A Comparative Study of Financial Performance of Sail and Tata Steel LTD

International Manuscript ID : ISSN23194618-V2I1M11-012013
A COMPARATIVE STUDY OF FINANCIAL PERFORMANCE OF SAIL

AND TATA STEEL LTD
Dr. Vivek Singla Assistant
Professor Management
Department
Dronacharya Institute of Management & Technology
Kurukshetra, aryana, In!ia
Abstract:
Efficient management of finance is very important for the success of an
enterprise. Term financial performance is very dynamic term. The subject matter of
financial performance has been changing very rapidly. In present time greater
importance is given to financial performance. So, here an attempt is made by me to
compare the financial performance of the selected units i.e. Steel Authority of India and
TATA STEEL LTD.
While analying the financial performance of the selected units, !e include the analysis
of !or"ing capital and analysis of profitability.
#ey Words$ "inancial Performance, Profita#ility Management, $orking %apital
Management
A COMPARATIVE STUDY OF FINANCIAL PERFORMANCE OF SAIL
AND TATA STEEL LTD
Introduction
importance is given to financial performance. So, here an attempt is made by me to
compare the financial performance of the selected units i.e. Steel Authority of India and
TATA STEEL LTD.
of !or"ing capital and analysis of profitability.
Conce t o! " or# i n$ Ca i ta % Ana % &si s
%rom the financial management point of vie!, capital in broader sense can be divided
into t!o main categories& fi'ed capital and !or"ing capital. (ere I am going to study the
concept of !or"ing capital. The term !or"ing capital generally is used in t!o senses )
Gross working capital !hich denotes total current asset and Net working Capital
!hich denotes the e'cess of current assets over current liabilities. *oth the concepts
have their o!n significance and relevance. In common parlance, !or"ing capital is that
part of capital, !hich is in !or"ing or !hich is used to meet day&to&day e'penses.
To understand the e'act meaning of the term +Wor"ing ,apital-, it !ill be appropriate to
understand its t!o components ) current assets and current liabilities. The current
assets are those assets, !hich can be converted into cash !ithin a short period of time,
say not more than one year during the operating cycle of business or !ithout affecting
normal business operations. ,urrent liabilities are such liabilities as are to be paid !ithin
the normal business cycle a !ithin the course of an accounting year out of current
assets.
' ros s ( or# i n$ Ca i ta % Conce t: )
According to the gross concept, !or"ing capital means total of all the current assets of a
business. It is also called gross !or"ing capital.
.ross !or"ing ,apital / Total ,urrent Assets
Ne t " or# i n$ Ca i ta % Conce ts :
The concepts of 0et Wor"ing ,apital refer to the e'cess of current assets over current
liabilities. It indicates the surplus value of current assets. Since, all the current liabilities
are met out of current assets and after meeting the current liabilities !hat remains in the
enterprise is called net !or"ing capital.
0et !or"ing capital !ill e'ist only in that case !hen long&term funds, to some e'tent, are
invested in current assets and comparatively less amount of short term funds are
involved in current assets.
Co * on e n ts o! " or # i n$ C a i ta %:
The !or"ing capital consists of t!o components current assets and current liabilities.
Assets of a concern are of t!o types& %i'ed assets and current assets$ %i'ed assets are
to be in business on permanent basis and are not intended for sale !hereas the current
assets are for conversion into cash at the earliest. Similar is the case !ith liabilities,
!hich may be long&term liabilities and current liabilities. Long&term liabilities are those
maturing over a long period of time usually five or ten years !hereas short&term
liabilities are those maturing !ithin a short period usually less than a year.
Conce t o! ro!i ta bi%i t & Ana % &si s
The third part of financial performance analysis is profitability analysis. The analysis of
profitability is mainly a test of earning capacity of business. 1rofit is the lifeblood of
every business unit. It is also very essential for the survival of any business. The
efficiency of management functioning is also determined on the basis of the profitability
of business. 1rofit is also re2uired for the long&term gro!th of the business.
The profitability analysis of selected units have been made !hile using various ratios
such as net profit ratio, return on capital employed ratio and return on total asset ratio.
This analysis is restricted to the above mentioned ratio because the given data provides
the information relating to these ratios only. At last it can be said that the profitability
analysis depicts a clear and comparative position regarding the financial performance of
the selected units.
