Chapter 1: Introduction

We know business is mainly concerned with the financial activities. In order to

ascertain the financial status of the business every enterprise prepares certain
statements, known as financial statements. Financial statements are mainly prepared for
decision making purposes. But the information as is provided in the financial
statements is not adequately helpful in drawing a meaningful conclusion. Thus, an
effective analysis and interpretation of financial statements is required.
nalysis means establishing a meaningful relationship between various items of the
two financial statements with each other in such a way that a conclusion is drawn. By
financial statements we mean two statements !
"i# $rofit and loss ccount or Income %tatement
"ii# Balance %heet or $osition %tatement
These are prepared at the end of a given period of time. They are the indicators of
profitability and financial soundness of the business concern. The term financial
analysis is also known as analysis and interpretation of financial statements. It refers to
the establishing meaningful relationship between various items of the two financial
statements i.e. Income statement and position statement. It determines financial
strength and weaknesses of the firm.
nalysis of financial statements is an attempt to assess the efficiency and performance
of an enterprise. Thus, the analysis and interpretation of financial statements is very
essential to measure the efficiency, profitability, financial soundness and future
prospects of the business units. Financial analysis serves the following purposes!
&. Measuring the profitability: The main ob'ective of a business is to earn a
satisfactory return on the funds invested in it. Financial analysis helps in
ascertaining whether adequate profits are being earned on the capital invested in
the business or not. It also helps in knowing the capacity to pay the interest and
dividend.
(. Indicating the trend of Achievements: Financial statements of the previous
years can be compared and the trend regarding various e)penses, purchases,
sales, gross profits and net profit etc. can be ascertained. *alue of assets and
liabilities can be compared and the future prospects of the business can be
envisaged.
+. Assessing the growth potential of the business: The trend and other analysis
of the business provide sufficient information indicating the growth potential of
the business.
,. Comparative position in relation to other firms: The purpose of financial
statements analysis is to help the management to make a comparative study of
the profitability of various firms engaged in similar businesses. %uch
comparison also helps the management to study the position of their firm in
respect of sales, e)penses, profitability and utilising capital, etc.
-. Assess overall financial strength: The purpose of financial analysis is to
assess the financial strength of the business. nalysis also helps in taking
decisions, whether funds required for the purchase of new machines and
equipments are provided from internal sources of the business or not if yes, how
much. nd also to assess how much funds have been received from e)ternal
sources.
/. Assess solvency of the firm: The different tools of an analysis tell us whether
the firm has sufficient funds to meet its short term and long term liabilities or
not.
PARTI! I"TR!T#
nalysis of financial statements has become very significant due to widespread interest
of various parties in the financial results of a business unit. The various parties
interested in the analysis of financial statements are!
1$ Investors: %hareholders or proprietors of the business are interested in the well
being of the business. They like to know the earning capacity of the business
and its prospects of future growth.
%$ Management: The management is interested in the financial position and
performance of the enterprise as a whole and of its various divisions. It helps
them in preparing budgets and assessing the performance of various
departmental heads.
&$ Trade unions : They are interested in financial statements for negotiating the
wages or salaries or bonus agreement with the management.
'$ (enders : 0enders to the business like debenture holders, suppliers of loans and
lease are interested to know short term as well as long term solvency position of
the entity.
)$ !uppliers and trade creditors : The suppliers and other creditors are
interested to know about the solvency of the business i.e. the ability of the
company to meet the debts as and when they fall due.
*$ Ta+ authorities : Ta) authorities are interested in financial statements for
determining the ta) liability.
,$ Researchers : They are interested in financial statements in undertaking
research work in business affairs and practices.
-$ mployees : They are interested to know the growth of profit. s a result of
which they can demand better remuneration and congenial working
environment.
.$ /overnment and their agencies : 1overnment and their agencies need
financial information to regulate the activities of the enterprises2industries and
determine ta)ation policy. They suggest measures to formulate policies and and
regulations.
10$ !toc1 e+change : The stock e)change members take interest in financial
statements for the purpose of analysis because they provide useful financial
information about companies.
Thus, we find that different parties have interest in financial statements for different
reasons.
Techni2ues and Tools of financial statement Analysis:
Financial statements give complete information about assets, liabilities, equity,
reserves, e)penses and profit and loss of an enterprise. They are not readily
understandable to interested parties like creditors, shareholders, investors etc. Thus,
various techniques are employed for analysing and interpreting the financial
statements. Techniques of analysis of financial statements are mainly classified into
three categories!
1$ Cross3sectional analysis: It is also known as inter firm comparison. This
analysis helps in analysing financial characteristics of an enterprise with
financial characteristics of another similar enterprise in that accounting period.
For e)ample, if company has earned &-3 profit on capital invested. This does
not say whether it is adequate or not. If we analyse further and find that a
similar company has earned &/3 during the same period, then only we can
make a conclusion that company B is better. Thus, it turns into a meaningful
analysis.
%$ Time series analysis: It is also called as intra4firm comparison. ccording to
this method, the relationship between different items of financial statement is
established, comparisons are made and results obtained. The basis of
comparison may be !
5 6omparison of the financial statements of different years of the same business
unit.
5 6omparison of financial statement of a particular year of different business
units.
&$ Cross3sectional cum time series analysis: This analysis is intended to
compare the financial characteristics of two or more enterprises for a defined
accounting period. It is possible to e)tend such a comparison over the year. This
approach is most effective in analysing of financial statements.
The analysis and interpretation of financial statements is used to determine the
financial position. number of tools or methods or devices are used to study the
relationship between financial statements. 7owever, the following are the important
tools which are commonly used for analysing and interpreting financial statements!
a. 6omparative financial statements.
b. 6ommon si8e statementsc.
c. Trend analysis
d. 9atio analysis.
e. Funds flow analysis.
f. 6ash flow analysis.
Comparative financial statements: In brief, comparative study of financial statements
is the comparison of the financial statements of the business with the previous year:s
financial statements. It enables identification of weak points and applying corrective
measures. $ractically, two financial statements "balance sheet and income statement#
are prepared in comparative form for analysis purposes.
1$ Comparative 4alance !heet:
The comparative balance sheet shows the different assets and liabilities of the firm on
different dates to make comparison of balances from one date to another. The
comparative balance sheet has two columns for the data of original balance sheets.
third column is used to show change "increase2decrease# in figures. The fourth column
may be added for giving percentages of increase or decrease. While interpreting
comparative Balance sheet the interpreter is e)pected to study the following aspects!
"i# 6urrent financial position and 0iquidity position
"ii# 0ong4term financial position
"iii# $rofitability of the concern
"i# For studying current financial position or liquidity position of a concern one
should e)amine the working capital in both the years. Working capital is the
e)cess of current assets over current liabilities.
"ii# For studying the long4term financial position of the concern, one should
e)amine the changes in fi)ed assets, long4term liabilities and capital.
"iii# The ne)t aspect to be studied in a comparative balance sheet is the profitability
of the concern. The study of increase or decrease in profit will help the
interpreter to observe whether the profitability has improved or not.
fter studying various assets and liabilities, an opinion should be formed about the
financial position of the concern.
Comparative Income statement: The income statement provides the results of the
operations of a business. This statement traditionally is known as trading and profit and
loss 2c. Important components of income statement are net sales, cost of goods sold,
selling e)penses, office e)penses etc. The figures of the above components are matched
with their corresponding figures of previous years individually and changes are noted.
The comparative income statement gives an idea of the progress of a business over a
period of time. The changes in money value and percentage can be determined to
analyse the profitability of the business. 0ike comparative balance sheet, income
statement also has four columns. The first two columns are shown figures of various
items for two years. Third and fourth columns are used to show increase or decrease in
figures in absolute amount and percentages respectively.
The analysis and interpretation of income statement will involve the following !
a. The increase or decrease in sales should be compared with the increase or
decrease in cost of goods sold.
b. To study the operating profits.
c. The increase or decrease in net profit is calculated that will give an idea about
the overall profitability of the concern.
Chapter %: Review of Related
literature
RATI5 A"A(6!I!:
In mathematics ratio is defined as a medium of e)plaining the interrelation between
two numerals or variables. 9atio is computed by dividing one numeral by the other.
By means of ratio generally the times by which one numeral is greater than the
other or the proportion of one in relation to the other is e)pressed. If of the total
population of (,;;; of a village &,(;; are male and <;; are teniale the ratio of male
and female population in the village can be e)pressed as &.(;;! <;; or &( ! < or &.-!
&. This ratio signifies that the male population is one and half times more than the
female population of the village. 9atios are often meaningfully used in solving
different mathematical problems. In this conte)t it is relevant to note that through
ratio only the arithmetical or quantitative relation can be 'udged.
Accounting Ratio:
The arithmetical method of ascertaining the interrelation between any two numeric
data e)pressed in accounting statements is known as ccounting 9atio. The
definition implies that in use of an accounting ratio both the components in the
form of numerals or variables used in computing a ratio are taken from tb financial
statements prepared in financial accounting. For e)amle it can be stated that if in a
concern the %ales of a particular year is 9s. (.;;.;;; and the =et $rofit is 9s.
,;,;;; %ales 9atio becomes &!- or 1/5 indicates that the =et $rtit of the concern for
that year is one4fifth portion of its %ales or for %ales of 9s. - =et $rofit is 9s. &. In
this case %ales and =et $rofit both these variable are taken out of the Profit and
0oss ccount prepared in financial accounting. For this reason this ratio is stated as
ccounting 9atio.In the opinion of >. Batty, accounting ratio ?is used to describe
significant relationships which e)ist between figures shown on a Balance %heet, in
a $rofit and 0oss ccount in a Budgetary 6ontrol %ystem or in any other part of the
accounting organi8ation@.
Meaning of Analysis Through Accounting Ratios!
Aifferent statements prepared in financial accounting are known as financial
statements. For ascertaining the utility and significance of various financial information
e)pressed in these statements and in some cases for increasing their effectiveness an in4
depth analysis of such financial statements is required. In e)ecution of managerial
functions like planning, decision making, controlling, etc. management needs a steady
supply of only that financial information which is duly processed and analysed. s a
supplier of such information the financial analysts or the management accountants
make a solicitous and in4depth analysis of financial data e)pressed in financial
statements. In making analysis of finanal statements the financial analysts use two
specific tools. They are! "i# preparation of Fund Flow and 6ash Flow %tatements and
"ii# ratio analysis.
ccounting 9atio analysis stands for computation of various ratios on the basis of
different information e)pressed in financial statements and establishment of inter.
relationship between the components of each ratio. %uch analysis through ratios is a
much effective device having a very wide use since a long past. It is a very popular
means of communicating processed information in a nut and shell form to the
management as per its requirement.
The ratios computed in the process of analysis through ratios may be e)pressed in four
types.
They are as follows!
"a# In multiples: In this case a quotient is obtained by dividing one figure by the other.
It is known as Btimes:. 7ere one figure is e)pressed in terms of Btimes: of B.he other.
%tock Turnover 9atio is an e)ample of ratio e)pressed in terms of Btinies. If %tock
Turnover 9atio is + times. Indicates that the =et %ale or 6ost of 1oods %old is + times
of verage %tock or Inventory.
"b# In time element: In this case the relationship between numerical figures is
