ratio analysis

5/22/2018 Ratio Analysis

1/91

A STUDY ON RATIO ANALYSISAT

RASTRIYA ISPAT NIGAM LIMITED

VISAKHAPATNAM

A Project report submitted in partial fulfillment of the requirements for

the award of

BACHELOR OF BUSINESSADMINISTRATION

By

D.VENKATESH

Regd.No-15987/2010

Ro !o-CB "#11

Under the esteemed gud!n"e #$

P%A%SURYANARAYANASENIOR MANAGER &'(A)

Vs!*h!+!tn!m Stee, P,!nt

Vs!*h!+!tn!m

Pr#-e"t Gude

U.G. DEPARTMET !" #U$%E$$

ADM%%$TRAT%!

&!''EGE !" #U$%E$$ ADM%%$TRAT%!

1


2/91

.ERTI'I.ATE O' PRO/E.T GUIDE

IN

RASTRIYA ISPAT NIGAM LIMITED

This is to certif( that the project report entitled a stud( on RATIO

ANALYSIS n RASTRIYA ISPAT NIGAM LIMITED0

VISAKHAPATNAM STEEL PLANT is a bonafide wor) done and

submitted in partial fulfillment of the requirement for the award of

#achelor of #usiness Administration b( Re*d. o%1234567818 under m(

*uidance + super,ision durin* the period 89:8;:7817to


3/91

DE.LARATION

%4D.VENKATESH here b( solemnl( declare that the project report

entitled a stud( on theR!t# An!,yss n RASTRIYA ISPAT NIGAM

LIMITED0 VISAKHAPATNAM STEEL PLANT0 su>mttedb( me is

a bonafide wor) done and it is not submitted to an( other uni,ersit( or

published an(time before. This project wor) is in partial fulfillment of

the requirements for the award of the B!"he,#r #$ BusnessAdmnstr!t#n fromPRE$%DE&5 &!''EGE.

P,!"e= BERHAMPUR &D.VENKATESH)

D!te=


4/91

A.KNO?LEDGEMENT

The satisfaction that accompanies the successful completion of an(

tas) would be incomplete with out mentionin* people who made it

possible and whose encoura*ement and constant *uidance crowned m(

effort with success. % wish to e6press m( deep sense of *ratitude to Dr%

Srn@!s m!h!+!tr!0 He!d #$ the De+!rtment4 Presidenc( &olle*e4

#erhampur for permittin* me to do the project.

% am *rateful to e6ternal project *uide SRI P%A%

SURYANARAYANA0 SENIOR MANAGER &'(A) and % am also

than)ful to SRI O%R%M RAO0 AGM0 HRD0 VISHAKAPATNAM

STEEL PLANT for his co0operation and in pro,idin* the information of

the compan( needed b( me.

% especiall( than) all those who ha,e helped me directl( or

indirectl(. % e6press m( profound than)s to m( affectionate parents for

their constant encoura*ement throu*hout m( educational career.

&D.VENKATESH)

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.ONTENTS

CHAPTER I 6 -10

%ntroduction

!bjecti,es of the stud(

eed for the stud(

$cope of the stud(

Methodolo*( of the stud(

'imitations of the stud(

CHAPTER II 11- 25

%ndustr( profile

CHAPTER III 26 - 40

&ompan( profile

CHAPTER IV 41 - 63

&onceptual frame wor)

CHAPTER V 64 - 86

Data Anal(sis +%nterpretation

CHAPTER VI 87 - 91

$ummar(

$u**estions

&onclusion

#iblio*raph(

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.HAPTER:I

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GENERAL INTRODU.TION

The end products of the business transactions are the financial statementscomprisin* the position statement or #alance $heet and the %ncome $tatement or

Profit and 'oss Account. "inancial statements are the basics for the decision ma)in*

b( the mana*ement and as well as all other sta)eholder who are interested in the

affairs of the firm such as in,estors4 creditors 4 customers 4suppliers 4 financial

institutions 4 emplo(ees 4potential in,estors 4 *o,t.4 and the *eneral public.

%n this project an attempt is made to )now the financial performance of

RASHTRIYA ISPAT NIGAM LIMITED0 VISAKHAPATNAM STEEL PLANT

throu*h Ratio Anal(sis.

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OB/E.TIVES O' THE STUDY=

The main objecti,e of the stud( is to appl( theoretical concepts to the practical

situations of R%' so as to compare and correlate the actual achie,ements with a

theoretical conclusion.

The main objecti,es of the stud( are-

To )now the e6tent to which R%'78$P is efficientl( utili9in* its sources to its

operations.

To stud( the efficienc( of o,erall operations.

To anal(9e the financial position of the R%'78$P.

To understand the capital structure of the R%'78$P throu*h calculatin* of

le,era*e ratios.

To )now the profitabilit( of the R%'78$P throu*h calculation of profitabilit(

ratios.

To *i,e appropriate su**estions to the best performance of the or*ani9ation.

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METHODOLOGY O' THE STUDY=

Methodolo*( is a s(stematic procedure of collectin* information in order to

anal(9e and ,erif( a phenomenon. The collection of information is from two

principle sources. The( are-

1% Prm!ry D!t!

7% Se"#nd!ry D!t!

1% Prm!ry D!t!=

%t is the information collected directl( with out an( references. %n this stud( itis *athered throu*h inter,iews with concerned officers and staff4 either indi,iduall( or

collecti,el(4 sum of the information has been ,erified or supplemented with personal

obser,ation conductin* personal inter,iews with the concerned officers of "inance

Department of 8isa)hapatnam $teel Plant.

7% Se"#nd!ry D!t!=

The $econdar( Data was collected from alread( published sources such as4

Pamphlets of Annual Reports4 Returns and %nternal Records4 reference from Te6t

#oo)s and :ournals relatin* to "inancial Mana*ement. The data collection includes-

;a< &ollection of required data from Annual Reports of 8isa)hapatnam

$teel Plant.

;b< Reference from Te6t #oo)s and :ournals relatin* to "inancial

Mana*ement.

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LIMITATIONS O' THE STUDY=

Thou*h the project is completed successfull( a few limitations ma( be there. $ince the procedure and polices of the compan( will not allow to

disclose some confidential financial information4 the project has to

be completed with the a,ailable data *i,en to us.

The stud( is carried basin* on the information and documents

pro,ided b( the or*ani9ation and based on the interaction with the

,arious emplo(ees of the respecti,e departments.

Anal(sis is limited to the results of R%'78$P and not compared to

industr( standards 7 results.

Data in some of the ratios has been directl( ta)en from the

prepared reports of R%' due to non0disclosure of input data due to

confidentialit(.

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.HAPTER:II

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INDUSTRY PRO'ILE

DEVELOPMENT O' STEEL INDUSTRY IN INDIA=

:apan remained the lar*est e6porter of semi0finished and finished steel

products in 2//2 followed b( Russia and U)raine.

!ther si*nificant recent de,elopments in The De,elopment of $teel %ndustr(

in %ndia should be ,iewed in conjunction with the t(pe and s(stem of Go,ernment that

has been rulin* the countr(. =owe,er4 its production in si*nificant quantit( startedonl( after 3>//. The *rowth of steel industr( can be studied b( di,idin* the period

into pre and post independence era. #( 3>?/4 the total installed capacit( of in*ot steel

production was 3.? million tons per (ear. %n a short span of about decades or so the

capacit( was increased 33 folds to about 31 MT b( the >/@s.

