A REPORT

ON
“FINANCIAL PERFORMANCE ANALYSIS OF NALCO”

Prepared by
RAKESH KUMAR SAHOO
III Semester MBA
BPUT Reg.No: 1606280075

Under the Guidance of

Company Guide Faculty Guide

Mr.Chandra Sekhar Gummadi Prof.Somu jena
Deputy Manager, Finance professor,department of MBA

Project Report submitted to NIIS Institute of Business Administration in

partial fulfillment of the requirements of III Semester MBA examinations of
BPUT
ODISHA 2017-18

NIIS Institute of Business Administration, Saradavihar, Madanpur,

Bhubaneswar – 752054

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 CARTIFICATE

This is certify that the project titled “Financial Performance Analysis of

NALCO” is a bonafide research work done by Rakesh Kumar Sahoo, bearing
BPUT Reg.No: 1606280075.
This report is submitted as partial fulfillment of the requirements of MBA
program of NIIS Institute of Business administration.

This project work is effectively executed under the guidance and supervision
of the following dignitaries .

Faculty Guide: Company Guide:

Mr. Somu Jena , Mr.Chandra Sekhar Gummandi,

Professor, Department of MBA Deputy Manager,Finance,

NIIS , Bhubaneswar NALCO , Bhubaneswar

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 ACKNOWLEDGEMENT

Any attempt at any level cannot be satisfactorily completed without the

support and guidance of learned people. I would like to express my immense
gratitude to My Project guide Mr. Chandra Sekhar Gummadi for giving me
an opportunity to work on this project and supplying me with the right
documents so that the project can be completed in time. His constant support
and motivation has really encouraged me to come up with this project.

I am equally grateful to my Faculty Guide Professor Somu Jena for guiding me

in different matters regarding the topic .He had been very kind and patient
while suggesting me the outlines of this project and correcting my doubts. I
thank him for his overall supports.

I would like to thank to my parents for their love and blessings and without
whose contribution it would not have been possible to choose such a
prestigious organization like Nalco.

Last but not the least; I thank the Almighty for showering his blessings on me
for successful completion of the project.

Rakesh Kumar Sahoo

Registration No.1606280075

NIIS , Bhubaneswar

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 DECLARATION

I do hereby declare that this project report entitled “FINANCIAL

PERFORMANCE ANLYSIS OF NALCO” is for award of degree of
POSTGRADUATE PROGRAMME IN MANAGEMENT FROM. The report is based
on the study undertaken by me, to the best of my knowledge and belief it has
not been published earlier elsewhere or presented to any
University/Institution for award of any degree, diploma or other similar title.
The information used in the study report is collected from published financial
statement, Annual report, various articles and in house journal of the
NATIONAL ALUMINIUM COMPANY LTD.

PLACE:

DATE :

SIGNATURE OF THE STUDENT

Executuve summary………..

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 CHAPTER – 1

1.1 INTRODUCTION:

“Finance is defined as the provision of money when it is required.Every

enterprise needs finance to start and carry out its operations . Finance is
the life blood of an organization .So, Finance should be managed
effectively.”

This project is a sincere effort to study and analysis the financial

management of National aluminimum Company Limited (NALCO), which
is one of the top listed companies within the aluminimum sector in india .

This project studies necessary to make a contribution to knowledge through

integration of the review of literature and methodology developed for the
understanding and resolution of management problem and imperical work
done thereon.

The purpose of the summer internship project report is to allow the purposed
study within coherent, organized framework, which is also standardised. This
project study is necessary to enhance our understanding, grasp and clarity of
the subject matter, the context matter, to convert our theoretical concepts into
practicality in the organization, the concept of managerial problem. This is
necessary for the direction and procedure of the study to be brought within
the required scope, coverage and rigor, and for changing the quality of the
researched effort.

1.2 OBJECTIVE OF THE STUDY:

 To know the organization in respect of the entire sector.

 To implement the theoretical knowledge into the reality.
 To know the overall structure of the company.
 To study analyze and compare the “financial performance of NALCO” with its
peers. .
 To make a comparison of the ratios and interpret the financial position
of Nalco through Ratio Analysis

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 1.3 SCOPE OF THE STUDY:

The study mainly attempts to analyze the financial performance for

NALCO. The financial authorities can use this for evaluating their
performance in future, which will help to analysis financial statement
and help to apply the resources of the company properly for the
development of the company as well as the employees to bring overall
growth.

This project can be helpful for the forecast and evaluation of overall
performance of the NALCO in future.

The scope for doing this project is limited to three company namely
NALCO,HINDALCO and VEDANTA, as those three companies share more
than ninety percent of the industry market share.

1.4 METHODOLOGY:

 Research is defined as a systematic gathering ,recording and analysis of rata

about problem relating to any particular field .
 It determines strength ,reliability and accuracy of project.

This study used a descriptive research desine for the purpose of getting an
insight regarding the topic ,as factual and as possible .collection of data is
done via public domain, annual reports of the respective companies, company
brochures .Both primary and secondary data collection method is used for this
study report .The details of the various data sources and references have been
given at the end of the report.

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 CHAPTER: 2

INDUSTRY PROFILE AND COMPANY PROFILE:

2.1 Industry profile:

Aluminium Industry in India is a highly concentrated industry with the

top 5 companies constituting the majority of the country's production. With
the growing demand of aluminium in India, the Indian aluminium industry is
also growing at an enviable pace. In fact, the production of aluminium in India
is currently outpacing the demand. In India, the industries that require
aluminium most include power (44%), consumer durables, transportation
(10-12%), construction (17%) and packaging etc. Aluminium is third most
available element in the earth constituting almost 7.3% by mass. Currently it
is also the second most used metal in the world after steel. Due to the
consistent growth of Indian economy at a rate of 8%, the demand for metals,
used for various sectors, is also on the higher side. As a result, the Indian
aluminium industry is also growing consistently. In FY09, the aluminium
industry in India saw a growth of about 9%. India is world's fifth largest
aluminium producer with an aluminium production competence of around 2.7
million tones, accounting almost 5% of the total aluminium production in the
world. India is also a huge reservoir of Bauxite with a Bauxite reserve of 3
billion tones.

The Indian aluminium industry is dominated by four or five companies that

constitute the majority of India's aluminium production. Following are the
major players in the Indian aluminium industry:

Hindustan Aluminium Company (HINDALCO)

National Aluminium Company (NALCO)

Bharat Aluminium Company (BALCO)

Madras Aluminium Company (MALCO)

Indian Aluminium Company (INDAL)

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2.2 Company Profile:

An overview of NALCO:

National Aluminium Company Limited (NALCO) is considered to be a turning

point in the history of Indian Aluminium Industry. In a major leap forward,
NALCO has not only addressed the need for self-sufficiency in aluminium but
also given the country a technological edge in producing this strategic metal
as per world standard.