e)pressed in time element measured either in terms of months or in terms of days. If
Aebtors Turnover 9atio is e)pressed as ( months it indicates that a credit period of two
months is received from the debtors.
"c# In proportion: 9atios can also be e)pressed in the form of proportion between the
two figures. 6urrent 9atio e)pressed in the form of (! & implies that for every current
liability
of 9e.& current asset is 9s. (.
"d# In percentage: 7ere one figure is e)pressed as a percentage of the other by
dividing the former by the latter and then multiplying the quotient by &;;. For
e)ample, =et $rofit is often e)pressed as a percentage of %ales. If this ratio is &;3 it
means that for %ales of 9s.&;; =et $rofit is 9s. &;.
The financial analyst fi)es up various means of e)pressing ratios on the basis of
requirement and purpose of the desired information. It is to be stated here that ratio
analysis only sets up arithmetical relationship between the variables used and makes
them more meaningful. The main significance of such analysis is that, where one the
components used in a ratio does not carry any definite meaning its relationship with the
other component may add a new meaning to both of them. For this reason ratio analysts
technique is considered as device to check up the financial health of an organisation
and to diagnose its financial disease, if any.
!teps in Ratio Analysis
The following steps are followed in analysis through accounting ratios!
"i# Collection of information: In the first step of ratio analysis raw data is collected
from the financial statements for computing different ratios.
"ii# Computation of ratios: In the second step necessary ratios are computed between
the figures having cause and effect interrelutionship. %uch ratios may be e)pressed in
terms of times, multiples, proportion or percentage depending on the specific
requirement.
"iii# Ma1ing comparison: The ratios computed are compared with the ratios of the
past year or years of the same concern or with the standard ratios of the industry to
which the concern belongs.
"iv# Arriving at decisions on comments: In the ne)t step the significance of these
ratios must be conceived on the basis of comparative interrelationship among them in
such a manner so that adequate comments can be made for helping the users of
accounting information to arrive at their decisions.
"v# Preparing report: In the final step necessary reports are to be prepared for
communicating
analysed information and the relevant comments to the management.
)$ Importance or 7tility or Advantages of Ratio Analysis : 9atio analysis attempts
to establish the significance of one numerical figure on the basis of its relationship with
another numerical figure. =o doubt, in the present day financial analysis ratio analysis
is a very important tool. rough sketch of the financial health, profitability, capital
structure, solvency, weaknesses, etc. of an organisation can be drawn through such
analysis. Whether an organisation is financially sound or not, how much shock
absorbing capacity it has, whether its prospect is good or bleak that can be ad'udged
with the help of ratio analysis.
%ometimes the tool of: ratio analysis is compared with the blood pressure, pulse or
temperature of a human being. s a medical e)pert diagnose the disease and comes to a
conclusion as to the health of an individual with the help of such symptoms, similarly a
financial analyst makes a critical assessment of an organisation:s financial health with
the help of different ratios.
7e also suggests for the measures needed to overcome the weakness, if any detected
through such analysis. The importance and utility of ratio analysis as a tool of financial
management may be discussed under the following heads!
"i# +pression in a simplified and condensed form! The detailed information
e)pressed in financial statements can be presented through ratio analysis in a simple,
easily understandabhC and brief form. %uch simple presentation helps even the non4
accounting persons to understand various information easily and quickly.
"ii# Analysis of financial position: The financial position of an organisation can be
'udged through ratio analysis. What is the financial position of the concern and what
are the reasons responsible for that can be analysed with the help of ratios. The
financial analyst does not only identifies the weak points of the financial position, he
also gives advice on the remedial measures.
"iii# Measurement of overall efficiency: 9atio analysis is often used as an inde) of
measuring efficiency. 9atios can be used not only for measuring individual and
departmental efficiency! efficiency in managerial performance can also be determined
through ratios. For this reason the system of ratio analysis is often used as a controlling
instrument in the hands of management.
"iv# Inter3firm and inter3department comparison: With the help of ratio analysis the
financial position, capital structure, profitability, solvency, efficiency, etc. of an
organisation can be compared with the same of the other firms belonging to the same
industry and also with the overall industry standard. Besides, this tool can also be
utilised for effecting comparison among different departments of the same firm in
relation to the targets set, works performed and relative efficiency. %uch inter4firm and
inter. departmental comparisons are helpful to evaluate the real financial condition of
any organisation.
"v# Measurement of solvency: n idea about the short4run and long4run loan
repayment capacity or solvency of a concern can be made by computing different ratios
for this purpose and making an in.depth analysis of the same. The present solvency
position of a firm can be assessed by means of drawing a comparison of the current
ratios with the ratios of earlier years. %uch measurement of solvency does not only help
management in its decision making process, it also helps the investors and creditors to
take their investment decisions.
"vi# Measurement of profitability: scertainment of the profitability trend of a firm is
another benefit of ratio analysis. 6omputation of certain ratios like 1ross $rofit 9atio,
=et $rofit 9atio. Dperating $rofit 9atio, 9eturn on 6apital Employed, etc. helps
measuring a firm:s current year:s profitability. %imilarly comparison of the current
year:s ratios with those of the earlier years helps pro'ecting the profitability trend of the
firm. 6omparison of the profitability ratios of one firm with the same of its
counterparts belonging to the same industry gives a clearer picture of the profit earning
capacity.
"vii# 8elp in planning and forecasting: Trends of different strategic ratios help
management in planning and forecasting. By using different ratios computed on the
basis of information published in financial statements of past years, forecasting of saes,
different revenue e)penses, capital e)penditure, etc. is made and budgets are prepared.
Information revealed by past ratios is also used in the formulation of future financial
policies.
"viii# 8elp in decision ma1ing: Drganisational and departmental efficiency are
evaluated through ratio analysis. The assessment of work performed and measurement
of the efficacy in the use of resources make the trends indicated by such analysis
dependable. For this reason management often takes many vital decisions on the basis
of computed ratios.
"i)# 8elp in ta1ing corrective measures: The financial analysts and management
accountant identify the areas of weakness and inefficiencies on the basis of the trend
indicated by ratios and suggest remedial measures to overcome them. This helps the
management to control financial affairs and take corrective actions to rectify the wrong
decisions.
")# 8elp in controlling : nalytical data available through ratio analysis helps
controlling the trading and non4trading activities of the firm and the related costs. The
trend of different e)pense ratios makes management aware of the necessity of
controlling4different costs and identifies the specific areas of control.
")i# 8elp in communication: $robably ratio analysis is one of the popular most:
techniques of conmunicating accounting information in brief. It is possible to
communicate flamboyant and composite data in a nut and shell and simple form
through ratios. For this reason at present ratio analysis is accepted as a common
medium of effecting interdepartmental and inter4firm communication. The managers of
different levels communicate information within themselves through ratios.
")ii# 7seful to the outsiders: 9atio analysis is indeed an well4accepted and widely
used tool of supplying necessary information to the management. In addition it is also
considered as an important technique even to the outside parties associated with any
business or nonbusiness institution. The outsiders like potential investors, banks and
other financial agencies, creditors, government, income4ta) authority and othro:s
depend a lot on the analysed information available through ratio analysis for setting up
business relation, maintaining the link with the firm, taking important decisions on
different issues, etc. Even at present the researchers on accounting and management
fields take the help of ratio analysis for the purpose of evaluation of performance,
measurement of: trends and pro'ection of future potentials.
From the foregoing discussion it is apparent that ratios have wide use not only in
making financial analysis but also for different other porposes. In fact the utility or
effectiveness of ratio analysis is dependent to a great e)tent on the purpose of use and
the analytical aptitude of the analyst. t present the use of ratios is common almost in
all managerial activities. >. Batty has rightly stated that ratios can help in e)ecuting the
basic functions of management like forecasting, planning, coCordination. control and
communication
(imitations of Ratio Analysis
It can be undoubtedly said that ratio analysis is one of the widely used and popular
financial techniques of the modern times. But in many cases its effective application
largely depends on the e)pertise and analytical skill of the interpreter. It is not possible
to obtain the e)pected utility from ratio analysis unless the ratios are properly used and
interpreted. %o despite having immense benefits ratio analysis technique is not an
unmi)ed blessings. The arguments put forward by the critics against the technique of
ratio analysis are as follows!
"&# Completely based on comparison: It is not possible to analyse any particular
matter with the help of a single ratio. %uch analysis is possible by making comparison
of at least two or more ratios. Whether a particular trend indicated by any ratio is good
or bad, favourable or unfavourable that can only be 'udged through comparative
analysis. 6omparison is only one of the techniques of making analysis, but in case of
ratio analysis it is the sole technique. For this reason u is said that ratio analysis is only
a partial analytical process, not a complete one.
"ii# #ifficult to fi+ up definite standards: The real significance of a particular ratio
can be understood by curiiparing it with any ideal or standard norm of that ratio. But
the standard already fi)ed on for a ratio may change over time. Foreover, standard
ratios of the industry to which the firm belongs may be fi)ed up on different basis and
may vary widely with the computed ratios of the firm. %tandards may also differ
according to the nature of the situations. %o fi)ing up acceptable standards for all the
ratios is not doubt an uphill task.
"iii# #ependence on financial statements: 9atios are always based on information
disclosed in basic financial statements like the $rofit and 0oss ccount and the Balance
%heet. Financial statements have their own limitations. %o ratios computed on the basis
of information disclosed in those financial statements cannot also be free from such
limitations.
For getting rid of these limitations before computing ratios some ad'ustments are
required to be made in the information disclosed in financial statements. In reality it is
not done and so ratios always suffer from the limitations of the financial statements.
"iv# Problem of inter3firm comparison: In case there is significant variations in
accounting policies adopted by different firms belonging to the same industry the inter4
firm comparison through ratio analysis does not become effective. For e)ample it can
be said that if the policies relating to inventory valuation, depreciation, treatment of
contingent liabilities, etc. of two firms under the same industry are different the trend
indicated by an inter4firm comparison through ratios does not carry any effective
meaning.
"v# Personal influence: The utility of ratio analysis depends a lot on the skill and
'udgement of the interpreter. If the personal sense of 'udgement and analytical power of
different interpreters vary a particular ratio may indicate different trends. %o presence
of personal aptitude reduces the effectiveness of ratio analysis. Foreover, the
interpreters may e)ert undue influence on their analysis with unfair motives.
"vi# 5nly 2uantitative analysis: 9atios are often called quantitative tools because their
computations are based on only quantitative or numerical figures. The qualitative
aspects of the concerned numerals are totally ignored in the process of ratio analysis.
Ignoring qualitative aspect may mislead the users of ratios. For e)ample, a high current
ratio indicates a satisfactory loan repayment capacity of a firm. But if its current assets
consist of a large quantity of obsolete stock or its debtors are slow paying the
satisfactory trend of loan repayment capacity as indicated by the current ratio may
prove to be only a paper 'ugglery.
"vii# Ratios indicate trend9 do not prove: common criticism against the ratio
analysis technique is that it only indicates trend but does not prove anything. By
comparing the computed ratios with the ideal or standard ratios, last year:s ratios and
similar ratios of other firms belonging to the same industry the inference that is arrived
at by the interpreter is nothing but a trend on any particular event. Whether the trend of
the item of consideration is favourable or unfavourable, satisfactory or unsatisfactory a
general notion as to that can be inferred upon through ratio analysis. Whether the item
is really favourable or unfavourable, satisfactory or unsatisfactory that can never be
authenticated or proved through such analysis. The considerations that are needed for
