FINANCIAL STATEMENT ANALYSIS

Financial statements are prepared primarily for decision-making. They play

a dominant role in setting the framework of managerial decision. But the
information provided in the financial statements is not an end itself as no
meaningful conclusions can be drawn from the statements alone. However, the
information provided in the financial statements is of immense use in making
decisions through analysis and interpretation of financial statements. Financial
analysis is ‘The process of identifying the financial strengths and weakness of the
firm by properly establishing relationship between the items of the balance sheet
and the profit and loss account. There are various methods or techniques used in
analyzing financial statements, such as comparative statements, trend analysis,
common-size statements, schedule of changes in working capital, fund flow and
cash flow analysis, cost-volume-profit analysis and ratio analysis.
Financial statements are mirror which reflects the financial position and
operating strengths and weaknesses of the concern.

SIGNIFICANCE OF FINANCIAL ANALYSIS:

The purpose of financial analysis is to diagnose the information contained in

financial statements so as to judge the profitability and financial soundness of the
firm. Just like a doctor examines his patient by recoding his body temperature,
blood pressure, etc. before making his conclusion regarding the illness and before
giving his treatment, a financial analyst analysis the financial statements with
various tools of analysis before commenting upon the financial health or weakness
of an enterprise. The analysis and interpretation of financial statements is essential
to bring out the mystery behind the figures in financial statements. Financial
statements analysis is an attempt to determine the significance and meaning of the
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financial statements data the forecast may be made of the future earnings, ability to
pay interest and debt maturities (both current and long-term) and profitability of
sound dividend policy.

The term financial statement analysis includes both ‘analysis’ and

‘interpretation’. A distinction should there fore, be made between two firms. While
the term ‘analysis’ is used to mean the simplication of financial data by methodical
classification of the data given in the financial statements, interpretation means,
‘explaining the meaning and significance of the data so simplified’. However, both
analysis and interpretation are interlinked and complimentary to each other
analysis is useless with out interpretation and interpretation with out analysis is
difficult or even impossible. Most of the authors have used the term ‘analysis’ only
to cover the meaning of both analysis and interpretation as the objective of
analysis is to study the relationship between various items of the financial
statements by interpretation. We have also used the term ‘financial statement
analysis’ or simply ‘financial analysis to cover the meaning of both analysis and
interpretation.

CONCEPT OF FINANCIAL STATEMENTS

A financial statement is a collection of data according to logical and

consistence procedures. The financial statements are prepared on the basis of
recorded facts. In the words of Metcalf and Titard. “It is process of evaluating the
relationship between component parts of financial statements to obtain a better
understanding of a firm’s position and performance.

The analysis and interpretation of financial statements is used to determine

the financial position and results of operations as well. A number of methods or
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devices are used to study the relationship between different statements. As effort is
mead to use those devices, which clearly analyze position of the enterprise. The
following methods of analysis are generally used:
1. Comparative Statement
2. Trend Analysis
3. Common-size Statements
4. Fund flow Analysis
5. Cash Flow Analysis
6. Cost-Volume Profit Analysis
7. Ratio Analysis

1. COMPARATIVE STATEMENT:

The comparative financial statement shows the financial position at

different period of time. The elements of financial position at 2 or more
periods. Two financial statements (balance sheet and income statement) are
prepared in a comparative from for financial analysis purposes. These
statements enable an in-depth study of financial position operating results.
Comparative statement can be prepared for both income statements and balance
sheet.
2. TREND ANALYSIS;

Trend analysis is a technique with the help of which the financial

statements can be analyzed by computing trend for a series of information. This
method determines the directions in the data and establishes the percentage
relationship that each item in the statement bears to the same item in the base
year.

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3. COMMON – SIZE STATEMENT:

This statement indicates the relationship of various items with some

common items (expressed as percentage of common item). In the income
statement the sales figure is taken as base and all balance sheets the total is
expressed as percentage of sales. Similarly in the other figures are expressed as
a percentage to this total. The percentages so calculated can be easily compared
with the corresponding percentages in other periods and meaningful conclusion
can be drawn.

4. FUNDS FLOW STATEMENT:

This statement is prepared in order to reveal clearly the various sources

where from the funds are procured to finance the activities of a business
concern during an accounting period.

5. CASH FLOW STATEMENT:

This statement is prepared to know clearly the various sources of cash in

flows and cash outflows. It is helpful in evaluating the current liquidity of a
business concern. Thus it is helpful in short – term financial analysis.

6. COST VOLUME PROFIT ANALYSIS:

Cost volume profit analysis is a technique for studying the relationship

between cost, volume and profit. Profit of an undertaking depends upon a
large number of factors. But the most important of this factor are the cost of
manufacture, volume of sale and the selling prices of the products. In the

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 worked of HERMAN C. HERSER, the most significant single factors in profit
planning of the average business is the relationship between the volume of
business, cost and profits. The CVP relationship is an important tool used for
the profit planning of a business.

NEED FOR THE STUDY

In the modern oriented economy “finance” is the basic foundation of all

kinds of economic activities. The success of the company to a great extent depends
upon its financial performance. A careful and well planned financial management
is needed for rising of funds and utilizing them effectively.

The financial performance of a company greatly influences its operational

results and business efficiency.

The financial performance of a company influences its production,

marketing and other functions and consequently efficient rise of the company’s its
growth risk and Profitability.

A Financial ratio is the relationship between two accounting figures

expressed mathematically. Ratio analysis is a widely used tool of financial
analysis. What the ratios do is that they reveal the relationship in more
meaningful way so as to enable us to draw conclusion from them. The rationale of
ratio analysis lies in the fact that it makes related information comparable.

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OBJECTIVES OF THE STUDY:

 To evaluate the performance of the organization over the last five years.
 To evaluate the profitability of the company.
 To evaluate the liquidity position of the company.
 To examine the efficiency in the utilization of finance.
 To draw conclusions and to suggest suitable measures to overcome
problems, if any to improve its performance.

SCOPE OF THE STUDY:

The present study will reveal the financial performance of the company
covering purely financial data supplied by the company’s financial statements
through RATIO ANALYSIS. The Ratio Analysis are analyzed with financial data
along with interpretation.

METHODOLOGY:

Methodology is a systematic procedure of collecting information. The

collection of data is done through two principles sources viz.,
1. Primary data
2. Secondary data

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PRIMARY DATA: It is the information collected directly without any reference.
In the mainly interviews concerned officers and staff either individually or
collectively. Some of the information had been verified or supplemented with
personnel observation, the data is collected through conducting the personal
discussions with the officers of the SPONGE IRON INDIA LTD.

SECONDARY DATA: The Secondary data was collected from already published
sources such as pamphlets, annual reports, written and internal records.
1. Collection of required data from annual reports of SIIL.
2. Reference from textbook and journals relating to financial management.
3. Articles published in business dailies like Economic times, Business times etc.