NALCO incorporated in 1981, as a central public sector enterprise. National

Aluminium Company Limited (NALCO) is India’s largest integrated alumina-
aluminium complex, comprising bauxite mining, alumina refining, aluminium
smelting & casting, power generation, rail and port facilities.With the
consistent track record in capacity utilization, technology absoption, quality
assurance, export performance and profitability, NALCO is a bright example of
India’s industrial capabilities.

Today, NALCO uses the latest technology and is one of the most advanced
manufacturing units in the world. With low cost operations and international
customer base, NALCO has emerged as the largest integrated bauxite-alumina-
aluminium complex in Asia. Being one of the largest exporters of aluminium
metal and having international customer base, NALCO has recognized as a
“Navratna Company” under the Ministry of Mines, Government of India.

The capacity of operating units:

Units Capacity
Bauxite mines 6825000 MT
Alumina refinery 2275000 MT
Aluminium smelter 460000 MT
Captive power plant 1200 MW
Wind power plant -1 50.4 MW
Wind power plant -2 47.6 MW
Rooftop solar power system 260 KWp

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BAUXITE MINES:

On PANCHAPATMALI
hills of Koraput district in Odisha, a fully mechanized opencast mine of
68,25,000 tpa, serves feedstock to Alumina Refinery located downhill, through
a 146 km long-flight multi-curve variable speed cable belt conveyor. NALCO’s
bauxite mining is considered as one of the most sophisticated and eco-friendly
mining operations to be found worldwide.

ALUMINA REFINERY:

Ranked No. 1 among

the lowest cost producers of alumina according to the Wood Mechanized
Report, the 22, 75,000 tpa Alumina Refinery at Damanjodi, Koraput, utilizes
time-tested Bayer Process technology of atmospheric pressure digestion. Alter
meeting the consumption needs of the Company’s Smelter, the balance
quantity of alumina goes to international markets through Visakhapatnam
Port.

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ALUMINIUM SMELTER:

At Angul in Odisha,
the 4, 60,000 tpa capacity Aulminium Smelter is based on energy-efficient
state-of-the-art technology of smelting and pollution control. The Smelter
comprises four pot lines with 240 electrolytic pot cells in each, along with
integrated facilities for casting of ingots, sows, billets, strips, wire rods and
rolled products.

CAPTIVE POWER PLANT:

Close to the
Aluminium Smelter, a Captive Power Plant has been established to feed the
smelter. The capacity of power plant has been increased to 1200 MW. The coal
demand of the plant is met from a dedicated mine of Mahanadi Coalfields
Limited. The Plant is also connected with the State Grid for sale of surplus
power.

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WIND POWER PLANT &SOLAR POWER SYSTEM:

With a view harness renewable energy sources, NALCO has set up its 1st wind
power plant of 50.4 MW at Gandikota, Andhrapradesh and 2nd wind power
plant of 47.6 MW at Jaisalmer, Rajastan.

260 KWp Rooftop Solar Power System has also been made operational at
Office and Township, Bhubaneswar.

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PORT & RAIL OPERATIONS:

On the inner harbor of Visakhapatnam Port, on the Bay of Bengal, NALCO has
mechanized storage and ship handling facilities for export of alumina and
auminium as well as import of caustic soda lye and other raw materials. With
storage facility up to 75,000 tonnes and ship-loading rate of 2200 tonnes per
hour, this gateway to overseas market can reliably handle export of about one
million tones of alumina per annum. Besides, NALCO also exports from ports
of Paradeep and Kolkata.

NALCO also operates own locomotives and wagons for surface transportation
of finished goods and raw materials.

THE MANAGEMENT

Nalco is a Government of India Enterprise under the administrative

control of Ministry of Mines. The Company is managed by a Board of Directors
appointed by the President of India. The Board consists of maximum 16
Directors including the Chairman-cum-Managing Directors of the Company.
Apart from CMD, there are 5 functional or full time Directors heading Projects
& Technical, Human Resource, Commercial, Finance and Production
disciplines. There are 2 senior Govt. Officials nominated to the Board as
Directors by the Government of India. Besides, there are 08 Independent
Directors in the Board.

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 Thus, the Board of the Company is a pool of highly experienced and
outstanding professionals drawn from various fields of specialization. The
Board enjoys the maximum possible operational autonomy, consistent with
the overall corporate objectives, basic policies and programmes with a view to
achieving optimum utilization of resources. Subject to the provision of the
Indian Companies Act, the Memorandum and Article of Association,
Memorandum of Understanding signed with the Govt. And also subject to
policies formulated by the Board of Directors from time to time, the
Chairman-cum-Managing Directors has full power to sanction the expenditure
or to deal with other matters for effective functioning of the Company.

2.3 NALCO’S VISION AND MISSION:

VISION:

“To be a reputed global company in the Metals and Energy sectors.”

MISSION:

 To achieve sustainable growth in business through diversification, innovation

and global competitive edge.
 To satisfy the customers and shareholders, employees and all other stake
holders.
 To continuously develop human resources, create safe working conditions,
improve productivity and quality and reduce cost and waste.
 To be a good corporate citizen, protecting and enhancing the environment as
well as discharging social responsibility in order to ensure sustainable
growth.
 To intensify R&D for technology development.

2.4 SWOT ANALYSIS OF NALCO

Strengths:

 Well planned and organized.

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 Huge power production
 Coordination between various departments
 Low energy consumption and low cost operation
 Presently, the market leader

Weakness:

 Limited number of skilled manpower which consists of:

1. Unskilled: 847
2. Executives: 1817

 No diversification of products
 High interest burden
 Depends on LME quotes

Opportunities:

 Widespread uses of Alumina for various purpose

 Supportive government policies
 Better transportation (port) facilities
 Availability of suitable labors
 Growth of the potential domestic market

Threats:

 High tax rate imposed on metal

 Environmental threat like super cyclone
 Stiff competition from:

 HINDALCO

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 VEDANTA
 Instability of the LME prices
 2.5 EXPORT OF NALCO

NALCO is the largest exporter of Alumina and Aluminum in India. It has

established a footprint over a large geographical area covering countries in
the South East Asia, far East, Indian Sub-Continent, the Gulf, China, and USA.
The exports are primarily Calcined Alumina and primary Aluminum,
Aluminum Flat Rolled products, Special Grade Alumina/Hydrate and Zeolite
are part of their expanding product portfolio of exports.

NALCO has been exporting Aluminum metal and Calcined Alumina to various
overseas destination like Singapore, Malaysia, Korea, Japan, Turkey, Vietnam,
Bangladesh, Bahrain, China, Egypt, Iran, UAE etc. Export orders are booked
through e-tendering system by registered customers.

NALCO has achieved the highest ever export sales at Rs.3719 crore during the
last financial year against earlier sale of Rs.3410 crore and it has also
generated revenue of Rs.46.81crore during the year under report from
renewable energy against Rs.2.64 crore revenue generated during previous
year. The domestic metal sales were effected from the smelter plant at Angul
and nine stockyards at Kolkta, Baddi, Jaipur, Faridabad, Bhiwani, Silvassa,
Bengaluru, Chennai and Vizag.

