FINANCIAL ACCOUNTING AND MANAGEMENT

TERM PROJECT

JSW STEEL LTD.

The Company And Its Acti ities! JSW Group is one of India's largest business conglomerates !it" a strong presence in t"e core economic sector based in Mumbai# It "as di$ersified interests in steel energ% minerals and mining aluminum infrastructure and logistics cement and information tec"nolog%#&'( It is led b% Sa))an Jindal and part of t"e *S + ,- billion O# P# Jindal

Group#&.( JSW Steel /td JSW Energ% JSW Infrastructure Ispat industries /td are subsidiaries of JSW Group# JSW Steel is India0s leading integrated steel producer !it" a capacit% of ,1#. MTP2# T"e Group is also leading from t"e front in e$er% sector t"at it operates in# 3% maintaining e4emplar% operational efficiencies JSW Energ% "as gro!n ten5fold in )ust t"ree %ears !"ile JSW Cement creates t"e building bloc6s of India !it" its en$ironment friendl% product# JSW Infrastructure is contributing to t"e nation0s de$elopment b% pro$iding !orld class ser$ices to clients t"roug" state5of5t"e5art ports terminals s"ip%ards and ot"er facilities# JSW 7oldings is t"e in$estment arm of t"e group !"ic" !as incorporated in '88, as a public limited compan%# Main business acti$ities include In$estment in s"ares stoc6s or ot"er securities in India and abroad and Management Consultanc% Ser$ices# JSoft Solutions is a diligent IT Solution 9 Ser$ice pro$ider for t"e core sector# Total Solutions from single source JSoft Solutions is a single point source of end5to end IT solutions for t"e core sector# A Synopsis o" The Di#ecto#$s %epo#t

Financia& hi'h&i'hts (. Standa&one #es)&ts* T"e compan% "as made a production of :#-' million tonnes of steel in t"e financial %ear '8,'5'8,.# It is an almost ,-; increase from last %ear0s <#1'= million tonnes# Its sales figure also increased from .'8>8#1< crores to .-.:<#>. crores up b% ,8#.<; from last %ear# T"is "as been as t"e result of optimum utili?ation of resources and introduction of $arious tec"ni@ues to impro$e production at a larger scale# Initiati$es as regards to logistics infrastructure and an en"anced product portfolio "elped in ac"ie$ing an impro$ed production capacit%# T"ere "as been an increase in re$enue from operations# Pre$ious %ear0s $alue stood at .','. crores !"ereas t"is %ear it is .-1=' crores t"ereb% depicting an increase of ,,; from last %ear# T"e Profit 3efore Ta4 of t"e firm also increased considerabl% b% ,=#-; from '8=- crores to '-81 crores# T"is is due to t"e significant $olatilit% of t"e rupee against t"e dollar in t"e global econom%# T"e Profit 2fter Ta4 after considering e4ceptional items also s"o!ed a considerable increase of ,8#:; from ,>'> crores to ,:8, crores# +. Di idend* Wit" t"e appro$al of t"e Members in t"e ensuing 2nnual General meeting t"e 3oard of Airectors "as recommended di$idend of Re# , per ,8; cumulati$e preference s"are of rs# ,8 eac"# T"e 3oard "as also recommended e@uit% s"are di$idend of Rs# ,8 per full% paid up e@uit% s"are# T"e pa%ment of e@uit% di$idend "as one up b% ..#..; from last %ear#