PERIOD OF STUDY:

To study the comparative financial statement analysis of SIIL, the research

had chosen five years period from 2004-05 to 2008-09 as period of study.

LIMITATIONS:

 The study undertaken for the company includes only ratios as a technique of
analysis.
 This may not reflect the whole financial position of the company.
 The conclusion drawn from the annual figures provided by the company
may not give accurate financial position of the company.
 While calculating the percentages, approximations are more to the nearest
figures. They may not give true picture of the study.
 The performance shown in the project is limited to the data provided by the
company. Hence it is limited to information provided by them.
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RATIO ANALYSIS

Ratio is an expression of the quantitative relationship that exists between the

two numbers. In simple language ratio is one number expressed in terms of another
and be worked out by dividing one number by the other. It shows the relationship
between two figures.

Ratio analysis is a widely used tool of financial analysis. It is defined as the

systematic use of ratios to interpret the financial statements so that the
strengths and weakness of firm as well as its historical performance and current
condition can be determined.

The relationship between two or more accounting groups is called financial

ratios. A financial ratio helps to summarize a large mass of financial data into a
concise form and to make meaningful interpretation and conclusion about the
performance of the firm.

A ratio may be expressed either in proportion or as rate or as percentage. A

ratio may take the form of proportion. Here the figures of the two items used for
computing the ratio are expressed in common denominator. Examples are current
ratio = 5:3 acid test ratio 1:3:1 etc,.

NATURE:

The ratio analysis of financial statement stands for the process of

arrangements of data computation of ratios, interpretation of the ratios

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.However ratio analysis is not an end itself. It is only a means of better
understanding of financial statements and weakness of a firm. Collection of more
ratios does not serve any purpose, unless several appropriate ratios are
analyzed and interpreted.
The following are the four steps involved in ratio analysis.

 Selection of relevant data from the financial statement depending upon the
objectives of the analysis.

 Calculation of appropriate ratios from above data

 Comparison of calculated ratios with the ratio of the same firm or the
ratios developed from projected financial statements or the ratios of some
other firms or the comparison with the ratios of the industry to which
the firm belongs.

 Interpretation of ratios.

MANAGERIAL USE OF RATIO ANALYSIS:

 Ratio analysis helps in decision making from the information

provided in the financial statements.
 Ratios enable the financial analyst to summarize and simplify the
voluminous financial data.
 The trend ratios enable the analyst to find out whether the firm has
been improving its performance or not over the year.
 Ratios are helpful in identifying the problem areas of firm and this
will make the management to take necessary corrective measures to

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 improve the results in future.
 Ration analysis helps to formulate policies for future including the
capital expense decisions.
 Ratio analysis is an important tool for minimizing costs.

Advantages of Ratio Analysis:

 Useful in financial position analysis.

 Useful in simplifying accounting figures.

 Useful in assessing the operational efficiency.

 Useful in forecasting purposes.

 Useful in locating weak spots of business.

 Useful in comparison of performance.

Importance of the Ratios:

1. Aid to measure General Efficiency:

Ratios enable the mass of accounting data to be summarized and simplified.

They act as index of the efficiency of the enterprise. As such they serve as an
instrument of management control.

2. Aid to measure Financial Solvency:

Ratios are useful tools in the hands of management and other concerned to
evaluate the firm’s performances over a period of time by comparing the present

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ratio with the past ones. They point firm’s liquidity position to meet its short term
obligations and along term solvency.

3. Aid in Forecasting and planning:

Ratio analysis is an invaluable aid to management in the discharge of its

basic function such as planning, forecasting, control etc. The ratios that are
derived after analyzing and scrutinizing the past result help the management to
prepare budget to formulate policies and to prepare the future plan of action etc.
4. Facilitate decision-making;

It throws light on the degree of efficiency of the management and utilization

of the assets and that is why it is called survey or of efficiency. They help
management in decision-making.

5. Aid in corporative Action:

Ratio analysis provides inter firm comparison. They highlight the factors
associated with successful and unsuccessful firms. If comparison shows an
unfavorable variance, corrective actions can be initiated. Thus, it helps the
management to take corrective action.

6. Aid in Intra Firm comparison:

Intra firm comparisons are facilitated. It is an instrument for diagnosis of
financial health of an enterprise. It facilitates the managements to know whether
the firm’s financial position is improving or deteriorating by setting a trend with
the help or ratios.

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 7. Act as a Good Communication:
Ratios are an effective means of communication and play a vital role in
informing the position of and progress made by the business concern to the owners
and other interested parties. The communications by the use of simplified and
summarized ratios are more easy and understandable.

8. Evaluation of Efficiency:
Ratio analysis is an effective instrument which, when properly used, is
useful to assess important characteristics of business liquidity, solvency,
profitability etc. a study of these aspects may enable conclusions to be drawn
relating to capabilities of business.
9. Effective Tool:
Ratio analysis help in making effective control of the business measuring
performances, control of cost etc. Effective control is the keynote of better
management. Ratio ensures secrecy.
Figures, in their absolute forms. Shown in the financial statements are
neither significant nor able to be compared. In fact, they are dump. But ratios have
power to speak.

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DESIGN OF THE STUDY:

CHAPTER-I: Deals with Introduction about RATIO ANALYSIS, its need,

objective, scope, data methodology, limitations and design of the study.

CHAPTER- II: Deals with Industry profile regarding growth and downfalls of
the present iron industry

CHAPTER-III: Deals with introduction to profile of the SPONGE IRON INDIA

LTD, PALVANCHA, KHAMMAM.

CHAPTER-IV: Deals with Analysis and Interpretations. RATIO ANALYSIS

are analyzed and interpreted in a simple and Understandable manner.

CHAPTER-V: Deals with Conclusions and Suggestions. In this Chapter the

company’s performance will be quoted in ratios/ percentages.

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Industry Profile

Sector structure/Market size

The steel industry in India has been moving from strength to strength and
according to the year-end review by the Press Information Bureau, India has
emerged as the fourth largest producer of steel in the world and the second largest
producer of crude steel.

Significantly, state-owned steel maker, Steel Authority of India (SAIL), which

reported a net profit of US$ 571 million in January-June 2009, has become the
most profitable steel company globally, beating steel majors such as ArcelorMittal,
Posco, Bao Steel and Nippon in the half yearly profits.

Production

Steel production reached 28.49 million tonne (MT) in April-September 2009.

The National Steel Policy has a target for taking steel production up to 110 MT by
2019–20. Nonetheless, with the current rate of ongoing greenfield and brownfield
projects, the Ministry of Steel has projected India's steel capacity is expected to
touch 124.06 MT by 2011–12. In fact, based on the status of memoranda of
understanding (MoUs) signed by the private producers with the various state
governments, India's steel capacity is likely to be 293 MT by 2020.

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Consumption

India accounts for around 5 per cent of the global steel consumption. Almost 70
per cent of the total steel used is for kitchenware. However, its use in railway
coaches, wagons, airports, hotels and retail stores is growing immensely.

