Jaypee Business School

A constituent of Jaypee Institute of Information Technology (Deemed University)
A-10, Sector 62, Noida (UP) India 201 307 www.jbs.ac.in

WORKING CAPITAL MANAGEMENT OF STEEL AUTHORITY OF INDIA LIMITED.

Corporate Internship Report
Internship Report submitted as a partial requirement for the award of the two year Master of Business Administration Programme MBA 2011-13

Name: SHASHANK PANDEY

(STEEL AUTHORITY OF INDIA LIMITED, RANCHI)
Corporate Internship Supervisor Name: ALOK KUMAR

JBS-Faculty Supervisor: Dr. SUJATA KAPOOR

Start Date for Internship: 30/04/2012 End Date for Internship: 09/06/2012 Report Date: 02/07/2012

SELF CERTIFICATE

This is to certify that I SHASHANK PANDEY of MBA 1st year (2011-13) of Jaypee Business School has done project work in SAIL, Ranchi under the guidance of Mr. ALOK KUMAR on the topic WORKING CAPITAL MANAGEMENT OF SAIL towards the partial fulfillment of the award of ―Masters of Business Administration‖ during the period of April 2012- June 2012.

This project was undertaken as a part of academic curriculum according to the college rules and norms and it has not commercial interest and motive. It is my original work. It is not to be submitted to any other organization for any other purpose.

Date:

Signature

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ACKNOWLEDGEMENT
The world of corporate was far from me but I got an opportunity to envision the working style of commerce and finance in SAIL. I am indebted to my teachers and gurus who moulded me at this junction of my career from where I can take off better in the competitive scenario of today’s world. I would like to thanks almighty for his gracious blessing without which I would have not been able to complete my project work. I pay my regards to Dr. SUJATA KAPOOR, my mentor in Jaypee Business School for extending her help whenever needed. My grateful thanks to Mr. ALOK KUMAR, who in spite of being extraordinarily busy with his duties took out time to hear, guide and keep me on the correct path with his sky high knowledge and sea deep experience. The acknowledgment would not be complete without expressing my thanks to Heads of all other Departments for showing me the right path, equip my mind with the immense knowledge and guide me to solve my problems during theoretical as well as practical training. At last my warmest thanks to my parents, my friends for their kind support in some or the other way.

Shashank Pandey MBA (2011-2013) JBS, Noida

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Table of contents
1. Executive summary 2. Introduction and objectives 3. Company‘s profile 4. Industrial analysis 5. Financial analysis 6. Detailed Study on Working Capital Management 7. Conclusion and recommendations 8. Key learning‘s 9. Annexure 10. References

Page No.

5 6-7 8-11 12-26 27-50 51-69 70-72 73 74-82 83

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EXECUTIVE SUMMARY
Today Steel sector is the backbone of any economy in today‘s world. Steel has become the most important necessity of each and every household in the fast moving world and technological development. There is a tremendous competition among all steel sector players. Steel Authority of India Limited (SAIL) is the leading steel-making company in India.

In this project i have tried to highlight the working capital management and financial analysis Of SAIL. The data for this purpose was collected through internet and from the organization.

On the basis of various parameters the project study was conducted to know how the various component of working capital efficiently manage the requirements of the organization. After collection of data i analyzed the data with various statistical tools to get a clear picture that to get better interpretation of that result.

After completing a broad analysis on the above factors we have done a complete analysis on working capital management of SAIL.

The working capital management of SAIL is a broad concept and it plays a vital role in business of generation of steel. The working capital of SAIL, is divided into two parts i.e. fixed cost and variable cost. Fixed costs includes interest on loan, depreciation and advance against depreciation, operation and manufacturing expenses, return on equity, interest on working capital and income tax as an expense at actual. Variable costs include only Raw material costs.

The financial analysis of the company had revealed that most of the ratios are in good postion but there are few ratios for which necessary steps to be taken to control them.

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INTRODUCTION AND OBJECTIVES
Steel Authority of India Limited (SAIL) is the leading steel-making company in India, Holding 20% Market share of domestic crude steel production. In 2010-11 company achieved a turnover of more than 47,000 crores. The company is currently implementing a mega Modernization & Expansion (M&E) plan to enhance its hot metal production capacity in a phased manner. SAIL‘s hot metal production capacity will get expanded from the present 13.8 Million Tons (MT) to 23.46 MT by 2012-13.It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. SAIL is also among the five Maharatnas of the country's Central Public Sector Enterprises.

Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Major Units Integrated Steel Plants • Bhilai Steel Plant (BSP) in Chhattisgarh • Durgapur Steel Plant (DSP) in West Bengal • Rourkela Steel Plant (RSP) in Orissa • Bokaro Steel Plant (BSL) in Jharkhand • IISCO Steel Plant (ISP) in West Bengal Special Steel Plants • Alloy Steels Plants (ASP) in West Bengal • Salem Steel Plant (SSP) in Tamil Nadu • Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

The objectives of study were:   To understand the business and competitive environment in which the organization is operating. To study the Steel industry at a whole and its economy and to analyze the working of SAIL and its competitors.
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    

To analyze and understand the financial position of the organization viz – a – viz Competitors. To get a feel of corporate life and its functioning & understand various interaction styles. To study the importance of Working Capital Management for SAIL. To Analyse and Evaluate the Working Capital Management of SAIL. To know the Techniques of Inventory Management at SAIL.

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COMPANY PROFILE
INTRODUCTION
Steel Authority of India Limited - A Maharatna Steel Authority of India Limited (SAIL) is the leading steel-making company in India, Holding 20% Market share of domestic crude steel production. In 2010-11 company achieved a turnover of more than 47,000 crores. The company is currently implementing a mega Modernization & Expansion (M&E) plan to enhance its hot metal production capacity in a phased manner. SAIL‘s hot metal production capacity will get expanded from the present 13.8 Million Tons (MT) to 23.46 MT by 2012-13.It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. SAIL is also among the five Maharatnas of the country's Central Public Sector Enterprises. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural‘s, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India‘s second largest producer of iron ore and of having the country‘s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread across the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices. CMO‘s domestic marketing effort is supplemented by its ever widening network of rural dealers who meet the demands of the smallest customers in the remotest corners of the country. With the total number of dealers over 2000 , SAIL's wide marketing spread ensures availability of quality steel in virtually all the districts of the country. SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL‘s five integrated steel plants. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and

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consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified. Major Units Integrated Steel Plants
    

Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants
  

Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

Joint Ventures

NTPC SAIL Power Company Pvt. Limited (NSPCL): A 50:50 joint venture between Steel Authority of India Ltd (SAIL) and National Thermal Power Corporation Ltd (NTPC Ltd); manages SAIL‘s captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 814 megawatts (MW). Bokaro Power Supply Company Pvt. Limited (BPSCL): This 50:50 joint venture between SAIL and the Damodar Valley Corporation (DVC) is managing the 302-MW power generating station and 660 tonnes per hour steam generation facilities at Bokaro Steel Plant.

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Mjunction Services Limited: A 50:50 joint venture between SAIL and Tata Steel; promotes e-commerce activities in steel and related areas. Its newly added services include e-assets sales, events & conferences, coal sales & logistics, publications, etc. SAIL-Bansal Service Centre Limited: A joint venture with BMW Industries Ltd. on 40:60 basis for a service centre at Bokaro with the objective of adding value to steel. Bhilai JP Cement Limited: A joint venture company with Jaiprakash Associates Ltd on 26:74 basis to set up a 2.2 million tonne (MT) slag-based cement plant at Bhilai. Bokaro JP Cement Limited: Another joint venture company with Jaiprakash Associates Ltd on 26:74 basis to set up a 2.1 MT slag-based cement plant at Bokaro. SAIL & MOIL Ferro Alloys (Pvt.) Limited : A joint venture company with Manganese Ore (India) Ltd on 50:50 basis to produce ferro-manganese and silicomanganese required in production of steel. S & T Mining Company Pvt. Limited: A 50:50 joint venture company with Tata Steel for joint acquisition & development of mineral deposits; carrying out mining of minerals including exploration, development, mining and beneficiation of identified coking coal blocks. International Coal Ventures Private Limited: A joint venture company/SPV promoted by five central PSUs, viz. SAIL, CIL, RINL, NMDC and NTPC (with respectively 28.7%, 28.7%, 14.3%, 14.3% and 14.3% shareholding) aiming to acquire stake in coal mines/blocks/companies overseas for securing coking and thermal coal supplies. SAIL SCI Shipping Pvt. Limited: A 50:50 joint venture with Shipping Corporation of India for provision of various shipping and related services to SAIL for importing of coking coal and other bulk materials and other shipping-related business. SAIL RITES Bengal Wagon Industry Pvt. Limited: A 50:50 joint venture with RITES to manufacture, sell, market, distribute and export railway wagons, including high-end specialised wagons, wagon prototypes, fabricated components/parts of railway vehicles, rehabilitation of industrial locomotives, etc., for the domestic market. SAIL SCL Limited: A 50:50 JV with Government of Kerala where SAIL has management control to revive the existing facilities at Steel Complex Ltd, Calicut and also to set up, develop and manage a TMT rolling mill of 65,000 MT capacity along with balancing facilities and auxilliaries.

Ownership and Management The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its ‗Maharatna‘ status, enjoys significant operational
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and financial autonomy

Source: www.sail.co.in
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INDUSTRY ANALYSIS
Introduction
India‘s economic growth is contingent upon the growth of the Indian steel industry. Consumption of steel is taken to be an indicator of economic development. While steel continues to have a stronghold in traditional sectors such as construction, housing and ground transportation, special steels are increasingly used in engineering industries such as power generation, petrochemicals and fertilisers. India occupies a central position on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernisation and upgradation of older plants, improving energy efficiency and backward integration into global raw material sources. As per World Steel Association, India was the world's 4th largest producer of crude steel globally in 2010 with a production of approx. 68.3 MT of crude steel. According to JPC estimates the finished steel consumption of carbon steel in India grew by 10.8% in 2010-11 over the previous year. There was a reduction in both finished steel imports as well as exports as domestic steel producers expanded to cater to emerging demand. Long products viz. bars and rods and structurals performed strongly with high consumption growth. The growth in consumption of flat products was modest. Over the past few years, consumption has been primarily driven by the continuous increase in infrastructure related investment, leading to higher demand for steel. However, the country's per capita consumption is still one of the lowest in the world, presently at 51.7 kg per capita versus 427 kg for China and a global average of approx. 203 kg, leaving a high potential of steel demand with increase in per capita consumption linked to higher income growth. At present, the Indian steel industry faces a supply deficiency as capacity building has lagged growth in consumption. Large green field projects have not been set up in India over the past few years due to regulatory, social and infrastructure bottlenecks. Capacity additions in the short term are primarily brown field projects by existing players.

