INDEX

Chapter-I: INTRODUCTION

Introduction
Objectives of the study
Significance of the study
Methodology
Limitations Of The Study

Chapter-II: INDUSTRY PROFILE AND COMPANY PROFILE

Chapter-III : THEORITICAL FRAME WORK

ChapterIV: Analysis and Interpretation

Ratio Analysis
Comparative Balance Sheet

Chapter-V: SUMMARY

FINDINGS

SUGGESTIONS

CONCLUSIONS

Bibliography

1
INTRODUCTION

Introduction
Objectives of the study
Significance of the study
Methodology
Limitations Of The Study

2
 INTRODUCTION
FINANCIAL STATEMENTS:

A financial statement is an organized collection of data according to logical

and consistent accounting procedures. The purpose of financial statement is to
convey an understanding of some financial aspects of a business firm. It may show
a position at a moment of time as in the case of a balance sheet, or may reveal a
series of activities over a given period of time, as in the case of an income
statement.

The term financial statement generally refers to following basic statements:

1. Income Statement.
2. Balance Sheet.
3. Statement of Retained Earnings.
4. Statement of changes in Financial Position.

FINANCIAL
STATEMENT

INCOME BALANCE STATEMENT OF STATEMENT OF

STATEMENT SHEET RETAINED CHANGES IN
EARNINGS FINANCIAL
POSITION

Income Statement:

3
 The income statement (also termed as profit and loss account) is generally
considered to be the most useful of all financial statements. It explains what has
happened to a balance sheet dates. For its purpose it matches the revenues and cost
incurred in the process of earning revenues and shows the net profit earned or loss
suffered during a particular period.
Balance Sheet:

It is a statement of financial position of a business at a specified moment of

time. It represents all assets owned by the business at a particular moment of time
and the claims of the owners and outsiders against those assets at that time. The
important distinction between as income statement is for a period while balance
sheet is on a particular date.
Statement of retained earnings:
The term retained earnings means the accumulated excess earnings over
losses and dividends. The balance shown by the income statement is transferred
to the balance sheet through this statement after making necessary appropriations.
It is fundamentally a display of things that have caused the beginning of the period
retained earnings balance to be changed in to the one shows in the end-of-the-
period retained earnings in the balance sheet. It is thus a connection between the
balance sheet and income statement.
Statement of changes in financial position:
The balance sheet shows the financial condition of the business at a
particular moment of time while the income statement discloses the results of
operations of business over a period of time. For a better understanding of the
affairs of the business, it is essential to identify the movement of working capital or
cash in and out of the business.
NATURE OF FINANCIAL STATEMENTS:

4
 According to the American Institute of Certified Public Accountants.
Financial statements reflect A combination of recorded facts, accounting
conventions and personal judgments and the judgments and conventions applied
affect them materially. It means that data exhibited in the financial statements are
affected by recorded facts, accounting conventions and personal judgments.

Recorded facts:
The term recorded facts means facts which have been recorded in the
accounting books. Facts which have not been recorded in the financial books are
not depicted in the financial statements, however the material might be.

Accounting conventions
Accounting conventions imply certain fundamental accounting principles
which have been sanctified by long usage. This means that the real financial
position of the business may be much better than what has been shown by the
financial statements.
Personal judgments
Personal judgments have also an important bearing on a financial
statements. For example, the choice of selecting a method of depreciation lies on
the accountant. Similarly, the mode of amortization of fictitious assets also depends
on the personal judgment of the accountant.

TYPES OF FINANCIAL ANALYSIS:

Financial analysis can be classified in to different categories depending up

on:
A. On the basis of material used.

5
B. On the basis of modules used.

Types of Financial

Analysis

On the basis of On the basis of

material used modules used

Internal External Horizontal Vertical

Analysis Analysis Analysis Analysis

In the basis of material used:

According to the basis, financial analysis can be of two types.
External Analysis:
This analysis is done by those who are outsiders for the business. These persons
mainly depend up on the published financial statements. Their analysis serves
only a limited purpose.

Internal Analysis:
This analysis is done by persons who have access to the books of account and at
other information related to the business. Such as analysis can be done by
executives and employees of the organization. The analysis is done depending up
on the objective to be achieved through this analysis.

6
On the basis of modules used:
According to this financial analysis can also be of two types:
Horizontal Analysis:
In case of this type of analysis, financial statements for a number of years
are reviewed and analysed the current years figures are compared with the standard
or base year. The analysis statement usually contains figures for two or more year
and the change are shown regarding each item from the base year usually in the
form of percentage. Since this type of analysis based on the data from year to year
rather than on date, it is also termed as Dynamic Analysis

Vertical Analysis:
In case of this type of analysis a study is made of the quantitative
relationship of various items in the financial statement on a particular date. Since
this analysis depends on the data for one period, this is not very conductive to a
proper analysis of the companys financial position. It is also called static
analyses as it is frequently used for referring to ratio developed on one date or for
one accounting period.
TECHNIQUES OF FINANCIAL ANALYSIS:
A financial can adopt one or more of the following techniques /tools of
financial analysis:

Financial Analysis
Techniques
7
Comparative Common Trend Ratio Ratio Cash Funds
Financial size Percentages CVP Analysis flow flow
Statements Financial Analysis analysis Analysis
Statements

1. COMPARATIVE FINANCIAL STATEMENTS:

The statements which have been designed in a way so as to provide time

perspective to the consideration of various elements of financial position embodied
in such statements figures for two or more period side by side to facilitate
comparison.
Both the income statement and balance sheet can be prepared in the form of
comparative financial statements.
The comparative financial statements contain the following items.
i. Absolute figures as given in the final accounts.
ii. Absolute figures expressed in terms of percentages.
iii. Increase of decrease in absolute figures in terms of money value.
iv. Increase or decrease in terms of percentages.
v. Comparison expressed in ratios.
vi. Percentages of totals.
Comparative financial statements include the following two statements
i.e.
Comparative balance sheet.
Comparative income statements.

Comparative balance sheet:

8
 The balance sheet prepared on a particular date reveals the financial position
of the concern on the date to study the trends of business over a period of time
comparative balance sheet reveals the cause for changes in the financial position
on amount of various transactions. The comparative study throws light on financial
policies adopted by management.
The comparative balance sheet consists of two columns for the original data. A
third column used to show increase or decrease in various items. A south column
containing the parentage of increase or decrease may be added.

2. COMMON SIZE STATEMENTS:

The common size statements, balance sheet and income statement are shown in
analytical percentages. The figures are shown as percentages of total assets, total
liabilities and sales. The total assets are taken as 100 and different assets are
expressed as percentage of the total. Similarly various liabilities are taken as a part
of total liabilities. These statements are also known as component parentage or
100% statements because every individual item is stated as a percentage of the
total 100 the short statements because every individual item is stated as a
percentage of the total 100 the short-comings in comparative statements and trend
percentages where changes in item could not be compared with the total have been
covered up. The common size statements may be prepared in the following way.
i. The totals of assets or liabilities are taken as 100.
ii. The individual assets are expressed as a percentage of total assets i.e.,
100 and different liabilities are calculated in relation to that liability.

3. TREND ANALYSIS:

9
 Trend analysis is an important and useful technique of financial analysis. It
involves computation of index numbers of the moments of the various financial
items in the financial statements for a number of periods. It enables to know the
changes in the financial position and the operational efficiency between the period
chosen.
Through trend analysis the analysis can give his opinion as to whether
favorable or unfavorable tendencies are reflected by the accounting date.
The comparative and common size balance sheets suffer from a major
limitation i.e., absence of basic standard to indicate whether the proportion of an
item is normal or analysis values are calculated for each item in isolation but
conclusions are to be drawn by studying the related items also.

Trend analysis can be analysis in the following ways:

i. By calculating trend ratio (or) percentage.
ii. By plotting on graph paper (or) charge.

Trend Ratio (or) Percentage:

It involves the ascertainment of arithmetical relationship which each item of
several year to the same item of base year. Any year maybe as the base year, it is
usually the earliest year.
Procedure for Calculating Trend Ratio:
The following procedure maybe adopted for calculating trend ratio.
i. Select any year as base year the selected year should be normal year for
the base year the trend value is taken as 100.
ii. Trend percentage of each item should be calculated with the help of
following formula.

10
 Current year value
X 100
Base year value
4. COST-VOLUME-PROFIT ANALYSIS:

Cost Volume Profit analysis is an important tool of profit planning. It

studies the relationship between cost, volume of production, sales and profit. It is
not strictly a technique used for analysis of financial statements. However, it is an
important tool for the management for decision making. Since the data is provided
both cost and financial records. It tells the volume of account of variation in
output, selling price and cost, and finally, the quantity to be produced and sold to
reach the target profit level.

5. RATIO ANALYSIS:
Financial analysis depends to very large extents of the use of ratios though
there are other equally important tools of such analysis. Thus, a direct examination
of the magnitude of two related items is somewhat enlightening but the comparison
is greatly facilitated by expressing the relationship as a ratio.
Ratio analysis of business enterprises is done to ascertain the capacity of the
firm to meet its future financial obligation or expectations. Present and past data
are used for the purpose and necessary extrapolations are made to provide an
indication of future performance. Alexander Walt, who criticized the bankers for
their lopsided decisions regarding the grant of credit on current ratios alone, made
the presentation of an elaborate system of ratio analysis in1919.
Ratio:
Ratio is an expression of the quantitative relationship that exists between the
two numbers. The ratio is defined as the indicated quotient of two mathematical

11
expressions the ratio should be determined between related accounting variables
to be meaningful and effective.