3.3 Gr#th #$ Stee, Industry=

The *rowth in a chronolo*ical order is depicted below-

$ o 5ear Growth

3. 3/ !sier Marshall heather constructed the first manufacturin*

plant at port0motor in Madras Presidenc(.

2. 3BC :ames Ers)ine founded the #en*al "rame or)s.

. 3>> :amshedji TATA initiated the scheme for an inte*rated

$teel Plant

C. 3>/1 "ormation of T%$&!

?. 3>33 T%$&! started production

1. 3>3 T%$&! was founded

B. 3>C/03>?/ "ormation of M( sore %ron and $teel initiated at

#hadra,athi in arnata)a.

. 3>?303>?1 "irst "i,e05ear Plan 0 The =industan $teel 'imited ;=$'?C with decision of settin* up three

plants each with 3 million tones in*ot steel per (ear at

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13/91

Rour)ela4 #hilai4 and Dur*apur. T%$&! started its

e6pansion pro*rammed.

>. 3>?103>13 $econd "i,e05ear Plan 0 A bold decision was ta)en up to

increase the in*ot steel output in %ndia to 1 million tones

per (ear and its production at Rou)ema4 #hilai and

Dur*apur $teel Plant started.

3/. 3>1303>11 Third "i,e05ear Plan F Durin* the plan the three $teel

Plants under =$' + T%$&! were e6panded.

33. 3>1C #o)aro $teel Plant came into e6istence

32. 3>1103>1> Recession Period F Till the e6pansion pro*rams were

acti,el( e6isted durin* this period

3. 3>1>03>BC "ourth "i,e05ear Plan F $alem $teel Plant started.

'icenses were *i,en for settin* up of man( Mini $teel

Plants and re0rollin* mills Go,ernment of %ndia. Plants in

south are each in 8isa)hapatnam and arnata)a. $A%'

was formed durin* this period on 2Cth:anuar( 3>B.

3C. 3>BC03>B> "ifth "i,e05ear Plan F The idea of settin* up the f ifth

inte*rated $teel Plant4 the first re0based plant at

8isa)hapatnam too) a definite shape. At the end of the

"ifth "i,e05ear Plan the total installed capacit( from si6

inte*rated plants was up to 3/.1 million tons.

3?. 3>B>03>/ Annual Plan 0 The Erstwhile $o,iet Union a*reed to help

in settin* up the 8isa)hapatnam $teel Plant.

31. 3>/03>? $i6th "i,e05ear Plan F or) on 8isa)hapatnam $teel Plant

started with a bi* ban* and top priorit( was accorded to

start the plant. $chemes for moderni9ation of #hilai $teel

Plant4 Rour)ela $teel Plant4 Dur*apur steel plant and

T%$&! were initiated. &apacit( at the end of $i6th "i,e05ear Plan from si6 inte*rated plants stood 33.?/ million

tons.

3B. 3>?03>>3 $e,enth "i,e05ear Plan F E6pansion wor)s at #hilai and

#o)aro $teel Plant completed. Pro*ress of 8isa)hapatnam

$teel Plant pic)ed up and the nationali9ed concept has been

introduced to commission the plant with / MT liquid steel

capacities b( 3>>/.

3. 3>>203>>B Ei*ht "i,e05ear Plans F The 8isa)hapatnam $teel Plant

was commissioned in 3>>2. The cost of plant has become

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14/91

around B?? cores. 8isa)hapatnam $teel Plant started the

production and moderni9ation of other steel plants is also

dul( en*a*ed.

3>. 3>>B02//2 inth "i,e05ear Plant F Restructurin* of 8isa)hapatnam

$teel Plant and other public sector underta)in*s.

2/ 2//202//B Tenth "i,e05ear Plan F$teel industr( re*isters a *rowth of

>.>.8isa)hapatnam steel plant has hi*h re*ime tar*ets

and achie,ed the best of them.

'rst '@e:Ye!r P,!n &1321 t# 132;)=

o new steel plant came up4 as the first plan was mainl( a*riculture oriented.

=owe,er4 %%$&! was allowed to e6pand form 3MT7(ear to 2 MT7(ear of in*ots4 and

from /.? MT7(ear to 3./ MT7(ear of steel. And4 the "irst "i,e05ear Plan

contemplated a new $teel Plant to be erected in Public $ector.

Thus the =industan $teel 'imited ;=$'< was born on 3>th:an 3>?C with the

decision of settin* up three steel plants each with one million tons in*ot steel per (ear

at Rour)ela4 #hilai and Dur*apur. Thou*h T%$&! and %%$&! were scheduled to

e6pand4 T%$&! started its e6pansion pro*ram.

Se"#nd $@e:ye!r +,!n &132; t# 13;1)=

Durin* this period4 additional steel producin* capacit( was added and a

decision was ta)en to increase the in*ot steel output in %ndia to 1 million tons per

(ear. The three one million ton steel plant one each at Rour)ela4 #hilai and Dur*apur

were completed durin* this period. The( started production durin* the end of this

plan.

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The salient features are *i,en below-

Plant &apacit( 'ocation &ollaboration Production ;Tons>2. Go,ernment

of %ndia has *i,en permission to set up Mini $teel Plants in Pri,ate $ectors.

Nnth '@e:Ye!r P,!n &1334 t# 7887)=

ational De,elopment &ouncil under &entral Go,ernment has deposited Rs.

?>.2// corers in ninth fi,e (ear plan that tar*ets an o,erall 1.? *rowth *ross

domestic production and will necessitate a B *rowth in the remainin* (ears of plan.

G,#>!, S"en!r#=

As per %%$%

%n March 2//? orld &rude $teel output was >2.MT when compared to

March 2//C ;B.2 MT.1MT< and U$A ;.3MT


18/91

As a result of these economic de,elopments %%$% has projected an increase b(

1.2 or ? million metric tones in 2//C in the *lobal consumption of finished

steel products. %%$% has split the *rowth into two separate areas4 &hina and the

Rest of the orld ;R!


19/91

Re0rollin* Mills

Allo( + $pecial $teel Plants

%nte*rated $teel Plants ha,e lar*er capacit( and produce $teel from basic raw

materials and the other three cate*ories mentioned are characteri9ed b( low

in,estment and low brea)0e,en point.

.h!r!"terst"s #$ Integr!ted Stee, P,!nts=

The( ha,e lar*e capacities.

=i*hl( capital intensi,e.

The( ha,e lon* *estation period.

'abour intensi,e.

The( would ha,e all facilities includin* raw materials resources4 water suppl(4

power suppl(4 testin* and inspection facilities4 township facilities4 medical4

educational and recreational etc.

%nter dependenc( of all the processin* units on the proceedin* and succeedin*

units in the path of materials flow.

A potential source for earnin* forei*n e6chan*e throu*h e6ports.

The( ser,e as centers for the de,elopment of ancillar( industries.

The( are major consumer of refractor( materials.