Global Steel Industry The global steel production which had declined on account of the intervening global financial crisis, showed a sharp pick-up in 2010. As per WSA, world crude steel production reached a record level of 1414 million metric tons in 2010, a growth of 15% over 2009. All the major steel-producing countries and regions showed double-digit growth in 2010. The world finished steel consumption estimated at 1283 mmt for 2010, grew at 13% over the previous year. Among the major steel producing and consuming nations, India is attractively positioned with its vast
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resources of iron ore and low costs underpinning its supply-side competencies, while the low per-capita consumption levels and strong growth drivers in the end use sectors ensure reasonably stable growth prospects. World Steel Association (WSA) has projected a growth rate of around 6% p.a. for the next 2 years for global steel consumption. China will continue to be the dominant steel consuming nation in terms of its contribution to the incremental steel demand. However, its growth rate will moderate to around 5%.

Steel Industry in India: Overview, Performance and Structure
Background The establishment of Tata Iron and Steel Company (TISCO) in 1907 was the starting point of modern Indian steel industry. Afterwards a few more steel companies were established namely Mysore Iron and Steel Company, (later renamed Vivesvaraya Iron & Steel Ltd) in 1923; Steel Corporation of Bengal (later renamed Martin Burn Ltd and Indian Iron & Steel Ltd) in 1923; and Steel Corporation of Bengal (later renamed Martin Burn Ltd and Indian Iron and Steel Co) in 1939.1 All these companies were in the private sector. Key Events 1907*: Tata Iron and Steel Company set up. 1913: Production of steel begins in India. 1918: The Indian Iron & Steel Co. set up by Burn & Co. to compete with Tata Iron and Steel Co. 1923*: Mysore Iron and Steel Company set up 1939*: Steel Corporation of Bengal set up 1948: A new Industrial Policy Statement states that new ventures in the iron and steel industry are to be undertaken only by the central government. 1954: Hindustan Steel is created to oversee the Rourkela plant. 1959: Hindustan Steel is responsible for two more plants in Bhilai and Durgapur. 1964: Bokaro Steel Ltd. is created. 1973: The Steel Authority of India Ltd. (SAIL) is created as a holding company to oversee most of India's iron and steel production. 1989: SAIL acquired Vivesvata Iron and Steel Ltd. 1993: India sets plans in motion to partially privatize SAIL. Source: * Governmen of India, Joint Plant Committee Report 2007 At the time of independence, India had a small Iron and Steel industry with production of about a million tonnes (mt). In due course, the government was mainly focusing on developing basic steel industry, where crude steel constituted a major part of the total steel production. Many public sector units were established and thus public sector had a dominant share in the steel production till early 1990s. Mostly private players were in downstream production, which was mainly producing finished steel using crude steel products. Capacity ceiling measures were introduced. Basically, the steel industry was developing under a controlled regime, which established more public sector steel companies in various segments.
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Till early 1990s, when economic liberalization reforms were introduced, the steel industry continued to be under controlled regime, which largely constituted regulations such as large plant capacities were reserved only for public sector under capacity control measures; price regulation; for additional capacity creation producers had to take license from the government; foreign investment was restricted; and there were restrictions on imports as well as exports. Undoubtedly there has been significant government bias towards public sector undertakings. But not all government action has been beneficial for the public sector companies. Freight equalization policies of the past were one example. The current governmental ‗moral-suasion‘ to limit steel price increases is another. However, after liberalization—when a large number of controls were abolished, some immediately and others gradually—the steel industry has been experiencing new era of development. Major developments that occurred at the time of liberalization and thenceforth2 were: 1. Large plant capacities that were reserved for public sector were removed; 2. Export restrictions were eliminated; 3. Import tariffs were reduced from 100 percent to 5 percent; 4. Decontrol of domestic steel prices; 5. Foreign investment was encouraged, and the steel industry was part of the high priority industries for foreign investments and implying automatic approval for foreign equity participation up to 100 percent; and 6. System of freight ceiling was introduced in place of freight equalization scheme. As a result, the domestic steel industry has since then, become market oriented and integrated with the global steel industry. This has helped private players to expand their operations and bring in new cost effective technologies to improve competitiveness not only in the domestic but also in the global market. Private sector contribution in the total output has since been increasing in India. Development of private sector has caused high growth in all aspects of steel industry that is capacity, production, export and imports. During the last decade more than 12 mt of capacity has been added in the steel industry, this is mostly in the private sector. Recently, the steel industry is receiving significant foreign investments such as POSCO—South Korean steel producer—and Arcelor-Mittal Group—UK/Europe based steel producer—announcing plans for establishing about 12 mt production units each in India. The Indian steel industry, with a production of about 1 mt at the time of independence, has come long way to reach the production of about 57 mt in 2006-07. Moreover, the steel industry is showing promising future growth as major players in the industry have announced their plans for significant investments in expanding their capacities. Impressive development of the steel industry with active participation of private sector and integration of India steel industry with the global steel industry has also induced the government to come up with a National Steel Policy in 2005. The National Steel Policy 2005 was drafted with the aim of establishing roadmap and framework for the development of the steel industry. The policy envisages steel production to reach at 110 mt by 2019-20 with annual growth rate of 7.3 percent. As later sections will show these expectations are not excessively high.
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With increasing need for large investments in the industry private sector‘s role would be crucial in the development of the steel industry. The future, it appears, will continue to be dominated by a few large players and the industry will remain oligopolistic – as it is internationally. Moreover, as shown in Appendix I share of fixed cost to total cost for selective steel producers in India is very high making it prone to increasing returns to scale and the consequent market structure . TISCO, public sector entities, POSCO, Jindals, Essar, and Arcelor-Mittal will be among the major players accounting for the bulk of the 100 plus million tons of production in the future.

Steel Producers Broadly there are two types of producers in India viz. integrated producers and secondary producers. Integrated steel producers have traditionally integrated steel units have captive plants for iron ore and coke, which are main inputs to these units. Currently there are three main integrated producers of steel namely Steel Authority of India Limited (SAIL), Tata Iron and Steel Co Ltd (TISCO) and Rashtriya Ispat Nigam Ltd (RINL). SAIL dominates amongst the three owing to its large steel production capacity plant size. Secondary producers use steel scrap or sponge iron/direct reduced iron (DRI) or hot briquetted iron (HBI). It comprises mainly of Electric Arc Furnace (EAF) and Induction Furnace (IF) units, apart from other manufacturing units like the independent hot and cold rolling units, rerolling units, galvanizing and tin plating units, sponge iron producers, pig iron producers, etc. Secondary producers include Essar Steel Ltd., Ispat Industries Ltd., and JSW Steel Ltd. There are 120 sponge iron producers; 650 mini blast furnaces, electric arc furnaces, induction furnaces and energy optimizing furnaces; and 1,200 re-rollers in India. The integrated producers constitute most of the mild steel production in India. Their main products include flat steel products such as Hot Rolled, Cold Rolled and Galvanised steel. They also produce long and special steel in small quantities. On the other, secondary producers largely produce long steel products. Re-rollers are the units that come under secondary producers‘ category, and produce small quantity of steel like long and flat products. These units either procure their inputs from the market or through their backward integrated plants. They use sponge iron, pig iron or combination to produce finished steel or ingots

Types of steel Steel is an iron based mixture containing two or more metallic and/or non metallic elements usually dissolving into each other when molten. Since it is an iron based alloy—as per its end use requirements—other than iron it may contain one or more other elements such as carbon, manganese, silicon, nickel, lead, copper, chromium, etc. For example, stainless steel (a type of steel) mainly contains chromium that is normally more than 10.5 percent with/without nickel or other alloying elements. Steel is produced using Steel Melting Shop that includes converter, open
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hearth furnace, electric arc furnace and electric induction furnace. There are broadly two types of steel according to its composition: alloy steel and non-alloy steel. Alloying steel is produced using alloying elements like manganese, silicon, nickel, chromium, etc. Non-alloy steel has no alloying component in it except that are normally present such as carbon. Non-alloy steel is mainly of three types viz. mild steel (contains upto 0.3% carbon), medium steel (contains between 0.3-0.6% carbon) and high steel (contains more than 0.6% carbon). All types of steel other than mild steel are called special steel. It is mainly because a special care is taken in order to maintain particular level of chemical composition in such steel. This process gives different properties to the steel according to its composition. In India, nonalloying steel constitutes about 95 percent of total finished steel production, and mild steel has large share in it. According to shape/size/form steel is categorized into different types such as liquid steel, ingots, semis (semi-finished steel) and finished steel. Liquid steel is a first product that comes out from Steel Melting Shop. Liquid steel further goes into ingots, and then ingots advance to semis. Semis are called semi-finished steel products because they are further subject to forging/rolling in order to produce finish steel products such as flat steel products and long steel products. Crude steel generally includes ingots and semis. According to end use, steel is categorized into structural steels, construction steel, deep drawing Steel, forging quality, rail steel, etc.

PRODUCTION & CONSUMPTION OF STEEL IN INDIA

The official data reveal that total steel production in India in fiscal 2011 has grown by 6.6% and steel consumption by 5.5%. The subdued growth rate in steel appears to be consistent with a lower-than-envisaged GDP growth at 6.5-7% and a slower growth in Fixed Capital Formation during the year. In addition, industrial production at 3.5% (April-Feb 2012), as opposed to 8.2% growth in 2010-11, and drop in output in manufacturing (3.7% in April-Feb 2012), particularly in capital goods (-1.8 % in April-Feb 2012) and consumer durables (2.7% in April-Feb 2012), has adversely affected the health of the steel sector. A few steel-intensive segments like LPG cylinder (-8.7% in April-Jan 2012), drums and barrels (2.9%), diesel engines (6.8%), passenger cars (2.3%) and refrigerators (-12.2%) have consumed less volume of steel. Imports of steel at 6.8 million tonne (mt) and exports at 4.2 mt has turned India into a net importer, which in a way implies that physical demand is comparatively robust. Steel imports in 2011-12 are 8% more compared to the level achieved in last year. Interestingly the imports of finished alloy and stainless steel is 71% more than the level reached in the previous year and more than compensates the slower growth in import of non-alloy steel. Price considerations are one of the major factors for stimulating imports and Indian producers are to keep a close watch on cost of production and pricing of the products if this trend continues in
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the current year by CIS, China and Turkey. Maximum import growth has been observed in billets and CR Coils/Sheets (26%) which have mostly come from Russia (billets: 31%), China (CR: 24%), Korea (CR: 28%), Japan (CR: 17%). It is possible that certain volume of CR has come as duty free imports against advance license scheme of HR exports. However, there was a sudden jump in the arrival of HR and CR imports in the last four months which prompted a duty hike of 2.5% by the government in the Budget. However, to check the abrupt rise in imports, a Safeguard Duty mechanism can also be resorted to by the domestic industry. It is observed that proportions of seconds/defectives in CR at 9.2%, in GP/Coated at 12.3%, in electrical steel sheet at 20% and in tin plates at 65% of the total quantity in each of the category are substantially high and pose an adverse impact on the domestic steel industry. Import of seconds and defectives provide a downward pressure on prices, frustrate the quality improvement plans of the domestic producers and make the unsuspecting end users suffer. High export growth was achieved in HR coils (116%) and bars & rods (65%), which indicates excess capacity. Indian steel industry in the current year is capable of growing at a healthy rate of 6-7% with a corresponding growth in GDP. The caveats are: Fixed capital formation at not less than 32% and manufacturing growth consistently at 7-8%. This is much less than what was envisaged at the beginning of the year.