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,. -#ospects* Indian econom% is facing one of t"e most c"allenging p"ases of gro!t" and de$elopment# T"e global economic turmoil coupled !it" "ig" inflation rates R3I0s rigid monetar% policies "ig" interest rates lo! industrial production and depreciation of t"e Indian Rupee against t"e dollar "a$e resulted in unresponsi$e economic gro!t"# T"e econom% !"ic" !as supposed to gro! at <#>; is gro!ing no! at onl% -;# T"e Bree Trade 2greement of India !it" Corea and Japan is also anot"er ma)or "urdle t"at t"e industr% "as to cross# T"e follo!ing %ear can bring opportunities for gro!t" and de$elopment in all t"e sectors of t"e econom%# Wit" eas% monetar% policies decrease in current account deficits and impro$ement in fiscal stabilit% t"e steel industr% is sure to get a boost# 1# C#edit #atin'* Dour compan%0s credit rating for long term debtEfacilities is 22 b% Credit 2nal%sis and Researc" Centre FC2REG# In s"ort term debtEfacilities it is at t"e "ig"est position of 2,H# 2n 22 in long term debtEfacilities means t"at %our compan% "as a "ig" degree of safet% regarding timel% ser$icing of long term debts and borro!ings and "as minimum credit ris6# On t"e ot"er "and for s"ort term debt debtEfacilities an 2,H indicates $er% strong degree of safet% as regards to financial claims ser$icing and lo!est credit ris6# .. Fi/ed Deposits* Dour compan% "as not accepted an% fi4ed deposit from t"e public during t"e %ear '8,'5 '8,. and is t"erefore not re@uired to di$ulge an% information regarding outstanding deposits under Ion5financial Companies FReser$e 3an6G Airections ,==> and Companies F2cceptance of AepositsG Rules ,=<-# 0# Sha#e Capita&* T"e s"are capital of %our compan% "as remained unc"anged from '8,,5,'# 2t t"e end of t"e financial %ear '8,'5'8,. t"e s"are capital comprises of ''.,,<'88 s"ares of Rs# ,8 eac" $aluing Rs# ' '. ,, <' 888# Mana'ement disc)ssion and Ana&ysis

(. JSW STEEL! An O e# ie1 JSW steel is t"e flags"ip of t"e *SA ,, billion JSW group# It is one of t"e lo!est5cost steel producers of t"e !orld# JSW steel "as been able to capitali?e on its resources b% introducing a di$ersified product portfolio !"ic" consists of5 aG 7ot rolled coils s"eets and plates bG Gal$ani?ed products .

cG dG eG fG gG "G iG

Gal$alume products Cold rolled coils and s"eets TMT bars Pre5painted Gal$alume products Wire rods and special steel bars Rounds and blooms Pre5painted Gal$anised products

It "as its manufacturing units in different states of India# aG Ji)a%anagar Carnata6a bG Salem Tamil Iadu cG Jasind Ma"aras"tra dG Tarapur Ma"aras"tra +. G&o2a& Economy* T"e global econom% continues to face uncertainties due to negligible gro!t" in de$eloped countries and lo! gro!t" rates in de$eloping countries# IMB reported t"at global GAP e4panded at .#'; in '8,' and global inflation !as .#=; in '8,'# T"e Euro?one crisis "as led to unstable conditions in $arious parts of Europe# Japan is still in t"e reco$ering p"ase after getting "it b% a tsunami# Economic gro!t" in ma)or de$eloping countries li6e India Sout" Corea C"ina and 3ra?il slo!ed do!n as a result of global do!nturn# ,. Indian economy* 7ig" inflation rates e4panding current account deficit capital accumulation in pro)ects "ad "armed t"e Indian econom% b% pulling do!n t"e gro!t" rate at -; onl%# T"e Prime Minister0s Economic 2d$isor% Council "as 6ept no stones unturned in implementing reformati$e measures and broug"t BAI in retail# T"e impro$ed monsoons !ill also support t"e economic prospects# 3. G&o2a& Stee& Ind)st#y* T"e global steel industr% sa! a reduction in demand of steel products b% ,#'; during '8,' due to European debt crisis and global financial crisis# Wit" an impro$ement in global econom% t"e consumption of steel products is e4pected to gro! b% '#=;# T"e main concerns of t"e steel industr% "a$e al!a%s been o$ercapacit% and producing more t"an t"e mar6et can absorb# Emerging mar6ets are ta6ing t"e steel industr% b% storm# T"e% are impro$ing infrastructure and dri$ing gro!t"# .. O)t&oo4* ..(. G&o2a& economy*

