COMPARATIVE ANALYSIS OF FINANCIAL

STATEMENT OF SAIL WITH OTHER STEEL

COMPANIES IN INDIA

PROJECT REPORT
MAY 2010 JULY 2010
Submitted in partial fulfillment of the requirements for the award of
two year full time, Post Graduate Diploma Management
In
Finance & Control
By
Kumar Mayank
(Institute of Management & Information Sciences Bhubaneswar)
Under the guidance of
Prof. S.S. Ahmed

P.S PAL

Assistant Professor (finance)

AGM (Finance)

Institute of Management & Information science

Steel Authority Of India Limited

Bhubaneswar

Ranchi.

Institute of Management & Information Science

Swagat Vihar
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Bhubaneswar Orissa 751002

Declaration

I hereby declare that the project entitled Financial Analysis is submitted in partial fulfillment of my
PGDM (FC) 2009-2011 was carried out with sincere intention of benefiting the organization. The
project duration was from 10th May 2010 to 3rd July 2010. To the best of my knowledge it is an
original piece of work done by me and it has neither been submitted to any other organization nor
published at anywhere before.

Signature
Name: Kumar Mayank
Date: 3rd July 2010
Place: Steel Authority of India Limited (Ranchi)

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Acknowledgement

Whatever I did and whatever I achieved during the course of my limited life is just not done only by
my own efforts, but by the efforts contributed by other people associated with me indirectly or
directly. I thank all those people who contributed to this from the very beginning till its successful
end.

I sincerely thank Mr. Shibaji Dey (Dy. Manager Personnel), Person of amiable personality,
for assigning such a challenging project work which has enriched my work experience and getting me
acclimatized in a fit and final working ambience in the premises of Centre for Engineering &
Technology (SAIL).

I acknowledge my gratitude to Mr. S.S Ahmed (Assistance Professor Finance, Institute of

Management & Information Science), for his extended guidance, encouragement, support and
reviews without whom this project would not have been a success.

Last but not the least I would like to extend my thanks to all the employees at Centre for
Engineering & Technology (SAIL) for their cooperation, valuable information and feedback during
my project.

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ABSTRACT
The project on comparison of financial statement of SAIL with other steel sectors in INDIA
has been a very good experience. Every manufacturing company faces the problem of
Financial Management in their day to day processes. An organizations cost can be reduced
and the profit can be increased only if it is able to manage the financial position of its firm.
At the same time the company can provide customer satisfaction and hence can improve
their overall productivity and profitability.
This project is a sincere effort to study and analyze the
Financial Management of SAIL. The project work was divided into two phases. The first
phase was focused on making a financial overview of the company by conducting a Time
series analysis of SAIL for the years 2003 to 2009 and the second phase was conducted on a
Comparative analysis of SAIL with its domestic competitors TATA, ISPAT, JINDAL & ESSAR
for the year 2009 taking Balance sheet, Profit & Loss account and ratios showing a
comparative analysis between these firms with SAIL.
The internship is a bridge between the institute and the
organization. This made me to be involved in a project that helped me to employ my
theoretical knowledge about how the Analysis of Financial Statement is done by the firm.
And in the process I could contribute substantially to the organizations growth.
The experience that I gathered over the past two months has
certainly provided the orientation, which I believe will help me in shouldering any
responsibility in future.

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TABLE OF CONTENTS

1.ABOUT THE COMPANY

6-11

2.INTRODUCTION TO CET SAIL

12-19

3.INTRODUCTION TO THE STUDY

20-22

4. LITERATURE REVIEW

23-35

5.DATA ANALYSIS AND INTERPRETATION

36-66

6.COMPETITOR ANALYSIS

67-70

7. RECOMMENDATION AND SUGGESTIONS

71

8.CONCLUSION

72

9.BIBLIOGRAPHY

73

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1. ABOUT THE COMPANY

Company Profile
Established in January 24, 1973 with an authorized capital of Rs. 2000 crores, Steel Authority
of India Limited (SAIL) is the leading steel-making company in India. SAIL is a fully
integrated iron and steel maker company, producing both basic and special steels for
domestic construction, engineering, power, railway, automotive and defense industries and it
also produce steel for sale in export markets.
Steel Authority of India Limited is ranked amongst the top ten companies in public sector
companies in India in terms of its turnover. SAIL produces iron and steel at five integrated
plants and three special steel plants, located principally in the eastern and central regions of
India and situated close to domestic sources of raw materials, including the Company's iron
ore, limestone and dolomite mines.
SAIL have a Central Marketing Organization (CMO) whose job is to transact business
through its network of 37 Branch Sales Offices spread across the four regions, 25
Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices all
over India. CMOs domestic marketing job is to meet the demands of the smallest customers
in the remotest corners of the country. SAIL has a Consultancy Division (SAILCON) located
at New Delhi whose job is to offer services and consultancy to clients world-wide. SAIL has
a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi
which helps the industries of SAIL to produce quality steel and it also give ideas to develop
new technologies for the steel industry. SAIL has its own in-house Centre for Engineering
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and Technology (CET), Management Training Institute (MTI) and Safety Organization at
Ranchi. SAIL captive mines are control by the Raw Materials Division in Kolkata. Almost
all of the plants and major units of SAIL are ISO Certified.
Sail Today
SAIL 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 export
markets and a large pool of technical and professional expertise. Today, the accent in SAIL is
to continuously adapt to the competitive business environment and excel as a business
organization, both within and outside India.
Type of Organization:
Steel Authority of India' - a Government of India Enterprise and one of the largest and profit
making public sector steel products manufacturing company. Steel 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. Steel
Authority of India has five steel plants, one subsidiary, three special steel plants, multi
marketing units at all regions and nine other specialized units to support growth and
development of the Steel Industry in India. It produces Blooms, Billets, Slabs, Crane Rails,
Bars, Rods & Re-bars, Wire Rods, HR Coils, Sheets, Plates, CR Coils & Sheets, GC Sheets,
GP Sheets and Coils, Tinplates, Electrical Steel, Tubular Products, Pipes, Railway Products,
Rails, Wheels, Axles, Wheel Sets.
Activities: Steel Authority of India production lines are

Hot Rolled Coils, Sheets

Cold Rolled Products.

Bars and Rods.

Semi-Finished Products.

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Railway Products.

Plates.

Moreover, Steel Authority of India offers technological services in the following

Domains

Know-how transfer of technologies developed by its R&D wing.

Consultancy services.

Specialized testing services.

Contract research.

Training.

Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh

Durgapur Steel Plant (DSP) in West Bengal

Rourkela Steel Plant (RSP) in Orissa

Bokaro Steel Plant (BSL) in Jharkhand

IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels P in West Bengal plants (ASP)

Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary
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Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

Position of Steel Authority of India Limited (SAIL)

India is ranked as the 5th largest steel producing country in the world, while SAIL is ranked
as the 21st largest steel producer in the world during2008 (Source: WSA) SAIL continues
to be the largest steel producer of finished steel in India with around 1/5th of the market
share.

SWOT ANALYSIS
STRENGTHS

The diversified product mix and multi location production units are an area of
strength for the company.

SAIL as a single source is able to cater to the entire steel requirement of any
customer. Also it has a nation wide distribution network with a presence in every
district in India. This makes quality steel available throughout the length and breadth
of the country.

SAIL has the largest captive iron ore operations in India, which takes care of its
entire requirement. With plans in place to expand the mining operations, the
company will continue to be self sufficient in iron ore after completion of the
present phase of expansion.

SAIL's large skilled manpower base is a source of strength. There is emphasis on

skill based training in the company.

The company has one of the biggest in-house research and development centres in

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Asia. SAIL's RDCIS (Research &Development Centre for Iron & Steel) is a source
of regular product and process innovation.

WEAKNESSES

SAIL is dependent on the market purchase for a key input coking coal. As India
does not have sufficient coking coal deposits, most of the supply is from external
sources.

A large manpower base results in higher manpower cost as a proportion of turnover

for the company. Although there has been significant reduction in manpower
through natural and voluntary separations, the manpower strength in SAIL is still
higher than the industry average.

At present around 20% of the products are in the form of semi -finished steel,
resulting in lower value addition.

SAIL being a Public Sector unit has to follow set procedures in conducting its
business. On occasions, it slows down the decision making with attendant fallout.

OPPORTUNITIES

The current per capita finished steel consumption in the country is approx. 44 kg as
compared to the likely world average of around 190kg. There is a substantial scope
for increase in domestic steel consumption.