India's steel consumption rose by 6.8 per cent during April-November 2009 over
the same period a year ago on account of improved demand from sectors like
automobile and consumer durables.

A Credit Suisse Group study states that India's steel consumption will continue to
grow by 16 per cent annually till 2012, fuelled by demand for construction projects
worth US$ 1 trillion.

The scope for raising the total consumption of steel is huge, given that per capita
steel consumption is only 35 kg – compared to 150 kg across the world and 250 kg
in China.

Steel players like JSW Steel and Essar Steel are increasing their focus on opening
up more retail outlets pan India with growth in domestic demand. JSW Steel
currently has 50 such steel retail outlets called JSW Shoppe and is targetting to
increase it to 200 by March 2010. They expect at least 10-15 per cent of their total
production to be sold by their retail outlets.

Essar Steel which currently has over 300 retail outlets across the country, plans to
set up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through
the retail route in two years.

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Exports

Out of India's annual iron ore production of more than 200 MT, about 50 per cent
is exported.

India's iron ore exports more than doubled to 9.3 million tonne in October 2009 as
compared to 4.4 million tonne in the same month a year ago on the back of
increase in demand from Chinese steel producers, as per a joint study by a group of
iron ore exporters.

Iron ore is a key input in steel making. The country’s iron ore exports during April-
October 2009 period grew 20 per cent over the year ago period to 53 million tonne,
as per the study.

Investments

A host of steel companies have lined up major investment proposals. Furthermore,

with an expanding consumer market, the Indian steel industry is likely to receive
huge domestic and foreign investments.

The domestic steel sector has attracted a staggering investment of about US$ 236
billion, according to the Minister of State for Steel A Sai Prathap.

This consists of nearly 222 MoUs signed between the investors and various state
governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West
Bengal.

• According to the Investment Commission of India investments of over US$

30 billion in steel are in the pipeline over the next 5 years.
• Tata Steel has raised US$ 500 million by issuing 'global depository receipts'
(GDRs) aiming at expansion of its Jamshedpur plant and overseas mining
projects.
• The state-owned Steel Authority of India Ltd (SAIL) will invest US$ 724.12
million to set up a 4-million tonne per annum steel mill at its Bhilai Steel
Plant.
• SAIL is also planning to set up a 12-million tonne plant in Jharkhand.

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 • Stainless steel manufacturer and exporter, Varun Industries, is setting up a
US$ 171.63 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.
• India’s largest engineering conglomerate Larsen & Toubro (L&T) and state-
owned Nuclear Power Corporation of India Limited (NPCIL) have formed a
US$ 370.09 million joint venture for specialised steel and forging products.

Government Initiative

Subsequent to the recent fall in international prices of commodities and to protect

Indian producers, the Indian government has announced some changes in customs
duty rates, which were effective from November 2008.

The government has removed full exemption of customs duty on some industrial
and agricultural commodities. Iron and steel products like pig iron, spiegeleisen,
semi-finished products, flat products and long products are now subject to a basic
custom duty of 5 per cent ad valorem.

The Indian government plans to invest over US$ 350 billion in industries related to
infrastructure and construction which will give a fillip to the steel sector.

Moreover, in the Union Budget 2009-10, the government has made a 23 per cent
hike in allocation for highway development and US$ 1.034 billion increase in
budgetary support to Railways which will further promote the steel industry.

Road ahead

While the demand for steel will continue to grow in traditional sectors such as
infrastructure, construction, housing, automotive, steel tubes and pipes, consumer

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durables, packaging, and ground transportation, specialised steel will be
increasingly used in hi-tech engineering industries such as power generation,
petrochemicals, fertilizers, etc. The new airports and railway metro projects will
require a large amount of stainless steel.

According to an estimate, with the growing need for oil and gas transportation
infrastructure, a US$ 118 billion opportunity is waiting to be tapped by steel
manufacturers in the next five years. Indian steelmakers are set to make the most of
booming global demand for steel pipes and tubes with the government
withdrawing the 10 per cent duty on the exports of these products. According to a
study by ICICI Direct, Indian steel companies are likely to get 19 per cent of the
total global demand in the years to come.

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COMPANY PROFILE

The sponge iron as of late come up as a major input material for steel
making through electric furnace route both electric furnace and induction furnace.
The steel industry is slowly diverting itself from blast furnace route to electric
furnace route and the requirement of sponge iron is increasing is very fast. The
steel making furnace in the eastern region use average 70% sponge iron in the feed
material for steel making.

The steel is today considered as the backbone of India economy. The growth
of economy as a direct relation with the demand of steel. With the present steel
intensity index. Considering the GDP projection by the Govt of India, growth of
steel demand will be around 11% annually. It is the universal accepted the Indian
economy is growing at a very high rate presently and the demand for steel is also
showing up ward trend.
No. of units in operation - India 283
Now DRI units have spread over the states of Orissa, Jharkahand, Chethisgarh,
West Benagal, Karnataka, Tamilnadu, A.P, Gujarath and Goa .India is the largest
producer of the Sponge Iron in the world. In the year 2006 India produced 13.9
Million Tones.
Today India produces 13.9 million tons of sponge iron, out of which 4.2 million
ton is as based and remaining 9.7 million ton is coal base. India has a proven
reserve of 410 million ton of high grade iron ore another 440 million ton of high
grade iron ore which will be established. India has total 9992 million ton of iron
ore reserves (as per IBM report of 1995).

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 India has sufficient non-coking coal through of high ash low fixed carbon
grade. Coal is used as a reducing for sponge iron making in the furnace. The
availability of scrap of required quantum is unlikely and therefore scraps needs to
be replaced more and more by DRI.

Local supply of scrap is diminishing as generation of scrap in India due to

improvement of technology is getting continually minimized. As per World Steel
Dynamics (WSD) - the Global shortage of scrap will reach 68 million ions in the
year 2010.

Thai means the scrap price will go up and availability will be a problem.
Today the international price for scrap is around US390. Due to soaring price of
iron ore and coke, blast furnace is being set up in the countries where iron ore or
coking coal is available.

With resources available in India -- Sponge Iron -- Electric Furnace Route is

the most viable option for steel making. As per MARRAK.ESH Round Table - the
bond rate of import duty will go down further. And foreign countries are likely to
invade Indian market. We must produce steel at a cheaper cost to remain
competitive and control over domestic market. DRI based steel making is therefore
the only answer.

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BACK GROUND OF THE SPONGE IRON INDIA LIMITED

Sponge Iron India Limited (Sill), an undertaking of government of India and

the government of Andhra Pradesh, has successfully set up and commissioned
south East Asia's first sponge iron plant of 30000 tones per annum capacity at
Paloncha, Khammam district Andhra Pradesh in June 1980 with the assistance of
United Nations Development Programmed (UNDP). The capacity of the Plant
subsequently expanded to 60000TP. Taking note of the successful operation of the
plant in establishing of sponge iron from Lump Iron ore and non-cooking coal
locally available. Government of India sanctioned in 1982 a scheme for doubling
the capacity to 60000 tones ore annum by the addition of a second kiln of like
capacity.