T"e International Monetar% Bund pro)ects a global economic reco$er% b% '8,. from .#'; to .#.; of !orld GAP# Wit" increase in e4ports production and consumption C"ina !ill remain to be a leading po!er !it" gro!t" rate at :;# T"e steel industr% is slated to gro! moderatel% !it" lo!er in$entor% le$els# T"e ra! materials cost !ill be less $olatile compared to '8,'# ..+. Indian economy* T"e Indian steel industr% is proposed to gro! at moderate rates due to increase in construction and restructuring of infrastructure# T"e use of steel for construction !ill gi$e a stead% boost to t"e industr% t"at "as a lot of potential for de$elopment# T"e Indian steel industr% is supposed to ac"ie$e a gro!t" rate of -#=; b% '8,1 as proposed b% World Steel 2ssociation# 0. -&ant Ope#ations* T"e plant at Ji)a%anagar is t"e first Indian plant to use lo! grade iron ore beneficiation in a large scale# T"e compan% produces =' MTP2 of pellets at Ji)a%anagar# T"e plant at Salem produces "ig" grade long steel for use in automobiles and po!er sectors# It "as t"e capacit% of producing , MTP2# T"e plant at Tarapur produces colour coating steel products# It "as t"e capacit% to produce 8#'<> MTP2# T"e plant at Jasind produces 8#,MTP2 of CC/, and 8#8<- MTP2 of CC/'# 5. %esea#ch and De e&opment and Inno ation* Dour compan% "as in$ested "ea$il% in !aste management and rec%cling of materials# It "as de$eloped ne! processes b% !"ic" !aste materials li6e coal files mills scale and ot"er iron bearing !astes b% aggregating t"ese materials into bri@uettes# It "as also reac"ed out to academic institutions li6e IIT 3omba% IIT Madras IM/ Jams"edpur and IRC2B for collaboration for researc"# 6. Mate#ia& -#oc)#ement7 8and&in' and Lo'istics* Procurement of ra! materials is of utmost importance# T"e speed timeliness and @uantit% of material recei$ed is t"e basis of decision ma6ing for man% managerial problems# Gi$en belo! is a c"art depicting t"e @uantit% of ra! material t"at is recei$ed b% rail and road !a%s# In!ard mo$ement of iron ore limestone dolomite and coal is carried out in ra6es# Tota& #a1 mate#ia& #ecei ed 3% rail 3% road <. Ene#'y Mana'ement* -e#centa'e 9:; <: ''

T"e process of energ% management consists of collection and rec%cling of "ot air and processing of gases in order to reduce t"e impact on fossil fuel consumption# JSW "as a number of pro)ects to manage energ%# Some of t"em are5 Gas Management Steam Management Buel Management Special Gas Management and 7ot 2ir Management# (=. Ma#4etin'* JSW steel follo!ed a robust mar6eting polic% in order to beat competition# It focused on retail management t"roug" one5of5a56ind distribution c"annel# It also recei$ed ma)or pro)ect appro$als from clients# It e4plored foreign mar6ets especiall% t"e Middle East 2frica 2merica and 2sia# ((# %is4 Mana'ement* T"e ris6s and uncertainties associated !it" t"is industr% is measured on t"e basis of impact5 !"et"er "ig" lo! or medium# Dour compan% uses t"e Enterprise Ris6 Management s%stem frame!or6# Ris6 management ensures timel% and prudent decisions to con$ert ris6s to opportunities minimi?e t"e negati$e effects of ris6 and ma4imi?e t"e positi$e conse@uence of suc" ris6# ((. 8)man %eso)#ce* JSW $alues its emplo%ees as t"e most important resource of t"e compan%# E$er% %ear a ne! pool of talent is recruited into t"e compan% t"ereb% infusing a sense of fres" ideas# Talent retention is also practiced in order to "a$e a balance of e4perienced resource !it" fres" resource# Proper training and $ocational courses are offered to t"e emplo%ees on a regular basis# T"e compan% also stri$es to ac"ie$e K?ero "arm in)uriesL goal# (+. In"o#mation Techno&o'y* 2ligning its acti$ities !it" t"e mar6et demand JSW "as a robust information Tec"nolog% unit at pla%# Its use of MIS reports S2P based processes standardi?ed data management and centrali?ed process repositor% "as "elped it to function smoot"l% b% centrali?ing !or6 approac"# /ab Information Management S%stem !ill be integrated at all locations "encefort"# (.. Inte#na& Cont#o& System and A)dit* 2 big compan% al!a%s needs to maintain papers and documents in order to maintain an efficient control s%stem and assist in s!ift preparation of accounts# Compliance !it" rules appro$al from aut"orities regulation of standards and internal procedures are follo!ed strictl%# %atio Ana&ysis! The "o&&o1in' cha#t depicts the a&)es o" a&& the #atios#