The ntegr!ted Stee, P,!nts n Ind! !re=

Rour)ela $teel Plant

#hilai $teel Plant

#o)aro $teel Plant

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20/91

Dur*apur $teel Plant

%ndian %ron and $teel &ompan( ;%%$&!>34 there was onl(

one unit in the secondar( sector. Post liberali9ation4 the A%"%s has sanctioned 23 new

projects with a total capacit( of appro6 .> million tones. !f these4 31 units ha,e

alread( been commissioned. The production of million tones in 2//20/. Durin* the

(ear 2//0/C4 the production of Pi* %ron was ?.223 million tones.

M!r*et S"en!r#=

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22/91

After liberali9ation4 with hu*e scale addition to steel ma)in* capacit(.

Apparent consumption of steel increased from 3C.C million tons in

3>>30>2 to /.21? million tons in 2//0/C.

The production of steel in 2//0/C is 1.3> million tons as a*ainst

.1B million tons in 2//20/ thereb( re*isterin* B.? *rowth.

The demand of steel has been firmed up both at home as well as

internationall(.

Efforts are bein* made to boost demand particularl( in rural areas and

also to increase e6ports.

Pr#du"t#n=

$teel industr( was de0licensed and decontrolled in 3>>3 and 3>>2

respecti,el(.

%ndia is the thlar*est producer of steel in the world.

%n 2//0/C4 finished steel production was 1.3> million tones.

Pi* iron production in 2//0/C was ?.223 million tons.

$pon*e iron production was ./? million tons durin* 2//02//C.

The annual *rowth rate of crude steel production in 2//202// was

and in 2//02//C was 1. 'ast C (ears production performance is as

under-0

Dem!nd A@!,!>,ty Pr#-e"t#n=

Demand0 A,ailabilit( of iron and steel in the countr( is projected b( Ministr(

of $teel annuall(.

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23/91

Gaps in A,ailabilit( are met mostl( throu*h imports.

%nterface with consumers b( wa( of $teel &onsumer &ouncil e6ists4 which is

conducted on re*ular basis.

%nterface helps in redressin* a,ailabilit( problems4 complaints related to

qualit(.

Pr"ng ( Dstr>ut#n

Price re*ulation of iron + steel was abolished on 31.3.3>>2.

Distribution controls on iron + steel remo,ed e6cept ? priorit( sectors4 ,i9.

Defence4 Railwa(s4 $mall $cale %ndustries &orporations4 E6porters of

En*ineerin* Goods and orth Eastern re*ion.

Allocation to priorit( sectors is made b( Ministr( of $teel.

Go,ernment has no control o,er prices of %ron + $teel.

!pen mar)et prices are *enerall( on rise.

Price increases of late ha,e ta)en place mostl( in lon* products than flat

products.

Im+#rts #$ Ir#n ( Stee,=

%ron + $teel are freel( importable as per the e6tant polic(.

%ndia has been annuall( importin* around 2./? Million Tones of $teel.

%mport dut( on se,eral raw materials used b( the steel sector li)e non0co)in*

coal4 met co)e and nic)el has been reduced to ?. %mport dut( on co)in* coal

has been reduced to Kil@.

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24/91

EC+#rts #$ Ir#n ( Stee,=

%ron + $teel are freel( e6portable and %ndia is a net e6porter of steel.

Ad,ance 'icensin* $cheme allows dut( free import of raw materials for

E6ports.

Dut( Entitlement Pass #oo) $cheme ;DEP#< also facilitates e6ports. The

Go,ernment has temporaril( suspended the DEP# on iron + $teel +

ferroallo(s w.e.f 2Bth March 2//C as a measure to increase %ron + $teel

a,ailabilit( in the domestic mar)et.

$teel E6porter@s "orum has been set up to boost steel e6ports.

An Anti Dumpin* Directorate has been set up under the Ministr( of

&ommerce with adequate power to fi*ht trade actions while remainin* within

the T! framewor).

.ust#ms Duty=

The pea) rate of &ustom Dut( has been reducin* sharpl( durin* the

last ? (ears. %n the interim bud*et for 2//C0/?4 announced in

:anuar(@2//C the pea) rate was reduced from 2? to 2/. %n 2//C the

&ustoms Dut( on carbon steel items and pi* iron was further reduced

to ?.

The custom dut( on scrap was nil.

%mport dut( on co)in* coal has been reduced to Knil@4 and on

metallur*ical co)e reduced to ?.

EC"se Duty=

The Go,ernment has ta)en a number of steps to ensure the a,ailabilit( of iron

and steel items which inter0alias includes reduction in E6cise Dut( b( 31 with

addition to Educational &ess 2 on 31.

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Le@es #n Ir#n ( Stee,=

D' LEVY=

This was a le,( started for fundin* moderni9ation4 e6pansion and

de,elopment of steel sector. The fund4 inter0alias4 supports-

3< &apital e6penditure for moderni9ation4 rehabilitation4 di,ersification4

renewal + replacement of %nte*rated $teel plants.

2< Research + De,elopment

< Rebates to $$% &orporations

C< E6penditure on ERU of :P&

$D" le,( was abolished on 23.C.>C

&abinet decided that corpus could be rec(cled for loans to Main

producers

%nterest on loans to Main Producers is set aside for promotion of R+D

on steel etc. An Empowered &ommittee has been set up to *uide the R+D effort in

this sector.

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.HAPTER:III

.OMPANY PRO'ILE

The Go,ernment of %ndia has decided to set up an inte*rated $teel Plant at

8isa)hapatnam to meet the *rowin* domestic needs of steel. 8isa)hapatnam $teel

Plant was the effect of the persistent demands and mass mo,ements. %t is another step

towards increasin* the countr(@s steel production.

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27/91

The decision of the Go,ernment to set up an inte*rated steel plant was laid

down b( the then Prime Minister $mt. %ndia Gandhi. The Prime Minister laid the

foundation stone on 2/th :anuar( 3>B3.

The consultant4 M7s M Dastur + &o ;P,t< 'td. submitted a techno0economic

feasibilit( report in "ebruar( 3>B24 and detailed project report for the plant4 with an

annual capacit( of .C million tones of liquid steel.

The Go,ernment of %ndia and U$$R si*ned an a*reement on 32 th:une 3>B>

for the co0operation in settin* up .C million tones inte*rated $teel Plant. The project

was estimated to cost to Rs.4 >B.2 crores based on prices as on C th Luarter of

3>3.=owe,er4 on completion of the construction and commissionin* of the whole

Plant in 3>>24 the cost escalated to Rs.4 B?? crores based on prices as on 2 ndLuarter

of 3>>C.

Unli)e other inte*rated $teel Plants in %ndia4 8isa)hapatnam $teel Plant is one

of the most modern steel plants in the countr(. The plant was dedicated to the nation

on 3stAu*ust 3>>2 b( the then Prime Minister4 $ri.P.8.arasimha Rao.

ew technolo*(4 lar*e0scale computeri9ation and automation etc4 are

incorporated in the Plant at the international le,els and attain such labor producti,it(4

the or*ani9ational manpower has been rationali9ed. The manpower in the 8$P has

been limited to3B4 ?// emplo(ees. The plant has the capacit( of producin* ./ million

tones of liquid steel and 2.1?1 million tones of saleable steel.