The second unit was implemented with the in-house engineering expertise
and 95% of the plant and machinery was procured from indigenous sources by
suitably modifying the designs and adopting them to India equipment. The
expansion unit was completed on schedule and went into regular operation by
November 1985. Both the units are presently operating at full rated capacity,
producing high quality sponge iron, which is being use by many electrical Arc
furnaces (EAFS) all over the country for production of steel.
Since the commencement of operations of the first unit in 1980 and with the
addition of the second unit in 1985, the company's performance has
been extremely satisfactory, operations both the' units at near rated capacity.
The financial performance of the company has also been sound with profits being
generated from very first year of operation.
Subsequently in 1987 the company set up a cold briquette plant for
producing high quality/high density sponge briquettes out of sponge iron fines of 1
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mm to 3mm size fraction which were at that time being considered as waste, as
EAF's find it difficult to use the same unless agglomerated.

Based on the experience gained in the operation and successful

implementation of the expansion unit designed and engineered by APSSDC, the
company has acquire capability of rendering consultancy services in the field of
establishment of coal based sponge iron plant. In this direction the company has
rendered and his rendering such services to various clients in India and abroad.

Talking into account of extensive laboratory and test facilities available with the
company, UNIDO had accorded recognition to APSSDC as a consultant in this
field.

SUBMERGED ARC FURNACE FACILITY FOR MANUFACTURE OF

HIGH GRADE PIG IRON

For the direct reduction process using lump iron ore, It is necessary that the
fed raw materials i.e., Iron ore and coal arc crushing and-screening to the required
size. In the crushing and screening operations, considerable quantities of fines
(both iron ore and coal) are generated. While the entire quantity of coal fines is
being utilized in the kiln by the special coal injection system developed bf the
company.

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Iron ore fines do not find ready use and are required to be dumped for every turn of
sponge iron produced approximately 0.6 to l.0 tones of iron ore fines being
dumped as waste similarly during sponge iron production, about 250 kgs of un
burnt and partially burnt coal in the form of char and about 50 kgs of sponge iron
fines (below 1 mm size)' are generated per tones of prime sponge iron produced
which also do not have any commercial use and are presently being dumped as
waste.

In order to utilize the iron are fines the iron ore fines that are generated
during the crushing operations, it is proposed to install a submerged Arc Furnace
(SAF) for production of 45,000 TPA of high grade pig iron, low in phosphorous
content. For reduce energy consumption in the SAF, the iron ore fines are would,
be pre reduced to metallization level of 75-80% in the rotary kiln and the
reproduced fines would then be smelted in the SAF. A trial campaign was
undertaken at APSSDC's plant, which had established that iron ore fines, could be
successfully reduced to the above levels of metallization without any difficulty.
The process of reproduced material would also improve the production levels of
the kiln, since the metallization levels being aimed at are lower.
Low phosphorous Pig Iron finds a extensive use in the manufacture of
castings. There has been a recurring shortfall in the country between the industries
requirements and the availability of low phosphorous, from the domestic suppliers.
As a result sizeable quantities of low phosphorous Pig Iron are presently being
imported year after year expanding precious foreign exchange.

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WASTE HEAT RECOVERY BASED POWER GENERATED PLANT

In the Rotary Kiln process the waste gases generated are passed through an
after burning chamber before they are cooled and cleaned in a venture type
scrubber and let off through the stack. The hot waste gasses leaving after
combustion chamber of the rotary kiln are a t temperature of about 100 to 900
degree centigrade and carry considerable amount of sensible heat which could be
utilized for power generation through waste heat recovery boiled and steam turbine
generation system.

Taking into account the quantum of waste gasses that w9uld be generated
and the minimum sensible heat that would be available, it is anticipate that about
5MW of electric power could be generated which would be adequate to meet the
energy requirement of the Submerged Arc Furnace.
Fluidized bed combustion boiler of 15tph capacity was set up during 1997.

SPONGE IRON

It is the product obtained upon direct reduction of iron ore with coal
reluctant and fuel.
 Has got its name since the products microscopic structure appears to
be like honey comb.
 It is used as a substitute material for steel scrap in making steel
through electric arc furnace.
 Production process does not involve change of state.

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THE SILL ROUTE OF SPONGE IRON RAW MATERIALS

The raw materials used in SILL plant are iron ore, non-cooking coal and
limestone. A small quantity of fuel oil is also used for the initial heating of the kiln.
The plants are capable of processing various combinations of iron ore and non-
cooking coal drawn from any location.

RAW MATERIAL PREPARATION AND HANDLING

At SILL, the raw materials are fed to a ground level 'hopper 'by dump trucks
and conveyed to the crushing plant through a vibratory feeder and conveyer.
Iron ore: which is received in the size range of up to 100 mm is crushed in a cone
crusher to a size of 5 to 20mm depending upon the basic characteristics of the
materials. The crushed ore is washed in a 'scrubber' and screened to remove the
fines.
Coal; it is crushed between 0 to 15mm size range in an impact or. The coal fines of
below 3mm are used In the burner through discharge end of the kiln.
Limestone: it is crushed to a finer size, up to 3mm, the range being based on the
extent of desulphurization required. The prepared raw materials are conveyed to
the stock house.

STOCK HOUSE:

The stock house has a capacity of storage two days -requirements of coal,
one and half days stock iron ore and about a week's requirement of limestone.

25
ROTARY KILN AND COOLER:
The principal equipment in the reduction plant is a rotary kiln of 3 meters
diameter and 40 meters long, and a rotary cooler of 2.2meters diameter and
20meters long. Metered quantities of prepared raw materials are delivered to the
rotary kiln through weigh feeders, iron ore and coal along with limestone travel
from feed end of the kiln to their discharge end since the kiln is inclined and rotate
at speeds ranging from 0.3 to.0.9 rpm.

MANUFACTURING PROCESS:

At the start of operations, the kiln is heated by burning fuel oil/coal from
discharge end. Thereafter, the evolved in the chemical reactions inside the kiln is
utilized to maintain chemical reaction inside the kiln is utilized to maintain a
temperature of 'about 1000 degree centigrade inside the kiln.
Air is admitted into the kiln through air tubes, which are fed, from
electrically driven fans located on the kiln shell. The temperature inside the kiln is
measured by thermo couples. Air admission is regulated so as to maintain a
uniform temperature profile inside the kiln.
The raw materials are crushed and screened in raw material preparation plant
and stored in a day bin. The processed raw materials are conveyed to the rotary
kiln, which is maintained at 1ooo centigrade
The air required for combustion inside the kiln is supplied through shell fans
mounted on kiln. Part of coal is burn from the discharge end to maintain the
temperature in kiln. One, which is present inside, travels from one end to the other
end in the kiln and its rotary motion and in process genus reduced to sponge iron
due to presence of carbon in coal.