Expansion

Tapan Kumar Chand, Chairman cum managing director of NALCO said

"Investment to the tune of Rs 650 billion is proposed to be made for a number
of projects, including a greenfieldaluminium smelter abroad." The company is
exploring countries like Oman, Iran and Indonesia to set up the proposed
smelter plant with an estimated investment of Rs 200 billion, he told
reporters adding the location would be finalised after examining factors like
availability of low cost power and infrastructure. NALCO is planning to invest

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 around 400 billion of Indian rupees in the next five years starting 2008. The
investments will be made in alumina smelters and power projects in
Indonesia , South Africa, Iran and within India .

A joint venture between MEC and Nalco will operate a smelter in East
Kalimantan for $5.6 billion construction.

National Aluminium Company Ltd (Nalco) plans to hike its stake in the
nuclear power joint venture with Nuclear Power Corporation of India (NPCIL).
Nalco's current stake in the firm is 26% and it is expected to be 49%.

NALCO has also set up a 47.6 MW Wind Power Plant at Ludarva in Jaisalmer
district of Rajasthan . This Rs. 283-crore wind power project involved erection
of 56 wind turbines, each of 850 KW.

NALCO launched a joint venture with Gujarat Alkalies and Chemicals Limited
(GACL) to set up a caustic soda plant at an investment of Rs 18 billion. The
new JV company GACL- NALCO Alkalies& Chemicals Private Limited, in which
NALCO holds 40 per cent share capital, while GACL holds the rest, plans to
produce 270,000 tonnes of caustic soda per annum.

2.6 Achievements:

 First Mines Safety Award-1988 by DGMS.

 Best Eco-friendly Factory Award 1994–95 to the Mines and Refinery Complex
by Odissa State Factory Inspectorate.
 State Award-1995 to Captive Power Plant from state Factory inspectorate
forEnvironment Management.
 Indira PriyadarshiniVrikshamitra Award-1994 from MOEF, Govt. of India, for
afforestation and wasteland development.
 FICCI Environment Award for Environment Conservation and Pollution
Control- 1996–97.
 WEC-IIEE-IAEWP Environment award −1997 for contributing towards
environment protection.
 Gem Granite Environment Award for −1997-98 by FIMI, New Delhi for Mines.
 ShriSita Ram Rungta Memorial Social Awareness Award-1997-98 by FIMI,
New Delhi.

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 Pollution Control Excellence Award – 1998 by Odisha State Pollution Control
Board for Mines.
 Special Commendation under Golden Peacock Environment Management
Award 1998 Scheme by World Environment Foundation.
 State Award for Best Occupational Health Centre to S&P Complex'-1998.
 Best Safety Performance Award to CPP by CII (ER)- 1999–2000.
 The prestigious Dun & Bradstreet's Best PSU Award – 2012 in Non-Ferrous
Metal Category.
 Outstanding CSR Practices in Community Development – Odisha CSR Summit
2016.

2.7PERFORMANCE HIGHLIGHTS:
Physical Performance:
Mines achieved the highest ever bauxite transportation of 63.4 lakh MT as
against 57.42 lakh tonnes achieved during the previous year registering 10%
growth.
Alumina Refinery achieved the highest ever alumina hydrateproduction of
19.53 lakh MT as against 18.51 lakh MT achieved inprevious year registering
6% growth.
Steam Generation Plant (SGP) at Alumina Refinery achieved thehighest ever
net power generation of 438 Million Units (MU)surpassing previous best of
433 MU achieved last year.
Aluminium Smelter achieved cast metal production of 3.72 lakhMT against
3.27 lakh MT in previous year registering 14% growth.Smelter achieved the
highest ever production of Wire Rod of 1.01lakh MT surpassing previous best
of 96,070 MT in previous year. Tee Ingot production of 48,636 MT has been
the highest ever since inception surpassing previous best of 39,803 MT during
2014-15.
CPP achieved ‘Net Power Generation’ of 5,841 MU as against 5,131 MU in
previous year.
The wind power generation during the year was 156 MU as against 175 MU
generated during the previous year. The lower generation was due to
restrictions in power evacuation. Similarly the solar power generation was

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0.19 MU during the year as against 0.17 MU generated during the previous
year.
Sales Performance:
Chemicals
Your Company achieved total chemical sale of 12,19,926 MT in 2015-16
compared to 12,24,643 MT achieved during 2014-15. This includes Calcined
Alumina Export of 11,74,224 MT made during 2015- 16 as compared to
11,84,595 MT export made during 2014-15.
Metal
The total metal sales during 2015-16 was 3,72,424 MT as compared to
3,26,079 MT during 2014-15. Total metal sale consists of domestic sale of
2,77,753 MT and export of 94,671 MT. The domestic sale includes Wire Rod
sale of 1,01,444 MT which is the highest ever sale of Wire Rods made since
inception, surpassing the previous best of 96,070 MT achieved during 2014-
15.

3.1 OBSERVATIONS:

1. Material Department: The primary function of the material department is

procurement of raw materials, stores and spares for production of metal.

2. Production Department: The present capacity of alumina refinery is 2.1

million tonnes per annum with four production lines of 525,000 tonnes each
per annum. The capacity is under augmentation to 2.275 million tonnes per
annum by upgrading the fourth line to 700,000 tonnes per annum at an
estimated cost of Rs.409 crore. Alumina produced is used to meet the
company’s requirements for production of primary aluminum at smelter. The
surplus alumina that remains after internal consumption is sold to third
parties in the export markets. A small portion is also sold to the domestic
market.

3. Human Resource Department: The HR department’s vision is to attain

the organizational excellence through trust, openness, commitment, creativity,
innovation and providing opportunities for growth, well being and
professional enrichment. The mission of this department is to create learning

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 and knowledge based organization through continuous innovation, evaluation
and realignment HR practices with the business strategies and to attract,
nurture and retain talent. To inculcate a spirit of creativity, quest for learning,
to create a responsive and competent work force and inspiring and
motivational organizational climate. The philosophy of NALCO in the field of
HR and management has been :

 To attract competent personnel with growth potential and develop their skill
and capability in a congenial work and social environment through
opportunities for training, recognition, career advancement and other
activities.

 To develop and nurture favorable attitude among the employees and to obtain
their best contribution to the organization by providing stable employment,
safe working conditions, job satisfaction, quick redress of grievances and
through good pay and welfare amenities, commensurate with the company to
spend and government guidelines. To foster fellowship and sense of
belongingness among all sections of employees through closer association of
employees with management and by encouraging healthy trade union
practices.

