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RASTRIYA ISPAT NIGAM LIMITED
A Project report submitted in partial fulfillment of the requirements for the award of
MASTER OF BUSINESS ADMINISTRATION
EMANY VSNV CHANDRA Regd.No. 096G1E0010
Under the esteemed guidance of
ASST. GENERAL MANAGER (F&A) Visakhapatnam Steel Plant Visakhapatnam Project Guide
VARAHA LAKSHMI NARASIMHA SWAMY EDUCATIONAL TRUST GROUP OF INSTITUTIONS, NARAVA 2009-11
CERTIFICATE OF PROJECT GUIDE IN
RASTRIYA ISPAT NIGAM LIMITED
This is to certify that EMANY VSNV CHANDRA the project report entitled a study on RATIO ANALYSIS in RASTRIYA ISPAT NIGAM LIMITED is a bonafide work done and submitted in partial fulfillment of the requirement for the award of Master of Business Administration by Regd. No. 096G1E0010 under my guidance & supervision during the period 06-12-2010 to 15-01-2011. Station: Visakhapatnam Date : 17-01-2011
K.SANYASI RAO ASST. GENERAL MANAGER (F&A) RASTRIYA ISPAT NIGAM LIMITED Visakhapatnam Steel Plant
I, EMANY VSNV CHANDRA here by solemnly declare that the project report entitled a study on the Ratio Analysis. Submitted by me is a bonifide work done and it is not submitted to any other university or published anytime before. This project work is in partial fulfillment of the requirements for the award of the Master of Business Administration from VARAHA LAKSHMI NARASIMHA SWAMY EDUCATIONAL TRUST GROUP OF INSTITUTIONS, NARAVA.
Place: VISAKHAPATNAM Date: 17-01-2011
EMANY VSNV CHANDRA
The satisfaction that accompanies the successful completion of any task would be incomplete with out mentioning people who made it possible and whose encouragement and constant guidance crowned my effort with success. I wish to express my deep sense of gratitude to Dr P SRINIVAS RAO, DIRECTOR, VARAHA LAKSHMI NARASIMHA SWAMY EDUCATIONAL TRUST’S GROUP OF INSTITUTIONS for permitting me to do the project. I am grateful to external project guide SRI K.SANYASI RAO and I am also thankful to SRI G.TRINADHA RAO, DEPUTY MANAGER, HRD & PROJECT WORKS in VISHAKAPATNAM STEEL PLANT for his co-operation and in providing the information of the company needed by me. I especially thank all those who have helped me directly or indirectly. I express my profound thanks to my affectionate parents for their constant encouragement throughout my educational career.
(EMANY VSNV CHANDRA)
The end products of the business transactions are the Financial Statements comprising the position statement or Balance Sheet and the Income Statement or Profit and Loss Account. Financial statements are the basics for the decision making by the Management and as well as all other Stakeholder who are interested in the affairs of the firm such as investors, creditors , customers ,suppliers , financial institutions , employees ,potential investors , govt., and the general public. In this project an attempt is made to know the financial performance of RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPATNAM STEEL PLANT through Ratio Analysis.
OBJECTIVES OF THE STUDY:
The main objective of the study is to apply theoretical concepts to the practical situations of RINL so as to compare and correlate the actual achievements with a theoretical conclusion. The main objectives of the study are: To know the extent to which RINL/VSP is efficiently utilizing its sources to its operations. To study the efficiency of overall operations. To analyze the financial position of the RINL/VSP. To understand the capital structure of the RINL/VSP through calculating of leverage ratios. To know the profitability of the RINL/VSP through calculation of profitability ratios. To give appropriate suggestions to the best performance of the organization. 6
METHODOLOGY OF THE STUDY:
Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. principle sources. They are: 1. 2. 1. Primary Data: It is the information collected directly with out any references. In this study it is gathered through interviews with concerned officers and staff, either individually or collectively, sum of the information has been verified or supplemented with personal observation conducting personal interviews with the concerned officers of Finance Department of Visakhapatnam Steel Plant. 2. Secondary Data: The Secondary Data was collected from already published sources such as, Pamphlets of Annual Reports, Returns and Internal Records, reference from Text Books and Journals relating to Financial Management. The data collection includes: Primary Data Secondary Data The collection of information is from two
Collection of required data from Annual Reports of Visakhapatnam Steel Plant. Reference from Text Books and Journals relating to Financial Management.
LIMITATIONS OF THE STUDY:
Though the project is completed successfully a few limitations may be there.
Since the procedure and polices of the company will not
allow to disclose some confidential financial information, the project has to be completed with the available data given to us.
The study is carried basing on the information and
documents provided by the organization and based on the interaction with the various employees of the respective departments.
Analysis is limited to the results of RINL/VSP and not
compared to industry standards / results. Data in some of the ratios has been directly taken from the prepared reports of RINL due to non-disclosure of input data due to confidentiality.
DEVELOPMENT OF STEEL INDUSTRY IN INDIA:
Japan remained the largest exporter of semi-finished and finished steel products in 2002 followed by Russia and Ukraine. Other significant recent developments in The Development of Steel Industry in India should be viewed in conjunction with the type and system of Government that has been ruling the country. However, its production in significant quantity started only after 1900. The growth of steel industry can be studied by dividing the period into pre and post independence era. By 1950, the total installed capacity of ingot steel production was 1.5 million tons per year. In a short span of about 3 decades or so the capacity was increased 11 folds to about 16 MT by the 90’s.
Growth of Steel Industry:
The growth in a chronological order is depicted below:
S No 1. 2. 3. 4. 5. 6. 7. 8.
Year 1830 1874 1899 1906 1911 1918 1940-1950 1951-1956
Growth Osier Marshall heather constructed the first manufacturing plant at port-motor in Madras Presidency. James Erskin founded the Bengal Frame Works. Jamshedji TATA initiated the scheme for an integrated Steel Plant Formation of TISCO TISCO started production TISCO was founded Formation of My sore Iron and Steel initiated at Bhadravathi in Karnataka. First Five-Year Plan - The Hindustan Steel Limited (HSL) was born in the year 1954 with decision of setting up three plants each with 1 million tones ingot steel per year at
Rourkela, Bhilai, and Durgapur. TISCO started its 9. 1956-1961 expansion programmed. Second Five-Year Plan - A bold decision was taken up to increase the ingot steel output in India to 6 million tones per year and its production at Roukema, Bhilai and 10. 11. 12. 13. 1961-1966 1964 1966-1969 1969-1974 Durgapur Steel Plant started. Third Five-Year Plan – During the plan the three Steel Plants under HSL & TISCO were expanded. Bokaro Steel Plant came into existence Recession Period – Till the expansion programs were actively existed during this period Fourth Five-Year Plan – Salem Steel Plant started. Licenses were given for setting up of many Mini Steel Plants and re-rolling mills Government of India. Plants in south are each in Visakhapatnam and Karnataka. SAIL 14. 1974-1979 was formed during this period on 24th January 1973. Fifth Five-Year Plan – The idea of setting up the fifth integrated Steel Plant, the first re-based plant at Visakhapatnam took a definite shape. At the end of the Fifth Five-Year Plan the total installed capacity from six 15. 16. 1979-1980 1980-1985 integrated plants was up to 10.6 million tons. Annual Plan - The Erstwhile Soviet Union agreed to help in setting up the Visakhapatnam Steel Plant. Sixth Five-Year Plan – Work on Visakhapatnam Steel Plant started with a big bang and top priority was accorded to start the plant. Schemes for modernization of Bhilai Steel Plant, Rourkela Steel Plant, Durgapur steel plant and TISCO were initiated. Capacity at the end of Sixth FiveYear Plan from six integrated plants stood 11.50 million 17. 1985-1991 tons. Seventh Five-Year Plan – Expansion works at Bhilai and Bokaro Steel Plant completed. Progress of Visakhapatnam Steel Plant picked up and the nationalized concept has been introduced to commission the plant with 30 MT liquid steel 18. 1992-1997 capacities by 1990. Eight Five-Year Plans – The Visakhapatnam Steel Plant was commissioned in 1992. The cost of plant has become 11
around 8755 cores. Visakhapatnam Steel Plant started the production and modernization of other steel plants is also 19. 1997-2002 duly engaged. Ninth Five-Year Plant – Restructuring of Visakhapatnam Steel Plant and other public sector undertakings.
Tenth Five-Year Plan –Steel industry registers a growth of 9.9%.Visakhapatnam steel plant has high regime targets and achieved the best of them.
First Five-Year Plan
(1951 to 1956):
No new steel plant came up, as the first plan was mainly agriculture oriented. However, IISCO was allowed to expand form 1MT/year to 2 MT/year of ingots, and from 0.5 MT/year to 1.0 MT/year of steel. And, the First Five-Year Plan contemplated a new Steel Plant to be erected in Public Sector. Thus the Hindustan Steel Limited (HSL) was born on 19 th Jan 1954 with the decision of setting up three steel plants each with one million tons ingot steel per year at Rourkela, Bhilai and Durgapur. Though TISCO and IISCO were scheduled to expand, TISCO started its expansion program.
Second five-year plan (1956 to 1961):
During this period, additional steel producing capacity was added and a decision was taken to increase the ingot steel output in India to 6 million tons per year. The three one million ton steel plant one each at Rourkela, Bhilai and Durgapur
were completed during this period. They started production during the end of this plan.
The salient features are given below:
Plant Capacity RSP BSP DSP Location Sundargarh, Orissa Durgapur, M.P. Burdwan, W.B. Collaboration Germany U.S.S.R UK Production (Tons) 720,000 770,000 800,000
In addition to the above BSP and DSP each were having the capacity to produce 300,000 tons of pig iron for sale.