O b+ec ti ,e s o! s tud &: )
The present study 3A comparative study of %inancial 1erformance of SAIL and TATA
STEEL LTD.4, has been designed to achieve the follo!ing objectives$&
567 To analyses and evaluate the overall !or"ing capital management in the
selected units.
587 To analyses and evaluate the overall profitability in the selected units.
597 To analyses and evaluate the trends in financial performance of the
selected units.
Sc oe o! t-e s tud &:
The present study is confined to the t!o leading units in steel industry namely SAIL and
TATA STEEL LTD. The study covers a period of five years from 8::;&:< to 8:66&68.
This period is enough to cover both the short and medium terms fluctuations and to set
reliability.
D a ta Co %%ec ti o n : )
%or completion of my study only secondary data has been used. The main sources are
annual reports. *esides for framing conceptual frame!or", various boo"s and published
material in standard boo"s and ne!spapers, =ournals and !ebsites has been made use
of.
Li *i tati ons o! t-e stud &
To "no! the e'tent to !hich the study is reliable it is necessary to note the limitations
under !hich the study has been completed. The follo!ing important limitations have
been noted !hile conducting the present study$&
67 The main source of information is annual reports. They represent financial
information>position on particular date. What happened bet!een such t!o
dates cannot easily be presumed or predicated.
87 The annual reports mostly contain 2uantitative and financial information and as
regards to 2ualitative aspect of financial performance, my source !as limited due
to far a!ay location of head offices of the selected units.
97 The financial performance covering a large period say 8: years or 9: years can
give a much clear picture of management practices of financial performance. ?ur
study covering a period of @ years can touch only a part of the problem.
Data An a% &si s
Curr e nt R a ti o:
?ne of important function of the financial manager is to maintain sufficient li2uidity.
,urrent ratio is an important criterion to test the li2uidity and also the short term
solvency. The ratio of 8$6 is considered as standard of current ratio.
Tab%e . 'ra- No/0: Current Ratio 1In Ti*es2
Year3Co*an& SAIL TATA STEEL LTD/
8::< 6.;9 9.A8
8::A 6.<8 :.A;
8:6: 8.:@ 6.68
8:66 6.A; 6.<8
8:68 6.BA :.;A
T
i
m
e
s
5
3.92
4
3
Chart Title
1.73
1.82
2.05
1.97
1.82
2
0.97
1.12
1
0
1.49
0.7
9
SAIL
TATA STEEL
2008 2009 2010 2011
2012
Year
s
1Source: Co*i%e Persona%%& !ro* Annua% Reorts2
I NT E R P R E T A T IO N
%rom the above table and graph it is clear that SAIL have 6.;9 times current ratio in the
year 8::<. It became 8.:@ times in the year 8:6: but in the last year of the study i.e. in
the 8:68 the current ratio of SAIL is 6.BA times. ?n the other hand current ratio of
TATA STEEL LTD. is 9.A8 times in 8::< and :.;A times in 8:68. %rom the above it can
be concluded that the financial position of SAIL is better than the TATA STEEL LTD. in
terms of current ratio because TATA STEEL LTD. have more variations in current ratio
as compare to SAIL.
4 u i c # R a ti o:
This ratio also tests li2uidity. *ut it is a more refined test of li2uidity and solvency. This
ratio ta"es into consideration the li2uid assets only !hich are directly convertible into
cash. The current assets li"e inventories !hich are t!o steps a!ay from the cash are
e'cluded. The 2uic" ratio is computed by dividing li2uid assets by current liabilities. A
2uic" ratio of 6$6 is considered ade2uate.
0.57
T
i
m
e
s
Tab%e . 'ra-No/5: 4uic# Ratio 1In Ti*es2
8::< 6.89 9.@8
8::A 6.8B :.@;
8:6: 6.@9 :.;C
8:66 6.9@ 6.B@
8:68 :.<6 :.@6
4
3.52
Quick Ratio
2
1.23 1.24
1.53
.76
0
1.35
1.
45
0.81
0.
51
SAIL
2008 2009 2010 2011
2012
Year
s
TATA STEEL
It is clear from the above table and graph it is clear that SAIL have 6.89 times 2uic"
ratio in the year 8::<. It became 6.9@ times 8:66. *ut in the last year of the study i.e. in
8:68 the 2uic" ratio of SAIL is :.<6 times. This decrease only once time during the
study period. ?n the other hand 2uic" ratio of TATA STEEL LTD. is 9.@8 times in 8::<
and :.@6 times in 8:68. %rom the above it can be concluded that the financial position of
SAIL is better than the TATA STEEL LTD. in terms of 2uic" ratio. TATA STEEL LTD.
has more variations in 2uic" ratio as compare to SAIL.