26
 The exhaust flue gasses from the furnace flow through the high efficiency
venturi scrubber and the clean and cool gasses vented through the 40m high stack.
The kiln out put consists of hot sponge iron and char flow through the rotary cooler
where the product is cooled by indirect spray of water. The cooled product is
screened and magnetically separated and sponge iron and char are stored
separately. Kiln off gasses flow through dust setting chamber and then venture
scrubber where water is'-sprayed for the settlement of dust.
The contaminated water is sent to a thickener where the solids are allowed to settle
and separated water is recycled again to scrubber. The slurry is pumped to sludge
ponds after neutralization.

All Kiln off gasses before entering wet scrubber they are flown through waste
heat recovery boiler, where the sensible heat 01 the gasses is utilized for generating
the steam of approximately 12 tph at 440c and 48bar pressure from kiln. This
steam combined with steam generator through the fluidized bed boiler of
approximately 15tph (at 440c and 48 bar) and sent to the turbine for generating.

SIGNIFICANCE OF THE TECHNOLOGY

As against the traditional technology of producing steel in coke oven/blast

furnace route, direct reduction process to produce Sponge Iron using non-cooking
coal in a Rotary kiln and subsequently meeting the same in EAF's has gained
prominence and has received considerable attention in the quantitatively and
qualitatively.

However this technology option requires a strong electric power supply grid
for meeting the highly fluctuating power requirements of the, EAF's For steel
making. This is of particular relevance of our country where sustained and

27
adequate availability of electric power is a major constraint. Also, due to the fact
that Indian Iron Ores contain a high percentage of silica and
Aluminium.

The sponge Iron thus produced contains a high proportion of

gangue constituents which need to be removed in steel making, leading to higher
slag volumes and lower yields. This imposes restrictions on the percentage
of lower yields. This imposes restrictions on the percentage of sponge iron that
can be used along with the scrap for steel making in EAF's. Further, most of the
high-grade iron ores are fragile in nature contributing the generations of fines
during transport and in processing into the sponge iron by direct reduction
technology. Hence there exists a need to explore alternative and more
attractive/economical technologies for steel making using the direct reduction'
process. Where by highly fragile ores could be effectively utilized. The present
proposal initially envisages establishment of the technology for manufacture of
high-grade pig Iron using the specially designed SAF.

The pig iron thus produced could be consumed directly or subjected to

further treatment for making high quality steel. Therefore besides establishing the
technology for producing high grade (low phosphorous) pig iron, which is very
much demand in the country, there above scheme would pave the way for
developing a new route of steel making.
By this development, the future steel production in the country could also be based
on Direct Reduction Submerged Arc Furnace route where by relieving dependents
on metallurgical coal whose resources are depleting. Also it would not impose a
major pressure on the power grid unlike the DREAF route as the entire power

28
requirement for operating the SAP could be met from. In plant power generation,
using the waste heat in kiln off gases of the reduction plant.

The project has been sanctioned by government of India on the 17th

February 1989 at, an estimated cost of Rs. 16.20 crores. The implementation
schedule is 30 months. The unit when it goes into regular operation would provide
employment to about 500 people directly and more than 1200 persons indirectly, in
the tribal areas of Paloncha in Khammam district, Andhra Pradesh.

DIVISION DEPARTMENT

The various Divisions of SILL are furnished hereunder

1) Works Division

2) Engineering & Project Division

3) Personal & Administration Division

4) Finance & Accounts Division

29
 I) WORKS DIVISION:

Manpower wise it is the major division in SILL, which takes care of

activities, connected to plant operations, production and day-to-day maintenance
works, the work division has mainly 9 departments they are.

a) Mechanical Department: This department attends all the mechanical works

relating to machineries which include repairs, replacements fitting and other
maintenance works as required from time to time.

b) Electrical Department: This department takes care of electrical works in the

plant as well as colony maintenance.
The electrical department provides adequate lighting in and around the plant
premises and attends the repair works as and when needed.

c) Process Department: The Process Department takes care on manufacturing

process of sponge iron production and other related bye products.

d) Raw Materials Departments: This Department take care of the stock quality
of raw material like coal, iron ore, lime stone etc., being received from different
parties this department has also one contract cell which takes care of purchase of
the require raw materials from the respective mines.

e) Laboratory & Quality Control Department: This Department stocks the

samples ad quality composition of sponge iron after they are produced It measures
the percentage of product and other by products.

30
f) Sales & marketing: the department concentrates mainly on sale of sponge iron
production and other related bye products and plays an important role in
identifying the buyers.

g) Stores Department: this department is responsible to keep the spares,

materials, and tools etc, purchased by the company in safe custody and maintains is
inventory properly.

h) Purchase Department: procurement of all the spare, parts needed to the

company will be purchased through this department by following stipulated
procedure.

i) Civil Department: The civil department attends all the civil maintenance work
like plumbing, masonry, carpentry, sanitary works, supply of drinking water to the
plant and as well as the colony.

2) ENGINEERING & PROJECTS DIVISION:

The E&P division takes works care of construction of pants, new projects,
fabrication works, erecter, expansion works etc. Apart from the above, it extends
consultation, Engineering technology to the others with in our country and aboard
by the available technocrats.
3) PERSONAL & ADMINISTRATION:
P&A Division plays vital role in formulating polices, procedures, rules and
regulations and implementing the same for the benefit of the employees as well as
the prosperity of the company. It maintains harmonious industrial relation in the
company. In SILL, p & A division has the following Department.

31
 a) Personal Department (established section)

b) Administrative Department

c) Industrial Relations

d) Official Language cell

PERSONAL DEPARTMENT:

The department is attending the following works

1) Manpower planning, rules regulations, policy, procedures

2) Recruitment, promotion, conformation transfers

3) Sanction of annual increments, other incentives, etc

4) Engagement of trade apprentices and other trainees

5) In plant training /project work.

6) Confidential Dossiers/performance appraisal etc,

7) Pay fixation/anomalies.

8) Palmist questions/Returns/Reports and other statically data

9) Disciplinary matters

10) DA (Dearness Allowance) and other allowances.

11) Leave travel concession (LTC)

12) Maintenance of service records/ personal files/confidential files of all the

employees

ADMINISTRATION DEPARTMENT:

1) Furniture's, fixtures, and office accommodation

2) Stationery

32
 3) Training matters / works education

4) Housing allotment

5) Guest house

6) Communication

7) Club/ citizens committee/estate matters/township security

8) Township cleaning sanitation

9) No objection certificates/ salaries certificates/services certificates

10) Advance in clouding medical advances

11) School/bank/post office/LPG outlet/shopping complex etc.

