FINA ANCIA ALSTA ATEM MENT TSAND ANALYSIS SOFNALC N CO

APROJE ECTREPO ORT Un nderthe eGuidan nceof ShriS.K. S Das s

G.M.(Finance),Nalco, N Bh hubanesw war

Inpar rtialfulfillmentoftherequire ementfor rtheawar rdofthedegree d of M Master of fBusiness sAdminist tration(M MBA)

PR RAMOD DSHAR RMA

Enrollm mentNo. 111252F FMBA001 10

BUSINESSAD DMINIST TRATION NDEPAR RTMENT T AKASTA ATEOPEN NUNIVE ERSITY KARANATA GANGOT TRI,MYS SORE57 70006 MANASAG KARN NATAKA A YEA AR2014

AKNOWLEDGEMENT
I express my deep sense of gratitude to Shri S.K. Das, G.M. (Finance), Nalco, Bhubaneswar for providing valuable information and guidance. I would also like to thank to Mr. Akshya Nayak, Faculty, IMIS for his valuable guidance and inherent support. Last but not least my heartiest love and special thank to my parents, family and close friends who were regularly in touch with me, which motivated and encouraged me to accomplish successfully in a fruitful manner.

PRAMODSHARMA

BONAFIDECERTIFICATE
Certify that the project report entitled FINANCIAL STATEMENTS AND ANALYSIS OF NALCO is the bonafide work of PRAMOD SHARMA having Enrollment No. 111252FMBA0010 who carried out the project work under ourguidance. SIGNATURE
InternalSupervisor Department: Designation: FullAddress: ExternalSupervisor Department: Designation: FullAddress:

SIGNATURE

CONTENTS
Chapter I
1. Project Background
Importance of the Project

1-3

2. Introduction of the Project 3. Objective, Scope & Methodology of the Project

Chapter II
Nalco at Glance
History Vision Mission Objective Project Finance Land Acquisition Project Segment Partners Production Units & Technology Features Products Product Excellence and Export Expansion plan of NALCO Location Human Resources HR Philosophy The Community and Environment Process of Aluminium Extraction

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NALCOs role on the Indian Aluminium Industries Accounting Policies adopted by the Company

Chapter III
The Project
A. Financial Statement an Introduction Meaning Definition Objectives Types of Financial Statements Limitations B. Financial Statement Analysis an Introduction Techniques of Financial Statement Analysis Comparative Financial Statement Common Size Statements Trend Analysis Statement of Change in Working Capital Ratio Analysis C. Summary, Conclusion & Bibliography

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CONCLUSION BIBLIOGRAPHY

51 52

Chapter - I

PROJECT BACKGROUND
1.1 INTRODUCTION TO THE PROJECT
The study of FINANCIAL STATEMENTS is important in the present circumstances because of the changing business environment and adoption of policies of liberalization in India. The main purpose-of financial statement analysis is the evaluation of the strength and weakness of a business undertaking by regrouping and analyzing the figures contained in financial statements by making comparison of various components and by examining their contents. This financial analysis can be used by different interest groups like management of the company to plan future financial requirement by means of forecasting and budgeting procedures. This financial analysis is also helpful to other groups like Share holders/Debenture holders to judge their investment in the company and to decide either to sale or to hold their investment, creditors, bankers etc to know the adequacy of the assets to the firm to meet their claim incase the company goes into liquidation, the trade union/employees to know the possibility of getting higher wages and bonus security analyst take the help of financial analyst to learn and advice their clients whether it is line to buy to hold or to sale the securities of the company. Stock exchanges uses this .information for the protection of the investor interest and ensuring better corporate Governance.

Financial Analysis involves he uses of "Financial statements", like balance sheet and Income statement. These statements attempt to do several things. First they portray assets and liabilities of business firm at a moment in time, usually at the end of a year or quarter. This portrayal is known us BALANCE SHEET. On the other hand, INCOME STATEMENT portrays the revenues, expenses, taxes and profits of the firm for a particular period of time, again usually a year or quarter. While the balance sheet represents a snap-shot of the firms financial position at a moment in time and the income statements depicts its profitability over a period of time.

We selected this topic, Financial Statement Analysis of (NALCO) because of the reason this it is one of the wholly owned Government company or being a star trading house. It provides ample scope for analysis and interpretation o its financial statement.

1.2

OBJECTIVE OF STUDY
To evaluate the performance of the company with physical & financial. To final out whether NALCO is able to utilize its funds efficiently in the last going years To evaluate the current and long term financial position of NALCO. To evaluate the efficiency with which the firm manager and utilizes its assets. To know whether the firm is able to meets its current maturing obligations. To find out debt.-equity proportion of the organisation. To study the profitability ratio of the company.

1.3. SCOPE OF THE STUDY

The Aluminum industry is playing an important role in the industrial and economic growth of the country. Many of the aluminum industry have achieved growth in production and sales and improvement in operating efficiently in market development.

They are providing gainful employment to thousands, helping their neighborhood, infrastructural socially and economically. The success of an enterprise to a great extent depends up on its financial performance. A careful and well planned financial management is needed for raising resources and utilizing them effectively.

This project covers a period of 8 weeks and has been conducted in NALCO. The main objective of this project is to analyse the financial performances of the company. The study is confined to the analysis and interpretation of financial statements of NALCO.

1.4

METHODOLOGY
The activities and information regarding this project were carried out in

the corporate office of NALCO located at Bhubaneswar.

Both primary and secondary data were acquired for the successful and smooth completion of this study. The primary data were collected from the Finance Department of the corporate office of NALCO were full freedom and cooperation was extended to me. On the other hand, the secondary data were collected from the annual report of NALCO.

For analyzing the data comparative financial statement, trend analysis and ratio analysis which are most useful and common methods are adopted).

Chapter II

NALCO AT GLANCE
2.1 HISTORY
NALCO is the largest integrated bauxite aluminum complex in Asia. This industry is considered to be a major breakthrough in the aluminum industry in India. In a major leap forward, NALCO has not only addressed the need for self-sufficiency in aluminum, but also given the country a technological edge in producing this strategic metal on the best of world standards. NALCO was incorporated in 1981 in the public sector, to. exploit a part of the large deposits of bauxite discovered in the East coast.

Aluminum industry in India: India entered into the aluminum industrial sectors in a modest way with formation of the Indian Aluminum company Ltd. As INDAL in private sector in the mid 40s. INDAL was established on the Bauxite reserves occurring on the Deccan Basalts in the central and western India. Best on this type of bauxite deposit, another company known as Hindustan Aluminum company was established by the Birla Bros. Madras Aluminum company, was also established later Which has a smaller capacity. These companies were commissioned solely on the basis of Western Ghat Bauxite ore deposit near Metur.

The Government of India established the public sector undertaking known as Bharat Aluminum Company Limited (BALCO) at Korba in the state of Madhya Pradesh. The mine facilities of BALCO are situated at 150 kilometers away from the refinery site with the discovery of large reserve of bauxite deposits in the mid 70s in the Eastern Ghats of India, mainly in the state of Orissa and Andhra Pradesh (AP), the country came into the limelight and got high lighted in the world map of Bauxite Reserves.

NALCO, India is endowed with the large resources of high quality of Bauxite ore. As per the estimate India has a total reserve of more than three

billion tons (300 crores tons) of bauxite reserves. Of all the deposits of India around 60% are located in East coast belt of Orissa & Andhra Pradesh. This bauxite in Orissa and East Coast belt was discovered in 1975 by Mr. C.S. Fox. & Mr. M.S. Krishna of Geological survey of India. With the discovery of these huge bauxite ore deposits India has occupied its position in the world map of bauxite reserves at the 5th rank from the top to down country. The discovery of this huge deposit has given birth to NALCO.

NALCO confirmation of 2 billion ton of bauxite are deposits in the year 1975 has opened new vistas for East Coast Bauxite belt. During the late seventies the Govt. of India considered of establishing an integrated alumna a minimum factory in the state of Orissa.

A feasibility report regarding lire project was submitted by Alumina of Pechiney of France in January 1979. Aluminium Pechinery of France a world leader in the field provided the technology and basic engineering for bauxite mining, aluminia refinery & smelter.

In January 1980, the visit of the president of France to India, saw the singing of a Memorandum of Understanding (MOU) for initiating technical discussion on collaboration end financing of the largest integrated aluminium project of the world. In Nov.1980, Govt. of Orissa sanctioned for the establishment of the Orissa Aluminum Complex, which was christened and registered as National Aluminum Company Limited (NALCO) on the 7th of January 1981.