T
i
m
e
s
6
I n , e n to r & Turn o , e r R a ti o:
This ratio indicates !hether stoc" has been efficiently used or not. A high ratio is
considered better.
Tab%e . 'ra- No/6: In,entor& Turno,er Ratio 1In Ti*es2
8::< <.C8 6:.<B
8::A @.<C A.9C
8:6: C.:8 6:.A:
8:66 @.69 A.<@
8:68 9.;6 A.B:
12
10.84
Inventory Turnover Rayio
10.9
10
8.62
8
9.3
6
9.85
9.4
5.86
6.02
5.13
4
2
0
3.7
1
SAIL
TATA STEEL
2008 2009 2010 2011
2012
Year
s
I NTE RP RE T ATIO N
This ratio indicates !hether stoc" has been efficiently used or not. It sho!s the speed
!ith the stoc" is rotated into sales or the number of times the stoc" is turned into sales
during the year. Above chart D graph sho!s that inventory turnover ratio of SAIL is <.C8
times in the year 8::< D 9.;6 times in the year 8:68 it is very lo!. ?n the other hand
the TATA STEEL LTD. is 6:.<B times in the year 8::< D the remaining year it is
ma'imum the A times and the last year of the study i.e. 8:68 this is A.B: times .In the
term of Inventory turnover ratio the TATA STEEL LTD.-S financial position is better than
SAIL.
Di ,i de nd e r S -a re :
Dividend per share means ho! much dividend per share the company is paying to its
shareholders.
Tab%e . 'ra- No/7: Di,idend er S-are Ratio 1In Rs/2
8::< 9.;: 6C.::
8::A 8.C: 6C.::
8:6: 9.9: <.::
8:66 8.B: 68.::
8:68 8.:: 68.::
R
u
p
e
e
s
Dividend per Share
Ratio
20
16 16
15
12
12
10
8
5
3.7
2.6
3.3
2.4
2
0
2008 2009 2010 2011
2012
Year
s
SAIL
TATA STEEL
%rom the above table D graph it is clear that SAIL have Es. 9.;: dividend per share in
the year 8::<. It became Es. 9.9: in the year 8:6: but in the last year of the study i.e.
in 8:68 the dividend per share of SAIL is Es. 8.::. ?n the other hand the dividend per
share of TATA STEEL LTD. is Es. 6C.:: in 8::< and 68.:: in 8:68. %rom the above it
can be concluded that the TATA STEEL LTD. is paying the more dividend than to SAIL.
O e r a ti n$ R a ti o:
A lo! operating ratio is better because it reflects the efficiency of management the lo!er
the ratio, higher !ould be the profitability.
Tab%e . 'ra- No/8: Oeratin$ Ratio 192
16.3 P
e
r
c
e
n
t
a
g
e
8::< 8<.6A B6.AB
8::A 8:.B6 9;.C<
8:6: 88.CA 9@.;:
8:66 6C.9; 9<.66
8:68 69.6@ 9@.BA
Operating Ratio
50
41.94
37.68
35.7
38.11
35.49
40
28.19
30
20.41
22.69
20 13.15
10
0
2008 2009 2010 2011
2012
Year
s
SAIL
TATA STEEL
%rom the above table D graph it is clear that SAIL have 8<.6AF operating ratio in the
year 8::<. It became 88.CA F in the year 8:6: but in the last year of the study i.e. in
8:68 the operating ratio of SAIL is 69.6@ F. ?n the other hand operating ratio of TATA
STEEL LTD. is B6.AB F in 8::< and 9@.BA F in 8:68. %rom the above it can
be concluded that the financial position of SAIL is better than the TATA STEEL LTD. in
the terms of operating ratio because the operating ratio of SAIL is lo!, as compare to
TATA STEEL LTD.
P
e
r
c
e
n
t
a
g
e
' ro s s P ro !i t R a ti o:
This ratio measures the gross margin of profit from sales. The higher the gross profit
ratio the better it is.