coming to such a conclusive decision are not taken care of in ratio analysis. Two
reasons work behind this proposition that ratios indicate, they do not prove. The first
one is that ratios do not measure numeral or quantities they e)press the numerical or
quantitative relation in a brief manner.
If the ratio of current assets and current liabilities is ( ! I the amount of current assets
and current liabilities may be 9s. (;,;;; and 9s. &;,;;; respectively or they may also
be 9s. (,;;,;;; and 9s.&,;;,;;; respectively. The second reason is that for arriving at a
conclusive decision through any technique the same must have the basic feature of
assessing the qualitative aspect along with the aspect of quantity.
"viii# Inclusion of window dressing: The term Bwindow dressing: stands for showing
the numerical
fi0:ures more than what they are in reality in financial statements with a fraudulent
intention and by means of manipulation. If an effort is made to e)aggerate the values of
incomes, e)penses, asset.s and liabilities in the financial statements for the4purpose of
concealing the true and fair financial position of the firm, ratios computed also reflect
the same and do not speak of the real financial scenario. It indicates that there is every
possibility of ratios being biased and influenced by the window dressing process. %uch
window dressing may also be made for showing the ratios higher than what they are in
reality with unfair intention. For e)ample, stock turnover ratio may be e)aggerated by
deferring the purchase of inventory or showing the inventory less than the actual value
for showing better managerial efficiency.
"i)# (in1age among different contradictory figures: In case of mi)ed ratios one
component is taken from the $rofit and 0oss ccount and another from the Balance
%heet. gain an average of two figures shown in two Balance %heets may also be taken
as one of the components of a particular ratio. The numeral shown in the $rofit and
0oss ccount e)hibits the outcome of some events occurred during a particular span of
time "generally in one year#. Dn the other hand the numeral shown in the Balance %heet
indicates the position of that item on a particular point of time "i.e. on a specific date#.
gain the average of two numerals shown in two different Balance %heets e)presses
the average of the positions as on two separate dates. %o such mi)ed ratios draw up the
relationship between the figures having contradictory status and are not truly
comparable.
")# Problem of use: 6omputation of a single ratio is in no case sufficient to analyse
any matter. For this purpose a series of ratios need to be calculated. There are also no
hard and fast guideline for using specific ratios for specific purpose. %election in most
of the cases rests on the choice of the analyst. Dften different analysts use different sets
of ratios to analyse the same matter. gain using of the same ratios for different
purposes create confusions. That is why it is said that the use of ratios is problematic in
many cases.
")i# "ot effective without cause and effect relationship : The relationship between
those numerals having cause and effect mutual relations between them can only be
e)pressed through ratios. =umerals without having any cause and effect relationship
are not the sub'ect matter of ratio analysis. For e)ample, there is no cause and effect
relation between the purchase figure and the provision for ta)ation. %o it is impossible
to draw up any relationship between these two variables through ratio analysis.
")ii# (ac1 of depth: 9atio analysis is a primary tool used in financial statement
analysis. It is only used to develop a general notion about the relationship between the
related variables or to analyse the trend of the said relation. s this technique does not
assess the qualitative aspect of the concerned variables it is not possible to make an in4
depth assessment through it. The relationships indicated by ratio analysis need to be
further analysed in4depth through other techniques for making the information more
useful.
")iii# Ignoring the effect of inflation: The increase in general price level in the market
due to inflationary trend makes the ratio.based comparison futile. The return on fi)ed
assets purchased many years back obviously becomes more than the return on recently
purchased fi)ed assets. pparently looking this difference indicates higher efficiency in
the use of old fi)ed assets, but in reality that is not the case. The rise in market price
due to inflationary trend may be responsible for such variation, s the effect of change
in market price is ignored ratio analysis on the basis of past data often creates
confusions in the minds of the users and misleads them.
Chapter &: Profile of !teel
Authority of India (td$
A457T I"#IA" !T( I"#7!TR6
8I!T5R6 5: T8 I"#7!TR6:
The Indian %teel industry is almost &;; years old now. Till &GG;, the Indian
steel industry operated under a regulated environment with insulated markets and large
scale capacities reserved for the public sector. $roduction and prices were determined
and regulated by the 1overnment, while %I0 and Tata %teel were the main producers,
the latter being the only private player. In &GG;, the Indian steel Industry had a
production capacity of (+ FT. &GG( saw the onset of liberali8ation and the Indian
economy was opened to the world. Indian steel sector also witnessed the entry of
several domestic private players and large private investments flowed into the sector to
add fresh capacities.
%teel Industry in India is on an upswing because of the strong global and
domestic demand. IndiaHs rapid economic growth and soaring demand by sectors like
infrastructure, real estate and automobiles, at home and abroad, has put Indian steel
industry on the global map. ccording to the latest report by International Iron and
%teel Institute "II%I#, India is the seventh largest steel producer in the world.
The origin of the Indian steel industry can be traced back to &G-+ when a
contract for the construction of an integrated steelworks in 9ourkela, Drissa was signed
between the Indian government and the 1erman companies Fried Irupp und Aemag
1. The initial plan was an annual capacity of -;;,;;; tonnes, but this was
subsequently raised to & million tonnes. The capacity of 9ourkela %teel $lant "9%$#,
which belongs to the %I0 "%teel uthority of India 0td.# group, is presently about (
million tonnes. t a very early stage the former J%%9 and a British consortium also
showed an interest in establishing a modern steel industry in India. This resulted in the
%oviet4aided building of a steel mill with a capacity of & million tonnes in Bhilai and
the British4backed construction in Aurgapur of a foundry which also has a million
tonne capacity.
The Indian steel industry is organi8ed in three categories i.e., main producers,
other ma'or producers and the secondary producers. The main producers and other
ma'or producers have integrated steel making facility with plant capacities over ;.- FT
and utili8e iron ore and coal2gas for production of steel. The main producers are Tata
%teel, %I0, and 9I=0, while the other ma'or producers are E%%9, I%$T and >*%0.
The secondary sector is dispersed and consists of!
"&# Backward linkage from about &(; sponge iron producers that use iron ore and non4
coking coal, providing feedstock for steel producersK
"(# ppro)imately /-; mini blast furnaces, electric arc furnaces, induction furnaces
and energy optimi8ing furnaces that use iron ore, sponge iron and melting scrap to
produce steelK and
"+# Forward linkage with about &,(;; re4rollers that roll out semis into finished steel
products for consumer use.
PR!"T !TAT7! 5: T8 !T( I"#7!TR6:
&. Indian economy growing L < to G 3, is one of the fastest growing economies in
the world.
(. Industrial prodn. %howing encouraging trends. Inde) of industrial production for
6apital goods is growing L <.,3 619 and growth in inde) for consumer
durables was L&;.-3 619 during (;;-4;/.
+. The &;th plan investment in infrastructure has been envisaged at around
9s.<<;,--; crores.
,. The ma'or sector wise anticipated investment is likely to be 9s.(G(;;; crores in
$ower, 9s.&,-;;; crores in 9oads M Bridges, irrigation 9s. &&&;;; crores.
-. Auring &&th plan "(;;N4;< to (;&&4&(#, the pro'ected investment towards
infrastructure is likely to be 9s. (;(N;;; crores, an increase of &<;3 over &;th
plan.
/. $er capita steel consumption at +- kg low as compared to world average of &-;
kg. nd +;;kg for china.
N. =ational %teel $olicy, as formulated by Indian Finistry of %teel envisages the
following 4
i. 6rude steel production of &&; million tones by (;&G4(; at 619 of N.&3 from
(;;,4;-.
ii. The demand of steel by (;(; is likely to be G; million tones at 619 of /.G3
from ;,4;-.
iii. %teel e)ports by (;(; are likely to grow at 619 of &+.+3 from ;,4;- to (/
million tones.
iv. %teel imports to the country by (;(; shall grow at 619 of N.&3 from ;,4;-
to / million tones.
<. 0ot of steel pro'ects both Brownfield and 1reenfield likely to come up and are
in various stage of e)ecution.
G. s per the news paper reports "Eco. Times dt.&,4&&4;N#, %teel Finister has
pro'ected IndiaHs steel production to be around &(, million tones by (;&( and a
capacity of around (N- million tones by (;&G4(;.
&;. Auring the year ;/4;N, India produced around ,G million tones of finished steel
which was higher by && 3 over ;-4;/.
&&. Imports at ,.& million tones during ;/4;N were higher by /.-3. E)ports at ,.N
million tones grew by /.&3 during ;/4;N.
&(. Auring ;-4;/ Iron ore e)ports at <, million tones was almost at the previous
yearHs level of <N million tones.
&+. Auring pril 4 %ept.H;N following has been the performance4
i. 6rude steel prodn. at (-.N million tones, e)hibited a growth of - 3
over corresponding period last year
ii. E)ports at (./ million tones shows an increase by around <3 over
the same period of last year.
iii. Imports were around +.( million tones which was an increase by
/+3 over pril4%eptH;/.
&,. Aue to infrastructure focus, production of long products is gradually increasing
and ratio of flat to long products is narrowing.
&-. Auring p4%eptH;N non flat steel produced at &(., million tones showed an
increase of around G3 over pril4%eptH;/.
&/. In case of flat products prodn. during pril4%eptH;N at &(.( million tones was
almost at same level of last year.
&N. pparent 6onsumption of steel during pril4%eptH;N was (( million tones
which was an increase by && 3 over pril4%eptH;/. While long products "e)cl.
semis# at &(.+ million tones registered a growth of G3, the flat products
consumption at &(.- million tones indicated an increase of &(3.
&<. With due focus on infrastructure development and strong economic indicators,
the demand for steel in India shall continue to remain robust.
;A6 :5R;AR# :5R T8 I"#IA" !T( I"#7!TR6:
OWe still have a number of persons in our country in %I0, TI%6D and other big and
small steel plants who have the capabilities. They have the will to e)cel and transform
the country, given a long term vision.O
OWe should be ready to compete in outside marketsP..If our steel industry gears up in
about + to , years, Indian steel can be both in Indian and foreign markets. Dur vision
should be towards this.O
4 Indian %0%0: A vision for the new millennium by AP< Adbul =alam and 6!
Ra>an
The 1overnment envisions India becoming a developed nation by (;(; with a per
capita 1A$ of Q&-,;. For a nation that is economically strong, free of the problems of
underdevelopment and plays a meaningful role in the world as befits a nation of over
one billion people, the groundwork would have to begin right now. The Indian %teel
Industry will be required and is willing to play a critical role in achieving this target.
With abundant iron ore resources and well4established base for steel production
in the country, steel is poised for growth in the coming decades. $roduction has
increased from &N FT in &GG; to +/ FT in (;;+ and // FT is targeted for (;&&.
While steel will continue to have a stronghold in traditional sectors such as
construction, housing, ground transportation, special steels will be increasingly used in
hi4tech engineering industries such as power generation, petrochemicals, fertilisers etc.
%teel will continue to be the most popular, versatile and dominant material for wide
ranging applications. While India may not become a leader in world steel market, it can
become a powerful force.
To help the Indian %teel Industry achieve its potential and play a meaningful
role in India:s development some steps need to be taken!
%teel is yet to touch the lives of millions of people in India. $er capita
consumption of steel in India is only (G kg and has to go a long way to
reach consumption levels of around ,;; kg in developed countries like
J% and world average of &,; kg.
There is a need to continue the current thrust on infrastructure related
activities and e)tend them to rural India. 9ural Indian today presents a
challenge for development of the country and the opportunity to
increase usage of steel in these areas through pro'ects such as rural
housing etc.
6urrent shortage of inputs has pushed up the costs for the steel industry.
1overnment should ensure that quality raw material such iron4ore and
coke are available to the industry. With Finistry of %teel targeting an
output of &;; FT of steel by (;(; there is an urgent need to develop
raw material resources for inputs like iron4ore and coal within or outside
the country. 6ountries like >apan have already taken similar steps to
safeguard their industries.
dequate enabling infrastructure such as power, ports, roads, rail
transport is pre4requisite for the Indian steel industry to remain
competitive.
1overnment should not regulate prices and free market forces should
prevail. Intervention by the 1overnment is only a short4term solution to
the issue of steel prices in the country. Dnce left alone, market dynamics
will automatically ensure price corrections and determine the optimum
price of steel.
The Indian steel Industry is amongst the least protected in the world.
While developed countries have put numerous tariff and non4tariff
barriers on steel e)ports from the country, the domestic industry is
e)posed to cheaper imports from competing nations. s in case of other
important industries, the 1overnment should give reasonable levels of
protection to the domestic steel industry, which is 'ust starting to get
back on its feet.
Industry should be allowed to have a fair return on investment and