The Prime Minister of India, Smt. Indira Gandhi laid the foundation since of NALCO at Damanjodi on 29th March 1981. Thus began a new chapter in the Indian history of aluminum industry with NALCO, gigantic IndoFrench Flag Project getting on the track.

NALCOs original project cost of rupees 2408 Crore was partly financed by Rs. 119 Crore in Euro dollar equivalent, extended by a consortium of International banks. By 1998, the company not only achieved a
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zero debit status, NALCO completed the first phase expansion of 4,000 crore in 2011 and in going. Steady with an internally funded 2nd phase expansion plan involving an investment of over 4,000 Crore. With its consistent track record in capacity utilization, technology absorption, quality assurance, export performances and posting of projects NALCO is a bright examples of. Indias industrial capacity.

NALCO enables India to witness a quantum jump in aluminia and aluminium production. NALCO for the first time created exportable surplus in aluminia and helped India to focus on its massive bauxite resources. All the units of NALCO at Damonjodi and Angul have been certified with ISO 9002 Quality management system and ISO 1400. Environment management system.

2.2

VISION
To be a company of global repute in Aluminum sector.

2.3

MISSION
To achieve growth in business with global competitive edge providing

satisfaction to the customers, employees, shareholders, and community at large.

2.4

OBJECTIVES
To provide a steady growth to business by progressive expansion and diversification. To maintain highest International standards of Excellence in product quality. Performance and customer service and emerge as a major international company.

To maximize foreign exchange earnings To maintain leadership in export market. To strive for technological excellence in respect of process, machines and man. To maximize capacity utilization.

To optimize operational efficiency and productivity. To develop a strong R & D base & increase business development activities. To maximize return an investment. To provide prompt, courteous and dependable customer services. To install financial discipline at the level for achieving cost and budgetary controls, optimize utilization of working capital & effective cash flow management

To promote a.; result oriented organizational ethos & work culture that empower & employees and help realization individual & organisatinal goal.

To foster high standards of health, safety and environmental friendly products. To participate in peripheral development of the area.

2.5

PROJECT FINANCE
The completeness and firm reliability of the project finance was another

landmark of NALCOs success story.

Units Bauxie Mines (Panchpatmali) Alumina Plant (Damanjocli) Port facilities, Vizag Aluminum Plant, Angul Captive Power Plant, Angul TOTAL Source of financing:

Cost (In Crores) 88 754 31 723 812 2408

Total cost( in %) 10.65 31.33 01.30 30.00 33.72 100

Equity : Rs. 1289 Crores from Govt. of India including Rs. 156Crores of French credit. Loan : Rs. 1119 Crores of Euro Dollar loan from international banks.

Land Acquisition M & R complex, Damanjodi S & P complex, Angul : : 7365.15 (Crores) 3961.25 (Crores) 40 Acres 13 Acres (on long lease)

Corporate Office, Bhubaneswar : Port Facilities, Vizag :

Project Segments NALCOs various production units, their location and installed capacities with future expansion plan are :
Production Unit 1. Bauxite Mines (Bauxite) 2. Alumina Refinery Alumina 3. Smelter Plant (Aluminium) 4. Captive power plant (Power) 5. Port facility Transport Location PanchPatmalli (Koraput) Damanjodi (Koraput) Angul Angul Vizag Installed Capacity 4,80,000 TPY 15,75,000 TPY 3,45,000 TPY 960MW 3,75,000 TPY (Alumina export 1,46,000 TPY (Caustic Soda dye import Future Capacity Expansion 63,00,000 TPY 21,00,000 TPY 4,60,000 TPY 1200MW

2.6

PARTNERS

The setting up of NALCO had been a team effort of following consulting organizations.

1.

Alunminium pechinery, France know how and Basic Engineering for mine, Alumina and Aluminium plant.

2.

Engineers India Ltd. Prime Indian consultant for Mine Alumina and Aluminium and overall project monitoring.

3. 4. 5. 6.

DCPL, Calcutta Captive power plant. HIPL, New Delhi Port facilities RITES, New Delhi Rail facilities NIDC and TCPO, New Delhi Township and all executive agencies.

2.7

PRODUCTION UNITS AND TECHNOLOGY FEATURES

Corporate Office

Nalco Bhawan, P/1, Nayapalli, Bhubaneswar-751013, India Phone: 1374-2301988 to 2301999 Fax : 1374-2301221/2301280

Shri C. Venketaramana CHAIRMAN-CUM-MANAGING DIRECTOR

Bauxite Mines On Panchpatmali hills of Koraput district in Orissa, a fully mechanized opencast mine of 4.8 million tpa capacity is in operation since November, 1985, serving feedstock to Alumina Refinery at Damanjodi located on the foothills. Presently, the capacity is being expanded to 6.3 million tpa. The salient features:

Area of deposit - 16 sq. km. Resource - 310 million tonnes Ore quality - Alumina 45%, Silica 2% Mineralogy - Over 90% gibbsitic Over burden - 3 meters (average) Ore thickness - 14 meters (average) Transport - 14.6 km long single flight multicurve cable belt conveyor of 1800 tph

Alumina Refinery The 15,75,000 tpa Alumina Refinery, having three parallel streams of equal capacity, is located in the picturesque valley of Damanjodi in Koraput district. In operation since September, 1986, the Refinery is designed to:

Provide Alumina to the Company's Smelter at Angul Export the balance Alumina to overseas markets through Visakhapatnam Port Presently, the capacity is being expanded to 21,00,000 tpa.

The salient features: Atmospheric pressure digestion process Pre-desilication and inter-stage cooling for higher productivity Energy efficient fluidised bed calciners Co-generation of 3x18.5 MW power by use of back pressure turbine in steam generation plant Advanced red mud disposal system Captive Power Plant Close to the Aluminium Smelter at Angul, a Captive Power Plant of 960 MW capacity, comprising 8 x 120 MW clusters, has been established for firm supply of power to the Smelter. Presently, the capacity is being expanded to 1200 MW. The salient features: Micro-processor based burner management system for optimum thermal efficiency Computer controlled data acquisition system for on-line monitoring Automatic turbine run-up system Specially designed barrel type high pressure turbine Electrostatic precipitators with advanced intelligent controllers Wet disposal of ash The water for the Plant is drawn from River Brahmani through a 7 km long double circuit pipeline. The coal demand is met from a mine of 3.5 million tpa capacity opened up for Nalco at Bharatpur in Talcher by Mahanadi Coalfields Limited. The Power Plant is inter-connected with the State Grid.

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Aluminium Smelter The 3,45,000

tpa

capacity

Aluminium Smelter is located at Angul in Orissa. Based on energy efficient state-ofthe-art technology of smelting and pollution control, the Smelter Plant is in operation since early 1987. Presently, the capacity is being expanded to 4,60,000 tpa. The salient features:

Advanced 180 KA cell technology Micro-processor based pot regulation system Fume treatment plant with dry-scrubbing system for pollution control and fluoride salt recovery Integrated facility for manufacturing carbon anodes, bus bars, anode stems etc. 4 x 35 tone and 4 x 45 tone furnaces and 2 x 15 tph and 2 x 20 tph ingot casting machines 4 x 45 tonne furnaces and 2 x 9.5 tph wire rod mills 2 x 45 tonne furnaces and 60/42 per drop billet casting machine 2 x 1.5 tonne induction furnace with a 4 tph alloy ingot casting machine 26,000 tpa strip casting machines With the acquisition and subsequent merger of International Aluminium Products Limited (IAPL) with Nalco, the 50,000 tpa export-oriented Rolled Products Unit is all set to produce foil stock, fin stock, can stock, circles, coil stock, cable wraps, standard sheets and coils

Port Facilities On the Northern Arm of the Inner Harbour of Visakhapatnam Port on the Bay of Bengal, Nalco has established mechanized storage and ship handling facilities for exporting Alumina in bulk and importing Caustic Soda.

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The salient features:

Maximum ship size - 35000 DWT Alumina reception - 48 x 53 tonne pay-load wagons

Alumina storage - 3 x 25000 ton RCC Silos

Ship loading rate - 2200 tph

These facilities are being upgraded to handle higher volumes of exports, following expansion of production capacities.