CLASSIFICATION OF RATIOS:
Ratios can be classified into different categories depending upon the basis of
classification. They are Traditional classification and Functional classification.
Traditional Classification:
This classification has been on the basis of the financial statements to which
the determinants of a ratio belong. On the basis, the ratios classified as:
1. Profit and Loss Account Ratios, i.e, ratios calculated on the basis of items
of the profit and loss account only. Eg. Gross profit ratio, stock turnover
ratio, etc.
2. Balance sheet Ratios, i.e, ratios calculated on the basis of figures of balance
sheet only. Eg. Current ratio, debt-equity ratio, etc.
3. Composite Ratios or Inter-statement Ratios, i.e, ratios based on figures of
profit and loss account as well as the balance sheet. Eg. Fixed assets
turnover ratio, overall profitability ratio, etc.
Functional Classification:
The traditional classification has been found to be too Crude and unsuitable
because analysis of Balance sheet and Income statement cannot be done in
isolation. They have to be studied together in order to determine the
profitability and solvency of the business. In order that, ratios serve as a tool for
financial analysis, they are classified according to their functions as follows:

1. Profitability Ratios:
Profitability is an indication of the efficiency with which the operations
of the business are carried on. Poor operational performance may indicate poor

12
 sales and hence poor profits. A lower profitability may arise due to the lack of
control over the expenses.
2. Turnover Ratios:
The turnover ratios or activity ratios indicate the efficiency with which
the capital employed is rotated in the business. The overall profitability of the
business depends on two factors i) the rate of return on capital employed; and
ii) the turnover, i.e., the speed at which the capital employed in the business
rotates. Higher the rate of rotation, the greater will be the profitability.
3. Financial Ratios:
Financial ratios indicate about the financial position of the company. A
company is deemed to be financially sound if it is in a position to carry on its
business smoothly and meet all its obligationsboth long-term as well as short-
term without strain. It is sound principle of finance that long-term requirements
of funds should be met out of long-term funds and short-term requirements
should be met out of short-term funds.

OBJECTIVES OF THE STUDY:

13
 The study is based up on the part of financial performance that is been taken
in to consideration i.e., budgetary concepts. The study predominantly aims at the
turn around period.
To know how budgets helps the large companies especially public sector
companies.
To know whether there is influence of budgets in profits making or not.
To know the steps taken by VISAKHAPATNAM STEEL PLANT in
preparation of budgets.
To study the variance analysis.
To study and analyze the comparative formats with respect to turn around
period in budget making.
To study and analyze the comparative formats with respect to turn around
period in achieving the actual.

NEED FOR THE STUDY:

14
There is a special role of every industry barring up on the need essentiality where
everything has to be done in accordance with standards that are regulated by the
government.
To understand this, conceptual idea is not only sufficient but also it needs a
wide knowledge and understanding of the factors that are effecting them.
Especially VISAKHAPATNAM STEEL PLANT has emerged from loss to profit
making company.
Now, the study is all about analyzing, how this has been possible for a
company whose figures were budgeted to negative show finally ended with high
positively.
At most care was taken in preparing the budget relating to that period of the
year. As days passed on, we could see the development in all the sectors is quite
appreciable. This study not only given as a summary of the company but also
variances shown in that period.

SCOPE OF THE STUDY

Financial analysis depends primarily on financial statements to diagnose financial

performance there are three principle reasons.
1. As longer as the accounts bases remain more or less the some overtime,
meaningful mitered is can be drawn by examining trends in raw data and
financial ratios.
2. Since similar basis characterize various firms in the same industries,
incur firm comparisons are useful.
3. Experience seems to suggest the financial analysis works one is
accounting basis and more adjustments for the same.

15
The following points explain the nature of the financial statement analysis in steel
industries.
The records are maintained on the boards of actual costs data.
a. Certain neither accounts nor conversions are followed while pre primary
financial statement.
b. Still personal judgment of the accountant phrases on important part.

METHODOLOGY:
The information for the study has been obtained from two sources namely:
1 Primary Data
2 Secondary Data
1. Primary Data
It is the information collects directly without any reference. In tills study it
was mainly interviews with concerned officers and staff, either individually or
collectively, sum of the information has been verified or supplemented with
Personal observations.

The data includes.

1. Having a discussion with finance manager.
2. Guidelines are taken from Mr.S.Bangaru Raju, Manager of F&A
2. Secondary Data:
This is taken from the annual reports, websites, company journals,
magazines and other sources of information of steel plant.

LIMITATIONS OF THE STUDY:

16
 The period of study that is 8 weeks was not enough to go in the detailed
aspects of the study.
The study is carried bearing on the information and documents provided by
the organization and based on the interaction with the various employees of
the respective departments.
Most of the matters related to budgets were confidential so it not possible
together much information.
Budgeting process is very dynamic.
Budget that were prepared are only based upon that preparation periods
trend.
Flexibility with in the budget is not possible.

17
INDUSTRY PROFILE AND COMPANY PROFILE

18
INDUSTRY STRUCTURE AND DEVELOPMENTS
1. Global Economic Environment:
Changing economic and business conditions and rapid technological
innovation are creating an increasingly competitive market environment that is
driving corporations to transform their operations. Consumers of products and
services are increasingly demanding better quality products and lower prices.
Companies are focusing on their core competencies and are using state of art
technology. The role of technology has evolved from supporting corporations to
transforming them.
The year 2010 witnessed calm after the storm, i.e. slowly recovering from
the turbulence pain and panics from the unprecedented Economic and Financial
Crisis adversely impacting the Global Economic growth. China as well as India
cushioned the intensity of Global meltdown. The timely, cumulative stimulated
economic efforts of all Governments significantly curtailed the depth, span and
intensity of the economic catastrophic spread.

2. Indian Economy:
The Indian economy is projected to grow by 8.5% in 2010-11, the fastest in
three years, on the back of a sharp recovery in farm output, but high inflation
remained as an area of concern all through the year. For 2010-11, the average
inflation was 9.5%.
Weathering the global slowdown, the Indian Economy managed to expand
by 8% in 2009-10 and 6.8% in 2008-09.
India is rated now as one of the most attractive investment destinations
across the globe and it is reported that India would be the second most attractive
location for Foreign Direct investment for 2010-12 period.

19
 The Government initiatives and liberalization measures resulted in
tremendous response and growth in the FDI Equity inflows and by middle of
March 2011, India's foreign exchange reserves totaled to US$ 303.51 Billion (as
per RBI).
There has been overall growth in other Sectors of the Economy as well and
during 2011-12, it is expected to be better, making India as one of the fastest
growing markets in the World.

3. Global Steel Industry:

World crude steel production in 2010 registered highest ever yearly
production of 1414 Mt - a growth of 15% over 2009, which is 5% higher than the
previous peak of 1346 Mt in 2007. Developing countries like China and India
contributed by scaling new peaks and developed economies registered quantum
jump from the low of 2009, which was however far short of their earlier peaks.

Country 2012 Mt 2011 Mt % Growth

China 626.7 573.6 9.3
Japan 109.6 87.5 25.3
USA 80.5 58.2 38.3
India 68.3 63.5 7.6
Russia 66.9 60.0 11.5
South Korea 58.4 48.6 20.2
Germany 43.8 32.7 33.9
World 1413.5 1230.9 14.8

The majority of countries have recorded double-digit percentage rises in

2012 relative to 2011. The largest of these are found in the more economically

20
developed regions. European Union, North America and Oceania-whose markets
declined the most in the downturn of 2011.
The economic outlook for 2011 is cautiously optimistic. In the West, certain
sectors of the economy are performing well. However, the construction market
remains depressed and this continues to dampen demand for steel, especially long
products. Government spending cuts and the fragile financial situation could pose
Further negative risks.
In 2011, strong growth in steel production is expected in South America and
the Middle East. Although the impact of this will be relatively small on the world
total when compared to the dominance of China. Gains in the industrialized nations
are likely to be modest. MEPS forecast a year-on-year increase of approximately
4.4% for global steel production in 2012.

MEPS Global Crude Steel Production Forecast(Million Tons)

Region 2012 2010

EU 27 172.9 178.2
Americas 155.3 162.1
Asia 900.2 948.3
Others 186.7 196.5
World Total 1415.0 1485.0

4. Indian Steel Scenario:

Steel Industry plays a major role in the economic growth of India. With new
Global acquisitions by Indian Steel giants, setting up of new State of the art Steel
Mills, modernization of existing plants, improving energy efficiency and backward
21
integration into global raw material sources, India is now on the centre of the
global Steel map. Consumption of Steel in various Sectors has been on the rise and
special steel usage in specific industrial sectors like Power generation, Petro
Chemicals, etc., is also growing.
India has stood as the 4th largest producer in 2010 and recorded a growth of
6.4% as compared to 2009. India is expected to become the Second largest
producer of Steel in the World by 2015-16 on account of growing Steel demand,
rich resources base of Iron ore, skilled man power and vast experience of Steel
making and the huge capacity expansion planned and being executed in the Steel
Sector.
With demand driven by expanding consumer market, the Indian Steel
Industry is likely to receive huge domestic and foreign investments, MOUs (nearly
222) for planned capacity of around 276 mt have been signed by Steel Investors
with various State Governments mostly in Odessa, Jharkhand, Chhattisgarh and
West Bengal.
Finished Steel Production was registered at 62.69 Mt during 2010-11 in the
country as per JPC and the production is expected to be nearly 110 mt by 2012-13.
A Compound annual growth rate (CAGR) of 8.4% during the five years (2005-06
to 2009-10) was recorded.
The consumption of Steel domestically was recorded at 65.61 Mt and shown
an increase of 11 % during 2010-11 as compared to the same period of the previous
year.
Government initiatives included (a) approval by Planning Commission a
total outlay of US $ 9.5 Billion for the development and promotion of the Iron &
Steel Sector; (b) Scheme for the promotion of research & development in the Iron
& Steel Sector with Budget provision of US$ 24.6 Million (c) review of National

22
Steel Policy 2005 and process for drafting a 'National Steel Vision' has been
initiated and (d) Five year strategy has been prepared for promotion of Steel Sector
in the country.
The Ministry of Steel, in association with United Nations Development
Programme (UNDP) is carrying out a Project on "Removal of Barriers to Energy
Efficiency Improvement in Steel Re-rolling Mill Sector in India" at an estimated
cost of US$ 14.03 Million. The Project seeks to reduce green house gas emissions
by providing technical assistance to small and medium sized steel re-rolling mills
in the country to enable them to adopt more energy efficient and environmentally
friendly technologies.
Apparent consumption of steel in the country registered a growth of 11 %
during 2010-11. This however did not translate into higher realizations at market
place as can be seen from the next chart depicting price trend of TMT-8 in Delhi
market:

VISAKHAPATNAM STEEL PLANT

Company Profile:
Steel comprises one of the most important inputs in all sectors of economy.
Steel is the basic input for automobiles, construction, and machine building

23
fabrication and transportation industries. Keeping in view the Government of
India constituted Visakhapatnam Steel Plant in 1982 by Prime Minister Mrs.Indira
Gandhi with the collaboration of Russia. Its process is to produce a range of Steel
Products. It is subsidiary of Rashtriya Ispat Nigam Limited.