contribute to the overall health of the Indian manufacturing segment.
The steel industry has invested a capital of over 9s G;, ;;; crores.
69I%I0 in a recent study has concluded that given the large e)posure
that banks and financial institutions have to the steel industry.
Today, Indian producers employ world4class standards of technology.
%teel from Indian finds growing acceptability in international markets.
But despite this India:s share in world trade steel is a miniscule (3.
1iven the capabilities of the Indian steel industry there is tremendous
scope to increase this share further. While the steel industry will
continue servicing the domestic demand there is a lot of untapped e)port
potential with the industry. The 1overnment, in line with ERIF policy
(;;(4;N, should take steps to make Indian e)ports more competitive.
!TR7CT7RA( ;A="!!! 5: I"#IA" !T( I"#7!TR6:
lthough India has moderni8ed its steelmaking considerably, however, nearly
/3 of its crude steel is still produced using the outdated open4hearth process.
0abour productivity in India is still very low. ccording to an estimate crude
steel output at the biggest Indian steelmaker is roughly &,, tonnes per worker
per year, whereas in Western Europe the figure is around /;; tonnes.
India has to do a lot of catching in the production of stainless steel, which is
primarily required by the plant and equipment, pharmaceutical and chemical
industries.
%teel production in India is also hampered by power shortages.
India is deficient in raw materials required by the steel industry. Iron ore
deposits are finite and there are problems in mining sufficient amounts of it.
IndiaHs hard coal deposits are of low quality.
Insufficient freight capacity and transport infrastructure impediments too
hamper the growth of Indian steel industry.
!TR"/T8! 5: I"#IA" !T( I"#7!TR6
0ow labour wage rates.
bundance of quality manpower.
Fature production base.
$ositive stimuli from construction industry.
Booming automobile industry.
A457T !T( A7T85RIT6 5: I"#IA
8I!T5R6 5: T8 !AI(:
T8 PRC7R!5R: %I0 traces its origin to the formative years of an emerging
nation 4 India. fter independence the builders of modern India worked with a vision 4
to lay the infrastructure for rapid industriali8ation of the country. The steel sector was
to propel the economic growth. 7industan %teel $rivate 0imited was set up on >anuary
&G, &G-,. The $resident of India held the shares of the company on behalf of the people
of India.
?PA"#I"/ 85RI@5" A1.).31.,&B:
7industan %teel "7%0# was initially designed to manage only one plant that was
coming up at 9ourkela. For Bhilai and Aurgapur %teel $lants, the preliminary work
was done by the Iron and %teel Finistry. From pril &G-N, the supervision and control
of these two steel plants were also transferred to 7industan %teel. The registered office
was originally in =ew Aelhi. It moved to 6alcutta in >uly &G-/ and ultimately to
9anchi in Aecember &G-G.
new steel company, Bokaro %teel 0imited, was incorporated in >anuary &G/,
to construct and operate the steel plant at Bokaro. The & FT phases of Bhilai and
9ourkela %teel $lants were completed by the end of Aecember &G/&. The & FT phase
of Aurgapur %teel $lant was completed in >anuary &G/( after commissioning of the
Wheel and )le plant. The crude steel production of 7%0 went up from .&-< FT
"&G-G4/;# to &./ FT. The second phase of Bhilai %teel $lant was completed in
%eptember &G/N after commissioning of the Wire 9od Fill. The last unit of the &.< FT
phase of 9ourkela 4 the Tandem Fill 4 was commissioned in February &G/<, and the
&./ FT stage of Aurgapur %teel $lant was completed in ugust &G/G after
commissioning of the Furnace in %F%. Thus, with the completion of the (.- FT stage
at Bhilai, &.< FT at 9ourkela and &./ FT at Aurgapur, the total crude steel production
capacity of 7%0 was raised to +.N FT in &G/<4/G and subsequently to ,FT in &GN(4
N+.
The Finistry of %teel and Fines drafted a policy statement to evolve a new
model for managing industry. The policy statement was presented to the $arliament on
Aecember (, &GN(. Dn this basis the concept of creating a holding company to manage
inputs and outputs under one umbrella was mooted. This led to the formation of %teel
uthority of India 0td. The company, incorporated on >anuary (,, &GN+ with an
authori8ed capital of 9s. (;;; crore, was made responsible for managing five
integrated steel plants at Bhilai, Bokaro, Aurgapur, 9ourkela and Burnpur, the lloy
%teel $lant and the %alem %teel $lant. In &GN< %I0 was restructured as an operating
company.
%ince its inception, %I0 has been instrumental in laying a sound infrastructure
for the industrial development of the country. Besides, it has immensely contributed to
the development of technical and managerial e)pertise. It has triggered the secondary
and tertiary waves of economic growth by continuously providing the inputs for the
consuming industry.
!AI( Today
%I0 today is one of the largest industrial entities in India. Its strength has been
the diversified range of quality steel products catering to the domestic, as well as the
e)port marketsanda large pool of technical and professional e)pertise. Today, the
accent in %I0 is to continuously adapt to the competitive business environment and
e)cel as a business organi8ation, both within and outside India.
T6P 5: 5R/A"I!ATI5":
!teel Authority of IndiaC 3 a /overnment of India nterprise and one of the
largest and profit making public sector steel products manufacturing company$
!teel Authority of India produces for both basic and special steels for
construction, engineering, power, railway, automotive and defense industries and caters
to Indian and International markets. !teel Authority of India has five steel plants, one
subsidiary, three special steel plants, multi marketing units at all regions and nine other
speciali8ed units to support growth and development of the !teel Industry in India$ Its
produces are 4looms9 4illets9 !labs9 Crane Rails9 4ars9 Rods D Re3bars9 ;ire
Rods9 8R Coils9 !heets9 Plates9 CR Coils D !heets9/C !heets9/P !heets and Coils9
Tinplates9 lectrical !teel9 Tubular Products9 Pipes9 Railway Products9 Rails9
;heels9 A+les9 ;heel !ets$
Activities: !teel Authority of India production lines are 4
7ot 9olled 6oils, %heets
6old 9olled $roducts.
Bars and 9ods.
%emi4Finished $roducts.
9ailway $roducts.
%pecialty $roducts.
$lates.
%tructurals.
lloy and %tainless $roducts.
Foreover, !teel Authority of India offers technological services in the following
domains 4
Inow4how transfer of technologies developed by its 9MA wing.
6onsultancy services.
%peciali8ed testing services.
6ontract research.
Training
A457T !A(M !T( P(A"T
steel plant in %alem was a long cherished dream. 1overnment of India decided in
Fay &-, &GN( to set up an integrated special steel plant in %alem in the state of Tamil =adu
for the production of sheets and stripe of electrical , stainless and other special and mild
steel on the basis of sound techno4 economic consideration.
The construction of plant was inaugurated in >une &,+, &GN( by the late %hri
Fohan Iumaramanglam, the minister of steels and mines. Thus a dream of having a steel
plant in %alem started taking shape in the foot hills of kan'amalai. The company ?!A(M
!T( (IMIT#E was registered on Dct(-, &GN(. it was 1overnment of India
undertaking subsidiary of %teel authority of India limited "%I0#.The plant was designed
to roll out +(;;; tonnes of cold rolled stainless steel strips and wide sheets per annum in
the first phase. In the second phase, the production capacity was increased to N;;;; tonnes
per annum by installing %end8imir mill.
s one steps ahead in reaching the goal of backward integration. 7DT 9D00I=1
%TE6IE0 FI00 was commissioned during =ov +, &GG- with an installed capacity of
around ( lakhs tonnes with an appropriate investment of 9s.<+G crores. The mill is capable
of rolling both stainless and non stainless steels. Dn %ep &+ &GNN the detailed pro'ect was
approved by the government and sanction was accorded for implementation of the first
stage to the completed in sep &G<&.%alem steel plant is premier producer of international
quality stainless steel in India. The plant has capacity to roll out &,</,;;; tonnes of 7ot
9olled carbon and stainless steel flat products and N;;;; tonnes of 6old rolled stainless
steel sheets and coils per annum.
blanking line, the first of its kind in India, was established in &GG+, with an annual
capacity to produce +;;; tonnes of ferritic grade coin blanks or +/;; tonnes of utility
blanks. 6oinage of 9e &, -;paise, and (- paise denomination are minted from the blanks
supplied by %%$ to the government Fint in =oida, Fumbai, Iolkata and 7yderabad.
IMP5RTA"T #ATA:3
1o a head 4 &+.;G.NN
6ommissioning
$hase I 4 &+.;+.<(
$hase II 4 (/.;+.G&
Blanking line 4 (,.&(.G+
7ot rolling mill 4 &&.;G.G-
?PA"!I5" PR5<CT:3
In %%$ had e)pansion of 69F on &+.;+.<( on phase I at cost &<&.G; crores for
sendimir mill, slitting line etc. t ne)t phase II on (/.;+.G& costing N/.(N crores. fter that
India only one blanking line for production blank coins on (,.&(.G+. Dn &&.;G.G-
e)panding the 7ot 9olling Fill on &&.;G.G- at a cost of <+<.GN crores.
MA" P5;R:3
s on &.;-.;N the man power of %%$ is &+-( employees are working at %alem
steel plant.
ARA ACF7IR#:3
=early &-.- sq.kms are cover by %%$.
I!5 CRTI:ICAT:
The company has got I%D G;;;, I%D G;;& and G;;(. This is got from 9WTJ*,
1ermany. nother one the total %I0 industry, the %alem steel plant is first unit got I%D
certificate.
The I%D G;;; certificate relates to quality management and quality assurance,
standard, guidance for selection.
The I%D G;;& certificate relates to quality specification for design, development,
product, installation and servicing.
The I%D G;;( certificate for assurance, production insulation.
MI!!I5" 5: T8 5R/A"I!ATI5":
%ustained growth through internal generation of resources is the hallmark of the
corporate mission.
GI!!I5" 5: T8 5R/A"I!ATI5":
To be respected world class corporation and the leader in Indian %teel business in
Suality, productivity, profitability and customer satisfaction.
45AR# 5: #IRCT5R!:
!hri !$=$ Roongta 3 Chairman of !AI(
Managing director:
%hri =ilotpal 9oy 4 Burnpur
%hri *. %hyamsundar 4 Aurgapur
%hri B.=. %ingh 4 9ourkela
%hri *.I. %rivastava 4 Bokaro
%hri 9. 9amara'u 4 Bhilai
:7"CTI5"A( #IRCT5R!:
%hri %hoeb hmed 4 6ommercial
%hri %. Bhattacharya 4 Finance
%hri 1. D'ha 4 $ersonnel
%hri I.I. Ihanna 4 Technical
A##R!! 5: R/I!TR 5::IC A"# IT! 4RA"C8!:
Corporate 5ffice Ispat 4hawan,
0odi 9oad, =ew Aelhi T &&;;;+
$hone ! ;&&4(,+/N,<&4</ Fa) ! ;&&4(,+/N;&-
3mail : sailcoHvsnl$com
%6D$E Finar, =orth Tower,
0a)mi =agar Aistrict 6entre, =ew Aelhi 4&&;;G(
$hone! ";&&# ((,/N+/;
Fa)! ";&&# ((,/N,-<
3mail : sailcoLvsnl.com
!alem !teel Plant
%alem T /+/;&+ "Tamil =adu#
$hone! ;,(N4(+<+ ;(&
Fa)! ;,(N4(+<(<;; "dmn#, (+<+(,G "Fktg#,
3mail: sspmktLsancharnet.in
Chapter '! Research Methodology:
RESEARCH METHODOLOGY
9esearch Fethodology is used to solve the research problem systematically. It has
many dimensions and research methods constitute a part of the research
methodology.
Thus when we talk about research methodology, we do not only talk of the research
methods but also consider the logic behind the methods. We use in conte)t of our
research study, so that research results are capable of being evaluated either by
researcher himself or by others.
To effectively carry out in research, I would use the following research process,
which consists of series of actions or steps.
Research comprises of the following steps:3
&. Formulating the research $roblem.
(. 9esearch design M %ample Aesign.
+. nalysis of data gathered
,. Aata analysis comparison
-. 1raphics and interpret
R!ARC8 #!I/":
Aescriptive research is used in this study because it will ensure the minimi8ation of
bias and ma)imi8ation of reliability of data collected. The researcher had to use fact and
information already available through financial statements of earlier years and analyse these to
make critical evaluation of the available material. 7ence by making the type of the research
conducted to be both #escriptive and Analytical in nature.
From the study, the type of data to be collected and the procedure to be used for this
purpose were decided.
#ata Collection
The nature of the data required for the purpose of study are information relating to
current assets and current liabilities, pattern of working capital financing by the
B$60 as well as earning of the business with respect to =et $rofit, operating profit
etc. Further, information relating to nature of industry, si8e and age of B$60
and its contribution to total industry and their annual
financial statements from (;;,4;- to (;;G4&; are also needed.
Primary #ata:
In some cases data will also be collected as and when required for the successful
completion of the research directly from the company officials through personal
interview or structural questionnaire.
!econdary #ata:
For the purpose of this research, ma)imum data required is of secondary in nature.
!57RC! 5: #ATA:
The sources of data are from the annual reports of the company from the year (;;,4
(;;&-to (;;G4(;&;.
MT85#! 5: #ATA A"A(6!I!:
The data collected were edited, classified and tabulated for analysis. The analytical
tools used in this study are!
A"A(6TICA( T55(! APP(I#:
The study employs the following analytical tools!
1$ 6omparative statement.
%$ 6ommon %i8e %tatement.
&$ Trend $ercentage.
'$ 9atio4nalysis
6hapter -! A"A(6!I! A"#
I"TRPRTATI5"
Financial statement is an organi8ed collection of data according to logical and
consistent accounting procedures. It purposes is to convey an understanding of some
financial aspects of a business firm. It may show a position at a moment of time as in the
case of a balance sheet, or may reveal a series of activities over a given period of time, as in
the case of an Income %tatement. Thus the term ?Financial %tatement ?generally refers to
two basic statements! "i# the Income %tatement and "ii# the Balance sheet.
A"A(6!I! A"# I"TRPRTATI5" 5: :I"A"CIA( !TATM"T:
The financial statements are indicators of the two significant factors!
&. $rofitability and
(. Financial soundness
nalysis and interpretation of financial statement therefore, refers to such a treatment
of the information contained in the Income %tatement and Balance %heet so as to afford full
diagnosis of the profitability and financial soundness of the business.
Classification of 4alance !heet of !teel Authority of India (imited from %00'3%00) to %00. I %010
A Rs$in CroresB
PARTIC7(AR! %00'30) %00)30* %00*30, %00,30- %00-30. %00.310
A!!T!