Third five-year plan (1961 to 1966):
During this period, the three steel plants under HSL, TISCO, and IISCO were expanded as shown below. However, these could be completed only by 1968 – 1969.
Recession Period (1966 – 1969):
The ambling expansion program taken up during the Third Five-Year Plan could not be completed during that period. All the expansion programs were actively executed during this period
Fourth Five-Year Plan (1969 – 1974):
Balancing facilities were incorporated in all the steel plants. Salem Steel Plant work was taken up during this period. Licenses were given for setting up of many Mini Steel Plants and Rolling Mills. Government accepted the idea of setting up two more Steel Plants in the South one at Visakhapatnam and other at Hospet in Karnataka. Both of them were envisaged to produce plain low Carbon Steel Products
initially with a capacity of 2 MT/year of ingots. Steel authority of India Ltd., was also formed during this period on 2nd Jan 1973. problems of Iron and Steel Industry. Central Research and Development Organization was set up in June, 1973 to tackle the research and development
Fifth Five-Year Plan (1974 to 1979):
Work on Salem project progressed well. Bokaro with 1.7 MT capacities started in Feb 1978. The expansions of Bhilai Steel Plant form 2.5 MT to 4 MT and Bokaro from 1.7 MT to 4.0 MT picked up momentum. The idea of setting up the 5 th integrated steel plant at Vizag took a definite shape. By the end of fifth five-year plan the total installed capacity from six integrated plants was 10.6 MT/year. Annual plans 1979 to 1980: various plans named above were reviewed and the progress on different plants consolidated. Soviet – Union has agreed to help in setting up the Vizag steel plant.
Sixth Five-Year Plan (1980 – 1985):
Work in expansion of Bhilai and Bokaro Plant was progressed. Bokaro's intermediate stage of 2.5 MT completed. Many of the units were commissioned e.g. a) Salem steel plant was commissioned b) on 31.9.81 work on Vizag Steel Plant started with a bang and c) top priority was accorded to modernize the plant at TISCO. Schemes for modernization of BSP, RSP, DSP, and IISCO were initiated at the end of sixth five-year plan. The capacity from six integrated steel plants stood at 11.56 MT.
Seventh Five-Year Plan (1985 to 1991):
Almost all the units in the expansion work of Bhilai and Bokaro to 4 MT completed. Progress of Vizag Steel Plant picked up and the rationalized concept has been introduced to commission the plant with 3 MT liquid steel capacities by 1990.
Eighth Five-Year Plan (1992 to 1997):
All units of Vizag Steel Plant were commissioned by July, 1992. Government of India has given permission to set up Mini Steel Plants in Private Sectors.
Ninth Five-Year Plan (1998 to 2002):
National Development Council under Central Government has deposited Rs. 859.200 corers in ninth five year plan that targets an overall 6.5% growth gross domestic production and will necessitate a 7% growth in the remaining years of plan.
As per IISI In March 2005 World Crude Steel output was 92.8MT when compared to March 2004 (87.2 MT), the change in percentage was 6.5%. China remained the world’s largest Crude Steel producer in 2005 also (27.5MT) followed by Japan (9.6MT) and USA (8.1MT). India occupied the 8th position (8.8MT) USA remained the largest importer of semi-finished and finished steel products in 2002 followed by China and Germany. the global steel scenario have been: Under the auspices of the OECD (Organization for Economic Co-operation & Development) the negotiations among the major steel producing countries for a Steel Subsidy Agreement (SSA) held in 2003 with the objective to agree on a complete negotiating text for the SSA by the middle of 2004. It also set subsidies for the Steel Industry of a ceiling of 0.5% of the value of production to be used exclusively for Research & Development. The global economy witnessed a gradual recovery from late 2003 onwards. China has become one of the major factors currently driving the world economy. 15
As a result of these economic developments IISI has projected an increase by 6.2% or 53 million metric tones in 2004 in the global consumption of finished steel products. IISI has split the growth into two separate areas, China and the Rest of the World (ROW). Steel consumption in China has been estimated to increase by 13.1% or 31 met in 2004. USA has repealed the safeguard measures on import of steel as a result of a ruling, by a WTO Dispute Resolution Panel, which held these measures to be illegal under the WTO regime.
Present Scenario of Indian Steel Industry:
India is uniquely placed to become a very large producer and consumer of finished steel products in the world. Substantial reserves of high grade iron ore, low wage rates, technical and managerial skills of a high order have all enabled India to gain this stature, by becoming 10th largest producer of steel in the world. Unfortunately for the Indian steel industry, the price and distribution controls to which it was subjected till about economic liberalization process began in the early 1990’s did not permit the large integrated steel plants to modernize their steel manufacturing facilities or to upgrade their technologies to the state of art levels from time to time.
With the economic liberalization that was initiated in 1992, Indian Steel Industry has to accept the inevitable i.e. to appreciate the implications of low import duty rated, face foreign competition and some how improve its strengths and competitive edge to produce good quality products at lower prices and learn to survive in the market place. Following liberalization, the steel Industry is well set on the path of globalization. The dynamics of the World Steel Industry has a close relation with Indian steel Industry. Presently in India, Steel products are being produced from four different sources viz.,
Integrated Steel Plants Mini Steel Plants Re-rolling Mills Alloy & Special Steel Plants
Integrated Steel Plants have larger capacity and produce Steel from basic raw materials and the other three categories mentioned are characterized by low investment and low break-even point.
Characteristics of Integrated Steel Plants:
They have large capacities. Highly capital intensive. They have long gestation period. Labour intensive. They would have all facilities including raw materials resources, water supply, power supply, testing and inspection facilities, township facilities, medical, educational and recreational etc. Inter dependency of all the processing units on the proceeding and succeeding units in the path of materials flow. A potential source for earning foreign exchange through exports. They serve as centers for the development of ancillary industries. They are major consumer of refractory materials.
The integrated Steel Plants in India are:
Rourkela Steel Plant 17
Bhilai Steel Plant Bokaro Steel Plant Durgapur Steel Plant Indian Iron and Steel Company (IISCO) Tata Iron and Steel Company (TISCO) Visakhapatnam Steel Plant (VSP)
Exim Policy (2002-2007):
To facilitate sustained growth in exports to attain a share of 1% of global merchandise trade. To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services. To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality. To provide consumers with good quality goods and services at internationally competitive prices while at the same creating a level playing field for the domestic producers
The New Industrial Policy Regime:
The New Industrial policy has opened up the iron and steel sector for private investment by (a) Removing it from the list of industries reserved for public sector and (b) Exempting it from compulsory licensing. 18
Imports of foreign technology as well as foreign direct investment are freely permitted up to certain limits under an automatic route. Ministry of Steel plays the role of facilitator, providing broad directions and assistance to new and existing steel plants, in the liberalized scenario.
The Growth Profile:
The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/expanded, a large number of new/green field steel plants have also come up in different parts of the country based on modern, cost effective, state of-the-art technologies.
At present, total (crude) steel making capacity is over 34 million tons and India, the 8th largest producer of steel in the world, has to its credit, the capability to produce a variety of grades and that too, of international quality standards. As per the ratings of the prestigious “World Steel Dynamics”, Indian HR products are classified in the Tier II category quality products- a major reason behind their acceptance in the world market. EU, Japan has qualified for the top slot, while countries like South Korea, USA share the same class as India.
In pig iron also, the growth has been substantial. Prior to 1991, there was only one unit in the secondary sector. Post liberalization, the AIFIs has sanctioned 21 new projects with a total capacity of approx 3.9 million tones. Of these, 16 units have already been commissioned. The production of millions in 2002-0n ton3. During the year 2003-04, the production of Pig Iron was 5.221 million tones.
• • After liberalization, with huge scale addition to steel making capacity. Apparent consumption of steel increased from 14.84 million tons in 1991-92 to 30.265 million tons in 2003-04. • The production of steel in 2003-04 is 36.193 million tons as against 33.67 million tons in 2002-03 thereby registering 7.5% growth. • The demand of steel has been firmed up both at home as well as internationally. • Efforts are being made to boost demand particularly in rural areas and also to increase exports.
• Steel industry was de-licensed and decontrolled in 1991 and 1992 respectively. • • • • • India is the 8th largest producer of steel in the world. In 2003-04, finished steel production was 36.193 million tones. Pig iron production in 2003-04 was 5.221 million tons. Sponge iron production was 8.085 million tons during 2003-2004. The annual growth rate of crude steel production in 2002-2003 was 8% and in 2003-2004 was 6%. Last 4 years production performance is as under:-
Demand – Availability Projection:
Demand- Availability of iron and steel in the country is projected by Ministry of Steel annually. Gaps in Availability are met mostly through imports. Interface with consumers by way of Steel Consumer Council exists, which is conducted on regular basis. Interface helps in redressing availability problems, complaints related to quality.
Pricing & Distribution
Price regulation of iron & steel was abolished on 16.1.1992. Distribution controls on iron & steel removed except 5 priority sectors, viz. Defence, Railways, Small Scale Industries Corporations, Exporters of Engineering Goods and North Eastern region. Allocation to priority sectors is made by Ministry of Steel. Government has no control over prices of Iron & Steel. Open market prices are generally on rise. Price increases of late have taken place mostly in long products than flat products.
Imports of Iron & Steel:
Iron & Steel are freely importable as per the extant policy. India has been annually importing around 2.05 Million Tones of Steel.
Import duty on several raw materials used by the steel sector like non-coking coal, met coke and nickel has been reduced to 5%. Import duty on coking coal has been reduced to ‘Nil’.
