Indonesia V Madhusudan President & CEO - Essar Steel Minnesota R K Zaroo Director Project Development M K Sampath Chief Executive Officer - Pellet Projects (India) H S Sethi Director Projects (Orissa)

Mr. Mr. Mr. Mr. Mr. Mr. Mr.

Mahadev Iyer Chief Financial Officer Kalyan Ghosh Sr. Vice President & Head Supply Chain Management Praneet Mehrish Sr. Vice President & Head Human Resources Anil Agarwal Sr. Vice President & Head - Procurement P C Panda Sr. Vice President & Head - Legal Suresh Tanwar Vice President & Head Health Safety & Environment Suneel Aradhye Chief Information Officer

OBJECTIVES OF THE STUDY To To To To study study study study the the the the ratio with other steel companies. ways of monitoring receivables and analyze the trend of debtors. spare management. payable management.

RESEARCH METHODOLOGY Data collection Data was collected through one source i.e. Secondary sources. It included: 1. Companys Annual report. 2. Past records maintained by company. 3. Interaction with personnel.

DATA ANALYSIS:1. Tabulation. 2. Graphs. 3. Diagrams. 4. Ratio analysis.

PROJECT

REPORT ON RATIO ANALYSIS

TYPE OF RATIO 1) Profitability Ratio 2) Performance Ratio 3) Liquidity Ratio 4) Solvency Ratio 1) Profitability Ratio a) Gross profit ratio b) Net profit ratio c) Operating profit ratio atio d) Operating ratio e) Return on capital employed f) Return on equity g) Earnings per share 3) Liquidity Ratio a) Current ratio b) Liquid ratio c) Fixed asset ratio 2) Performance Ratio a) Capital turnover ratio b) Fixed asset turnover ratio c) wor ing capital turnover r d) stoc turnover ratio e) debtors turnover ratio f) debt collection period 4) Solvency ratio a) Debt equity ratio b) Debt to total fund ratio d) Proprietary ratio

e) Interest coverage ratio 1) Profitability Ratio a) Gross profit ratio-- Gross Profit Ratio shows the relationship between Gro ss Profit of the concern and its Net Sales. Gross Profit Ratio can be calculated in the following manner: Gross profit Gross profit ratio = ------------------ * 100 Net sale Where Gross Profit = Net Sales Cost of Goods Sold Cost of Goods Sold = Opening Stoc + Net Purchases + Direct Expenses Closing Stoc And Net Sales = Total Sales Sales Return Objective and Significance: Gross Profit Ratio provides guidelines to the concer n whether it is earning sufficient profit to cover administration and mar eting expenses and is able to cover its fixed expenses. The gross profit ratio of curr ent year is compared to previous years ratios or it is compared with the ratios o f the other concerns. The minor change in the ratio from year to year may be ign ored but in case there is big change, it must be investigated. This investigatio n will be helpful to now about any departure from the standard mar -up and woul d indicate losses on account of theft, damage, bad stoc system, bad sales polic ies and other such reasons. It gives a good indication of financial health. With out an adequate gross margin, a company will be unable to pay its operating and other expenses. Firm that have a high gross profit margin are more liquid and th us have more cash flow to spend on research and development expenses. 07-08 06-07 Gross profit = Net income from operation -- 10743.32 8194.35 Material consumed --6750.84 -5747.74 Increase/decrease in stoc --168.72 +8 72.66 Manufacturing & asset main--859.39 -746.04 Gross profit = 2964.37 2573.23 2573.23 2964.37 Gross profit (06-07) = -------------- * 100 = 31.40% (07-08) = ------------ * 100 = 27.59% 8194.35 10743.32 Gross profit ratio analysis gross profit for the year 07-08 is more as compare t o 06-07. Even net turnover of 07-08 is more as compare to 06-07. But gross profi t to turnover ratio of 07-08 is decline which is not good sign for the company & more over gross profit should not be much fluctuates. It shows 3.81% point diff erence. It may be because of recession, company may reduce the prices of their p roduct in order to increase the demand of their product. As a result turnover is increases but the margin which the company was earlier getting it is reduced. Suggestion for improvement gross profit can be increase if the company efficient ly utilize its resources and try to produce better quality of product and maximi ze its output with low input. Because major direct expenditure is on material so that must be efficiently utilize. Company should give more emphasis on enhancin g its productivity and even try to get better return on that. b) Net profit ratio-- Net Profit Ratio shows the relationship between Net Profit of the concern and Its Net Sales. Net profit Net profit ratio = --------------- * 100 Net sales Where Net Profit = Gross Profit operating expenses Non Operating Expenses + Non

Operating Incomes. And Net Sales = Total Sales Sales Return Objective and Significance: In order to wor out overall efficiency of the conce rn Net Profit ratio is calculated. This ratio is helpful to determine the operat ional ability of the concern. While comparing the ratio to previous years ratios, the increment shows the efficiency of the concern. Net profit includes all the factors that influence profitability whether under management control or not. Th e higher the ratio, the more effective a company is at cost control. 436.49 428.62 Net profit ratio (06-07) = -------------- * 100 = 5.33% (07-08) = ------------* 100 = 3.99% 8194.35 10743.32 Net profit ratio analysis -- Net profit for the year 07-08 is less as compare to 06-07. But turnover is just the reverse. So decrease in net profit ratio indica tes that the efficiency of the company decrease. As the ratio decrease the less effective a company is at cost control. Suggestion for improvement the company have to put major control on all expenses . Reductions in expenses result in more profit. As a result the net profit ratio shows increment. c) Operating profit ratio-- Operating Profit means profit earned by the concern from its business operation and not from the other sources. While calculating th e net profit of the concern all incomes either they are not part of the business operation li e Rent from tenants, Interest on Investment etc. are added and all non-operating expenses are deducted. So, while calculating operating profits th ese all are ignored and the concern comes to now about its business income from its business operations. Operating profit Operating profit ratio = ----------------------------* 100 Net sales Where Operating Profit = Gross Profit Operating Expenses or Operating Profit = Net Profit + Non Operating Expenses Non Operating Incomes and Net Sales = Total Sales Sales Return Objective and Significance: Operating Profit Ratio indicates the earning capacit y of the concern on the basis of its business operations and not from earning fr om the other sources. It shows whether the business is able to stand in the mar et or not. Operating profit ratio measure a companys operating efficiency with it s successful cost control. The higher the ratio, the better the company is. A hi gher operating profit ratio means that a company has lower fixed cost and a bett er gross margin or increasing sales faster than costs. 07-08 06-07 Operating profit = Gross profit -2964.37 2573.23 Personnel expenses--225.80 -152.80 Administrative expen--215.98 -146.14 Selling & distribution-- -214.50 -3 38.26 2308.09 1 936.03 1936.03 Operating profit ratio (06-07) = ------------------- * 10 0 = 23.63% 8194.35 2308.09 (07-08) = ------------------* 100 = 21.48%

10743.32 Operating profit ratio analysis operating profit for the year 07-08 is more as c ompare to 06-07 but operating profit ratio is decrease by 2.15% point which is n ot good sign for the company. The higher the ratio, the better the company is. H ere the net turnover is increase by 31.11% but the operating profit is increase by 19.22% so that why operating profit ratio is decrease. Suggestion for improvement the company has to control its operating expenses. Be cause less operating expenses will result in more net profit and more net profit will create wealth of company and its shareholders. A higher operating profit pu t the company to stand in the mar et. This ratio can be improved by effective ut ilization of asset that is investment of company. d) Operating cost ratio- Operating Ratio matches the operating cost to the net s ales of the business. Operating cost Operating cost ratio = -------------------- * 100 Net sales Where Operating Cost = Cost of goods sold + Operating Expenses Cost of Goods Sold = Opening Stoc + Net Purchases + Direct Expenses Closing Sto c Operating Expenses = Selling and Distribution Expenses, Office and Administratio n Expenses, Repair and Maintenance. Objective and Significance: Operating Ratio is calculated in order to calculate the operating efficiency of the concern. As this ratio indicates about the perce ntage of operating cost to the net sales, so it is better for a concern to have this ratio in less percentage. The less percentage of cost means higher margin t o earn profit. Operating cost ratios are often used by production managers to mo nitor trends and identify problems. If a significant change occurs, the problem must be identified as either internal (such as operations) or external (such as economic conditions). Since investors and other outsiders don t have access to o perating information, operating ratios are rarely used outside the organization. 06-07 07-08 Cost of goods sold = Net sale -8194.35 10743.32 Gross profit--2573.23 -2964.37 5621.12 7778.95 Operating expenses = personnel expenses-152.80 22 5.80 Administrative exp-146.14 215.98 Selling & distribution -- 338.26 214.50 637.20 656.28 Operating cost = cost of goods sold + operating expenses Operating cost (06-07) = 5621.12 + 637.20 = 6258.32 Operating cost (07-08) = 7778.95 + 656.28 = 8435.23 6258.32 Operating cost ratio (06-07) = ------------------ * 100 = 76.37% 8194.35 8435.23 Operating cost ratio (07-08) = ----------------- * 100 = 78.52% 10743.32 Operating cost ratio analysis -- Operating ratio for the year 07-08 is higher th an 06-07. Decrease in operating cost ratio represents good sign for the company