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Serial no. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Ratio Return on asset Return on capital invested Return on net worth Total asset turnover ratio !nvested capital turnover ratio "vera#e collection period !nventor$ turnover ratio %or&in# captal turnover ratio )a$*s inventor$ +urrent ratio "cid test ratio )e,t-e.uit$ ratio )e,t to total invested capital !nterest covera#e ratio /arnin# per share +ash realisation )ividend pa$out ratio 0ross pro1it ratio 2peratin# pro1it ratio 3et pro1it ratio

2012-13 7.11% 4.61% 8.89% 0.715 ti es 0.9 ti es 19.15 da$s 5.84 ti es '28.67( ti es 65.41 da$s 0.92 0.6 0.96 0.49 2.45 79.28 2.18 13.94% 21% 12.22% 5.07%

2011-12 5.85% 4.90% 8.64% 0.668 ti es 0.96 ti es 14.6 da$s 4.90 ti es '9.71( ti es 77.33 da$s 0.8 0.5 0.8 0.44 2.76 71.42 1.31 12% 20.94% 12.21% 5.06%

Ca&c)&ation o" %atios! In estment %atios %et)#n on Asset 9%OA; ! Return on asset is calculated to 6no! "o! t"e manager is using t"e assets in order to generate profits for t"e compan%# It is calculated b%5 RO2M profit after ta4H InterestH 3an6 c"argesE Total assets5Capital !or65in5progress T"e compan% made a significant increase in its managerial efficienc% from -#:-; to <#,,;# T"is is due to its increase in profit after ta4# %et)#n on In ested Capita& 9%OIC; > Return on in$ested capital is a measure of t"e long term loan ser$icing of t"e compan%# It is calculated b%5 ROICM P2TEFS"are"older0s fundH long term liabilitiesG T"e compan% "ad a decreasing ROIC# It indicates t"at t"e long term debt ser$icing of t"e compan% "as deteriorated# T"is is because of t"e increase in long term borro!ings of t"e compan% for e4pansion purposes# %et)#n on Net 1o#th 9%ONWG 5 Return on net !ort" is a measure of t"e return on t"e s"are"older0s fund after deducting preference s"are di$idend from P2T# It is calculated b%5 ROIWM FP2T5 preference s"are di$idendGE Iet Wort" T"e return on net !ort" increased from :#>1; to :#:=;# T"is "appened as a result of t"e increase in profit after ta4# T"is means t"at t"e return t"e mone% in$ested b% s"are"olders generated !as more t"an it !as pre$ious accounting %ear#