%t has set up two major #last "urnaces4 the Goda,ari and the rishna4 which

are the en,( of an( modern steel ma)in* comple6.

The econom( of a nation depends on core sector industries li)e iron and steel.

$teel is the basic input for construction4 machines buildin* and transport industries.

eepin* in ,iew the importance of steel the followin* inte*rated steel plant with

forei*n collaborations was constructed in the public sector in the post independence

era.

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28/91

ORGANIATION .HART

VISION=

To be a continuousl( *rowin* world0class compan(.

e shall-

=arness our *rowth potential and sustain profitable *rowth.

Deli,er hi*h qualit( and cost competiti,e products and be the first choice of

customers.

28

CHAIRMAN CUM MANAGING DIRECTOR

Director

;"inance with the mission to e6pand

further in subsequent phases as per the corporate plan

$ustain *ross mar*in to turno,er ration 2?

#e amon*st top fi,e lowest steel producers in the world b( 2//>03/

Achie,e hi*her le,els of customer satisfaction than competitors

#e reco*ni9ed as an e6cellent business or*ani9ation b( 2//0/>

%nstill ri*ht attitude amon*st emplo(ees and facilitate them to e6cel in their

professional4 personal and social life.

u!,ty P#,"y=

Emplo(ees of 8isa)hapatnam $teel Plant are committed to suppl( their customers@

qualit( products and ser,ices. To accomplish this 8isa)hapatnam $teel Plant will-

Manufacture products as per specification and standards a*reed with the

customer.

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35/91

"ollow clearl( documented procedures for achie,in* e6pected qualit( standard

of products and ser,ices.

&ontinuousl( stri,e to impro,e qualit( of all material4 processes and products.

Maintain an enablin* en,ironment4 which encoura*es acti,es in,ol,ement of

all emplo(ees to pursue continuous impro,ement of qualit(.

Te"hn#,#g"!, Hgh,ghts #$ VSP=

"irst shore based inte*rated steel plant.

$electi,e crushin* with pneumatic separation of coal blend.

B Meter tall &o)e !,ens.

Dr( Luenchin* of hot co)e and production of steam and power from hot inert

*ases.

#ase0mi6 (ard for the $inter Plant.

2// cu. m #last "urnace ha,in* belled0less top equipment with con,e(or

char*in*.

Granulation of 3// molten sla* at the &ast =ouse.

#.". top pressure reco,er( turbine for power *eneration.

Desulphuri9ation facilities for pre0treatment of hot metal.

$ub lance measurement of d(namic blowin* control with computer.

3// continuous castin* of liquid steel.

=i*h capacit(4 hi*h speed4 computer controlled multi0line mills.

Use of on0line heat treatment ITemp coreJ processes for reinforcement bars.

Use of o twist rollin* and controlled coolin* I$telmoreJ of wire rods.

%ncorporation of peripheral (ard for incomin* and out*oin* materials.

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36/91

"irst inte*rated steel plant to recei,e %$! >//2 certification for all its products.

M!-#r s#ur"es #$ R! M!ter!,s=

%ron !re lumps + fines #ailadilla4 M.P

#" 'ime $tone :a**a((apeta4 A.P

$M$ 'ime $tone UAE

#" Dolomite Dubai

$M$ Dolomite Madharam4 A.P

Man*anese !re &hipuripalli4 A.P

#oiler &oal Talcher4 !rissa

&o)in* &oal Australia

ater suppl( 5eluru canal4 Andhra Pradesh

Power suppl( &apti,e power plant

Medium coo)in* coal Gidi7$wan*7Rajarappa7ar*il

M!-#r Unts=

DEPARTMET$

AUA' &AP.

;K///T< U%T$ ;./ MT $TAGE//2 for $M$ and all the down stream units F a unique distinction in

the steel industr(.

2. %ndira Pri(a Darshini 8ri)sha Mitra award 3>>20>4 ehru memorial

national award for pollution control 3>>20> + 3>>0>C.

. EEP& e6port e6cellence award F 3>>C0>?.

C. &%% ;$outhern Re*ion< ener*( conser,ation award F 3>>?03>>1.

?. &ontinuousl( *rowin* peacoc) ;3stpri9e< national qualit( award F 3>>1.

1. $teel ministries troph( I#est safet( performance F 3>>1.J

B. %%M national qualit( commitment award F 3>>B.

. Gold star award for e6cellent performance in producti,it(.

>. Ud(o* e6cellence *old medal for e6cellence in steel plant.

3/. E6cellence award for out standin* performance in producti,it( mana*ement4

qualit( and inno,ation.

33. %$PAT $ura)sha Puras)ar ;3stpri9e< for lar*est accident free period 3>>30>C.

32. PM Troph( for the (ear 2//20/ as the #est %nte*rated $teel Plant

3. orld qualit( commitment international star award in 2//C

3C. &ll0G#& ational Award in 2//?

39


40/91

3?. $afet( inno,ation award in 2//1

31. !r*ani9ational e6cellence award in 2//1

3B. ational Ener*( &onser,ation Award in 2//1

3. Enterprise E6cellence Award F 2//B

3>. 8iswa)arma Rashtri(a Puras)ar F 2//B

2/. #est Lualit( &ircles implementin* !r*ani9ation Award 02//B

Em+,#yee n@#,@ement ( Pr#"ess m+r#@ements=

The ima*ination and creati,it( of emplo(ees ha,e alwa(s been )e( success

factors for the compan(. Emplo(ees of R%' ha,e alwa(s been at the forefront in

contributin* ideas for process impro,ements. 8oluntar( in,ol,ement of

emplo(ees in C2?3 qualit( circles projects is a testimon( of the interest e6hibited

b( emplo(ees in process impro,ements.

S!$ety ( He!,th=

$afet( and health of emplo(ees has alwa(s been the prime concern in the plant

and all efforts ha,e been made to le,era*e upon the safet( initiati,es to ma6imi9e

emplo(ee morale and satisfaction. These initiati,es ha,e (ielded positi,e results

with a 3. reduction in reportable accidents when compared to (ear 2//B0/.

.#r+#r!te S#"!, Res+#ns>,ty=

R%' continues to contribute in the area of &orporate $ocial Responsibilit(

;&$R


41/91

.HAPTER:IV

.#n"e+tu!, 'r!me ?#r*

41


42/91

'n!n"!, R!t# An!,yss

Intr#du"t#n=

The traditional financial statements comprisin* the balance sheet and the profit

and loss account are pro,in* the information related to the financial operation of the

firm. The( pro,ide some e6tremel( useful information that mirrors the financial

position on a particular date in terms of the structure of assets4 liabilities and owner@s

equit( and so on. The profit and loss account shows the results of operations durin* a

certain period of time in terms of the re,enues obtained and the cost incurred durin*

the (ear. Therefore4 much can be learnt about a firm from a careful e6amination of its

financial statements. Users of financial statements can *et further insi*ht about

financial stren*ths and wea)nesses of the firm if the( properl( anal(9e information

reported in these statements. Mana*ement should be particularl( interested in

)nowin* financial wea)ness of the firm to ta)e suitable correcti,e actions. The future

plans of the firm should be laid down in ,iew of the firm@s financial stren*ths and

wea)nesses. Thus4 financial anal(sis is the startin* point for ma)in* plans4 beforeusin* an( sophisticated forecastin* and plannin* procedures. Understandin* the past

is a pre0requisite for anticipatin* the future.