because the less percentage of cost means higher margin to earn profit. But here in the year 07-08 operating expenses is increase more than the turnover as a re sult the operating cost ratio increases. Suggestion for improvement The Company has to put close loo on all operational expenses and try to control all these expenses where ever it is possible. A cont inuous increase in operating cost ratio is not good sign for the company as it i s going to reduce it operating profit and net profit. e) Return on Investment or Return on Capital Employed: This ratio shows the rela tionship between the profit earned before interest and tax and the capital emplo yed to earn such profit. Net profit before interest, tax & divide nd Return on capital employed = --------------------------------------------------- * 100 Capital employe d Where Capital Employed = Share Capital (Equity + Preference) + Reserves and Surp lus + Long-term Loans Fictitious Assets or Capital Employed = Fixed Assets + Current Assets Current Liabilities Objective and Significance: Return on capital employed measures the profit, whic h a firm earns on investing a unit of capital. The profit being the net result o f all operations, the return on capital expresses all efficiencies and inefficie ncies of a business. This ratio has a great importance to the shareholders and i nvestors and also to management. To shareholders it indicates how much their cap ital is earning and to the management as to how efficiently it has been wor ing. This ratio influences the mar et price of the shares. The higher the ratio, the better it is. 07-08 06-07 Capital employed = share capital (equity + preference) -- 1184.08 1387.00 Reserve and surplus -- +3447.25 +3080.95 Secured loan -- +5383.11 +6533.32 Long term advance -+144.56 +166.42 10159 11167.69 Net profit before interest & tax -1557 .78 1324.21 1324.21 Return on capital employed (06-07) = ----------------- * 100 = 11.86% 11167.69 1557.78 Return on capital employed (07-08) = ------------ * 100 = 15.33% 10159 Return on capital employed analysis Return on capital employed for the year 07-0 8 is more than 06-07. Increase in return on capital employed is good sign for th e investors and to the management. To shareholders it indicates how much their c apital is earning and to the management as to how efficiently it has been wor in g. Suggestion for further improvement -- The Company has to increase its net profit and company has to reduce borrowing by paying through the internal accruals. f) Return on Equity: Return on equity is also nown as return on shareholders inv estment. The ratio establishes relationship between profit available to equity s hareholders with equity shareholders funds. Net profit after interest, tax & preference di

vidend Return on equity = ---------------------------------------------------------------------------- * 100 Equity share holders fun ds Where Equity Shareholders Funds = Equity Share Capital + Reserves and Surplus Fic titious Assets Objective and Significance: Return on Equity judges the profitability from the point of view of equity share holders. This ratio has great interest to equity shareholders. The return on equity measures the profitability of equity funds invested in the firm. The investors favor the company with higher ROE. 07-08 06-07 Equity share holders fund = equity share capital -1140.48 Reserve & surplus +3080.95 1140.48 -+3447.25

4587.73 4221.43 Net profit after interest, tax & preference dividend = 423.28 431.15 431.15 Return on equity (06-07) = ------------- * 100 = 10.21% 4221.43 423.28 Return on equity (07-08) = ------------- * 100 = 9.23% 4587.73 Return on equity analysis return on equity for the year 07-08 is less as compare to 06-07. It is less by .98% point. ROE is referred to as Stoc holder s return on investment, it tells the rate that shareholders are earning on their shares. So higher the rate represent the better return on investment which result in inc rease the shareholders wealth. Suggestion for improvement -- If new shares are issued then use the weighted ave rage of the number of shares throughout the year. The company should try to incr ease net profit. g) Earnings per Share: Earnings per share is calculated by dividing the net prof it (after interest, tax and preference dividend) by the number of equity shares. Net profit after interest, tax & prefe rence dividend Earnings per share = -----------------------------------------------------------------No. of equity share Objective and Significance: Earning per share helps in determining the mar et pr ice of the equity share of the company. It also helps to now whether the compan y is able to use its equity share capital effectively with compare to other comp anies. It also tells about the capacity of the company to pay dividends to its e quity shareholders. The higher the earnings per share, the higher each share sho uld be worth. The earnings per share growth rate indicate the amount of growth f or investors. 07-08 06-07 No. of equity share -1,139,810,888 985,041,908 Net profit after interest, tax & p.dividend-- Rs 4232800000 Rs 4,311,5 00,000

4,311,500,000 Earnings per share (06-07) = ------------------- = Rs 4.38 985,041,908 4,232,800,000 Earnings per share (07-08) = --------------------- = Rs 3.71 1,139,810,888 Earnings per share analysis -- earnings per share (EPS) is one of the most impor tant measure of a companys strength. Obviously, the higher this number, the more money the company is ma ing. But in the year 07-08 earnings per share is decreas e by .67 paisa. This is not good sign for the company even for shareholders. Suggestion for improvement earning per share can be improve by increasing the ne t profit. 2) Performance Ratio a) Capital turnover ratio-- Capital turnover ratio establishes a relationship b etween net sales and capital employed. The ratio indicates the times by which th e capital employed is used to generate sales. Net sales Capital turnover ratio = ----------------------------Capital employed Where Net Sales = Sales Sales Return Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus + Long-term Loans Fictitious Assets. Objective and Significance: The objective of capital turnover ratio is to calcul ate how efficiently the utilization of assets in the business is being used and how many times the capital is turned into sales. Higher the ratio, better the ef ficiency of utilization of capital and it would lead to higher profitability.

Net sales = sales -Excise duty -Capital employed --

8194.35 10743.32 Capital turnover ratio (06-07) = -------------- = .73 (07-08) = -------------- = 1.06 11167.69 10159.00 Capital turnover ratio analysis capital turnover ratio for the year 07-08 is mor e as compare to 06-07 which is good sign for the company. As in the 07-08, 1.06 times the capital is turn into sales. Higher the ratio, better the efficiency of utilization of capital and it would lead to higher profitability. Suggestion for improvement capital turnover ratio can be increase if we increase the turnover by utilizing the best of available capital. We have to maximize th e no. if times. b) Fixed Assets Turnover Ratio: Fixed assets turnover ratio establishes a relati onship between net sales and net fixed assets. This ratio indicates how well the fixed assets are being utilized. Net sales Fixed asset turnover ratio = ----------------------Net fixed asset Objective and Significance: This ratio expresses the number to times the fixed a ssets are being turned over in a stated period. It measures the efficiency with which fixed assets are employed. A high ratio means a high rate of efficiency of

07-08 11910.66 -1167.34 10743.32 10159.00

06-07 9000.46 -806.11 8194.35 11167.69

utilization of fixed asset and low ratio means improper use of the assets. 07-08 06-07 Net fixed asset = 9849.01 9997.37 Net sales = 10743.32 8194.35 8194.35 10743.32 Fixed asset turnover ratio (06-07) = -------------- = .82 ------- = 1.09 (07-08) = -------

9997.37 9849.01 Fixed asset turnover ratio analysis fixed asset turnover ratio for the year 07-0 8 is more as compare to 06-07 which is good sign for the company. The fixed-asse t turnover ratio measures a company s ability to generate net sales from fixed-a sset investments. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenue s. Suggestion for improvement fixed asset should be efficiently utilized up to its maximum capacity. Idle fixed asset should be dispose so that the amount which is realize from that can be used in the operation. c) Wor ing Capital Turnover Ratio: Wor ing capital turnover ratio establishes a relationship between net sales and wor ing capital. This ratio measures the effi ciency of utilization of wor ing capital. Net sales Wor ing capital turnover ratio = --------------------------Net wor ing capital Where Net Wor ing Capital = Current Assets Current Liabilities Objective and Significance: This ratio indicates the number of times the utiliza tion of wor ing capital in the process of doing business. The higher is the rati o, the lower is the investment in wor ing capital and the greater are the profit s. However, a very high turnover indicates a sign of over-trading and puts the f irm in financial difficulties. The wor ing capital turnover ratio measures the e fficiency with which the wor ing capital is being used by a firm. A high ratio i ndicates efficient utilization of wor ing capital. A low wor ing capital turnove r ratio indicates that the wor ing capital has not been used efficiently. 07-08 06-07 Net wor ing capital = 557.98 908.58 Net sales = 10743.32 8194.3 5 10743.32 Wor ing capital turnover ratio (06-07) = ------------- = 9.02 ------------ = 19.25

908.58 557.98 Wor ing capital turnover ratio analysis wor ing capital turnover ratio for the y ear 07-08 is more as compare to 06-07. This shows that the wor ing capital is ef ficiently utilized. It is increase by 10.23% point. Suggestion for improvement wor ing capital is based on various aspects li e deb tors collection should be favorable and inventory turnover ratio, this shows that more frequently the stoc s are sold. d) Stoc Turnover Ratio: Stoc turnover ratio is a ratio between cost of goods s old and average stoc . This ratio is also nown as stoc velocity or inventory t urnover ratio.