Location:
The plant is located on the cost of Bay of Bengal, 16Kms to the southwest of
the Visakhapatnam Port. It lies between the northern boundaries of the National
highway No.5 from madras to Calcutta and 75Kms to the Southwest of Howrah
madras Railway line.
Background:
To meet the growing domestic needs of Steel, Government of India signed
an agreement with erstwhile USSR in 1979 for co-operation is setting up 3.4 Mt
integrated steel plant at Visakhapatnam. The project was obtaining the higher
levels of operational efficiency and labor productively over maximum output from
the equipment already installed, planned for procurement, achieving what was
envisaged earlier. Under the rationalized concept, 3.0million tones of liquid steel
is to be produced in estimated to cost Rs.3897.28 crores, based on prices as on 4 th
quarter of 1981. But during the implementation of Visakhapatnam, it has been
observed that the project cost, mainly dues to price escalation and upper provisions
in DPT estimates.
In view of this and critical find situation, alternatives for implementation of
Visakhapatnam steel plant rationalization of approved concept were studied in
1986. The rationalization has basically been from the point of view of a year and
the project estimated to cost Rs.5822.17 crores based on as fourth quarter of 1987.
Finally the overall cost of the project worked to 8200 crores as per the revised
rationalized detailed project report.
24
Product Mix:
Visakhapatnam steel product angels, channels, bars, wire rods and billets
for re-rolling the plant also produces pig iron and 1.44Mt or granulated slag,
besides normal by-products from the coke oven coal chemical plant.
MAJOR SOURCES OF RAW MATERIAL
Iron Ore Lumps & Fines Bailadilla, M P
B F Lime Stone Jaggayyapeta, A P
SMS Lime Stone UAE
B F Dolomite Madharam, A P
SMS Dolomite Madharam, A P
Manganese Ore Chipurupalli, A P
Boiler Coal Talcher, Orissa
Coking Coal Australia
Medium Coking Coal Gidi/Swang/Rajarappa/Kargali
MAJOR UNITS AT VSP

DEPARTMENTS ANNUAL UNITS (3.0 MT STAGE)

Cap. ('OOOT)
Coke Ovens 2,261 4 Batteries each of 67 ovens & 7 Mts
Height
Sinter Plant 5,256 2 Sinter machines of 312 Sqm grate area
Each
Blast Furnace 3,400 2 Furnaces of 3200 cu m volume each
Steel Melt Shop 3,000 3 LD Converters each of 133 Cum.
Volume and six 4 strand bloom casters

25
LMMM 710 4 Strand Finishing Mill
WRM 850 2 x 10 Strand Finishing Mill
MMSM 850 6 Strand Finishing Mill

MAIN PRODUCTS OF VSP

Steel Products By Products
Angles Nut Coke
Billets Coke dust
Channels Coal Tar
Beams Anthracene Oil
Squares HP Naphthalene
Flats Benzene
Rounds Toluene
Re Bars Zylene
Wire rods Wash Oil

VISION:

To be a continuously growing world class company.

We shall:

Harness our growth potential and sustain profitable growth.

Deliver high quality and cost competitive products and be the first choice of
customers.
Create an inspiring work environment to unleash the creative energy of
people.

26
 Achieve excellence in enterprise management.
Be a respected corporate citizen, ensure clean and green environment and
develop vibrant communities around.

MISSION:
To attain 16 million ton liquid steel capacity through technological up-
gradation, operational efficiency and expansion; augmentation of assured supply of
raw materials; to produce steel at international standards of cost of quality; and to
meet the aspirations of the stakeholders.

OBJECTIVES OF VSP:
Stabilize 6.3 Mtpa expansion by 2012-2013 with the mission to expand
further in subsequent phases as per corporation plan.
Revamping existing Blast Furnaces to make them energy efficient to
contemporary levels and in the process increase their capacity by 1 Mtpa,
thus total hot metal capacity to 7.5 Mtpa.
Be amongst top five lowest cost liquid steel producers in the world.
Achieve higher levels of customer satisfaction.
Vibrant work culture in the organization
Be proactive in conserving environment, maintaining high levels of safety &
addressing social concerns.
CORE VALUES:
Commitment
Customer Satisfaction
Continuous Improvement
Concern for Environment

27
 Creativity and innovation
Year 2011-12:
The year 2011-12 was a defining year as far as steel business models are
concerned, when quarterly pricing mechanism was adopted by oligopoly of
international coal suppliers - passing on short term volatility in coal markets to
steel industry which left steel producers struggling to fine tune their business
models. Also, the steel markets worldwide were sluggish due to higher availability,
and prices remained under pressure for most part of the year, which further had a
negative impact on profitability of steel producers.
Against this backdrop, RINL recorded its best ever turnover of 11,517 Cr in
2010-11 and achieved an overall performance that qualifies the company for
"Excellent" rating for eighth time in the last 10 years as per the MOU with
Government of India.
The year 2010-11 saw a steep increase in prices of major raw materials viz
coking coal and Iron ore by about 22% and 55% respectively. A growth of 13%
achieved in Net Sales Realisation (NSR), was not sufficient to maintain the level of
profitability achieved in 2009-10.
Focus of the company, during the year when profitability was under
pressure, was on maximizing production and sales of value added steels and cost
cutting in all areas through judiciously planned cost reduction measures.
During the year, the Company recorded a growth of 1% in production of
Crude Steel in spite of the unprecedented rains during the month of November
2010 resulting in disruption of operations for some time during the period.

Key financials(Rs.Crs) 2012-11 2010-2011

Gross Turnover 11,517 10,635
Total Income 10,997 10,546

28
 Total Expenditure 9,585 8,943
Gross Margin 1,412 1,602
Interest Charges 165 78
Cash Profit 1,247 1,524
Depreciation 266 277
Profit Before Tax 982 1,248
Provision for taxations 324 451
Net Profit 658 797

The year was particularly significant in so far as the progress on

expansion front is concerned as the works on major units of expansion have
progressed towards last leg of equipment erection and trial runs and
commissioning tests for various equipments and auxiliary areas have already
commenced. Stage-I units of expansion will be commissioned progressively in
2011-12.
OUTLOOK FOR THE COMPANY IN 2011-12:

Notwithstanding the steep increase in the raw material prices in 2010-11, the
outlook for 2011-12 suggests a quantum jump once again, fuelled significantly by
the unprecedented rains and flooding of North - Eastern parts of Australia and
forecast of healthy growth in apparent consumption of steel worldwide.
International price trends for hard coking coal and landed cost of iron ore fines for
VSP along with projected growth for 2011-12 is as shown below:

29
Steel prices during 2011-12 would be predominantly guided by the cost push due
to likely increase in major raw materials, more so with additional capacities in the
country emerging as a certainty now. Likely capacity additions in the next two
years are as shown below:
Marketing Performance:
Global and Domestic Steel Market 2011-12:During the year 2010-11, the global
and domestic steel market remained sluggish due to high growth of 15% in
production of crude steel in the world and de-stocking by steel players. In the
International Market, the FOB Prices of Rebars and Wire Rods hovered around an
average of US $ 600 and US $ 610 respectively.
In domestic markets, long product prices remained volatile due to slow
demand growth and stiff competition where secondary producers have large
presence. It was only from mid-December 2010, that steel prices started moving up
due to sharp increase in scrap prices in international markets from US $ 425 to US
$ 475 per tonne.
However, the upward movement of prices was short lived and prices started
to slacken from mid February 2011 due to fall in scrap prices from US $ 475 - 477
to US $ 425 - 427 per tonne. Despite the given market constraints and restricted

30
product profile, RINL could steer through sluggish markets through astute
distribution and sales strategy.

Marketing Strategy:
Market segments of RINL i.e. Projects Sales, Actual Users, SSICs/NSIC,
DLDs, Rural Dealers, Retailers and Exports were given focus for development and
Dynamic Market Mix was introduced. Efforts were made to enter into MOUs with
Defence, CPSUs, Railways etc. for sale of steel products. Transportation through
coastal shipping is also being explored.

Marketing Performance Highlights in 2010-11:

Record Sales Turnover of 11,517 Crores during the year representing a
growth of 8% over that of 2009-10 and a target fulfillment of about 110%
with respect to MOU target of 10,500 Crores.
Growth of 13 % in average Net Sales Realisation (NSR) of Saleable Steel as
compared to 2009-10.
Record sales of By Products of 363 Crores was achieved, registering a
growth of 36% over 2009-10.
The percentage share of sales of Value Added Steel products in Saleable
Steel sales stood at 79% in 2010-11, against 75% of 2009-10.
Export sales of 422 Crores was achieved in 2010-11, a growth of 20% over
2009-10.
About 99% of BF Granulated Slag produced during the year was sold in
2010-11. BF Slag was exported to Nepal for the first time.
Total of 81 District Level Dealerships (DLD) were registered in 2010-11
against the Target of 50 for the year.
Launch of rural marketing initiative Rural Dealership Scheme (RINL-
RDS) in Jan. 2011 to improve availability of steel in rural areas. During the
year, 111 Rural Dealers were registered.
31
 5S Certification was received for Marketing Department.

Market Share and Market Segment:

RINL is a major player in long product segment, which is highly fragmented
by the presence of large number of small secondary producers. The market share of
RINL in the long products vis--vis other integrated steel producers and secondary
producers in the country during 2010-11 are shown below:

Sales of By-Products:
During 2010-11, all time record sales of By-products of 363 Crs was
achieved. The performance represents a growth of 36% over that of 2009-10. The
sales of By-products during the year 2010-11 and 2009-10 are given in the
following table:
Item 2010-2011(RS) 2011-2012(RS) % Growth over
09-10
By-Products 266 crs 363 crs 36%

Inventory Control:
Inventory of saleable steel was maintained at optimum levels throughout and
the year ended with an inventory of 2, 29,000 tonnes.
32
Logistics:
Planned interventions in Ocean transport was a major source of cost
reduction in logistics area, as brought out below:
Three Cape size vessels were arranged for shipment of 4,16,000 t of coking
coal, taking advantage of deep draft port at Gangavaram, resulting in savings
of Rs.15.80 Crores in freight (as compared to Panamax shipments during the
period).
Arranging of ten Panamax vessels under CFR terms with M/s.BHP, Australia
for shipment of coking coal, resulting in savings of Rs.18.50 Crores
compared to the average freight rate of spot shipments through Panamax
vessels from Australia.