Fi)ed ssets
Investment
6urrent ssets
Fis.E)penditure
$M0 a2c
&/+G<
,+-
<+N/
+N(
N-,
&-+-,
-+G
N&(G
-N<
(,/;
&,,&,
-,+
N+&(
-+/
(N/-
&+--;
-,+
<(,/
+N<
4
&(<-&
/;/
&,+++
(G,
4
&(G(;
(G+
&-/+;
(&-
4
Total Assets %*&&) %*0*0 %)),0 %%,1, %-0-' %.0)-
(IA4I(ITI!

!hareholderJs :unds
(oan :unds
Current (iabilities
D Provisions
#eferred (iabilities
-(G;
&,(-;
/NG-
4
-(G;
-(G;
&,;&G
/N-&
4
-(G;
&(G/G
N+&&
4
-;+N
</G;
<GG;
4
&;+;/
-NN;
&;&//
&<,(
&(/;&
,(G<
&,<,
&;/N-
T5TA( (IA4I(ITI! %*&&) %*0*0 %)),0 %%,1, %-0-' %.0)-
Classification of Income !tatement of !teel Authority of India (imited from %00'3%00) to %00. I %010
A Rs$in CroresB
PARTIC7(AR! %00'30) %00)30* %00*30, %00,30- %00-30. %00.310