4. Marketing and Sales Department: The main objective of the marketing

guideline is to prescribe and streamline the marketing functions to be
discharged by different personnel in the marketing department and other
ancillary departments connected to marketing functions to work in close
coordination to achieve overall internal/ministry target of the department
and the company. The other targets are :

 Develop and implement appropriate strategies, policies & plans to promote

and protect the Company’s commercial interests in tune with Company’s
objectives and targets.
 Inter-face with the global metal exchanges, trading agencies, consumers and
Government.
 Overall supervision, co-ordination and direction of marketing activities both
for domestic as well as international markets, to enhance market share and
maximize realization.
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 Promotion of product diversification and market development for new
products.
 Coordination for product mix etc.
 Sale and purchase of power.
 Market intelligence, information and customer satisfaction.

Sales: in crore

SALES UNIT 2012-13 2013-14 2014-15 2015-16 2015-16

(ACTUAL) (ACTUAL) (ACTUAL) (TARGET) (ACTUAL)

Total Lakh 6.82 8.42 9.83 13.52 13.42

Alumina/
MT
Hydrate
sales

Aluminum Lakh 0.98 0.98 1.44 1.40 1.01

Export MT

Domestic Lakh 3.41 3.18 2.59 2.65 2.18

Aluminum MT
Sales

Total Lakh 4.39 4.16 4.03 4.05 3.20

Aluminum MT
Sales

5. Finance Department: In NALCO, Finance department plays a vital role. All

kinds of financial related issues are handled by the finance department, i.e.,
accounting policies, accounting standards, accounts manual, books of
accounts, statement of financial reports, annual report, account manual,
documents to pertaining to payment of income tax, vouchers etc. Other
important roles played by the finance department are:

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 Prudent financial management in the Company including cost reduction,
revenue maximization, budgetary control, planning and monitoring
expenditure during the construction of new projects.
 Financial scrutiny of all proposals including matters pertaining to placement
of orders, tendering and operation of contracts/tenders.
 Stock verification, maintenance of proper accounts and financial propriety
and effectiveness of the procurement of materials and services.
 Keeping a track of foreign exchange and price trends besides assisting in
negotiating contracts.
 Foreign Exchange management.
 Putting in place various systems to prevent financial irregularities in the
Company.
 Ensuring compliance of various tax laws, Companies Act, SEBI guidelines,
Foreign Exchange Management Act, Listing Agreement etc. relevant to Finance
Department and Public Records Act.
 Business Development and Corporate Plan activities of the Company. All
Greenfield projects up to DPR approval.
 Overall risk management of the Company.
 Formulating internal control and check systems including internal audit and
implementation thereof.
 External audit and Government audit.
 Ensuring compliance to laws related to Excise, Sales tax, Customs, Entry tax,
Service tax, VAT & other taxes.

6. R&D Department: This part deals with IIR policies, rules, schemes and its
implementation. It contains all the IIR policies like Conduct Rules, LTC, wages
and salary administration, motivational scheme, advances, welfare scheme,
retirement, promotion etc. This department does all types of research and
engages in development of the organization.

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CHAPTER – 3
3.1 DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO
OPERATIONAL PERFORMANCE:
A. Financial Operation:
I. Revenue from Operation in crore

Particulars FY 2015-16 FY 2014-15 % Changes

Export Turnover 3246.87 3307.31 -2
Domestic 3909.66 4463.31 -12
Turnover
Gross Turnover 7156.53 7770.62 -8
Less: Excise Duty 453.20 508.72 -11
Net Turnover 6703.33 7261.90 -7
Other Operating 112.67 120.91 -7
Income
Total 6816.00 7382.81 -8

During the financial year 2015-16, the Company has achieved chemical sales
quantity of 12.20 Lakh MTagainst 12.25 Lakh MT achieved during last year.
Sales volume of Aluminium metal during the financialyear 2015-16 was 3.72
Lakh MT against 3.26 Lakh MT during last year. Net Turnover during the year
hasdecreased over the preceding year mainly on account of decrease in sales
realization of Aluminium Metalby 18% and Alumina by about 10%. However,
higher volume of Aluminium metal sale by 14% has partly compensated the
same.
II. Other Non-operating Income in crore

Particulars FY2015-16 FY2014-15 % Changes

Other non- 536.57 672.64 -20
operating Income

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The other non-operating income is less mainly on account of lower income
from investment of surplus fund, particularly on mutual fund investment
(Fixed Maturity Plan) due to roll over to long term maturity plan to avail the
tax benefit. Besides, Interest earned on deposits made towards disputed
Electricity duty not happened in current year due to settlement of dispute
during March, 2015.
III. Expenditure in crore

Particulars FY 2015-16 FY2014-15 % Changes

Raw Materials 1104.40 1031.59 +7
Consumed
Power & Fuel 1864.61 1802.24 -1
Employee Benefit 1361.36 1377 -1
Expenses
Stock (Accretion) (8.99) 2.90 --
/Depletion
Other Expenses 1556.58 1462.15 +6
Finance Cost 1.21 -
Depreciation 424.09 413.66 +3
Total 6303.26 6090.45 +3

• Increase in raw material expenses compared to previous year is primarily

attributable to higher volume of production of both Alumina &Aluminium.
Besides, due to higher specific consumption of Caustic Soda due to use of
Bauxite with revised IBM guidelines, the expenditure is also more.
• Increase in Power & Fuel cost is attributable to higher volume of production
of both Alumina &Aluminium. Besides, increase in rate of Electricity Duty and
higher effective Coal Price due to change in coal composition has led to
increase the expenditure. The increase of expenditure was partly offset due to
decrease in price of fuel oil.
• Increase in Other Expenses as compared to previous year is mainly on
account of increase in Renewable Purchase Obligation (RPO), increase in
railway freight rate, contribution to District Mineral Fund (DMF) in terms of
the Mines & Minerals (Contribution to District Mineral Foundation) Rules,

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2015 and contribution to National Mineral Exploration Trust (NMET) in terms
of the Mines & Minerals (Development and Regulation) Amendment Act, 2015.
• Increase in Depreciation was due to Capitalisation of Ash Pond capacity
enhancement by utilization evacuated ash through ash mound at CPP and its
amortization proportionately based on useful life.
IV. Exceptional Items in Crore
Particulars FY 2015-16 FY 2014-15
Other Expenses -- 148.42
Income 53.45 --

On account of final settlement of Risk & Cost claim due to non supply of
materials, anamount of Rs. 53.45 crore has been received during the year.
Being an income out oflitigation settlement for earlier years, the income is
recognized as exceptional item. Figuresof previous year relate to write back of
excess liability provided on settlement of disputedelectricity duty and interest
thereon.
V. Profit after Tax and Earnings per Share in Crore

Particulars FY 2015-16 FY 2014-15

Profit before tax 1102.76 2113.42
Tax Expenses 371.75 791.57
Profit after tax 731.01 1321.85
Earnings Per Share 2.84 5.13
(Rs.5.00 each)

The earnings per share is less due to decrease in profit after tax.