Exports of Iron & Steel:
Iron & Steel are freely exportable and India is a net exporter of steel. Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) also facilitates exports. The Government has temporarily suspended the DEPB on iron & Steel & ferroalloys w.e.f 27th March 2004 as a measure to increase Iron & Steel availability in the domestic market. Steel Exporter’s Forum has been set up to boost steel exports. An Anti Dumping Directorate has been set up under the Ministry of Commerce with adequate power to fight trade actions while remaining within the WTO framework.
• The peak rate of Custom Duty has been reducing sharply during the last 5 years. In the interim budget for 2004-05, announced in January’2004 the peak rate was reduced from 25% to 20%. In 2004 the Customs Duty on carbon steel items and pig iron was further reduced to 5%. • • The custom duty on scrap was nil. Import duty on coking coal has been reduced to ‘nil’, and on metallurgical coke reduced to 5%.
The Government has taken a number of steps to ensure the availability of iron and steel items which inter-alias includes reduction in Excise Duty by 16% with addition to Educational Cess 2% on 16%.
Levies on Iron & Steel:
This was a levy started for funding modernization, expansion and development of steel sector. The fund, inter-alias, supports: 1) Capital expenditure for modernization, rehabilitation, renewal & replacement of Integrated Steel 2) Research & Development 3) Rebates to SSI Corporations 4) Expenditure on ERU of JPC • • • • SDF levy was abolished on 21.4.94 Cabinet decided that corpus could be recycled for loans to Main producers Interest on loans to Main Producers is set aside for promotion of R&D on steel etc. An Empowered Committee has been set up to guide the R&D effort in this sector. plants. diversification,
The Government of India has decided to set up an integrated Steel Plant at Visakhapatnam to meet the growing domestic needs of steel. Visakhapatnam Steel
Plant was the effect of the persistent demands and mass movements. It is another step towards increasing the country’s steel production. The decision of the Government to set up an integrated steel plant was laid down by the then Prime Minister Smt. Indira Gandhi. The Prime Minister laid the foundation stone on 20th January 1971. The consultant, M/s M N Dastur & Co (Pvt) Ltd. submitted a technoeconomic feasibility report in February 1972, and detailed project report for the plant, with an annual capacity of 3.4 million tones of liquid steel. The Government of India and USSR signed an agreement on 12th June 1979 for the co-operation in setting up 3.4 million tones integrated Steel Plant. The project was estimated to cost to Rs.3, 897.28 crores based on prices as on 4th Quarter of 1981.However, on completion of the construction and commissioning of the whole Plant in 1992, the cost escalated to Rs.8, 755 crores based on prices as on 2nd Quarter of 1994. Unlike other integrated Steel Plants in India, Visakhapatnam Steel Plant is one of the most modern steel plants in the country. The plant was dedicated to the nation on 1st August 1992 by the then Prime Minister, Sri.P.V.Narasimha Rao. New technology, large-scale computerization and automation etc, are incorporated in the Plant at the international levels and attain such labour productivity, the organizational manpower has been rationalized. The manpower in the VSP has been limited to17, 500 employees. The plant has the capacity of producing 3.0 million tones of liquid steel and 2.656 million tones of saleable steel. It has set up two major Blast Furnaces, the Godavari and the Krishna, which are the envy of any modern steel making complex. The economy of a nation depends on core sector industries like iron and steel. Steel is the basic input for construction, machines building and transport industries. Keeping in view the importance of steel the following integrated steel plant with 25
foreign collaborations was constructed in the public sector in the post independence era.
CHAIRMAN CUM MANAGING DIRECTOR
Director (Finance) ED (Finance) Company Secretary AGM (Int. Audit)
Director (Commercial) ED (MM) Addl. GM (Mktg) Addl. GM (Mktg) - Services & Exports
Director (Personnel) DGM (M&HS) I/C GM (P&A) Addl. GM (P&IR) DGM (Trg) DGM (HRD) DGM (Legal Affairs) GM (Works)
Director (Operations) ED (Maint.)
Director (Vigilance) Addl. GM (Vig.)
Addl. GM (QATD) Addl. GM (Audio & Telco) Addl. GM (Services) Addl. GM (Steel) Addl. GM (C, S & C)
GM (Maint.) Addl. GM (CR&RM) DGM (System) GM (D&E)& I/C PECS
To be a continuously growing world-class company. We shall: Harness our growth potential and sustain profitable growth.
Deliver high quality and cost competitive products and be the first choice of customers. Create an inspiring work environment to unleash the creative energy of people. Achieve excellence in enterprise management. Be a respected corporate citizen, ensure clean and green environment and develop vibrant communities around us.
To attain 16 million tone liquid steel capacity through technological up -gradation, operational efficiency and expansion, to produce steel at international standards of cost and quality, and to meet the aspirations of the stakeholders.
Commitment Customer satisfaction Continuous improvement Concern of environment Creativity and innovation.
BRIEF IDEA ABOUT STEEL MAKING PROCESS
The modern era in steel making began with the introduction of Henry Bessemer's & Bessemer process in the late 1850’s. This enabled steel to be produced
in large quantities cheaply, so that Mild Steel is now used for most purposes for which wrought iron was formerly used. This was only the first of a number of methods of steel production. The Gilchrist-Thomas process (or basic Bessemer process) was an improvement to the Bessemer process, lining the converter with a basic material to remove phosphorus. Another was the Siemens-Martin process of open hearth steelmaking which like the Gilchrist-Thomas process complemented, rather than replaced, the original Bessemer process. These were rendered obsolete by the Linz-Donawitz process of basic oxygen steel making, developed in the 1950’s, and other oxygen steelmaking processes. One third of world's steel is currently produced in China. Arcelor-Mittal is however the production. White-hot steel pouring out of an electric arc furnace.
Blast furnaces have been used for two millennia to produce pig iron, a crucial step in the steel production process, from iron ore by combining fuel, charcoal, and air. Modern methods use coke instead of charcoal, which has proven to be a great deal more efficient and is crediting with Identifyingto the British Industrial Revolution. contributing competence needs Once the iron is refined, converters are used to create steel from the iron. During the late 19th and early 20th century there were many widely used methods such as the Bessemer process and the Siemens-Martin training inputs Providing process. However, basic oxygen steelmaking, in which pure oxygen is fed to the furnace to limit impurities, has generally replaced these older systems. Electric arc furnaces are a common method of reprocessing scrap metal to create new steel. They can also be used for converting pig iron to steel, but they use a great deal of electricity (about 440 kWh per metric ton), and are thus generally only economical when there is a plentiful supply of cheap electricity.
Monitoring training effectiveness
Creating learning environment
Facilitating Self Development, innovativeness & self expression
Enabling employees to assume higher responsibility
HRD PHILOSOPHY IN VISAKHAPATNAM STEEL PLANT
Employees of the organization are greatest and most valuable resources. Whole on the one hand, HRD should appropriately harness the employee potential for the attainment of the company objectives, the company on the other, as its corporate responsibility, should create an enabling climate where in human talent gets the best opportunity for self expression, all round development and fulfillment. People are more than mere resources and therefore it will be the company’s sincere endeavor to treat people with all the respect and that is warranted when employees are seen as more mere instrumentalities. HRD as a management function will be given a place of strategic priority, along with function like production, maintenance, materials on finance in the overall scheme of management action in the company. HRD does not refer to training alone, nor it is just a new name for training. In RINL/VSP HRD refers to creative and innovative initiatives in several management functions for the development and growth of employees HRD should eventually be a core philosophy of all management actions and should not remain merely a departmental / sectional activity. All functional and divisional heads responsible for various activities of the company will imbibe the HRD spirit and suitability integrate HRD into their plans, decisions and actions
HRD Objectives of Visakhapatnam Steel Plant:
To provide initially a suitable match between employee competence level and company’s work requirements To foster an appropriate climate and culture which nurtures employee competence and adequate motivational levels for the application of their abilities to assigned jobs/roles with required commitment. To enable employees seek greater identification with the company by fusing management decisions and actions with the requisite care, concern and developmental approach. To initially enable the employees and the organization achieve its mission and objectives and business goals through HRD.
OHSAS- 18001 Certification:
It is widely recognized that the work itself and the work environment are factors are paramount importance for health and well-being of the working and general population. Most industrial jobs are inherently associate with certain working conditions which are inimical to health and workers exposed to them sooner or later succumb to their adverse influence unless adequately protected. The principles of occupational risk management may be the same in developed and developing countries. However, there can be a wide diversity in practice. A major trend in the regulation of industrial risks to human health and the environment is the provision of relevant information to all stakeholders and risk bearers. The British Standard Institute (BSI): Occupational Health and Safety Assessment Series (OHSAS) specification provide theoretical insights to enable an organization to control its occupational health and safety (OH&S) risks and improve its performance.
Visakhapatnam Steel Plant (Vizag Steel) is an ISO 9001, ISO 14001, and OHSAS 18001, certified public sector organization in India. It is the only steel plant in India, had all the three certificates. This paper reviews key aspects like hazard identification and risk assessment(HIRA) carried out in 50 departments for physical, chemical and Biological hazards, risk control measures taken, dissemination of occupational risk management information to 17,000 workforce as a part of OHSAS 18001 certification process. We summarize the role of occupational health services department in hazard identification, risk assessment and risk control at various working environments with an emphasis on continual improvement and occupational risk management.
Expand plant capacity to 6.3mT by 2008-09 with the mission to expand further in subsequent phases as per the corporate plan Sustain gross margin to turnover ration > 25% Be amongst top five lowest steel producers in the world by 2009-10 Achieve higher levels of customer satisfaction than competitors Be recognized as an excellent business organization by 2008-09 Instill right attitude amongst employees and facilitate them to excel in their professional, personal and social life.