12) Reimbursement of local travel expenses (RLTE)

13) Medical loans /medical scheme/ interest subsidy on housing loans^

INDUSTRIAL RELATION:

1) Matters connected to contract Labours(R&A) act, 1970

2) Maters connected with labours enactments

3) Accident settlement

4) Liveries

5) Employees participation in management

6) Union matters/ collective bargaining

7) Statutory returns /ir reports/statistics

8) Time office/ canteen/ security/transport/statistic

9) First aid centre/township dispensary

33
 10) Suggestion scheme

11) Death claims/settlements

12) GSLI scheme/death benevolent scheme

14) Central dispatch.

OFFICIAL LANGUAGE CELL:

F&A DIVISION:

The division has mainly 3 sections. They are

1) Finance and accounts

2) EDP

3) Legal cell

F&A: -

1) Financial concurrence

2) Payments, suppliers, contractors

3) Salaries

4) Provident fund

5) Cash distribution, bank transaction

6) Internal stock verification (RM stores and spares fixed assets and
furniture)

7) Trail balance and general ledger

8) Bank reconciliation

9) Attending statutory audit /internal audit and proprietary audit

10) Penalization of accounts (profit & loss, balance sheet}

34
EDP:

1) Liaison work with out side agencies

2) Computer used out put of PSL, subsidiary ledgers day books etc

3) Balance sheet, trail balance

4) Liaison work with weigh bridge system

5) Liaison work with marketing (developing programs, software)

LEGAL:

1) All matters connected to legal/court cases

2) Board information

35
THE COMPANY RECIEVEP FOLLOWING AWARDS IN THE FIELD
SHOWING BELOW:

 1982 -> Productivity and best industrial relation award from Govt. of

Andhra Pradesh

 1983 -> Productivity and best industrial relation award from Govt. of

Andhra Pradesh

 1983 -> Best industrial relation award to employees union

 1983 -> Best technological development in Research and Development -By

an industrial organization from APCCI.

 1985 -> Best productivity and best industrial relation award from

Government of Andhra Pradesh

 1985 -> National Safety Award from National Safety Council.

 1992 -> India Gandhi Memorial best Industrial award.

 1993 -> Awards for its outstanding contribution towards Harmonious

industrial relation and labour welfare.

 1993 -> 33rdAll Indian National Unity Award,

 1997 -> Commendation certificates for its outstanding towards

harmonious Industrial relation and lab our welfare.

 Merit certificate for Excellency in the achievement of MOV target in the

year 20023 - 2004 from Ministry

36
Classification of Ratios:-
Ratios are classified in a no of ways keeping in view the practical purpose.

1. Liquidity Ratios
2. Leverage Ratios
3. Turnover Ratios
4. Profitability Ratios

37
 LIQUIDITY OR SHORT TERM SOLVENCY RATIOS
CURRENT RATIO:
Meaning:
This ratio establishes the relationship between Current Assets and Current
Liabilities.

Components:
1 Current Assets: This means the assets which are held for their conversion
into cash within a year.
2 Current Liabilities: This means the liabilities which are expected to be
matured with in a year.

Computation:
This ratio is computed by dividing the current assets by current liability.
Generally 2:1 is considered ideal for a concern.

Formula:
Current Assets
Current ratio = --------------------------------
Current Liabilities
Significance:
It indicates the amount of current assets available for each current liability.
Higher the ratio greater the margin of safety for creditors and vice versa. However
too high or too low ratio calls for further investigation since the too high ratio may
indicate the presence of idle funds and too low ratio may indicate the over trading
or under capitalization. Traditionally a current ratio of 2:1 is considered to be a
satisfactory ratio.

38
CURRENT RATIO
Years Current Assets Current Ratios
Liabilities
2004-05 6010510047 14165933.9 0.4246
2005-06 23035251.82 18163160.9 1.268
2006-07 32645136.92 24730663.1-5 1.32
2007-08 27046258.46 31251597.44 0.86
2008-09 30422408.57 33351639.85 0.912

INTERPRETATION:
1. The current ration of SIIL is 2004-2009, 0.4246 - 0.912,

2. the current ratio is less than 2

3. It indicates that the business doesn’t enjoy adequate liquidity.

39
QUICK RATIO:
Meaning:

This ratio establishes the relationship between quick assets and current
liabilities.

Components:
1 Quick Assets: This means those current assets, which can be converted into,
cash immediately or at a short notice without a loss of value.
2 Current Liabilities: This means the liabilities which are expected to be
matured with a year.

Computation:
This ratio is computed by dividing the quick assets by current liabilities.
Generally 1:1 is considered ideal for a concern.

Formula:

Quick Assets
Quick Ratio = ----------------------
Current Liabilities

Significance:
It indicates the amount of current assets available for each current liability.
Traditionally a quick ratio of 1:1 is considered to be a satisfactory ratio.

40
QUICK RATIO
Years Quick Assets Quick Liabilities Ratios
2004-05 2016292.53 14165933.9 0.142
2005-06 14458546.82 18163160.9 0.79
2006-07 24018074.92 24730663.15 0.971
2007-08 19958634.46 31251597.44 0.638
2008-09 22605879.57 33351639.85 0.677

INTERPRETATION:
1. The quick ratio of SIIL in 2004-09, 0.142-0.677.

2. Quick ration of 1 is usually considered as ideal.

3. A quick ratio of less than 1 is indicative of inadequate liquidity of the

business.
4. A very high quick ratio is also advisable as funds can be more
profitably employed.

41
ABSOLUTE LIQUID RATIO:

Meaning:
This ratio establishes the relationship between absolute liquid assets and
current liabilities.

Components:
1. Absolute quick assets (cash in hand, cash at bank, short term or temporary
investment).
2. Current Liabilities: This means the liabilities which are expected to be matured
with a year.

Computation:
This ratio is computed by dividing the absolute quick assets by the current
liabilities.

Formula:
Absolute Liquid Assets
Absolute Liquid Ratio = ------------------------------
Current Liabilities
Significance:

The cash ratio of magnitude 0.5:1 may be satisfactory firm need to

maintain too much of high super liquid asset. If the super liquid assets are too
much in relation to the current liabilities then it may be affect the profitability of
the firm, as the super liquid assets are the most unproductive assets of all.

42
ABSOLUTE LIQUID RATIO
Years Absolute Liquid Current Ratios
Assets Liabilities
2004-05 3653207 14165933.9 0.257
2005-06 3752741 18163160.9 0.206
2006-07 4137274 24730663.15 0.167
2007-08 1105939 31251597.44 0.0353
2008-09 1169381 33351639.85 0.0350

INTERPRETATION:
1. The absolute liquid ratio of SIIL in 2004-05, it is 0.257.