%ales
EBIAT
(ess: #epreciation
&/(++
(&/N
&&,,
&--;(
&;&&
&&-/
&G(;N
(&/-
&&,N
(,&N<
,/-(
&&(+
+&<;-
&&;GN
&&(N
+((<;
N+<&
&(;N
EBIT
(ess: Interest Charges
&;(+
&N-(

"&,-#
&-/(

&;&<
&++,
+-(G
G;&

GGN;
/;-
/&N,
,/<
P4T
(ess : Ta+

A,%.B
3

A1,0,B
4

A&1*B
"&(#

%*%-
&&/

.&*)
(-,<

),0*
&/G+
PAT A"et ProfitB

A,%.B

A1,0,B A&0'B %)1% *-1, '01&
Comparative Income !tatement of !teel Authority of India (imited from %00'3%00) to %00. I %010
A Rs$in CroresB
PARTIC7(AR! %00'30) %00)30* %00*30, %00,30- %00-30. %00.310

Absolute
Change
K of
Change
Absolute
Change
K of
Change
Absolute
Chang
K of
Change
Absolute
Chang
K of
Change
Absolute
Chang
K of
Change
Absolute
Chang
K of
Change
%ales
EBIAT
(ess: #epreciation
"N+&#
"&&-/#
&(
",.-;#
"-+.+,#
&.;,
+N;-
&&-,
"G#
(+.G;
&&,
";.NN#
,GN&
(,<N
"(,#
(-.<<
&&,.<
"(.;G#
N/(N
/,,-
,
+&.-,
&+<.-,
;.+-
,N-
"+N&/#
<;
&.,G
"++.,#
N.;G
/G;G
+-<-
,
(&.,;
,<.-N
;.++
EBIT
(ess: Interest Charges
"<N<#
"&G;#
"<-.<(#
"&;.<,#
<N+
"((<#
/;(
"&,.-#
(-&&
",++#
(,/./
"+(.,#
/,,&
"(G/#
&<(.-&
"+(.N;#
"+N/G#
"&+N#
"+<#
((./,
+-<&
"&,/#
-<.;;
"+&.&#
P4T
(ess : Ta+
GN<
4

&+,.&
4
"&+G&#
&(
"<&.,B
;
(+&(
&;,
N+&./
<//./

/N+N
(,+(
(-/.+
(;G/

"+/-G#
"<--#

"+G#
"++.-#
+N&N
&-(<
/-.&
G;.(-
PAT A"et ProfitB .,- 1&'$1) A1'0&B A-%$1B %%0- ,%* '&0) 1,1$& A%-0'B A'1$1B %1-. )'$)'
C5MPARATIG I"C5M !TATM"T:
&. The =et %ales figure shows a fluctuation i.e. it is negative in the year (;;,4;- M (;;-4;/.
fter the year (;;/ it shows an increasing which will help to make increase in =et $rofit.
(. The company has sufficient control over its depreciation which shows a decreasing from
the period of (;;/ and it has ;.++3 in (;;N.
+. The company has considerable change in Interest 6harges and rather the latter has
decreased in recent years.
,. The company has able to attain $rofit after Ta) of 9s./(;( in the year (;&; compare to
(&<G more from the previous year (;;G.
-. It may conclude that there is a sufficient progress in the company and the overall
profitability of the concern is very good.
Comparative 4alance !heet of !teel Authority of India (imited from %00'3%00) to %00. I %010
A Rs$in CroresB 9s in
PARTIC7(AR! %00'30) %00)30* %00*30, %00,30- %00-30. %00.310

Absolute
Change
K of
Change
Absolute
Change
K of
Change
Absolute
Chang
K of
Change
Absolute
Chang
K of
Change
Absolute
Change
K of
Change
Absolute
Change
K of
Change
A!!T!
Fi)ed ssets
Investment
6urrent ssets
Fis.E)penditure
$M0 a2c

"&;,,#
&;,
"&(,N#
(;/
&N;/

"/.+/#
(+.G;
"&,.<<#
--.+N
((/.(
"G,;#
,
&<+
",(#
+;-
"/.&(#
;.N,
(.-/
"N.(/#
&(.+G
"</,#
;
G+,
"&-<#
4

"-.G#
;
&(.NN
"(G.,#
4

/GG
/+
/;<N
"&<,#
4

"-.&-#
&&./;
N+.<&
"((.((#
4

/G
"+&+#
&(GN
"NG#
4

;.-+
"-&./#
G.;,
"(/.<#
4
"</#
((&
,N,-
"<,#
4
";./#
N-.,
+;.+
"+G#
4
(IA4I(ITI!
!hareholderJs :unds
(oan :unds
Current (iabilities
D Provisions
#eferred (iabilities

;
"(+&#
",,#
4

;
"&./(#
"/.,N#
4


;
"&;-;#
-/;
4

;
"N.,<#

<.(G
4
"(-+#
",(NG#
&/NG
4
",.N<#
"+(.G#
((.G/
4
-(/G
"(G(;#
&&N/
4

&;,./
"++./#
&+.;<
4

((G-
"&,N(#
"</<(#
<<++
((.(/
"(-.-#
"<-.,#
,NG.-
,N&(
"&&<#
"N(#
(N,
+N.+
"(.N#
",.<#
(.-/
I"TRPRTATI5":
C5MPARATIG 4A(A"C !8T
(ong Term :inancial Position:
1$ The comparative Balance %heet of the company reveals that during the financial year
(;;< T (;;G there has been an increase in fi)ed assets and (;;G4(;&; it gets to
decrease to 9s. </ crores i.e. ".//#3 due to modification in various plants while the
long term liabilities to outsiders have decreased by &&< cores i.e.(.N,3 but the
contribution by the owners has shows continuous increase by 9s. ,N&( crores
i.e.+N.+G.
Current :inancial position and li2uidity position:
%$ The company has increased its current assets by increasing the level of inventories of
9s.,N,- crores i.e.+;.+-3. The current liabilities highly fluctuate and show continuous
decrease in the year (;;/4(;;N by 9s.N( crores i.e.,.<-3 decreased. The =et Working
6apital was in peak by the continuous increase after the year (;;-. The company got
good liquidity position due increase in 6urrent assets but it may affect the profitability
of the company.
&$ The overall financial position of the company is very good.
Common !iLe 4alance !heet of !teel Authority of India (imited from %00'3%00) to %00. I %010
A Rs$in CroresB
PARTIC7(AR! %00'30) %00)30* %00*30, %00,30- %00-30. %00.310
A!!T!

Fi)ed ssets
Investment
6urrent ssets
Fis.E)penditure
$M0 a2c
/(.(&
&./-
+&.<;
&.,&
(.<<
-<.G&
(.&(
(N.+<
(.(&
G.+<
-/.+N
(&.(+
(<.-G
(.;G
&;.N(
-G./,
(.+G
+/.(G
&./<
4
,-.N-
(.&-
-&..;/
&.;,
4
,,.,/
&.;;
-+.N<
;.N/
4
Total Assets 100$00 100$00 100$00 100$00 100$00 100$00
(IA4I(ITI!