Key government players

Company name Steel Authority of India Limited (SAIL)

Products Manufactured Alloy steel, Ferro steel

Total group turnover in USD $ 10.87 billion

Turnover in India in USD$ 9.7 billion

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Rashtriya Ispat Nigam limited (RINL)

Crude steel

2.3 billion

2.1 billion

Hindustan Crude steel, Rolled Steelworks steel Constructions Limited MEOCON Limited Maharashtra Elektrosmelt Limited (Subsidiary of SAIL) Rolled steel

161 million

140 million

136 million

110 million

Crude steel

86 million

75 million

Source: www.researchandmarkets.com

Key private players

Company name

Products Manufactured

Total group turnover in USD $

Turnover in India in USD$

Arcelor Mittal

Stainless steel such as slabs, coils, coated steel

65 billion

690 million

TATA Steel Limited

Crude steel

23 billion

5.6 billion

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JSW Steel Limited

Cold rolling, galvanized steel Flat steel

4.2 billion

2.8 billion

Essar Steel Limited

2.8 billion

2.2 billion

Ispat Industries Limited Bhushan Steel Limited

Hot rolled steel

1.8 billion

1.6 billion

Hot rolled steel

941 million

770 million

Source: www.researchandmarkets.com

Investments in the Indian steel industry •SAIL will set up a 12 million tones plant in North India, Jharkhand. •A joint venture took place in December between Larsen & Toubro and Nuclear Power Corporation of India Limited (NPCIL) with an investment of USD$ 373.2 million for steel products. •Varun Industries will set up a stainless steel cum alloy plant in West India investing around USD$ 171.8 million. •JSW will be increasing capacity in one of their plants from 7 million tons per year to 10 million by 2010-11 with an investment of USD$ 1.6 billion •JSW Steel plans to expand its annual capacity to 32 million tons by 2020 •JSW Steel and Japan‘s JFE Steel (worlds no. 5) have made a joint venture to establish a plant in East India, West Bengal of capacity 10 mn tpa. •Rashtriya IspatNigam will increase the production capacity from 2.9 million ton per year to 3.4 million tons per year

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Indian Steel Demand

Source: www.economywatch.com

• Steel consumption growth in last 5 yrs was range bound at 9-13%, • Per capita steel use is 53 kg vis-a-vis 35 kg in 2005 • Steel demand expected to continue @10%+ CAGR till 2020

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Domestic Steel Production of Finished Steel

Source: www.economywatch.com

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Indian Steel Capacity By 2020

BSPL JSPL RINL ISPAT ESSAR TATA JSW SAIL 0 10 20 30 40 50 60 2009 2012 2020

Source: www.economywatch.com  Additional capacity by 2020 ~230-240 million MT  Current capacity ~ 78 million metric tonnes  By the year 2012, Crude Steel Production Capacity Likely to be 110-120 million tns.

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MARKET SHARE OF LEADING PLAYERS IN IRON AND STEEL INDUSTRY

COMPANY

PRODUCTIN OF STEEL (IN MILLION TONNES)

MARKET SHARE(IN PERCE NTAGE TERMS)

SAIL TISCO RNIL ESSAR,ISPAT,JSWL OTHERS TOTAL

13.5 5.2 3.5 8.4 14.5 45.1

32% 11% 8% 19% 30% 100%

Source: www.economywatch.com

Current market situation •The Indian steel market is one of the fastest growing markets. •The steel industry in India plays such a significant role that it has itsown Ministry of Steel (MoS) •According to MoS and other recent sources, the Indian steel industry has emerged as the 4th largest in the world 1.China 2.Japan 3.United States
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4.India 5.Russia •The Indian steel industry is expected to become the 2nd largest steel producing country by the end of 2012 and 2nd largest producer of crude steel by 2015-16 •The Indian steel production grew with 8% in 2009-10 to 56.3 million tones. The Indian steel production is expected to reach 124 million tones by 2012, 8-10% of this will be exported. And the Indian steel production is expected to reach around 275 million tones by 2020.

SWOT ANALYSIS : INDIAN STEEL SECTOR

STRENGTHS   Sixth largest iron ore reserves (25 billion tonnes) after Ukraine, Brazil, Russia, China and Australia. It has the third largest pool of technical manpower capable of understanding and assimilating new technology. Considering the quality of its labour force, the Indian steel industry‘s low unit labour cost is reflected in the cost of production. (SAIL is one of the world‘s lowest cost producers).

WEAKNESS

Unavailability of certain key raw materials (such as, coking coal) poses a challenge for the industry. Major players depend mainly on imports. With prices peaking in global market, this adds to cost of production. Most of the weaknesses in India are, however, classified as systemic deficiencies.  Low labor productivity: The advantage of cheap labour gets offset by low productivity. For instance, while Tata Steel‘s productivity is 214 tonnes/man-year, for POSCO it is 1,345 tonnes/man-year.  High cost of capital: Steel is a capital intensive industry.  High cost of basic inputs and services: High administered prices of essential inputs such as electricity puts the industry at a disadvantage. Freight rates too have risen to Rs 400/tonne.  Delay in adoption of new technology.  Lack of expenditure in research and development The Indian steel industry also lacks international competitiveness on determinants like product quality, product design, on time delivery and distribution network.
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OPPORTUNITY   The emphasis on infrastructure development to achieve a GDP growth rate of 10% in itself presents a huge opportunity for the steel industry‘s growth. Unexplored rural market: The Indian rural market remains fairly unexposed to the multiple use of steel. Per capita consumption in rural area is as low as 3kg. Enhancing the application of steel in rural areas assumes a much greater significance now in increasing consumption. Export market penetration: It is estimated that world steel consumption will double in next 25 years. Quality improvement in Indian steel, combined with India‘s low-cost advantage, will definitely help make substantial gains in the export market, especially in China.

THREATS 

  

India has turned into a net importer in 2009-10. Indian manufacturers face a threat from cheap imports of China. Although government has already taken measures by raising the import duty as well as imposing an anti-dumping duty on certain high-end stainless steel products, there is a tangible gap between domestic production and consumption which has to be filled by imports. Technological change: For developing country like India, where capital itself is costly, technological obsolescence is a major threat. Low import duty on steel. Substitutes: Increasingly steel is being replaced by aluminium in the automobile sector to reduce vehicle weightage. In addition, huge sums of R&D funding have been committed across the world to test whether plastics can replace steel in terms of strength and durability

SWOT ANALYSIS : SAIL

STRENGTH  The diversified product mix and multi location production units are an area of strength for the company. SAIL as a single source is able to cater to the entire steel requirement of any customer. Also, it has a nation wide distribution network with a presence in every
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district in India. This makes quality steel available throughout the length and breadth of the country. SAIL has the largest captive iron ore operations in India, which takes care of its entire requirement. With plans in place to expand the mining operations, the company will continue to be self sufficient in iron ore after completion of the on-going phase of expansion. SAIL's captive power plants take care of about 70% of its total power need. With augmentation of capacities of power plants operated under Joint Venture, the company will continue to have security in this key input in future as well.

WEAKNESS  SAIL is dependent on the market purchase for a key input – coking coal. As India does not have sufficient coking coal deposits, most of the supply is from external sources. As international practice in purchase of coking coal is through annual/quarterly price contract it exposes the company to market risk if the steel prices crash but input prices remain unchanged. Regular superannuations, over the years, have resulted into skill depletion largely in the technical areas. Besides, technological upgradations and modernization also call for consistent efforts towards competency development. A part of the operations in the company continues to be from energy inefficient processes viz. open hearth and ingot route of production, which will be eliminated only after the completion of the current expansion program. At present around 20% of the products are in the form of semi-finished steel, resulting in lower value addition. This will continue till new rolling mills planned under expansion plan contribute to value addition as almost all semis will be converted to finished steel.

  

OPPORTUNITY India is seen as the fastest growing steel economy over the medium to long term. This brings forward an opportunity for SAIL to grow based on domestic demand.

THREAT   China the biggest producer and consumer of steel accounts for nearly 45% of the global crude steel production. Any mismatch between demand and supply of steel in China poses a threat for the steel industry worldwide. There are delays in clearances for mines, land acquisition for Greenfield projects and environment approvals in India. There is thus delay in converting the intent into project on ground especially in the area of expansion and modernisation. This impedes growth of domestic steel capacity creation.

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FINANCIAL ANALYSIS

RATIO ANALYSIS Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis.

LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio.

CURRENT RATIO: This ratio compares the current assets with the current liabilities. It is also known as ―Working capital ratio‖ or ―solvency ratio‖. It is expressed in the form of pure ratio. Current Ratio=Current Assets/Current Liabilities

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES
FY 2008-09
34676/12277 = 2.824

FY 2009-10
39081/11092 = 3.523

FY 2010-11
38090.360/11474.86 =3.319

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Current Ratio
4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 2010-2011 Current Ratio

The current ratio is 3.319:1 in March11. It means that for one rupee of current liabilities, the current assets of 3.319 rupee are available to them. In other words the current assets are 3.319 times the current liabilities. Current ratio in March 11 is almost same in comparison to March 10, which shows the soundness of the company. The consistency increase in the value of current assets will increase the ability of the company to meets its obligations & therefore from the point of view of creditors the company is less risky. A current ratio of 1.0 or greater is considered acceptable for most business. Most analyst agree that other factors need to be considered before drawing conclusion from the current ratio such as how quickly current asset can be converted into cash and the credit terms extended by suppliers and to customers. A high ratio indicates excessive current assets in the form of inventory and underemployed capital thus in the last two years the current ratio is greater than 3.0 and it should be controlled.

