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Year Ratio
2010-2011 0.54
2011-2012 0.46
2012-2013 0.58
Interpretation: - The quick ratio is much more exacting measure than the current ratio to
pay-off the debt of the company. A quick ratio of 1:1 is considered to be satisfactory. From
the above table we find that quick ratio of JSPL decreased in the year 2012 which implies
that the inventories might not be converted into cash and leads to reduction in quick ratio.
But in the year 2013 it increases due to increase in the cash and equivalent. It is also
indicating that major portion of the current asset is inventory.
0.54
0.46
0.58
0
0.2
0.4
0.6
0.8
2010-2011 2011-2012 2012-2013
quick ratio
Ratio
32
II ). LEVERAGE RATIO
Debtequity ratio:-This ratio is calculated to measure the relative proportions of
outsiders funds and shareholders funds invested in the company. This ratio is determined
to ascertain the soundness of long-term financial policies of the company and is also known
as external equity ratio. It is calculated as
Debt-Equity ratio =
Year Ratio
2010-2011 0.96
2011-2012 0.89
2012-2013 1.10
Interpretation: - Debt Equity Ratio indicates the extent of funds provide by the long term
lenders in comparison to the funds provided by the owners, i.e., shareholders.. With the
Debt-Equity ratio of 2:1 (or) less is considered as satisfactory position of the firm. If this
ratio is higher than 2:1, it means that long terms borrowing are more than twice in
comparison to funds provided by owners and it will indicate a risky financial position. The
above data shows that company leverage position or debt-equity ratio is increased in the
0.96
0.89
1.1
0
0.2
0.4
0.6
0.8
1
1.2
2010-2011 2011-2012 2012-2013
debt equity ratio
Ratio
33
year 2013 but it is favourable to the company because debtequity ratio is less than 2, which
is showing low financial risk to the company
Proprietary ratio :-A variant of debt to equity ratio is the proprietary ratio, which shows
the relationship between shareholders funds and total assets. This ratio indicates the
proportion of total assets funded by owners or shareholders. It is calculated as
Proprietary ratio =
Year Ratio
2010-2011 0.33
2011-2012 0.32
2012-2013 0.31
Interpretation: - From above data the ratio is showing an equal trend over the past three
years. The Proprietary ratio of the company is0.31 in the year 2013.Which implies that the
for every one rupee of total assets , contribution of 31 paisa has come from owners fund &
remaining balance i.e. 69 paisa is contributed by the outside creditors. This shows that
0.33
0.32
0.31
0.3
0.31
0.32
0.33
0.34
2010-2011 2011-2012 2012-2013
Proprietary Ratio
Ratio
34
approximately 1/3
rd
portion of total asset is financed through shareholders fund and
remaining is from debt.
Inventory Turnover Ratio - This ratio measures the stock in relation to turnover in
order to determine how often the stock turns over in the business. Inventory Turnover
Ratio measures the velocity of conversion of stock into sales. It indicates the efficiency of
the firm in selling its product. It is calculated by dividing the cost of goods sold by the
average inventory. It is calculated as under:
Inventory Turnover Ratio =
Year Ratio
2010-2011 1.54
2011-2012 1.72
2012-2013 1.48
Interpretation: - Usually, a high inventory turnover/ stock velocity indicates efficient
management of inventory because more frequently the stocks are sold, the lesser amount of
money is required to finance the inventory. In the year 2012 it is maximum it is due to
inventory holding period is minimum w.r.t other two periods. The inventory turnover ratio
1.54
1.72
1.48
1.3
1.4
1.5
1.6
1.7
1.8
2010-2011 2011-2012 2012-2013
inventory turnover ratio
Ratio
35
of the company is still minimum which indicates a blockage of capital in stock i.e. the cash
conversion period is high.
III). Profitability Ratio
Gross profit margin: - The gross profit should be adequate to cover fixed expenses
dividends and building up of reserves. Higher the ratio, the better it is. A low ratio indicates
unfavourable trend in the form of reduction in selling prices. This ratio tells gross margin on
trading and is calculated as
Gross Profit Margin =
x 100
Year %
2010-2011 73.11
2011-2012 65.47
2012-2013 66.01
73.11
65.47
66.01
60
62
64
66
68
70
72
74
2010-2011 2011-2012 2012-2013
%
%
36
Interpretation: - It expresses the relationship of gross profit on sales. No ideal standard is
fixed for this ratio but the higher the gross profit ratio, it is more satisfactory. The gross
profit ratio should be adequate enough not only to cover the operating expenses but also to
provide for depreciation, interest on loans, dividends and creation of reserves. The gross
profit margin of the JSPL has decreased from 2011-2013 which shows that the company is
not able to control their direct production cost i.e. raw material consumption, expenditure on
utilities etc. which indicates the inefficiency of management over direct expenses by the
company.