8194.35 (07-08) = ----

Cost of goods sold Stoc turnover ratio = ------------------------------Average stoc Where Average Stoc = [Opening Stoc + Closing Stoc ]/2 Cost of Goods Sold = Net sales gross profit Objective and Significance: Stoc is a most important component of wor ing capit al. This ratio provides guidelines to the management while framing stoc policy. It measures how fast the stoc is moving through the firm and generating sales. It helps to maintain a proper amount of stoc to fulfill the requirements of th e concern. A proper inventory turnover ma es the business to earn a reasonable m argin of profit. 06-07 07-08 Cost of goods sold = Net sale -964.37 5621.12 7778.95 Average stoc (06-07) = [341.78+528.84+332.16+1204.82]/2 = 120 3.80 32.75 Average stoc (07-08) = [528.84+295.74+1204.82+1036.10]/2 = 15 5621.12 7778.95 Stoc turnover ratio (06-07) = -------------- = 4.67 (07-08) = -------------- = 5.075 1203.80 1532.75 Stoc turnover ratio analysis stoc turnover ratio for the year 07-08 is more th an 06-07. As it is increase it is good sign for the company. This shows that mor e frequently the stoc s are sold; the lesser amount of money is required to fina nce the inventory. Suggestion for improvement -- A low inventory turnover ratio indicates an ineffi cient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stoc accumulation, accumu lation of obsolete and slow moving goods and low profits as compared to total in vestment. So in order to increase this ratio company has to improve the entire t hing in positive way. The inventory turnover ratio is also an index of profitabi lity, where a high ratio signifies more profit; a low ratio signifies low profit . E) Debtors Turnover Ratio: Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. Ne t credit sales Debtors turnover ratio = --------------------------------------------Average acc ount receivables Where Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtor s and B/R]/2 Credit Sales = Total Sales Cash Sales Objective and Significance: This ratio indicates the efficiency of the concern t o collect the amount due from debtors. It determines the efficiency with which t he trade debtors are managed. Higher the ratio, better it is as it proves that t he debts are being collected very quic ly. Debtors turnover ratio indicates the n umber of times the debtors are turned over a year. The higher the value of debto rs turnover the more efficient is the management of debtors or more liquid the de btors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. 06-07 07-08 8194.35 Gross profit-- -2573.23 10743.32 -2

Net credit sales = 8194.35 10743.32 Average accounts receivables = 543.50 453.62 8194.35 10743.32 Debtors turnover ratio (06-07) = ------------- = 15.077 (07-08) = --------------- = 23.68 543.50 453 .62 Debtors turnover ratio analysis Debtors turnover ratio for the year 07-08 is more than 06-07 which is good sign for company. For the year 07-08 the debtors are ef ficiently manage as compare to 06-07. As increase in ratio shows that debtors ar e more liquid. Even we can say that liquidity of the debtors is increase. f) Debt Collection Period: Debt collection period is the period over which the d ebtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors. 365 days Debt collection period = --------------------------------Debtors turnover rat io Objective and Significance: This ratio measures the quality of debtors. This rat io indicates how quic ly and efficiently the debts are collected. The shorter th e period the better it is and longer the period more the chances of bad debts. A lthough no standard period is prescribed anywhere, it depends on the nature of t he industry. 06-07 07-08 Debtors turnover ratio = 15.077 23.68 365 365 Debt collection period (06-07) = ----------- = 24 days (07-08) = ---------- = 16days 15.077 23.68 Debt collection period analysis debt collection period for the year 07-08 is les s as compare to 06-07. This is quite good for the company. Company efficiency is increase in collecting the debts. A short collection period implies prompt paym ent by debtors. As per the ratio the no. of days is reduce by 8 days. Suggestion for improvement the company has to sale the goods to those debtors wh o are ma ing the payment very frequently. 3) Liquidity Ratio a) Current Ratio -- Current ratio is calculated in order to wor out firms abi lity to pay off its short-term liabilities. This ratio is also called wor ing ca pital ratio. This ratio explains the relationship between current assets and cur rent liabilities of a business. Where current assets are those assets which are either in the form of cash or easily convertible into cash within a year. Simila rly, liabilities, which are to be paid within an accounting year, are called cur rent liabilities. Current asset Current ratio = ----------------------Current liability Current Assets include Cash in hand, Cash at Ban , Sundry Debtors, Bills Receiva ble, Stoc of Goods, Short-term Investments, Prepaid Expenses, Accrued Incomes e tc. Current Liabilities include Sundry Creditors, Bills Payable, Ban Overdraft, Out standing Expenses etc. Objective and Significance: Current ratio shows the short-term financial positio n of the business. This ratio measures the ability of the business to pay its cu rrent liabilities. The ideal current ratio is supposed to be 2:1 i.e. current as sets must be twice the current liabilities. In case, this ratio is less than 2:1 , the short-term financial position is not supposed to be very sound and in case , it is more than 2:1, it indicates idleness of wor ing capital. Firms having le ss than 2 : 1 ratio may be having a better liquidity than even firms having more than 2 : 1 ratio. This is because of the reason that current ratio measures the

quantity of the current assets and not the quality of the current assets. If a firm s current assets include debtors which are not recoverable or stoc s which are slow-moving or obsolete, the current ratio may be high but it does not repre sent a good liquidity position. 06-07 07-08 Current asset = 4397.41 3935.19 Current liability = 3935.19 Current ratio (06-07) = -------------- = 1.26 ) = --------------- = 1.165 3488.83 3377.21 (07-08 3488.83 4397.41 3377.21

Current ratio analysis current ratio for the year 07-08 is less as compare to 06 -07 this is because current asset is decrease more than current liabilities. A g enerally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics o f its current assets and liabilities. The minimum acceptable current ratio is ob viously 1:1. Suggestion for improvement Paying some debts. Increasing your current assets from loans or other borrowings with a maturity of more than one year. Converting non-current assets into current assets. Increasing your current assets from new equity contributions. Limitation of current asset ratio 1. It is crude ratio because it measures only the quantity and not the qual ity of the current assets. 2. Even if the ratio is favorable, the firm may be in financial trouble, be cause of more stoc and wor in process which is not easily convertible into cas h, and, therefore firm may have less cash to pay off current liabilities. 3. Valuation of current assets and window dressing is another problem. An e qual increase in both current assets and current liabilities would decrease the ratio and similarly equal decrease in current assets and current liabilities wou ld increase current ratio. b) Liquid Ratio: Liquid ratio shows short-term solvency of a business in a true manner. It is also called acid-test ratio and quic ratio. It is calculated in o rder to now how quic ly current liabilities can be paid with the help of quic assets. Quic assets mean those assets, which are quic ly convertible into cash. Liquid asset Liquid ratio = ------------------------Current liability Where liquid assets include Cash in hand, Cash at Ban , Sundry Debtors, Bills Re ceivable, Short-term Investments etc. In other words, all current assets are liq uid assets except stoc and prepaid expenses.

Objective and Significance: Liquid ratio is calculated to wor out the liquidity of a business. This ratio measures the ability of the business to pay its curre nt liabilities in a real way. The ideal liquid ratio is supposed to be 1:1 i.e. liquid assets must be equal to the current liabilities. In case, this ratio is l ess than 1:1, it shows a very wea short-term financial position and in case, it is more than 1:1, it shows a better short-term financial position.

Current liabilities include Sundry Creditors, Bills Payable, Ban standing Expenses etc.

Overdraft, Out

Liquid asset (06-07) = current asset- inventory- prepaid expenses 4397.41- 2328.77 = 2068.64 Liquid asset (07-08) = 3935.19- 2108.11 = 1827.08 (06-07) (07-08) Current liability = 3488.83 3377.21 2068.64 1827.08 Liquid ratio (06-07) = --------------- = .593 (07-08) = --------------- = .54 3488.83 3377.21 Liquid ratio analysis liquid ratio for the year 07-08 is less as compare to 06-0 7 even liquid ratio of 06-07 is not good. It should be 1or more than that and fo r the year 07-08 it is further less so financial position is not good. The liqui d ratio is decrease because liquid asset is decrease more than current liabiliti es. Current asset is decrease by 241.56 crores where as current liability is dec rease by 111.62 crores. Suggestion for improvement As 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necEssarily mean satisfactory liquidity position of the fi rm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations. A firm having a high liquidity ratio may not have a sat isfactory liquidity position if it has slow-paying debtors. On the other hand, a firm having a low liquid ratio may have a good liquidity position if it has fas t moving inventories. 4) Solvency ratio a) Debt equity ratio-- Debt equity ratio shows the relationship between long-ter m debts and shareholders funds. It is also nown as External-Internal equity ratio. Debt Debt equity ratio = ---------------Equity Where Debt includes Debentures, Mortgage Loan, Ban Loan, Public Deposits, Loan from financial institution etc. Equity (Shareholders Funds) = Share Capital (Equity + Preference) + Reserves and Surplus Fictitious Assets Objective and Significance: This ratio is a measure of owners stoc in the busine ss. Proprietors are always een to have more funds from borrowings because: (i) Their sta e in the business is reduced and subsequently their ris too (ii) Interest on loans or borrowings is a deductible expenditure while computing taxable profits. Dividend on shares is not so allowed by Income Tax Authorities . The owners want to do the business with maximum of outsider s funds in order to ta e lesser ris of their investment and to increase their earnings (per share) by paying a lower fixed rate of interest to outsiders. The outsider creditors) o n the other hand, want that shareholders (owners) should invest and ris their s hare of proportionate investments. A ratio of 2:1 is usually considered to be sa tisfactory ratio although there cannot be rule of thumb or standard norm for all types of businesses. 06-07 07-08 Debt -- secured loan 6533.32 5383.11 Long term advance -+166.42 +144.56 Unsecured loan -+409.92 +733.47 7109.66 6261.14 Equity share holders fund = equity share capital -1387.00 1184.08 Reserve & surplus -+3080.95 +3447.25

4467.95 4631.33 7109.66 6261.14 Debt equity ratio (06-07) = ------------- = 1.59 (07-08) = -------------- = 1.35 4467.95 4631.33 Debt equity ratio analysis Debt equity ratio of both the year is not satisfactor y because standard debt equity ratio is 2:1. Here it gives clear picture that co mpanys share capital is decreasing where as reserve and surplus is increasing. It means that reserve & surplus is increasing at a high rate as compare to the rat e at which share capital is decreasing so thats why the overall figure in the yea r 07-08 is increasing. Suggestion for improvement company should raise its fund by the combination of b oth equity and debt and try to maintain 2:1 ratio that is debt equity ratio. b) Debt to Total Funds Ratio: This ratio gives same indication as the debt-equit y ratio as this is a variation of debt-equity ratio. This ratio is also nown as solvency ratio. This is a ratio between long-term debt and total long-term fund s. Debt Debt to total fund ratio = -------------------Total fund Where Debt (long term loans) includes Debentures, Mortgage Loan, Ban Loan, Publ ic Deposits, Loan from financial institution etc. Total Funds = Equity + Debt Equity (Shareholders Funds) = Share Capital (Equity + Preference) + Reserves and Surplus Fictitious Assets Objective and Significance: Debt to Total Funds Ratios shows the proportion of l ong-term funds, which have been raised by way of loans. This ratio measures the long-term financial position and soundness of long-term financial policies. In I ndia debt to total funds ratio of 2:3 or 0.67 is considered satisfactory. A high er proportion is not considered good and treated an indicator of ris y long-term financial position of the business. It indicates that the business depends too much upon outsiders loans. 06-07 07-08 Equity share holders fund = equity share capital -1387.00 1184.08 Reserve & surplus -+3080.95 +3447.25 4467.95 4631.33 Debt (long term) = secured loan 6533.32 5383.11 Long term advance -+166.42 +144.56 6699.74 5527.67 Total fund= equity + debt -11167.69 10159 6699.74 5527.67 Debt to total fund ratio (06-07) = --------------- = .60 ----- = .54 11167.69 10159 (07-08) = ---------