QUICK RATIO: Quick ratio is also known as acid test ratio or liquid ratio. Quick ratio compares the quick assets with the quick liabilities. It is expressed in the form of pure ratio.

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QUICK RATIO= (CURRENT ASSETS - INVENTORY) / CURRENT LIABILITIES

ACID TEST RATIO = (TOTAL CURRENT ASSETINVENTORY) / CURRENT LIABILITY

FY 2008-09

FY 2009-10

FY2010-2011

(34676– 10161.19) / 12277 = 1.997

(39081 – 9027.46) / 11092 = 2.709 (38090.3611302.79)/11474.86 =2.33

Quick Ratio
3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 2010-2011

Quick Ratio

The liquid or quick ratio indicates the liquid financial position of an enterprise. The liquid ratio of the company has decreased from 2.709 to 2.33 in March 11 from March 10.That should not be a big concern as the decrease is not very alarming.
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Since the firm will always need to have inventory ,and since the inventory cannot be used to pay bills, quick ratio is a better indicator of the liquidity of the company. Thus a quick ratio of 1.0 or greater is acceptable to ensure company‘s ability to pay its current obligations.

NET WORKING CAPITAL:

Formula: Current Assets - Current Liabilities

FY 2008-09 34676-12277 =22399

FY 2009-10 38090 -11496 =26594

FY 2010-11 39154-11073 =28081

Net Working Capital
30000 25000 20000 15000 10000 5000 0 2008-09 2009-10 2010-11

Net Working Capital

The seasonality of firm sales will be reflected in the seasonality of working capital requirements. If a firm is growing ,its working capital needs will increase as inventory and accounts payable increase faster then the matched accounts receivables.

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The working capital level indicates to suppliers the cushion of cash a firm has when it comes time to pay their bills. So while SAIL has a quick ratio of 2.33 in 2011, it seems to have sufficient working capital to stay current with its suppliers. Which had increased to 28081 in 2011 from 26594 in 2010.

PROFITABILITY RATIO These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are different types of profitability ratios: Gross Profit Margin, Net Profit Margin, and Operating Ratio.

GROSS PROFIT MARGIN RATIO: This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit.

Gross Profit Ratio= (Gross Profit/Net Sales)*100

FY 2008-09 10946/43204*100 =25.33

FY 2009-10 11871/40551*100 =29.27

FY 2010-11 9155/42719*100 =23.43

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Gross Profit Ratio
35 30 25 20 15 10 5 0 2008-09 2009-10 2010-11 Gross Profit Ratio

The gross profit is the profit made on sale of goods. It is the profit on turnover. In March 09 the gross profit ratio is 25.33%. It increased to 29.27 in march 10 and then decreases to 23.43 in March 11.Though the sales of the company increased to 42719 in march 2011 from 40551 in march 2010 but due the increase in the cost of production the company had less profit compared to 2010. The higher the GPM the better pricing flexibility and cost management controls a firm has in its operations. A low GPM may result from low prices, high cost of material, high cost of labour, a bad product mix or a combination of these factors. It can be improved my increasing margins, increasing service fess or reduce cost of goods sold.

OPERATING PROFIT RATIO: This ratio indicates profitability from a firm‘s main operating activities. A higher Operating profit margin implies better sales realization and effective cost control.

Operating Profit Ratio= (Operating Profit/Net Sales)*100

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FY 2008-09 9658/43204*100 =22.35

FY 2009-10 10534/40551*100 =25.97

FY 2010-11 7669/42719*100 =17.95

Operating Profit Margin
30 25 20 15 10 5 0 2008-09 2009-10 2010-11

Operating Profit Margin

Operating profit ratio shows the relationship between operating profit & the sales. The operating profit is equal to gross profit minus all operating expenses or sales less cost of goods sold and operating expenses. The operating profit ratio of 17.95% indicates that average operating margin of Rs.17.95 is earned on sale of Rs. 100. This amount of Rs.17.95 is available for meeting non operating expenses. In the other words operating profit ratio 17.95% means that 17.95% of net sales remains as operating profit after meeting all operating expenses. During the last 3 years the operating profit ratio is increased from 22.35% to 25.97% and then decresed to 17.95%. It indicates that the company has great efficiency in managing all its operations of production, purchase, inventory, selling and distribution and also has control over the direct and indirect costs. However there was a drop in ratio from 2010 to 2011 that is of 25.97% to 17.95%, which is because of decrease margins, decrease service fees and increase expenses. Thus, company has a large margin is available to meet non operating Expenses and earn net profit.

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NET PROFIT MARGIN RATIO: Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage.

Net Profit Ratio = (Net Profit/Net Sales)*100 FY 2008-09 6170/43204*100 =14.28 FY 2009-10 6754/40551*100 =16.65 FY 2010-11 4905/42719*100 =11.48

Net Profit Margin Ratio
18 16 14 12 10 8 6 4 2 0 2008-09 2009-10 2010-11 Net Profit Margin Ratio

The net profit ratio of the company increased in 2010 to 16.65 from 14.28 and then decreased to 11.48 in 2011.The decrease in the profit margin was due to the increase in the cost of production as the sales were higher compared to last year but the profit decreased. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment.

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LEVERAGE RATIO

It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary ratios.

LONG TERM DEBT EQUITY RATIO: This ratio compares the long-term debts with shareholders fund. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure ratio. Debt Equity Ratio= Long Term Debt/Total Equity FY 2008-09 7563/28148 =0.26 FY 2009-10 16511/33317 =0.49 FY 2010-11 20165/37069 =0.54

Debt-Equity Ratio
0.6 0.5 0.4 0.3 0.2 0.1 0 2008-09 2009-10 2010-11

Debt-Equity Ratio

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70000 60000 50000 40000 Equity 30000 20000 10000 0 2008-09 2009-10 2010-11 Debt

The debt equity ratio is important tool of financial analysis to appraise the financial structure of the company. It expresses the relation between the external equities & internal equities. This ratio is very important from the point of view of creditors & owners. The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought to be more risky because they have more liabilities and less equity. The rate of debt equity ratio increased from 0.26 to 0.49 during the year March 09 to March 10 and from 0.49 to 0.54 in march 2011. This shows that SAIL has efficiently managed its creditors and has a very sound financial status. The lower ratio viewed as favourable from long term creditors point of view.

PROPRIETORY RATIO: This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business.

Proprietary Ratio= Shareholders Fund/ (Fixed Asset + Current Liabilities)

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FY 2008-09 29876/40806 =0.71

FY 2009-10 33316/39486 =0.84

FY 2010-11 37070/48782 =0.75

Proprietory Ratio
0.85

0.8

0.75 Proprietory Ratio 0.7

0.65

0.6 2008-09 2009-10 2010-11

The Proprietary ratio of the company is 75% in the March 10. It means that for every one rupee of total assets contribution of 75 paise has come from owners fund & remaining balance 25 paise is contributed by the outside creditors. This shows that the contribution by outside to total assets is less than the owners fund. This Proprietary ratio of the Company shows an downward trend in comparison to the last year which was 84%. Company‘s long-term solvency position is very sound.

TIME INTEREST EARNED:

Times interest earned measures the ability of the firm to service all debts. The figure will indicate how many times a company can cover its fixed contractual obligations to its creditors. The higher the times interest earned, the more likely the firm can meet its obligations.

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Times Interest Earned = EBIT / Interest FY 2008-09 9658/259 =37.28 FY 2009-10 10534/402 =26.20 FY 2010-11 7669/475 =16.14

Times Interest Earned
40 35 30 25 20 15 10 5 0 2008-09 2009-10 2010-11 Times Interest Earned

A Time Interest Earned ratio of 1 indicates that the firm is only earning enough to exactly pay its interest expenses. As TIE increases comfort level of the debt holder increases since they are more confident that its debt will be serviced. In case of SAIL it has decreased from 37.28 in 2009 to 26.20 in 2010 and further decreased to 16.14 in 2011.Thus we can say that they are able to cover their interest expenses 16.14 times out of their earnings, which is less as compared to the last year still not an alarming situation.TIE only looks at how well the firm is covering its interest expense and does not consider the firms ability to repay the principal.

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ACTIVITY RATIO Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery.

INVENTORY TURNOVER RATIO: ITR refers to the number of times the inventory is sold and replaced during the accounting period.

Inventory Turnover Ratio= Cost Of Goods Sold/Average Inventory

FY 2008-09
48738/10161.19 = 4.797

FY 2009-10
43935/9027.46 = 4.867

FY 2010-11
47041/11302.79 =4.161

Inventory Turnover Ratio
5 4.8 4.6 4.4 4.2 4 3.8 2008-09 2009-10 2010-11

Inventory Turnover Ratio

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The higher the inventory turnover rate means the more efficiently a company is able to grow sales volume. Stock turnover ratio shows the relationship between the sales & stock it means how stock is being turned over into sales. The stock turnover ratio in March 11 was 4.1 times which indicate that the stock is being turned into sales 4.1 times during the year. The inventory cycle makes 4.1 rounds during the year. It helps to work out the stock holding period; it means the stock turnover ratio is 4.1 times then the stock holding period is 2.92 months [12/4.1=3.87 months]. This indicates that it takes 2.92 months for stock to be sold out after it is produced.

FIXED ASSETS TURNOVER RATIO: This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).

FAT = ( Sales / Net Fixed Assets )

FY 2008-09 43204/12305 =3.5

FY 2009-10 40551/13615 =2.9

FY 2010-11 42719/15083 =2.7

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Fixed Asset Turnover Ratio
4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 2010-11 Fixed Asset Turnover Ratio

This ratio measures the efficiency with which fixed assets are employed. The Fixed Asset Ratio in March 09 was 3.5 which shows a high degree of efficiency in asset utilization while in March 11 the ratio decreased to 2.7. The decrease was minimal and there is nothing to worry about, the company is utilizing asset efficiently.