Although during 2008-09, steel consumption contracted by 1.2% in the country,

steel demand in India is poised to grow at a modest pace with thrust on
infrastructure in the 11th Plan period.

Approval to 37 infrastructure projects worth Rs.70, 000 crores between August 2008

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and January 2009 is likely to trigger steel demand.

The size range and quality makes SAIL'S long products a preferred choice for
project customers.

THREATS

International prices of steel dropped by over 60% from their peak level in July,
2008. With import duty at 5%, and poor demand from developed countries, cheap
imports are on an increase into the country putting pressure on realization of the
domestic steel producers.

With significant excess capacity in the global steel industry during 2009 there is a
threat of dumping cheap steel to India which is likely to be the only major steel
consuming nation with a positive growth.

Clearance and renewal of mining lease, which involve multiple agencies at the State
and Central levels, are an area of concern.

Delay in opening new mines, and / or expanding existing mines may constrain raw
materials availability, thereby impacting growth in saleable steel production, and
overall economics of operation.

Law and order situation in mining areas in some of the states is also a cause of
concern for smooth operations in remote areas.

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2. INTRODUCTION TO CET SAIL

Centre for Engineering & Technology (CET) was formed in 1982 in pursuance of
decision taken by SAIL Board in its 83rd meeting held on 28th January 1982. CET is the
in-house design, engineering and consultancy unit of SAIL. It is also the nodal agency for
acquisition and lateral transfer of technologies pertaining to Iron & Steel within SAIL
plants and units. The range of services provided by CET includes conceptualization,
project reports, project evaluation & appraisal, project consultancy, design & engineering
and project management. CET has been providing its services in all the areas of iron and
steel making including in the related areas like mine planning and development,
infrastructure development, industrial piping, industrial warehousing, material handling
system, industrial pollution control and environment management systems, water supply
and sanitation, town planning, small power projects, etc.
PURPOSE OF FORMING THE CET
CET was formed in 1982 as an in-house consultancy organization of SAIL. Previously all
the consultancy work was outsourced to various organizations which could be either
govt. organizations like MECON or private organizations. This led to huge expenditures
for SAIL in payment of fees and other expenditures. So it was decided that an in-house
consultancy should be developed to save costs for SAIL. Thus CET was formed with
headquarters in Ranchi and sub centers in various steel plants across India for better
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coordination. Though CET was formed for the purpose of providing consultancy services
only to the plants of SAIL but it also provides consultancy services to the other
organizations but only on specific requests to earn additional revenues.

CET has six subcentres at following locations:

1. CET Sub centre Bhilai
2. CET Sub centre Bokaro
3. CET Sub centre Durgapur
4. CET Sub centre Rourkela
5. CET Sub centre Burnpur
6. CET Sub centre Bhadrawati
Besides, CET has only two unit offices at following locations to coordinate CETs
activities
1. CET, Delhi Unit Office
2. CET, Kolkata Unit Office
It is an ISO 9001:2000 certified organization. It is planning to get certified against ISO
9001:2008. The objectives and functions of CET are mainly categorized under following
headings as under:
Consultancy for Design, Engineering and Techno-economics
Technology improvement
Other Services

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Technology Improvement
Identification of technology improvement measures in consultation with R&D Centre in
the various processes and plan for adoption of the same in the various plants by acquiring
design and know-how capability.
Assisting R&D center in identification of various process routes, production facilities,
indicating the order of investment involved to match with the corporate production
targets on short term/long term basis.

Guiding principles of CET working:

Following guiding principles are followed for working of CET:
For Technical Matters: Guidelines/Procedure described in Quality Manual.
For Personnel Matters: Personnel Manual issued by SAIL Corporate Office
For Contract Commercial Matters: Guidelines described in Purchase Procedure 2009.
For Financial Matters: Guidelines given in Accounts Manuals

CET-SAIL(FINANCE DEPATRMENT)
Duties of Officers and employees in Finance Section:
Preparation of employees remunerations & benefits and payments thereof.
Statutory recoveries from employees salary like income tax, PF, SCSBF, EPF etc and
their remittances to the respective funds.
Assessment of Income Tax of employees. Provisional estimate for recoveries & final
calculations for issuing certificates.
Passing of contractors / parties bills and payments thereof including recoveries of
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income tax from their bills.

Passing of employees bills and advances and payment thereof.
Accounting of all transactions, maintenance and scrutiny thereof.
Closing of accounts and audit thereof.
Dealing with Govt. and Internal Audits
Preparation of budgets Revenue and Capital after considering the requirement of
various departments/ Sub-centres/ Unit Offices.
Preparation of employees HBA, Conveyance Advance budget in consultation with
P&A.
Periodic monitoring and control of all types of budgets
Issue of TDS certificates to employees and contractors.
Filing of ETDS return
Fixed and Variable Costs for Finance Department
It can be seen from the role and responsibilities of finance department that most of the
work done by the finance department involves preparation of remuneration of employees.
Even during the preparation of the budget about 85% of the costs are attributed to
employee remuneration which contains both executive pay and non executive pay. It
comes under fixed costs while other expenses like travelling expenses, stationary
expenses and other miscellaneous expenses which come under variable costs.
CALCULATION OF ENGINEERING HOURS RATE
.In accounts booking of expenditure should be done accordance with their accruals.
When CET is renewing services to companies, plants and units it is necessary to allocate
the expenditure incurred by SAIL among the plants and units to whom services where
rendered consultancy wise or project wise. This is an accounting requirement. In this way
the projects of the plants of the units gets the share of expenditure incurred by CET
which in turn are accumulated in the capital cost of the project
During 1994-95, 1995-96 CET adopted valuation of its assignment of the project ,on the
basis of fixed percentage of total cost of the project for which services where rendered.

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This system could not be continued because of the following reasons:

1. CET not being a profit center it cannot consider earning which is hypothetical in
any case, as a basis for allocation of its expenditure on assignments / projects.
2. Since the value of the assignments under this method has no relation with the
expenditure, practical difficulties where experienced in restricting the valuation to
the total expenditure of the CET.
Therefore in 96 -97 engineering hours was found to be more appropriate
allocation expenditure of CET over the assignment/projects.

basis for the

Engineers working in

assignment record their hours in the assignment they work. In this way all the assignment
of CET in execution get engineering hours spent on them. Engineering hours rate is
calculated every year on an estimated basis in march every year (detail calculation given
below). Rate is applied hours of the individual assignment/project to find or to determine
the value of CET services for the assignment/projects. Plants and units are being debited
on the value of the assignment

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CALCULATION OF ENGINEERING HOURS RATE FOR 2009-2010

1. Total no.of executives

299

2. HOD and above

29

3.Executives working in finance,Personnel

,Admn.,Personnel staff etc.ipss,Projects
ED sectt,MTT's

58

4. Net Executives whose Engg. Hours

are clockable

212

5.No. of days in a year

365

6. Sundays and closed Saturdays

76

7.CLs, Closed &RH

36

8. EL @3% of 253(Sl.No.5,6,7)

9.Average No. of Engineering days

Available

245

10. Avg.No. of Engg. hours available hrs.

available per man a year
(Sl. No.9 *8hrs.)

1960

11. Maximum Engg. Hrs. clockable in a

year(Sl.no.4*Sl. No. 10)

415520

12.Engineering hrs.utilised for development

activities,ISO 9001,other administrative jobs
@30% of max.egg. Hrs. clockable in a year

120474

13.Engg. Hrs. available for assignments (Sl.no.11Sl.no.12)

295046

14.Likely expenditure of CET FOR 2009-10 (In Rs.)

492900000

15.Engineering hours rate (In Rs.)

1670.050

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16.Engineering hours rate to be adopted (In Rs.)

1670

IMPROVEMENTS SUGGESTED IN CALCULATION OF ENGINEERING HOURS

RATES
The above method is more suitable method for CET being an inhouse consultancy
organization.This system can still be improved on the following account:

Single rate of engineering hours doesnt take into account expenditure of variable
nature.For example expenditure on tools design and drafting expenditure on these
heads varies on the basis of level of activities

It is presumed that expenditure accrues uniformly over the assignments. But there
are certain assignments which need services of senior engineers whose hourly
expenditure may be higher than the avg. rate adopted.

OTHER THINGS LEARNED AT CET SAIL (FINANCE DEPARTMENT)

To prepare engineering hour rate for CET SAIL employee.