Financial Review:

The company increased production of value added steel and achieved the
saleable steel production of 2.96 Million Tons representing 112% of capacity
utilization. With the help of various management initiatives taken, your company
achieved a turnover of Rs.11,517 Crs during 2010-11, which is higher by 8% over
last year. Your company has also undertaken expansion and modernization plan,
which is expected to be completed by 2012-13, with focus on higher production of
value added products. The comparative performance of major financial parameters
is given as under:
Rs. In Crores
2011-12 2010-2011

33
Sales Turnover 11517 10635
Profit before Interest,
depreciation and tax (EBIDTA) 1412 1602
Less: Interest and Finance charges 165 78
Less: Depreciation 266 277
Profit before Tax (PBT) 982 1248
Less: Provision for Tax 324 451
Profit After Tax (PAT) 658 797
Net Worth 13229 12885
EBIDTA to Net Sales (%) 13.48 16.33
Return (PAT) on Net worth (%) 4.97 6.19
EBIDTA to average Capital employed 25.09 20.53
(%) 85.79 113.89
Earnings per share (Rs.1000 each)

The profit of the company for the year 2010-11 was affected adversely,
mainly due to adverse impact of input prices consisting of Iron ore, imported coal
and indigenous coal. However, the adverse impact on profitability was partially
offset by higher volume of saleable steel production, increase in net sales
realization of saleable steel, better product mix and higher value added steel
production.
During the year, the company continued its thrust on better fund
management. Treasury Management initiatives exploited the interest rates scenario
and leveraged well the investment yield and cost of working capital loans. During
the year, the company has raised working capital loans worth Rs.1400 Crs by way
of Commercial Papers (CP) at attractive rates (weighted average cost of 6.12%).

34
 Your company has continued to maintain its virtual debt-free status with
term deposits with Banks of Rs.1955 Crs as against working capital loans of
Rs.1137 Crs as on 31-03-2011.
For third consecutive year, your Board of Directors is pleased to recommend
the dividend. For the year 2010-11 the Board of Directors have recommended
dividend of Rs.205.62 Crs to 7% Preference Shareholders and 10% on PAT (Rs.
65.85 Crs) to Equity Shareholders.

Other Revenues:

35
 Particulars F.Y 2011- F.Y 2010- % Inc(+)/Dec(-) over
12(Rs.Crs) 11(Rs.Crs) previous year
Interest Earned 348 535 -35
Other Revenue 90 81 11

Other revenues increased by Rs.9.29 Crs over previous year. To meet the
payments obligations for the ongoing Expansion, the Company has utilized much
of its term deposits resulting in a decrease of Interest earned on term deposits by
35% over previous year.
Expenditure (Net of Inter Account Adjustments):
Particulars F.Y2012- F.Y2011- % Inc(+)/Dec(-)
11(Rs.Crs) 10(Rs. over previous
Crs) year
Raw materials consumed 7139 5492 30
Employees' remuneration & benefits 1273 1400 -9
Stores & spares consumed 471 466 1
Power & fuel 425 408 4
Repairs & maintenance 145 142 2
Freight outward 301 313 -4
Other expenses & provisions 397 314 26
Interest & Finance Charges 165 78 112
Depreciation 266 277 -4
Wealth tax 0.49 0.45 9
Less: Internal Consumption 88 121 -27
Total 10494 8769 20

36
Current Assets, Current Liabilities and Provisions:
The increase in Semi finished & finished inventory by 41% was due to
marginal increase in closing stock quantity and valuation rate due to steep increase
in cost of production.
The increase in Raw material inventory by 32% was due to increase in
valuation rate on account of increase in cost of raw materials.
Sundry debtors increased by 82% due to increase in credit sales during the
year.
Term deposits decreased by 63% due to utilization of funds for expansion
project related payments.
Loans & Advances increased by 44% mainly due to increase in forward
contracts receivables.

37
Funds Management:
During the year, the company continued its thrust on better fund
management. Treasury Management initiatives took advantage of the interest rates
scenario by maintaining the investment yield @ 7.22% and at the same time raised
loans at an average cost (Both Domestic & Foreign currency Borrowings) @
6.42% against much higher market rate of borrowing. During the year, the
company has raised loans worth Rs.1400 Crs by way of Commercial Papers (CP)
at attractive rates (weighted average cost of 6.12%).
The company continued to maintain its virtual debt-free status with term
deposits with Banks at Rs.1995 Crs as against loans of Rs.1134 Crs. M/s FITCH
and CRISIL (Credit rating Agencies) have maintained highest rating for short term
loans "F1+" & "P1+" respectively and a very good rating of "AA (Ind)" for long
term loans.

To ensure faster and timely payment to suppliers, contractors, employees,

etc. E-payments were increased substantially and it covered about 90% of total
payments.

Investments:

With a view to achieve raw material security, the company acquired 51%
stake in EIL , a holding company of OMDC having Iron/ Manganese ore
Mines and BSLC having Lime stone/Dolomite mines etc.
The company could now derive the benefits of the acquisition of EIL for
setting up of Pelletization plant, Cement plant, Sale of Manganese &
generating dividends from subsidiaries.

38
Raw Material Security:
Mining Leases:
Iron Ore:
During the year, RINL submitted as many as 10 mining lease applications
taking the total tally to 22. In addition, revision applications were filed in 5 old
cases. The efforts started to yield results with APMDC deciding to take RINL as
partner for an identified asset of Iron Ore.
Coking Coal:
The two difficult and uneconomical underground Coal Blocks i.e, Mahal and
Tenughat Jhirki in the state of Jharkhand, earlier allotted to RINL were de-
allocated. RINL requested Ministry of Coal through Ministry of Steel to allot
suitable open cast Coal blocks instead.

Ferro Alloys:
RINL is establishing a Ferro alloy plant in the state of Andhra Pradesh at
Bobbili along with MOIL as a joint Venture Company viz. "RINMOIL Ferro
Alloys Ltd." to ensure fulfillment of part requirement of ferro alloys in future.

Projects:
Directional Plan:
RINL has drawn its long term directional plans to expand the capacity of
liquid steel to 20 million tonnes per annum in phases by the year 2020 which will
make Visakhapatnam Steel Plant, the largest steel producer in the country at a
single location. RINL would leverage upon its strength of suitable layout, vicinity
to ports, skilled manpower and ability to generate funds through internal accruals
and capital markets to realize its directional plans of 20 Mt of liquid steel by the
Year 2020.
39
Current Expansion and Modernization:
RINL is already at an advanced stage of implementation of first phase of
Rs.12,300 Crores Expansion plan to almost double its capacity to 6.3 Million
tonnes of liquid steel, by 2011-12. This phase of expansion will ensure RINL's
leadership in long products in the country and mark its presence in high end value
added long products segment.
New technologies being adopted during the current phase of expansion will
also ensure improved performance on environmental front, reduction in energy
consumption, improvement in productivity and yields etc.
Major up-gradation and modernization projects are also on, which would
renew the life of critical equipment in the plant and would infuse latest technology,
so as to improve the operational efficiencies and productivities of existing units to
Contemporary levels. Up gradation and Modernization of existing units, along with
addition of Converter and Caster would enhance liquid steel capacity to 7.3 Mtpa
by 2014-15 at a total investment of Rs.7,000 Crs.

Major Milestones achieved during 2011 - 12:

In the area of Expansion and other projects, cold trial runs being a part of
commissioning activity have begun in the year 2011-12 and following activities
were accomplished:
Commissioning of RMHP - 1st part of RMHP was commissioned for
delivery of iron ore fines from new yard to intermediate point of iron ore
feeding to Blast furnaces.
WRM - 2 - Heating of Re- heating Furnace in WRM-2 commenced.
Electrical Sub Stations - 21 Numbers of Electrical substations were charged
during the year and put into operation including LBSS-6 and LBSS-7.

40
 Cranes - Total 20 Cranes were commissioned in WRM-2, SMS - 2, BF-3 &
SP-3 and utilization of the same started and further 10 more Cranes are
ready for commissioning.
Permanent Power Supply Mostly Commissioned for RMHP, SP-3, BF-3,
SMS-2 and WRM-2 and trial runs for equipments commenced with
permanent power.
Air, Nitrogen and Steam - Commissioned and inputs flow started to new
units as required.
Water System: Commissioned for WRM-2, SMS-2 and BF-3.
BOF Shop - Both the converters got rotated on completion of their erection.
TPP - Hydro test for 330 TPH Boiler-6 and Box up of turbine of TB-4
completed.
Oxygen Plant - IV (600 T capacity) Erection got completed as per schedule
and commissioning commenced. With the stabilization of this unit, Oxygen
will be available timely for commissioning of new SMS.
Zero water Discharge system: Major portion commissioned and being put in
operation progressively.

Capital Expenditure:
The highest ever capital expenditure achieved i.e.Rs.2,902 Crs. was
achieved during 2011-12 since inception. An amount of Rs. 8,157 Crores has been
spent till Mar'11 towards 6.3 Mt expansion project alone, as against the value of
work done of around Rs.9,000 Crores.
Safety:
Highlights and Achievements:
Reduction of Accident Rate:
There is a reduction of 19.05 % in reportable accidents and 12.76% in total
accidents.
"Zero Accident" was achieved in 24 departments.

41
 RINL has achieved accident-free manhours ranging from one to five million
accident free manhours in different departments (1 million in 13
departments, 2 million in 10 departments, 3 million in 3 departments, 4
million & 5 million in 1 department each).

Major Activities and Initiatives:

Safety Week Celebrations:
Safety Week was celebrated in various departments of the Company by
conducting safety competitions like Safety Quiz, Essay writing, etc in which both
regular employees and contractor workers participated. Safety skits and other
cultural activities were also organized to increase the safety awareness.

Fire Safety:
More than 144 Nos of fire mock drills were organized in several
departments. Deficiencies noticed and observations made during the drills
were rectified.
During the Fire Safety Week Celebrations, a demo by CISF fire brigade on
'extinguishing different types of fires, rescue of persons during fires' and also
a skit on 'Cooking Gas Safety' were arranged and this was appreciated
widely.

Implementation of OHSAS 18001:

Surveillance and Recertification audits were carried out for OHSAS: 18001-
2007 by M/s BVCI.
Hazard Identification and Risk Assessment (HIRAs) were reviewed from
time to time and amended as and when required. All risk control measures
were implemented and monitored.

42
 All the Procedures, HIRAs and Control measures were available in
electronic form for ready reference by the employees.

Safety Audits:
Safety Audit, by M/s DNV, an external independent agency was carried out
for the year 2010. They have also conducted HAZOP studies, Consequent
Analysis, Risk Assessment and Emergency Preparedness Plan afresh for the
whole of the Plant. The recommendations given were acted upon.
Safety Audits, by certified internal auditors, were conducted in 16 identified
major departments and all the observations raised were attended and
rectified.