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Acti ity o# T)#no e# #atios Tota& Asset T)#no e# #atio! T"is ratio depicts "o! muc" t"e assets of t"e compan% "a$e been utili?ed to generate re$enues for t"e firm# It is calculated b%5 Total asset turno$er ratioM Re$enue FIet of Returns 9 E4ciseGE FTotal 2ssets5 capital WIPG T"e turno$er ratio "as increased from 8#>>: times to 8#<,- times# T"is s"o!s an efficient utili?ation of resources from pre$ious %ear# In ested Capita& T)#no e# %atio! T"is ratio gi$es an idea of "o! efficientl% t"e capital is being utili?ed to generate re$enue for t"e %ear# T"is is calculated b%5 In$ested Capital Turno$er ratio M Re$enue FIet of Returns and E4ciseGE S"are"older0s fundH /ong term /iabilitiesG T"is ratio "as decreased considerabl% due to t"e inefficient use of long term funds b% t"e production management personnel# A e#a'e Co&&ection -e#iod! It is t"e estimated amount of time a business ta6es to recei$e pa%ments o!ed in terms of recei$ables from its customers and clients# It is calculated b%5 2$erage Collection Period M Trade Recei$ables N.>- E Credit Sales T"e compan% "as not made serious efforts to collect pa%ments from debtors# T"is is depicted b% t"e increase in number of da%s ta6en b% t"e firm to recei$e pa%ments from debtors from ,1#> da%s to about ,= da%s no!# In ento#y T)#no e# %atio! T"is ratio s"o!s "o! man% times a compan%'s in$entor% is sold and replaced o$er a period of time# It is calculated b%5 In$entor% Turno$er RatioM Cost of goods SoldE Closing In$entor% Cost Of Goods SoldM Ra! materials consumedH C"anges in stoc6H Purc"ase of Tradable goodsH Manufacturing e4penses T"is ratio "as increased considerabl% from 1#= times to -#:1 times# T"is s"o!s t"at t"e number of times t"e in$entor% sold and replaced is better and faster t"an it !as lst accounting %ear# It also s"o!s t"at t"e compan%0s mone% is not bloc6ed as in$entor% for a long time# Wo#4in' capita& t)#no e# %atio5 It is a measurement comparing t"e depletion of !or6ing capital to t"e creation of sales o$er a gi$en time# T"is pro$ides $aluable information as to "o! effecti$el% a compan% is using its !or6ing capital to generate sales re$enue# It is calculated b%5 Wor6ing Capital Turno$er Ratio M SalesE Wor6ing Capital Wor6ing Capital M Current 2ssets O Current /iabilities T"ere "as been a serious issue of utili?ing t"e !or6ing capital of t"e compan% to generate re$enue# It "as been in negati$es since pre$ious %ear# Det t"is %ear it is "ig"er from 5=#<, times to 5':#>< times# T"ere "as been a serious lac6 of management in utili?ing !or6ing capital to generate re$enue# :

Day$s In ento#y! Aa%0s In$entor% is an efficienc% ratio t"at measures t"e a$erage number of da%s t"e compan% "olds its in$entor% before selling it# It is calculated b%5 Aa%0s In$entor% M .>- E In$entor% Turno$er Ratio T"e number of da%s t"e compan% "olds t"e in$entor% "as decreased from << da%s to >da%s# T"is is a positi$e signal t"at t"e compan%0s in$entor% is not stored in t"e !are"ouse for long t"ereb% not bloc6ing its mone% in in$entor%# Li?)idity %atios C)##ent %atio! Current ratio is t"e ratio t"at measures t"e compan%0s abilit% to pa% off s"ort time liabilities# It is calculated b%5 Current RatioM Current 2ssetsE Current /iabilities T"e compan%0s current ratio "as increased from 8#: to 8#='# T"is means t"at t"e abilit% to pa% off s"ort5time liabilities "as increased considerabl%# Acid! Test #atio! 2cid test ratio is an indicator of a compan%'s s"ort5term li@uidit%# T"is ratio measures a compan%'s abilit% to meet its s"ort5term obligations !it" its most li@uid assets# It is calculated b%5 2cid Test Ratio M Current 2ssets O FIn$entor% H Prepaid E4pensesG E Current /iabilit% T"e acid test ratio "as increased from 8#- to 8#># T"is depicts t"at t"e s"ort term li@uidit% "as increased o$er t"e period of one %ear# So& ency %atios De2t E?)ity #atio! Aebt5 E@uit% ratio is a measure of a compan%'s financial le$erage# It indicates !"at proportion of e@uit% and debt t"e compan% is using to finance its assets# It is calculated b%5 Aebt E@uit% Ratio M /ong Term /iabilities E S"are"olders Bunds T"e debt5e@uit% ratio "as increased to 8#=> from 8#:# T"is means t"at t"e s"are"olders funds "a$e been utili?ed !ell to finance its assets# T"is could mean t"at t"e compan% "as underta6en rigorous measures to le$erage compan%0s finances# De2t to Tota& In estment! It is an indicator of t"e debt t"e compan% "as in comparison to its total in$estments# It is calculated b%5 Aebt to Total In$estment Ratio M /ong Term /iabilit% E F/ong Term /iabilit% H S"are"older0s BundsG T"e debt to total in$estment ratio "as increased from 8#11 to 8#1=# T"is indicates t"at t"e debt of t"e compan% "as increased due to loans and ad$ances ta6en to underta6e e4pansion pro)ects# Inte#est Co e#a'e %atio! Interest co$erage ratio is used to determine "o! easil% a compan% can pa% interest on outstanding debt# It is calculated b%5 =