VI. Dividend Particulars

Particulars FY 2015-16 FY 2014-15
Interim Dividend (%) 25 25
Final Dividend proposed 15 10
(%)
Total (%) 40 35

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* Proposed
To sustain investors’ interest, a higher dividend compared to last year has
been proposed for the year 2015-16.
B. Financial Positions:

I. Non Current Assets in Crore

Particulars FY 2015-16 FY 2014-15 Changes %
Fixed Assets
Tangible Assets 6328.89 6509.21 -03
Intangible Assets 138.61 12.631 20+
Capital Work-in- 63.166 37.945 02+
progress
Non-Current 811.08 1.04
Investments
Long-term loans 1347.55 1221.85 +10
& advances
Other Non- 49.48 47.45 +4
current Assets

• Fixed Assets value has come down as depreciation for the year is more than
fresh addition of fixed Assets.
• Capital Work in progress has increased mainly on account of expenditure
towards Wind power plant.

• Non-current Investments has increased due to roll over of Mutual Fund

investment for long term maturity plan with corresponding decrease in
current investment.
• Long-term Loans and Advances have increased due to payment of
mobilization advance for Wind Power plant and upfront money for Utkal D &
E Coal Block.

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II. Current Assets in Crore
Particulars FY 2015-16 2014-15 % Changes
Current
Investments
Inventories 1126.97 1165.56 -3
Trade 235.21 120.82 +95
Receivables
Cash and Bank 4933.53 4627.98 +7
Balances
Short-term loans 586.67 607.54 -3
and advances
Other Current 233.64 240.28 -3
Assets

• Inventories: Inventories have come down primarily on account of reduction

in stores, spares & consumables.
• Trade Receivables: The Company sales its products against firm financial
arrangement, and as such there is no credit sales. Trade receivables mostly
represent yearend sales remaining unrealized as on 31st March of every year.
Trade receivable has increased primarily due to unrealized Alumina Export as
on 31.03.2016.
• Cash and Bank Balances: Increase in Cash and bank balances is mainly due to
surplus from operations.
III. Non Current Liabilities in Crore
Particulars FY 2015-16 FY 2014-15 % Changes
Deferred Tax 1110.09 1105.27 +1
Liabilities (Net)
Other Long-term 68.26 65.30 +5
Liabilities
Long-term 223.72 242.76 -8
provisions

26 | P a g e
Long-term provisions have reduced primarily on account of lower long-term
employee benefits liability for leave salary through actuarial valuation.

IV. Current Liabilities in Crore

Particulars FY 2015-16 FY2014-5 % Changes
Trade Payables 581.38 440.18 +32
Other Current 1350.45 1340.65 +1
Liabilities
Short-term 2777.41 186.21 +49
provisions

Short-term provisions have increased over the last year due to higher
proposed final dividend and dividend distribution tax thereon.

FINANCIAL OVERVIEW OF NALCO:

The detail of financial information is given below:

PARTICULARS 2014-2015 2015-2016

INCOME

Revenue from Operations (net) 7261.90 6703.33

Other Operating Revenues 120.91 112.67

Other Income 672.64 536.57

TOTAL REVENUE 8055.45 7352.57

EXPENSES

Cost of Materials Consumed 2833.83 2969.01

Changes in Inventory 2.90 -8.99

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Employee Benefit Expenses 1377.91 1361.36

Finance Costs 0.00 1.21

Depreciation and Amortization Expenses 413.66 424.09

Other Expenses 1462.15 1556.58

TOTAL EXPENSES 6090.45 6303.26

Profit before Exceptional Items and Tax 1965.00 1049.31

Exceptional Items 148.42 53.45

Profit/Loss Before Tax 2113.42 1102.76

Tax 791.57 371.75

Profit/Loss after Tax 1321.85 731.01

We can see that revenue from NALCO fell from 7261.90 to 6703.33 from
2014-15 to 2015-16 leading to the decrease in total revenue in the year 2015-
16. In 2015-16, the cost of material consumed is 2969.011 which shows that
it has slightly grown from the previous year’s. There is a drastic change in the
inventory in the year 2015-16, i.e., (-8.99) which is far less from the year
2014-15. In 2014-15, the change in inventory contributes 2.90. In the same
year, the Employee Benefit Expenses is more than 2015-16, i.e. 1377.91 than
1361.36(in 2015-16). Finance cost in 2014-15 is nil but increases to 1.21 in
the next financial year. The depreciation and Amortization expenses are
424.09 in 2015-16 which is more than 413.66 in 2014-15. So, the total
expenses which were borne by NALCO in 2015-16 is 6303.26 is more than the
expenses made in 2014-15 which amounted to 6090.45. Profit before
exceptional items and tax in 2014-15 is 2113.42 which is more than the year
2015-16. And profit after tax is greater in 2014-15 which is 1321.85 than in
the year 2015-16 which was 731.01. in this financial overview, we can see
major difference in profit after tax in 2014-15 and 2015-16. In both the year,
NALCO is getting profit. But in 2014-15, it had performed well and has given

28 | P a g e
PAT of 1321.85 because of more revenue, less expenses, i.e. decrease in the
depreciation expenses and nil financial costs. Also the tax cost is 791 in 2014-
15 which is more than 371.75 for the year 2015-16.

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 CHAPTER-4

INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS:

Finance is defined as the provision of money when it is required. Every

enterprise needs finance to start and carry out its operations. Finance is the
lifeblood of an organization. So, finance should be managed effectively.

The term “Financial Analysis”, also known as analysis and interpretation of

financial statements refers to the process of determining financial strengths
and weakness of the firm by properly establishing strategic relationship
between the items of the balance sheet and profit & loss account. “Financial
Statement Analysis” is basically a study of relationship among the financial
factors in a business as disclosed by a single set of statement and a study of
trend of these factors as shown in a series of statements.

The purpose of financial analysis is to diagnose the information contained in

financial statements so as to judge the profitability and financial statements so
as to judge the profitability and financial soundness of the firm. It is an
attempt to determine the significance and meaning of the future earnings,
ability to pay interest and debt, and profitability of a sound divided policy.

CONCERNED STATEHOLDERS OF FINANCIAL ANALYSIS:

 Management: Management of the firm would be interested in every aspect of

the financial analysis. It is their overall responsibility to see that the resources
of the firm used most effectively and efficiently and that the firm’s condition is
sound.
 Investors: The Investors are interested their money in the firms shares, are
not concerned about the firm earnings. They restore more confidence in those
firms that show steady growth in earnings. As such, they concentrate on the
analysis of the firm’s present and future profitability. They are also interested
in the firm’s financial structure to the extent it influences the firms earning
ability and risk.
 Trade Creditors: The trade creditors are to be paid in a short term solvency of
the concern. The current ratio and acid test ratio will enable the creditors to
assets the short term solvency position of the concern.