Focus on Behavior Based Safety Management:

Thrust is being given on Behavior Based Safety Management (BBSM). It has
been incorporated in the course content of all safety training programmes. Also,
periodically BBSM classes were conducted for target groups based on the
requirement.

Special Safety Training Programmes:

Apart from regular safety classes, special training programmes on specific
subjects like Electrical Safety, Structural Maintenance, Painting and Working at
Heights, Hazards of Chlorine Gas, Road Safety & Home Safety etc. were
conducted by in-house and external faculty.
Road Safety:
Various safety campaigns like wearing of crash helmets were organized. Safety
campaigns on 'Speed limits' were organized on several occasions. Various training
programmes were conducted in this regard:
Road safety training/ interaction programme.

43
 Road safety training class for the drivers of CISF (Fire Wing) and
Jr.Trainees.
Training program on the theme of 'RIDE SAFE' in collaboration with Safety
experts of 'HERO HONDA'.
As a novel initiative, 30 Nos of Solar power run Traffic Signal lights
were installed. "Road Safety Awareness Week" was observed in the plant
with the help of Traffic Police Authorities, Visakhapatnam. In this
connection, safety bulletins were distributed and awareness campaigns were
organized.

National Safety Day celebrations:

National Safety day -2011 was celebrated on 4th Mar 2011.
200 students have participated in the Safety Debate, Essay Writing, Quiz and
Poster Painting competitions conducted for the school children of
Ukkunagaram on 23.01.2011.
A competition on 'First Aid and Medical Care' was conducted on 27.01.2011
at OHSRC premises. Doctors from OHSRC briefed the participants on the
right method of First Aid to be extended.
A safety quiz competition exclusively for the contract workers was
conducted.

Human Resource Management:

Manpower:
The true assets of an organization are its people and RINL recognizes this
fact. In the course of running its business, RINL takes adequate care to ensure the
sustainability of these assets, their safety, welfare, development and increase in

44
potential. As on 31st March, 2011, the manpower strength of the Company stood at
17,829. Out of this total manpower, 3,025 (16.96%) were Scheduled Castes (SC)
and 1,230 (6.89%) were Scheduled Tribes (ST). During the year, out of the total
recruitment of 264 employees made by the Company, 45 (17%) belonged to SC
and 16 (6%) to ST. The number of Displaced Persons on the rolls of the Company
was 5,768.
Group-wise manpower report as on 31st March, 2012:
Group Grand Gen OBC SC ST Women Men Ex- DPs PHY
Total Ser
A 5,207 3,436 521 872 378 294 4,913 5 249 10
B 6,601 4,784 232 1,224 361 77 6,524 7 1,585 26
C 3,633 2,244 489 527 373 70 3,563 98 1,866 45
D 2,388 1,731 137 402 118 46 2,342 42 2,068 17
Grand 17,829 12,195 1,379 3,025 1,230 487 17,342 152 5,768 98
Total

Employee Relations:
Employee Relations by and large were peaceful. During the year elections
were held on 22nd May, 2010 to determine the majority union in RINL.

Awards and Accolades:

"Navratna" status was conferred on RINL in November, 2010.
The First Steel Minister's trophy for the year 2006-07 was presented by
the Union Minister for Steel to RINL on 10th May 2010.
During 2010-11, VSP participated in the survey conducted by the Great
Place to Work Institute India, in association with "The Economic Times",
as a part of the "India's Best Companies to Work For - 2011" study across

45
 various organizations in India. RINL-VSP was ranked top 31 st company and
5th in Manufacturing and Production Category.
RINL was selected for the award of 'Certificate of Merit' of 'Global Human
Resource Development Awards- 2010' by "International Federation of
Training and Development Organizations"(IFTDO), London.
RINL bagged Award for 'Best Management Practices' instituted by
Government of Andhra Pradesh for performance in the areas of Production,
Productivity, Labour practices, Industrial relations and CSR. The award was
received on 1st May, 2010.
RINL was awarded the Certificate for "Excellent Water Efficient Unit"
during a National competition for Excellence in Water Management-2010
organized at Hyderabad by CII.
RINL won the second prize amongst the integrated steel plants of the
'National Sustainability Award' of the Ferrous Division of Indian Institute
of Metals on 14th November 2010 in Bangalore.
RINL received 'Indira Gandhi Rajbhasha shield' in New Delhi on 14th
Sept, 2010.
RINL was awarded First prize in the contest on "INSSAN Award for
Organizational Excellence in Suggestion Scheme" in Steel Units' category.
RINL bagged 5 Nos of the prestigious Prime Minster's 'Shram Awards'
presented by Ministry of Labour, Govt. of India, given annually to the
excellently performing workers.1 'Shram Bhushan' (50 % among all PSUs
and 25 % among all sectors) and 4 'Shram Veer' awards (67 % among all
PSUs and 33% among all sectors) were awarded to RINL.
RINL achieved two Class-C Viswakarma Rashtriya Puraskar (VRP)
2008 (Performance year 2008) Awards for innovative suggestions from
Sinter Plant and Engineering Shops & Foundry departments.The Company
has won this distinction SIXTH time in a row.

46
 Teams from RINL bagged 20 Gold, 7 Silver and 2 Bronze Medals at the 10 th
Chapter Convention of Quality Circle (CCQC) Forum of India held at
Visakhapatnam.
All the Seven 'Quality Circle' (QC) teams and Four '5S' teams of RINL
bagged 'Gold Medals' at the 'International Convention on Quality
Concept Circles (ICQCC)- 2011 held at Hyderabad in Oct' 10.

47
 THEORITICAL FRAME WORK

FINANCIAL STATEMENTS

INTRODUCTION:
Accounting process involved recording, classifying and summarizing

various business transactions. The aim of maintaining various records is to

determine profitability of the enterprise from operation of the business and also

48
to find out is financial position. Financial statements are in term reports,

presented annually and reflect a division of the life of an enterprise in to more or

less arbitrary accounting period more frequently a year. The financial statement

is an organized collection of data according to logical and consistent accounting

procedures its purpose is to convey of a business firm.

DEFINITIONS:

According to John N.Myer The financial statements provide

a summary of the accounts of a business enterprise, the balance sheet

reflecting the assets, liabilities, and capital as on a certain date and the

income statement showing the results of operations during a certain

period.

The term financial statement generally refers to following basic

statements:

1. The income Statement.

2. The Balance Sheet.

3. A Statement of Retained earring.

4. A Statement of Changes in financial position.

49
FINANCIAL

STATEMENT
 STATEMENT STATEMENT OF

OF CHANGES IN
INCOME BALANCE

RETAINED FINANCIAL
STATEMENT SHEET

Income Statement

The income statement (also termed as profit and loss account)

is generally considered to be the most useful of all financial statements.

It explains what has happened to a balance sheet dates. The nature of

the income which is the focus of the income statement can be well

understood if a business is taken as an organization that uses inputs to

produce output.

Balance Sheet

It is a statement of financial position of a business at a specified

moment of time. It represents all assets owned by the business at a

particular moment of time and the claims of the owners and outsiders

against those assets at that time. The important distinction between as

50
income statement is for a period while balance sheet is on a particular

date.

Statement of Retained Earnings

The term retained earnings means the accumulated excess

earnings over losses and dividends. The balance shown by the income

statement is transferred to the balance sheet through this statement

after making necessary appropriations. It is fundamentally a display of

things that have caused the beginning of the period retained earnings

balance to be changed in to the one shows in the end-or-the-period

balance sheet.

Statement of changes in financial position

The balance sheet shows the financial condition of the

business at a particular moment of time while the income statement

discloses the results of operations of business over a period of time for a

better understanding of the affairs of the business, it is essential to

identify the movement of working capital or cash in the statement of

changes in financial position.

Nature of Financial Statements

The financial statements are prepared on the basis of

recorded facts. The recorded facts are those which can be expressed in

monetary terms. The statements are prepared for a particular period,

51
generally one year. The transactions are recorded in a chronological

order as and when the events happen. The financial statements by

nature are summaries of the items recorded in the business and there

statements are prepared periodically generally for the accounting period.

The following points explain the nature of financial statements

1. Recorded Facts

The term Recorded facts; refers to the data taken out from

the accounting records. The records are maintained on the basis of

actual cost data. The figures of various accounts such as cash in hand,

cash at bank, bills receivables, Sundry debtors, fixed assets are taken as

per the figure recorded in the accounting books. As the recorded facts

are not based on replacement costs the financial statements do not show

current financial condition of the concern.

2. Accounting Conversions

Certain accounting converters are followed while preparing financial

statements. The conversion of valuating inventory at cost or market

price, whichever is lower, is followed. The valuing of assets at cost less

depreciation principle for balance sheet purposes statements

comparable, simple and realistic.

3. Postulates

52
The accountants make certain assumption while making accounting

records. One of these assumptions is that the enterprise is treated as a

going concern. The other alternative to this postulate is that the concern

is to be liquidated the concern. So the assets are shows on a going

concern basis. An other important assumption is to presume that the

value of money will remain in the same in different periods.

4. Personal Judgments

Even though certain standard accounting conversions are

followed in preparing financial statement but still personal judgment of

the accountant plays on important part.

Characteristics of financial statement

The financial statements are prepared with a view to depict

financial position of a concern. The financial statements should be

prepared in such a way that they are able to give a clear and orderly

picture of the concern. The ideal financial statement has the following

characteristics.

1. Depict true financial position

The information contained in the financial statements should be such

that a true and correct idea is taken about the financial position of

the concern.

53
 2. Attractive

The financial statements should be prepared in such a way that

important information is underlined so that it attracts the eye of the

reader.

3. Comparability

The results of financial analysis should be comparable. The financial

statements should be presented in such a way that they can be

compared to the previous years statements. Previous years figures in

the balance sheet.

4. Brief

If possible, the financial statements must be prepared in

brief. The reader will be able to form as idea about the figures.

Importance of financial statements

Financial statements contain a lot of useful and valuable

information regarding profitability financial position and future

prospective of business concern. The utility of financial statement to

different parties may be summarized as follows:

1. Management

54
 The financial statements are useful for assessing the efficiency

ofdifferent cost centers. The management is able to decide the course of

action to be adopted in future.