Interest Co$erage Ratio M Earnings before Interest and Ta4 E Total Interest C"arges T"e interest co$erage ratio decreased from '#<> to '#1-# T"is !as due to increase in interest c"arges !"ic" !as as a result of increase in long term liabilities ta6en# T"is also means t"at t"e efficienc% of t"e interest pa%ing capacit% of t"e firm "as reduced o$er t"e %ear# Ea#nin' -e# Sha#e! T"is is t"e earning t"at t"e s"are"olders earn o$er and abo$e t"eir in$estment in t"e compan%# It is calculated as per accounting Standard '8 of t"e 2ct# It is calculated b%5 Earning per s"areM Profit a$ailable for e@uit% s"are"oldersE total number of full% paid e@uit% s"ares T"e earning per s"are of t"e compan% "as decreased from <,#1' to <,#':# T"is is a matter of concern for t"e compan% as it diminis"es t"e in$estors trust on t"e efficienc% of t"e management of t"e compan%# Cash %ea&i@ation5 Cas" reali?ation ratio indicates close P2T is of being reali?ed in cas"# It is calculated b%5 Cas" Reali?ation Ratio5 Cas" generated b% operationsE P2T T"e cas" reali?ation ratio "as increased from ,#., to '#,:# T"is suggests t"at t"e @ualit% of earning "as become better o$er t"e %ears# T"ere is a greater probabilit% t"at t"e profit !ill be generated in cas"# Di idend -ayo)t %atio! T"is ratio means "o! !ell t"e earnings support t"e pa%ment of di$idend# It is calculated b%5 Ai$idend Pa%out ratio5 Ai$idendE Profit 2fter Ta4 T"e "ig"er t"e ratio t"e better it is for t"e compan% to attract in$estors from t"e mar6et# 7ere !e see t"at t"e ratio "as increased considerabl% from,'; to ,.#=1;# t"is is a good sign as it !ill moti$ate prospecti$e in$estors to in$est in t"e compan%0s s"ares in t"e future# -#o"ita2i&ity %atios* G#oss -#o"it %atio! Gross profit ratio is t"e ratio of gross profit to net sales e4pressed as a percentage# It e4presses t"e relations"ip bet!een gross profit and sales# Gross Profit Ratio M Gross Profit N,88 E Sales Iet of Returns and E4cise 7ere t"e ratio "as increased slig"tl% from '8#=1; to ',;# T"is s"o!s a slo! gro!t" of t"e compan% o$er t"e last t!o %ears# Net -#o"it %atio! It is a measure of profitabilit%# It is calculated b% finding t"e net profit as a percentage of t"e re$enue. Iet Profit Ratio M Iet ProfitN,88 E Sales Iet of Returns and E4cise