Employees of Visakhapatnam Steel Plant are committed to supply their customers’ quality products and services. To accomplish this Visakhapatnam Steel Plant will: Manufacture products as per specification and standards agreed with the customer.
Follow clearly documented procedures for achieving expected quality standard of products and services. Continuously strive to improve quality of all material, processes and products. Maintain an enabling environment, which encourages actives involvement of all employees to pursue continuous improvement of quality.
Technological Highlights of VSP:
First shore based integrated steel plant. Selective crushing with pneumatic separation of coal blend. 7 Meter tall Coke Ovens. Dry Quenching of hot coke and production of steam and power from hot inert gases. Base-mix yard for the Sinter Plant. 3200 cu. m Blast Furnace having belled-less top equipment with conveyor charging. Granulation of 100% molten slag at the Cast House. B.F. top pressure recovery turbine for power generation. Desulphurization facilities for pre-treatment of hot metal. Sub lance measurement of dynamic blowing control with computer. 100% continuous casting of liquid steel. High capacity, high speed, computer controlled multi-line mills. Use of on-line heat treatment “Temp core” processes for reinforcement bars. Use of No twist rolling and controlled cooling “Stelmore” of wire rods. Incorporation of peripheral yard for incoming and outgoing materials. 33
First integrated steel plant to receive ISO 9002 certification for all its products.
Major sources of Raw Materials:
Iron Ore lumps & fines BF Lime Stone SMS Lime Stone BF Dolomite SMS Dolomite Manganese Ore Boiler Coal Coking Coal Water supply Power supply Medium cooking coal Bailadilla, M.P Jaggayyapeta, A.P UAE Dubai Madharam, A.P Chipuripalli, A.P Talcher, Orissa Australia Yeluru canal, Andhra Pradesh Captive power plant Gidi/Swang/Rajarappa/Kargil
ANNUAL CAP. (‘000T) 2,261 5,256 3,400 3,000 710 850 850
DEPARTMENTS COKE OVERNS SINTER PLANT BLAST FURNACE STEEL MELT SHOP LMMM WRM MMSM
UNITS (3.0 MT STAGE) 3 Batteries each of 67 ovens & 7 Mts Height 2 Sinter machines of 312 Sqm grate area each 2 Furnaces of 3200 cu m volume each 3 LD Converters each of 150 Cum. Volume and size 4 strand bloom casters 4 Stand finishing Mill 2 x 10 Stand finishing Mill 6 Stand finishing Mill
Statistical Information: MANPOWER PROFILE – GROWTH PATTERNS
YEAR 31-3-1997 31-3-1998 31-3-1999 31-3-2000 31-3-2001 31-3-2002 31-3-2003 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008 31-3-2009 31-3-2010
EXECUTIVES 2617 2617 2617 2683 4027 4203 4308 4533 4512 4629 4674 4967 5218 5263
NON-EXECUTIVES 14570 14572 14087 13593 13104 12823 12586 12222 12101 11932 11727 11449 12007 12567
MAN POWER PROFILE
16000 14000 12000 10000 8000 6000 4000 2000 0 EXECUTIVES NONEXECUTIVES
31-3-1997 31-3-1998 31-3-1999 31-3-2000 31-3-2001 31-3-2002 31-3-2003 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31/03/2008 31/03/2009 31/03/2010
Error: Reference source not foundQualification
Profile as on 31.03.2010:
Engineering Diploma Grad/PG Literates ITI
-11.65% -24.33% -39.35%
E ngineering D iplom a G raduation/P G IT I Literates
DIVISION-WISE MAN POWER:
Works Projects Mines -2.14% -13.72% Others -82.03% -2.10%
W rks o P je ro cts Me in s O e th rs
1. ISO 9002 for SMS and all the down stream units – a unique distinction in the steel industry. 2. Indira Priya Darshini Vriksha Mitra award 1992-93, Nehru memorial national award for pollution control 1992-93 & 1993-94. 3. 4. 5. 6. 7. 8. 9. 10. EEPC export excellence award – 1994-95. CII (Southern Region) energy conservation award – 1995-1996. Continuously growing peacock (1st prize) national quality award – 1996. Steel ministries trophy “Best safety performance – 1996.” IIM national quality commitment award – 1997. Gold star award for excellent performance in productivity. Udyog excellence gold medal for excellence in steel plant. Excellence award for out standing performance in productivity management, quality and innovation. 11. 12. 13. 14. ISPAT Suraksha Puraskar (1st prize) for largest accident free period 1991-94. PM Trophy for the year 2002-03 as the Best Integrated Steel Plant World quality commitment international star award in 2004 Cll-GBC National Award in 2005 37
15. 16. 17. 18. 19. 20.
Safety innovation award in 2006 Organizational excellence award in 2006 National Energy Conservation Award in 2006 Enterprise Excellence Award – 2007 Viswakarma Rashtriya Puraskar – 2007 Best Quality Circles implementing Organization Award -2007
Employee involvement & Process improvements:
The imagination and creativity of employees have always been key success factors for the company. Employees of RINL have always been at the forefront in contributing ideas for process improvements. by employees in process improvements. Voluntary involvement of employees in 4251 quality circles projects is a testimony of the interest exhibited
Safety & Health:
Safety and health of employees has always been the prime concern in the plant and all efforts have been made to leverage upon the safety initiatives to maximize employee morale and satisfaction. These initiatives have yielded positive results with a 13.33% reduction in reportable accidents when compared to year 2007-08.
Corporate Social Responsibility:
RINL continues to contribute in the area of Corporate Social Responsibility (CSR). CSR activities in RINL focus mainly on Environmental care, education, community calamities. health care, people care, peripheral development, cultural efflorescence, activities as a responsible corporate citizen and help during natural
Conceptual Frame Work
Financial Ratio Analysis
The traditional financial statements comprising the balance sheet and the profit and loss account are proving the information related to the financial operation of the firm. They provide some extremely useful information that mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owner’s equity and so on. The profit and loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Therefore, much can be learnt about a firm from a careful examination of its financial statements. Users of financial statements can get further insight about financial strengths and weaknesses of the firm if they properly analyze information reported in these statements. Management should be particularly interested in knowing financial weakness of the firm to take suitable corrective actions. The future plans of the firm should be laid down in view of the firm’s financial strengths and weaknesses. Thus, financial analysis is the starting point for making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a pre-requisite for anticipating the future.
Ratio Analysis - Introduction:
Ration analysis is a widely – used tool of financial analysis. It is used to interpret the financial statements so that the strengths and weaknesses of the firm as well as its historical performance and current financial condition can be determined. A ratio is defined as “the indicated quotient of two mathematical expressions” and as the “the relationship between two or more things”. It is a benchmark for evaluating the financial position and performance of a firm.
The term ratio refers to the numerical or quantitative relationship between two items/variables. This relationship can be expressed as: 1. Percentages, say, Net Profits are 25% of Sales (assuming Net Profit of Rs.25,000 and Sales of Rs.1,00,000), 2. Fraction (Net profit is 1/4th of Sales) and 3. Proportion of numbers (the relationship between Net profits and Sales is 1:4). These alternative methods of expressing items, which are related to each other, are, for purpose of financial analysis, referred to as ratio analysis. It should be noted that computing the ratios does not add any information already inherent in the above figures of profits and sales. What the ratios do is that they reveal the relationship in a more meaningful way so as to enable us to draw conclusions from them. The rationale of ratio analysis lies in the fact that it makes related information comparable. A single figure by itself has no meaning but when expressed in terms of a related figure, it yields significant inferences. For instance, the fact that the Net profits of a firm amount to, say Rs. Ten Lakhs throws no light on its adequacy or otherwise. The figure of Net profit has to be considered in relation to other variables. How does it stand in relation to sales? If, therefore, Net profits are shown in terms of their relationship with items such as Sales, Assets, Capital employed, Equity capital and so on, meaningful conclusions can be drawn regarding their adequacy. To carry the above example further, assuming the capital employed to be Rs.50 lakh and Rs.100 lakh, the Net profit are 20% and 10% each respectively. Ratio analysis, thus, as a quantitative tool, enables analysts to draw quantitative answers to questions such as; are the Net profits adequate? Are the assets being used efficiently? Is the firm solvent? Can the firm meet its current obligations and so on?
Ratio Analysis - Importance:
As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that presents facts on a comparative basis and enables the drawing inference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect to the following aspects. 1. 2. 3. 4. 5. 6. Liquidity position Long-term solvency Operational efficiency Overall profitability Inter-firm comparison, and Trend analysis
Liquidity position:With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligations when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short-maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratios are particularly useful in credit analysis by banks and other suppliers of short-term loans. Common liquidity ratios include The Current ratio, Quick ratio and The operating Cash flow ratio.
Long-term solvency:Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This aspect of the financial position of a borrower is of concern to the long-term creditors, security analysts and the present and potential owners of a business. The long-term solvency is measured by the leverage/capital structure and profitability ratios, which focus on earning power and operating efficiency. Ratio analysis reveals the strength and weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded
proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its consistent with the risk involved. It includes Debt-equity ratio, Cash coverage ratio, the times interest earned ratio etc.
3. Operating Efficiency:Another dimension of the usefulness of the ratio analysis, relevant from the view point of management, is that it throws light on the degree of efficiency in the management and utilization of its assets. measure this kind of operational efficiency. The various activity ratios
Overall Profitability:Unlike the outside parties, which are interested in one aspect of financial position of a firm, the management is constantly concerned about the over-all profitability of the enterprise. That is, they are concerned about the ability of the firm to meet its short-term as well as long-term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken and all the ratios are considered together.
Inter-firm Comparison:Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping stone to remedial measures. This is made possible due to inter-firm comparison and comparison with industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. One of the popular techniques is to compare the ratios of a firm with the industry average. An inter-firm comparison would demonstrate the firm’s position vis-à-vis its competitors.
Ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of a trend analysis of ratios lies in the fact that the analysis can know the direction of movement, i.e., whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one.
Ratio Analysis is a widely used tool of financial analysis. Yet, it suffers from various limitations. The operational implication of this is that while using ratios, the conclusions should not be taken on their face value. Some of the limitations, which characterize ratio analysis, are i. ii. iii. Difficulty in comparison. Impact of Inflation, and Conceptual Diversity
Difficulty in comparison:One serious limitation of ratio analysis arises out of the difficulty associated with there comparability. by various firms.
One technique that is employed is inter-firm
comparison. But such comparison is vitiated by different procedures adopted Differences in basis of inventory valuation (e.g.:- last in first out, average cost and cost);
Different depreciation methods (i.e. straight line Vs. written down basis);
Estimated working life of assets, particularly of plant and equipment; Amortization of deferred revenue expenditure such as preliminary expenditure and discount on issue of shares;
Capitalization of lease; Treatment of extraordinary items of income and expenditure; and so on.
Secondly, apart from different accounting procedures, companies may have different accounting procedures, implying differences in the composition of assets, particularly current assets. For these reasons, the ratios of two firms may not be strictly comparable.
Impact of Inflation:The second major limitation of the ratio analysis is associated with price level changes. This is a weakness of the traditional financial statements, which are based on historical cost. An implication of this feature of the financial statements as regards ratio analysis is that assets acquired at different periods are, in effect, shown at different prices in the balance sheet, as they are not adjusted for changes in the price level. As a result, ratio analysis will not be strictly comparable.
Conceptual Diversity: The factor that influences the usefulness of ratios is that there is difference of opinion regarding the various concepts used to compute the ratios. There is always room for diversity of opinion as to what constitutes shareholder`s equity, debt, assets, profit and so on. Finally, ratios are only a post-mortem analysis of what has happened between two balance sheet dates. For one thing the position in the interim period is not revealed by ratio analysis. Moreover, they give no clue about the future. In brief, ratio analysis suffers from some serious limitations. The analysis should not be carried away by its over simplified nature, easy computation with high degree of precision. The reliability and significance attached to ratios will largely depend upon the quality of data on which they
are based. They are as good as the data itself, nevertheless, they are an important tool of financial analysis.
Ratio Analysis-Guidelines to use:
The calculation of ratios may not be a difficult task but their use is not easy. The information on which these are based, the constraints of financial statements, objectives for using them, the caliber of the analyst, etc, are important factors, which influence the use of ratios. Following guidelines/factors may be kept in mind in interpreting various ratios. The reliability of ratio is linked to the accuracy of information in financial statements. Before calculating ratios one should see whether proper concepts and conventions are used for preparing financial statements of not. The purpose of the user is also important for the analysis of ratios. A creditor, a banker, an investor, a shareholder, all has different objects for studying ratios. The purpose (or) object for which ratios are required to be studied should always be kept in mind for studying various ratios. Different objects may require the study of different ratios. Another precaution in ratio analysis is the proper selection of appropriate ratios. The ratios should match the purpose for which these are required.
Calculating a large number of ratios without determining their need in the present context may confuse the things instead of solving them. Only those ratios should be selected which can throw proper light 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 may be a rule of thumb as in current ratio (2:1), may be industry standards, may be projected ratios etc. 46
The comparison of calculated ratios with the standards will help the analyst in forming his opinion about financial situation of the concern.
The ratios are only the tools of analysis but their interpretation will depend upon the caliber and competence of the analyst. He should be familiar with various financial statements and the significance of changes etc.
A wrong interpretation may create havoc for the concern since wrong conclusions may lead to wrong decisions. The utility of ratios is linked with expertise of the analyst.
The ratios are only guidelines for the analyst; he should not base his decisions entirely on them. He should study any other relevant information, situation in the concern, general economic environment etc., before reaching final conclusions. The study of ratios in isolation may not always prove useful. The
interpretation should use the ratios as guide and may try to solicit any other relevant information which helps is reaching a correct decision.
Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. As stated earlier, the parties interested in financial analysis are short-term and long-term creditors, owners and management. Short-term creditors` main interest is in the liquidity position or the short-term solvency of the firm. Long-term creditors`, on the other hand, are more interested in the long-term solvency and profitability of the firm. Similarly, owners concentrate on the firm’s profitability and financial condition. Management is interested in evaluating every aspect of the firm’s performance. They have to protect the interests of all parties and see that the firm grows profitably. In view of the requirements of the various users of ratios, we may classify them into the following four important categories:
LIQUIDITY RATIOS LEVERAGE RATIOS ACTIVITY RATIOS PROFITABILITY RATIOS
It is extremely essential for a firm to be able to meet its obligations as they become due. Liquidity ratios measure the firm’s ability to meet current obligations.
In fact, analysis of liquidity needs the preparation of cash budgets and cash and Fund Flow statements; but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations provided a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it does not have excess liquidity. The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor creditworthiness, loss of creditors` confidence, or even in legal tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. The most common ratios, which indicate the extent of liquidity or lack of it, are: 1. CURRENT RATIO 2. QUICK RATIO 3. CASH RATIO
The current ratio is calculated by dividing current assets by current liabilities.
Current assets Current Ratio = Current liabilities
Current assets include cash and those assets, which can be converted into cash within a year, such as Marketable Securities, Debtors and Inventories. Prepaid expenses are also include in current assets as they represent the payments that will not be made by the firm in future. Current Liabilities include Creditors, Bill payable, Accrued expenses, Short-term bank loan, and Income Tax Liability and Long-term debt maturing in the current year.
The current ratio is a measure of the firms` short-term solvency. The higher the current ratio, the larger is the amount of rupees available per Rupee of current liability, the more is the firms` ability to meet current obligations and the greater is the safety of funds of short-term creditors.
The Quick ratio is calculated by dividing quick assets by quick liabilities. Quick assets
Quick Ratio = Quick liabilities Quick assets or Liquid assets mean those assets which are immediately convertible into cash without much loss. All current assets except prepaid expenses and inventories are categorized in liquid assets. Quick liabilities means those liabilities, which are payable within a short period. Normally, Bank overdraft and Cash credit facility, if they become permanent mode of financing are in quick liabilities.
As this ratio concentrates on cash, marketable securities and receivables in relation to current obligation, it provides a more penetrating measure of liquidity than current ratio.
The cash ratio is calculated by dividing cash + marketable securities by
current liabilities Cash Ratio = Cash + Marketable Securities Current liabilities Since cash is most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio.
The short-term creditors like bankers and suppliers of raw material are more concerned with the firms` current debt-paying ability. On the other hand, long-term creditors like debenture holders, financial institutions etc., are more concerned with the firms` long-term financial strength. In fact, a firm should have strong short-as well as long-term financial position. To judge the long-term financial position of the firm, financial leverage, or Capital structure, ratios are calculated. These ratios indicate mix of funds provided by owners and lenders. As a general rule, there should be an approximate mix of debt and owner’s equity in financing the firms` assets. The manner in which assets are financed has a number of implications. First, between debt and equity, debt is more risky from the firms` point of view. The firm has a legal obligation to pay interest on debt holders, irrespective of the profits made or losses incurred by the firm. If the firm fails to debt holders in time, they can take legal action against it to get payment and in extreme cases, can force the firm into liquidation. Secondly, use of debt is advantageous for shareholders in two ways: a. They can retain control of the firm with a limited stake and
b. Their earnings will be magnified, when the firm earns a rate of return on the total capital employed higher than the interest rate on the borrowing funds. The process of magnifying the shareholders return through the use of debt is called “financial leverage” or “financial gearing” or “trading on equity”.
Leverage ratios may be calculated from the balance sheet to determine the proportion of debt in total financing. Many variations of these ratios exist; but all these ratios indicate the same thing-the extent to which the firm has relied on debt in financing assets. Leverage ratios are also computed from the profit and loss items by determining the extent to which operating profits are sufficient to cover the fixed charges.
DEBT – EQUITY RATIO:
The relationship describing the lender contribution for each rupee of the owner’s contribution is called DEBT-EQUITY RATIO. DEBT – EQUITY DEBT Debt-Equity Ratio = EQUITY RATIO is directly computed by the following formula.
This ratio states relationship between share capital and total assets. Proprietor’s equity represents equity share capital, preference share capital and reserves and surplus. The latter ratio is also called capital employed to total assets. EQUITY SHARE CAPITAL Proprietary Ratio = TOTAL TANGIBLE ASSETS
PROPRIETORS EQUITY (OR) TOTAL TANGIBLE ASSETS
INTEREST COVERAGE RATIO:
This ratio indicates the extent to which earnings can decline without resultant financial hardship to the firm because of its inability to meet annual interest cost. For example, coverage of 5 times means that a fall in earnings unto (1/5 th ) level would be tolerable, as earnings to service interest on debt capital would be sufficiently available. This ratio is measured ad follows: Interest Coverage Ratio = EBIT --------------------------------INTEREST CHARGES
FIXED ASSETS TO NET WORTH:
This ratio indicates the extent to which Equity capital is invested in the net fixed assets. It is expressed as follows: FIXED ASSETS Fixed Assets To Net Worth = NET WORTH Net Worth is represented by Equity Share Capital plus Reserves and Surpluses. If the fixed assets are more than the Net Worth, difficulties may arise, as the depreciation will reduce profit. This also means that creditors have contributed to fixed assets. The higher this ratio, the less will be the protection to creditors. If this ratio is too high, the firm may find itself handicapped, as too much capital is tied up in fixed assets but not circulating.