30 | P a g e
 Government: the financial statements are used to asses tax liability of
business enterprise. These statements enable the government to find out
whether the business is following various regulations or not.
 Others: Trade associations, stock exchange and public at may also analyze the
financial statements to judge the financial position of different concerns.

IMPORTANCE OF THE STUDY

 The success of any organization is directly related to the financial

performance of the organization. So the in-depth analysis of the financial
performance becomes the most important thing in order to assess the
financial position of the organization and has great significance and provides
benefits to concerned stakeholders who directly or indirectly interact with the
company.
 This report would help NALCO to point out in which areas it is excelling and in
which areas it needs to show concern for improvement, which in the long run
would help the company in terms of growth, profitability and also the
financial status and position in the industry.
 This study will also help NALCO to assess an estimate for the future growth
prospects of NALCO in terms of CAGR.
 It is beneficial to the management of the management of the company by
providing crystal clear picture regarding important aspects like liquidity,
leverage, activity and profitability.
 The study is also beneficial to employees and offers motivation by showing
how actively they are contributing for the company’s growth.
 The investors who are interested in investing in the company’s share will also
get benefited by going through the study and can easily take a decision
whether to invest in the company’s shares.
 This analysis will definitely provide me the practical understanding of the in
and out of the financial structure and position, business models, working
environment and also the sector within which NALCO operates.

RATIO ANALYSIS : AN OVERVIEW

A) FUNDAMENTAL CONCEPT:

31 | P a g e
 Ratio Analysis is the process of determining and interpreting quantitative and
numerical relationships based on financial statements. It helps in highlighting
the strength and areas of concern within a firm, as well as its historical
performance and current financial condition can be determined.

A ratio is a statistical tool that provides a numerical and quantitative measure

of the relationship between two variables or figures. This relationship can be
expressed as a percentages, fractions or proportions of numbers.

Ratios are simple to calculate and easy to understand. The concerned

stakeholders interested in ratio analysis are as follows:

Management Group – This group in interested in evolving analytical tools

that will measure cost, efficiency, liquidity, and profitability with a view to
make intelligent decisions.

Owners or Investors – The investors basically need this analytical tool for
estimation earning capacity and potential.

Creditors – They are concerned with the company’s liquidity, its ability to pay
interest and redeem loan within a specified time period.

B) SIGNIFICANCE OF RATIO ANALYSIS:

 Ratios facilitates the investors, creditors, management group and other
concerned stakeholders of the company with a better and simple
understanding of the financial position of the company.
 The amount of information within the financial statements is immense. Ratio
Analysis helps highlighting the areas which require attention and corrective
action facilitating decision making is done.
 Planning and forecasting can be facilitated by the ratio analysis of past and
present data, thereby also providing an idea of areas of strengths and areas
for improvement.
 Significant and meaningful insights on financial performance, via study ad
ratio analysis, is carried out in this report which would help NALCO to assess
estimate for the future growth prospects of NALCO in terms of CAGR.
C) LIMITATIONS OF RATIO ANALYSIS :

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 The following are the limitation of Ratio Analysis:

 Ratios do not provide a definite answer to financial problems. There is always

the question of judgment as to what significance should be given to the
figures. Thus one must rely upon one’s own good sense in selecting and
evaluating the ratios.
 A substantial difference between the comparative basis of the companies to be
analyzed such as their size, age and diversified products affects the results as
the comparisons become difficult in such a scenario.
 Changes in price level can affect the validity of comparisons of ratios
computed for different time periods.
 There can be difference in definitions and the standards can vary.
 Ratio Analysis is an important part of financial statement analysis, but it can
never become a substitute of financial statement.

CLASSIFICATION, ANALYSIS AND INTERPRETATION OF FINANCIAL RATIOS

Financial ratios have been classified in several ways, In this report, for our
purposes, we divide them into four broad categories :

a) Liquidity Ratios.
b) Leverage Ratios.
c) Turnover Ratios.
d) Profitability Ratios.
a) Liquidity Ratios :
“Liquidity” refers to the ability of the firm to meet its obligation in the short
run, usually one year. Liquidity ratios are generally based on the relationships
between current assets and current liabilities.
The important liquidity ratios are:
i. Current Ratio.
ii. Quick Ratio.
iii. Cash Ratio.
i) Current Ratio:

The Current Ratio, also known as “liquidity ratio”, “Cash asset ratio” or “cash
ratio”, is mainly used to give an idea of the company’s ability to pay back its

33 | P a g e
 short-term liabilities (debt and payables) with its short-term assets (cash,
inventory, receivables). The higher the current ratio, the more capable the
company is of paying its obligations.

Current assets include cash and those assets that can be converted into cash
within a year, such as marketable securities, debtors, inventories, prepaid
expenses. While, current liabilities include creditors, bill payable, short-term
bank loan, accrued expenses etc.

Overall, the current ratio is a measure of the firm’s short term solvency. As a
conventional rule, a current ratio of 2:1 is considered satisfactory. Moreover,
current ratio also represents a margin of safety for creditors. Higher the
current ratio, the greater is the margin of safety.

Current ratio=Current Assets/Current liabilities

CURRENT RATIO
4.5
4
CURRENT RATIO

3.5
3
2.5
2
1.5
1
0.5
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 4.08 3.27 2.34 2.35 2.21 2.62 2.2 2.29 3.92 3.25
HINDALCO 1.43 1.38 1.53 1.21 1.61 1.64 2.07 1.74 1.75 1.95
VEDANTA 3.14 3.49 2.24 0.39 0.42 0.59

Interpretation:

 The current ratio was maximum in year 2014-15, i.e. 3.92, which is a good
indication towards the financial ability of NALCO for paying its obligations.
 The lowest ratio was observed in 2012-13 i.e. 2.2. The reason behind
reduction in ratio of from 2011-12 to 2012-13 is that the current assets

34 | P a g e
 increased by 0.7%, whereas the current liability increased more by 19.98%,
thereby reducing the overall ratio for the year 2013.
 But in 2011-12, we can see that there is decrease in liability by 64.06 crores
where a big increases of 977.16 crores in current assets side caused the ratio
to increase.
 In 2013, fall in current ratio results due to the increase in liability which was
more than the increase in assets.

Competitors Analysis:

HINDALCO’s current ratio was less than that of NALCO in all the 5 years as
they have 3 times more current liabilities than NALCO. BALCO (Vedanta) on
the other hand attained its highest current ratio in year 2011-12 i.e. 3.49 in
the 5 year period, but NALCO even outbid BALCO in terms of Current Ratio,
consecutively for the 2 years.

ii) QUICK RATIO:

The quick ratio, also known as “acid test ratio”, reveals a company’s ability to
meet short-term operating needs by using its liquid assets.

It is similar to the current ratio, but is considered more conservative than the
current ratio, a more well-known liquidity measure as it is based on those
current assets which are highly liquid, and thus, in the process excludes
inventories because inventories are deemed to be the least liquid component
of current assets.