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7ere !e see t"at t"e net profit ratio "as not increased at all# It "as )ust s"o!n a 8#8,; gro!t" from -#8>; to -#8<;# It s"o!s poor management of finance costs and ot"er non5 operating e4penses# It is also gi$ing a signal of $er% slo! gro!t" of t"e firm# Ope#atin' -#o"it %atio! Operating net profit ratio is calculated b% di$iding t"e operating net profit b% sales# T"is ratio "elps in determining t"e abilit% of t"e management in running t"e business# Operating Profit Ratio M Operating ProfitN,88 E Sales Iet of Returns and E4cise 7ere !e see t"at t"e ratio "as increased from ,'#',; to ,'#''; onl%# T"e compan% is facing a se$ere management problem !"en it comes to allocation of funds in administrati$e selling and distribution and operating e4penses# Ana&ysis o" e/penses o" the "i#m! Cost o" Goods So&d!
Cost of goods sold +ost o1 aterial consu ed 4urchases o1 aterial 5anu1acturin# /6penses +han#e in stoc& 2011-12 20960.11 77.5 4654.48 172.46 2012-13 22590.37 10 5605.05 297.81

Cost Of Goods Sold

25000 20000 +ost o1 15000 10000 5000 0 4654.48 5605.05 aterial consu ed aterial 4urchases o1 +han#e in topic 22590.37

20960.11

5anu1acturin# /6penses

297.81 77.5 172.46 10 2011-12 2012-13

T"e cost of goods sold includes $arious items from t"e Income Statement# Comparing t"is "ead of e4pense !it" t"e pre$ious %ear !e see t"at cost of materials "a$e increased considerabl%# T"is is due to t"e rising prices of steel ra! materials all o$er t"e !orld# 2gain t"e manufacturing e4penses "a$e increased due to increase in cost of fuel maintenance and repairs of mac"iner% and plant# T"e c"ange in stoc6 of ra! materials "as also "ad a significant impact on t"e cost of goods sold# ,,

Ope#atin' E/penses5
Operating Expenses "d inistration +ost 7ellin# and )istri,ution +ost )epreciation / plo$ee 8ene1it /6penses 2011-12 140.23 327.14 1708.17 625.87 2012-13 166.6 309.58 1973.89 670.97

Operating Expenses
2500 2000 1500 1000 500 0 2011-12 2012-13 670.97 1973.89 1708.17 "d inistration +ost 7ellin# and )istri,ution +ost )epriciation 625.87 / plo$ee 8ene1it /6penses 327.14 309.58 166.6 140.23

T"e operating e4penses "a$e increased o$er t"e %ears# T"e ma)or contributing factor "as been depreciation# Aue to t"e e4pansion of t"e compan%0s operations it "as in$ested "ea$il% on assets li6e ne! plant mac"iner% and building# T"us t"e depreciation "as also increased# Aepreciation is calculated b% pro5rata basis under Straig"t /ine 3asis as per t"e rates prescribed in sc"edule PIJ to t"e 2ct# T"e salaries of t"e emplo%ees "a$e also added to t"e operating e4penses notabl%# Othe# Costs!
Other Costs 9inance +osts Ta6es 2ther 3on operatin# e6penses 2011-12 1186.41 468.7 1.37 2012-13 1724.48 702.9 2.88

,'

Other Costs
2000 1800 1600 1400 1200 1000 800 600 400 200 0 1724.48 9inance +osts 1186.41 702.9 468.7 1.37 2011-12 2.88 2012-13 Ta6es 2ther 3on operatin# e6penses