2. In the year 2005-06 the ratio decreased to 0.206.

3. The ratio in the year 2006-07 was still decreased to 0.167.
4. Next year i.e. 2007-08 the absolute liquid ratio is 0.0353.
5. The absolute liquid ratio in the year 2008-09 is 0.0350.
6. The calculation purposes it is taken as ratio of absolute liquid asset to

current liabilities.
LEVERAGE OR CAPITAL STRUCTURE RATIOS

43
DEBT EQUITY RATIO:
Meaning:
This ratio establishes the relationship between long term debts and
shareholders fund.
Components:
1 Long Term Debts that mean long term loans whether secured or unsecured.
Ex: Debentures, bonds, loans from financial institutions.
2 Shareholders Funds (equity share capital+ Preference share capital+ reserves
&surplus-Fictitious assets[if any]

Computation:

This ratio is computed by dividing the loan term debts by shareholders fund.
This ratio is usually expressed ass a proportion of 2:1

Formula:
Long Term Debts
Debt Equity Ratio = ----------------------
Shareholders funds
Significance:
It indicates the margin of the safety to long term creditors. A low debt equity
ratio implies the use of more equity than debts which means a larger safety margin
for creditors since owners equity is treated as a margin of safety by creditors and
vice versa.

44
DEBT EQUITY RATIO
Years Long term Liabilities Share holder Ratios
funds
2004-05 16239318.50 520000 31.22
2005-06 17195765.50 527000 32.62
2006-07 12026470.50 725860 16.56
2007-08 3862588 1063000 3.633
2008-09 4670470 1102800 4.235

INTERPRETATION:
1. The debt equity ratio of SIIL is 2004-09, 31.22 to 4.23.

2. The debt equity ratio of 2:1 is considered ideal.

3. A firm with debt equity ratio of 2 or less its creditors to relatively less
risk.
4. A firm with high debt equity ratio exposes its creditors to greater risk.

45
FIXED ASSET RATIO:

Meaning:

This Ratio indicates the mode of financing the fixed assets. It is calculated as :

Formula:
Fixed  Assets
Fixed  Assets  Ratio =
Capital  Employed

Components:

Fixed assets
Capital Employed

Capital Employed = Shareholders funds + Long Term Liabilities

46
FIXED ASSET RATIO

Years Fixed Assets Capital Ratios

Employed
2004-05 7770295.75 16759313.5 0.46
2005-06 7062220.75 17722765.5 0.39
2006-07 9638560.75 12752330.5 0.75
2007-08 8997008.75 4925588 1.82

2008-09 8410416.75 5773270 1.45

INTERPRETATION:
1. The fixed asset ratio of SIIL in 2004-05 is 0.46

2. In the year 2005-06 it is decreased to 0.39

3. The next year the fixed asset ratio is increased to0.75

4. In the year the ratio is increased to 1.82.

47
 5. ACTIVITY RATIOS & TURN OVER RATIOS
INVENTORY TURNOVER RATIO:
Meaning:
This ratio establishes a relationship between cost of goods sold or sales and
average inventory.

Components:

1 Sales or Cost of Goods Sold

2 Average Inventory (average of opening and closing balance of inventory)

Computation:

This ratio is computed by dividing the sales or COGS by average inventory.

Formula:
Sales
Inventory turn over ratio = ----------------
Inventory
Significance:

A high inventory turnover ratio indicates good inventory management at a very

high ratio calls for a careful analysis as it may be an indication of low of inventory
or under investment in inventory, which results in frequent stock outs. Similarly, a
low inventory includes dangerous to management. It signifies excessive inventory
or over investment in inventory in term resulting excessive inventory carrying cost.

48
INVENTORY TURNOVER RATIO
Years Cost of Goods Average Stock Ratios
Sold
2004-05 93346134 2533705.5 37.23
2005-06 117567909.8 5597249 21.00
2006-07 157741431 8601883.5 18.33
2007-08 264974139 136030881.5 1.947
2008-09 287644159.1 7452076.5 38.59

INTERPRETATION :
1. The stock turnover ratio of SIIL is 2004-09, 37.23- 38.59

2. A high stock turnover ratio indicates that the stocks are fast moving

and get converts into sales quickly

3. However it may also an account of holding low amount of stocks and

replenishing stocks in larger no. of installments.

49
DEBTOR’S TURNOVER RATIO:

Meaning:

This ratio establishes a relationship between Net credit sales and average
debtors.

Components:
1 Net Credit Sales

2 Average Debtor’s (average of opening and closing balance of

debtors)

Computation:

This ratio is computed by dividing the net credit sales by average debtors.

Formula:
Net Credit Sales
Debtors turnover ratio = --------------------------------
Average debtors

Significance:

It candidates the number of times on the average that the debtors turnover
each year generally the higher the debtors turnover ratio the more efficient is the
management of current assets.

50
 DEBTOR’S TURNOVER RATIO:
YEARS NET CREDIT AVERAGE RATIO
SALES ACCOUNTS
RECEIVABLE
(DEBTORS)
(Rs in crores) (Rs in crores) (%)
2004-05 8437733 809943 10.41
2005-06 9375259 899937 10.41
2006-07 13948190 1506952 9.25
2007-08 3143461 6.07
19087482
2008-09 20996230 4431292 4.73

INTERPRETATION:
1. The ratio in the 2004 was 10.41

2. The ratio further in the year 2006 is same

3. Later year by year decreased to 9.25 in 2007

4. It decreased in the year 2008 to 6.07 and

5. Finally it was 4.73 in the year 2009

FIXED ASSETS TURNOVER RATIO:

Meaning:

51
 This ratio establishes a relationship between net sales and fixed assets.

Components:

1 Net sales (gross sales – sales returns)

2 Net fixed assets (fixed asset – depreciation)

Computation:

This ratio is computed by dividing the net sales by the net fixed assets. This
ratio is usually expressed as ‘X’ no of times.

Formula:
Net sales
Fixed Asset Turnover Ratio = -----------------------
Net fixed assets

Significance:

It indicates the firm’s ability to generate sales per rupee of investment in

fixed assets. In general higher the ratio, the more efficient the management and
utilization of fixed assets and vice versa

52
FIXED ASSETS TURNOVER RATIO
Years Net Sales Fixed Assets Ratios
2004-05 114979416.46 7770295.75 14.79
2005-06 151216459.29 7062220.75 21.41
2006-07 202674378.60 9638560.75 21.02
2007-08 299356188.63 8997088.75 33.27
2008-09 335429379 8410416.75 39.88

INTERPRETATION:
1. The fixed asset turnover ratio of SIIL organization 2004-09, 14.79 -

39.88.
2. A high fixed asset turnover ratio indicates better utilization of the
firms fixed assets.
3. A ratio of around the 5 is considered ideal.

53
WORKING CAPITAL TURNOVER RATIO:
Meaning:

This ratio establishes a relationship between net sales and working capital.

Components:
1. Net sales (Gross sales – sales returns)
2 Working capital (CA – CL)

Computation:

This ratio is computed by dividing the net sales by the net working capital.

Formula:
Net sales
Working capital Turnover Ratio = ----------------------
Working capital
Significance:

It indicates the firm’s ability to generate sales per rupee of investment in

working capital. In general higher the ratio, the more efficient the management and
utilization of fixed assets and vice versa.