INVENTORY CONVERSION PERIOD: The inventory conversion period indicates the no. of days the company holds inventory. Inventory Conversion Period= (Inventory/COGS)*365

FY 2008-09 8765/43204*365 =74.04

FY 2009-10 9027/40551*365 =81.25

FY 2010-11 11302/42719*365 =96.56

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Inventory Conversion Period
120 100 80 60 40 20 0 2008-09 2009-10 2010-11

Inventory Conversion Period

The company‘s inventory conversion period was low in March 09 that is of 74 days as compared to March 10 that is of 81 days which further increased to 95 Days .Which shows that company is using more funds in holding inventory. This ratio is an indication of how well the firm is managing its inventory. By, watching the ICP the amount of inventory can be monitored

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COMPARISON BETWEEN SAIL & TATA STEEL

FINACIAL RATIOS

SAIL

TATA STEEL

2008-09 2009-10

2010-11

2008-09

2009-10

2010-11

CURRENT RATIO

2.8

3.5

3.3

1.1

1.3

1.1

QUICK RATIO

1.9

2.7

2.3

0.7

1

0.6

NET WORKING CAPITAL 22398

28081

26595

13280

13247

13216

GROSS PROFIT MARGIN RATIO

17.48

19.40

12.88

34.20

31.36

34.20

20.41 OPERATING PROFIT RATIO

22.69

16.37

37.68

35.70

38.11

NET PROFIT MARGIN RATIO

13.40

15.73

11.03

21.09

19.96

23.16

DEBT EQUITY RATIO

0.27

0.50

0.54

1.34

0.68

0.59

TIMES INTEREST EARNED

40.02

26.26

15.86

5.71

4.41

6.14

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INVENTORY TURNOVER RATIO FIXED ASSET TURNOVER RATIO

5.86

6.02

5.13

9.36

10.90

9.85

1.35

1.20

1.16

1.22

1.12

1.29

SAIL looks like an easy winner in a liquidity contest. It has an ample margin of current assets over current liabilities, a seemingly good current ratio, as compared to TATA STEEL. A current ratio of 1.0 or greater is considered acceptable for most business. A high ratio indicates excessive current assets in the form of inventory and underemployed capital thus in the last three years the current ratio is greater than 2.0 and it should be controlled.

The Quick Ratio of SAIL is 2.3 while that of TATA STEEL is 0.6. This means that SAIL has more sound quick ratio as compared to TATA STEEL as Day to Day solvency for SAIL is more sound than TATA STEEL.Thus a quick ratio of 1.0 or greater is acceptable to ensure company‘s ability to pay its current obligations. A value of less than 1.0 signals a problem in meeting short term obligations. But, however there may be valid reasons for the Quick Ratio to be less then 1.For example it could to be due to growth ,timing of receivables versus payables, bad debt reduction of receivables etc.

The Net working capital of SAIL is much greater then TATA STEEL in all the years. The working capital level indicates to suppliers the cushion of cash a firm has when it comes time to pay their bills. So SAIL has a working capital of 26595 crore in 2011, while TATA STEEL has that of 13216 crore in 2011.Thus, SAIL seems to have sufficient working capital to stay current with its suppliers.

The Gross Profit Ratio of SAIL is 12.88% in 2011 while of TATA STEEL is 34.20% in 2011. This means that TATA STEEL have higher profit remaining after manufacturing costs are met as compared to SAIL.

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The Operating Profit Ratio Of SAIL is 16.37% while of TATA STEEL is 38.11% in 2011. This means that TATA STEEL has better sales realization and effective cost control as compared to SAIL.

The Net Profit Ratio of SAIL is 11.03% in 2011 while of TATA STEEL is 23.16%. This means that TATA STEEL have better cost control, managerial efficiency & sales promotion as compared to SAIL.

The Long Term Debt Equity Ratio Of SAIL is 0.54 while of TATA STEEL is 0.59 in 2011. This means that SAIL has better ratio which means that Internal Equities are more than External Equities. The lower ratio viewed as favourable from long term. Creditor‘s point of view. TATA STEEL has higher Long Term Debt Equity Ratio. Hence Creditor‘s will look at SAIL as more favourable company.

Time Interest Earned Ratio of SAIL is 15.86 in 2011 while that of TATA STEEL is 6.14 in 2011. Thus we can say that SAIL are able to cover their interest expenses 15.86 times out of their earnings, while in case of TATA STEEL it is 6.14 times. A high Time Interest Earned ratio indicates that comfort level of the debt holder increases since they are more confident that its debt will be serviced, thus they are more comfortable with SAIL.

The Inventory Turnover Ratio of SAIL is 5.13 while TATA STEEL is 9.85 IN 2011. SAIL has Stock Holding Period of 2.33 months (12/5.13) and TATA STEEL has Stock Holding Period of 1.21 months (12/9.85). Hence, TATA STEEL is using less funds in holding inventory as compared to SAIL.

Fixed Assets Turnover ratio of SAIL is 1.16 in 2011, while that of TATA STEEL is 1.29 in 2011. This ratio measures the efficiency with which fixed assets are employed. Thus high FTA ratio of TATA STEEL indicates that the company is utilizing asset efficiently then SAIL.

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CASH FLOW ANALYSIS
A cash flow statement, along with the balance sheet and income statement are the three most common financial statements used to gauge a company‘s performance and overall health. The same accounting data is used in preparing all three statements, but each takes a company‘s pulse in a different area.

The cash flow statement discloses how a company raised money and how it spent those funds during a given period. It is also an analytical tool, measuring an enterprise‘s ability to cover its expenses in the near term. Generally speaking, if a company is consistently bringing in more cash than it spends, that company is considered to be of good value.

A cash flow statement is divided into three parts: operations, investing and financing. The following is an analysis of a real-world cash flow statement belonging SAIL.

Cash from operations: This is cash that was generated over the year from the company‘s core business transactions. Note how the statement starts with net earnings and works backward, adding in depreciation and subtracting out inventory and accounts receivable. In simple terms, this is earnings before interest and taxes (EBIT) plus depreciation minus taxes.

YEAR

NET CASH FLOW FROM OPERATING ACTIVITIES

2008-09

6124.26

2009-10

4800.48

2010-11

2156.02

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Net Cash Flow From Operating Activities
7000 6000 5000 4000 3000 2000 1000 0 2008-09 2009-10 2010-11 Net Cash Flow From Operating Activities

Interpretation: This may serve as a better indicator than earnings, since noncash earnings can‘t be used to pay off bills. In case of SAIL cash flow from operating activities had been continuously on decline in the past 2 years. Which indicates that the company is generating lower business profits. The company is advised to sustain the cash from the operating activities.

Cash from investing: Some businesses will invest outside their core operations or acquire new companies to expand their reach.

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YEAR 2008-09

NET CASH FLOW FROM INVESTING ACTIVITIES -4406.47

2009-10

-8021.15

2010-11

-8933.28

Net Cash Flow From Investing Activities
0 -1000 -2000 -3000 -4000 -5000 -6000 -7000 -8000 -9000 -10000 Net Cash Flow From Investing Activities 2008-09 2009-10 2010-11

Interpretation: This portion of the cash flow statement accounts for cash used to make new Investments, as well as proceeds gained from previous investments. SAIL has showed negative net cash flow from investing activities which means it has invested huge amount in fixed assets in the past 3 years.

Cash from financing: This last section refers to the movement of cash from financing activities.

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Two common financing activities are taking on a loan or issuing stock to new investors. Dividends to current investors also fit in here.

YEAR

NET CASH FLOW FROM FINANCING ACTIVITIES

2008-09

2751.30

2009-10

7395.00

2010-11

1817.52

Net Cash Flow From Financing Activities
8000 7000 6000 5000 4000 3000 2000 1000 0 2008-09 2009-10 2010-11 Net Cash Flow From Financing Activities

Interpretation: In 2011 SAIL saw a downward trend. A simple formula for this section: cash from issuing stock minus dividends paid, minus cash used to acquire stock.

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COMPARSION OF CASH FLOWS OF SAIL & TATA STEEL

CASH FLOWS

TATA STEEL

SAIL

2008-09

2009-10

2010-11

2008-09

2009-10

2010-11

NET CASH FLOW FROM OPERATING ACTIVITIES NET CASH FLOW FROM INVESTING ACTIVITIES

7397.22

8369.22

8542.72

6124.26

4800.48

2156.02

-9428

-5254.84 -13288

-4406.47

-8021.1

-8933.28

NET CASH FLOW FROM FINANCING ACTIVITIES

3156.42

-1473.13 5652.81

2751.30

7395.00

1817.52

Net cash flow from operating activities of SAIL is 2156 crore in 2011,while that of TATA STEEL is 8542 crore in 2011.Which indicates that earning of TATA STEEL in terms of cash by its core activities are higher then that of SAIL.

Net cash flow from investing activities of SAIL in march 2011 is -8933 crore while that of TATA STEEL is -13288 crore. This indicates that TATA STEEL is making heavy capital expenditure (investment, acquisitions and life long assets) then SAIL. Which shows that TATA STEEL is spending significant cash in project in which it hopes will lead to future growth.

Net cash flow from financing activities of SAIL in march 2011 is 1817 crore while that of TATA STEEL is 5652 crore. Which shows that SAIL has paid off its previous debts, issued heavy dividends and carried out the repurchase of its stock Which is beneficial from investors point of view.

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Working Capital Management OF SAIL

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. So, the research methodology not only talks about the research methods but also considers the logic behind the method used in the context of the research study.

DATA COLLECTION The required data for the study are basically secondary in nature and the data are collected from the audited reports of the company. SOURCES OF DATA The sources of data are from the annual reports of the company from the year 2008-2009 to 2010-2011 METHODS OF DATA ANALYSIS The data collected were edited, classified and tabulated for analysis. The Analytical tools used in this study are ANALYTICAL TOOLS APPLIED The study employs the following analytical tools: 1. Comparative statement. 2. Trend Percentage. 3. Ratio Analysis.

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WORKING CAPITAL Meaning Working capital is how much in liquid assets that a company has on hand. Working capital is needed to pay for planned and unexpected expenses, meet the short-term obligations of the business, and to build the business. Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. Thus it can be said that working capital are the funds required for short term purposes or day to day expenses. It refers to part of firm‘s capital required for financing short term or current assets. Also known as revolving or short term capital or circulating capital. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

NEED FOR WORKING CAPITAL The basic objective of financial management is to maximize shareholder‘s wealth. This is only possible only when the company earns sufficient profit. The amount of such profit largely depends upon the magnitude of sales. But sales do not convert into cash instantaneously. There is always a time gap between the sale of goods and receipt of cash. Working capital is required for this period in order to sustain the sales activity. In case working capital is not available for this period, the company will not be in a position to sustain the sales since it may not be in a position to purchase raw materials, pay wages and other expenses required for manufacturing the goods to be sold.