Preparation of vouchers

Preparation of T.A.BILLS (Travelling allowance)

Preparation of revenue budget for CET- SAIL.

Preparation of renumeration for employees remuneration & benefits budget.

PERFORMANCE HIGHLIGHTS OF CET 2009-2010

HIGHLIGTS OF PHYSICAL PERFORMANCE

Total sanctioned projects 137 nos. against 135 nos. in corresponding period last
year. Quantum of sanctioned projects being handled valued at Rs. 10782 crores.

Highest nos. of assignment handled at 327 in a year, up by 7 nos. over previous

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year.

OTHER HIGHLIGHTS
During the fiscal 2009-2010, a lot of emphasis was put in the RMD projects and
along with RMD new strategies where formulated for faster execution of projects.

Expression of interest for acquisition of technology for up gradation of blast

furnaces has been floated.

Video conferencing facility which connects Ranchi and sub centers at Bhilai ,
Durgapur , Bokaro and Rourkela is being used extensively for quarterly project
reviews , designed reviews , knowledge sharing , technical discussion with vendors
and plant engineers . It has resulted in faster communication, wider coverage and
saving in expenditure.

CET has taken measures for working in a paperless environment. All movements of
papers/ documents are being done through email system.

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3.INTRODUCTION TO THE STUDY:

Finance is one of the most primary requisites of a business and the modern management
obviously depends largely on the efficient management of the finance. Financial statements
are prepared primarily for decision making. They play a dominant role in setting the frame
work of managerial decisions. The finance manager has to adhere to the five Rs with regard
to money. Whether owned or borrowed funds. At the right time to preserve solvency from the
right sources and at the right cost of capital. The term financial analysis is also known as
analysis and interpretation of financial statements refers to the process of determining
financial strength and weakness of the firm by establishing strategic relationship between the
items of the Balance Sheet, Profit and Loss account and other operative data. The purpose of
financial analysis is to diagnose the information contained in financial statements so as to
judge the profitability and financial soundness of the firm.
OBJECTIVES OF THE STUDY
1. To study the financial position of the company.
2. To analyze the financial stability and overall performance of SAIL in general.
3. To analyze and interpret the trends as revealed by various ratios of the company in particular.
4. To analyze the profitability and solvency position of the unit with the existing tools of financial
analysis.
5. To study the changes in the assets, liabilities structure of the company during the period of study.
IMPORTANCE OF THE STUDY
1. By FINANCIAL PERFORMANCE ANALYSIS OF SAIL we would be able to get a fair
picture of the financial position of SAIL.
2. By showing the financial performance to various lenders and creditors it is possible to get credit
in easy terms if good financial condition is maintained in the company with assets outweighing the
liabilities.
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3. Protecting the property of the business.

4. Compliances with legal requirement.
LIMITATIONS OF THE STUDY
1. The analysis and interpretation are based on secondary data contained in the published annual
reports of SAIL for the study period.
2. Due to the limited time available at the disposable of the researcher the study has been confined
for a period of 7 years (2003-2009).
3. Ratio itself will not completely show the companys good or bad financial position.
4. The study of financial performance can be only a means to know about the financial condition of
the company and cannot show a through picture of the activities of the company.
RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It may be understood as
a science of studying how research is done scientifically. So, the research methodology not only talks
about the research methods but also considers the logic behind the method used in the context of the
research study.
RESEARCH DESIGN
Descriptive research is used in this study because it will ensure the minimization of bias and
maximization of reliability of data collected. The researcher had to use fact and information already
available through financial statements of earlier years and analyze these to make critical evaluation of
the available material. Hence by making the type of the research conducted to be both Descriptive 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.

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DATA COLLECTION
The required data for the study are basically secondary in nature and the data are collected from the
audited reports of the company.
SOURCES OF DATA
The sources of data are from the annual reports of the company from the year 2003 to 2009.
METHODS OF DATA ANALYSIS
The data collected were edited, classified and tabulated for analysis. The analytical tools used in this
study are:
ANALYTICAL TOOLS APPLIED
The study employs the following analytical tools:
1. Comparative statement.
2. Common Size Statement.
3. Trend Percentage.
4. Ratio Analysis.
5. Cash Flow Analysis
ANALYSIS AND INTERPRETATION
Financial statement is an organized 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 Statement. Thus the term Financial
Statement generally refers to two basic statements: (i) the Income Statement and (ii) the Balance
sheet.

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4. LITERATURE REVIEW
FINANCIAL STATEMENTS ANALYSIS
The financial statements are indicators of the two significant factors:
1. Profitability and
2. Financial soundness
Analysis and interpretation of financial statement therefore, refers to such a treatment of the
information contained in the Income Statement and Balance Sheet so as to afford full diagnosis of the
profitability and financial soundness of the business.
Balance Sheet
A balance sheet is the basic financial statement. It presents data on a companys financial conditions
on a particular date, based on conventions and generally accepted principles of accounting. The
amount shown in the statements on the balances, at the time it was prepared in the various accounts
listed in the companys accounting records, is considered to be a fundamental accounting statements.
The income statement summarizes the business operations during the specific period and shows the
results of such operations in the form of net income or net loss. By comparing the income statements
of successive periods, it is possible to determine the progress of a business. A statement is
supplemented by a comparative statement of the cost of goods manufactured and sold. It is prepared at
regular intervals and shows what a business enterprise owns and what it owes. It provides information
which helps in the assessment of the three main aspects of an enterprises position its profitability,
liquidity and solvency. Of these, the later two are concerned with an enterprises ability to meet its
liabilities, while profitability is most useful overall measure of its financial conditions, the balance
sheet is a statements of assets, liabilities capital on specified date. It is therefore a static statement,
indicating resources and the allocation of these resources to various categories of asset. It is so to say
financial photography finance. Liabilities show the claims against its assets.
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The shareholders equity comprises the total owner ship claims in a firm. This claim includes net worth
of shareholders equity and preferred stock. The traditional company balance sheet statement of assets
valued on the basis of their original cost and the means by which they have been financed by its
shareholders, lenders, suppliers and by the retention of income.
This tool suffers from the following limitations:
1. A balance sheet gives only a limited picture of state of affairs of a company, because it
includes only those items which can be expressed in monetary terms.
2. The values shown on the balance sheet for some of the assets are never accurate
3. A balance sheet assumes that the real value of money remain constant.
4. On the basis of balance sheet, it is not possible to arrive at any conclusion about the success of an
enterprise in the future.
5. It is a detailed statement of the financial structure of a business.
Income statement
The results of operations of a business for a period of time are presented in the income statement.
From the accounting point of view, an income statement is subordinate to the balance sheet because
the former simply presents the details of the changes in the retained earnings in balance sheet accounts.
However, if vital source of financial information an income statement summarizes the results of
business operations during specific period and shows in the form of net income or net loss by
comparing income statements for successive periods, it is possible to observe the progress of the
business the statement is supplemented by a comparative statement of cost of goods manufactured and
sold. It summarizes firms operating results for the past period.

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Comparative balance sheet

Financial statements are sometimes recast for facility of scrutiny. The effects of the conductor
businesses are reflected in its balance sheet by changes in assets and liabilities and in its net worth.
The comparative income statement presents a review of operating activities in business. A comparative
balance sheet shows effect of the operations on the assets and liabilities. The practice of presenting
comparative statement in the annual report is now becoming wide spread because it is a connection
between balance sheet and income statement. Considerations like price levels and accounting methods
are given due weight at the time of comparison.
Common-size statements
The percentage balance sheet is often known as the common size balance sheet. Such balance
sheet are, in a broad sense ratio analysis general items in the profit and loss accounts and in the
balance sheet are expressed in analytical percentages when expressed in the form, the balance
sheet and profit and loss account are referred to as a common size statement. Such statements
are useful in comparative analysis of the financial position in operating results of the business.
Cash flow statement
A cash flow statement is the financial analysis of the net income or profit after including book expense
items which currently do not use cash; for example, depreciation, depletion and amortization. Revenue
items, which do not currently provide funds, are to be deducted. A gross cash flow is net profit after
tax plus provision for depreciation. A net cash flow is arrived after deducting dividends from the gross
cash flow. The cash flow is very significant because it represents the actual amount of cash available to
the business.