Tab%e . 'ra- No/:: 'ross Pro!it Ratio 192
8::< 8@.6: 9;.;:
8::A 6;.B< 99.CA
8:6: 6A.B: 96.9C
8:66 68.<< 9B.8:
8:68 A.;B 98.:A
40
37.7
30
25.1
20
Gross Profit Ratio
33.69
31.36
34.2
32.09
17.48
19.4
12.88
10
0
9.7
4
SAIL
TATA STEEL
2008 2009 2010 2011
2012
Year
s
%rom the above table D graph it is clear that SAIL have 8@.6:F gross profit in the year
8::<. It becomes 6A.B:F in the year 8:6:, but in the last year of the study i.e. in 8:68
the gross profit of SAIL is A.;BF. ?n the other hand gross profit of TATA STEEL LTD. is
9;.;:F in 8::< and 98.:AF in the year 8:68. %rom the above it can be calculated that
the financial position of TATA STTEL is better than the SAIL in term of gross profit
because SAIL has more variation in .ross 1rofit as compared to TATA STEEL LTD.
N e t P ro !i t R a ti o:
This is the ratio of net profit to sales. The greater the ratio, the more profitable the
business !ill be.
Tab%e . 'ra- No/;: Net Pro!it Ratio 192
8::< 6<.6C 89.B9
8::A 69.B: 86.:A
8:6: 6@.;9 6A.AC
8:66 66.:9 89.6C
8:68 ;.BB 6A.B;
P
e
r
c
e
n
t
a
g
e
25
23.43
20
18.16
15
et Profit
Ratio
23.16
21.09
19.96
15.7
3
13.4
19.47
11.03
10
5
0
7.4
4
SAIL
TATA STEEL
2008 2009 2010 2011
2012
Year
s
Above chart sho!s that net profit ratio SAIL is 6<.6CF in the year 8::< and ;.BBF in
the year 8:68. It is very lo!. ?n the other hand the TATA STEEL LTD. 89.B9F in the
year 8::< it become 6A.ACF in the year 8:6: but in the last year of the study i.e. in
8:68 the net profit of TATA STEEL LTD. 6A.B;F. The financial position of TATA STEEL
LTD. is better than the SAIL in terms of net profit.
D i , i d e nd P a & out R a ti o:
Dividend payout ratio sho!s that ho! much dividend the company is paying to its
shareholders out of net earnings available to shareholders.
P
e
r
c
e
n
t
a
g
e
3
Tab%e . 'ra- No/<: Di,idend Pa&out Ratio 192
8::< 89.;6 8A.9A
8::A 8:.98 8;.6@
8:6: 89.@B 6C.BB
8:66 89.BA 6A.:B
8:68 8;.6: 8:.66
Dividend Payout
Ratio
35
29.39
27.15
27.1
23.71
25
20
15
10
5
0
20.3
2
23.54 23.49
16.44
19.04
20.1
1
SAIL
TATA STEEL
2008 2009 2010 2011
2012
Year
s
Above chart indicates that the dividend payout ratio of SAIL is 89.;6F in the year 8::<.
In the year 8::A it has 8:.98F D the year 8:6: D 8:66 it almost stable but in the last
year of the study 8:68 the dividend payment ratio !as 8;.6:F. ?n the other hand the
dividend payout ratio of TATA STEEL LTD. !as 8A.9AF in the year 8::< D in 8:66 it
!as 6A.:BF. In the last year of the study it becomes 8:.66F. %rom the above it can be
P
e
r
c
e
n
t
a
g
e
concluded that the financial position of SAIL is better than the TATA STEEL LTD. in
terms of dividend 1ayout Eatio/
R e turn on % on$ te r* !und s :
This ratio sho!s that ho! much return is earned from long term funds. If this ratio is
higher than this is consider better.
Tab%e . 'ra- No/=: Return On Lon$ Ter* Funds Ratio 192
8::< BB.B; 6;.6C
8::A 8<.A< 6@.86
8:6: 86.A; 69.:C
8:66 6@.6: 69.@B
8:68 66.<; 6@.:B
50
44.47
40
30
Return On !ong Term "unds
28.98
21.97
20
17.16
15.21
13.06
10
0
15
1
.1
3.54
11.