Debt to total fund ratio analysis debt to total fund ratio is for the both year is quite satisfactory. A higher proportion is not considered good and treated an

indicator of ris y long-term financial position of the business. Suggestion for improvement as company current debt to total fund ratio is satisf actory so in order to maintain this company has to maintain a proper balance bet ween debt and equity. c) Fixed Assets Ratio: Fixed Assets Ratio establishes the relationship of Fixed Assets to Long-term Funds. ds Fixed asset ratio = -------------------------Net f ixed asset Where Long-term Funds = Share Capital (Equity + Preference) + Reserves and Surpl us + Long-term Loans Fictitious Assets Net Fixed Assets means Fixed Assets at cost less depreciation. It will also incl ude trade investments. Objective and Significance: This ratio indicates as to what extent fixed assets are financed out of long-term funds. It is well established that fixed assets sh ould be financed only out of long-term funds. This ratio wor out the proportion of investment of funds from the point of view of long-term financial soundness. This ratio should be equal to 1. If the ratio is less than 1, it means the firm has adopted the impudent policy of using short-term funds for acquiring fixed as sets. On the other hand, a very high ratio would indicate that long-term funds a re being used for short-term purposes, i.e. for financing wor ing capital. 06-07 07-08 Long term funds = share capital -1387.00 118 4.08 Reserve & surplus -- +3080.95 +3447. 25 Long term loans -- + 6533.32 +5383 .11 11001.27 10014. 44 Net fixed asset-9997.37 9849.01 11001.27 10014.44 Fixed asset ratio (06-07) = ------------------ = 1.10 ---------------- = 1.02 9997.37 9849.01

Fixed asset ratio analysis -- fixed asset ratio for the 07-08 is less as compare to 06-07. Even it good sign for the company that fixed ratio for the year 07-08 is very close 1 which is standard. This shows that fixed asset is financed out of long term fund. Suggestion for improvement In order to maintain this ratio the company has to in crease its long term fund equal to its fixed asset. d) Proprietary Ratio: Proprietary Ratio establishes the relationship between pro prietors funds and total tangible assets. This ratio is also termed as Net Worth t o Total Assets or Equity-Assets Ratio. Proprietary funds Proprietary ratio = ----------------------------Total assets Where Proprietors Funds = Shareholders Funds = Share Capital (Equity + Preference) + Reserves and Surplus Fictitious Assets Total Assets include only Fixed Assets and Current Assets. Any intangible assets

Long term fun

(07-08) =

without any mar et value and fictitious assets are not included. Objective and Significance: This ratio indicates the general financial position of the business concern. This ratio has a particular importance for the creditor s who can ascertain the proportion of shareholders funds in the total assets of t he business. Higher the ratio, greater the satisfaction for creditors of all typ es. 06-07 07-08 Equity share holders fund = equity share capital -1184.08 +Reserve & surplus -+3447.25 4631.33 Total asset = fixed asset -+ Current asset -9997.37 + 4397.41 14394.78

4467.95 4631.33 Proprietary ratio (06-07) = ----------------- = .31 (07-08) = ----------------- = .34 14394.78 13784.20 Proprietary ratio analysis proprietary ratio for the year 07-08 is more than the 06-07. As the ratio is increase it is good sign for company. Higher the ratio b etter is the long-term solvency position of the company. A low proprietary ratio will include greater ris to the creditors. Suggestion for improvement Idle fixed asset should be dispose so that the amount which is realize from that can be used in the operation. e) Interest Coverage Ratio: Interest Coverage Ratio is a ratio between net profit before interest and tax and interest on long-term loans. This ratio is also termed as Debt Service Ratio. Net profit before interest a nd tax Interest coverage ratio = ------------------------------------------------Interest on long term l oans Objective and Significance: This ratio expresses the satisfaction to the lenders of the concern whether the business will be able to earn sufficient profits to pay interest on long-term loans. This ratio indicates that how many times the pr ofit covers the interest. It measures the margin of safety for the lenders. The higher the number, more secure the lender is in respect of periodical interest. 06-07 07-08 Net profit before interest & tax -1324.21 1557.78 Interest on long term loan -563.62 609. 89 1324.21 1557.78 Interest coverage ratio (06-07) = --------------- = 2.34 (07-08) = --------------- = 2.55 563.62 609.89 Interest coverage ratio analysis -- Interest coverage ratio for the year 07-08 i s quite more than 06-07. Which is quite good sign for the company. For the 07-08 , 2.55 times interests are covered by the profits. The wea ness of the ratio may create some problems to the financial manager in raising funds from debt source s. Suggestion for improvement loan should be ta en at reasonable rate. Interest sho

1387.00 +3080.95 4467.95 9849.01 +3935.19 13784.20

uld be paid at fixed exchange rate. The exchange rate should be settle at the ti me of ta ing loan.

GROSS PROFIT RATIO NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL 2003-04 12.6 22.15 26.63 2004-05 25.49 29.44 36.41 2005-06 16.42 21.12 33.76 2006-07 31.4 26.99 34.91 2007-08 27.59 23.43 37.7

Gross profit ratio interpretation 1) Gross profit ratio of Tata steel is increasing from the last 3 years. 2) Where as Essar and Jindal steel ratio shows upward and downward movement whic h means the ratio of both the company is not stable. 3) Gross profit should not be much fluctuates. 4) Tata steel has maintained a trend from last 4 years. Suggestion for improvement gross profit can be increase if the company efficient ly utilize its raw material and try to produce better quality of product and max imize its output with low input. Because major direct expenditure is on material so that must be efficiently utilize. Company should give more emphasis on enhan cing its productivity and even try to get better return on that. NET PROFIT RATIO NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL 2003-04 1.61 16.05 16 2004-05 9.67 13 23.72 2005-06 8.54 14.14 22.78 2006-07 5.33 14.98 23.53 2007-08 3.99 14.92 23.43

Net profit ratio interpretation 1) Net profit ratio of Tata steel is best as compare to Jindal and Essar steel. 2) Net profit ratio of Jindal steel is better as compare to Essar steel. 3) Both Jindal and Tata steel have maintained a good trend as it shown in the gr aph from the last four year. 4) Essar steel net profit ratio is decline from last three years. This is not go od sign for the company. As the ratio decrease the less effective a company is a t cost control. 5) This ratio is helpful to determine the operational ability of the concern. Wh ile comparing the ratio to previous years ratios, the increment shows the efficie ncy of the concern. 6) Gross profit of Essar steel is increasing where as its net profit is decreasi

Comparison of Essar steel ratio with other steel companies

ng which means companys indirect expenses is increasing. Suggestion for improvement the company have to put major control on all expenses . Reductions in expenses result in more profit. As a result the net profit ratio shows increment. OPERATING PROFIT RATIO

NAMEOF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL

2003-04 23.49 31.69 32.47

2004-05 31.96 34.83 41.1

2005-06 24.23 27.79 38.88

2006-07 23.63 32.79 39.61

2007-08 21.48 29.46 41.94

Operating profit ratio interpretation 1) Operating profit ratio of Essar steel is decreasing from the last 3 years 2) Tata steel has maintained a incremental trend from last 3 years. 3) Jindal steel ratio shows upward and downward movement. 4) Operating profit ratio measure a companys operating efficiency with its succes sful cost control. The higher the ratio, the better the company is. So here the graph shows that Tata steel has better control over cost. Suggestion for improvement the company has to control its operating expenses. Be cause less operating expenses will result in more net profit and more net profit will create wealth of company and its shareholders. A higher operating profit pu t the company to stand in the mar et.

RETURN ON CAPITAL EMPLOYED

NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL

2003-04 8.41 11.67 39.43

2004-05 26.28 29 56.78

2005-06 10.37 15.47 43.93

Return on capital employed 1) Return on capital employed of Essar steel is continuously increasing from las t 3 years which is good sign for the company. 2) Where as Tata steel ratio is decreasing from last 3 years. 3) Jindal steel shows upward and downward trend. 4) Efficiency of Tata steel is decreasing where as Essar steel is increasing fro

2006-07 11.86 23.6 28.11

2007-08 15.33 19.22 17.16

m last 3 years. 5) The higher the ratio, the better it is. Suggestion for further improvement -- The Company has to increase its net profit and company has to reduce borrowing by paying through the internal accruals. Th e company has to maintain its increasing trends.

EARNING PER SHARE

NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL

2003-04 1.33 0.79 51.88

2004-05 14.22 63 62.17

2005-06 12.33 26.17 62.57

2006-07 4.38 70.85 73.87

2007-08 3.71 86.07 60.58

Earnings per share interpretation 1) Earnings per share of Jindal are increasing from last 3 years. 2) Where as earning per share of Essar steel is decreasing from last 3 years. 3) Tata steel & Essar steel earning per share for the year 07-08 is decrease as compare to 06-07 but Tata steel EPS is decrease by 18% where as Essar is decreas e by 15.30%. 4) This shows that Tata and Essar have not effectively utilized their equity sha re capital for the year 07-08. 5) Worth of share of Essar is continuously decreasing. Suggestion for improvement earning per share can be improve by increasing the ne t profit. Company is not able to use efficiently its equity share capital as com pare to other companies.