Rolled Products Unit (100% EOU)

Introduction: Nalco has set up a 50,000 MT per annum Rolled Products Unit, integrated with the Smelter Plant at Angul, for production of aluminium cold rolled sheets and coils from continuous caster route, based on the advanced technology of FATA Hunter, Italy.

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2.8
1.

NEW PROJECTS TAKEN UP BY NALCO

Strip casting facilities: 26,000 TPY casting facility at a cost of Rs. 49,86 crore in the smelter

The new projects under various stages of implementations are as under :

plant at Angul is working. 2. Special Grade Alumina: A 20,000 TRY special Alumina plant at Damonjodi at a cost of Rs45.72 crore based on technical know-how obtained from Alumina technology associates U.S.A has been commissioned in 2012.

3.

Zeolite. A 10,000 TRY Detergent Grade Zeolite (Zeolite - A) plant at Damonjodi

at a cost of Rs. 24.10 Crore with consultancy services rendered by Engineers India Ltd, in scheduled for completion during 4th quarter of 2011.

4.

Rolled products unit. NALCO has set up a 50,000 MT per annum. Rolled Products Unit,

integrated with the smelter plant at Angul, for production of aluminium cold rolled sheets and coils from continuous caster route, based on the advanced technology of FATA Hunter, Italy.

2.9
Ingots Sows Billets

PRODUCT MIX

Aluminium metal

Wire rods Alloy wire rods Cast Strips

Alumina and Hydrates Calcined Alumina Alumina Hydrate

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Zeolite A

Special products
Speciality hydrate alumina (Alumina chemicals)

Rolled product
Aluminium rolled products

2.10 PRODUCT EXCELLENCE AND EXPORT

The company exports more than 50% of calcined Alumina and around 30% of metal produced. Export turnover accounts for more than 35% of total turnover.

The quality assurance associated with NALCO metal received International acclaim with NALCOS admission to London Metal Exchange (LME) 1989.

Nalco is the largest primary metal producer in India and account for round 33% share in the domestic market.

2.11 EXPANSION PROGRAMME

In order to strengthen its business and increase market share, the Company has been pursuing expansion programmes on a sustained basis. Soon after the completion of the 1st phase expansion, the Company has now launched its 2nd phase expansion, commencing In October 2011, which involves fresh investment of Rs.4091.51 crore. The project is planned to be completed in 50 months. Segment Bauxite Mines Alumina Refinery Aluminium Smelter Power Plant Present Capacity 4.8 million tpa 1.575 million tpa 345,000 tpa 960 MW Capacity under Expansion 6.3 million tpa 2.1 million tpa 460,000 tpa 1200MW

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Downstream Projects (Completed) 26,000 tpa Special Grade Alumina Plant 10,000 tpa Detergent Grade Zeolite Plant

Strategic Acquisition The export-oriented 50,000 tpa cold rolled product project, promoted by International Aluminium Products Ltd., has been acquired by Nalco and commissioned as a Rolled Product Unit.

2.12 LOCATION
The different units are located at different places to keep the cost effectiveness. The main reason for location of different plants are as : i) ii) Proximity to the raw material sources Ability of cheap labour and land. The mines and refinery has been located at Damanjodi in Koraput District. The raw material is obtained from the Panchpatmali hills located 15 km from the refinery plant is situated at latitude between 18-46'.N to 18-55'N and longitude 82-57E to 18- 55N and longitude 82-57'E to 83-11. East It is a belt of Approximately 20 Km long of width 0.08 km covering an area of 165sq Km. The bauxite is available in the mines on an average of. 13 m layer and a depth of 3 m below the surface, so it is a open cast mine. Because of the raw material proximity the mines and refinery complex is located at Damanjodi. This place is seated at 12Km from NH-43 and 35 Km in northwest of Dist. Head quarter Koraput and an altitude of 1360 above the mean sea level.

2.13 TECHNOLOGY ADVANTAGE

Automation and computerisation extensively built into the state of art technology adopted by Nalco are necessary to achieve energy conservation, quality control, Safety and highly efficient input output ratio of geostatistics to data acquisition system from micro-processor controlled pot to robal like pot tending machines and most advanced lab equipment all relate the story of cost effective an energy efficient product excellence of NALCO. In order to meet the challenges of operating in a hitch environment inevitably the

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management system and subsystem are steadily, being computerized. The objective is to achieve an integrated information management system for the organisation as a whole based on dependable and dynamic modular data base.

2.14 HUMAN RESOURCES

In NALCO, the Human resource is the principal assets to operate and maintain the diverse, complex and highly automated plants, equipment and facilities.

Man power: The main asset to NALCO is the well trained and motivated manpower. In addition its well equipped HRD centers of excellence, almost all its plates are having specialized training centers.

Composition of manpower (as on 31.10. 2013) Executives Supervisions Skilled/highly skilled Semiskilled/unskilled Total : : : : : 1,745 822 3,327 1,191 7,085

As on 31.10.2012, out of 7,085 employees including trainees in the company's roll, there were 1,158 SCs, 1300 STs., 651 OBCS and 62 physically handicapped persons. The total number of lady employees in the organizations s ands at 291.

2.15 HRM PHILOSOPHY

To attract competent personnel with growth potential and develop their skills and capabilities in a congenial work and social environment through opportunities for training, recognition, career advancement and other incentives.

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To develop and nurture favourable attitudes among the employees and to obtain their best contributions to the organisation by providing stable employment, safe working conditions, job satisfaction, quick redressal of grievances and through good pay and welfare amenities commensurate with the Company's capacity to spend and the Government's guidelines.

To foster fellowship and sense of belongingness among all sections of employees through closer association of employees with the

management and by encouraging healthy trade union practices.

2.16 MANAGEMENT
The company is a Government of India Enterprise under the Administrative control of the Ministry of Mines. The company is managed by a Board of Directors appointed by the President of India. The Board consists of 10 directors including the CMD of the company. Apart from the CMD there are four functional or full time directors heading PRODUCITON, FINANCE, PROJECT & TECHNICAL PERSONAL & ADMINISTRATION. There are two senior Govt. Officials nominated to the BOD by the Govt. of India. Beside, there are non-official Director in the Board, subject to the provisions of the Indian companies Act , the memorandum and articles of Association, MOU signed with the Govt. of India and also subject to policies formulated by the BOD, from time to time, the CMD has full power to sanction expenditures or to deal with other matters for effective functioning of the company.

2.17 THE COMMUNITY AND ENVIRONMENT

The commitment to create and sustain a congenial cosmopolitan social environment within the organisation is discernable as one visits the NALCO township Damonjodi, Angul and Bhubaneswar.

The multi purpose co-operative society successfully running in all NALCO township are based on the unique spirit of collaboration among the NALCO unions.

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2.18 PROCESS OF ALUMINA EXTRACTION

The raw material for the products to the manufacture is Bauxite Caustic Soda and power. The Bauxite is obtained form the mines at Panchpalmali. The various ores with the Aluminum content is shown as below.

As the ore here is Bauxite containing high percentage of oxide metals Baeyers process is used. On an average Bauxite contains. 45% of Aluminum Oxide. 25% of Ferric Oxide. 22% of Silicon Dioxide 13% of Water associated with different oxides.

From the Panchapalmali mines the Bauxite is sent to the refinery at Damnanjodi through a single flight belt conveyor of 14.6 Km long (Longest in Asia) where it is crushed it hammer crusher.

Grinding After being crushed the ore is finally grinded so to affect better digestion efficiency and also increasing the setting rate of the undigested residue.

Digestion The grinded ore is digested in the NaOH where Aluminum Oxide is dissolved and the residue are left behind. This is done at 150 degree Centigrade and 6 atmospheric pressure for few hours. The digested slurry is sent to send separation unit.

Sand separation Here the digested Alumina and sand (mainly containing ferric oxide and silica) gets separated. The washed liquor from the washing cyclones is taken into the process.

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Dilution It is done by adding NaOH solution to the slurry. This helps in further settling of red mud and deceleration.