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Ratio Analysis
Financial ratio analysis is the calculation and comparison of ratios which are derived from the
information in a company's financial statements. The level and historical trends of these ratios
can be used to make inferences about a companys financial condition, its operations and
attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from companys financial
statements. For example, the "gross margin" is the gross profit from operations divided by the
total sales or revenues of a company, expressed in percentage terms. In isolation, a financial
ratio is a useless piece of information. In context, however, a financial ratio can give a financial
analyst an excellent picture of a company's situation band the trends that are developing.
A ratio gains utility by comparison to other data and standards. Taking our example, a gross
profit margin for a company of 25% is meaningless by itself. If we know that this company's
competitors have profit margins of 10%, 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
example 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.
Classification of Ratios
Financial ratio analysis involves the calculation and comparison of ratios which are derived
from the information given in the company's financial statements. The historical trends of these
ratios can be used to make inferences about a companys 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 company's financial state of affairs. Some of the categories of ratios are described below:

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Liquidity Ratios give a picture of a company's short term financial situation or

solvency

Turnover Ratios show how efficient a company's operations and how well it is using
its assets.

Solvency Ratios show the long term profitability of the company.

Liquidity Ratios
Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the Liquidity of
the company as on a particular day i.e. the day that the Balance Sheet was prepared. These
ratios are important in measuring the ability of a company to meet both its short term and long
term obligations.
1. Current Ratio
2. Liquid Ratio
3. Net working capital ratio
1. Current Ratio:
An indication of a company's ability to meet short-term debt obligations; the higher the ratio,
the more liquid the company is. Current 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 short-term financial strength. If current
liabilities exceed current assets, then the company may have problems meeting its short-term
obligations.
Current Ratio = Current assets / Current liability
Page | 27

2. Quick Ratio:
Liquid ratio is also known as quick or Acid test ratio. Liquid assets refer to assets which
are quickly convertible into cash. Current Assets other stock and prepaid expenses are
considered as quick assets. The ideal liquid ratio accepted norm for liquid ratio 1.
Quick Ratio = Total Quick Assets/ Total Current Liabilities
Quick Assets = Total Current Assets (minus) Inventory
3. Net Working Capital Ratio
Working Capital is more a measure of cash flow than a ratio. The result of this calculation
must be a positive number. Companies look at Net Working Capital over time to determine a
company's ability to weather financial crises. Loans are often tied to minimum working
capital requirements.
Net working capital ratio = Net Working Capital / Capital Employed

Turnover Ratios
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. Higher 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.
1. Fixed Asset Turnover Ratio
2. Working Capital Turnover Ratio
3. Debtor Turnover Ratio
4 Stock Turnover Ratio
Page | 28

1. Fixed Assets Turnover Ratio

Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the value of your
fixed assets (on your balance sheet). It indicates how well your business is using its fixed
assets to generate sales.
Generally speaking, the higher the ratio, the better, because a high ratio indicates the business
has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may
indicate that you've over-invested in plant, equipment, or other fixed assets.
Fixed Assets Turnover Ratio = Gross Sales / Net Fixed Assets
2. Working Capital Turnover Ratio
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.
Net working capital is the difference between current assets and current liabilities. Analysts
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
organization in net working capital is generating how much sales. Higher the ratio better it
is.So, 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 organization.
Working Capital Turnover Ratio = Net Sales / Net Working Capital
3. Debtors Turnover Ratio
Debtors 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:
Page | 29

I. Debtors turnover ratio

II. Debt collection period.
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. Cash sales
do not generate debtors. However, as the information related to credit sales is not separately
available in corporate accounts, so total sales could be taken in the numerator. Average
debtors are calculated by dividing the sum of beginning-of-year and end-of-year balance of
debtors by 2.
Debtors Turnover Ratio = Credit sales / Average accounts receivables
Debt collection period:
The ratio indicates the extent 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 explains to them
whether their borrowers are collecting money within a reasonable time. An increase in the
period will result in greater blockage of funds in debtors.
Debt collection period = Months/Days in a year/ Debtors turnover ratio
4. Stock Turnover Ratio:
This ratio indicates whether investment in inventory is efficiently used or not. It is therefore
explains whether investment in inventories is within proper limits or not. The Inventory
turnover ratio signifies the liquidity of the Inventory. A 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.

Page | 30

It is difficult to establish a standard ratio of inventory because it will differ from industry to
industry.
Stock Turnover Ratio = Sales / Average Inventory

Profitability Ratios
Profitability is an indication of the efficiency with which the operation of the business is
carried on. Poor operational performance may indicate poor sales and hence poor profits. A
lower profitability may arise due to lack of control over the expenses. 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.
1. Return on Investment
2. Return on Shareholders fund
3. Return on total asset
4. Earnings per Share
5. Net profit Ratio
6. Operating ratio
7. Payout ratio
8. Dividend yield ratio
1. Return on Investment:

Page | 31

It is also called as Return on Capital Employed. It indicates the percentage of return on the
total capital employed in the business.
The term operating profit means profit before interest and tax and the term capital
employed means sum-total of long term funds employed in the business. i.e. Share capital +
Reserve and surplus + long term loans [non business assets +fictitious assets]
Return on investment = Operating profit/ Capital employed *100
2. Return on Shareholders Fund:
In case it is desired to work out the productivity of the company from the shareholders point
of view, it should be computed as follows:
Return on shareholders fund = Net profit after Interest and Tax/Shareholders fund*100
The term profit here means Net Income after the deduction of interest and tax. It is different
from the Net operating profit which is used for computing the Return on total capital
employed in the business. This is because the shareholders are interested in Total Income
after tax including Net non-operating Income (i.e. Non- Operating Income -Non-Operating
expenses).
3. Return on Total Assets:
This ratio is computed to know the productivity of the total assets.The term Total Assets
includes the fixed asset, current asset and capital work in progress of the company. The above
table clearly reveals the relationship between the net profit and Total Assets employed in the
business.
Return on Total Assets = Net profit after Tax/Total Assets* 100

Page | 32

4. Earnings per Share:

In order to avoid confusion on account of the varied meanings of the term capital employed,
the overall profitability can also be judged by calculating earnings per share with the help of
the following formula:
Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100
The earnings per share of the company helps in determining the market price of the equity
shares of the company. A comparison of earning per share of the company with another will
also help in deciding whether the equity share capital is being effectively used or not. It also
helps in estimating the companys capacity to pay dividend to its equity shareholders.
Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100
5. Net Profit Ratio:
This ratio indicates the Net margin on a sale of Rs.100.This ratio helps in determining the
efficiency with which affairs of the business are being managed. An increase in the ratio over
the previous period indicates improvement in the operational efficiency of the business. The
ratio is thus on effective measure to check the profitability of business. However, constant
increase in the above ratio after year is a definite indication of improving conditions of the
business.
Net Profit Ratio =Net Operating Profit/Net Sales*100
6. Operating Ratio:
This ratio is a complementary of Net Profit ratio. In case the net profit ratio is20%. It means
that the operating profit ratio is 80%.It is calculated as follows:

Page | 33

Operating Ratio =Operating Cost/Net Sales*100

The operating cost include the cost of direct materials, direct labor and other overheads, viz.,
factory, office or selling.
Direct Material cost to sales =Direct Material/Net Sales*100
This ratio is the test of the operational efficiency with which the business is being carried.
The operating ratio should be low enough to leave a portion of sales to give a fair to the
investors.
7. Payout Ratio:
This ratio indicates what proportion of earning per share has been used for paying dividend.
The payout ratio is the indicator of the amount of earnings that have been ploughed back in
the business. The lower the payout ratio, the higher will be the amount of earnings ploughed
back in the business and vice versa.
Payout Ratio =Dividend per equity share/Earning per equity share*100
8. Dividend Yield Ratio
This ratio is particularly useful for those investors who are interested only in dividend
income. The ratio is calculated by comparing the ratio of dividend per share with its market
value.
Dividend yield =Dividend per Share/Market price per share*100
And Dividend per share = Dividend paid/ Number of shares.