A quick ratio of 1:1 is considered to represent satisfactory financial condition.

On the opposite side, a quick ratio of less than one indicates that a business
would not be able to repay all its debts by using its most liquid assets. Thus, a
higher quick ratio is preferable because it means greater liquidity. However a
quick ratio which is quite high, say 4 is not favorable to a business as whole
because this means that the business has idle current assets which could have
been used to create additional projects thus increasing profits. In other words,
a balance is needed to be maintained.

Quick Ratio=Current asset-inventory/Current Liabilities

35 | P a g e
 QUICK RATIO
4
3.5
3
QUICK RATIO

2.5
2
1.5
1
0.5
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 3.56 2.83 1.91 1.92 1.82 2.17 1.77 1.93 3.33 2.74
HINDALCO 0.63 0.48 0.72 0.48 0.84 0.87 1.28 1.04 1.08 1.27
VEDANTA 2.79 3.12 1.78 0.19 0.18 0.41

Interpretation:

 The quick ratio was maximum in 2014-15 i.e. 3.33, which is a good sign
indicating the better liquidity position of NALCO.
 The maximum of the slot came in the 2012-13 i.e. 1.77, which is also not bad
in terms of liquidity condition, i.e., even in its lowest figures, NALCO have
stands good in case of liquidity.
 The reason for reduction on ratio in year 2012-13 from the previous year, was
due to the continuous increase in inventories of company form Rs. 1212.70
crores in 2011-12 to Rs. 1380.64 crores in 2012-13 which is 13.84%
increment in 1 year and also the current liabilities moved up by 19.98%
during that same year.
 In 2014 quick ratio increase by 9.03% as the inventories fall from Rs. 1380
crores to Rs. 1173 crores., and in the year 2015, the inventories further fell to
1165.56 crores, there by increasing the Quick Ratio by 72.54%, which is
significantly indicating a better liquidity position of NALCO.

Competitor Analysis:

Quick Ratio of HINDALCO was highest in year 2014-15 it reached 1.08

whereas NALCO had 3.33 which shows the impact of current liabilities and
current assets. In 2014-15, HINDALCO has 22,929.20 crores of current assets,

36 | P a g e
 whereas, NALCO had 7712.18 crores, which is almost 3 times less than that of
HINDALCO and current liabilities are also 6 times more than that of NALCO. In
case of BALCO, the highest ratio was in the year 2011-12, i.e., 3.12, which was
better that year as compared to NALCO and HINDALCO, but in the next 3 years
period, it took a dip and ell drastically by 93.55% from 3.12 to 0.18. Overall
NALCO have the upper hand as compared to the peer group in this ratio too.

iii) CASH RATIO:Although receivables, debtors and bills receivables are generally
more liquid than inventories, yet there may be doubts regarding their
realization into cash immediately or in time. Hence, some authorities are of
the opinion that the “Absolute Liquid Ratio” should also be calculated together
with “Current Ratio” and “Quick Ratio” so as to exclude even receivables form
the current assets and find out the absolute liquid assets.

Because cash and bank balances and short-term marketable securities are the
most liquid assets of a firm, financial analysts look at cash ratio.

Cash Ratio=Cash&Bank balance+Current investment

Current Liabilities

CASH RATIO
3.5
3
CASH RATIO

2.5
2
1.5
1
0.5
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 3.03 2.36 1.55 1.65 1.51 1.84 1.5 1.63 2.84 2.26
HINDALCO 0.63 1.72 0.97 0.79 0.55 0.53 0.81 0.62 0.57 0.63
VEDANTA 0.57 0.53 0.23 0.09 0.04 0.084

Interpretation:

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  The maximum ratio in this analysis period is observed to be in 2006-07, i.e.,
3.03. The cash ratio decreased upto 1.50 in the year 2013, by almost 50.49%,
the reason behind this is increase in current liabilities growing more in
percentage as compared to the cash balance of the company during this 7
years. The minimum value can be observed in year 2012-13, i.e., 1.5%.
 The cash ratio rose in year 2014 to 1.63 and in 2015 further increased to 2.84
This indicates almost 89.33% increase in cash holding of the company in the
last 2 years, which is a very good sign for the NALCO to have a good ratio of
cash holding capacity in hand.
 This increasing trend in the last 2 years is a good sign regarding the cash
holding capacity of NALCO, but it have to be keep in check, so that it can avoid
the “idle-cash-problems” in future.

Competitor Analysis:

Cash Ratio of NALCO is higher than both HINDALCO and BALCO (VEDANTA)
as NALCO have less current liabilities and borrowing and did efficiency
maintain sufficient cash balance in bank also generating adequate income
from investment. In case of HINDALCO and BALCO (Vedanta), since they are
taking debt from the market and utilizing that amount so they have less cash
ratio.

b) LEVERAGE RATIOS:

Financial leverage refers to the use of debt finance. While debt capital is a
cheaper source of finance, it is also a riskier source of finance. Leverage Ratios
help in assessing the risk arising from the use of debt capital.

Leverage ratios are further classified into two categories as follows:

 Structural Ratios: These ratios are based on the proportion of debt and equity
in the financial structure of the firm. These are further divided into two types,
namely Debt Equity Ratio and Debt Asset Ratio.
i. DEBT-EQUITY RATIO:

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 It measures the degree to which the assets of the business are financed by the
debts and the shareholder’s equity of a business. A high debt/equity ratio
generally means that a company has been aggressive in financing its growth
with debt. If a lot of debt is used to finance its operations (High debt to
equity), the company could potentially generate more earnings than it would
have without this outside financing. However, heavy indebtedness leads to
creditors pressures. During the periods of low profit, a highly debt financed
company suffers great strains.

Debt-Equity-Ratio=Debt(Loans/borrowing)

Equity(Shareholder Funds)

DEBT-EQUITY RATIO
1.4
DEBT-EQUITY RATIO

1.2
1
0.8
0.6
0.4
0.2
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 0 0 0 0 0 0 0 0 0 0
HINDALCO 0.59 0.48 0.35 0.23 0.25 0.46 0.71 0.72 0.77 0.76
VEDANTA 0.25 0.22 0.38 1 1.02 1.15

Interpretation:

 NALCO has zero debt and 0% credit policy, but there for approximation we
have taken the non-currents liabilities, and that too only debt liabilities.
 The highest ratio was seen in the year 2009-10 i.e., 0.00082, but as it is very
small, so we consider it as “zero” or “nil” or “negligible” as compared to the
industry peer group.