Desilication The liquor after dilution is heated to 95 to 100 degree centigrade where the silicates settles and the Alumina dissolves in the solution thus improving the quality. Settling and Washing Here water is added to the solution where dissolved Al mina precipitates in the form of Alumina. The desilicated slurry is allowed to settled in large diameter tanks cooled settlers equipped with rake mechanism. The settling is allowed by addition of cooked wheat brand solution which is used as Flocculent. Nowadays sytec is used as Flocculent to get the export quality of Alumina. Preparation The cooled super saturated aluminate liquor is pumped to a tank where previously precipitated Alumina trihydrate called seed is added to make a slurry. This slurry is then pumped into a series of 16 Mechanically agitated tans to precipitate out the Alumina taken up form the Bauxite during digestion. Classification and Product Filtration This precipitated slurry is then classified in two various size classifiers in series of Turbiflux type, where the slurry is fed to this typical designed equipment. This slurry is raked with an agitator at very low speed, where Alumina and other things are separated.

Calcination In this plant the hydrate is heated up to a predetermined temperature to remove the surface and inherent moisture to give the required quality of Alumina, This Alumina is electrolytically reduced to Aluminum using cryolite as a electrolyte and getting cheap electricity from its own captive power plant at Angul.
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2.19 NALCO'S ROLE IN THE INDIAN ALUMINIUM INDUSTRY

NALCO plays a vital role in the Indian Aluminum industry. The Aluminium producing capacity of the country has witnessed a quantum jump after the entry of NALCO. The latest and cost effectively technology employed in NALCO revolutionized the making of Aluminum in the country. The Indian Aluminium Industry got its recognition from the international players only after NALCO ventured into the international market. Further, the quality of its products is in par with the international standard and the company stand by its words, 'YOUR BEST BUY IN ALUMINUM'. Through its quality products it gets abut 800 direct reputed customers.

As a major player in the domestic market, with second largest domestic market share NALCO also enjoys the advantages of exporting Alluminium in the global market.

2.20 ACCOUNTING POLICIES ADOPTED BY THE COMPANY

For analysis of the financial statements it is necessary to know accounting policies adopted by the company. The company prepares on accrual basis under historical cost convention in accordance with mandatory accounting standards. Investment are stated cost Depreciation is provided under straight line method Raw materials, stores, spare parts are valued at weighted average cost. Finished goods are valued at lower cost or net realizable value.

Foreign currency transition settled during the accounting year are recorded in rupees by applying actual exchange rates prevailing on the respective dates of the transition.

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Chapter III

THE PROJECT
A. FINANCIAL STATEMENT

INTRODUCTION
The basis for financial planning, analysis and decision-making is the financial information. Financial information is needed, to predict, compare and evaluate the firms earning ability. It is also, required to aid in economic decision-making, investment and financing decision making. The financial information of an enterprise is contained in the financial statements or accounting reports.

Accounting is a measurement communication system, designed to facilitate understanding and control of economic activity of a business enterprise. Financial statements are the end-product of accounting which provide a s systematic collection of economic data in a logical and consistent way to this given data. Financial statements are prepared on the basis of recorded facts i.e. expressed in monetary terms.

MEANING
For a layman any statement expressed in money values are regard a Financial Statements. But in a broader sense financial statements are the outcome of summarizing process of accounting. Its purpose is to convey understanding of some financial aspect of a business firm. It may show a position moment in time, as in the case of a balance sheet, or may reveals a series of activities over a given period of time, as in the case of an income statement.

So, financial statement generally refers to the two statements (a) balance sheet or statement of financial position and (b) profit and loss account or income statement.

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DEFINITION
In the words of John N. Mayer, the financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement showing the results of operations during certain period.

The AICPA states the nature of financial statements as, financial statements are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results are achieved during the period of review. They reject? combination of recorded facts, accounting principles and personal judgments

OBJECTIVES
The primary objectives of financial statement is to assist in decisionranking. The other objective of financial statement are as follows: i. ii. iii. iv. v. To provide realiable financial information about economic resources and obligation of a business enterprise. To provide other needed information about changes in such economic resources and obligation. To provide reliable information about changes is net resources arising out of business activates. To provide financial information that assists, in estimating the earning potentials of business. To disclose, to the extend possible, other information related to the financial statements that is relevant to the needs of the users of these statements.

TYPES OF FINANCIAL STATEMENT

There are various financial statement are as follows:

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BALANCE SHEET The balance sheet is one -of the important financial statements depicting the financial strength of the concern. The balance sheet shows all the assets owned by the concern and all the liabilities and claims its owes to owners and outsiders. It is prepared on a particular date. So, it provides a snap shot of the financial position of the firm at the close of the firms accounting period. The assets and liabilities are shown in the balance sheet either on the order of liquidity or on permanency basis. When balance sheet is prepared on liquidity basis then more liquid assets like cash in hand, cash at bank, investment etc are shown first and the least liquid asset will be shown at last. On liabilities side, the liabilities to be paid in the short period are shown first next long term liabilities and capital on the last. When balance sheet is prepared on permanency basis, on asset side fixed assets are shown first and liquid asset are shown at last. On liabilities side, the capital is shown first, long-term liabilities next, short term and current liabilities in the last. INCOME STATEMENT (OR PROFIT & LOSS ACCOUNT) In our country, balance sheet is considered as a very significant statement by bankers and others lenders because it indicates the firm's financial solvency and liquidity, as measured by its resources and obligations. The earning capacity and potential of a firm are rejected by its profit and loss account. It is a Score-board of the firm's performances during a period of time, generally a year. It is a statement of revenues earned and the expenses incurred. It is prepared on the accrual principal which treats all expenses and revenues relating to the period, whether paid or not. If there is excess of revenues over expenditures it will show a profit and if the expenditure are more than the income than there will be a loss.

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Notes Forming Part of Accounts: a. Balance Sheet: Cost of leasehold tunnel includes payment to the Government of Orissa for acquisition of land on lease basis, Contingent Liabilities i.e. outstanding letters of credit, claims against the company not acknowledged as debts, Dues to various small scale industrial units amounting to Rs.1.63 cores have been grouped under current liabilities b. Profit and loss account: As per the schedule XIV of Companies Act, 1956, allocate the unamortized value over the remaining life after retention of 5% residual value except for assets already written off fully. Government of Orissa has improved
th

Rural

Infrastructure and Socio-

Economic Development tax from 18 Feburary-2012 on mineral bearing land @ 20% of its annual value. The cost under power and fuel consists of consumption of coal and fuel oil but does not include other expenses of generation. Deferred tax assets and liabilities assets, Provisions for proposed dividend and dividend tax will be paid after being approved by shareholders in the Annual General Meeting. Due to change in the accounting policies during the year have the effects on the items in financial statement. Unaudited Financial Reconciliation Quarterly unaudited financial results are published in some leading English newspapers and local Oriya daily news papers .It reflects the quarterly result of the company. There is slight variances in the quarterly unaudited and annual audited Financial Results in the year 2011-12.

LIMITATIONS
The financial statement suffers from the following limitation. a. Interim and not final report: These statements do not give a final picture of the concern. The act position can be only known if the business is sold or liquidated.

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b. Lack of precision and definiteness: Financial statement may not be realistic because they are prepared by following certain basic concepts and conventions. c. Lack of objective judgment. Financial Statements are influenced by the personal judgment of the accountant. He may select any method for depreciation, valuation of stock etc. d. Record only monetary facts: Financial statements disclose only monetary facts i.e which can be measured in monetary terms. Non -monetary factors are ignored. e. Historical in nature: These statements are drawn after the actual happening of the events. They attempt to present a view of the past performance and have nothing to do with the accounting for the future.

B.

FINANCIAL STATEMENT ANALYSIS

Financial analysis is the process of identifying the financial strength and

MEANING: weakness of the firm by properly establishing relationships between the items of the balance sheet and project and loss account. Financial analysis car be undertaken by management of the firm or by parties outside the firm i.e owners, creditors, investor and others. Financials analysis is also known as analysis and interpretation of financial statement. The main aim of financial analysis is to diagnose the information contained in financial statement so as to judge the profitability and financial soundness of the firm. The term "Financial statement analysis includes both analysis and interpretation. The term analysis is used to mean the simplification of financial data by methodical classification of data given in the financial statements and interpretation means explaining the meaning and significance of data to simplify. The analysis and interpretation is essential to bring out the mystery behind the figures in financial statements. However both analysis and interpretation are interlinked and complementary to each other. Analysis is useless without interpretation and interpretation without analysis is impossible.

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TECHNIQUE (TOOLS OR METHODS) OF FINANCIAL STATEMENT ANALYSIS

There are various technique which are used for the analysis of financial statement. The more commonly used technique of financial analysis are as follows. A. B. C. D. E. F. Comparative financial statement. Common - size statements. Trend Analysis. Funds flow statement. Statement of changes in working capital. Ratio analysis.