Funds creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm managers and utilizes its assets. These ratios are also called Turnover Ratios because they indicate the speed with which assets are being converted or turned over into sales. Activity ratios, thus, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios can be calculated to judge the effectiveness of asset utilization.
INVENTORY TURNOVER RATIO:
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by dividing the cost of goods sold by the average inventory.
The average inventory is the average of opening and closing balance of inventory. In a manufacturing company inventory of finished goods is used to calculate inventory turnover. Cost of goods sold Inventory Turnover Ratio = Average inventory
DEBTORS TURNOVER RATIO:
A firm sells goods for cash and credit. Credit is used marketing tool by a number of companies. When the firm extends credits to its customers, debtors (accounts receivables) are created in the firms` accounts. The debtors are expected to
be converted into cash over a short period and, therefore, are included in current assets. The liquidity position of the firm depends on the quality of debtors to a greater extent. Debtors turnover ratio indicates the velocity of debt collection of a firm. Un simple wards it indicates the number of times average debtors are turned over during a year. Credit Sales Debtors Turnover Ratio = -------------------------------Avg. Accounts Receivable
FIXED ASSETS TURNOVER RATIO:
The fixed assets turnover ratio measures the efficiency with which the firm is utilizing its investments in fixed assets, such as land, building, plant and machinery, furniture, etc. It also indicates the adequacy of sales in relation to the investment in fixed assets. The fixed assets turnover ratio is sales divided by net fixed assets. The firm assets turnover ratio should be compared with past and future ratios and also with ratio of similar firms and the industry average. The high fixed assets turnover ratio indicates efficient utilization of fixed assets in generating sales, while low ratio indicates inefficient management and utilization of fixed assets. This ratio indicates the extent to which the debts have been collected in time. The debt collection period indicates the average debt collection period. This ratio is a good indicator to the lenders of the firm, because it explains to them whether their borrower is collecting from its debt in time. An increase in this period indicates blockage of funds in debtors.
Sales Fixed Assets Turnover Ratio = Net fixed assets
WORKING CAPITAL TURNOVER RATIO:
Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of a year. This ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient utilization of working capital and low ratio indicates otherwise. But a very high working capital turnover ratio is not a good situation for any firm and hence care must be taken while interpreting the ratio. Making of comparative and Trend Analysis can at best use this ratio for different firms in the same industry and for various periods. This can be calculated as follows: Sales Working Capital Turnover Ratio = Net Working Capital Net Working Capital = Current Assets - Current Liabilities (Excluding short-term bank Borrowings)
A company should earn profits to Survive and Grow over a long period of time. Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximizing profits, irrespective of social consequences.
Profit is the difference between revenues and expenses over a period of time (usually a year). Profit is the ultimate “Output” of a company, and it will have no future if it fails to make sufficient profits. Therefore, the financial manager should continuously evaluate to the efficiency of the company in term of profits. The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principle regularly. Owners want to get a required rate of return on their investment. This is possible only when the company earns enough profits.
Generally two major types of profitability ratios are calculated. PROFITABILITY IN RELATION TO SALES PROFITABILITY IN RELATION TO INVESTMENT
PROFITABILITY RATIOS IN RELATION TO SALES
1. GROSS PROFIT MARGIN 2. CASH MARGIN 3. OPERATING MARGIN 4. NET PROFIT RATIO
GROSS PROFIT MARGIN:
Gross profit margin reflects the efficiency with which the management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and the sales revenue.
This shows profits relative to sales after the deduction of production costs, and indicates the relation between Production costs and selling price. A high gross profit margin relative to the industry average implies that the firm is able to produce at relatively lower cost.
A high gross profit margin ratio is a sign of good management. A gross margin ratio may increase due to any of the following factors. i. ii. iii. Higher sales prices, cost of goods sold remaining constant, Lower cost of goods sold, sales prices remaining constant, A combination of variations in sales prices and costs, the margin widening, and
Increases in the proportionate volume of higher margin items.
The analysis of these factors will reveal to the management that how a depressed gross profit margin can be improved. A low gross profit margin may reflect higher cost of goods sold due to the firms` inability to purchase raw materials at favorable terms, inefficient utilization of plant and machinery, resulting in higher cost of production. The ratio will also be low due to fall in prices in the market, or market reduction in selling price by the firm in an attempt to obtain large sales volume, the cost of goods sold remaining unchanged. The financial manager must be able to detect the causes of a falling gross margin and initiate action to improve the situation. Sales – Cost of goods sold (Or) Gross profit Gross Profit Margin Ratio = Sales
Net Profit Margin Ratio:
Net profit is obtained when operation expenses, interest and taxes are subtracted from the gross profit. If the non-operating income figure is substantial, it may be excluded from PAT to see profitability arising directly from sales. Net profit margin ratio establishes a relationship between net profit and sales and indicated management’s efficiency in manufacturing, administering and selling the products. This ratio is the overall measure of the firms` ability to turn each rupee sales into net profit. If the net margin is inadequate, the firm will fail to achieve satisfactory return on shareholder`s funds. This ratio also indicates the firms` capacity to withstand in adverse economic conditions. A firm with a high net margin ratio would be in an advantageous position to survive in the case of falling selling prices, rising costs of production or declining demand for the product. It would really be difficult for a low net margin firm to withstand these adversities. Similarly, a firm higher net profit margin can make better 57
use of favorable condition, such as rising selling prices; fall in costs of production or increasing demand for the product. Such a firm will be able to accelerate its profits at a faster rate than a firm with a low net profit margin will. An analyst will be able to interpret the firm’s profitability more meaningfully if he/she evaluates both the ratios-gross margin and net margin-jointly. To illustrate, if the gross profit margin has increased over years, but the net profit margin has either remained constant or declined, or has not increased as fast as the gross margin, this implies that the operating expenses relative to sales have been increasing. decline due to fall in sales price or increase in the cost of production. Profit after Tax Net Profit Margin Ratio = Sales The increasing expenses should be identified and controlled. Gross profit margin may
CASH MARGIN RATIO:
Cash profit excludes depreciation. It means Net profit after interests and taxes but before depreciation. This ratio indicates the relationship between the profit, which accrues in cash and sales. Greater percentage indicates better position and Vice-Versa as it shows the correct profit earned by the firm.
This ratio is expressed as cash profit to sales. Cash profit Cash Margin Ratio = Sales X 100
OPERATING MARGIN RATIO:
Operating margin ratio is also known as Operating Net profit ratio. It is the ratio of operating profit to sales. This ratio establishes the relationship between the total cost incurred and sales. Operating profit is the Net profit after depreciation but
Before Interests and Taxes. The purpose of computing this ratio is to find out the overall operational efficiency of the business concern. operations per rupee of sales. This ratio is expressed as operating profit to sales. It measures the const of
OPERATING MARGIN RATIO =
Operating profit Sales
PROFITABILITY RATIOS IN RELATION TO INVESTMENT:
1. RETURN ON INVESTMENT 2. RETURN ON NET WORTH 3. RETURN ON CAPITAL 4. RETURN ON GROSS BLOCK
RETURN ON INVESTMENT:
The term investment refers to Total Assets. The funds employed in Net assets are known as Capital Employed. Net assets equal net fixed assets plus current assets minus Current liabilities excluding Bank loans. Alternatively, Capital employed in equal to Net worth plus total debt. The conventional approach of calculating return on investment (ROI) is to divide PAT by Investment. Investment represents pool of funds supplied by shareholders and lenders, while PAT represents residual income of shareholders; therefore, it is conceptually unsound to use PAT in the calculation of ROI. Also, as discussed earlier, PAT is affected by capital structure. efficiency of firms. EBIT (1-T) It is, therefore more appropriate to use one of the following measures of ROI for comparing the operating
ROI (or) ROTA = Total Assets EBIT (1-T) ROI (or) RONA = NET Assets
Where ROTA and RONA respectively Return on Total assets and Return on Net assets.
RONA is equivalent of Return on Capital Employed.
RETURN ON NET WORTH:
NET Worth is also known proprietors Net Capital Employed. The Return should be calculated with reference to profits belonging to shareholders, and therefore, profit shall be Net profit after interest and tax. The profit for this purpose will include even non-trading profit. This is given as follows:
Net profit after interest & tax RETURN ON NET WORTH = ---------------------------------------*100 Shareholders funds
RETURN ON CAPITAL:
The ROCE is the second type of ROI. The term capital employed refers to long-term funds supplied by the creditors and owners of the fund. It can be computed
in two ways. First, it is equal to non-current liabilities (long-term liabilities) plus owner’s equity. Alternatively, it is equivalent to Net Working Capital plus Fixed Assets. Thus, the Capital Employed provides a basis to test the profitability related to the sources of long-term funds. A comparison of this ratio with similar firms, with the industry average and overtime would provide sufficient insight into how efficiency the long-term funds of owners and creditors are being used. The higher the ratio, the more efficient is the use of Capital Employed. NET PROFIT AFTER TAX/EBIT ROCE = X 100 Average Total Capital Employed
RETURN ON GROSS BLOCK:
This ratio establishes a relationship between net profit and gross fixed assets. This ratio emphasizes the profit on investment in Fixed Assets. This ratio is expressed as follows: Net profit RETURN ON GROSS BLOCK = Gross Block X 100
NET PROFIT is profit before Tax. Gross Block means Gross fixed assets i.e., Fixed assets before deducting depreciation.