!hareholderJs :unds
(oan :unds
Current (iabilities
D Provisions
#eferred (iabilities
(;.;<
-,.&&
(-.<&
4

(;.(G
-+.NG
(-.G(
4
(;./;
-;.N+
(<.-G
4
((.&N
+<.(-
+G.-<
4
+/./G
(;.-,
+/.&G
/.-<
,+.+/
&,.NG
-.&;
+/.N-

T5TA( (IA4I(ITI! 100$00 100$00 100$00 100$00 100$00 100$00
I"TRPRTATI5":
C5MM5"3!I@ 4A(A"C !8T
&. Dut of the total investment the owners funds is more compare to outsider:s
fund in the company which shows that the company has depended more on its
own funds. It shows that the company is traditionally financed
(. The proportion of current assets to total assets has increased comparing to
current liabilities which serve as an evidence for good working capital
position of the company.
+. Investments, Fiscellaneous e)penditure and deferred liabilities have their
own limited contribution to their respective side totals.
Trend Percentage of !teel Authority of India (imited from
%00'3%00) to %00. I %010
4ase 6ear %0003%001 :igure in K
Particulars
%00'30) %00)30* %00*30, %00,30- %00-30. %00.310
!A(!
P4IT
:I?# A!!T!
C7RR"T A!!T!
C7RR"T (IA4I(ITI!
;5R=I"/ CAPITA(
CAPITA( MP(56#
T5TA( A!!T!
100
100
100
100
100
100
100
100
.*
A1'B
.-
-)
.%
,&
.&
.1
11-
..
.%
-,
.1
-1
.1
--
1'.
&')
-,
.,
11'
**
-&
-,
1.*
.,)
-%
1,0
1%)
%')
110
10.
1..
*0'
-0
%0-
1)'
&00
11,
1%%
I"TRPRTATI5":
The sales of the product was very low in the year (;;-4;/ because of the
competition e)isting in the field and general economics constraints but later it
recovered and moved in the favorable direction there onwards.
I"TRPRTATI5":
The profit after ta) "$T# which is also known as =et $rofit slopes downwards
in the year (;;-4;/ but moves in the favorable direction due to less financial and
interest charges and high sales value.
TR"# PRC"TA/:
Trend percentage is immensely helpful in making a comparative study of the
financial statement for several years. The method of calculating trend percentages
involves the calculating of percentages relationship that each item bears to the same
item in the base years.
The method of trend percentage is a useful analytical device for the
management since by substitutes percentages for large amountsK the brevity and
readability are achieved
6ear ;ise A%001 I %00,B !ales :igures
C8ART !85;I"/ !A(!
Chart "o$1
6ear wise A%0013%00,B Profit :igures:
Chart "o$%
C8ART !85;I"/ "T PR5:IT
RATI5 A"A(6!I!:
Financial ratio analysis is the calculation and comparison of ratios which are
derived from the information in a companyHs financial statements. The level and
historical trends of these ratios can be used to make inferences about a
companyHs financial condition, its operations and attractiveness as an
investment.
Financial ratios are calculated from one or more pieces of information from a
companyHs financial statements. For e)ample, the Ogross marginO is the gross profit
from operations divided by the total sales or revenues of a company, e)pressed in
percentage terms. In isolation, a financial ratio is a useless piece of information. In
conte)t, however, a financial ratio can give a financial analyst an e)cellent picture of a
companyHs situation and the trends that are developing.
ratio gains utility by comparison to other data and standards. Taking our
e)ample, a gross profit margin for a company of (-3 is meaningless by itself. If we
know that this companyHs competitors have profit margins of &;3, we know that it is
more profitable than its industry peers which are quite favorable. If we also know that
the historical trend is upwards, for e)ample has been increasing steadily for the last few
years, this would also be a favorable sign that management is implementing effective
business policies and strategies.
C(A!!I:ICATI5" 5: RATI5!:
Financial ratio analysis involves the calculation and comparison of ratios which
are derived from the information given in the companyHs financial statements. The
historical trends of these ratios can be used to make inferences about a companyHs
financial condition, its operations and its investment attractiveness.
Financial ratio analysis groups the ratios into categories that tell us about the
different facets of a companyHs financial state of affairs. %ome of the categories of
ratios are described below!
(i2uidity Ratios give a picture of a companyHs short term financial situation or
solvency
Turnover Ratios show how efficient a companyHs operations and how well it is
using its assets.
Profitability Ratios ! show the quantum of debt in a companyHs capital structure.
(IF7I#IT6 RATI5!:
0iquidity 9atios are ratios that come off the Balance %heet and hence measure the
liquidity of the company as on a particular day i.e. the day that the Balance %heet was
prepared. These ratios are important in measuring the ability of a company to meet both its
short term and long term obligations.
&. 6urrent 9atio
(. 0iquid 9atio
+. =et working capital ratio
1$ C7RR"T RATI5:
An indication of a companyHs ability to meet short4term debt obligationsK the
higher the ratio, the more liquid the company is. 6urrent ratio is equal to current assets
divided by current liabilities. If the current assets of a company are more than twice the
current liabilities, then that company is generally considered to have good short4term
financial strength. If current liabilities e)ceed current assets, then the company may
have problems meeting its short4term obligations.
C7RR"T RATI5 M C7RR"T A!!T! N C7RR"T (IA4I(IT6
Table "o$1
Table showing Current ratio
ARs$ In CroresB
6AR
C7RR"T A!!T! C7RR"T
(IA4I(ITI!
C7RR"T RATI5
%00'30) -&*% )%,' 1$).
%00)30* ,10, '-'. 1$',
%00*30, ,%-% ',,, 1$)%
%00,30- -0,) *0%) 1$&'
%00-30. 1'1-, **0- %$1)
%00.310 1,&-' -10- %$1'
n ideal solvency ratio is (. The ratio of ( is considered as a safe margin of solvency
due to the fact that if current assets are reduced to half "i.e.# & instead of (, then also the
creditors will be able to get their payments in full.
I"TRPRTATI5":
7ere, the current ratio fluctuates from year to year below the ideal ratio of (.
But reaches the Ideal ratio from after the year (;;<4;G which is positive consideration
Chart "o$&
C7RR"T RATI5 5: !AI( :5R T8 PRI5# 5: %0013%00,
%$ (IF7I# RATI5:
0iquid ratio is also known as Bquick: or Bcid test Bratio. 0iquid assets refer to assets
which are quickly convertible into cash. 6urrent ssets other stock and prepaid e)penses are
considered as quick assets. The ideal liquid ratio accepted Bnorm: for liquid ratio B&:.
Fuic1 Ratio M Total Fuic1 AssetsN Total Current (iabilities
Fuic1 Assets M Total Current Assets AminusB Inventory
Table "o$%
Table showing Fuic1 ratio
ARs$ In CroresB
UE9
(i2uid A!!T! C7RR"T
(IA4I(ITI!
Fuic1 RATI5
%00'30) &&-'& )%,' *$'1
%00)30* &0*) '-'. 0$0*
%00*30, &)&, ',,, 0$,'
%00,30- '..& *0%) 0$-%
%00-30. ..** **0- 1$)0
%00.310 111,' -10- 1$&,
I"TRPRTATI5":
The liquid ratio denotes the concern had achieved more than the ideal ratio of
&!& in the years (;;,4;-,(;;<4;G,(;;G4&; and lower liquid ratio in the remaining
years. If inventories do not sell and the company has to meet its current obligations
Chart "o$'
(IF7I# RATI5 5: !AI( :5R T8 PRI5# 5: %0013%00,
&$ "T ;5R=I"/ CAPITA( RATI5:
Working 6apital is more a measure of cash flow than a ratio. The result of this
calculation must be a positive number. 6ompanies look at =et Working 6apital over time to
determine a companyHs ability to weather financial crises. 0oans are often tied to minimum
working capital requirements.
"T ;5R=I"/ CAPITA( RATI5 M "et ;or1ing Capital N Capital
mployed
Table "o$&
Table showing "et ;or1ing Capital Ratio
ARs$ In CroresB
UE9
"et ;or1ing
Capital
Capital mployed "et ;or1ing
Capital Ratio
%00'30) &0-- 1-%0) 0$1*
%00)30* %%)- 1,0)* 0$1&
%00*30, %)0) 1*)'1 0$1)
%00,30- %0)0 1)%1- 0$1&
%00-30. ,),. %00*' 0$&,
%00.310 .%,* %1'&- 0$'&
I"TRPRTTI5":
=et Working capital measures the firm:s potential reserve of funds. It can be related to
net assets. This ratio represents the availability of working capital in relation with capital
employed.
T7R"5GR RATI5:
The turnover ratio is also known as activity or efficiency ratios. They indicates the
efficiency with which the capital employed is rotated in the business "i.e.# the speed at which
capital employed in the business rotates. 7igher the rate of rotation, the greater will be the
profitability. Turnover ratios indicate the number of times the capital has been rotated in the
process of doing business.
:i+ed Asset Turnover Ratio
;or1ing Capital Turnover Ratio
#ebtor Turnover Ratio
!toc1 Turnover Ratio
1$ :I?# A!!T! T7R"5GR RATI5:
Fi)ed asset turnover is the ratio of sales "on your $rofit and loss
account# to the value of your fi)ed assets "on your balance sheet#. It
indicates how well your business is using its fi)ed assets to generate
sales.
:I?# A!!T! T7R"5GR RATI5 M "T !A(! N "T :I?#
A!!T!
1enerally speaking, the higher the ratio, the better, because a high ratio
indicates your business has less money tied up in fi)ed assets for each
dollar of sales revenue. declining ratio may indicate that youHve over4
invested in plant, equipment, or other fi)ed ass