54
WORKING CAPITAL TURNOVER RATIO
Years Cost Goods Sold Working Capital Ratios
2004-05 94346134 8150833.43 11.57
2005-06 117567909.8 4872090.92 24.13
2006-07 157741431 7914473.77 19.93
2007-08 264974131 4205338.98 63.00
2008-09 287644159.1 2929231.28 98.19

INTERPRETATION:
1. The working capital turnover ratio of SIIL 2004-09, 11.57-98.19.

2. A high working capital turnover ratio indicates efficient utilization of

firm’s funds.
3. However it should not result in over trading.

55
 PROFITABILITY RATIO
GROSS PROFIT RATIO:
Meaning:
The first profitability ratio in relation to sales in the gross profit margin or simply

gross profit ratio.

Components:

Gross Profit

Interest Income

Formula:

Gross Pr ofit
Gross Profit Ratio = Net Sales
*100

Gross Profit = Net Sales - Cost of goods sold

Net Sales = Total Sales - Sales Revenue

Significance:
Gross Profit reveals the gross income of the company which is
available to the management to meet the non interest cost commitments.

56
 GROSS PROFIT RATIO
Years Gross Profit Net Sales Ratios
2004-05 15234836.46 114979416.46 0.13
2005-06 24206082.46 151216459.29 0.16
2006-07 32807244.60 202674378.60 0.16
2007-08 15691929.63 299356188.63 0.052
2008-09 29407231.86 335429379 0.087

INTERPRETATION:
1. The gross profit ratio of SIIL 2004-09 and it is 0.13 -0.087.

2. There is no ideal or standard gross profit ratio.

3. The higher the ratio the better will be performance of the business.
4. Gross profit ratio years to know the change in performance.

57
OPERATING RATIO:
Meaning:
This ratio establishes a relation between operating expenses and interest income.

Components:

Operating Expenses

Interest Income

Formula:

Operating expenses

Operating Expenses = ------------------------- * 100

Interest Income

Significance:
Gross Profit reveals the efficiency in reducing the expenses though
they cannot be avoided, as they are necessary for smooth functioning of company

58
OPERATING RATIO
Years Operating Cost Net Sales Ratios
2004-05 17137127 114979416.46 0.14
2005-06 21102113.75 151216459.29 0.13
2006-07 18531351 202674378.60 0.09
2007-08 23105500.5 299356188.63 0.077
2008-09 45398696.39 335429379 0.135

INTERPRETATION:
1. The operating ratio of SIIL 2004-08, 0.14 - 0.135.

2. A low operation ratio is an indication of operating efficiency of the business.

3. Lower the ratio is better it is.

59
RETURN ON TOTAL ASSETS RATIO

Meaning:

The return on total assets measures the profitability in terms of assets in the It
shows as to how much is the profit strives per rupee of assets utilized.

Formula:
Net profit
Return on Total Assets Ratio =
Total Assets
Components:
Net Profit
Total Assets

Significance:

This ratio establishes relationship of net profit and total assets.

60
 RETURN ON TOTAL ASSETS RATIO

Year Net Profit Total Assets Ratios

2004-05 105.55 4550.70 0.023

2005-06 109.73 5503.50 0.019

2006-07 104.31 6256.50 0.02

2007-08 121.12 6973.96 0.017

2008-09 100.00 8493.24 0.01

ratio

0.025

0.02

0.015
ratio
0.01

0.005

0
2005 2006 2007 2008 2009

INTERPRETATION:

1. By observing the table the highest ratio is 0.023 during the period 2004-05.
2. The ratio followed in the next year is as 0.019 for 05-06.
3. Next the ratio is 0.02 for 2006-07, and in year 2007-08 it is 0.017.

4. The ratio declined to 0.01% during 2008-09 and the average ratio for the

period of study is 0.02.

61
 CONCLUSIONS

1. The current ratio of firms is 0.20 in the year 2005-06 and it is 0.912

and standard current ratio is 1:2 and company is not meeting their
requirement.

2. The company ratio in 2004-05 is 0.211 and 2008-09 0.677. The

company quick ratio is decreasing it should maintain more quick for

easy convertibility.

3. The Company absolute liquid ratio 0.717 in 2004-05 and it is 0.035

in 2008-09. It should be decreasing the firm.

4. On the basis of Debt equity ratio the company was following trend.

In 2004-05 the ratio is 39.37 and it is 4,235 in 2007-08. It has

decreasing trend.

5. The company fixed asset turnover ratio in 2004-05 is 0.33 and it is

fixed asset ratio 0.46, 0.39, 0.75, 0.82, 1.82 increased trend. Hence
the fixed asset position is satisfactory for the firms operations.

6. In this Turnover ratio 2004- 2005 is 30.48 and it is 38.59 in 2008-09.

It is only the seasonal fluctuations. It is increased up to 38.59.
7. Working Capital. Turnover ratio is 0.11 in 2004-05, and 98.19 in

2008-09. It is increased efficient utilization of firm’s funds.

8. Fixed Asset turnover ratio is 12.11 in 2004-05 and 39.88 in 2008-09.

It should be increased better utilization firm's fixed assets.

9. The ratio in the 2004 was 10.41 the ratio further in the year
2006 is same, year by year decreased to 9.25 in 2007 It

62
 decreased in the year 2008 to 6.07 and finally it was 4.73 in the
year 2009.

10. The Company has following trend in 2004-05, in this gross profit

ratio of 0.19, 0.13, 0.16, 0.52, and 0.087. It’s showed that decreasing
trend.

11. On the basis of operating ratio is 0.20 in 2004-05 and it is 2008-09 is

0.135. The operating efficiency of the business lower the ratio

betters it is.

12.By observing the table the highest ratio is 0.023 during the
period 2004-05.The ratio declined to 0.01% during 2008-09 and
the average ratio for the period of study is 0.02.

63
 SUGGESTIONS

1. The overall performance of the company is good and management should

try to acquire more funds to expand the firm.

2. Though the short-term solvency of the concern is good, the firm needs to
increase its current ratio to the ideal standard of 2:1 to avoid the uncertainty
related to the market conditions.

3. Since the sales are increasing year by year the firm needs to maintain better
customer service and try to meet the demand. It is suggested that the firm
has to take necessary steps in regard to increase the cash liquidity.
4. It is suggested that the capital structure has to be modified to earn
more returns.
5. It is suggested to the firm that the cash inflows must be properly
deployed in working capital by decreasing its investment in current
assets to increase the working capital position.

64
 BIBILIOGRAPHY:

I.M PANDEY : FINANCIAL MANAGEMENT.

M.Y.KHAN&P.K.JAIN : FINANCIAL MANAGEMENT.

PRASANNA CHANDRA : FINANCIAL MANAGEMENT.

VANHOME, JAMES : FINANCIAL MANAGEMENT

&POLICY

WEBSITES;

WWW.GOOGLE.COM
WWW.WIKIPEDIA.COM
WWW.CITEFINANCE.COM
WWW.INDIAFINANCE.COM

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