NAME OF COMPANY 2003-04 2004-05 ESSAR STEEL 0.54 0.87 JINDAL STEEL 0.52 0.88 TATA STEEL 0.85 1.11 FIXED ASSET TURNOVER RATIO

2005-06 0.59 0.72 0.98

2006-07 0.82 0.81 1.09

2007-08 1.09 0.81 1.2

Fixed asset turnover ratio interpretation 1) Fixed asset turnover ratio of all the company is increasing from last 3 years . It is good sign for the company. 2) The fixed-asset turnover ratio measures a company s ability to generate net s

ales from fixed-asset investments. 3) A higher fixed-asset turnover ratio shows that the company has been more effe ctive in using the investment in fixed assets to generate revenues. Suggestion for improvement fixed asset should be efficiently utilized up to its maximum capacity. Idle fixed asset should be dispose so that the amount which is realize from that can be used in the operation.

INVENTORY TURNOVER RATIO NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL 2003-04 8.73 15.75 12.91 2004-05 11.33 11.21 10.42 2005-06 6.96 8.55 9.89 2006-07 4.67 11.04 10.81 2007-08 5.08 9.26 10.84

Inventory turnover ratio interpretation 1) Inventory turnover ratio of all these companies shows ups and downs. There i s no trend. 2) But from last 2 years Essar steel ratio is just around 50% of Jindal and Tata steel. 3) From last 3 years all the companies have maintained its trends. Suggestion for improvement -- A low inventory turnover ratio indicates an ineffi cient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stoc accumulation, accumu lation of obsolete and slow moving goods and low profits as compared to total in vestment. So in order to increase this ratio companies have to improve the entir e thing in positive way. The inventory turnover ratio is also an index of profit ability, where a high ratio signifies more profit; a low ratio signifies low pro fit.

NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL LIQUID RATIO

2003-04 0.61 0.79 0.39

2004-05 0.83 0.6 0.33

2005-06 0.89 0.59 0.29

2006-07 0.59 0.43 1.37

2007-08 0.54 0.27 3.52

Liquid ratio interpretation 1) Liquid ratio of all these company is not good because the ideal liquid ratio is supposed to be 1:1. This is not there from the year 03-04 to 05-06.

2) Jindal steel liquidity ratio is continuously decline which is not good sign f or that company. 3) Tata short term financial position is very good in the year 07-08 which shows their liquid asset is around 3.5 times current liability. And it is increasing from last 2 years 4) short term financial position of Jindal and Essar is not good. Suggestion for improvement As 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necEssarily mean satisfactory liquidity position of the fi rm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations. A firm having a high liquidity ratio may not have a sat isfactory liquidity position if it has slow-paying debtors. On the other hand, a firm having a low liquid ratio may have a good liquidity position if it has fas t moving inventories.

NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL CURRENT RATIO

2003-04 1.61 1.45 0.68

2004-05 2.09 0.98 0.71

2005-06 1.97 0.89 0.72

2006-07 1.26 0.76 1.77

2007-08 1.17 0.58 3.92

Current ratio interpretation 1) current ratio of Tata steel is continuously increasing from the year 03-04 to 07-08. 2) Essar steel current ratio is continuously decreasing from last 3 years which is not good sign for the company. This shows that companys ability to pay current liability is decreasing. 3) Jindal steel current ratio is decreasing continuously from the year 04-05 to 07-08. This shows that companys ability to pay current liability is decreasing. 4) Tata steel current ratio for the year 07-08 is around 4 which is also not goo d because it shows the idleness of wor ing capital. 5) The minimum acceptable ratio is 1:1, Essar steel current ratio for all the ye ar is acceptable as it is more then 1. Suggestion for improvement Paying some debts. Increasing your current assets from loans or other borrowings with a maturity of more than one year. Converting non-current assets into current assets. Increasing your current assets from new equity contributions. DEBT EQUITY RATIO

NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL

2003-04 7.69 3.73 0.72

2004-05 3.96 1.3 0.37

2005-06 4.55 0.96 0.25

2006-07 1.5 0.78 0.67

2007-08 1.19 1.01 1.07

Debt equity ratio interpretation 1) Debt equity ratio of Essar steel is very high in from the year 03-04 to 05-06 which shows the their debt is very high as compare to equity in these years but general acceptable ratio is 2:1 but there is no rule of thumb or stand norm for the business. 2) In the year 07-08 these company debt equity ratio is near to standard norm wh ich is acceptable. 3) Essar steel debt equity ratio is decreasing from last 3 year and but now comp any has to increase its debt to meet the standard norms. Suggestion for improvement company should raise its fund by the combination of b oth equity and debt and try to maintain 2:1 ratio that is debt equity ratio.

PROPRITORS RATIO NAME OF COMPANY ESSAR STEEL JINDAL STEEL TATA STEEL 2003-04 11.12 19.4 57.24 2004-05 18.27 41.09 72.04 2005-06 15.18 48.23 79.49 2006-07 31.03 54.31 59.12 2007-08 33.6 48.53 48.15

Proprietors ratio interpretation 1) Higher the ratio better is the long-term solvency position of the company. 2) A low proprietary ratio will include greater ris to the creditors. 3) Jindal steel proprietors ratio shows increasing trend. 4) From the last 3 years Essar steel ratio is increasing which good sign for com pany but whereas Tata steel ratio is decreasing which is not good sign for that company. Suggestion for improvement Idle fixed asset should be dispose so that the amount which is realize from that can be used in the operation. INTEREST COVERAGE RATIO

NAME OF COMPANY 2003-04 2004-05 2005-06 2006-07 2007-08 ESSAR STEEL 1.87 2.73 3.3 2.34 2.55 JINDAL STEEL 3.21 3.72 4.65 5.67 5.88

TATA STEEL

11.29

18.89

26.42

21.07

6.94

Interest coverage ratio interpretation -1) Essar steel has maintained its trend, they have to improve it means so increa se the ratio. 2) Jindal steel has maintained its increasing trend which is good sign for the c ompany. 3) Tata steel ratio from last 2 years it is decreasing which is not good sign fo r company it shows that company efficiency is decrease. Suggestion for improvement loan should be ta en at reasonable rate. Interest sho uld be paid at fixed exchange rate. The exchange rate should be settle at the ti me of ta ing loan. INVENTORY MANAGEMENT TEAM MEMBERS OF STOREDEPARTMENT

SPARE MANAGEMENT AT STORE DEPARTMENT Spare is most important part of any ind of machinery or for production plant. S pare maintain the capacity of machinery. Non availability of any spare in right time result in reduction in the performance of machinery or some time it may st op production result in huge loss to company , so proper management of spare is also require. 1) 2) 3) 4) 5) INVENTORY PROCEDURE IN ESSAR STEEL In bond delivery number Receipt section Spare quality chec Goods receipt note Issue of spares

6) 7) 8)

Rejection of spares Codification Spare control technique

1) In bond delivery numberit is the number is allocated at gate when spare r each at gate. The authorized person see all the document which is presented by d river li e challen, invoice etc. there he also see the no. of items order and no . of item are there in invoice. Through SAP system. After that he put seal on do cument and write the vehicle number and other thing and put I.D no. that is call ed In bond number. After getting in bond no. then vehicle is allow to enter. The re at gate the authority as the user that you want the spare now then if user s ay yes then they directly send the vehicle to concern department but if user say no then they are sent to central store for unload . in case user want some spar e then in that case also vehicle send to central store not send to user for part delivery because to reduce the time and traffic. 2) Receipt sectiononce the driver get the in bond no. it go to central store . There he shows the document to receipt authority. There he chec the seal and ID no. & spare is physical chec .But some time spare is in wood box so to open at that time is not possible so it is chec in no. or box then gate pass is give n to driver. If some time same vehicle is use to transport finish goods then it has to go to gate for clearance and user send a mail for that vehicle then that vehicle is allowed to particular location. 3) Spare quality chec (321) after the physical verification they inform th e user that your spare is reach at store. Then user comes to central store and h e sees the spare and its quality. If it according to right quality then he put ( 321) spare quality is chec and accepted. If he put (122) then spare is not acco rding to right quality and rejected. so when he reject the spare that spare is eep away from other accepted spare. After 321 G.R.N is prepared and spare is ta en into store and eep them in a particular location. 4) Goods receipt note goods receipt note is note prepare when user give (321 ) quality chec clearance. GRN shows that we have received this much of quantity of item. Once the GRN is done then the spare is eep into store at its defining location. 5) Issue of spare Essar steel has various departments. Various spare which i s requires to various department most are available at one place that is at cent ral store. User chec s through system all the spare which is of his department. If it is th ere in store he through reservation slip put the order. If the require quantity is available then MRS is created and he send the reservation slip with concern p erson to collect the spare. Through MRS the store person now what spare the use r want so they ta e out the spare eep that spare at issue location so that the spare can be easily handover when concern person come for spare. This is all in case of urgent. If it is not urgent then spare is send to concern department som e other day as far as possible. When spare is send to concern department at that time issue note is given to sec urity and they put control no. then after issue person collect the issue reserva tion slip and put spare document no. and post the transaction and file the issue requisition note. If in case required quantity cannot be covered by issue in that case they issue all quantity but they send the available and rest t they send when spare availab le at store. User through system he chec all the item what ind of all spare of his departme nt is there in store. In case suppose the required quantity of spare is not at s tore in that case he order the spare through reservation slip. Spare as per avai lable reserve to him and rest quantity PR is automatically prepare through SAP system. That PR is release by store as well as user department head. Once PR is release then purchase department place order for purchase of that particular sp are.