R!t# An!,yss : Intr#du"t#n=

Ration anal(sis is a widel( F used tool of financial anal(sis. %t is used to

interpret the financial statements so that the stren*ths and wea)nesses of the firm as

well as its historical performance and current financial condition can be determined. A

ratio is defined as Ithe indicated quotient of two mathematical e6pressionsJ and as the

Ithe relationship between two or more thin*sJ.

%t is a benchmar) for e,aluatin* the financial position and performance of a

firm.

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The term ratio refers to the numerical or quantitati,e relationship between two

items7,ariables. This relationship can be e6pressed as-

3. Percenta*es4 sa(4 et Profits are 2? of $ales ;assumin* et Profit of

Rs.2?4/// and $ales of Rs.34//4///


44/91

As a tool of financial mana*ement4 ratios are of crucial si*nificance. The

importance of ratio anal(sis lies in the fact that presents facts on a comparati,e basis

and enables the drawin* inference re*ardin* the performance of a firm. Ratio

anal(sis is rele,ant in assessin* the performance of a firm in respect to the followin*

aspects.

3. 'iquidit( position

2. 'on*0term sol,enc(

. !perational efficienc(

C. !,erall profitabilit(

?. %nter0firm comparison4 and

1. Trend anal(sis

1% LFudty +#st#n=:

ith the help of ratio anal(sis conclusions can be drawn re*ardin* the

liquidit( position of a firm. The liquidit( position of a firm would be

satisfactor( if it is able to meet its current obli*ations when the( become due.

A firm can be said to ha,e the abilit( to meet its short0term liabilities if it has

sufficient liquid funds to pa( the interest on its short0maturin* debt usuall(within a (ear as well as to repa( the principal. This abilit( is reflected in the

liquidit( ratio of a firm. The liquidit( ratios are particularl( useful in credit

anal(sis b( ban)s and other suppliers of short0term loans. &ommon liquidit(

ratios include The &urrent ratio4 Luic) ratio and The operatin* &ash flow

ratio.

7% L#ng:term s#,@en"y=:Ratio anal(sis is equall( useful for assessin* the lon*0term financial ,iabilit(

of a firm. This aspect of the financial position of a borrower is of concern to

the lon*0term creditors4 securit( anal(sts and the present and potential owners

of a business. The lon*0term sol,enc( is measured b( the le,era*e7capital

structure and profitabilit( ratios4 which focus on earnin* power and operatin*

efficienc(. Ratio anal(sis re,eals the stren*th and wea)nesses of a firm in this

respect. The le,era*e ratios4 for instance4 will indicate whether a firm has a

reasonable proportion of ,arious sources of finance or if it is hea,il( loaded

44


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proportion of ,arious sources of finance or if it is hea,il( loaded with debt in

which case its sol,enc( is e6posed to serious strain. $imilarl( the ,arious

profitabilit( ratios would re,eal whether or not the firm is able to offer

adequate return to its consistent with the ris) in,ol,ed. %t includes Debt0equit(

ratio4 &ash co,era*e ratio4 The times interest earned ratio etc.

,ty=:

Unli)e the outside parties4 which are interested in one aspect of financial

position of a firm4 the mana*ement is constantl( concerned about the o,er0all

profitabilit( of the enterprise. That is4 the( are concerned about the abilit( of

the firm to meet its short0term as well as lon*0term obli*ations to its creditors4to ensure a reasonable return to its owners and secure optimum utili9ation of

the assets of the firm. This is possible if an inte*rated ,iew is ta)en and all the

ratios are considered to*ether.

2% Inter:$rm .#m+!rs#n=:

Ratio anal(sis not onl( throws li*ht on the financial position of a firm but also

ser,es as a steppin* stone to remedial measures. This is made possible due tointer0firm comparison and comparison with industr( a,era*es. A sin*le fi*ure

of a particular ratio is meanin*less unless it is related to some standard or

norm. !ne of the popular techniques is to compare the ratios of a firm with

the industr( a,era*e. An inter0firm comparison would demonstrate the firm@s

position ,is0Q0,is its competitors.

;% Trend An!,yss=:

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Ratio anal(sis enables a firm to ta)e the time dimension into account. %n other

words4 whether the financial position of a firm is impro,in* or deterioratin*

o,er the (ears. This is made possible b( the use of trend anal(sis. The

si*nificance of a trend anal(sis of ratios lies in the fact that the anal(sis can

)now the direction of mo,ement4 i.e.4 whether the mo,ement is fa,orable or

unfa,orable. "or e6ample4 the ratio ma( be low as compared to the norm but

the trend ma( be upward. !n the other hand4 thou*h the present le,el ma( be

satisfactor( but the trend ma( be a declinin* one.

R!t# An!,yss:Lmt!t#ns=

Ratio Anal(sis is a widel( used tool of financial anal(sis. 5et4 it suffers from,arious limitations. The operational implication of this is that while usin* ratios4 the

conclusions should not be ta)en on their face ,alue. $ome of the limitations4 which

characteri9e ratio anal(sis4 are

i. Difficult( in comparison.

ii. %mpact of %nflation4 and

iii. &onceptual Di,ersit(

% D$$"u,ty n "#m+!rs#n=:

!ne serious limitation of ratio anal(sis arises out of the difficult( associated

with there comparabilit(. !ne technique that is emplo(ed is inter0firm

comparison. #ut such comparison is ,itiated b( different procedures adopted

b( ,arious firms.

Differences in basis of in,entor( ,aluation ;e.*.-0 last in first out4

a,era*e cost and cost


47/91

&apitali9ation of lease

Treatment of e6traordinar( items of income and e6penditure and so

on.

$econdl(4 apart from different accountin* procedures4 companies ma( ha,e

different accountin* procedures4 impl(in* differences in the composition of assets4

particularl( current assets. "or these reasons4 the ratios of two firms ma( not be

strictl( comparable.

% Im+!"t #$ In$,!t#n=:

The second major limitation of the ratio anal(sis is associated with price le,el

chan*es. This is a wea)ness of the traditional financial statements4 which are

based on historical cost. An implication of this feature of the financial

statements as re*ards ratio anal(sis is that assets acquired at different periods

are4 in effect4 shown at different prices in the balance sheet4 as the( are not

adjusted for chan*es in the price le,el. As a result4 ratio anal(sis will not be

strictl( comparable.

% .#n"e+tu!, D@ersty= :

The factor that influences the usefulness of ratios is that there is difference of

opinion re*ardin* the ,arious concepts used to compute the ratios. There is

alwa(s room for di,ersit( of opinion as to what constitutes shareholders

equit(4 debt4 assets4 profit and so on.

"inall(4 ratios are onl( a post0mortem anal(sis of what has happenedbetween two balance sheet dates. "or one thin* the position in the interim

period is not re,ealed b( ratio anal(sis. Moreo,er4 the( *i,e no clue about the

future.