COMPARATIVE FINANCIAL STATEMENTS:

The comparative financial statements are statements of the financial position at different period of time. The elements of financial position are shown n a comparative form so as to give an idea of financial position at two or more periods. The financial data will be comparative only when same accounting principles are used in preparing these statements. The two comparative statements are: a) Balance sheet. b) Income statement. Comparative Balance Sheet: This statements prepared on two or more different dates can be used; or comparing assets and liabilities and to find out any increases or decreases in these items. This facilitates the comparison of figures of two or more period and provide necessary information which may be useful in forming an opinion regarding the financial condition as well as progressive out look of the concern. Guideline for interpretation of comparative Balance sheet. The interpreter is expected to study the following aspects: Current financial position and liquidity position. Long-term financial position Profitability of the concern.

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Table 1 Comparative balance Sheet of NALCO For the year ended 31st March, 2013 (Rupees in Crores) Particulars ASSETS Fixed Assets Net Block Capital work in progress Total Current Assets Inventories Sundry Debtors Cash & Bank Balance Other current Assets Loans and Advances Total Total Assets LIABILITIES Share holders fund: Share capital Reserves & Surplus Total Current Liabilities Liabilities Provisions Total Referred Tax Liability 607.33 332.82 940.15 641.73 616.25 190.14 813.39 652.45 6156.65 -8.92 132.68 123.76 -10.72 1317.90 -1.44% 69.8% 15.34% -0.15% 21.40% 644.31 5248.36 5892.67 644.31 4123.50 4697.81 1194.86 1194.86 29.47% 25.43% 591.58 29.42 2193.71 118.62 364.55 3297.88 7474.55 529.13 92.81 755.21 82.01 351.95 1811.11 6156.65 62.52 -63.39 1438.5 36.61 12.6 1486.84 1317.90 11.8% -68.3% 190.47% 44.64% 3.6% 82.1% 21.40% 3944.51 232.16 4176.67 4139.00 213.61 4345.61 -194.49 25.55 -168.94 -4.70% 11% -3.89% 31.10.13 (Amount) 31.10.12 (Amount) Increase / decrease (Amount) Increase / decrease (Percentage)

7474.55 Source : Annual Reports of NALCO.

INTERPRETATION
It is evident from the Table - 1 that, the company current liability have increased by Rs. 1237.6 crores (15.34%) as compared to earlier years, as due to keep more provision for current liabilities. There is 25.43 % increase in share holders wealth as compare to previous years due to low dividend pay

27

out ratio (50%). Cash & bank balance in hand Rs. 2193.71 increased by 190.47% as compared to previous year will be utilized for expansion plan. Sundry debtors decreased by 68.3% indicate a efficient management of receivables. Inventories have increased by 11.8% due to increased turn over by 20%. Fixed assets have decreased by (-4.70%) due to high depreciation charge in different block of assets.

Comparative Income Statement:

The income statement gives the results of the operations of a business. The comparative income statement gives an idea of the progress of a business over a period of time. The changes is absolute data in money values and percentage can be determined to analyse the profitability of the business. Table 2 Comparative Income Statement of NALCO For the year ended 31st March, 2013
Particulars 31.10.13 (Amount) 4851.90 31.10.12 (Amount) 4111.11 Increase / decrease (Amount) 747.79 Increase / decrease (%age) 18.22%

Net Sale Add: other income Operating Non Operating Total Income Less: Operating expenses Operating profit (EBIT) Less: Interest Less: Depreciation Profit before Dep. & Tax Less Depreciation Profit Before Tax Less: Tax Provision Net profit(PAT) Source : Annual report of NALCO

101.8 128.9 5082.6 2312.4 2777.2

174.13 76.52 4354.76 1963.23 2391.53 60.61

-45.33 52.38 727.84 342.17 385.67 -60.61 21.87 446.28 83.84 530.12 202.76 327.36

-26% 68.45% 16.7% 17.42% 16.1% -100% 4.97 19.1% 18.2% 28.35% 32% 26.5%

461.08 2777.2 377.24 2399.96 837.76 1562.20

439.21 2330.91 461.08 1869.84 635.00 1234.84

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INTERPRETATION

It is evident from the Table-2 that, the net profit for the year after provision for taxes increased from Rs.1562.20 crore to Rs.1,234.84 crore recording an increase of 26.5% over previous year due to increased production and sales performance on all fronts. The sales increased by Rs. 747.79 crore over previous, recording 18.22 % increased. The operating profit increased by 16.1% and net profit (PAT) increased by 26.5% over previous year due to less operating expenses than previous year. The operating expenses is reduced by 17.42% where as the operating profit, profit before tax (PBT) and profit after tax (PAT) are increased over previous. It is a indication of efficient management of companys affair. It may be concluded that there is a sufficient progress in the company and the overview profitability of the company is good.

COMMON MEASUREMENT (SIZE) STATEMENT

This statement indicates the relationship of various items with some common item (expressed as percentage of the common item). The figure are shown as percentage of total assets, total liabilities and total sales.

In the Income statement' the sales figure is taken as base and all other figures are expressed as percentage of sales. Similarly, in the Balance sheet the total assets and liabilities is taken as base and all other figures are expressed as percentage to this total. The statements are also known as component percentage or 100% statement, because every Individual is stated as percentage of the total 100.

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Table 3 Common Size Balance Sheet of NALCO For the year ended 31IlMarch, 2013 (Rupees in Crore) 31.10.13 31.10.12 Particulars ASSETS: Fixed Assets Net Block Capital work in progress Total Current Assets Inventories Sundry Debtors Cash & Bank Balance Other current Assets Loans and Advances Total LIABILITIES: Share holders fund: Share capital Reserves & Surplus Total Current Liabilities Liabilities Provisions Total Deferred Tax Liability Total
Source : Annual report of NALCO

Amount 3944.51 232.16 4176.67 3297.88 591.58 29.42 2193.71 118.62 364.55 7474.55

% 52.77 3.11 55.88 44.12 7.91 0.01 29.34 1.59 4.86 100

Amount 4139.00 213.61 4345.61 11.11 529.13 92.81 755.21 82.01 351.95 6156.65

% 67.22 3.36 70.58 29.42 8.59 1.51 12.27 1.33 5.72 100

644.31 5248.36 5892.67 607.33 332.82 940.15 641.73 7474.55

8.62 70.21 78.83 8.12 4.46 12.58 8.59 100.00

644.31 4123.50 4697.81 616.25 190.14 813.39 652.45 6156.65

10.47 65.84 76.31 10.00 3.09 13.09 10.60 100.00

INTERPRETATION It is evident from Table 3, the pattern of financing shows that the share capital contribution is constant in all the years. Out of the total investment in 2012 13, 78.83% of the funds are proprietors fund and remaining are outsiders fund. In 2011 12 the proprietors funds are 76.31 % and outsiders funds are 23.69%. While analyzing the working

30

capital, it is revealed that company have used more working capital than necessary, there is a huge cash balance (Rs.2193.71 crore) due to low dividend payout ratio. Effort should be made to disburse or transfer to general reserve. In the year 2012-2013 the current assets are 29.42% and 44.12% respectively. The current liabilities are 13.09% and 12.58% respectively. The company must use reserves and surpluses for future expansion programme.