T"e ot"er costs include finance costs ta4es and non5 operating e4penses# T"e finance Cost "as increased considerabl% due to pa%ment of interest on loans and ad$ances# T"e compan% follo!s 2ccounting Standard ,> to @uantif% K3orro!ing CostsL# T"is "as occurred predominantl% for reasons of e4pansion and gro!t"# 2gain ta4es "a$e also increased# T"e compan% follo!s 2ccounting Standard '' of K2ccounting for Ta4es on IncomeL# It comprises bot" current and deferred ta4# Aue to t"e increase in ta4able income t"e ta4es "a$e also increased# Cash F&o1 "#om Di""e#ent Acti ities!
Cash Flow 2peratin# activities !nvestin# activities 9inancin# "ctivities 2011-12 2139.32 -3928.13 1967.6 2012-13 3924.66 -4451.23 123.98

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Cash Flow
5000 4000 3000 2000 1000 0 -1000 -2000 -3000 -4000 -5000 -3928.13 -4451.23 2011-12 2012-13 3924.66 2139.32 1967.6 123.98 2peratin# activities !nvestin# activities 9inancin# "ctivities

T"e cas" flo! statement is prepared using indirect met"od of 2ccounting Standard . of t"e 2ct# T"e cas" flo! under different "eads "as been depicted in t"e grap" abo$e# We can clearl% see t"e cas" flo! from operating acti$ities "as increased s"arpl%# T"is is a good signal as it means t"at t"e amount of cas" being generated from t"e operations of t"e compan% "as been relati$el% better t"an t"e pre$ious %ear# W"en it comes to in$estment acti$ities t"e reduction is s"arp# 2 lot of funds "a$e been utili?ed in purc"ase of assets for gro!t" purposes# T"e cas" flo! from financing acti$ities "as reduced s"arpl%# T"is is because of t"e fact t"at t"e compan% did not earn muc" on interest on loans and ad$ances granted b% it# It "ad also repaid a "uge amount of t"e loans it "ad ta6en pre$iousl%# T"is is a good signal as it s"o!s t"e debt repa%ment capacit% of t"e firm# -#edictin' the Financia& 8ea&th! Sha#eho&de#s 9-#esent A -otentia&; point o" ie1! T"e present s"are"olders !ill be interested to maintain t"eir in$estment in t"e compan% because of t"e increasing Earning Per S"are t"e% are getting# T"e potential s"are"olders !ill also be interested due to t"e e4pansion sc"emes ta6en b% t"e compan%# T"is !ill increase t"e $alue of t"e compan% as !ell as t"e $alue of t"e s"are in t"e mar6et# T"e return on capital in$ested FROICG "as s"o!n a fall in $alue %et t"e return on net !ort" "as increased o$er t"e pre$ious %ear# T"is is an important inde4 of Wealt" Creation for t"e s"are"olders# 2n increase in t"e Aebt5 E@uit% ratio mig"t be a cause of concern for t"e s"are"olders because t"e% feel t"e compan% is running on outsider0s mone%# 2n increase in debt "as occurred due to t"e procurement of mone% for de$elopment purposes# T"e slig"t increase in Iet Profit ratio can induce s"are"olders to retain t"eir in$estment in t"e compan%#

,1

Mana'e#$s point o" ie1! T"e total asset turno$er ratio "as seen an increase from t"e pre$ious %ear# T"is depicts a strong financial "ealt" of t"e firm# T"e manager is utili?ing t"e assets of t"e firm effecti$el%# T"e in$entor% turno$er ratio "as increased t"ereb% signaling a @uic6 $elocit% !it" !"ic" in$entor% mo$es# T"e increase in current ratio and acid5test ratio also signif% t"at t"e compan% can meet emergenc% li@uidit% situations !it" ease# Lende#s 9Sho#t Te#m A Lon' Te#m; ! T"e lenders to t"e firm !ill not be under t"e ris6 of non5repa%ment of loans ta6en b% t"e compan%# T"is is accentuated b% t"e "ig" Aebt5 E@uit% ratio and Aebt to Total In$ested Capital ratio# T"e interest co$erage ratio is slig"tl% lo!er t"an t"e pre$ious %ear %et it is satisfactor% to lure lenders# T"e slig"t increase in Gross profit ratio Operating profit ratio and Iet profit ratio !ould allo! t"e lenders to gi$e loans to t"is firm#

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