Long Term Financial Position or Solvency Ratios

Page | 34

The term solvency refers to the ability of a concern to meet its long term obligations. The
long term indebtedness of a firm includes debenture holders, financial institutions providing
medium and long term loans and other creditors selling goods on installment basis. So, the
long term Solvency ratios indicate a firms ability to meet the fixed interest and costs and
repayment schedules associated with its long term borrowings. Two types of ratios are there:
1. Capital structure ratios-ex. Debt equity ratio
2. Coverage ratios-ex. Debt service ratio or Interest coverage ratio
1. Debt-Equity Ratio
Debt Equity ratio also known as External- Internal Equity Ratio is calculated to measure the
relative claims of outsiders and the owners against the firms assets.
The ratio is calculated as:
Debt equity ratio = Outsiders funds / Shareholders funds
Outsiders fund includes all debts/liabilities to outsiders, whether long term or short term or
whatever in the form of debentures bonds, mortgages or bills. The shareholders fund consist
of equity share capital, preference share capital , capital reserves, revenue reserves, and
reserves representing accumulated profits and surpluses.
2. Interest Coverage Ratio
This ratio is used to test the debt servicing capacity of a firm. The ratio is calculated as:
Interest coverage ratio = EBIT/Fixed interest charge

Page | 35

5. DATA ANALYSIS AND INTERPRETATION

3. Balance Sheet

Table No.1

Classification of Balance Sheet of Steel Authority of India Limited from 2003-2009

PARTICULARS
ASSETS
Fixed Assets

2003

2004

2005

2006

2007

(Rs. in Crores)
2008
2009

14414

13550

12851

12920

12796

13960

18813

Investment

543

543

606

293

514

538

653

Current Assets

7312

8246

14333

15630

20375

26317

34511

Mis.Expenditure

536

378

294

215

129

59

0.00

P&L a/c

2765

Total Assets

25570

22717

28084

29058

33854

40874

53977

Shareholders
Funds

5290

5037

10306

12601

17313

23063

27984

Loan Funds

12969

8690

5770

4298

4180

3045

7539

Current Liabilities
& Provisions
Deferred
Liabilities
TOTAL
LIABILITIES

7311

8990

10166

10675

10949

13198

17122

1842

1484

1412

1568

1332

25570

22717

28084

29058

33854

40874

53977

LIABILITIES

Page | 36

4. Comparative Balance Sheet

Table No.2
Comparative Balance Sheet of Steel Authority of India Limited from 2003-2004 to 2008 2009
( Rs. in Crores)
PARTICUL
ARS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

Cng

% cng

Cng

% cng

Cng

%
cng

Cng

%
cng

Cng

%
cng

Cng

%
cng

(864)

(5.9)

(699)

(5.1)

69

0.53

(124
)

(0.9
)

1164

9.09

4853

34.76

63

11.6

(313)

221

75.4

24

4.66

115

21.37

934

12.77

6087

73.8

1297

(51.
6)
9.04

474
5

30.3

5942

29.16

8194

31.13

(158)

(29.4)

(184)

(22)

(79)

(26.
8)

(84)

(39)

(70)

(54)

(59)

(100)

(253)

(4.78)

5269

104.6

2295

22.2
6

471
2

37.3

5750

33.21

4921

21.33

Loan Funds

(427
9)

(32.9)

(2920)

(34)

(147
2)

(25.
5)

(118
)

(2.7
)

(113
5)

(27)

4494

147.6

Current
Liabilities&
Provisions

1679

22.96

1176

13.08

(868
2)

(85.
4)

(72)

(4.8
)

2249

20.5

3924

29.73

8833

479

274

2.56

156

11.04

(236)

(15)

ASSETS
Fixed Assets

Investment
nt
Current
Assets
Mis.
Expenditure
P&L a/c
LIABILITI
ES
Shareholders
Funds

Deff.
Liabilities

Page | 37

Interpretation:
Long Term Financial Position:

The comparative Balance Sheet of the company reveals that during the financial year 2008 2009
there has been a large increase in fixed assets (34.76%) compared to 2007-2008(9.09%) while the
long term liabilities which contains shareholders funds and long term loans also show growth.
Long term loans show an increase of 147.6% in 2008-09 which means that most of the fixed
assets are financed by long term loans.

There has been an increase in plant and machinery in 2009 compared to 2008 which means that it
will increase production capacity of the concern.

Current Financial position and liquidity position:

The company has increased its current assets by increasing the level of inventories at Rs.10121
crores in 2009 compared to Rs.6857 crores in 2008. The current liabilities highly fluctuate and
show continuous increase in 2007-08 (20.5%) and 2008-09 (29.3%).

The Net Working Capital was in peak by the continuous increase after the year 2005. The
company got good liquidity position due increase in Current assets but it may affect the
profitability of the company.

The overall financial position of the company is very good.

Page | 38

5. Income Statement
Table No.3

Classification of Income Statement of Steel Authority of India Limited from 2003 to

2009
(Rs. in crores)
PARTICULARS 2003

2004

2005

2006

2007

2008

2009

Sales

19207

24178

31805

32280

39189

45555

48681

EBIDTA

2165

4652

11097

7381

10966

12955

10941

Less:
Depreciation

1147

1123

1127

1207

1211

1235

1285

EBIT

1018

3529

9970

6174

9755

11720

9656

Less: Interest
Charges

1334

901

605

468

322

251

253

PBT

(316)

2628

9365

5706

9423

11469

9403

Less : Tax

(12)

116

2548

1693

3221

3932

3229

PAT (Net Profit)

(304)

2512

6817

4013

6202

7537

6174

Page | 39

6. Comparative Income Statement

Table No.4
Comparative Income Statement of Steel Authority of India Limited from 2003-2004 to 2008- 2009
( Rs.in Crores)
PARTIC
ULARS

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

change

change

change

change

change

change

% of
change

% of
change

% of
change

% of
chang
e

% of
change

% of
Change

Sales

4971

25.9

7627

31.5

475

1.49

6909

21.4

6367

16.2

3126

6.86

EBIDT

2487

114.8

6445

138.5

(3716)

(33.4)

3585

48.5

1989

18.1

(2014)

(15)

Less:
Depreci
ation

(24)

(2.1)

0.35

80

7.09

0.3

24

1.98

50

0.04

EBIT

2511

246.6

6441

182.5

(3769)

(38)

3581

58

1965

20.1

(2064)

(17.6)

Less:
Interest
Charges

(433)

(32.4
)

(296)

(32.7)

(137)

22.64

(146)

(31)

(71)

(22)

0.7

PBT

2312

731.6

6737

256.3

(3659)

(39)

3717

65.1

2046

21.7

(2066)

(18)

Less :
Tax

104

866.6

2432

2096

(855)

(33.5)

1528

90.2

711

22

(703)

(17.8)

PAT
(Net
Profit)

2208

726

4305

171.3

(2804)

(41.1)

2189

54.5

1335

21.5

(1363)

(18)

Interpretation

The Net Sales figure shows an increasing trend. After the year 2003 it shows an
increasing trend which will help to increase in Net Profit.

The company has sufficient control over its depreciation which shows an increase of
only 0.04% in 2009 over 2008.

Page | 40

The company has considerable change in Interest Charges and rather the latter has
decreased in recent years.

The company has able to attain Profit after Tax of Rs.6174 crores in the year 2009
compare to 7536 crores in 2008 which can be attributed to increase in cost of goods
sold.

It may conclude that there is a sufficient progress in the company and the overall
profitability of the concern is very good.

Page | 41

7. Trend Percentage
Table No.5
Trend Percentage of Steel Authority of India Limited from 2003-2004 to 2008 2009
Base Year 2003

Figure in
%

Particulars

2003

2004

2005

2006

2007

2008

2009

SALES

100

125.88

165.59

168.06

204.03

237.17

253.45

EBIT

100

346.66

979.37

606.48

958.25

1151.27

948.52

FIXED
ASSETS

100

94.00

89.15

89.63

88.77

96.85

130.51

CURRENT
ASSETS

100

112.77

196.02

213.75

283.57

359.91

471.97

CURRENT
LIABILITIES

100

122.96

139.05

146.01

149.76

180.52

234.19

WORKING
CAPITAL

100

81.83

302.55

370.29

554.05

673.81

889.54

CAPITAL
EMPLOYED
TOTAL

100

92.00

121.29

131.65

154.01

171.99

208.88

TOTAL
ASSETS

100

88.84

109.83

113.64

132.39

159.85

211.09

Interpretation:

The sales of the product have continuously increased in all the years up to 2009.The
increase in sales is quite satisfactory.

The EBIT grows continuously up to 2008 and decreases slightly in 2009 due to increase
in the cost of goods sold.