Table 4 Common size profit & loss account for the Year ended 31st March 2013 (Rupees in Crore) Particularss Net Sales Other Income Total Income Operating Expenses Operating Profit(PBIDT) Interest Profit Before Dep. & Tax(PBDT) Depreciation Profit before Tax(PBT) Tax Provision Net Profit (PAT) 31.10.2013 Amount % 4851.90 230.70 5082.6 0 2312.6 0 2777.2 2777.20 377.24 2399.96 837.76 95.46 4.54 100 45.36 54.6 4 54.64 7.42 47.2 2 16.90 31.10.2012 Amount % 4111.11 250.65 4354.7 6 1963.2 3 2391.53 60.61 2330.91 461.08 1869.84 635.00 1234.84 94.24 5.76 100 45.08 54.9 1 1.40 53.5 2 10.5 9 42.9 3 14.58 28.35

1562.60 30.74

Source : Annual report of NALCO

Interpretation From the above analysis the operating expenses 45.36% and 45.08% of total income in years 2013.-2012. There is likely to same percentage of operating income to the total income, it is a evidence of sound
31

management of expenses. There is no interest payment due to adequate working capital in 2012-2013 PBDT are 54.64% and 53.52% in 2012-2013 respectively but the PBT are 47.22% and 42.93. There are difference about 5% due to depreciation charges varies in between years. The net profit (PAT) to the total income are 30.74% and 28.35% respectively in both years. It indicates the efficient management of companys affairs. TREND ANALYSIS
The Financial statements may be analyzed by computing trends of series of information. Trend analysis helps us to know whether the financial position of a firm is improving or deteriorating over the years. For this purpose a number of years is taken up and one year, generally the first year, is taken as a base year and the, amount of that item relating to base year is taken equal to 100 and index number are calculated for other years based on the amounts of that item in those years. It is a dynamic method of analysis showing the changes over a period of time. This method of analysis indicates the direction in which a concert is gong and on this basis forecast of future is made. Table 4 Trend Percentage of NALCO (Base year 2011-2012) Year SALES Trend Amount (Percentage) 3124.07 4111.11 4851.90 100 131.37% 155.27% (Rupees in Crores) PROFIT BEFORE TAX Trend Amount (Percentage) 1122.76 1870.27 2429.64 100 177.65 230.78

2011 2012 2013

Source : Annual report of NALCO

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INTERPRETATION
The interpretation of trend analysis involves a cautious study. The mere increase or decrease in trend percentage may give misleading results. The base period should be carefully selected. It is evident from the above Table-5 that, the trend of sales is been steadily increasing. The percentage in 2013 is Rs.155.27% as compare to 2011. The profit in 2013 is 230.78% as compare to 2011, indicate major achievement within three years.

STATEMENT OF CHANGES IN WORKING CAPITAL

This statement is prepared to know the net change in working capital of the business between two specified dates. It is prepared from current assets and current liabilities of the said dates to show the net increase or decrease in working capital. Table 5 Statement Of Changes In Working Capital of NALCO (Rupees in Crores) Effect on working 31.10.13 3.1.10.12 Particulars capital (Amount) (Amount) Increase (Amount) Current Assets: Inventories Sundry Debtors Cash & Bank Balance Other current Assets Loans & Advances Total Current Liabilities Liabilities Provisions Total Working capital (C.A-C.L) Net increase in working capital 591.58 29.42 2193.71 118.62 364.55 3297.88 607.33 332.82 940.15 2357.73 2357.73 529.13 92.81 755.21 82.01 351.95 1811.11 616.25 190.14 813.39 1011.65 1353.08 2357.73 62.52 1438.50 36.61 12.6 8.92 1559.15 63.39 142.68 1353.08 1559.15 Decrease (Amount)

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INTERPRETATION
It is evident from the above Table-6, that the working capital for the year 2013 more than double as compared to previous year. The ratio of current asset to current liabilities should be 2:1 but here the ratio is around 3:5, due to huge cash in hand. Therefore effort should be made to invest in short term marketable securities.

RATIO ANALYSIS
Ratio analysis is a powerful tool for financial analysis. It is defined as the systematic use of ratio to interpret the financial statements. So that the strengths and weakness of a firm as well as its historical performances and current financial condition can be determined. It develops a relationship between individual items or group of items usually shown in the periodical financial statement published by the concern. The relationship of one item to another expressed in a simple mathematical form is known as the ratio. The relationship between two accounting figures is known as accounting ratio. The business performance can be measured by the use of ratios.

A ratio must be interpreted against some standard. This ratio may be compared with the pervious year or base year ratios of the same firm. A comparison may also be made with the selective firms in the same industry i.e. inter firm compression. It is also possible to the compare with the ratio of the same industry within the country and in international market as well. Ratio analysis is useful to shareholders, creditors, and executives of the company. So, ratio analysis is a technique of analysis and interpretation of financial statement. Ratio any be expressed in three from: a. a quotient 1:1 or 2:1 etc. b. as a rate i.e. inventory turnover as number of items in a year c. as a percentage. Let us analysis the study by taking these ratios : 1. Profitability Ratio 2. Activity Ratio. 3. Solvency ratio.

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4. Liquidity Ratio

PROFITABILITY RATIO The main objective of business undertaking is to earn profits. Profit earning is considered essential for the survival of the business. A business needs profit not only for its existence but also for expansion and diversification. In the words of Lord Keynes, Profit is the engine that drives the business enterprises". The profitability ratios are calculated to measure the operating efficiency of the company. Generally, profitability ratios are calculated either in relation to sales or in relation to investment.

In relation to sales profitability ratio:

a. Net profit ratio : Net profit ratio establishes a relationship between net profits (after taxes) and sales. It indicates the efficiency of the management in manufacturing .selling, administrative and other activities of the firm. This ratio is the overall measure of firm's profitability.

Thus, Net profit Ratio = Net profit after tax / Net Sales x 100.

Net profits are obtained after deducting income-tax & non -operating expenses and income like loss on sale of fixed assets, profits on sale of fixed assets, interest on investment outside the business etc. For the purpose of our study we have taken Net profit Ratio for three years. Table 7 Net profit Ratio of NALCO
(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic component Net profit/ Net sale Net profit/ Net sale Net profit/ Net sale

Amount 737.37/3124.07 X 100 1234.84/4111.96 X 100 1562.60/4851.90 X 100

%age 23.60 30.08 32.20

Source : Annual Report of NALCO.

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INTERPRETATION
The ratio indicates the firm's capacity to face adverse economic conditions such as price competition, demand etc. if the net profit is not sufficient then the firm shall not be able to achieve satisfactory return on its investment.

It is evident from the Table-7 that the net profit of NALCO is in increasing trend. The profit margin in the year 2010-11 was 23.60% and it is improved to 32.20% in the year 2012-13. The net profit and sales has been constantly increasing. It shows that the company has a good profitability position.

Operating profit ratio: This ratio is calculated by dividing operating profit by sales.

Thus operating profit ratio = Net sales - operating cost/ Sales x 100.

For the purpose of our study we have taken Operating profit Ratio for three years.

Table 8 Operating Profit Ratio of NALCO

Year 2010-11 2011-12 2012-13

Basic Component Operating profit / Sales X 100 Operating profit / Sales X 100 Operating profit / Sales X 100

Amount 1756.9 /3124.07 X 100 2391.53/4111.11 X100 2777.2/4851.9 X 100

%age 56.2 58.27 57.2

Source : Annual Report of NALCO.

INTERPRETATION It is evident from the above Table-8 that the operating profit ratio is almost 57% of sales. It means the company has maintained a good profit margin. It also shows the operating efficiency of the company. The operating
36

profit ratio has increased slightly over the three years. The profitability position of NALCO is satisfactory.

Return on capital employed Return on capital employed establishes the relationship between, profits and the capital employed.

This measures the overall efficiency of a business & indicates how well the management has used to the investments made by owners and creditors to the business.

Thus, Return of capital employed=Adjusted Net profit/Net capital Employed x 100

Where, adjusted net profits refers to: Profits should be taken before tax. Interest on long-term borrowing should be added back to the net profit. Net profit should be adjusted for any abnormal non-recurring, nonoperating gains or losses. Such as profit/loss, on sale of fixed assets.

And, Net capital employed refers to the total of the assets used in the business - current liabilities.

For the purpose of our study we have taken Return on capital employed for three years. Table 9 Return on Capital Employed of NALCO
(Rupees in Crores)

Year 2002-11 2011-12 2012-13

Basic Component Adj. Net Profit/N.C.E. X 100 Adj. Net Profit/N.C.E. X 100 Adj. Net Profit/N.C.E. X 100

Amount 737.37/4029.21 X 100 1234.84/5143.65 X 100 1562.60/6302.24 X 100

%age 18.30 24.01 24.79

Source : Annual Report of NALCO.

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INTERPRETATION It is evident from the above Table-9 that the return on capital employed of NALCO is in increasing trend. As the primary objective of business to earn profits, higher the return on capital employed, the more efficient the firm is in using its funds. In the year 2010-11, it was 18.3% but it has increased to 24.79%in the year 2012-13.The company has maintained good return on capital employed. Thereby increasing the confidence of shareholders in the company.

Return on Investment or Net Worth: Return on shareholder's investment is the relationship between net profit (after interest & tax) and the proprietors funds. Thus, Return on shareholder's investment = Net profit (after interest & tax) / Share holder's funds X 100 Where, Shareholder's investment =Equity share capital + preference share capital + Reserve & Surplus - (accumulated losses) and Net profit = Net profits after payment of interest and taxes. For the pin pose of our study we have taken Return on Investment for three years.