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TYPES OF WORKING CAPITAL The working capital can be classified as follows which can be shown from the following chart

KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT
GROSS WORKING CAPITAL NET WORKING CAPITAL

ON THE BASIS OF TIME

PERMANE NT OR FIXED WORKING CAPITAL RESERVE WORKING CAPITAL

TEMPORA RY OR VARIABLE WORKING CAPITAL SEASONAL WORKING CAPITAL SPECIAL WORKING CAPITAL

REGULAR WORKING CAPITAL

OBJECTIVES OF WORKING CAPITAL Every business needs some amount of working capital. It is needed for following purposes•For the purchase of raw materials, components and spares. • To pay wages and salaries. • To incur day to day expenses and overhead costs such as fuel, power, and office expenses etc. • To provide credit facilities to customers etc. FACTORS THAT DETERMINE WORKING CAPITAL A firm should have neither low nor high working capital. Low working capital involves more risk and more returns, high working capital involves less risk and less returns. Risk here refers to technical insolvency while returns refer to increased profits/earnings. The amount of working capital is determined by a wide variety of factors. • Nature of business
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• • • • • •

Seasonality of operations Production cycle Production policy Credit Policy Market conditions Conditions of supply

SOURCES OF WORKING CAPITAL The working capital requirements should be met both from short term as well as long term sources of funds. financing of working capital through short term sources of funds has the benefits of lower cost and establishing close relationship with banks. Financing of working capital through long term sources provides the benefits of reduces risk and increases liquidity

ADVANTAGES OF WORKING CAPITAL • It helps the business concern in maintaining the goodwill. • It can arrange loans from banks and others on easy and favorable terms. • It enables a concern to face business crisis in emergencies such as depression. • It creates an environment of security, confidence, and overall efficiency in a business. • It helps in maintaining solvency of the business.

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ADEQUACY OF WORKING CAPITAL A firm must have adequate working capital. It should neither be excessive nor inadequate. Excessive working capital is a situation where in the firm invests excessive funds in working capital. These excessive or idle funds earn no profit for the firm.

DANGERS OF EXCESS WORKING CAPITAL • • • • • • • • • • It may result in unnecessary accumulation of inventory which may lead to increase in wastage due to mishandling, theft etc. It is an indication of defective credit policy. There is the possibility of higher incidence of bad debts. It may lead to complacency in managing day-to-day expenses of the firm. Executives may be tempted to spend more Excessive working capital means idle funds which earns no profit for the business, and thus cannot earn proper rate of return on its investments. It may result into overall inefficiency in the organizations. When there is excessive working capital relation with banks and other financial institutions may not be maintained. The redundant working capital gives rise to speculative transactions. Due to low rate of return on investments the value of shares may also fall. In case of redundant working capital there is always a chance of financing long term assets from short term funds which is very harmful in long run for any organization

Inadequate working capital is a situation where in the firm does not have sufficient funds to meet day to day running expenses. This ultimately results in interruption in the production process.

DANGERS OF INADEQUATE WORKING CAPITAL • • Operating inefficiencies creep in when it becomes difficult of meet day-to-day commitments. It becomes difficult to implement operating plans and achieve firm‘s targets.

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• • • • •

It directly affects firm‘s liquidity position and the firm may find it difficult to honor short-term obligations. It cannot by its requirements in bulk and cannot avail of discounts it stagnates growth. It becomes difficult for the firm to exploit favorable market conditions and undertake profitable projects due to non availability of working capital funds. It becomes impossible to utilize efficiently the fixed assets due to non availability of liquid funds thus the firm‘s profitability would deteriorate. The rate of return on investments also falls with the shortage of working capital.

WORKING CAPITAL MANAGEMENT The term Working capital management refers to the management efforts for optimizing the working capital and improving the productivity of the short term capital invested in the Business. It includes decisions relating to working capital and short term financing and involves managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. A firm must have adequate working capital, i.e.; as much as needed to run the firm. It should be neither excessive nor inadequate as both situations can be dangerous. Excessive working capital means the firm has idle funds which earn no profits for the firm. Inadequate working capital means the firm does not have sufficient funds for running its operations. The basic objective of working capital management is to manage firms current assets and current liabilities in such a way that the satisfactory level of working capital is maintained, i.e.; neither inadequate nor excessive. By definition, working capital management entails short term decisions - generally, relating to the next one year period - which is "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability. • One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively
[56]

corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. • In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making.

SAIL
WORKING CAPITAL
Size of working capital Particulars A) current Assets and Loan &advance Inventories Sundry debtors Cash and Bank balances Other current assets Loans and advance TOTAL OF A (Gross working capital) B) Current liabilities and provision Current liabilities Provisions TOTAL OF B NET WORKING CAPITAL (A-B) 5398.20 5550.78 6400.92 6797.83 7688.67 9450.64 10936.86 11474.86 6211.67 5882.10 6651.47 2314.75 9609.83 152.56 1650.01 6857.23 3048.12 10161.19 9027.46 3027.77 3493.90 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

11302.79
4161.30

13759.44 18264.67 22436.37 17478.86 489.56 273.08 1014.96 780.34 2379.75 2207.18 3343.09 4657.85

20378.62 26317.62 34675.77 39081.16 38090.36

10948.98 13198.75 17139.31 11148.53 17356.96 9429.64 13118.87 17536.46 21932.63 20733.40

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DEBTORS TURNOVER RATIO or RECEIVABLE TURNOVER RATIO

This ratio throws light on the credit and collection policy pursued by a concern. Debtors are convertible into cash over short period and therefore, are included current assets.DTR is an important tool of analyzing the efficiency of liquidity, working capital management of a company. The liquidity position of a company depends on the quality of debtors to a great extent. It measures the rapidity or the slowness of their collectability. The high DTR implies the prompt payments made by the debtors

DEBTORS TURNOVER RATIO = NET
CREDIT SALES / AVERAGE DEBTORS
FY 2007-08
14.95

FY 2008-09
16.10

FY 2009-10
12.57

FY 2010-2011
12.28

DEBTORS TURNOVER RATIO
18 16 14 12 10 8 6 4 2 0 2007-08 2008-09 2009-10 2010-11 DEBTORS TURNOVER RATIO

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 

It can be seen from the above table that the DTR also recorded a fluctuating trend with an average of13.76 This indicates a speedy collection & efficient credit policy of SAIL & also its good working capital management policy.

DAYS SALES OUTSTANDING or AVERAGE COLLECTION PERIOD This ratio is known as average collection period .Days sales outstanding period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection, the better the quality of debtors, since a short collection period implies the prompt payments by debtors. In this ratio credit sales data was not available so we have taken sales data.

DAYS SALES OUTSTANDING = (AVERAGE DEBTORS * 360) / NET CREDIT SALES

FY 2007-08
24.09

FY 2008-09 FY 2009-10
22.36 28.64

FY2010-11
29.29

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DAYS SALES OUTSTANDING
35 30 25 20 15 10 5 0 2007-08 2008-09 2009-10 2010-11 DAYS SALES OUTSTANDING

 

Table shows a fluctuating trend with an average of 26 days of days sales outstanding. SAIL average collection period of 26 days indicates good effective collection policy followed by SAIL.

INVENTORY TURNOVER RATIO This ratio focuses light on the inventory control policy adopted by a concern. This ratio shows the relationship between the costs of good sold or sales during a particular a particular year and inventories kept by a concern during that year. Higher ITR shows higher efficiency of the management and vice versa. The average inventory is the average of opening and closing balances of inventory. Cost of goods sold figure is not available so we have taken a sales figure.

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INVENTORY TURNOVER RATIO = COST OF GOODS SOLD / AVG INVENTORY
FY 2007-08 FY 2008-09 FY 2009-10 FY2010-2011

45555.34/6754.35 = 6.74

48738/10161.19 = 4.797

43935/9027.46 = 4.867

47041/11302.79 =4.161

Inventory Turnover Ratio
8 7 6 5 4 3 2 1 0 2007-08 2008-09 2009-10 2010-11 Inventory Turnover Ratio

 

It is evident that the ITR registered a decreasing trend during the period under study in SAIL. The average of this ratio was 5.75 times. It is clear that the management tried to control its inventories level but failed to do so and finances remained idle.

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DAYS OF INVENTORY HOLDING The reciprocal of inventory turnover gives average holding in percentage term but when the numbers of days in a year (365) are divided by inventory turnover, we obtain days of inventory holding (DIH). Decreasing of DIH is good sign DAYS OF INVENTORY HOLDING = (AVERAGE INVENTORY * 360) / COST OF GOODS SOLD

FY 2007-08
54.19

FY 2008-09
75.00

FY 2009-10
73.92

FY2010-2011
77.79

DAYS OF INVENTORY HOLDING
90 80 70 60 50 40 30 20 10 0 2007-08 2008-09 2009-10 2010-11 DAYS OF INVENTORY HOLDING

  

It can be seen that the DIH recorded a fluctuating trend . on an average the DIH in SAIL was 57 days during a period of study SAIL utilization of inventories is generally satisfactory in generating sales however inventory holding is fluctuating. But increasing of DIH is not a good sign.

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CASH CONVERSION EFFICIENCY This value indicates how well a company transforms its revenues into cash flow.

CASH CONVERSION EFFICIENCY = (CASH FLOW FROM OPERATION ACTIVITIES * 100) / SALES

FY 2007-08

FY 2008-09

FY 2009-10

FY2010-2011

14.68

12.56

10.92

4.58

CASH CONVERSION EFFICIENCY
16 14 12 10 8 6 4 2 0 2007-08 2008-09 2009-10 2010-11 CASH CONVERSION EFFICIENCY

The CCE of SAIL registered a decreasing trend and has decreased at a very high rate in the year 2010-11. The company performance continues to be poor in cash conversion. It is not a good sign for working capital management.
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WORKING CAPITAL TURNOVER RATIO Working capital turnover indicates the relationship of sales (Income) with the net working capital i.e. the current assets –current liabilities. This means how many times the net working capital is of quantum of sales.

WORKING CAPITAL TURNOVER RATIO = SALES / WORKING CAPITAL FY 2007-08
45555/16879 = 2.699

FY 2008-09
48738/22398 = 2.176

FY 2009-10
43935/27989 = 1.570

FY 2010-11
47041/26595 =1.768

WC Turnover Ratio
3 2.5 2 1.5 1 0.5 0 2007-08 2008-09 2009-10 2010-11

WC Turnover Ratio

WCT registered a increasing trend the average being 3.413

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Working capital when compared to sales shows a increasing trend which is a good sign again but finances remain idle and the company is orthodox in utilization of funds.