DATA ANALYSIA & INTERPRETATION
Ratio analysis in VSP/RINL
Current assets Current ratio= ------------------------------------------Current liabilities
TABLE SHOWS YEAR WISE CURRENT RATIO
(Rs. In Crores) Particulars Inventory Sundry debtors Cash & bank Other Assets Loans & advances Current assets Current liabilities Current ratios 2005-06 1216.45 165.65 5621.70 184.36 1063.84 8252.00 1587.86 5.20 2006-07 1203.24 216.80 7194.68 314.48 1518.90 10448.10 2104.30 4.97 2007-08 1761.15 93.41 7699.11 292.43 1958.49 11804.60 3191.62 3.70 2008-09 3215.28 191.27 6624.17 258.91 1569.69 11859.32 4181.32 2.84 200910 2451.52 181.18 5415.54 137.40 1365.02 9550.66 4307.84 2.21
12000 10000 8000 6000 4000 2000 0 Current assets Current liabilities
2005-06 2006-07 2007-08 2008-09 2009-10 The current ratio during the study period that is from 2005- 2006 to 20092010, it has been observe that ,in the year 2005 to 2006 it is very high that is 5.20. The current ratio has been decreasing, but the company is able to maintain higher current ratio than that of ideal ratio.
As the current ratio is higher than the ideal current ratio, the liquidity position is said to be good.
Liquid assets Liquid ratio = --------------------------Current liabilities
TABLE SHOWING YEAR WISE LIQUID RATIOS
(Rs in Crores) Particulars Sundry debtors Cash & bank Other assets Loans & advances Liquid assets Current liabilities Liquid ratio 12000 10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Liquid assets Current liabilities 2005-06 165.65 5621.70 184.36 1063.84 7035.55 1587.86 4.43 2006-07 216.80 7194.68 314.48 1518.90 9244.86 2104.30 4.39 2007-08 93.41 7699.11 292.43 1958.49 10043.44 3191.62 3.14 2008-09 191.27 6624.17 258.91 1569.69 8644.04 4181.32 2.06 2009-10 181.18 5415.54 137.40 1365.02 7099.14 4307.84 1.65
It has been observed that the quick ratio of VSP is high compared with ideal ratio.
As the quick ratio during the period of study is higher than that of then ideal ratio, the liquidity position is very good.
ABSOLUTE LIQUID/ CASH RATIO:
ABSOLUTE ASSETS Absolute liquid/ cash ratio: -------------------------------------CURRENT LIABILITIES
TABLE SHOWING YEAR WISE ABSOLUTE LIQUID RATIO (Rs. in crores) Particulars Cash & bank Absolute Assets Current liabilities ABSOLUTE LIQUID RATIO 2005-06 5621.70 5621.70 1587.86 3.5 2006-07 7194.68 7194.68 2104.30 3.42 2007-08 7699.11 7699.11 3191.62 2.41 2008-09 6624.17 6624.17 4181.32 1.58 2009-10 5415.54 5415.54 4307.84 1.26
8000 7000 6000 5000 4000 3000 2000 1000 0 2005-06 2006-07 2007-08 2008-09 2009-10
Ideal Ratio 0:5:1
Cash & bank Absolute Assets Current liabilities ABSOLUTE LIQUID RATIO
The absolute liquid/ cash ratio of VSP is more than the ideal ratio. It means the company is enjoying high liquidity and secured position.
Outsider’s funds Debt Equity Ratio =---------------------------------------Shareholders’ funds
TABLE SHOWING YEAR WISE DEBT EQUITY RATIO
(Rs. in crores) particulars Secured loans Unsecured loans Outsiders funds Shareholders funds Debt equity ratio 2005-06 173.87 369.44 543.31 8173.7 0.13 2006-07 604.45 312.51 916.96 9538.2 0.19 2007-08 332.78 107.95 440.73 11481.04 0.08 2008-09 907.72 100.04 1007.76 12419.91 0.16 2009-10 407.28 825.27 1233.55 12885.00 0.19
14000 12000 10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Outsiders funds Shareholders funds
Company is less dependent on outsiders funds. Its capital base is high and strong. 66
It can be concluded that the company is maintaining less percent of debt in its capital structure.
INTEREST COVERAGE RATIO:
EBIT Interest coverage ratio=--------------------------------------FIXED INTEREST
TABLE SHOWING YEAR WISE INTEREST COVERAGE RATIO
(Rs. in crores) PARTICULARS EBIT Fixed interest Interest Coverage Ratio 2005-06 1920.57 31.06 61.83 2006-07 2270.76 48.42 46.90 2007-08 3026.93 31.57 95.88 2008-09 2114.06 88.14 23.99 2009-10 1325.20 19.76 67.06
3500 3000 2500 2000 1500 1000 500 0 2005-06 2006-07 2007-08 2008-09 2009-10 EBIT Fixed interest rate Interest Coverage Ratio
Company’s Interest Coverage Ratio is very high and extraordinarily satisfactory. It indicates that greater ability of the firm to handle fixed charges. High interest coverage ratio does not indicate unutilized debt capacity in case of RINL, since the company is having its own funds.
Share holders funds Proprietary ratio=----------------------------------------Total assets
TABLE SHOWING THAT YEAR WISE PROPRIETARY RATIO
(Rs.in Crores) PARTICULARS Share holders funds Total assets Proprietary Ratio 2005-06 7827.31 1051.99 78% 2006-07 7827.31 12835.8 74% 2007-08 7827.32 15276.51 75% 2008-09 7827.32 17733.43 79% 2009-10 7827.31 18523.21 42%
20000 15000 10000 5000 0 Share holders funds Total asse ts PROPRIETARY RATIO
2005-06 2006-07 2007-08 2008-09 2009-10
Proprietary ratio is a test of long term financial position. Except for the year 2009-10, all other years showing higher ratio, this indicates sound long term financial position. It is also indicating the sufficient use is being made of equity to finance the business.
Total Liabilities of outsiders Solvency ratio =------------------------------------------Total assets
TABLE SHOWING YEAR WISE SOLVENCY RATIO:
(Rs. In Crores) PARTICULARS Secured loans Unsecured loans Total liabilities to outsiders Total assets Solvency ratio 2005-06 173.87 369.44 543.31 10511.00 5.1% 2006-07 604.45 312.51 916.96 12835.8 7.1% 2007-08 332.08 107.95 440.73 15276.51 2.8% 2008-09 907.72 100.04 1007.76 17733.43 5.68% 2009-10 407.28 825.27 650.58 18522.96 3.51%
20000 15000 10000 5000 0 Total liabilities to outsiders Total assets
2005-06 2006-07 2007-08 2008-09 2009-10
Solvency ratio of VSP ltd during the year 2006-07 is high as compared to other years.
It solvency ratio is stable for last three years. It indicates the the solvency position of
VSP ltd is more satisfactory.
FUNDED DEBT TO TOTAL CAPITALIZATION:
FUNDED DEBT Funded Debt To Total Capitalization =-------------------------------------TOTAL CAPITALIZATION
TABLE SHOWING YEAR-WISE FUNDED DEBT TO TOTAL CAPITALIZATION RATIO (Rs. in crores)
Particulars Secured loans Unsecured loans Funded debt(A) Total Funds (B) Total capitalization (A/B)
2005-06 173.87 369.44 543.31 8173.70 6.60%
2006-07 604.45 321.51 916.96 9538.20 9.60%
2007-08 332.78 107.95 440.73 11481.04 3.80%
2008-09 907.72 100.04 1007.76 12419.91 8%
2009-10 407.28 825.27 1232.55 12885 9.50%
14000 12000 10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Secured loans Unsecured loans Funded debt(A) Share holder funds (B) Total capitalization (A+B)
During the year 2009-10, the funded debt to total capitalization is 9%.It is high as compared to other periods but in the real sense it is quite low. There is enough scope for the company to raise long term loans from outsiders.
INVENTORY TURNOVER RATIO:
NET SALES Inventory Turnover Ratio =----------------------------AVG INVENTORY
TABLE SHOWING YEAR WISE INVENTORY TURNOVER RATIO
(Rs. in crores)
PARTICULARS Net sales Avg inventory Inventory Turnover Ratio 2005-06 7305.71 1236.99 5.91 Times 2006-07 7932.66 1210.80 6.55 Times 2007-08 9088.37 1482.20 6.13 Times 2008-09 9128.38 1622.14 5.62 Times 200910 9809.15 2833.40 3.46 Times
10000 8000 6000 Net sales 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Avg inventory
The Inventory Turn Over Ratio during the year 2009-10 was 3.46 Normally higher the ratio indicates the better inventory management. Higher ratio also indicates that the company is not able to met the customers demand properly.
INVENTORY CONVERSION PERIOD:
No of working days Inventory Conversion Period =--------------------------------------------Inventory turnover ratio
TABLE SHOWING YEAR WISE INVENTORY CONVERSION PERIOD
(Rs. in crores)
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
No. of working days Inventory turnover ratio Inventory conversion period
365 5.91 62 days
365 6.55 56 days
365 6.13 60 days
365 6.85 53 days
365 7.24 50 days
400 300 200 100 0 2005- 2006- 2007- 2008- 200906 07 08 09 10
No.of working days No.of working days Inventory turnover ratio
The inventory conversion period during 2009-2010 is 50 days. It means that the inventory has been disposed off or sold on an average of once in every 50 days.