Table 10 Return on Capital Investment of NALCO

(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic Component Net profit / Net Worth Net profit / Net Worth Net profit / Net Worth

Amount 737.37/3756.67 X 100 1234.84/4697.81 X 100 1562.60/5892.67 X 100

%age 19.63 26.29 26.51

Source : Annual Report of NALCO.

INTERPRETATION
This ratio reveals how well the resources of a firm are being used, higher the ratio, better is the result.

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The above table shows that the return in 2010-11 was 19.63% but in 2012-13 it is 26.51, is increased trend. Therefore there is a better performance of owners networth.

Earning Per Share Earning per share is calculated by dividing the net profit after taxes and preference dividend by the total number of equality shares. Thus, E.P.S. =Net profit after tax - preference dividend/ No. of equity shares. For the purpose of our study we have taken Earning per share for three years. Table 11 Return on Capital Investment of NALCO
(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic Component N.P. PD/NO. of Eq. Shares N.P. PD/NO. of Eq. Shares N.P. PD/NO. of Eq. Shares

Amount 737.37/644309628 1234.84/644309628 1562.20/644309628

Ratio 11.44 19.17 24.25

Source : Annual Report of NALCO.

INTERPRETATION The EPs indicate whether or not earning power of the company has increased. It is evident from the above Table-11. that E.S.P of NALCO was Rs.11.44 in the year 2010-11 but it has increased to Rs.24.25 in the year 2012-13. It is mainly due to increase in profits. Tie ratio is the proper indicator for investors whether to invest in this company or not. Dividend payout ratio Dividend payout ratio is calculated, to find the extent to which earning per share have been used for paying dividend and know what portion of earnings has been retained in the business.

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Thus, Dividend Payout ratio = Dividend per Equity share/ Earning per Share.

For the purpose of our study we have taken Dividend Payout Ratio for three years. Table 12 Dividend Payout Ratio of NALCO
(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic Component Dividend per Eq. Share/EPS Dividend per Eq. Share/EPS Dividend per Eq. Share/EPS

Amount 4.58/11.44 X 100 7.67/19.17 X 100 12.12/24.25 X 100

Ratio 40 40 50

Source : Annual Report of NALCO.

INTERPRETATION It is evident from the table-12 that, NALCO's paid up Share capital is Rs. 6,44.31 Crores where as its reserve and surplus is Rs. 5248.36 Crore. Which is around 8 times of paid up capital, this is because of low dividend payout ratio.

ACTIVITY RATIO Funds are invested in various assets in a business to make sales earn profits. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover ratio, because they indicate the speed with which assets are being converted or turnover into sale.

Several activity ratio can be calculated to judge the effectiveness of asset utilization. a. Inventory Turnover Ratio It denotes the speed at which the inventory will be converted into sales, thereby contributing for the profits of the concern. It is calculated by dividing the cost of goods sold by the average inventory or sale by average inventory.

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Thus, Inventory Turn over Ratio = Cost of goods sold/Average.

Inventory conversation period is the average time taken for clearing stocks.

Inventory conversion period=: 365 / Inventory turn over ratio.

For the purpose of our study we have taken Inventory Turnover Ratio of three years. Table 13 Inventory Turnover Ratio of NALCO
(Rupees in Crores)

Year

Basic Component

Amount

Ratio

ICP on days

2010-11 2011-12 2012-13

Sales / Average Inventory Sales / Average Inventory Sales / Average Inventory

3124.07/485.21 4111.96/511.77 4851.9/560.32

6.43 8.13 8.67

57 45 42

Source : Annual Report of NALCO.

INTERPRETATION
A high inventory turnover indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory and vice-versa. There are 'no' rules of thumb or standard inventory turnover ratio.

It is evident from the Table-13 that, inventory turnover ratio was 6.43 in the year 2010-11, and in the year 2012-2013 it reaches to 8.67. It reflects the efficiency of the firm in respect of managing its inventory. The inventory ratio can also increase due to very low level of inventory which result in shortage of goods in relation to demand. The finished goods (inventory) in relation to sale is around 7 to 9%. So, it implies there high ITR is not due to low level of stock but due to efficient management. The inventory conversion period in 2010-11 was 57 days but in 2012 13 it is 42 days is a decreasing trend. It indicates the efficient management.

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b.

Debtor Turnover Ratio: This indicates the velocity of debt collection of a firm. In other words,

this indication the number of times average debtor are turned over during a year.

Thus, Debtors turnover = Sales / Debtors.

The average collection period represents the average number of days for which a firm has to wait before it receivables are converted into cash.

The Average Collection Period = Number of Working days/Debtors turnover ratio.

For the purpose of our study we have taken Debtor Turnover Ratio for three years.

Table 14 Debtor Turnover Ratio of NALCO

(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic component Sales/Debtors Sales/Debtors Sales/Debtors

Amount 3124.07/102 4111.96/97.52 4851.9/61.15

Ratio 30.6 42.1 79.3

A.C.P 12 9 5

Source : Annual Report of NALCO.

INTERPRETATION
Generally the higher the value of Debtors turnover, the more efficient is the management of debtors/sales and vice-versa. But very high ratio implies a firms inability due to lack of resources to sell on credit, thereby losing sales and profit.

It is evident from the above Table-14 that, the debtor turnover ratio in the year 2010-11 was 30.6 and in the year 2012 13 it reached in 79.3 times in a year. It indicates a efficient management of receivables. According to the

42

above the average conversion period reduced from 12 days in 2010-11 to 5 days in 2012-2013. It indicates NALCO follows cash sales rather than credit sales. Working Capital turnover Ratio: Working capital of a concern is directly related to sales. This ratio indicates the number of times the working capital is turnover in the course of a year.

Thus, Working capital turnover ratio= Sales/Net working capital.

Where, Net working capital=Current Assets-Current Liabilities. For the purpose of our study we have taken working capital Turnover Ratio for three years. Table 15 Working Capital Turnover Ratio of NALCO
(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic component Sales / N.W.C. Sales / N.W.C. Sales / N.W.C.

Amount 3124.07/126.23 4111.96/1011.65 4851.9/2357.73

Ratio 24.75 4.08 2.12

Source : Annual Report of NALCO.

INTERPRETATION
The higher is the ratio, the lower is the investment in working capital and the greater are the profits. But, a very high turnover of working capital is a sign of over-trading and may put the concern in financial difficulties.

From the above analysis it is evident that the, Working capital turnover ratio of NALCO is satisfactory during the year 2010-11. But during the year 2011-12 & 2012-13, there was a heavy investment in working capital causes idle of working capital, reduce profits. The working capital management not an efficient one in pervious 2 years.

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SOLVENCY RATIO
The term "solvency" refers to the ability of a concern to meet its longterm obligations. The long term indebtedness of a firm includes debenture holders, financial institutions providing medium and long-term loans and other creditors selling goods on installment basis. So long-term solvency ratio indicates a firm's ability to meet the fixed interest and costs and repayment schedules associated with the long-term borrowings:

To measure the solvency of the selected company NALCO we have used the Debt-equity ratios:

Debt equity ratio : This ratio indicates the relationship between the external equities or the outsiders fund & the internal equities or the shareholders funds.

Thus, Debt Equity ratio = Outsiders funds/ Share holders funds.

Outsiders fund includes all debts to outsiders excluding current liabilities in the form of debentures, bonds, mortgages. And shareholders fund consists of equity share capital preferences share capital & reserves & surplus excluding accumulated losses or deferred expenses. For the purpose of our study we have taken Debt-equity ratio for three years.

Table 16 Debt Equity Ratio of NALCO

(Rupees in Crores)

Year 2010-11 2011-12 2012-13

Basic component Creditors equity/ownership equity Creditors equity/ownership equity Creditors equity/ownership equity

Amount 654.39/3756.67 0/4697.81 0/5892.67

Ratio 0.17 0 0

Source : Annual Report of NALCO.

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INTERPRETATION
It is calculated to measure the extent to which debt financing has been used in a business. The ratio indicates the proportionate claims of owners and the outsiders against the firm's assets.

A ratio of 1:1 may be considered to be a satisfactory ratio although there cannot be any rule of thumb. The debt equity ratio of NALCO in 2010-11 was just 0.17 and in 2012-13 is 0 (means there is no debt capital) NALCO should used debt capital in low cost to increase the profit margin and also share holders wealth.