Table "o$'
Table showing fi+ed asset turnover ratio

6AR
"T !A(!
ARs$ In CroresB
:I?# A!!T!
ARs$ In CroresB
:I?# A!!T
T7"5GR RATI5
AIn timesB
%00'30) 1*%%& 1)1,, 1$0,
%00)30* 1))0% 1',.- 1$0'
%00*30, 1.%0, 1'0&* 1$&,
%00,30- %'1,- 1&1*- 1$-'
%00-30. &1-0) 1%'-) %$))
%00.310 &%%-0 1%1*% 1$*)
I"TRPRTATI5":
7ere, the value of fi)ed assets employed in the business shows a reducing trend which
implies that company didn:t occur any more fi)ed asset during the period (;;- T (;&;. Dnly
the depreciation effect had been given to fi)ed asset.
There has been a decline in the year (;;,4;- but rising there onwards favorably which
indicates that the net fi)ed assets is used more effectively to increase the sales without
additional investment in the period of study.
%$ ;5R=I"/ CAPITA( T7R"5GR RATI5:
Working capital refers to investment in current assets. This is also known as gross concept of
working capital. There is another concept of working capital known as net working capital. =et
working capital is the difference between cur4rent assets and current liabilities. nalysts intend to
establish a relationship between working capital and salsas the two are closely related. Through this
ratio we are attempting to see that one rupee blocked by the organi8ation in net working capital is
generating how much sales. 7igher the ratio better it is.
;5R=I"/ CAPITA( T7R"5GR RATI5 M "T !A(! N "T ;5R=I"/ CAPITA(
In recent years for operating an industry have not only become scarce, but also costly in the
wake of macro level policies on credit squee8e an increase in Interest rate. %o, the working capital
can be defined either as a gross working capital, which include funds invested in all current assets,
or as net working capital, which denotes the difference between the current assets current liabilities
of an organi8ation.
Table "o$)
Table showing ;or1ing capital turnover ratio
6AR
"T !A(!
ARs$ In CroresB
;5R=I"/ CAPITA(
ARs$ In CroresB
;5R=I"/ CAPITA(
T7R"5GR RATI5
AIn timesB
%00'30) 1*%%& &0-- )$%*
%00)30* 1))0% %%)- *$-,
%00*30, 1.%0, %)0) ,$*,
%00,30- %'1,- %0)0 11$,.
%00-30. &1-0) ,),. '$1.
%00.310 &%%-0 .%,* &$',
I"TRPRTATI5":
7ere, the Working 6apital ratio shows a increasing trend from (;;,4;- to (;;N4;< and then
slope downwards due to holding high current assets in the form of cash, bank balances and
receivables in the year (;;<4;G to (;;G4&;
&$ #4T5R! T7R"5GR RATI5:
Aebtor:s turnover ratio measures the efficiency with which the debtors are converted
into cash. This ratio indicates both the quality of debtors and the collection efforts of the
business enterprise. This ratio is calculated as follows!
I$ #ebtorsJ turnover ratio
II$ #ebt collection period$
#4T5RJ! T7R"5GR RATI5 M CR#IT !A(! N AGRA/ ACC57"T! RCIGA4(!
The numerator of this ratio should preferably be credit sales. This is so because the
denominator is logically related to credit sales as it arises from credit sales only. 6ash sales do
not generate debtors. 7owever, as the information related to credit sales is not separately
available in corporate accounts, so total sales could be taken in the numerator. verage debtors
are calculated by dividing the sum of beginning4of4year and end4of4year balance of debtors by
(.
Table "o$*
Table showing #ebtorsJ turnover ratio
ARs$ In CroresB
6AR
CR#IT !A(!
ARs$ In CroresB
#4T5R!
ARs$ In CroresB
#ebtorsJ turnover ratio
AIn timesB
%00'30) 1*%%& 1*-- .$*%
%00)30* 1))0% 1&.0 11$1*
%00*30, 1.%0, 1**0 11$),
%00,30- %'1,- 1))0 1)$*0
%00-30. &1-0) 1.0- 1*$*,
%00.310 &%%-0 1--% 1,$1)
I"TRPRTATI5":
There has been increase in the turnover ratio which shows the efficiency of the
collection department
#ebt collection period:
The ratio indicates the e)tent to which the debt has been collected in time. It gives the
average debt collection period. The ratio is very helpful to lenders because it e)plains to them
whether their borrowers are collecting money within a reasonable time. n increase in the
period will result in greater blockage of funds in debtors.
#ebt collection period M MonthsN#ays in a yearN #ebtorJs turnover ratio
Table "o$,
Table showing #ebt collection period
AIn #aysB
6AR C5((CTI5"
PRI5#
%00'30) &-
%00)30* &&
%00*30, &%
%00,30- %&
%00-30. %%
%00.310 %1
Aebtors: collection period measures the quality of debtors since it measures the
rapidity or slowness with which money is collected from them
I"TRPRTATI5"O
7ere, there has been decreasing trend in the debt collection period which is favorable
for the company. Because, the quicker the collection period. Then more the utili8ation of cash
collected from debtors. It moves from +< days in (;;,4;- to (& days in (;;G4&;.
'$ !T5C= T7R"5GR RATI5:
This ratio indicates whether investment in inventory is efficiently used or not. It is
therefore e)plains whether investment in inventories is within proper limits or not. This ratio is
calculated as follows.
!toc1 Turnover Ratio M "et !ales N Average Inventory
Table "o$-
Table showing !toc1 turnover ratio

6AR
CR#IT !A(
ARs$ In CroresB!
AGRA/ !T5C=
ARs$ In CroresB
!T5C= T7R"5GR
RATI5
AIn timesB
%00'30) 1*%%& ')1. &$).
%00)30* 1))0% '0'% &$-'
%00*30, 1.%0, &,') )$1&
%00,30- %'1,- &0-% ,$.1
%00-30. &1-0) '%%1 ,$)&
%00.310 &%%-0 *%10 )$1.
The Inventory turnover ratio signifies the liquidity of the Inventory. high inventory turnover
ratio indicates brisk sales. The ratio is, therefore a measure to discover the possible trouble in
the form of over stocking or over valuation.
It is difficult to establish a standard ratio of inventory because it will differ from
industry to industry.
I"TRPRTATI5":
7ere, there has been a rising trend in the Inventory turnover ratio which implies that
the inventories are efficiently managed and utili8ed which directly contributes to companies:
productivity. The stock position is known as the graveyard of the balance sheet. low
inventory turnover ratio results in blocking of funds in Inventory which may ultimately result
in heavy losses due to inventory becoming obsolete or deteriorate in quality.
PR5:ITA4I(IT6 RATI5
$rofitability is an indication of the efficiency with which the operation of the business
is carried on. $oor operational performance may indicate poor sales and hence poor profits.
lower profitability may arise due to lack of control over the e)penses. Bankers, financial
institutions and other creditors look at the profitability ratios as an indicator whether or not the
firm earns substantially more than it pays interest for the use of borrowed funds.
Return on Investment
Return on !hareholdersJ fund
Return on total asset
arning per !hare
"et profit Ratio
5perating ratio
RatioJs at /lance
6ear
Return on
investment
Return on
!hareholders
fund
Return
on total
assets
arning
per
share
"et
profit
ratio
5perating
Ratio
%00'30) )$* 31' 3%$.' 31$,* *$& &&$&.
%00)30* 30$-) 3&% 3,$). 3'$1& 30$.' &*$'-
%00*30, *$1) 3* 31$' 30$,& )$& &%$'%
%00,30- %&$1. )0 11$)- *$0- 1'$* %-$)
%00-30. )0 ** %)$1. 1*$) &$&) %.$'
%00.310 %. &% 1&$%' .$,1 1.$1% &-$1-
6hapter /! %ummery, 6onclusions
and %uggestions
:I"#I"/!
This study is carried out with the ob'ective of analy8ing the financial performance of
%I0 to e)amine and understand the role of finance in the growth of the company. This chapter
attempts to highlight the findings of the study.
&. The comparative statement shows that the sales of the year (;&; are very high
compared to the past.
(. The profit before interest and ta) is in positive during the period of study e)cluding the
year (;;-4;/ because of low sales value in the corresponding year.
+. The sales, $BIT, $BT, $T all shows the increasing trend during the period under
review. It depicts that the company is working with more efficiency.
,. The repayment of loan funds which reduces the interest charges and increase in the
selling price of the steel contributes the rising trend.
-. The interest and finance charges in the year (;;G4&; are one third of (;;,4;-. It made
a favorable impact towards the company.
/. 9eturn on Investment fluctuates more due to the charges in the operating profit of the
company.
N. =et $rofit ratio shows increasing trend. It depicts that the efficiency is maintained in
sales value and operating e)penses.
<. Fi)ed ssets turnover ratio shows the increasing trend. It depicts that the company:s
fi)ed assets are utili8ed properly in relation to the sales.
G. Working 6apital turnover ratio depicts the increasing trend shows from (;;- to (;;N
and then slope downwards due to holding high cash and bank balance after the year
(;;<.
&;. Aebtor turnover ratio and debt collection period shows increasing trend. It depicts the
higher performance of debt collection department of the company.
&&. %tock turnover ratio depicts the efficiency of the inventory utili8ation in relation to the
corresponding sales value.
&(. The ideal current ratio is ( which the firm obtains only after the year (;;- it shows the
positive impact.
&+. The ideal liquid ratio is & which is also obtained by the firm only after the year (;;<4
;G, which enables the company to meet the emergency requirements.
&,. $roprietary ratio of the company fluctuates during the period of study. It shows the
change in the value of reserves and surplus in the form of shareholders: fund.
RC5MM"#ATI5" A"# !7//!TI5"!
&. The company may increase the performance by reducing the borrowed capital, so that
the interest an finance charges will be less.
(. The company may increase the sales if it attempts to move into e)port market.
+. The company may reduce the operating inefficiencies through effective utili8ation of
all the resources.
,. The company may strike a balance between the current assets and current liabilities to
maintain the solvency position.
-. Dptimum utili8ation of Working 6apital can be planned so as to result in sound
financial position.
/. There is an urgent need to upgrade and moderni8e the plants for improving the
profitability of %I0.
C5"C(7!I5"
Finance is the life blood of every business. Without effective financial management a
company cannot in this competitive world. $rudent financial Fanager has to
measure the working capital policy followed by the company. %I0 continues to play
an important role in the industrial development of country. There is every possibility
that %I0 would establish for itself a permanent and unshakable position in the
industrial map of India and also in the emerging international market for steel.
4ibliography:
&. M$6$ =han and <ain P:inancial ManagementE
(. #r$ R$P$ Rustogi P :inancial ManagementE by Ta+mann
Publication$
+. Advance financial statement Analysis guide I Pearsons
Publication
,. Audited Published financial statements of !teel Authority of
India (td$ :or financial year %00'30) to %00.310$
-. :inancial statements and Analysis I IC:AI publication$