6)

Rejection of spare when user is called for quality chec at that time u

ser specify that spare is rejected and through system he reject the spare (122). When he reject the spare. the rejection department as well as purchase departme nt automatically get mail that concern item no. and the reason of rejection. The purchase department send mail to vendor that due to this reason spare is re jected . if the vendor says I correct the spare then they eep that otherwise th e vendor says o return the spars . As per PO terms& condition of spare is mentioned and as per that spare is reject ed . once the purchase department allow for rejection then rejection department wor start. Some time if purchase department not give any response in that case rejection department give comment for quic response to that. Rejection authority verify that whether excisable or non excisable . if it excis able then excise duty is paid or not if paid then he order the excise department that concern spare no. is rejected so refund the excise duty. So after the exci se duty clearance then spare is rejected and send from store to vendor. 7) Codification user through system chec that require spare is there in st ore of his department or not. If it is not their then through KADMS install soft ware in system he send the request. First of all they chec that the data user is given is correct or not . means al l the technical term are corrects or not . if it not correct then through commen t option they give message to user to ma e change and save that. Codification section verify all the thing in the detail, item name and other all the technical particles of the items whether the spare which the user want for that code is existing or not. If there is no existing code then they save that a nd new code for spare is automatically created. Once the code is created the use r automatically get the code for his request spare. It is very much important process because if a spare dont have any code that spar e cannot come to plant . on the basis of code all the thing are run. Code repres ents the spare part. There should not be any duplication because company spends lot of money on maintaining, the duplication of code occupies the unnecessary sp ace but company wants to save spare. Space available is limited. If it is full t hen company have to install new server and other thing which require huge expens es. SPARE CONTROL TECHNIQUE 1) LEVEL SETTING 2) XYZ ANALYSIS 3) VED ANALYSIS 4) FNSD ANALYSIS 5) JUST IN TIME. 6) PERPETUAL INVENTORY SYSTEM 1) LEVEL SETTING A) ANNUAL BASE B) SINGLE USER THEN USER DECIDE C) MORE THEN ONE USER THEN STORE DEPTT DECIDE Store department set the level of general store item which is order by them. In that case they loo the annual base consumption and as per base they set the lev el while setting the level they see consumption +VED as well as no. of transacti on and FNSD analysis after considering all they set the level. Once the reorder, maximum level is set. When the quantity goes below reorder lev el, automatically the PR is release to purchase department for purchase of that item. The quantity in PR is difference between the maximum level and no. of quan tity goes below reorder level. When the user is single for particular item then he decides when to order and sa me procedure follows. 2) XYZ ANALYSIS It is li e ABC system where the quantity is categories into XYZ so it is called XYZ analysis. Manufacturing organization find it useful to divide material into three categories for the purpose of exercising selective co

ntrol on materials. An analysis of the material costs will show that a smaller p ercentage of items of materials in the stores may contribute to a large percenta ge of the value of consumption and on the other hand, a large percentage of item s may represent a smaller percentage of the value of item consumed. Between thes e two extremes will fall those items the percentage number of which is more or l ess equal to their value of consumption. Items falling in the first category are treated as X items, of the second category as Y items and item of the third categor y are ta en as Z items; such an analysis of material is nown as XYZ analysis. It is also further categories as per each unit value so that item which is having h igher value cannot be left out. 3) VED ANALYSIS VED analysis is generally done by user because he nows ver y well that which spare is what for the plant. So he assigns the VED for the spa re which is under him or of his department. Vital, essential and desirable analysis is used primarily for control of spare p arts. The spare parts can be divided into three categories- vital, essential & d esirable -- eeping in view the criticality to production. The spares, the stoc out of which even for a short time will stop production for quite some time and where the cost of stoc out is very high, are nown as vital spares. The spares , the absence of which cant be tolerated for more than a few hours a day and the cost of lost production is highand which are essential for the production to con tinue are nown as essential spares. The desirables spares are those spares whic h are needed but their absence for even a wee or so will not lead to stoppage o f production. 4) FNSD ANALYSIS F Stand for fast moving. The store department decides FNS, D is deciding by user. As per company policy li e if a spare is transaction is done in a year that is fast moving and 1to 3 years in between it is normal movin g and more than 3 year it is slow moving. So the store department gives the slow moving spare list to user on the basis of that slow moving list user decide whi ch is dead items. Once he declare the dead item that item are declared as absolu te. that spare is listed in essar site any plant want that spare then that is gi ven to them otherwise it is send to secondary sale department for sale of spare which is declared as dead. 5) JUST IN TIME eeping in view the enormous carrying cost of inventory in the stores and godowns, manufacturers & merchandisers are as ing for more freque nt deliveries with shorter purchase order lead time from their suppliers. Now-adays organizations are becoming more and more interested in getting potential ga ins from ma ing smaller and more frequent purchase order. In other words they ar e becoming interested in just in time purchasing system, just in time purchasing is the purchase of material or goods in such a way that delivery of purchase it ems is assured before their use or demand. 6) PERPETUAL INVENTORY SYSTEM perpetual inventory as a system of records ma intained by the controlling department which reflects the physical movement of s toc s and their current balance. To ensure the accuracy of perpetual inventory r ecords, physical verification of stores is made by a program of continuous stoc ta ing. It is possible that the balance of stoc shown in system may differ fro m the actual balance of stoc as ascertained by physical verification. METHOD OF ISSUE OF SPARE FIFO LIFO 1) FIFO Under this method material is first issued from the earliest consignment on hand and priced at the cost at which that consignment was placed in the stor es. In other wards materials received first are issue first. This method is most suitable in times of falling prices because the issue price of material to jobs or wor s order will be high while the cost of replacement of material will be low. But in case of rising prices this method is not suitable because the issue price of material to production will be low while the cost of replacement of material will be high. 2) LIFO -- as against the first in first out method the issues under this method are priced in the reverse order of purchase that is the price of the latest ava

ilable consignment is ta en. this method is sometimes now as the replacement co st method because material are issued at current cost to jobs or wor orders exc ept when purchase were made long ago. This method is suitable in times of rising prices because material will be issue d from the latest consignment at a price which is closely related to the current price levels. Replenishment system in this system, ordering quantity is not fixed but goes on changing at every time of order. There is a fixed ordering time when stoc are r eviewed and level orders are placed for a varying quantity which is equal to the maximum level minus stoc in hand on the fixed date of review. In this system, maximum stoc level is fixed beyond which the stoc is not expected to exceed. T his system is useful where there are fluctuations in the pattern of consumption, where as fixed order quantity system is useful when there is stability in the p attern of consumption. SPGS (07-08) MONTHS OPENING APR (07-08) MAY 221.53 JUN 225 JULY 226.97 AUG 228.55 SEP 242.75 OCT 250.08 NOV 252.99 DEC 258.53 JAN 262.43 FEB 273 MAR 268.92 TOTAL STOCK 217.26 35 33.74 37.89 37.67 30.08 33.07 28.87 30.45 40.95 30 28.37 403.82 VALUE RECEIPT 37.73 31.53 31.77 36.31 23.47 22.75 30.16 23.33 26.55 30.38 34.08 36.1 359.89 ARE IN CRORES CONSUMPTION CLOSING STOCK 33.46 221.53 225 226.97 228.55 242.75 250.08 252.99 258.53 262.43 273 268.92 261.19

Spare and general store item Here the table shows that average consumption of sp are around 30 crores and receipt is around 34 crores. The company have to contin uously review various analysis to control its spares. The company have to do phy sical verification once in a quarter. PRCM(07-08) MONTHS OPENING APR (07-08) MAY 164.4 JUN 154.7 JULY 162.63 AUG 148.26 SEP 148.49 OCT 145.67 NOV 151.85 DEC 166.67 JAN 184.48 FEB 212.61 MAR 222.37 TOTAL STOCK 180.48 76.03 83.74 63.33 71.95 67.1 85.05 71.85 91.07 81.79 80.63 69.22 895.71 RECEIPT 53.95 85.73 75.81 77.7 71.72 69.92 78.87 57.03 73.26 53.66 70.87 91.59 876.19 CONSUMPTION 70.03 164.4 154.7 162.63 148.26 148.49 145.67 151.85 166.67 184.48 212.61 222.37 200 VALUES ARE IN CRORES CLOSING STOCK

Production and consumable the average receipt is around 75 crores material and w here as average consumption of material is around 73 crores. But there closing s toc is 200 crores which mean there is huge bloc of material. So management has to put close loo on these materials and try to overcome it. As average consumption is around 73 crores that means they have 2.5 months stoc which means either they have more bloc age of material or some material they h ave to eep its stoc for safety. PROJECT (07-08) MONTHS OPENING APR (07-08) MAY 45.94 JUN 43.64 JULY 43.23 AUG 56.82 SEP 58.62 OCT 47.47 NOV 44.75 DEC 46.19 JAN 45.38 FEB 42.22 MAR 39.87 TOTAL STOCK 41.53 19.02 10.41 16.61 7.58 12.37 17.19 65.48 15.26 5 2.61 13.06 200.99 RECEIPT 16.4 21.32 10.82 3.02 5.78 23.52 19.91 64.04 16.07 8.16 4.96 16.2 205.79 CONSUMPTION 11.99 45.94 43.64 43.23 56.82 58.62 47.47 44.75 46.19 45.38 42.22 39.87 36.73 VALUES ARE IN CRORES CLOSING STOCK