Operating Ratio : - This ratio indicates the proportion that the cost of sales bears to sales.
Cost of sales includes direct cost of goods sold as well as other operating expenses (i.e.,
Administration, Selling and Distribution Expenses) which have matching relationship with
sales. It is calculated as follows
:
Operating Ratio =
Year %
2010-2011 72.74
2011-2012 80.06
2012-2013 86.16
37
Interpretation: - The operating ratio shows the relationship between costs of activities &
net sales. The operating ratio of the company is increasing year by year and showing
upward trend i.e. 72.74% in 2011, 80.06% in 2012, 86.16% in 2013. It indicates that
company is failed to control the indirect expenses which shows the inefficiency of
management over indirect expenses. It may be due to increase in COGS or due to increase
in salary or wages.
NET PROFIT MARGIN:-This ratio indicates the relationship between net profit and sales.
This ratio measures the rate of net profit earned on sales. It helps in determining the overall
efficiency of the business operations. An increase in the ratio over the previous year shows
improvement in the overall efficiency & profitability of the business It may be calculated as
follows:-
Net Profit Margin =
Year %
2010-2011 21.5
2011-2012 15.8
2012-2013 10.5
72.74
80.06
86.16
65
70
75
80
85
90
2010-2011 2011-2012 2012-2013
operating ratio
%
38
Interpretation: - The net profit margin is generally considered as the complementary of
operating expenses. As the operating expenses increases, net profit margin tends to
decrease. Net Profit Margin of JSPL decreases over a steady period i.e. in the year 2011 the
Net Profit Margin of the JSPL is 21.5 and in the year 2013 it reduces to 10.5 which is
showing that company is efficiently handle the direct cost but could manage its indirect
expenditure and results in decreasing trend of net profit margin.
Return On Capital Employed
Return on capital employed =
X 100
Year %
2010-2011 17
2011-2012 17
2012-2013 13
21.5
15.8
10.5
0
5
10
15
20
25
2010-2011 2011-2012 2012-2013
net profit margin
%
39
Interpretation: - ROCE compares the earning of the company based on capital
invested in the company. In the year 2011 and 2012 the return on capital employed for the
company remain constant i.e. 17, but in the year 2013 the it decreases to 13. It may be due
to decreases in EBIT or increase in direct or indirect expenses
Earning Per Share :-
Earning per share =
Year Rs
2010-2011 22.09
2011-2012 22.58
2012-2013 17.04
17 17
13
0
5
10
15
20
2010-2011 2011-2012 2012-2013
return capital employed
%
22.09
22.58
17.04
0
5
10
15
20
25
2010-2011 2011-2012 2012-2013
Earning per share (Rs)
40
Interpretation: - In the year 2011 the Earning Per Share of the company is 22.09, in the
year it increased by 0.49 i.e. 22.58 and in the year the earning per share of JSPL decreases
to 17.04. The reduction in EPS may be due to fresh issue of shares in the year 2012-13 in
the other hand the company might not be able to increase the rate of return.
41
CHAPTER 5
42
5.1 Findings
1. The current ratio has shown fluctuating trend as 0.77, 0.70 and 0.84 from 2011-2013
respectively.
2. The quick ratio is also in fluctuating trend as 0.54, 0.46 and 0.58 during the year
2011-2013.
3. The debt-equity ratio decreased from 0.96 to 0.89 and increased from 0.89 to 1.10 in
the year 2011-2013.
4. The proprietary ratio has shown a decreasing trend during the year 2011-2013.
5. The gross profit ratio is showing decreasing trend during the year 2011-2013 due to
inefficient management over direct expenses.
6. The operating ratio is increasing over the steady period i.e. 2011-2013.
7. The net profit ratio is decreasing during the year2011-2013 from 21.5to 10.5 due to
inefficient management.
8. The inventory turnover of JSPL has increased in the year 2012 and decreased in the
year 2013.
9. Return on capital employed decreased during the year 2012 to 2013.
10. EPS of JSPL decreased in the year 2013 may be due to issue of fresh shares.
5.2 SUGGESTIONS AND RECOMMENDATION:-
1. The short term liquidity position of the company is not satisfactory so the company can
invest in the current asset.