2. Creditors

The trade creditors are to be paid in a short period. The CRS will

be interested in current solvency of the concerns. The calculations of

current ratio and liquid ratio will enable the creditors to assess the

current financial position of the concerns in relation to their debts.

3. Investors

The investors include both short-term and long term investors.

They are interested in the security of the principal amounts of loan and

regular payments by the concern. The investors will not only analyse

the parent financial position but will also study the future prospectus

and expansion plans of the concern.

4. Government

The financial statements are used assess tax liability of business

enterprises. The Government studies economic situation of the country

from these statements. These statements enable the government to find

out whether business is following various rules and regulations or not.

5. Trade Association

These associations provide service and protection to the members.

They may analyse the financial statements for the purpose of providing

55
facilities to these members. They may develop standard ratios and

design uniform system of accounts.

6. Stock Exchange

The stock exchange deal in purchase and sale of securities of

different companies. The financial statements enable the stock broker to

judge the financial position of different concerns. The fixation of prices

for securities etc. is also based on the statements.

LIMITATIONS OF FINANCIAL STATEMENTS

Financial statements are relevant and useful for the concern,

still they do not present a final picture of the concern, otherwise

misleading conclusions may be drawn. The fisnancial statements suffer

from following limitation:

1. Ignoring of non-monetary aspects

These statements are prepared with the help of accounting

information which mainly consider monetary aspects only. The value of

business depends both on qualitative and quantitative factors.

2. Historical cost

The statements are prepared on the basis of historical cost.

The value of fixed assets are at there original cost less depreciation. The

balance sheet value are not shown the value of assets may be sold more

over they do not reflect the market value which is as important factor in

determining the solvency of an enterprise.

56
 3. Personal Judgment

In preparing financial statements certain items are left to the

personal Judgment of the accountant. If any accountant is not following

accounting principles correctly his judgment will give wrong picture.

4. Conversion of Conservation

Due to conversion of conservation the income statement may not

disclose true income of the business. This is due to ignorance of

probable incomes and accounting probable losses.

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial

strength and weakness of the firm by properly establishing between the

items of the balance sheet and profit and loss account. There are various

methods or techniques used in analysis financial statements such as

comparative statements, trend analysis, common size statements,

schedule of changes in working capital, funds flow and cash flow

analysis Cost Volume Profit Analysis and Ratio Analysis.

Meaning and concept of financial analysis

The terms financial analysis also known as analysis and

interpretation of financial statements refers to the process of determining

financial strength and weaknesses of the firm by establishing strategic

57
relationship between the items of the balance sheet, profit and loss

account and other operative data.

Types of financial analysis

Financial analysis can be classified in to different categories

depending up on:

A. On the basis of material used.

B. On the basis of modules operand

Types of

Financial

On the basis
On the basis

of modules
of material

58
 Internal External Horizontal Vertical

[A] In the basis of material used

According to the basis, financial analysis can be of two types.

External Analysis
This analysis is done by those who are outsiders for the business. These persons
mainly depend up on the published financial statements. Their analysis serves only a limited
purpose.

Internal Analysis

This analysis is done by persons who have access to the books of account and at
other information related to the business. Such as analysis can be done by executives and
employees of the organization. The analysis is done depending up on the objective to be
achieved through this analysis.

[B] On the basis of modules operandi

According to this financial analysis can also be of two types:

Horizontal Analysis

In case of this type of analysis, financial statements for a number of years are
reviewed and analysed the current years figures are compared with the standard or base year.
The analysis statement usually contains figures for two or more year and the change are shown
regarding each item from the base year usually in the form of percentage. Since this type of
analysis based on the data from year to year rather than on date, it is also termed as Dynamic
Analysis
59
Vertical Analysis

In case of this type of analysis a study is made of the quantitative relationship of

various items in the financial statement on a particular date. Since this analysis depends on the
data for one period, this is not very conductive to a proper analysis of the companys financial
position. It is also called static analyses as it is frequently used for referring to ratio developed
on one date or for one accounting period.

Techniques of financial analysis

A financial can adopt one or more of the following techniques/ tools of financial
analysis:

Financial

Analysis

Comparative

Financial Trend Ratio Funds flow

Common Size

Financial Ratio C.V.P. Cash Flow

COMPARATIVE FINANCIAL STATEMENTS

60
 The statements which have been designed in a way so as to

provide time perspective to the consideration of various elements of

financial position embodied in such statements figures for two or more

period side by side to facilitate comparison.

Both the income statement and balance sheet can be

prepared Ni the form of comparative financial statements.

The comparative financial statements contain the following items.

vii. Absolute figures (amount in Rs. /-) as given in the final

accounts.

viii. Absolute figures expressed in terms of percentages.

ix. Increase of decrease in absolute figures in terms of money value.

x. Increase or decrease in terms of percentages.

xi. Comparison expressed in ratios.

xii. Percentages of totals.

Comparative Income Statements

The income statement (profit & loss A/c) gives the results of

the operations during a definite period. It reveals the profit carried or

loss incurred by the cancers. The comparative study if income statement

61
for more than 1 year may enable us to know the program of the concern.

First two columns gibe figures of various items for two years. The third

and fourth column used to show increase or decrease in figures in

absolute adopted in preparing comparative balance sheet.

In first step, find out the changes in absolute figures i.e., increase

or decrease should be calculated.

In second step percentage of change should be calculated with the

help of following formula.

Change in amount

Percentage of change = x 100

Base year amount

Guidelines for interpretation

The increase or decrease in sales should be compared with

increase or decrease in cost of goods sold. If increase in sales is

more than the cost of goods sold. It means that the profitability of

the concerns is increased.

The amounts of gross profit should be studied.

Operating profits should be studied. The express should be
62
 deducted from gross profit to find out operating profit and then

operating incomes should be added.

The next step is some of the non operating expenses are to be

deducted from the operating profits and non operating incomes

should be added to get net profit

The opinion should be formed the profitability of the business

concern and it should be given at the end.

Comparative balance sheet

The balance sheet prepared on a particular date reveals the

financial position of the concern on the date to study the trends of

business over a period of time comparative balance sheet reveals the

cause for changes in the financial position on amount of various

transactions. The comparative studies throw light on financial policies

adopted by management.

The comparative balance sheet consists of two columns for

the original data. A third column used to show increase or decrease in

various items. A south column containing the parentage of increase or

decrease may be added

Guide lines for interpretation of balance sheet

63
 The short term financial position can be studied by comparing the
working capital of both years.

To study the liquidity position changes in liquid assets must be

ascertain if there is any increase in liquid assets. We must

understand that is an improvement in the liquidity position of the

concern and vice versa.

A high increase in sundry debtors and bills receivable mean in

increase in risk in collecting the amount of dues.

A high increase in closing stock may mean that decrease in the

demand.

Long term financial position of the business concern car be

analysed by studying the changes in fixed assets, long term

liabilities and capital.

Fixed assets must be compared with long term loans and capital. If
the increase in fixed assets is more than the increase in long term

financiers from the working capital which is not good.

1. COMMON SIZE STATEMENTS

The common size statements, balance sheet and income

statement are shown in analytical percentages. The figures are shown

as percentages of total assets, total liabilities and sales. The total assets

are taken as 100 and different assets are expressed as percentage of the

total. Similarly various liabilities are taken as a part of total liabilities.

64
These statements are also known as component parentage or 100%

statements because every individual item is stated as a percentage of the

total 100 the short statements because every individual item is stated as

a percentage of the total 100 the short-comings in comparative

statements and trend percentages where changes in item could not be

compared with the total have been covered up.

The common size statements may be prepared in the following way.

The totals of assets or liabilities are taken as 100.

The individual assets are expressed as a percentage of total assets
i.e., 100 and different liabilities are calculated in relation to that

liability.

Common Size Income Statement

The items in income statement can be shown as percentages

of sales to show the relation of each item to sales. A significant

relationship can be established between items of income statement and

volume of sales. The increase in sales will certainly increases selling

expression and volume of sales. The increase in sales will certainly

increases selling expresses and not administrative or financial expenses.

In case the volume of sale increases to a considerable extent,

administrative and financial expenses may go up. In case the sales are

declining, the selling expenses should be reduced at once. So, a

65
relationship is established between sales and other in income statement

and this relationship is helpful in evaluating operational activities of the

enterprises.

Common Size Balance Sheet

Statement in which balance sheet items are expressed as the

ratio of each asset to total assets and the ratio of each liability is

expressed as a ratio of total liabilities is called common size balance

sheet. The common size balance sheet is a horizontal analysis. The

comparison of figures in different periods is not useful becomes total

figure may be affected by a number of factors. It is not possible to

establish standard norms for varios assets. The trends of year to year

may not be studied and even they may not give proper results.

2. TREND ANALYSIS

Trend analysis is an important and useful technique of

financial analysis. It involves computation of index numbers of the

moments of the various financial items in the financial statements for a

number of periods. It enables to know the changes in the financial

position and the operational efficiency between the period chosen.

Through trend analysis the analysis can give his opinion as to

whether favorable or unfavorable tendencies are reflected by the

accounting date.

66
 The comparative and common size balance sheets suffer from

a major limitation i.e., absence of basic standard to indicate whether the

proportion of an item is normal or analysis values are calculated for each

item in isolation but conclusions are to be drawn by studying the related

items also.

Trend analysis can be analysis in the following ways:

iii. By calculating trend ratio (or) percentage.

iv. By plotting on graph paper (or) charge.

Trend Ratio (or) Percentage

It involves the ascertainment of arithmetical relationship

which each item of several year to the same item of base year. Any year

maybe as the base year, it is usually the earliest year.

Procedure for Calculating Trend Ratio

The following procedure maybe adopted for calculating trend ratio.

iii. Select any year as base year the selected year should be normal

year for the base year the trend value is taken as 100.

iv. Trend percentage of each item should be calculated with the

67
 help of following formula.

Current year value

Trend Percentage = X 100

Base year value

3. COST-VOLUME-PROFIT ANALYSIS

Cost Volume Profit analysis is an important tool of profit

planning. It studies the relationship between cost, volume of

production, sales and profit. It is not strictly a technique used for

analysis of financial statements. However, it is an important tool for the

management for decision making. Since the data is provided both cost

and financial records. It tells the volume of account of variation in

output, selling price and cost, and finally, the quantity to be produced

and sold to reach the target profit level.

4. RATIO ANALYSIS

Financial analysis depends to very large extents of the use of ratios

through there are other equality important tools of such analysis. Thus,

a direct examination of the magnitude of two released items is some what

enlightening but the comparison is greatly facilitated by expressing the

relationship as a ratio.