%n brief4 ratio anal(sis suffers from some serious limitations. The

anal(sis should not be carried awa( b( it@s o,er simplified nature4 eas(

computation with hi*h de*ree of precision. The reliabilit( and si*nificance

attached to ratios will lar*el( depend upon the qualit( of data on which the(

47


48/91

are based. The( are as *ood as the data itself ne,ertheless4 the( are an

important tool of financial anal(sis.

R!t# An!,yss:Gude,nes t# use=The calculation of ratios ma( not be a difficult tas) but their use is not eas(.

The information on which these are based4 the constraints of financial statements4

objecti,es for usin* them4 the caliber of the anal(st4 etc4 are important factors4 which

influence the use of ratios.

"ollowin* *uidelines7factors ma( be )ept in mind in interpretin* ,arious ratios.

The reliabilit( of ratio is lin)ed to the accurac( of information in financial

statements. #efore calculatin* ratios one should see whether proper concepts

and con,entions are used for preparin* financial statements of not.

The purpose of the user is also important for the anal(sis of ratios. A creditor4

a ban)er4 an in,estor4 a shareholder4 all has different objects for stud(in*

ratios. The purpose ;or< object for which ratios are required to be studied

should alwa(s be )ept in mind for stud(in* ,arious ratios. Different objects

ma( require the stud( of different ratios.

Another precaution in ratio anal(sis is the proper selection of appropriate

ratios. The ratios should match the purpose for which these are required.

R!t# An!,yss:.#n",us#n=

&alculatin* a lar*e number of ratios without determinin* their need in the present

conte6t ma( confuse the thin*s instead of sol,in* them. !nl( those ratios should be

selected which can throw proper li*ht on the matter to be discussed.

Unless otherwise the ratios calculated are compared with certain standards one

will not be reach at conclusions. These standards ma( be a rule of thumb as in

current ratio ;2-3


49/91

The comparison of calculated ratios with the standards will help the anal(st in

formin* his opinion about financial situation of the concern.

The ratios are onl( the tools of anal(sis but their interpretation will depend

upon the caliber and competence of the anal(st. =e should be familiar with

,arious financial statements and the si*nificance of chan*es etc.

A wron* interpretation ma( create ha,oc for the concern since wron*

conclusions ma( lead to wron* decisions. The utilit( of ratios is lin)ed with

e6pertise of the anal(st.

The ratios are onl( *uidelines for the anal(st he should not base his decisions

entirel( on them. =e should stud( an( other rele,ant information4 situation in

the concern4 *eneral economic en,ironment etc.4 before reachin* final

conclusions.

The stud( of ratios in isolation ma( not alwa(s pro,e useful. The

interpretation should use the ratios as *uide and ma( tr( to solicit an( other rele,ant

information which helps is reachin* a correct decision.

R!t# An!,yss:Ty+es=

$e,eral ratios4 calculated from the accountin* data4 can be *rouped into

,arious classes accordin* to financial acti,it( or function to be e,aluated. As stated

earlier4 the parties interested in financial anal(sis are short0term and lon*0term

creditors4 owners and mana*ement. $hort0term creditors main interest is in the

liquidit( position or the short0term sol,enc( of the firm. 'on*0term creditors4 on the

other hand4 are more interested in the lon*0term sol,enc( and profitabilit( of the firm.

$imilarl(4 owners concentrate on the firm@s profitabilit( and financial condition.

Mana*ement is interested in e,aluatin* e,er( aspect of the firm@s performance. The(

ha,e to protect the interests of all parties and see that the firm *rows profitabl(. %n

,iew of the requirements of the ,arious users of ratios4 we ma( classif( them into the

followin* four important cate*ories-

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'%LU%D%T5 RAT%!$

'E8ERAGE RAT%!$

A&T%8%T5 RAT%!$

PR!"%TA#%'%T5 RAT%!$

LIUIDITY RATIOS=

%t is e6tremel( essential for a firm to be able to meet its obli*ations as the(

become due. 'iquidit( ratios measure the firm@s abilit( to meet current obli*ations.

%n fact4 anal(sis of liquidit( needs the preparation of cash bud*ets and cash

and "und "low statements but liquidit( ratios4 b( establishin* a relationship between

cash and other current assets to current obli*ations pro,ided a quic) measure of

liquidit(. A firm should ensure that it does not suffer from lac) of liquidit(4 and also

that it does not ha,e e6cess liquidit(. The failure of a compan( to meet its obli*ations

due to lac) of sufficient liquidit(4 will result in a poor creditworthiness4 loss of

creditors confidence4 or e,en in le*al tan*les resultin* in the closure of the compan(.

A ,er( hi*h de*ree of liquidit( is also bad idle assets earn nothin*. The firm@s funds

will be unnecessaril( tied up in current assets. Therefore4 it is necessar( to stri)e a

proper balance between hi*h liquidit( and lac) of liquidit(. The most common ratios4

which indicate the e6tent of liquidit( or lac) of it4 are-

3. &URRET RAT%!

2. LU%& RAT%!

. &A$= RAT%!

1% .URRENT RATIO=

The current ratio is calculated b( di,idin* current assets b( current liabilities.

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&urrent assets

&urrent Ratio S

&urrent liabilities

&urrent assets include cash and those assets4 which can be con,erted into cashwithin a (ear4 such as Mar)etable $ecurities4 Debtors and %n,entories. Prepaid

e6penses are also include in current assets as the( represent the pa(ments that will not

be made b( the firm in future. &urrent 'iabilities include &reditors4 #ill pa(able4

Accrued e6penses4 $hort0term ban) loan4 and %ncome Ta6 'iabilit( and 'on*0term

debt maturin* in the current (ear.

The current ratio is a measure of the firms short0term sol,enc(. The hi*herthe current ratio4 the lar*er is the amount of rupees a,ailable per Rupee of current

liabilit(4 the more is the firms abilit( to meet current obli*ations and the *reater is the

safet( of funds of short0term creditors.

7% UI.K RATIO=

The Luic) ratio is calculated b( di,idin* quic) assets b( quic) liabilities.

Luic) assets

Luic) Ratio S

Luic) liabilities

Luic) assets or 'iquid assets mean those assets which are immediatel(

con,ertible into cash without much loss. All current assets e6cept prepaid e6penses

and in,entories are cate*ori9ed in liquid assets. Luic) liabilities means those

liabilities4 which are pa(able within a short period. ormall(4 #an) o,erdraft and

&ash credit facilit(4 if the( become permanent mode of financin* are in quic)

liabilities.

As this ratio concentrates on cash4 mar)etable securities and recei,ables in

relation to current obli*ation4 it pro,ides a more penetratin* measure of liquidit( than

current ratio.

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b. Their earnin*s will be ma*nified4 when the firm earns a rate of return on the

total capital emplo(ed hi*her than the interest rate on the borrowin* funds.

The process of ma*nif(in* the shareholders return throu*h the use of debt is

called Ifinancial le,era*eJ or Ifinancial *earin*J or Itradin* on equit(J.

'e,era*e ratios ma( be calculated from the balance sheet to determine the

proportion of debt in total financin*. Man( ,ariations of these ratios e6ist but all

these ratios indicate the same thin*0the e6tent to which the firm has relied on debt in

financin* assets. 'e,era*e ratios are also computed from the profit and loss items b(

determinin* the e6tent to which operatin* profits are sufficient to co,er the fi6edchar*es.