2. The company requires effective management decisions to control their direct
expenditures as well indirect expenses
3. The company should try to increase the inventory turnover ratio so that inventory
holding period will be less.
43
4. Efforts should be taken to increase the overall efficiency in return out of capital
employed by making used of the available resource effectively.
5. The company can increase its sources of funds to make effective research and
development system for more profits in the years to come.
5.4 CONCLUSION:-
On the basis of the study of financial statements, it has been found out that the company is
not in a sound financial position. All the ratios that have been calculated describe the
position of the company. From all these ratios the trend over the last three years and the
changes from year to year has been highlighted.
The ratio analysis can help in understanding the liquidity and short-term solvency of the
firm, particularly for the trade creditors and banks. Long-term solvency position as
measured by different debt ratios can help a debt investor or financial institutions to
evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its
assets to generate profits can be assessed on the basis of different turnover ratios. The
profitability of the firm can be analyzed with the help of profitability ratios.
Thus on the basis of the analysis conducted certain findings have been made which have
been specified in the report. Hence it can be concluded that JSPL is not in a sound financial
position and is not using most of its resources efficiently and effectively or unable to control
its direct and indirect material cost. Through the analysis it has been found that the
company is not investing on short term asset and it is also found out that major portion of
the current asset for company is current asset.
44
BIBLIOGRAPHY
WEBSITES
www.jindalsteelpower.com
www.google.com
www.investopedia.com
BOOKS
Financial Statement Analysis
(BY:-Asish K Bhattacharyya)
Financial Management
(BY:-Shashi K. Gupta, R.K. Gupta, Neeti Gupta)
45
ANNEXTURE
BALANCE BHEET OF J SPL
PARTICULARS as at 31st
march,2013
(in crore)
as at 31st
march,2012
(in crore)
as at 31st
march,2011
(in crore)
I. EQUIT AND LIABILITIES
(1) Shareholders Funds
share capital 93.48 93.48 93.43
reserve and surplus 12,254.59 10,751.93 8,595.91
2) non-current liabilities
a)long-term borrowings 11,860.92 8,493.92 7,359.71
Deferred tax liabilities(net) 1,214.96 1,067.81 878.33
Other long term liabilities 560.58 141.24 140.63
Long term provisions 20.94 18.72 8.49
3) Current Liabilities
Short term borrowings 7640.02 5,878.54 4,081.99
Trade payables 628.2 998.31 709.00
Other current liabilities 2,584.39 3,661.53 2,632.13
Short term provisions 2,951.85 2,452.63 1,887.85
Total 39,809.93 33,558.11 26,387.47
II. Assets
1)Non current assets
Fixed assets 25,640.02 22,042.97 17,081.48
Noncurrent investment 1,330.72 1,412.17 1,210.01
Long term loans and advances 1,225.46 997.1 855.21
46
Other current assets 0.55 4.63 6.03
2)Current assets
Current inventories 3,598.52 3,051.31 2,204.12
Trade receivables 1,426.13 905.06 737.12
Cash and cash equivalents 36.71 30.94 43.71
Short term loans and advances 5,943.54 4,806.29 3,929.92
Other current assets 608.11 307.64 319.87
Total 39,809.93 33,558.11 26,387.47
STATEMENT OF PROFI T & LOSS
Particular For the year
ended 31
st
march 2013
For the year
ended 31
st
march 2012
For the year
ended 31
st
march 2011
Revenue
Revenue from operation
(gross)
16,885.84 14,741.81 10,460.97
Less: excise duty 1,931.14 1,407.86 886.80
Revenue from operation (net) 14,954.70 13,333.95 9,574.17
Other income 159.28 184.48 143.16
Total revenue 15,113.98 13,518.48 9,717.33
Expenses:
Cost of materials consumed 4,943.30 4,529.84 2,730.35
Purchase of stock-in-trade 286.58 452.75 176.80
Change in inventories of FG,
WIP and stock-in-trade
-148.20 -379.24 -333.45
47
Employee benefits expenses 447.89 385.44 277.78
Finance cost 820.77 536.77 285.00
Depreciation 1,048.46 867.19 687.77
Other expenses 5,486.68 4,282.67 3,140.14
Total expenses 12,885.48 10,675.42 6,964.39
Profit before tax 2,228.50 2,843.01 2,752.94
Tax expense
Current tax 488.80 542.88 525.49
Deferred tax-liabilities 147.15 189.48 163.33
Profit for the year 1,592.55 2,110.65 2,064.12