Ratio analysis of business enterprises enters on efforts to

derive quantitative measures or guides concerning the expected capacity

68
of the firm to meet its future financial obligation or expectations present

and past data are used for the purpose and what ever extrapolations

appear necessary. They are made to provide no indication of feature

performance. Alexander walt, who criticized the bankers for its lapsided

development owing to their decisions regarding the grant of credit on

current ratios a lone, made the presentation of an elaborate system of

ratio analysis in1919.

Ratio

Ratio is an expression of the quantitative relationship that

exists between the two numbers. The ratio is defined as the indicated

quotient of two mathematical expressions the ratio should be

determined between related accounting variables to be meaningful and

effective.

5. MEANING OF CASH FLOW NATURE

Cash plays very important role in the entire economic life of a

business. A firm needs cash to make payments to its suppliers, to insure

day-go-day expenses and to pay salaries, wages, interest and dividends

etc. In fact, what blood is to a human body, cash is to a business

enterprise It is very essential for a business to maintain an adequate

balance at cash. But many a times, a concern operates profitability and

69
yet it becomes very difficult to pay taxes and dividends this movement of

cash is of vital importance to the management.

A statement of changes in the Financial Position of firm on

cash basis is called a cash flow statement.

A cash flow statement summarises the causes of changes in

cash position of a business enterprise between dates of two balance

sheets. This statement is very much similar to the statement of changes

in Financial Position Prepared on working capital basis, i.e., a funds flow

statement, except that a cash flow statement focuses attention on cash

instead of working capital. It is called a cash flow statement because it

describes the Inflow (Sources) and out flow (use) of cash.

70
Analysis and Interpretation

Ratio Analysis
Comparative Balance Sheet

71
CURRENT RATIO:

Current ratio = Current asset

Current Liabilities

( Rs in crores )

Year Current Assets Current Liabilities Current Ratio

2010-11 9550.66 7625.21 2.2

2011-12 4307.84 4607.49 1.7

Graphical Representation:

CURRENT RATIO
2.5

1.5 CURRENT RATIO

0.5

0
2010-11 2011-12

Interpretation:

72
 The Current ratio in the year 2010-11 was 2.2, where as in the year 2011-12
was 1.7. The ratio decrease by 0.5 due to the high value of current liabilities rather
than current assets.

QUICK RATIO:

Quick ratio = Current assets Inventories (Quick Assets)

Current Liabilities

( Rs in crores )

Year Quick Assets Current Liabilities Quick Ratio

2010-11 7099.14 4307.84 1.6

2011-12 4370.5 4607.49 0.9

Graphical Representation:

QUICK RATIO
1.8
1.6
1.4
1.2
QUICK RATIO
1
0.8
0.6
0.4
0.2
0
2010-11 2011-12

73
Interpretation:

The Quick ratio was 1.6 in the year 2010-11 and 0.9 in the year 2011-12.
The difference is 0.7, due to the more current liabilities than that of the quick
assets.

ABSOLUTE QUICK RATIO:

Absolute Quick Ratio=Absolute Quick Assets
Current Liabilities

( Rs in crores )

Year Absolute Quick Assets Current Liabilities Absolute Quick Ratio

2010-11 5415.54 4307.84 1.26

2011-12 1998.89 4607.49 0.43

Graphical Representation:

Absolute Quick Ratio

1.4
1.2
1
0.8 Absolute Quick Ratio

0.6
0.4
0.2
0
2010-11 2011-12

Interpretation:

74
 The Absolute quick ratio was 1.26 in the year 2010-11, whereas it was 0.43
in the year 2011-12. The ratio decreased by 0.83, due to the large difference
between the absolute quick assets and current liabilities.

DEBT-EQUITY RATIO:
Debt-Equity Ratio=Outsiders Funds
Shareholders Funds

( Rs in crores )

Year Outsiders Funds Shareholders Funds Debt-Equity Ratio

2010-11 1233.55 12885 0.096
2011-12 1136.76 13229 0.086

Graphical Representation:

Debt-Equity Ratio
0.1
0.1
0.09
0.09
Debt-Equity Ratio
0.09
0.09
0.09
0.08
0.08
0.08
2010-11 2011-12

Interpretation:

75
 The Debt- equity ratio decreased to 0.01 in the year 2010-11 when compared
with the year 2011-12. The difference between the shareholders funds to
outsiders funds is more in the year 2010-11.

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio= Net Sales
Avg.Stock(closing stock)

( Rs in crores )

Year Net Sales Average Stock Inventory Turnover Ratio

2010-11 9809.15 2451.52 4 times
2011-12 10471.18 3254.71 3.22 times

Graphical Representation:

Inventory turnover Ratio

4.5
4
3.5
3
Inventory turnover Ratio
2.5
2
1.5
1
0.5
0
2010-11 2011-12

Interpretation:
76
 The Inventory turnover ratio was 8times in the year 2011-12, whereas it was
6.43 times in the year 2010-11. This decrease is due to that of increase in the value
of average stock in the year 2010-11.

PROPRIETARY RATIO:
Proprietary Ratio=Shareholders funds * 100
Total Assets

( Rs in crores )

Year Shareholders Funds Total Assets Proprietary Ratio

2009-10 12885 18523.21 69.56
2010-11 13229.22 19053.44 69.43

Graphical Representation:

PROPRIETARY Ratio
69.6

69.55

69.5 PROPRIETARY Ratio

69.45

69.4

69.35
2010-11 2011-12

Interpretation:

77
 The Proprietary ratio in the year 2011-12 is 69.43 and in the year 2010-11
were 69.56. The ratio decreased by 0.13 and we can say it as very negligible
change.

FIXED ASSETS RATIO:

Fixed assets Ratio= Fixed Assets * 100
Shareholders Fund

( Rs in crores )

Year Fixed Assets Shareholders Fund Fixed Assets Ratio

2009-10 8972.55 12885 69.63
2010-11 11428.23 13229.22 86.39

Graphical Representation:

fixed Assets Ratio

100

80

60 fixed Assets Ratio

40

20

0
2010-11 2011-12

Interpretation:

78
 The fixed assets in the year 2010-11 are 69.63, whereas in the year 2011-12
is 86.39. It is increased by 16.76. The change occurred due to the increased value
of fixed assets in the year 2010-11 when compared to 2009-10.

FIXED ASSETS TURNOVER RATIO:

Fixed Assets turnover Ratio= Net Sales
Fixed Assets

( Rs in crores )

Year Net Sales Fixed Assets Fixed Assets Turnover Ratio

2010-11 9809.15 8972.55 1.09
2011-12 10471.18 11428.23 0.92

Graphical Representation:

Fixed Assets Ratio

1.15

1.1

1.05

1 Fixed Assets Ratio

0.95

0.9

0.85

0.8
2010-11 2011-12

Interpretation:

79
 The fixed assets turnover ratio in the year 2010-11 is 1.09 and in the year
2011-12 is 0.92. The value was decreased to 0.17 due to the high value of fixed
assets than that of net sales in the year 2010-11.
WORKING CAPITAL TURNOVER RATIO:
Working Capital Turnover = Sales
Net Current Assets

( Rs in crores )

Year Sales Net Current Assets Working Capital Turnover Ratio

2009-10 10634.63 5242.82 2.03
2010-11 11516.99 3017.72 3.82

Graphical Representation:

working capital turnover ratio

4.5
4
3.5
3 working capital turnover
2.5 ratio
2
1.5
1
0.5
0
2010-11 2011-12

Interpretation:

The working capital turnover ratio in the year 2010-11 is 2.03 and in the
year 2011-12 are 3.82. The value increased by 1.79. This is due to the decrease of
current assets in the year 2010-11.

80
DEBTORS TURNOVER RATIO:
Debtors Turnover Ratio = Sales
Debtors

( Rs in crores )

Year Sales Debtors Debtors Turnover Ratio

2009-10 10634.63 181.18 58.69
2010-11 11516.99 330.61 34.83

Graphical Representation:

Debtors turn over Ratio

70

60

50

40 Debtors turn over Ratio

30

20

10

0
2010-11 2011-12

Interpretation:

The Debtors turnover ratio in the year 2010-11 is 58.69, whereas in the year
201-12 is 34.83. The value decreased by 23.86. This is due to the increase of
debtors in the year 2010-11.

81
DEBTORS COLLECTION PREIOD RATIO:
Debtors collection Period = 365 days
Debtors turnover ratio

( Rs in crores )

Year Days Debtors Turnover Ratio Debtors Collection Period

2009-10 365 58.69 6.22
2010-11 365 34.83 10.48

Graphical Representation:

Debtors collection period Ratio

12
10
8 Debtors collection period
Ratio
6
4
2
0
2010-11 2011-12

Interpretation:

The Debtors collection period in the year 2010-11 is 6.22, whereas in the
year 2011-12 is 10.48. The perio increased by 4.26. This is due to the low debtors
turnover ratio in the year 2010-11 than that of 2009-10.

82
CURRENT ASSETS TO FIXED ASSETS RATIO:
Current assets to Fixed assets ratio = Current Assets
Fixed Assets

( Rs in crores )

Year Current Assets Fixed Assets Current assets to Fixed assets ratio
2009-10 9550.66 8972.55 1.06
2010-11 7625.21 11428.23 0.67

Graphical Representation:

Current Assets to Fixed Assets Ratio

1.2

0.8 Current Assets to Fixed

Assets Ratio
0.6

0.4

0.2

0
2010-11 2011-12

Interpretation:

The current assets to fixed assets ratio in the year 2010-11 is 1.06, whereas
in the year 2011-12 is 0.67. The Ratio decreased by 0.39. This is due to the
increase of fixed assets in the year 2010-11 when compared with 2009-10.
CURRENT ASSETS TURNOVER RATIO:

83
Current assets Turnover ratio = Sales
Current Assets

( Rs in crores )

Year Sales Current Assets Current Assets Turnover Ratio

2009-10 10634.63 9550.66 1.11
2010-11 11516.99 7625.21 1.51

Graphical Representation:

Current Assts Turnover Ratio

1.6

1.4

1.2

1 Current Assts Turnover

Ratio
0.8

0.6

0.4

0.2

0
2010-11 2011-12

Interpretation:

The current assets turnover ratio in the year 2010-11 is 1.11, whereas in the
year 2011-12 is 1.51. the ratio increased by 0.4. This is due to the change of
current assets from 2009-10 to 2010-11.
GROSS PROFIT MARGIN RATIO:
Gross Profit Margin Ratio =Gross Profit
84
 Sales

( Rs in crores )

Year Gross Profit Sales Gross Profit Margin ratio

2009-10 1326 10634.63 0.12
2010-11 1147 11516.99 0.09

Graphical Representation:

Gross profit Margin Ratio

0.14

0.12
0.1
0.08 Gross profit Margin Ratio

0.06
0.04
0.02

0
2010-11 2011-12

Interpretation:

The Gross profit margin ratio in the year 2010-11 is 0.12, whereas in the
year 2011-12 is 0.09. The gross profit is decreased to Rs.1147 crores from Rs.1326
crores. So, the ratio decreased by 0.03.