DEBTORS TURN OVER RATIO
Net credit annual sales Debtors Turn Over Ratio = -----------------------------------Average trade debtors
TABLE SHOWING YEAR WISE DEBTORS TURN OVER RATIO (Rs. in crores)
Particular 2005-06 A. net sales 7305.71 b. average trade debtors 107.48 2006-07 7932.66 191.54 2007-08 9088.37 155.105 2008-09 9128.38 142.34 2009-10 9809.15 186.23
debtor turn over ratio
12000 10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 b. average trade debtors A. net sales
The debtor turnover ratio for the year 2009-10 is 54 It can be concluded that the management is efficient in converting the debtors into cash
AVERAGE COLLECTION PERIOD:
No of Working Days Average Collection Period = -------------------------------------------Debtor’s turnover ratio
TABLE SHOWING YEAR WISE AVERAGE COLLECTION PERIOD
(Rs. in crores)
PARTICULARS No of working days 2005-06 365 2006-07 365 2007-08 365 2008-09 365 2009-10 365
Debtors turnover ratio Avg.collection period
60.97 5 days
41.48 9 days
58.59 6 days
55.68 6 days
67.12 5 days
100% 80% 60% 40% 20% 0% 2005-06 2006-07 2007-08 2008-09 2009-10 Debtors tournover ratio No of working days
The avg collection period during the year 2009-10, is 5 days: it represents the avg. no of days for which the firm has to wait before its receivables are converted into cash. During the period of study it has been observed that debt collection period varies from 5 to 9 days However, the avg. collection period during different periods is quite low. It indicates the better quality of debtors and the efficiency of the debt collection department.
WORKING CAPITAL TURNOVER RATIO:
Net sales Working capital turnover ratio = ------------------------------------------------Working capital
TABLE SHOWING YEAR WISE WORKING CAPITAL TURNOVER RATIO
(Rs. in crores)
PARTICULARS a.net sales b. net working capital Working capital turnover ratio(a/b) 2005-06 7305.71 6664.14 1.10 times 2006-07 7932.66 8343.8 0.95 times 2007-08 9088.37 8612.97 1.05 times 2008-09 9128.38 7678.00 1.18 times 2009-10 9809.15 5242.82 1.87 times
10000 5000 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 a.net sales a.net sales b. net working capital
The working capital turnover ratio during the year 2009-10 i 1.87 times. It shows that only 1.05 of net current assets are used to generate 1 rupee of sales. The higher working capital ratio indicates that the efficient utilization of working capital.
GROSS PROFIT RATIO:
Gross profit Gross profit ratio = ---------------------------------*100 Net sales TABLE SHOWING YEAR WISE GROSS PROFIT RATIO
(Rs. in crores)
PARTICULARS a. gross profit b. net sales Gross profit ratio(a/b) 2005-06 1921.00 7314.00 26.30% 2006-07 2271.00 7933.00 28.70% 2007-08 3027.00 9088.00 33.30% 2008-09 2115.00 9128.00 23.20% 2009-10 1326.00 9809.00 13.60%
12000 10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 a.gross profit b. net sales
It has been observed that the gross profit ratio is in increasing tread upto 200708 and it is decreasing from 2008-09
Sales are in increasing trend but the profit ratio is decreasing. It is due to increased cost of production.
OPERATING PROFIT RATIO:
Operating profit Operating profit ratio = ----------------------------------------*100 Sales TABLE SHOWING YEAR WISE OPERATING PROFIT RATIO
(Rs. in crores)
PARTICULARS Operating profit Net Sales Operating profit ratio 2005-06 2011.21 7314.00 27.50% 2006-07 2339.21 7933.00 29.50% 2007-08 3325.19 9088.00 36.60% 2008-09 4988.12 9128.00 54.70% 2009-10 2450.50 9809.00 25.00%
10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Operating profit Sales Operating profit ratio
Company recorded higher operating profit during 2008-09 and in other years, it is more or less recorded same trends. It is indicates, the company’s operational efficiency.
NET PROFIT RATIO:
Net profit Net profit ratio = ----------------------------------------*100 Sales
TABLE SHOWING YEAR WISE NET PROFIT RATIO
(Rs. in crores)
PARTICULARS A.net profit B. net sales Net profit ratio(A/B) 2005-06 1252.37 7305.71 17.14% 2006-07 1363.43 7932.66 17.18% 2007-08 1942.74 9088.37 21% 2008-09 1335.57 9128.38 14.63% 2009-10 796.67 9809.15 8.12%
12000 10000 8000 6000 4000 2000 0 2005-06 2006-07 2007-08 2008-09 2009-10 A.net profit B. net sales
Net profit is in decline position from 2008-09 in comparative with 2007-08. Main attributable reason for the declining the profit is overall global meltdown Even in adverse market conditions, the company is able to earn net profits.
PROFITABILITY RATIOS BASED ON INVESTMENT:
RETURN ON SHAREHOLDERS INVESTMENT: Net Profit (After Interest & Tax) RO I= ----------------------------------------------------x 100 Share Holders Funds
TABLE SHOWING YEAR WISE RATIOS BASED ON INVESTMENT
(Rs. in crores)
PARTICULARS A.net profit B.share holders funds Return on investment(A/B) 2005-06 1252.37 8173.7 15.32% 2006-07 1363.43 9538.2 14.29% 2007-08 1942.74 11481.04 16.92% 2008-09 1335.57 12419.91 10.75% 2009-10 796.10 12885 6.18%
14000 12000 10000 8000 6000 4000 2000 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 Return on investment(A/B) B.share holders funds A.net sales
Highest return on investment was recorded in 2007-08.
It has been observed that the ROI is fluctuating from year to year. More reserves and surplus funds have been diverted to expansion activities
RETURN ON EQUITY CAPITAL:
Net profit (after interest & tax) Return on equity capital = -------------------------------------------Equity capital
TABLE SHOWING YEAR WISE RETURN ON EQUITY CAPITAL
(Rs. in crores)
PARTICULARS A.net profit B.equity share capital Return on equity capital 2005-06 1252.37 4890.00 25.61 2006-07 1363.43 4890.00 27.88 2007-08 1942.74 4890.00 39.73 2008-09 1335.57 4890.00 27.31 2009-10 796.67 4890.00 16.29
100% 80% 60% 40% 20% 0% 2005-06 2006-07 2007-08 2008-09 2009-10 B.equity share capital A.net profit
Equity share capital is constant in in all the year whereas net profit is fluctuating.
Even though the return on equity capital is in decreasing position, the rate of return in comparison with the marketing conditions is very satisfactory. Global market conditions, increasing in operating costs, decrease in net profits are the main reasons for the recording of low ratio.
EARNING PER SHARE:
Earning available to equity share holders Earning Per Share = -----------------------------------------------No. of equity shares
TABLE SHOWING YEAR WISE EARNING PER SHARE (Rs. in crores)
PARTICULARS Earning available to equity shareholders No. of equity shares (in crs) Earning per share 2005-06 1252.37 4.89 256.12 2006-07 1363.43 4.89 278.83 2007-08 1942.74 4.89 397.30 2008-09 1095.00 4.89 223.93 2009-10 556.89 4.89 113.89
2000 1500 1000 500 0 2005- 2006- 2007- 2008- 200906 07 08 09 10
Earning available to equity shareholders No.of equity shares Earning available to equity shareholders Earning per share
The earnings per share is declining year by year. The least rate of return is 11.40%
Since the company is in expansion activity, the future earnings per share will increase.
RETURN ON CAPITAL EMPLOYED:
Net profit Return on capital employed = ----------------------------------------Capital employed
TABLE SHOWING YEAR WISE RETURN ON CAPITAL EMPLOYED
(Rs. in crores)
PARTICULARS A.net profit B.capital employed (incl. term deposits) Return on capital employed 2005-06 1252.37 8493.00 14.80% 2006-07 1363.43 9427.00 14.50% 2007-08 1942.74 9935.00 19.55% 2008-09 1335.57 7892.00 17.00% 2009-10 796.67 5476.00 14.60%
100% 80% 60% 40% 20% 0% 2005-06 2006-07 2007-08 2008-09 2009-10 Retur on capital employed B.capital employed A.net profit
Even though the return on capital employed is declining, but it is satisfactory, considering the present market conditions and from the security point of view. 84
Visakhapatnam Steel Plant was founded on 20th Jan ’71 but became fully operational on 1st Aug ’92. VSP is the first shore based integrated steel plant with new technology, large scale computerization and automation. The organizational manpower has been rationalized to operate it at international levels of efficiency and to attain international labor productivity. The production, commercial and financial performance has been improving with the passage of years. The financial analysis of VSP by the use of various techniques i.e. Ratio, Cash flow analysis shows that: 1) 2) 3) 4) 5) 6) 7) The liquidity position of the company is excellent. The company is zero debt/low debit company. The net worth of VSP is satisfactory It is noted that the inventory level is increasing. The profitability ratio is in decline state Liquidity position of VSP is very good. The company has accumulated funds which are available for expanding business operations and expansion works. 8) Security to share holders is evisaged
The following suggestions will improve the financial position of the VSP.
1) Need for continuous up gradation of technology for improving the processes. 2) Effort should be made at cost savings particularly in spares and energy consumption. 3) Using the natural gas reserves of KG basin, Hot metal production capacity can be enhanced with the present BF facility with negligible investment.
1) Improving financial leverage ratio for better returns.
1) Rationalization of existing man-power with effective training for future expansion of the plant. 2) 3) Improving efficiency through better HRD programs. Providing better motivation.
Striving towards becoming the most chosen employer.
1) Continuously monitoring the indigenous sale, export sale ratio to capture the best of markets. 2) 3) Increasing the net realization by selling in the most profitable region. Identifying new markets and new application of the company’s product. 4) Improving realization by identifying value added products and providing feedback to production department. 5) Value added products (high value items) are to be produced instead of selling semi-finished products in order to increase profit margin.
1. Financial Management: Theory & Practice (4th Edition) Eugene F. Brigham and Michael C. Gerhardt
2. Elements of Management Accounting Leslie Chadwick
3. Principles of Corporate Finance (7th Edition) Richard Berkley Stewart Myers
4. Accounting & Finance for Managers Barry J. Cooper
http://vizagsteel.com http://www.indiansteel.com http://www.bee-india.nic.in.com http://www.answer.com 89
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