Project interpretation They have good procurement strategy they purchase as and when it is require. But they have continuously maintained 40 crores CAPEX item s o either they maintain it or else some items are their which is not movable so t hat lead to bloc ing of worth. SPGS (08-09) MONTHS OPENING APR 08-09 MAY 277.43 JUN 270.12 JULY 270.05 AUG 269.73 SEP 270.86 OCT 274.13 NOV 270.51 DEC 273.58 JAN 273.81 FEB 280.75 MAR 286.35 TOTAL

STOCK 261.19 30.57 35.96 28 27.4 40.5 28.4 17.5 15.55 26.87 22.41 10.94 312.26

RECEIPT 28.16 37.88 36.03 28.32 26.27 37.23 32.02 14.43 15.32 19.93 16.81 19.88 296.04

VALUES ARE IN CRORES CONSUMPTION CLOSING STOCK 11.92 277.43 270.12 270.05 269.73 270.86 274.13 270.51 273.58 273.81 280.75 286.35 264.98

Spare and general store item interpretation -- Here the table shows that average consumption of spare around 25 crores and receipt is around 26 crores. The rece ipt and consumption is decrease from last year even closing stoc is increase .T he company have to continuously review various analysis to control its spares. T he company have to do physical verification once in a quarter. PRCM (08-09) VALUES ARE IN MONTHS OPENING APR 08-09 MAY 227.17 JUN 279.95 JULY 289.68 AUG 276.98 SEP 269.31 OCT 264.89 NOV 251.56 DEC 276.77 JAN 245.65 FEB 220.74 MAR 205.06 TOTAL CRORES STOCK 200 151.1 89.77 76.22 81.52 89.96 77.76 95.38 37.63 73.78 54.09 36.04 977.58 RECEIPT 114.33 98.32 80.04 88.92 89.19 94.38 91.09 70.17 68.75 98.69 69.77 78.16 1014.64 CONSUMPTION CLOSING STOCK 87.16 227.17 279.95 289.68 276.98 269.31 264.89 251.56 276.77 245.65 220.74 205.06 162.94

Production and consumable interpretation the average receipt is around 81 crores material and where as average consumption of material is around 85 crores. But there closing stoc is 162.94 crores which mean still there is huge bloc of mat erial. Companies last year closing stoc is 200 crores but this year it is reduce which is good sign for company and they are try to reduce it . PROJECT (08-09) VALUES ARE MONTHS OPENING APR 08-09 MAY 39.1 JUN 43.71 JULY 47.49 AUG 55.17 SEP 78.31 OCT 78.22 NOV 56.54 DEC 58.69 JAN 59.43 FEB 59.1 MAR 64.02 TOTAL IN CRORES STOCK RECEIPT 38.7 3.39 9.62 5.01 11.22 7.44 20.51 12.83 30.59 7.45 11.03 11.12 76.74 98.42 12.88 10.73 3.37 2.63 3.36 3.69 9.56 4.64 5.96 6.3 198.23 173.25 CONSUMPTION 2.99 39.1 43.71 47.49 55.17 78.31 78.22 56.54 58.69 59.43 59.1 64.02 55.53 CLOSING STOCK

Project interpretation In this year stoc is increase as compare to last year. C APEX items are order as and when it is require and it is over once when it is co nsume so management have to find out the reason why CAPEX item stoc is increasi ng. It is good that they have good purchasing strategy and they can available th

e material when it is require then why there is a need of eep such huge stoc .

RECEIVABLES MANAGEMENT DEBTORS -- It is used to define as debt owed to the firm by customers arising fr om sale of goods and services in the ordinary course of business. A firm grants trade credit to maintain its sales from the hands of the competitors and at the same time to attract the potential customers to purchase its products at favorab le terms. Trade credit arises only when the firm sells its products to the custo mers but does not receive cash immediately. Debtors are created out of trade cre dit and which are collected in future. RECEIVABLES MANAGEMENT -- It refers to the decisions a business ma es regard ing its overall credit and collection policies and the evaluation of the individ ual credit applicants. It is both an asset and problem for the firm. It is an as set because it is the promise of a future cash flow and a problem because of the need to obtain financing while waiting for the future cash flow. Marginal benefits and costs associated with changes in credit standards, credit terms, collection period are analyzed to formulate an optional credit policy. CREDIT SALES -- Credit sale is sells of goods or services without immediate cash . The amount is realized in future according to the deal. Credit sale has three characteristics as: 1) It involves an element of ris as in credit sales, payment is yet to be recei ved. 2) It is based on economic value i.e. to the buyer the economic value in goods or services passes immediately at the time of the sale but the seller expects a n equivalent value to be received later on. 3) It implies futurity i.e. the buyer will pay the amount in future. Credit sales as a mar eting tool Firms use credit sale as a mar eting tool. Basically firms do credit sale to cre ate a good mar et share. Through credit sale they retain their old customers bes ide that they also attract new customers with good credit policy. In some case firms give credit due to relationship with dealers and traders. And sometimes due to cut throat competition in mar et a firm is forced to carry on a good credit policy. Sales pattern in Essar steel 1) Letter of credit. 2) Ban guarantee. 3) Credit sales. 4) Advance sales.

1) Letter of credit -- A Letter of Credit is a payment term generally used for s ales transactions. It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a ban (or more tha n one ban ) gets involved. The technical term for Letter of credit is Documenta ry Credit . At the very outset one must understand is that Letters of credit dea l in documents, not goods. The idea in an international trade transaction is to shift the ris . Thus a L/C (as it is commonly referred to) is a payment underta ing given by a ban to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary. The Ban that issu es the L/C is referred to as the Issuing Ban which is generally in the country of the Buyer. The Ban that Advises the L/C to the Seller is called the Advising Ban which is generally in the country of the Seller. The specified ban ma es the payment upon the successful presentation of the req uired documents by the seller within the specified time frame. How Does the Letter of Credit Process Wor ? The seller ( nown in the Letter of Credit as the "Beneficiary") advises the buye r ( nown in the Letter of Credit as the "Applicant") that the purchase order is acceptable. The Beneficiary also sends the Applicant a copy of their "Letter of Credit Guidelines" to ensure that the credit is opened properly and will not req uire any costly amendments. A Letter of Credit Application is completed by the Applicant and is submitted to their Ban (a a, the Opening Ban ). The Letter of Credit is issued and sent by the Opening Ban to an Advising Ban in the country of the Beneficiary. The main role of an advising ban is to chec the authenticity of the Letter of Credit before it is advised to the Beneficiar y. The Advising Ban then sends a copy of the Letter of Credit to the Beneficiary, either electronically, by fax, or by mail. The Beneficiary must now carefully review the requirements of the Letter of Cred it to ensure it has been issued per the agreed terms. The Beneficiary should ma e sure that they can comply with all stipulations, such as shipping terms, docum entary requirements, shipping and/or expiration dates and pac ing and mar ing co nditions. If the Letter of Credit has terms that are not per the agreement, the Beneficiar y should request an amendment to the Letter of Credit. This request is made dire ctly to the Applicant, who then instructs the Opening Ban to amend the Letter o f Credit. Once the Letter of Credit is in order and the shipment is ready for export, the Beneficiary ships the goods to the freight forwarder. The seller (or third party, such as L/C Solutions) can now begin preparation of documentation required under the Letter of Credit terms. After goods have shipped, the transport document is acquired by the Beneficiary (or L/C Solutions), is chec ed for accuracy, matched up with other created docum entation, and presented to the Negotiating Ban . (The Negotiating Ban may or ma y not be the same as the Advising Ban , depending on the requirements of the Let ter of Credit and the wishes of the Beneficiary.) The Negotiating Ban chec s over the documentation and advises any problems they may find with the paperwor . They then either issue payment to the Beneficiary, or forward the documents to the Opening Ban for payment, depending on the term s of the Letter of Credit. 2) Ban guarantee -- A guarantee from a lending institution ensuring that the li abilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the ban will cover it. Parties to the contract of guarantee 1) Applicant the principal debtor-person at whose request the guarantee is being executed.

2) The beneficiary person to whom the guarantee is being given and who can enfor ce it. 3) the guarantor the person who underta es to discharge the obligation of the ap plicant in case of his default. Necessity for ban guarantee (B.G) Applicant (A) and beneficiary (B) have a business contract. This is the primary contract. B can as for a monetary deposit as a cover. A is not willing to bloc his money. So, A approaches his ban with a request to issue a B.G in favor of B. Thus arises, the need for a ban guarantee. 3) Credit sales -- Sales made to customers during the current period for which c ash was not received at the time of sales. 4) Advance sales advance sales means payment is received either whole or part of it before the sale occurs. Debtors Turnover Ratio: Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. Ne t credit sales Debtors turnover ratio = --------------------------------------------Average acc ount receivables Where Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtor s and B/R]/2 Credit Sales = Total Sales Cash Sales Objective and Significance: This ratio indicates the efficiency of the concern t o collect the amount due from debtors. It determines the efficiency with which t he trade debtors are managed. Higher the ratio, better it is as it proves that t he debts are being collected very quic ly. Debtors turnover ratio indicates the n umber of times the debtors are turned over a year. The higher the value of debto rs turnover the more efficient is the management of debtors or more liquid the de btors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. 06-07 07-08 Net credit sales = 8194.35 10743.32 Average accounts receivables = 543.50 453.62 8194.35 10743.32 Debtors turnover ratio (06-07) = ------------- = 15.077 (07-08) = --------------- = 23.68 543.50 453 .62 Debtors turnover ratio analysis Debtors turnover ratio for the year 07-08 is more than 06-07 which is good sign for company. For the year 07-08 the debtors are ef ficiently manage as compare to 06-07. As increase in ratio shows that debtors ar e more liquid. Even we can say that liquidity of the debtors is increase. f) Debt Collection Period: Debt collection period is the period over which the d ebtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors. 365 days Debt collection period = --------------------------------Debtors turnover rat io Objective and Significance: This ratio measures the quality of debtors. This rat io indicates how quic ly and efficiently the debts are collected. The shorter th e period the better it is and longer the period more the chances of bad debts. A