Page | 42

8. Common Size Balance Sheet

Table No.6
Common Size Balance Sheet of Steel Authority of India Limited from 2003-2009
( Rs.in Crores)
PARTICULARS 2003

2004

2005

2006

2007

2008

2009

ASSETS
Fixed Assets

56.37

59.64

45.75

44.46

37.90

34.15

34.85

Investment

21.23

2.39

2.15

1.00

1.54

1.31

1.209

Current Assets

28.59

36.29

51.06

53.78

60.18

64.51

63.93

Mis.Expenditure

2.09

1.68

1.04

0.76

0.38

0.144

0.00

P&L a/c

10.72

Total Assets

100.00

100.00

100.00

100.00

100.00

100.00

100.00

Shareholders
Funds

20.60

22.17

36.69

43.36

51.14

56.42

51.84

Loan Funds

50.73

38.25

20.54

14.79

12.34

7.44

13.96

Current
Liabilities

28.59

39.58

36.19

5.10

4.17

32.28

31.72

Deferred
Liabilities

6.58

36.75

32.35

3.83

2.46

Total Liabilities

100.00

100.00

100.00

100.00

100.00

100.00

100.00

LIABILITIES

& Provisions

Page | 43

Interpretation:

Out of the total investment the owners funds is more compare to outsiders 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, Miscellaneous expenditure and deferred liabilities have their own limited
contribution to their respective side totals.

Page | 44

RATIO ANALYSIS
Liquidity ratios
1. Current Ratio:
Table No.7
Table showing Current ratio
(Rs. In Crores)
YEAR
2003
2004
2005
2006
2007
2008
2009

CURRENT
ASSETS
7282
8075
14187
17384
20379
26317
34511

CURRENT
LIABILITIES
4777
6025
6608
8108
6500
9439
12228

CURRENT RATIO
1.524
1.340
2.146
2.144
2.917
2.788
2.822

An ideal current ratio is 2. The ratio of 2 is considered as a safe margin of solvency due to the
fact that if current assets are reduced to half (i.e.) 1 instead of 2, then also the creditors will be
able to get their payments in full.
Interpretation:
Here, the current ratio fluctuates from year to year but has maintained the ratio above 2 from
2005 onwards which is positive consideration.

Page | 45

CHART 1
40000
35000
30000
25000
current assets

20000

current liabilities
15000
10000
5000
0
2003

2004

2005

2006

2007

2008

2009

2. Quick Ratio:
Table No.8
Table showing Quick ratio
(Rs. In Crores)
YEAR

LIQUID ASSETS

2003
2004
2005
2006
2007
2008
2009

3537
4993
9966
11174
13728
19460
24389

CURRENT
LIABILITIES
4777
6025
6608
8108
6984
9439
12228

QUICK RATIO
0.740
0.828
1.508
1.378
1.965
2.061
1.994

Interpretation:
The liquid ratio denotes the concern had achieved more than the ideal ratio of 1:1 in the years
2005 onwards.

Page | 46

CHART 2

30000

25000

20000
liquid assets

15000

current liabilities
10000

5000

0
2003

2004

2005

2006

2007

2008

2009

3. Net Working Capital Ratio:

Table No.9
Table showing Net Working Capital Ratio

YEAR
2003
2004
2005
2006
2007
2008
2009

Page | 47

Net Working
Capital
2505
2050
7579
9276
13879
16879
22283

Capital Employed
16541
15218
20064
21438
24992
28450
34552

Net Working
Capital Ratio
0.151
0.134
0.377
0.432
0.535
0.593
0.645

CHART 3
40000
35000
30000
25000
net working capital

20000

capiotal employed
15000
10000
5000
0
2003

2004

2005

2006

2007

2008

2009

Interpretation:
Net Working capital measures the firms potential reserve of funds. It can be related to net
assets. This ratio represents the availability of working capital in relation with capital
employed.

Page | 48

Turnover Ratios
1. Fixed Assets Turnover Ratio:

Table No.10
Table showing fixed asset turnover ratio
YEAR

GROSS SALES
(Rs IN
CRORES)

FIXED
ASSETS (Rs in
crores)

2003
2004
2005
2006
2007
2008
2009

19207
24178
31805
32280
39189
45555
48681

14036
13168
12485
12162
11598
11571
12269

FIXED
TURNOVER
RATIO (In
Times)
1.36
1.83
2.54
2.65
3.37
3.93
3.96

Interpretation:
Here, the value of fixed assets employed in the business shows a reducing trend which
implies that company didnt add any more fixed asset during the period 2003 2008. Only the
depreciation effect had been given to fixed asset. Fixed turnover ratio has been increasing
which is a good sign because the gross sales have increased considerably without increasing
the current assets.

Page | 49

CHART 4
60000
50000
40000
30000

GROSS SALES
FIXED ASSETS

20000
10000
0
2003

2004

2005

2006

2007

2008

2009

2. Working Capital Turnover Ratio:

Table No.11
Table showing Working capital turnover ratio
YEAR

2003
2004
2005
2006
2007
2008
2009

GROSS SALES
(Rs IN
CRORES)
19207
24178
31805
32280
39189
45555
48681

WORKING
CAPITAL (Rs in
Crores)
2505
2050
7579
9276
13879
16879
22283

Working capital
turnover ratio
(in times)
7.667
11.79
4.196
3.479
2.823
2.698
2.184

Interpretation:
Here, the Working Capital ratio shows a increasing trend from 2003 to 2004 and then slope
downwards due to holding high current assets in the form of cash, bank balances and
receivables in the year 2005 to 2009.

Page | 50

CHART 5
60000
50000
40000
GROSS SALES

30000

WORKING CAPITAL
20000
10000
0
2003

2004

2005

2006

2007

2008

2009

3. Debtors Turnover Ratio:

Table No.12
Table showing Debtors turnover ratio
YEAR

CREDIT SALES
(Rs. In Crores)

DEBTORS
(Rs. In Crores)

2003
2004
2005
2006
2007
2008
2009

19207
24178
31805
32280
39189
45555
48681

1660
1550
1908
1882
2315
3048
3024

Debtors turnover
ratio
(In times)
11.570
15.598
16.669
17.151
16.928
14.945
16.098

Interpretation:
There has been increase in the turnover ratio from 2003-2006 and has stabilized thereafter
.As the ratio is sufficiently high it can be concluded that efficient management of the debtors
has taken place.
Page | 51

CHART 6
60000
50000
40000
CREDIT SALES

30000

DEBTORS

20000
10000
0
2003

2004

2005

2006

2007

2008

2009

Debt collection period:

Table No.13
Table showing Debt collection period
(In Days)
YEAR
2003
2004
2005
2006
2007
2008
2009

COLLECTION PERIOD
32
23
22
21
22
24
23

Debtors collection period measures the quality of debtors since it measures the rapidity or
slowness with which money is collected from them.

Page | 52

CHART 7

COLLECTION PERIOD
35
30
25
20
15
10
5
0

COLLECTION PERIOD

2003

2004

2005

2006

2007

2008

2009

INTERPRETATION;
Here, there has been decreasing trend in the debt collection period which is favorable for the
company. Because, the quicker the collection period the better is the quality of debtors as a
short collection period implies quick payment by debtors. Then more the utilization of cash
collected from debtors. It decreased from 32 days in 2003 to 23 days in 2009.
4. Stock Turnover Ratio:
Table No.14

YEAR

SALES (Rs in
crores)

AVERAGE STOCK
(Rs in crores)

2003
2004
2005
2006
2007
2008
2009

19207
24178
31805
32280
39189
45555
48681

3745
3082
4221
6210
6651
6857
10121

Page | 53

STOCK
TURNOVER
RATIO ( in times)
5.128
7.844
7.534
5.198
5.892
6.643
4.809

INTERPRETATION:
Here, there has been a lot of fluctuation in the Inventory turnover ratio. There has been an
increase in the ratio in 2004 and 2005 but it shows a decreasing trend in 2006 and 2007.In
2008 the ratio showed an increase due to a large increase in sales. But in 2009 there was a
large increase in average stock/inventory which contributed to a lower inventory turnover
ratio . This can be attributed to uncertain economic situation and weak demand of steel in the
market. The overall situation is still good enough.

CHART 8
60000

50000

40000
CREDIT SALES

30000

AVERAGE STOCK
20000

10000

0
2003

Page | 54

2004

2005

2006

2007

2008

2009

Profitability Ratios
1. Return on Investment:
Table No.14
Table showing Return on Investment

YEAR

2003
2004
2005
2006
2007
2008
2009

OPERATING
PROFIT (Rs in
crores)
1018
3530
9970
6174
9755
11720
9656

CAPITAL
EMPLOYED (Rs in
crores)
16541
15218
20064
21782
25476
28450
34552

RETURN ON
INVESTMENT (In
%)
6.154
23.196
49.690
28.344
38.290
41.195
27.946

Interpretation:
Return on investment shows an increasing trend from 2003 to 2008.However there are small
fluctuations in 2006 and 2009 due to lower operating profits. Average Capital employed
shows regular increase from 2003 to 2009.