RETURN ON CAPITAL EMPLOYED RATIO:

Return on capital employed ratio = Net Profit * 100

85
 Capital Employed

( Rs in crores )

Year Net Profit Capital Employed Return on Capital Employed

2009-10 797 6708 11.88
2010-11 658 4548 14.47

Graphical Representation:

Reture on Capital Employed Ratio

16
14
12
10 Reture on Capital
Employed Ratio
8
6
4
2
0
2010-11 2011-12

Interpretation:

The Return on capital employed in the year 2010-11 is 11.88, whereas in the
year 2011-12 is 14.47.The return increased by 2.59. The change is due to the
decrease of capital employed from 2010-11 to 2011-12.

EARNINGS PER SHARE (EPS):

EPS =Profit After Tax (PAT)

86
 Number of shares Outstanding

Year PAT (Rs. In Crores) Number Of Equity Shares EPS (RS)

2009-10 797 4,88,98,462 163
2010-11 658 4,88,98,462 134

Graphical Representation:

EPS
180
160
140
120
EPS
100
80
60
40
20
0
2010-11 2011-12

Interpretation:

The EPS in the year 2010-11 is Rs.163, whereas in the year 2011-12 is
Rs.134. The value decreased by Rs.29. This change is due to that of decrease of
PAT value in the year 2010-11.

COMPARATIVE BALANCE SHEET

Comparative Balance Sheet of 2010-2011 and 2011-2012

87
 INCREASE/ INCREASE/

2010-2011 2011-2012 DECREASE DECREASE

PARTICULARS RS. Crs Rs.Crs Rs.Crs Percentage

Cash & Bank
Balances 5415.54 1998.89 (3416.65) (63.09)
Sundry Debtors 181.18 330.61 149.43 82.47
Inventories 2451.52 3254.71 803.19 32.76
Loans & Advance 1365.02 1965.04 600.02 43.96
other currents
assets 137.4 75.96 (61.44) (44.72)
investment 0.25 361.60 361.35 144540
Fixed assets 8972.3 11066.63 2094.33 23.34
Total assets 18523.21 19053.44 530.23 2.86
LIABILITIES
Currents
Liabilities 2871.95 3271.43 399.48 13.91
Provision 1435.89 1336.06 (99.83) (6.95)
Secured Loans 387.32 274.89 (112.43) (29.03)
Unsecured Loans 845.23 861.87 16.64 1.97
Deferred Tax
Liability 97.82 79.97 (17.85) (18.25)
Reserves &
Surplus 5057.68 5401.90 344.22 6.81
Share Capital 7827.32 7827.32

88
Total Liabilities 18523.21 19053.44 530.23 2.86

Graphical Representation:

Cash & Bank Balances

2% Sundry Debtors
1% 5%
17% Inventories
8%
Loans & Advance
2%
other currents assets
4%
6% Fixed assets
Currents Liabilities
22%
Provision
12%
Secured Loans
Unsecured Loans
12% 9%
Deferred Tax Liability
Reserves & Surplus

Interpretation:

89
 From the above pie chart, Cash and bank balances are decreased to 63.09%.
It says that the liquidity position of the company is decreased.
The fixed assets are increased by 23.34%. It indicates that the VSPs interest
on long term benefits through invest on fixed assets.
The current liabilities are increased to 13.91%. It shows the critical position
in the working capital.

COMPARATIVE PROFIT & LOSS ACCOUNT FOR THE YEAR 2010-11 & 2011-12
INCREASE/
(DECREASE)
BALANCE AS BALANCE AS AT OVER
AT 31.03.2011 31.03.2012 ( RS 2011-12
(RS CRORES) CRORES) (RS CRS)

Net Sales 9809.15 10471.18 662.03

Other Income 736.81 525.56 (211.25)

TOTAL INCOME 10545.96 10996.74 450.78

Raw Material consumed 5535.11 7188.36 1653.25

Employee Remuneration 1399.74 1272.95 (126.79)

Stores and Spares consumed 466.48 471.22 4.74

90
Depreciation 277.17 265.94 (11.23)

Other expenditure 1627.05 851.57 (775.48)

TOTAL EXPENDITURE 9305.55 10050.04 744.49

Profit Before Tax 1247.65 981.66 (265.99)

Taxes 450.98 323.17 (127.81)

Profit After Tax 796.67 658.49 (138.18)

Profit brought forward 1653.83 2117.83 464

CUMULATIVE PROFIT 2450.5 2776.32 325.82

91
Graphical Representation:

Net Sales
325.82 662.03 Other Income
464
TOTAL INCOME
138.18 211.25
127.81 Raw Material consumed
450.78 Employee Remuneration
265.99
Other expenditure
TOTAL EXPENDITURE
744.49
Profit Before Tax
Taxes
1653.25
775.48 Profit After Tax
126.79 Profit brought forward
CUMULATIVE PROFIT

Interpretation:

Sales are increased whereas other income is reduced. The other income
includes the internal consumption, Interest earned. These funds have been
withdrawn to utilize in expansion activities.
Employee Remuneration is decreased due to some employees retirement
period.

92
 Raw material consumed is increased due to increase in raw material cost.

BREAK UP OF INCOME 2011-2012(RS In Crs)

390; 3% 348; 3%
90; 1% 88; 1%
Sale of By Products & Others Interest Earned Other Revenue Internal Consumption

Sale of Iron & Steel

11127; 92%

Major source of income is from Sale of Iron & steel, which is 92%. And
next best are Sale of By Products & others and Interest Earned, which is of
3% each.

93
 DISTRIBUTION OF GROSS INCOME 2011-12(RS IN Crs)

Stock Accretion
658; 5% 532; 4%
Employees Benefits
1273; 10% Stores & Spares consumed
471; 4% Power and Fuel
425; 3%
R&M,Freight,Other
924; 7% expenses, Interest etc
Excise Duty
7188; 55% 1046; 8% Depreciation
266; 2% Provision for Taxation
323; 2% Raw Materials consumed
Profit after Tax

Major portion of income is getting distributed to Raw material

consumption i.e 55%. Only 5% is Profit after tax.

94
SUMMARY, FINDINGS AND SUGGESTIONS

Findings
Suggestions
Conclusion
Bibliography

95
96
 FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS:

Sundry debtors increased by 82% due to increase in credit sales during

the year.

Term deposits decreased by 63% due to utilization of funds for expansion

project related payments.

Loans & Advances increased by 44% mainly due to increase in forward

contracts receivables.

The total loans at the year end, decreased by Rs.95.79Crs as internal

resources were used for working capital requirements.

RINL registered an increase in the turnover of 8.3% over the previous

year.

Profit before tax of Rs.982Crs was lower by Rs.266Crs over previous

year.(Rs.1248Crs).

The increase in Capital work in progress is on account of expenditure

incurred on expansion projects and various other capital schemes under
implementation.

Other revenues increased by Rs.9.29Crs over previous year. To meet the

payments obligations for the ongoing expansion, the company has
utilized much of its term deposits resulting in a decrease of interest
earned on term deposits by 35% over previous year.

97
 The current ratio of the Company is very good which shows the high
liquidity position.

The earnings per share ratio has increased year by year.

During the year, RINL contributed Rs.2092Crs to the national exchequer

in form of dividend, taxes and duties to various government agencies as
against Rs.2145Crs during the previous year.

As per records, the company has not issued debentures during the year.
The company has not raised money by public issues during the year.

The operating margins have shown an increasing trend for most of years
and the income also increased for many years. This is the major reason
for VSPs Turnaround.

The net cash generated from operating activities are showing a positive
trend and finance conditions of the company are excellent.

The main source of the funds of RINL where arranged by about 20

financial institutions. Among these, the major sources are IDBI Bank
Ltd., State Bank of India etc.
SUGGESTIONS:

The profit margins strained during the current year due to steep increase
of raw material prices especially basic raw materials such as coal & Iron
Ore. However, due to increase in input costs, the profit is adversely
affected. So, we have to make the input cost cheaper either by importing
the material with less travelling expenses or the company has to takeover
the input company.
98
 Expansion of capacities by the competitors and entry of international
players has taken place. So, we have to do some innovativeness in
manufacturing of steel.

Capital work in progress is increasing year after year which is due to the
reason of expansion plan of the company. Commissioning of expansion
units as per schedule and maintaining the operating margins is the key for
future profitability of the Company.

CONCLUSION:

The Visakhapatnam Steel Plant has been dedicated to nation in 1992 and it is
one of the major steel plants in the Asia and having much more capital investment.
We know that the Visakhapatnam Steel Plant as a large organization might have
long gestation period and while establishing the Visakhapatnam Steel Plant so
much of lands were taken from the local people and provided the jobs to them in
VSP thought they may not skillful. But the top management of VSP conducts so
many training and development programs to improve their performance, not only
this but also frequent technological changes due to the above factors in the initial
stage.

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 This study concentrated on the financial state of affairs of the company
RINL. It involved study of cash flow statements, Balance sheets, Profit & Loss
accounts and also their comparison over the last two years in the industry. It has
presented a broader picture of the financial position of the company. The study
analyzed the companys success in being able to effectively manage its day to day
requirements pertaining to cash flow and effectively channelizing the short term
and long term funds of the company to meet the requirements.

BIBLIOGRAPHY

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 NAME OF THE BOOK AUTHOR
Financial Management I. M.Pandey
Financial Management Prasanna Chandra

Research Methodology Sri Kotari C.R

Accounting For Management S N Maheshwari, S K Maheshwari

Annual Reports Of Rashtriya Ispat Nigam Limited

General Articles And Magazines Of Rashtriya Ispat Nigam Limited

Website: www.vizagsteel.com, www.indianinfoline.com,

Newspapers: Deccan Chronicle, The Hindu, Eenadu.

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