1
8
5
7
.04
SAIL
TATA STEEL
2008 2009 2010 2011
2012
Year
s
%rom the above table D graph it is clear that SAIL have BB.B;F returns on their long
term funds in the year 8::<. It became 86.A;F in the year 8:6:. *ut in the last year of
the study i.e. 8:68 the return on long term funds !as 66.<;F. ?n the other hand it is
clear that TATA STEEL LTD. have 6;.6CF returns on their long term funds in the year
8::<. It became 69.:CF in the year 8:6:. *ut in the last year of the study i.e. 8:68 the
return on long term funds !as 6@.:BF. During the study period the SAIL earn more
return on their long term assets but in the last year this became lo! but the TATA
STEEL return have stable. %rom the above it can be concluded that both companies
have more variations. *ut the last year of the study the TATA STEEL LTD. have better
position than the SAIL.
To ta % D e b t3 E >u i t & R a t i o:
This ratio e'presses the relationship bet!een long term debts D shareholders- funds. It
indicates the proportion of funds !hich are ac2uired by long term borro!ings in
comparison to shareholders funds.
Tab%e . 'ra- No/0?: Tota% Debt3E>uit& Ratio 192
8::< :.68 6.:;
8::A :.8: 6.96
8:6: :.9A :.C;
8:66 :.96 :.@<
8:68 :.8A :.BC
0.
P
e
r
c
e
n
t
a
g
e
1.5
1
1.0
7
Total De#t$%&uity Ratio
1.31
0.67
0.58
39
0.31
0.29
0.5
0
0.12
0.2
2008 2009 2010 2011
2012
Year
s
SAIL
TATA STEEL
%rom the above table D graph it is clear that SAIL have :.68F debt e2uity ratio in the
year 8::<, it become :.8:F in the year 8:6:. *ut in the last year of the study i.e. 8:68
the debt>e2uity ratio !as :.8AF. ?n the other hand debt>e2uity ratio of the TATA
STEEL LTD. is 6.:;F in 8::< D the last year of the study i.e. 8:68 is :.BCF/
CONCLUSI ON
importance is given to financial performance. So, here an attempt is made by me
to compare the
financial performance of the selected units i.e. Steel Authority of India and TATA STEEL
LTD.
of !or"ing capital, analysis of fi'ed assets and analysis of profitability.
%inancial performance is an important yardstic" to measure a company operational and
financial efficiency. This aspect must form part of the company-s strategic and
operational thin"ing. Efforts should constantly be made to improve the financial position.
This !ill yield greater efficiencies and improve investor-s satisfaction.
SAIL and TATA STEEL LTD. both the companies are major players in steel
manufacturing sector in India. After ma"ing the comparative analysis of both the firms
!e find that performance of TATA STEEL LTD. is better than the SAIL It is so because
the 0et profit of TATA STEEL LTD. is greater than the SAIL Similarly the inventory
management of the TATA STEEL LTD. is better than the SAIL.
@ib%io$ra-&
1. Bhalla V.K. (9
th
ED.-2008), W!"#$% &a'#tal
(a$a%)*)$t+, A$*l
,-.l#/at#$0 ,1t. Lt2., ISB3-978-81-261-3507-03.
2. Bhatta/ha!4a 5!#0h#")0 (9
th
ED.-2007), W!"#$% &a'#tal
(a$a%)*)$t+, ,!)$t#/) 5all 6 I$2#a ,1t. Lt2., 3)7 D)lh#,
ISB3-1730-7-978-81-203.
3. &. 8))1a$a$2a* (1
0t
E2.), (a$a%)*)$t A//-$t#$%
a$2 9#$a$/#al
(a$a%)*)$t+, S-lta$ &ha$2 : S$0, ISB3-81-8054-013-8.
4. &ha$2!a ,!a0a$$a (6
th
ED.),9#$a$/#al (a$a%)*)$t+, Tata
(/ ;!a7-5#ll
,-.l#0h#$% &*'a$4 Lt2., 3)7 D)lh#. ISB3-0-07-058548-2.
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E2.-2008),
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0e! Delhi$ Ashish 1ublishing (ouse.
11.Kha$ ( = a$2 8a#$ , K (9#6th E2.), 9#$a$/#al (a$a%)*)$t+,
Tata (/ ;!a7- 5#ll ,-.l#0h#$% &*'a$4 L#*#t)2, 3)7 D)lh#,
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1ractice. 0e! Delhi$ 0e! Age International.
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0t
ED.-2009), W!"#$% &a'#tal
(a$a%)*)$t+, 5#*ala4a
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th
ED.), 9#$a$/#al (a$a%)*)$t+, V#"a0
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Lt2., ISB3-81-259-0638->.
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A COMPARATIVE STUDY OF FINANCIAL PERFORMANCE OF SAIL

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