Page | 55

CHART 9
40000
35000
30000
25000
OPERATING PROFIT

20000

CAPITAL EMPLOYED

15000
10000
5000
0
2003

2004

2005

2006

2007

2008

2009

2. Return on Shareholders Fund:

Table No.15
Table showing return on Shareholders Fund
YEAR

NET PROFIT (Rs

in crores)

SHAREHOLDERS
FUND (Rs in crores)

2003
2004
2005
2006
2007
2008
2009

-304
2512
6817
4013
6202
7537
6174

5290
5038
10307
12601
17313
23063
27984

RETURN IN
SHAREHOLDERS
FUND (IN %)
-5.746
49.861
66.139
31.846
35.822
32.680
22.062

INTERPRETATION:
Here, the Net Profit (i.e.) Profit after Interest and Tax has been in negative in the year 2003
due to a net loss in the corresponding year because of very high interest and finance charges
of the company. But there was a huge jump in net profits in the year 2004-2005 compared the
shareholders funds which were responsible for increase in the return on investment. There has

Page | 56

been a considerable increase in shareholders funds from 2005 onwards which has resulted in
stabilizing return on investment.
CHART 10
30000
25000
20000
15000

NET PROFIT

10000

SHARE HOLDERS FUND

5000
0
2003

2004

2005

2006

2007

2008

2009

-5000

3. Return on Total Assets:

Table No.16
Table showing return on Total Assets
YEAR

NET PROFIT (Rs

in crores)

TOTAL ASSETS (
IN CRORES)

2003
2004
2005
2006
2007
2008
2009

-304
2512
6817
4013
6202
7537
6174

25570
22717
28084
29058
33854
40874
53977

RETURN ON
TOTAL
ASSETS(IN %)
-1.188
11.057
24.273
13.810
18.319
18.439
11.438

Interpretation:
There has been a considerable in increase in total assets from 2003 to 2009 but the net profit
has fluctuated which has resulted in the fluctuations in the return on total assets.

Page | 57

CHART 11
60000
50000
40000
30000

NET PROFIT

20000

TOTAL ASSETS

10000
0
-10000

2003

2004

2005

2006

2007

2008

2009

4. Earnings per Share:

Table No.17
Table showing Earning per Share
YEAR

NET PROFIT (Rs

in crores)

2003
2004
2005
2006
2007
2008
2009

-304
2512
6817
4013
6202
7537
6174

NUMBER OF
EQUITY SHARES
( IN CRORES)
413
413
413
413
413
413
413

EARNING PER
SHARE (IN %)
-0.736
6.082
16.506
9.716
15.016
18.249
14.949

Interpretation:
Here the Earning per Share is the result of Net Profit after Tax. It shows the positive
correlation during the period of study. It shows an increasing trend except in the year 2004
and 2009 due to lower net profits than previous years.

Page | 58

CHART 12
8000
7000
6000
5000
4000

NET PROFIT

3000

NUMBER OF EQUITY SHARES

2000
1000
0
-1000

2003 2004 2005 2006 2007 2008 2009

5. Net Profit Ratio:

Table No.18
Table showing Net Profit Ratio

YEAR

2003
2004
2005
2006
2007
2008
2009
Page | 59

OPERATING
PROFIT (RS IN
CRORES)
1018
3530
9970
6174
9755
11720
9656

SALES (IN
CRORES)

NET PROFIT
RATIO (IN %)

19207
24178
31805
32280
39189
45555
48681

5.300
14.600
31.347
19.126
24.892
25.727
19.835

Interpretation:
The operating profit and value of sales are the causes for the fluctuation in the Net Profit
ratio. While sales has constantly increased over the years operating profit has increased but
shows some fluctuations. In 2009 the ratio is lower than in 2008 due to lower operating
profits. The reason can be attributed to uncertain economic situation and higher cost of goods
sold as well as weak demand.
CHART 13
60000
50000
40000
OPERATING PROFIT

30000

SALES

20000
10000
0
2003

2004

2005

2006

2007

2008

2009

6. Operating Ratio:
Table No.19
Table showing Operating Ratio
YEAR

2003
2004
2005
2006
2007
2008
2009
Interpretation:
Page | 60

OPERATING
COST(RS IN
CRORES)
17940
19512
20339
23675
26483
30423
36848

SALES
(Rs. In crores)
19207
24178
31805
32280
39189
45555
48681

OPERATING
RATIO
(In %)
93.403
80.701
63.949
73.342
67.577
66.783
75.692

A comparison of operating ratio or expenses ratio will indicate whether the cost components
is high or low in the figure of sales. The operating ratio shows a decrease in trend up to 2008
but shows a slight increase in 2009. Normally 75% to 85% is considered to be a good ratio
for manufacturing undertakings. So the ratio is good in case for SAIL.
CHART 14
60000
50000
40000
DIRECT MATERIAL

30000

SALES
20000
10000
0
2003 2004 2005 2006 2007 2008 2009

7. Payout Ratio:
Table No.20
Table showing Payout Ratio
YEAR
2005
2006
2007
2008
2009
Interpretation:

Page | 61

DIVIDEND PER
EQUITY
3.3
2.0
3.10
3.7
2.6

EPS
16.50
9.71
15.01
18.25
14.95

Dividend pay out

ratio
20
20.59
20.65
20.27
17.39

The pay out ratio for the year 2005 is 20%, 2006 is 20.59, 2007 is 20.65, 2008 is 20.27%
which implies that remaining 80% of earning per share is kept as retained earning by the
company. However in 2009 lesser amount of dividend is given so EPS is 14.95 and pay out
ratio is 17.39 this implies that the company keeps 82% of earning per share as retained
earnings.
CHART 15

20
18
16
14
12
10
8
6
4
2
0

DIVIDENT PER EQUITY

EPS

2005

2006

2007

2008

2009

NOTE: Here the company had paid dividend only after 2005 in the course of seven years
period from 2003 to 2009.

8. Dividend Yield Ratio:

Table No.21
Table showing Dividend yield

YEAR
2005
2006
2007
2008
2009
Page | 62

DIVIDEND PER
EQUITY
3.3
2.0
3.10
3.7
2.6

MARKET PRICE

Dividend yield

62.87
83.30
114.30
185
96

5.25
2.40
2.71
2
2.70

Interpretation:
This percentage implies that 5.25% of market price of the share was issued as dividend in the
year 2005 and later on it get decreases due to various economic changes in SAIL.
CHART 16
200
180
160
140
120
DIVIDEND PER EQUITY

100

MARKET PRICE

80
60
40
20
0
2005

2006

2007

2008

2009

Long Term Financial Position or Solvency Ratios

1. Debt-Equity Ratio
TABLE NO: 21
Table showing Debt-Equity ratio
YEAR
2003
2004
2005
2006
2007
2008
2009
Page | 63

OUTSIDERS
FUND
34385
9419
5977
4410
4155
2988
7555

SHAREHOLDERS
FUND
5290
5037
10306
12601
17313
23063
27984

DEBT EQUITY
RATIO
6.5
1.87
0.58
0.35
0.24
0.13
0.27

CHART 17
40000
35000
30000
25000
20000

OUTSIDER'S FUND

15000

SHARE HOLDER'S FUND

10000
5000
0
2003

2004

2005

2006

2007

2008

2009

Interpretation
The debt-equity ratio is calculated to measure the extent to which debt financing has been
used in a business. From 2003 onwards there has been a decrease in outsiders fund and a
corresponding increase in shareholders funds. This indicates that the firm is traditionally
financed and it is considered to be favorable from a long term creditors point of view as a
high proportion of owners funds provide a larger margin of safety for them.
Interest Coverage Ratio
This ratio is used to test the debt servicing capacity of a firm The ratio is calculated as:
Interest coverage ratio = Ebit/Fixed interest charge
TABLE NO: 22
YEAR

EBIT

FIXED INTEREST
CHARGES

2003
2004

1018
3529

1339
910

Page | 64

INTEREST
COVERAGE
RATIO
0.76
3.88

2005
2006
2007
2008
2009

9970
6174
9755
11720
9656

607
472
333
252
326

16.43
13.07
29.29
46.39
29.59

Interpretation:
There has been decreasing trend in the fixed interest charges and corresponding increase in
EBIT from 2003-2008.This has led to increase in interest coverage ratio which is a good sign
for the company. There has been a decrease in EBIT in 2009 and a slight increase in fixed
interest charges due to uncertainties in the market, higher raw material costs and lower steel
demand.