lthough no standard period is prescribed anywhere, it depends on the nature of t he industry. 06-07 07-08 Debtors turnover ratio = 15.077 23.68 365 365 Debt collection period (06-07) = ----------- = 24 days (07-08) = ---------- = 16days 15.077 23.68 Debt collection period analysis debt collection period for the year 07-08 is les s as compare to 06-07. This is quite good for the company. Company efficiency is increase in collecting the debts. A short collection period implies prompt paym ent by debtors. As per the ratio the no. of days is reduce by 8 days. Suggestion for improvement the company has to sale the goods to those debtors wh o are ma ing the payment very frequently. Procedure in Essar steel 1) LETTER OF CREDIT significant portion of sales, both domestic as well as expo rts for Essar steel are through the letter of credit route. Letter of credit are forwarded by sales directly to the SSC for validation and acceptance, for the m aterial to be dispatch post confirmation by SSC, L/Cs are updated in first , ther eby allowing logistics to create delivery order for dispatch of goods. 2) CREDIT SALES (ban guarantee & premium customer) credit sales is made to cust omer under ban guarantee and to premium customers without any guarantee. 3) BOE GENERATION PROCESS FLOW bill of exchange is generated in case an invoice is to discounted. BOE is prepared using an in-house SAP program. Debit note rais ed for the interest details mentioned in L/C is also mentioned in this sub-proce ss. 4) BOE DISCOUNTING PROCESS FLOW As per current policy in Essar steel, all the le tter of credit are discounted. In case of non L/C invoices, decision for bill di scounting is ta en on a case to case basis. BOE is generated in case an invoice is to be discounted. Once a BOE is generated the same along with supporting docu ments are forwarded by the SSC to the ban for discounting. In case of BOE is ag ainst acceptance, documents are forwarded to the ban post acceptance by the cus tomer. If on the due date, customer defaults in ma ing payment to the ban , ban intimates the SSC & the amount in default is recovered. 5) CASH SALES THROUGH RTGS sale department will intimate SSC about the amount re ceived from customer through RTGS. SSC verifies the amount received with the onl ine statement and accounts for the same in customers account. Receipt of payment is simultaneously confirmed bac to sales. Basis the confirmation received, act ivities for dispatch will be initiated. 6) CASH SALES THROUGH CHEQUE in case the payment through cheque, sales departmen t send daily MIS giving detail of the cheques ban ed during the day to SSC. SSC reconciles the daily collections with CMP (cash management product) report from the ban and intimates sales about deficiencies, if any. Accounting for cheques happens on the basis of cheques deposit date, except in case of customers with previous cheque bounce record. For such doubtful customers accounting happens on realization of the cheque. 7) Sale return sales department will initiate the return process and SSC will re lease the R.O in SAP subsequent to verification of supporting documents. Final s ettlement with customer whether by way of payment or on account adjustment is al so performed by SSC. 8) Quarterly provision for credit note it is to record provision for those mou(s ) where the condition are almost fulfilled but not completely fulfilled, on a qu arterly basis a reminder is forwarded to sales to forwarded the details to those mou(s) along with the caL/Culation for which provision is required to be provid ed in the boo s. Basis the information received from the sales a quarterly provi sion is created at the quarter end and the same is reversed at the beginning of the next quarter. 9) Debit credit note process debit/credit notes are raised subsequently to sale for price increase on the goods sold, for discount on sale or on account of sale s return and any other cause that result in increase in the financial liability

or benefit to the parties to the contract. Sales will initiate the credit/debit note, SSC will release the same in SAP ensuring adequate approval was obtained. Further subsequent settlement of amount is also done by SSC. 10) Supplementary invoices supplementary invoices are prepared if the additional price to be recovered involves excise duty. Supplementary invoices are raised i n case of excise duty charged to customer was at lower rate, or it can be as a r esult of review of existing rate of excise duty. 11) Exposure monitoring it is use to change in the credit limit for a particular customer and transferring of the credit limit between units of the same custome r. At present, for customers having multiple locations, different codes and credit limit are being maintained in SAP and therefore the need for this process. This sub process elaborates the activities involved in transferring credit limit from one location to another location for the same customer. Customer operating from multiple locations is provided with a blan et credit limit. The blan et cr edit limit is divided into different locations. Many a times it is observed that , for some location there is some unutilized credit limit and for some location the credit limit is exhausted to utilized the unused. Payables management 1) Invoice Processing & Posting PO Based Domestic including Capex The invoices relating to purchase of raw materials, production consumables, stor es & spares and for all other purchases (Including capex items) are received at respective units. The physical receipt of goods also ta es place at respective u nit/warehouse. GRN (Goods Received Note) is prepared at Unit level by the stores . All invoices relating to purchase of raw materials, production consumables, stor es & spares and for all other purchases (Including capex items) are scanned at n ominated location and are electronically forwarded to SSC through a wor flow. Th e scanned invoices are processed at SSC to facilitate accounting and payment. A 3-way match/ 2-way match, as applicable of PO, GRN and Invoice is carried out for all invoices relating to purchase of raw materials, production consumables, stores & spares and for all other purchases (Including capex items). 2) Invoice processing & posting Non PO Based Non PO invoices are generally received for payment for services and non producti on items. Non PO invoice is received by the respective user department who avail ed the service / goods. The user department has to ensure that the company polic y permits procuring such goods/services without a PO. Respective User department approves the Invoice and forwards to nominated location for scanning. Scanned I nvoices are electronically forwarded to SSC through a wor flow to facilitate acc ounting and payment. The Shared Service will chec for the necessary certificati ons from the user department, and supporting from vendor as proof of goods deliv ered or service rendered before processing the invoice. .3) Invoice processing & posting Imports without CHA On arrival of goods at the port the customs department prepares a bill of entry on the basis of advance documents received from supplier. Procurement team auth orizes the BOE & advance documents received and forwards to nominated location f or scanning. Scanned documents are electronically forwarded to SSC through a wor flow to facilitate accounting and payment. SSC prepares & process the delivery cost invoice on basis of these documents to facilitate the payment of custom dut y, port charges, etc.

This document details the flow of transactions involved in receiving the advance documents from supplier / BOE from customs, scanning of advance documents / BOE to SSC, verification of required information by SSC, preparation & posting of d elivery cost invoices to facilitate payments. Starting point of this sub process is receipt of Advance documents from supplier and the end point is posting of d elivery cost invoice in SAP. 4) Invoice processing & posting Imports through CHA (clearing house agent) On arrival of goods at the Port, CHA sends an import chec list to local accounts . Local accounts validates chec list and forwards to nominated location for scan ning. Scanned documents are electronically forwarded to SSC through a wor flow t o facilitate processing of delivery cost invoice. Subsequently, customs department prepares a bill of entry on the basis of advanc e documents received from supplier. Procurement team authorizes the BOE & advan ce documents received and forwards to nominated location for scanning. Scanned d ocuments are electronically forwarded to SSC through a wor flow to facilitate ac counting and payment. 5) Debit Notes & Credit Notes This document details the flow of transactions involved in periodic and transact ional processing of debit notes / credit notes with respect to their preparation , approval and posting. Periodical processing of debit notes/ credit notes will be done by SSC as per ag reed base data available in SAP and defined methodology. The statement will be p repared by SSC and approved by local unit before issuing and accounting debit no tes / credit notes. In case of debit notes / credit notes based on certain event or transaction, statement will be prepared and approved by local unit and sent to SSC for issuance and accounting. 6) Employee Expense Reimbursement The document covers two variants for this process. One variant shows steps invol ved where the expense statement is submitted and processed manually. The second variant shows steps where the employee fills up expense statement in the online system which is integrated with the SAP travel management module. This document does not cover the process of travel planning whereby the employee enters reques ts for boo ing of tic ets and advance. 7) Balance Confirmation & Vendor Account Reconciliation This document details the flow of transactions involved in extracting the vendor balances, follow with vendor and reconciling of differences. Starting point of the sub process is extraction of vendor balances and end on reconciling the diff erence, if any, found during balance confirmation. 8) Month End Activities This document details the flow of transactions involved in generating GR/IR list , Open PO list, Invoices pending processing, follow with vendor / local accounts department for their resolution and processing of pending invoices. Starting po int in the sub process is generation of Open GR/IR, PO & Outstanding Invoice rep ort and the end point is clearance of each line item by processing of invoice / cancellation in SAP. 9) Advance processing for vendor

This document details the flow of transactions involved in receiving down paymen t request, processing of the same by SSC for payment & removal of DPR posting bl oc in SAP to facilitate payment. Starting point in the sub process is receipt o f down payment request and end point is removal of DPR posting bloc in SAP. 10) Vendor Ageing & Write-bac This document details the flow of transactions involved in generation of vendor ageing report, ageing analysis, approval for write bac & processing write bac in SAP. Starting point in the sub process is generation of vendor ageing report and end point is processing write bac in SAP.

LIMITATIONS 1) Since the procedure and policies of the company will not allow disclosin g confidential financial information, the project has to be completed with the a vailable data given to us. 2) There was no scope for providing information about the current financial

year (08-09) as the financial statements for the current year were not released by the time, the project was completed. 3) The study is carried basing on the information and documents provided by the organization and based on the interaction with the various employees of the respective departments. 4) The period of study of 8wee s is not enough to conduct depth study.

BOOKS JAIN AND NARANG (COST ACCOUNTING) I.M.PANDEY (FINANCIAL MANAGEMENT) JAIN AND NARANG (FINANCIAL ACCOUNTING) REPORTS ESSAR STEEL JINDAL STEEL TATA STEEL WEB SITES

BIBLIOGRAPHY

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