DEBT EUITY RATIO=

The relationship describin* the lender contribution for each rupee of the

owner@s contribution is called DE#T0ELU%T5 RAT%!. DE#T F ELU%T5

RAT%! is directl( computed b( the followin* formula.

DE#T

Debt0Equit( Ratio S

ELU%T5

PROPRIETARY RATIO=

This ratio states relationship between share capital and total assets.

Proprietors equit( represents equit( share capital4 preference share capital and

reser,es and surplus. The latter ratio is also called capital emplo(ed to total assets.

ELU%T5 $=ARE &AP%TA'

Proprietar( Ratio S

T!TA' TAG%#'E A$$ET$

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54/91

PR!PR%ET!R$ ELU%T5

;!R0

3/

%n,entor( 3231.C? 32/.2C 3B13.3? 23?.2 2C?3.?2$undr( debtors 31?.1? 231./ >.C3 3>3.2B 33.3

&ash + ban) ?123.B/ B3>C.1 B1>>.33 112C.3B ?C3?.?C

!ther Assets 3C.1 3C.C 2>2.C 2?.>3 3B.C/

'oans + ad,ances 3/1.C 3?3.>/ 3>?.C> 3?1>.1> 31?./2

&urrent assets 2?2.// 3/CC.3/ 33/C.1/ 33?>.2 >??/.11

&urrent liabilities 3?B.1 23/C./ 3>3.12 C33.2 C/B.C

&urrent ratios ?.2/ C.>B .B/ 2.C 2.23

INTEPRETATION=

The current ratio durin* the stud( period that is from 2//?0 2//1 to 2//>0

2/3/4 it has been obser,e that 4in the (ear 2//? to 2//1 it is ,er( hi*h that

is ?.2/.

The current ratio has been decreasin*4 but the compan( is able to maintain

hi*her current ratio than that of ideal ratio.

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As the current ratio is hi*her than the ideal current ratio4 the liquidit(

position is said to be *ood.

LIUID6UI.K RATIO=

'iquid assets

'iquid ratio S 000000000000000000000000000

&urrent liabilities

TABLE SHO?ING YEAR ?ISE LIUID RATIOS

;Rs in &rores.B1

Interest .#@er!ge R!t# ;1%4< 9;%38 32%44 7


70/91

INTERPRETATION=

&ompan(@s %nterest &o,era*e Ratio is ,er( hi*h and e6traordinaril(

satisfactor(. %t indicates that *reater abilit( of the firm to handle fi6ed char*es.

=i*h interest co,era*e ratio does not indicate unutili9ed debt capacit( in case

of

R%'4 since the compan( is ha,in* its own funds.

PROPRIETARY RATIO=

$hare holders funds

Proprietar( ratioS00000000000000000000000000000000000000000

Total assets

TABLE SHO?ING THAT YEAR ?ISE PROPRIETARY RATIO

;Rs.in &rores> 32?. 3?2B1.?3 3BB.C 3?2.23

Pr#+ret!ry R!t# B BC B? B> C2

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INTERPRETATION=

Proprietar( ratio is a test of lon* term financial position.

E6cept for the (ear 2//>03/4 all other (ears showin* hi*her ratio4 this

indicates sound lon* term financial position.

%t is also indicatin* the sufficient use is bein* made of equit( to finance the

business.

SOLVEN.Y RATIO=

Total 'iabilities of outsiders

$ol,enc( ratio S0000000000000000000000000000000000000000000

Total assets

TABLE SHO?ING YEAR ?ISE SOLVEN.Y RATIO=

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;Rs. %n &rores/B.B2 C/B.2

Unsecured loans 1>.CC 32.?3 3/B.>? 3//./C 2?.2BT#t!, ,!>,tes t#

#utsders

?C.3 >31.>1 CC/.B 3//B.B1 1?/.?

T#t!, !ssets 3/?33.// 32?. 3?2B1.?3 3BB.C 3?22.>1

S#,@en"y r!t# 2%1 5%1 7%4 2%;4


73/91

TABLE SHO?ING YEAR:?ISE 'UNDED DEBT TO TOTAL

.APITALIATION RATIO ;Rs. in crores31.>1 CC/.B 3//B.B1 322.??

Total "unds ;#< 3B.B/ >?.2/ 33C3./C 32C3>.>3 32?

Total capitali9ation

;A7#.1/ ./ >.?/

INTERPRETATION=

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Durin* the (ear 2//>03/4 the funded debt to total capitali9ation is

>.%t is hi*h as compared to other periods but in the real sense it is

quite low.

There is enou*h scope for the compan( to raise lon* term loans fromoutsiders.

A.TIVITY RATIO=

INVENTORY TURNOVER RATIO=

ET $A'E$

%n,entor( Turno,er Ratio S00000000000000000000000000000

A8G %8ET!R5

TABLE SHO?ING YEAR ?ISE INVENTORY TURNOVER RATIO

;Rs. in crores2.11 >/.B >32. >/>.3?

A,* in,entor( 321.>> 323/./ 3C2.2/ 3122.3C 2.C/

%n,entor( Turno,er

Ratio

?.>3

Times

1.??

Times

1.3

Times

?.12

Times

.C1

Times

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INTERPRETATION=

The %n,entor( Turn !,er Ratio durin* the (ear 2//>03/ was .C1

ormall( hi*her the ratio indicates the better in,entor( mana*ement.

=i*her ratio also indicates that the compan( is not able to met the customers

demand properl(.

INVENTORY .ONVERSION PERIOD=

o of wor)in* da(s

%n,entor( &on,ersion Period S000000000000000000000000000000000000000000000

%n,entor( turno,er ratio

TABLE SHO?ING YEAR ?ISE INVENTORY .ONVERSION PERIOD

&Rs% n "r#res)P!rt"u,!rs 7882:8; 788;:85 7885:84 7884:83 7883:18

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o. of wor)in*

da(s 1? 1? 1? 1? 1?

%n,entor(

turno,er ratio ?.>3 1.?? 1.3 1.? B.2C

%n,entor(

con,ersionperiod 12 da(s ?1 da(s 1/ da(s ? da(s ?/ da(s

INTERPRETATION=

The in,entor( con,ersion period durin* 2//>02/3/ is ?/ da(s. %t means that

the in,entor( has been disposed off or sold on an a,era*e of once in e,er( ?/

da(s.

DEBTORS TURN OVER RATIO

et credit annual salesDebtors Turn !,er Ratio S 000000000000000000000000000000000000

A,era*e trade debtors

TABLE SHO?ING YEAR ?ISE DEBTORS TURN OVER RATIO

&Rs% n "r#res)

P!rt"u,!r 7882:8; 788;:85 7885:84 7884:83 7883:18

A. net sales B/?.B3 B>2.11 >/.B >32. >/>.3?

b. a,era*etrade debtors 3/B.C 3>3.?C 3??.3/? 3C2.C 31.2

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debtor turn

o,er ratio 1 times C3 times ?> times 1C times ? times

INTERPRETATION=

The debtor turno,er ratio for the (ear 2//>03/ is ?C

%t can be concluded that the mana*ement is efficient in con,ertin* the

debtors into cash

AVERAGE .OLLE.TION PERIOD=

o of or)in* Da(s

A,era*e &ollection Period S 00000000000000000000000000000000000000000000

Debtor@s turno,er ratio

TABLE SHO?ING YEAR ?ISE AVERAGE .OLLE.TION PERIOD

&Rs% n "r#res)

PARTI.ULARS 7882:8; 788;:85 7885:84 7884:83 7883:18

o of wor)in* da(s 1? 1? 1? 1? 1?