LIQUIDITY RATIO
Liquidity refers to the ability of a concern to meet its Current obligations as and when these become due. The short term obligations are met by realizing amounts from current assets. The current assets should be convertible into cash for paying obligations of short term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with current liabilities. If current assets can pay off current liabilities, then liquidity position will be sound and vice-versa. The bankers, suppliers of goods and other short term creditor interested in the liquidity of the concern. They will extend credit only when they find that current assets of the firm is adequate through to pay of their liabilities.

To measure the liquidity of a firm following ratios can be calculated:

a. Current Ratio: Current ratio may be defined as the relationship between current assets and current liabilities

Thus, Current Ratio = Current Assets/ Current liabilities

For the purpose of our study we have taken Current ratio for three years.

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Table 17 Current Ratio of NALCO (Rupees in Crores) Year 2010-11 2011-12 2012-13 Basic component Current Asset/Current Liability Current Asset/Current Liability Current Asset/Current Liability Amount 990.51/864.28 1811.11/813.39 3297.88/940.15 Ratio 1.15 2.24 3.50

Source : Annual Reports of NALCO

INTERPEATION As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory. The current ratio represents a margin of safety. The higher the current ratio, the greater the margin of safety for creditors but may causes the idle of fund in working capital.

It is evident from the Table-17 that, the current ratio in the 2010-11 was 1.15 times but in the year 2012-13 it has improved to 3.5 times. A high current ratio indicates more liquidity. But a very high ratio mean unnecessary blockage of funds in current assets. The current ratio 3.5 is very high. Effort should be made for alternative investment for short period time.

b. Quick or Acid Ratio : Quick ratio establishes a relationship between quick assets and current liabilities.

The quick ratio is calculated by dividing the totals current assets less inventories by the total current liabilities less bank overdraft.

Thus, Quick Ratio = Current Assets - Inventory/ Current Liabilities.

Here prepaid expenses and inventories are excluded from liquid assets.

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On the other hand, bank overdraft are excluded from current liabilities.

Table 18 Quick Ratio of NALCO (Rupees in Crores) Year 2010-11 2011-12 2012-13 Basic component Liquid Asset/Liquid Liability Liquid Asset/Liquid Liability Liquid Asset/Liquid Liability Amount 990.51 480.48 864.28 Ratio 0.59 1.59 2.88

1811.04 529.06 806.39

3297.88 591.58 940.15

Source : Annual Reports of NALCO

INTERPRETATION
Generally, a high acid test ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities. On the other hand, a low quick ratio represents that the firms liquidity. Position is not a good. As a rule of Thumb or a convention quick ratio of 1:1 is considered satisfactory.

The quick ratio of NALCO in the year 2010-11 was 0.59 but it has improved in the year 2012-13 to 2.88 times. This ratio also indicates the quality of current asset held by the company. This ratio 2012-13 (2.88) shows holding more cash and equivalent assests. The quick ration is more than adequate, therefore efforts should be made to invest in short term earn some additional money.

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Reconciliation of Quarterly (Un-Audited) and Annual (Audited) Financial Results for the Year 2012-13 Quarterly Unaudited Financial results are published in some leading English newspapers and local Oriya daily newspapers.

The quarterly un-audited financial results shows that sales, Income, expenditure and net profit all are in increasing trend. There is little difference between unaudited and audited net profit (PAT) like Rs.245 crores and Net sales likely equal (Rs.4888.67 and Rs.4888.70 crore in Year 2012-13 of unaudited and audited Profit & Loss Account respectively). The earning per share (EPS) is in increase trend for quarter wise. The EPS of unaudited results Rs. 24.28 more than audited results Rs. 24.25.

There is no so much difference between quarterly (unaudited) and annual (audited) financial results.

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Reconciliation of published Quarterly (Unaudited) Financial Results and Annual (Audited) Financial Results for the Year 2012 - 13
Sl. No. Particulars 1st Quarter (Unaudited) 2nd Quarter (Unaudited) 3rd Quarter (Unaudited) 4th Quarter (Unaudited) Total four Quarters Full Year (Audited) Variance

1 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

2 Gross Sales Turnover Less : Excise Duty Net Sales Other Income Total Expenditure Interest and Financing h Depredation & Provisions Profit Before Tax (PBT) Provision for Tax Net Profit (PAT) Paid-up Equity Share Capital Earnings per share (Rs) (Not annualised) Aggregate of Non-promoter shareholding: Number of Shares Percentage of shareholding

3 1071.70 92.97 978.73 40.64 489.18 98.26 431.93 151.37 280.56 644.31 4.35

4 1149.98 102.99 1116.99 47.35 588.12 99.21 407.01 123.97 283.11 644.31 4.39

5 1442.59 117.68 1324.91 54.45 660.41 91.86 627.09 234.13 393.10 644.31 6.09

6 1659.93 121.89 1538.11 85.14 567.54 89.38 966.26 358.24 608.02 644.31 9.44

7 5324.20 435.53 4888.67 227.58 2312.25 378.71 2432.29 867.64 1564.65 644.31 24.28

9 5324.16 435.46 4888.70 233.69 2311.15 381.60 2429.64 867.44 1562.20 644.31 24.25

8 (0.11) (0.07) 0.10 6.11 5.90 2.89 (2.65) (0.20) (2.45) -

- 8,28,09.993 12.85

12.85

8,28,09,993 -

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C.

SUMMARY & CONCLUSION

The present study was undertaken with an intention of finding out the

financial management and profitability position of NALCO, through the analysis of its financial statements. The study is based on both primary data from NALCO corporate office and secondary data obtained from the annual reports of 2011-12 and 2012-13 published by the company and internet (NALCO website).

MAIN FINDINGS The findings of the present study has mainly dealt with following ratios.

1.

Analysis of profitability position. Nalco has maintained a good profitability ratio in 2012-13 is 32.20. The operating profit ratio of the company is 57.2%. The return on capital employed (ROCE) of the company in 2012-13 is 24.79% The return on net worth is 26.51%. The earning per share of NALCO is good one i.e Rs. 24.25/The dividend pay out ratio is 50%

2.

Analysis of Activity Ratio : The inventory turn over ratio of NALCO in 2012 13 is 8.67 and inventory conversion period is 42 days. The working capital conversion ratio is 2.12 There is no credit sale of NALCO because the debtors turnover period (ACP) is 5 days

3.

Analysis of Solvency ratio: Debt Equity ratio of NALCO for the year 2012-13 is 0. There is no

debt fund in capital structure of the company. NALCO is an un levered farm

4.

Analysis of Liquidity ratio The current ratio of NALCO has improved to 3.5 in 2012-13 compared to 1.15 in the year 2010-11.

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The quick ratio of NALCO is 2.88 in the year 2012-13 the ratio is more than adequate.

CONCLUSION
The analysis and interpretation of financial statement of NALCO reveals that both the short-term and long-term solvency of the company are satisfactory. But the company has excess working capital. If the company had made effort to invest surplus working capital, it would have earned addition profit and add to profit and loss account for the year 2012-2013. Overall NALCO has a better profitability ration and also has a strong financial position in all respect.

In my conclusion NALCO is one of the leading and reputed companies in India. That enter in the environment of Navaratna companies.

SUGGESTION
National Aluminum company is a pride of Orissa. It balance the economy of the states. NALCO earns 43% revenue from Export business in 2012-2013. In the globalization scenario, the top executives must be sent to the foreign countries to know the new technology. The sale should also be there in overseas country. So, that more revenues can be collected which will increase the profitability and goodwill of the company.

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BIBLIOGRAPHY

1.

Lev. Baruch

Financial Statement Analysis. A New Approach, Prentice Hall, Inc, Eagle Wevel, Clffts, New Jarset.

2.

Sharma & Gupta

Management

Accounting,

Kalyani

Publishers, Ludhinia. 3. Pandey, I.M. Financial management, Vikas Publishng House Pvt. Ltd., New Delhi. 4. Van Horne J.C. Financial Management and Policy Prentice & Hall of India, Pvt. Ltd., New Delhi 5. Walker W.E. Essential of Financial management,

Prentice Hall of India Pvt. Ltd., New Delhi 6. 7. 8. Annual Reports of NALCO NALCO Parichaya Internet Websites www.google.com www.nalcoindia.com 2010-11 & 2011-12.

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