Page | 65

CHART 18
14000
12000
10000
8000
EBIT
6000

FIXED INTEREST CHARGES

4000
2000
0
2003

Page | 66

2004

2005

2006

2007

2008

2009

CALCULATION AND INTERPRETATION OF CASH FLOW

STATEMENT
CASH FLOW STATEMENT (in Rs.crores)
PARTICULARS

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Profit before tax

(315.87)

1246.70

9365.35

5705.74

9422.62

11468.73

9403.45

Net Cash Flow

Operating activity

2667.74

7199.45

8899.47

3823.93

5632.91

8378.18

6124.26

Net Cash used in

investing activity
Net Cash used in
Fin. Activity

(31.61)

(235.76)

(286.54)

(337.18)

(587.53)

Net inc./decrease
in cash or
equivalent
Cash and
equivalent at
beginning of the
year
Cash and
equivalent at end
of the year

(1139.89) (4406.47)

(2,517.34) (5475.51) (4516.63) (3574.26) (1608.19) (3088.68)

2751.30

118.79

1488.18

4096.30

(87.51)

3437.19

4149.61

4469.09

416.37

717.31

2035.82

6260.15

6172.64

9609.83

13759.44

535.16

2205.49

6132.12

6172.64

9609.83

13759.44

18228.53

INTERPRETATION
1. Cash flow statement shows that the profit before tax increases continuously in 2004,
2005, 2006, 2007, 2008 and decreases in 2009 due to unstable economic conditions.
2. Net cash flow from operating activities increases continuously in 2007 and 2008 due
to increase in sales and earnings but it came down in 2009.
3. Net cash outflows in investing activities have been growing in SAIL as cash is being
used to purchase fixed assets like plants and machinery and higher development costs.

Page | 67

4. Cash flows have been positive for financing activities in 2009 mainly due to increase
in borrowings.
5. Cash and cash equivalents have been increasing steadily from 2003 to 2009 showing
good liquidity position of the firm

6.COMPETITOR ANALYSIS

PARTICULARS
ASSETS
NET BLOCK
CAPITAL
WORK IN
PROGRESS
INVESTEMENT
NET CURRENT
ASSETS
TOTAL
ASSETS
LIABILITIES
SHARE
HOLDERS
FUND
TOTAL DEBT
DEFFERED
LIABILITY
TOTAL
LIABILITIES

Page | 68

SAIL

BALANCE SHEET FOR 2009

(in crores)
TATA
ISPAT
JINDAL

ESSAR

12269
6544

10995
3488

8888
103

5745
2318

9129
550

653
17389

42372
(308)

233
160

1233
1078

791
1580

36855

56651

9384

10378

12050

27985

29705

2032

5415

4738

7539
1331

26946
-

7352
-

4963
-

7312
-

36855

56651

9384

10378

12050

SALES

PROFIT AND LOSS ACCOUNT FOR 2009 (in crores)

SAIL
TATA
ISPAT
JINDAL
48681
26843
9181
8433

EBIDTA
Less:
Depreciation
EBIT
Less:Int.Charges
Extraordinary
items
PBT
Less: Tax
PAT

Page | 69

ESSAR
12704

10941
1285

9779
973

730
647

2693
433

1930
828

9656
253
-

8806
1489
-

83
1129
24

2260
268
10

1102
862
55

9403
3229
6174

7317
2115
5202

(1023)
(335)
(688)

2002
465
1537

240
110
185

COMPETITOR ANALYSIS
(as in2009)

RATIOS
PROFITIBILITY
RATIO
OPERATING
PROFIT
GROSS PROFIT
NET PROFIT
RETURN ON
CAPITAL
EMPLOYED
LIQUIDITY &
SOLVENCY
RATIOS
CURRENT
RATIO
QUICK RATIO
DEBT EQUITY
RATIO
DEBT
COVERAGE
RATIO
INTREST
COVERAGE
RATIO
MANAGEMENT
EFFICIENCY
RATIOS
INVENTORY
TURN OVER
RATIO
DEBTORS TURN
OVER RATIO
FIXED ASSETS
TURN OVER
RATIO
CASH FLOW
INDICATOR
RATIO
DIVIDEND PAY
OUT RATIO
Page | 70

SAIL

TATA

ISPAT

JINDAL

ESSAR

24.31

37.68

13.58

34.35

21.44

44.14
19.83
27.94

33.69
21.09
15.01

5.76
-8.04
6.69

28.71
19.50
23.16

14.37
1.56
15.01

2.82

0.91

1.04

1.04

0.71

1.99
0.27

0.57
1.34

0.42
9.04

0.95
0.92

0.62
1.57

29.59

5.71

0.52

10.33

3.17

4.80

9.36

7.59

9.08

8.69

16.09

41.29

14.50

22.62

30.35

3.96

1.22

0.61

1.04

0.76

17.39

27.15

5.55

Interpretation

Net Profit ratio of SAIL is better than most of the competitors except TATA Steel.
This can be attributed to lower earnings of SAIL in comparison to their earnings.

Return on Capital employed is highest for SAIL which shows that overall profitability
and efficiency of the business is good.

The current ratio for SAIL is more than other competitors which shows that it has
enough liquidity in comparison to other competitors.

The debt equity ratio is 0.27 which is lower than the competitors. This means that it is
more traditionally financed in comparison to other competitors. It has lower debt so it
can easily raise debt in future

Interest coverage ratio is too high for SAIL which shows that debt is not being used as
a source of finance to increase earnings per share.

Inventory turnover ratio is lesser in SAIL compared to other competitors which

indicates inefficient management of inventories.

The debtors turnover ratio is lower for SAIL compared to its competitors which
shows that the debtors are less liquid implying inefficient management of
debtors/sales.

Page | 71

7.RECOMMENDATION AND SUGGESTION

SAIL should always try to maintain an adequate quantum of net current assets in relation
of current liabilities as to keep a good amount of liquidity throughout the year.

The company should tighten the debt collection efforts and should reduce the amount tied
up in debtors. In order to improve the quality of debtors and also to bring down the
amount tied-up in debtors, a periodical report of the overdue may be prepared and
effective action may be taken by the management time to time to expedite the collections.

Inventory turnover ratio is lesser in SAIL compared to other competitors which indicates
inefficient management of inventories. So it is advisable to keep less inventories to
minimize costs and improve efficiency.

The company is more traditionally financed with low debt and more of equity financing,
so in future debt should be preferred for financing to bring the ratio close to the ideal ratio
of 1:1.

The management of SAIL should also try to maintain a definite proportion among various
components of working capital in relation to overall current assets to keep an adequate
quantum of liquidity all the times.

Page | 72

8. CONCLUSION
On the basis of analysis of financial statements of SAIL we may conclude that the overall
working stability soundness have improved over the years. Sales turnover of SAIL
increased by 6.86% i.e. Rs. 48681 crores in the FY 2008-09 from Rs. 45555 crores in the FY
2007-08 whereas profit before tax has decreased by 18% i.e. Rs. 2064 crores in the FY
2008-09 from Rs. 11469 crores in the FY 2007-08 indicating increase in cost of goods sold.
The debtors turnover ratio is lower for SAIL compared to its competitors which shows that
the debtors are less liquid implying inefficient management of debtors/sales.
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.
The current ratio for SAIL is more than other competitors which shows that it has enough
liquidity in comparison to other competitors.
The debt equity ratio is 0.27 which is lower than the competitors. This means that it is more
traditionally financed in comparison to other competitors. It has lower debt so it can easily
raise debt in future.
SAIL is more efficient and effective to utilize its fund.

Page | 73

9. BLIOGRAPHY
BOOKS:
Financial management by R.K. SHARMA & SHASHI K
GUPTA
Annual Report of SAIL
Magazines of SAIL
INTERNET WEB SITES:

Page | 74

www.google.co.in
www.sail.co.in
www.money control.com
www.tata steel.co.in
www.essar.com
www.ispat.com
www.jindal.com