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78/91

Debtors turno,er

ratio

1/.>B C3.C ?.?> ??.1 1B.32

A,*.collection

period

? da(s > da(s 1 da(s 1 da(s ? da(s

INTERPRETATION=

The a,* collection period durin* the (ear 2//>03/4 is ? da(s- it represents the

a,*. no of da(s for which the firm has to wait before its recei,ables are

con,erted into cash.

Durin* the period of stud( it has been obser,ed that debt collection period

,aries from ? to > da(s

=owe,er4 the a,*. collection period durin* different periods is quite low. %t

indicates the better qualit( of debtors and the efficienc( of the debt collection

department.

?ORKING .APITAL TURNOVER RATIO=

et sales

or)in* capital turno,er ratio S 0000000000000000000000000000000000000000000000000

or)in* capital

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TABLE SHO?ING YEAR ?ISE ?ORKING .APITAL TURNOVER RATIO

&Rs% n "r#res)

PARTI.ULARS 7882:8; 788;:85 7885:84 7884:83 7883:18

a.net sales B/?.B3 B>2.11 >/.B >32. >/>.3?

b. net wor)in*

capital

111C.3C C. 132.>B B1B.// ?2C2.2

or)in* capital

turno,er ratio;a7b?

times

3./?

times

3.3

times

3.B

times

INTERPRETATION=

The wor)in* capital turno,er ratio durin* the (ear 2//>03/ i 3.B times. %t

shows that onl( 3./? of net current assets are used to *enerate 3 rupee of sales.

The hi*her wor)in* capital ratio indicates that the efficient utili9ation of

wor)in* capital.

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PRO'ITABILITY RATIOS=

GROSS PRO'IT RATIO=

Gross profit

Gross profit ratio S 0000000000000000000000000000000003//

et sales

TABLE SHO?ING YEAR ?ISE GROSS PRO'IT RATIO

&Rs% n "r#res)

PARTI.ULARS 7882:8; 788;:85 7885:84 7884:83 7883:18

a. *ross profit 3>23.// 22B3.// /2B.// 233?.// 321.//

b. net sales B3C.// B>.// >/.// >32.// >/>.//

Gross profit

ratio;a7b

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$ales are in increasin* trend but the profit ratio is decreasin*. %t is due to

increased cost of production.

OPERATING PRO'IT RATIO=

!peratin* profit

!peratin* profit ratio S 00000000000000000000000000000000000000003//

$ales

TABLE SHO?ING YEAR ?ISE OPERATING PRO'IT RATIO

&Rs% n "r#res)

PARTI.ULARS 7882:8; 788;:85 7885:84 7884:83 7883:18

!peratin* profit 2/33.23 2>.23 2?.3> C>.32 2C?/.?/

et $ales B3C.// B>.// >/.// >32.// >/>.//

O+er!tng +r#$t

r!t# 75%28 73%28 and in other (ears4

it is more or less recorded same trends.

%t is indicates4 the compan(@s operational efficienc(.

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NET PRO'IT RATIO=

et profit

et profit ratio S 00000000000000000000000000000000000000003//

$ales

TABLE SHO?ING YEAR ?ISE NET PRO'IT RATIO

;Rs. in crores<

PARTI.ULARS 7882:8; 788;:85 7885:84 7884:83 7883:18

A.net profit 32?2.B 31.C 3>C2.BC 3?.?B B>1.1B

#. net sales B/?.B3 B>2.11 >/.B >32. >/>.3?

et profit ratio;A7#< 3B.3C 3B.3 23 3C.1 .32

INTERPRETATION=

et profit is in decline position from 2//0/> in comparati,e with 2//B0/.

Main attributable reason for the declinin* the profit is o,erall *lobal meltdown

E,en in ad,erse mar)et conditions4 the compan( is able to earn net profits.

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PRO'ITABILITY RATIOS BASED ON INVESTMENT=

RETURN ON SHAREHOLDERS INVESTMENT=

et Profit ;After %nterest + Ta62. 8$P is the first shore based inte*rated steel plant with

new technolo*(4 lar*e scale computeri9ation and automation. The or*ani9ational

manpower has been rationali9ed to operate it at international le,els of efficienc( and

to attain international labor producti,it(.

The production4 commercial and financial performance has been impro,in*

with the passa*e of (ears. The financial anal(sis of 8$P b( the use of ,arious

techniques i.e. Ratio4 &ash flow anal(sis shows that-

3< The liquidit( position of the compan( is e6cellent.

2< The compan( is 9ero debt7low debit compan(.

< The net worth of 8$P is satisfactor(

C< %t is noted that the in,entor( le,el is increasin*.

?< The profitabilit( ratio is in decline state

1< 'iquidit( position of 8$P is ,er( *ood.

B< The compan( has accumulated funds which are a,ailable for

e6pandin* business operations and e6pansion wor)s.

< $ecurit( to share holders is e,isa*ed

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SUGGESTIONS

The followin* su**estions will impro,e the financial position of the 8$P.

PRODU.TION

3< eed for continuous up *radation of technolo*( for impro,in* the

processes.

2< Effort should be made at cost sa,in*s particularl( in spares and ener*(

consumption.

< Usin* the natural *as reser,es of G basin4 =ot metal production

capacit( can be enhanced with the present #" facilit( with ne*li*ible

in,estment.

'INAN.E

3< %mpro,in* financial le,era*e ratio for better returns.

PERSONNEL=

3< Rationali9ation of e6istin* man0power with effecti,e trainin* for future

e6pansion of the plant.

2< %mpro,in* efficienc( throu*h better =RD pro*rams.

< Pro,idin* better moti,ation.

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C< $tri,in* towards becomin* the most chosen emplo(er.

MARKETING

3< &ontinuousl( monitorin* the indi*enous sale4 e6port sale ratio to

capture the best of mar)ets.

2< %ncreasin* the net reali9ation b( sellin* in the most profitable re*ion.

< %dentif(in* new mar)ets and new application of the compan(@s

product.

C< %mpro,in* reali9ation b( identif(in* ,alue added products and

pro,idin* feedbac) to production department.

?< 8alue added products ;hi*h ,alue items< are to be produced instead of

sellin* semi0finished products in order to increase profit mar*in.

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BIBLIOGRAPHY

BOOKS=

1% 'n!n"!, M!n!gement= The#ry ( Pr!"t"e &9thEdt#n)

Eugene '% Brgh!m !nd M"h!e, .% Gerh!rdt

7% E,ements #$ M!n!gement A""#untng

Les,e .h!d"*

ee:nd!%n"%n%"#m

htt+=66%!nser%"#m

91

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