CURRENT ASSET TURNOVER RATIO

CURRENT ASSET TURNOVER RATIO = NET SALES /CURRENT ASSET
FY 2007-08
45555/26318 = 1.731

FY 2008-09
48738/34676 = 1.406

FY 2009-10
43935/39081 = 1.124

FY 2010-11
47041/38090 =1.234

CA Turnover Ratio
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007-08 2008-09 2009-10 2010-11 CA Turnover Ratio

Current asset turnover ratio of SAIL shows a dip and then there is a bit increase in the year 2010-11 this indicates that the working capital conversion cycle was lengthened and assets were not easily convertible to cash or its equivalents.
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OPERATING CYCLE OF SAIL It is clear that working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically termed as operating cycle of the business. In case of a manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events: 1. 2. 3. 4. 5. Conversion of cash into raw materials; Conversion of raw materials into work in process; Conversion of work in process into finished goods; Conversion of finished goods into accounts receivable and Conversion of accounts receivable into cash.

This cycle will be repeated again and again The operating cycle of a manufacturing business can be shown in the form of following chart-

Operating cycle of a manufacturing business
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Formulae to calculate operating cycle
A. Materials storage period (days) =Average stock of materials Daily average consumption = (Opening + closing stock)/2 (consumption of the year)/365 B. Conversion period (days) =Avg. stock of semi-finished goods Avg. daily factory cost =(opening +closing stock)/2 (Total factory cost)/365 C. Finished goods storage period (days) = Avg. stock of finished goods Avg. daily cost of sales = ( opening +closing stock)/2 (Total annual cost of sales)/365 D. Average collection period (days) = Avg. debtors & B/R Avg. daily credit sales =(opening +closing debtors & B/R)/2 (Annual credit sales)/365

2009-10
= (2610.67+2656.49)/2 17340.18/365 =2633.58/47.51 =55 days

2010-11
=(2656.49+3065.56)/2 22076.40/365 =2861.02/60.48 =47 days

= (5913.76+4660.39)/2 31880.38/365 = 5287.07/87.32 = 61 days

= (4660.39+6132.08)/2 36620.63/365 = 5396.23/100.33 = 54 days

= (5913.76+4660.39)/2 31471.55/365 = 5287.07/86.22 = 61 days

= (4660.39+6132.08)/2 35867.31/365 = 5396.23/98.26 = 55 days

= (3067.68+3493.90)/2 35148/365 = 3280.79/96.29 = 37 days

= (3493.90+4161.30)/2 37632.80/365 = 3827.60/103.10 = 37 days

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E. Average payment period (days) = Avg. creditors & B/P Avg. daily credits purchase = (opening + closing creditors & B/P)/2 (Annual credit purchase)/365 F. Duration of Operating cycle (days) = A+B+C+D-E

= (4114.59+6213.88)/2 13872.14/365 = 5164.23/38 = 136 days

= (6213.88+6118.76)/2 17661.12/365 = 6166.32/48.38 = 127 days

= 78 days

= 66 days

G. Number of operating cycles = 365/Duration of operating cycle

= 365/78 =4.67

= 365/66 = 5.53

Note:

1. Avg. Stock of raw materials:- from schedules inventory(1.8). 2. Avg. Daily consumption of raw materials:- from schedule raw material consumed (2.6). 1. Avg. Stock of semi-finished goods:- from schedule inventories. 2.Total factory cost or annual cost of production(= Raw materials consumed+ other manufacturing expenses+ depreciation+ opening WIPclosing WIP) . (Other manufacturing expenses= employee remuneration & benefits+ stores & spares consumed+ power & fuel) :- from P& L Account. 1. Avg. Stock of finished goods:- from schedule inventories. 2. Annual cost of sales= Total expenditure excluding interest and finance charges and depreciation:- from P&L Account. 1. Opening + closing debtors:- from schedule sundry debtors 2. Annual credit sales = 80% of the gross sales (ASSUMPTION). 1. Opening + closing creditors:- from schedule current liabilities (1.13)

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=micro & small enterprises+ sundry creditors other than micro & small enterprises. 2. Avg. Daily credit purchase:- from schedule raw material consumed(2.6) = 80% of the raw material consumed (ASSUMPTION).

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RECOMMENDATION

In view of the analysis and with the change in industrial scenario it is felt that a company must reorient its policies for betterment, now a days there is tough competition in the market of STEEL Product. Hence company needs certain best policies for competing with its Competitor in domestic as well as global market. In brief the following suggestions are:-

  

Working Capital is managed well in SAIL though there has been a net decrease in net working capital which has happened due to increase in current liabilities. The loyalty of customers and suppliers could be increased by giving them proper trade discounts which would increase the goodwill of the company. The Company must take certain steps to decrease the working capital cycle. One way can be better management of inventories. Proper planning of production should be maintained and communicated to all concerned departments so as to determine the exact need of materials and prevent unnecessary blockage of useless materials. Plant should given freedom in deciding the credit policies, cash discount credit rating. Company should stretch the credit period given by the suppliers. As understand from the explanation of the management, there is huge volume of nonmoving and obsolete stores and spare items which are yet to be disposed of. The company should tighten the debt collection efforts and should reduce the amount tied up in debtors. Inventory turnover ratio is lesser in SAIL compared to its competitor‘s which indicates insufficient management of inventories. So it is advisable to keep less inventories to minimize cost and improve efficiency. The company is more traditionally financed with low debt and more of equity financing, so in future debt should be preferred for financing to bring the ratio close to the ideal ratio of 1:1. The management of SAIL should try to maintain a definite proportion among various components of working capital in relation to overall current assets to keep an adequate quantum of liquidity all time.

 

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Proprietary ratio of the company fluctuates during the period of study. It shows the change in the value of reserves and surplus in the form of shareholders‘ fund.

[71]

CONCLUSION
  Working capital management is of crucial importance in corporate financial management decision. The Operating cycle has decreased from 78 days in 2009-10 to 66 days in 2010-11.This indicates that if we look at Operating Cycle as an indicator of efficiency then efficiency has increased in the past one year. The working capital of SAIL has decreased in the past year after a continues increase in the past four years due to a more than proportionate increase in the current liabilities and a decrease in the cash and bank balance of the company. Working capital turnover ratio is continuously increasing that shows increasing needs of working capital. On the basis of analysis of financial statements of SAIL we may conclude that the overall working stability – soundness has improved over the years.Sales turnover of SAIL increased by 5.34% ie Rs 42719 crore in financial year 2010-11 from Rs 40551 crore in financial year 2009-10. Whereas Profit before tax has decreased by 28.99% ie Rs 7194 crore in the financial year 2010-11 from Rs 10132 crore in the financial year 2009-10 indicating increase in cost of goods sold. The debtor turnover ratio is lower for SAIL compared to its competitors which shows that the debtors are less liquid implying inefficient management of debtors/sales. The proportion of current assets to total assets has increased comparing to current liababalities which serve as an evidence of good working capital position of the comapny. The current ratio of SAIL is more than its competitor which shows that it has enough liquidity compared to it competitor. The debt equity ratio is lower than it competitor which means it is more traditionally financed than its competitor.It has lower debt so it can easily raise debt in the future. SAIL is more efficient and effective to utilize its funds.

 

    

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KEY LEARNINGS

Business and competitive environment in which the organization is working.

Financial ratios importance and the areas in which organization is going stronger and the front in which it should work upon to control those ratios in which it is weaker.

Working capital management is highly important to manage and organize thing.

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ANNEXURE
Steel Authority of India
Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 4,130.40 4,130.40 0.00 0.00 32,939.07 0.00 37,069.47 11,813.91 8,351.58 20,165.49 57,234.96 Mar '11 4,130.40 4,130.40 0.00 0.00 29,186.30 0.00 33,316.70 7,755.90 8,755.35 16,511.25 49,827.95 Mar '10 4,130.40 4,130.40 0.00 0.00 23,853.70 0.00 27,984.10 1,473.60 6,065.19 7,538.79 35,522.89 Mar '09 4,130.40 4,130.40 0.00 0.00 18,933.17 0.00 23,063.57 925.31 2,119.93 3,045.24 26,108.81 Mar '08 4,130.40 4,130.40 0.00 0.00 13,182.75 0.00 17,313.15 1,556.39 2,624.13 4,180.52 21,493.67 Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Application Of Funds Gross Block 38,260.60 35,382.49 32,728.69 30,922.73 29,912.71

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Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

23,180.54 15,080.06 22,228.43 684.14 11,302.79 4,161.30 143.99 15,608.08 6,175.81 17,334.87 39,118.76 0.00 13,994.33 5,882.10 19,876.43 19,242.33 0.00 57,234.96

21,780.91 13,601.58 15,039.83 668.83 9,027.46 3,493.90 230.76 12,752.12 5,155.32 22,205.61 40,113.05 0.00 13,383.67 6,211.67 19,595.34 20,517.71 0.00 49,827.95

20,459.86 12,268.83 6,544.24 652.70 10,121.45 3,024.36 347.94 13,493.75 4,292.50 17,880.59 35,666.84 0.00 10,201.51 9,408.21 19,609.72 16,057.12 0.00 35,522.89

19,351.42 11,571.31 2,389.55 538.20 6,857.23 3,048.12 470.17 10,375.52 3,644.22 13,289.27 27,309.01 0.00 8,960.91 6,797.83 15,758.74 11,550.27 59.48 26,108.81

18,315.00 11,597.71 1,236.04 513.79 6,651.47 2,314.75 437.36 9,403.58 3,097.70 9,172.47 21,673.75 0.00 8,105.99 5,550.78 13,656.77 8,016.98 129.15 21,493.67

Contingent Liabilities Book Value (Rs)

30,519.80 89.75

28,382.46 80.66

32,193.13 67.75

17,143.54 55.84

5,605.90 41.92

Profit & Loss account Mar '11

------------------- in Rs. Cr. ------------------Mar '10 Mar '09 Mar '08 Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Income

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Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

47,156.25 4,621.95 42,534.30 2,038.97 1,471.69 46,044.96

44,059.72 3,463.82 40,595.90 2,557.00 -1,157.45 41,995.45

49,331.47 5,532.89 43,798.58 2,002.77 1,872.87 47,674.22

46,175.85 6,217.18 39,958.67 1,701.59 436.28 42,096.54

39,722.59 5,393.82 34,328.77 1,408.71 289.15 36,026.63

22,642.47 3,586.07 7,530.24 1,310.00 1,927.46 45.42 0.00 37,041.66 Mar '11

18,611.12 3,364.30 5,417.00 870.35 1,754.02 206.62 0.00 30,223.41 Mar '10

23,915.45 3,119.42 8,401.73 643.35 1,701.52 878.94 -1,930.40 36,730.01 Mar '09

17,257.67 2,825.56 7,919.28 492.18 1,727.55 737.79 -1,832.22 29,127.81 Mar '08

16,252.28 2,578.84 5,087.76 346.59 1,602.31 528.71 -1,423.08 24,973.41 Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit

6,964.33 9,003.30 474.61 8,528.69 1,482.20 1.12 7,045.37 163.71 7,209.08 2,304.34 4,904.74

9,215.04 11,772.04 402.01 11,370.03 1,337.24 10.33 10,022.46 184.80 10,207.26 3,452.89 6,754.37

8,941.44 10,944.21 253.24 10,690.97 1,285.12 128.02 9,277.83 181.26 9,459.09 3,284.28 6,174.81

11,267.14 12,968.73 250.94 12,717.79 1,235.48 75.49 11,406.82 64.61 11,471.43 3,934.65 7,536.78

9,644.51 11,053.22 332.13 10,721.09 1,211.48 128.59 9,381.02 60.57 9,441.59 3,253.80 6,202.29

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Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

14,399.19 0.00 991.30 161.15

11,612.29 0.00 1,363.03 227.52

12,814.56 0.00 1,073.90 181.26

11,870.14 0.00 1,528.25 258.91

8,721.13 0.00 1,280.42 197.98

41,304.01 11.87 24.00 89.75

41,304.01 16.35 33.00 80.66

41,304.01 14.95 26.00 67.75

41,304.01 18.25 37.00 55.84

41,304.01 15.02 31.00 41.92

Yearly Results Mar '12 Sales Turnover Other Income Total Income Total Expenses Operating Profit Profit On Sale Of Assets Profit On Sale Of Investments Gain/Loss On Foreign Exchange VRS Adjustment Other Extraordinary Income/Expenses Total Extraordinary Income/Expenses Tax On Extraordinary Items Net Extra Ordinary Income/Expenses Gross Profit Interest PBDT Depreciation Depreciation On Revaluation Of Assets PBT Tax Net Profit Prior Years Income/Expenses Depreciation for Previous Years Written Back/ Provided Dividend Dividend Tax 46,341.79 1,555.73 47,897.52 40,239.90 6,101.89 ------262.02 --7,657.62 677.70 6,717.90 1,567.03 -5,150.87 1,608.15 3,542.72 -----

------------------- in Rs. Cr. ------------------Mar '11 43,418.76 1,440.13 44,858.89 35,745.07 7,673.69 --------9,113.82 472.48 8,656.11 1,484.27 -7,171.84 2,290.59 4,881.25 14.77 ---Mar '10 41,307.21 1,926.05 43,233.26 31,361.98 9,945.23 --------11,871.28 402.01 11,544.50 1,337.24 -10,207.26 3,452.89 6,754.37 75.23 ---Mar '09 44,208.43 1,902.32 46,110.75 35,184.96 9,023.47 -----16.02 --10,925.79 253.24 10,744.21 1,285.12 -9,459.09 3,284.28 6,174.81 55.64 ---Mar '08 40,214.16 1,302.88 41,517.04 28,875.14 11,339.02 -----313.25 --12,641.90 250.94 12,704.21 1,235.48 -11,468.73 3,934.65 7,534.08 2.70 ----

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Dividend (%) Earnings Per Share Book Value Equity Reserves Face Value

-8.58 -4,130.53 35,680.79 10.00

-11.82 -4,130.40 33,491.64 10.00

-16.35 -4,130.40 29,186.30 10.00

-14.95 -4,130.40 23,853.70 10.00

-18.24 -4,130.40 -10.00

Cash Flow Mar '11

------------------- in Rs. Cr. ------------------Mar '10 Mar '09 Mar '08 Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

7194.31 2156.02 -8933.28

10132.03 4800.48 -8021.15

9403.45 6124.26 -4406.47

11468.73 8378.18 -1139.89

9422.62 5632.91 -587.53

1817.52

7395.00

2751.30

-3088.68

-1608.19

-4959.74

4174.33

4469.09

4149.61

3437.19

22439.00 17479.26

18264.67 22439.00

13759.44 18228.53

9609.83 13759.44

6172.64 9609.83

Tata Steel
Profit & Loss account Mar '11 ------------------- in Rs. Cr. ------------------Mar '10 Mar '09 Mar '08 Mar '07

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12 mths

12 mths

12 mths

12 mths

12 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 9,395.92 1,558.49 2,618.27 2,905.16 501.96 1,529.73 -198.78 18,310.75 Mar '11 8,356.45 1,383.44 2,361.48 2,419.89 417.90 1,287.04 -326.11 15,900.09 Mar '10 8,568.71 1,222.48 2,305.81 2,127.48 400.24 1,180.08 -343.65 15,461.15 Mar '09 6,063.53 1,038.77 1,589.77 1,654.96 247.77 1,029.30 -175.50 11,448.60 Mar '08 5,762.42 1,027.84 1,454.83 1,561.40 244.92 805.99 -236.02 10,621.38 Mar '07 31,901.94 2,594.59 29,307.35 1,435.80 173.65 30,916.80 26,757.60 1,816.95 24,940.65 1,241.08 -134.97 26,046.76 26,843.53 2,495.21 24,348.32 603.07 289.27 25,240.66 22,191.43 2,537.02 19,654.41 586.41 38.73 20,279.55 19,756.84 2,304.18 17,452.66 362.12 82.47 17,897.25

12 mths

12 mths

12 mths

12 mths

12 mths

Operating Profit PBDIT Interest PBDT

11,170.25 12,606.05 1,686.27 10,919.78

8,905.59 10,146.67 1,848.19 8,298.48

9,176.44 9,779.51 1,489.50 8,290.01

8,244.54 8,830.95 929.03 7,901.92

6,913.75 7,275.87 251.25 7,024.62

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Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

1,146.19 0.00 9,773.59 0.00 9,773.59 2,912.44 6,865.69 8,914.83 0.00 1,151.06 156.71

1,083.18 0.00 7,215.30 0.00 7,215.30 2,168.50 5,046.80 7,543.64 45.88 709.77 122.80

973.40 0.00 7,316.61 0.00 7,316.61 2,114.87 5,201.74 6,892.44 109.45 1,168.95 214.10

834.61 0.00 7,067.31 0.00 7,067.31 2,380.28 4,687.03 5,385.07 22.19 1,168.93 202.43

819.29 0.00 6,205.33 57.29 6,262.62 2,040.47 4,222.15 4,858.96 0.00 943.91 160.42

9,592.14 71.58 120.00 503.19

8,872.14 56.37 80.00 418.94

7,305.92 69.70 160.00 331.68

7,305.84 63.85 160.00 298.78

5,804.73 72.74 155.00 240.31

Balance Sheet Mar '11 12 mths Sources Of Funds

------------------- in Rs. Cr. ------------------Mar '10 12 mths Mar '09 12 mths Mar '08 12 mths Mar '07 12 mths

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Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities

959.41 959.41 178.20 0.00 47,307.02 0.00 48,444.63 2,009.20 26,291.94 28,301.14 76,745.77 Mar '11 12 mths

887.41 887.41 0.00 0.00 36,281.34 0.00 37,168.75 2,259.32 22,979.88 25,239.20 62,407.95 Mar '10 12 mths

6,203.45 730.79 0.00 5,472.66 23,501.15 0.00 29,704.60 3,913.05 23,033.13 26,946.18 56,650.78 Mar '09 12 mths

6,203.30 730.78 0.00 5,472.52 21,097.43 0.00 27,300.73 3,520.58 14,501.11 18,021.69 45,322.42 Mar '08 12 mths

580.67 580.67 147.06 0.00 13,368.42 0.00 14,096.15 3,758.92 5,886.41 9,645.33 23,741.48 Mar '07 12 mths

Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 22,846.26 11,041.16 11,805.10 6,969.38 46,564.94 3,953.76 428.03 512.76 4,894.55 16,814.04 3,628.78 25,337.37 0.00 10,383.04 3,547.98 13,931.02 11,406.35 0.00 76,745.77 12,582.24 503.19 22,306.07 10,143.63 12,162.44 3,843.59 44,979.67 3,077.75 434.83 500.30 4,012.88 6,678.55 2,733.84 13,425.27 0.00 8,699.34 3,303.68 12,003.02 1,422.25 0.00 62,407.95 13,184.61 418.94 20,057.01 9,062.47 10,994.54 3,487.68 42,371.78 3,480.47 635.98 463.58 4,580.03 5,884.61 1,127.02 11,591.66 0.00 8,965.76 2,934.19 11,899.95 -308.29 105.07 56,650.78 12,188.55 331.68 16,479.59 8,223.48 8,256.11 4,367.45 4,103.19 2,604.98 543.48 465.00 3,613.46 34,582.84 0.04 38,196.34 0.00 6,842.26 2,913.52 9,755.78 28,440.56 155.11 45,322.42 9,250.08 298.78 16,029.49 7,486.37 8,543.12 2,497.44 6,106.18 2,332.98 631.63 446.51 3,411.12 4,025.95 7,234.84 14,671.91 0.00 6,349.24 1,930.46 8,279.70 6,392.21 202.53 23,741.48 7,185.93 240.31

Cash Flow Mar '11 12 mths Net Profit Before Tax 9776.85

------------------- in Rs. Cr. ------------------Mar '10 12 mths 7214.30 Mar '09 12 mths 7315.61 Mar '08 12 mths 7066.36 Mar '07 12 mths 6261.65

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Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

8542.72 -13288.13 5652.81 907.40 3234.14 4141.54

8369.22 -5254.84 -1473.13 1641.25 1592.89 3234.14

7397.22 -9428.08 3156.42 1125.56 465.04 1590.60

6254.20 -29318.58 15848.07 -7216.31 7681.35 465.04

5118.10 -5427.60 7702.46 7392.96 288.39 7681.35

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REFERENCES
ANNUAL REPORT: SAIL

FY: 2008-2009 2009-2010 2010-2011
ANNUAL REPORT: TATA STEEL 2008-2009 2009-2010 : 2010-2011 BOOKS: Prasana Chandra Financial Management- Theory & Practice by. Tata
McGraw HILL. Ashish K Bhattacharya Introduction to Financial Statement Analysis.

WEBSITES: www.investopedia.com www.sail.com www.moneycontrol.com/sail www.accounting4management.com www.accountingtools.com www.businessdictionary.com www.economywatch.com

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