39 | P a g e
 Competitor Analysis:

 NALCO is far lower in this ratio as compared to HINDALCO and BALCO

(VEDANTA) throughout the years under analysis, which is a good thing in
many aspects.
 HINDALCO and BALCO (VEDANTA) have debt policies and have taken large
amount of debt in the form of loans from banks and from investors, so the
debt equity ratio of private player range is high. They depend totally on the
use of debt 90% transaction is done from the debt.
 Though, some may opine about tax advantage and the capital structure
benefits, but yet in my opinion, NALCO stands its grounds in this ratio because
for a matter of fact, any company would like to be self sufficient and would not
really like to bear the burden of huge amount of debt.
ii. DEBT-ASSET RATIO: This ratio measures the extent to which borrowed funds
support the firm’s assets. This ratio is formulated as below:
DEBT-ASSET RATIO= Debt(Loans/borrowing)
Assets(Total Assets)

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 DEBT-ASSET RATIO
0.5
DEBT-ASSET RATIO

0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 0 0 0 0 0.00098 0 0 0 0 0
HINDALCO 0.36 0.27 0.23 0.15 0.16 0.26 0.36 0.36 0.38 0.37
VEDANTA 0.17 0.16 0.24 0.41 0.44 0.41

Interpretation:

 NALCO has zero debt policy, but here for approximation we have taken the
non-current liabilities and that too only debt liabilities.
 The highest value was seen in the year 2010-11, when the ratio was 0.00098,
which is a good as “zero”, as compared to the industry peers.
 Though the assets increased form Rs.7474.55 corers to Rs.16177.67 crores
over the last decade, but here, in this ratio as far as NALCO is concerned, the
assets figures doesn’t impact much, as the main impact is of the debt liabilities
which is “nil” for NALCO, as it is a “ZERO-DEBT” Company.

Competitor Analysis:

 NALCO is far lower in this ratio as compared to HINDALCO and BALCO

(VEDANTA) throughout the years under analysis, which is a good thing in
many aspects.
 HINDALCO and BALCO (VEDANTA) have debt policies and have taken large
amount of debt in the form of loans from banks and from investors, so the
debt equity ratio of private player range is high. They depend totally on the
use of debt 90% transaction is done from the debt.
 Though, some may opine about the tax advantage and the capital structure
benefits, but yet in my opinion, NALCO stands its grounds in this ratio because

41 | P a g e
 for a matter of fact, any company would like to be self sufficient and would not
really like to bear the burden of huge amount of debt.

COVERAGE RATIOS: It shows the relationship between debt servicing

commitments and the sources for meeting these burdens. The ratio we
discussed is Interest Coverage Ratio.

 INTEREST COVERAGE RATIO:

The interest coverage ratio measures the ability of a company to pay the
interest on its outstanding debt.

A high interest coverage ratio indicates that a company can pay for its interest
expense several times over, while a low ratio is a strong indicator that a
company may default on its loan payments.

INTEREST COVERAGE RATIO=Profit before interest &Tax

Interest

INTEREST COVERAGE RATIO

6000
INTEREST COVERAGE RATIO

5000
4000
3000
2000
1000
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 0 2803.941854.044812.92 0 1576.99 0 0 0 868.02
HINDALCO 15.46 11.78 8.98 9.15 12.8 10.32 5.7 3.92 2.11 1.31
VEDANTA 7.76 5.07 4.3 1.26 1.54 3.25

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 Interpretation:

 NALCO has highest interest coverage in year 2009-10, i.e., a maximum of

4812.9. The reason behind is a minimal interest paid for loans which amounts
to 2.14 crores. It is minimal in context with the industry peer, but here we
cannot neglect this figure, and thus the peaks can be seen in the above figure.
 For the earlier 2 years, the year 2010-11 and the 2 years of the analysis
period, the interest for loans amounts to “zero”. Thus this ratio cannot be
applicable for these years.
 The reason behind having zero interest coverage in year 2005, 2006, 2011,
2013 and 2014 is that NALCO don’t have any kind of interest due in these
years as there was no short term loan outstanding.
 In year 2010-11 NALCO has 1577 times interest coverage as the EBIT was
Rs.1180.51 crores which was maximum from year 2010-13.

Competitor Analysis:

 HINDALCO and VEDANTA have low cash holding and high debt and it impacts
their interest coverage ratio. Since they have high debt ratio so corresponding
interest on that debt is high so they have low interest coverage ratio.
 Overall, NALCO is a very stable and better company in case of ability to pay its
interest as compared to HINDALCO and BALCO.
 NALCO entitled as a “zero-debt” company basically means its ability to pay off
the interest is immense, as it does not basically rely on debt.
c) TURNOVER RATIOS:

Turnover ratios also referred to as activity ratios or asset management ratios,

measure how efficiently the assets are employed by a firm. These ratios
indicate the speed with which assets are converted into sales.

The important turnover ratios used in this study are:

i. Inventory turnover ratio.

ii. Debtor turnover ratio.
iii. Total Assets turnover ratio.
i. INVENTORY TURNOVER RATIO:

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 The Inventory turnover, or stock turnover, measures how fast the inventory is
moving through the firm and generating sales.

The inventory turnover reflects the efficiency of the inventory management.

In general, a higher value of inventory turnover indicates better performance
and lower value means inefficiency in controlling inventory levels. A lower
inventory turnover ratio may be an indication of over-stocking which may
pose risk of obsolescence and increased inventory holding costs. However, a
very high value of this ratio may be accompanied by loss of sales due to
inventory shortage.

Inventory turnover ratio=Cost of Good Sold

Average Inventory

INVENTORY TURNOVER RATIO

12
INVENTORY TURNOVER RATIO

10
8
6
4
2
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 9.69 7.55 6.67 5.56 5.95 5.79 5.36 5.31 6.31 6.45
HINDALCO 4.36 4.07 3.97 4.17 3.76 3.45 3.37 3.35 3.89 4.47
VEDANTA 5.9 6.33 5.39 5.61 5.86 6.31

Interpretation:

 NALCO has highest inventory turnover ratio in year 2006-07, i.e., a maximum
of 9.69. but since then, it took a dip by 38.59% and reached 5.56 in 2010. The
reason behind this was basically the increase in the average inventory per
year till 2010.

44 | P a g e
  But since then over the 5 years period till 2015, it again rose up by 13.51% to
6.31. the reason being increase in the revenue from operations by 23.89% in
the 5 year period.
 The good thing about the inventory turnover ratio in case of NALCO is that it
efficiently managed to achieve higher and strong sales.
 But the ineffectiveness of buying have to be dealt with and is one factor that
NALCO must keep in check.

Competitor Analysis:

 HINDALCO and VEDANTA have low turnover ratios, indicating poor sales, and
is a bad sign as products tend to deteriorate as they sit idle in a warehouse.
 HINDALCO is having the highest ratio in year 2007 of 4.36 and if recent
comparison is done of 2015, NALCO is having double the ratio of HINDALCO,
suggesting better progress at NALCO.
 As far as BALCO in concerned, they are having a ratio which is higher than
HINDALCO but lower than NALCO for recent years, but NALCO have to be
speculative on this ground.
 Overall, we can say that NALCO is having a better Inventory Turnover Ratio as
compared to the Industry peers.
ii. DEBTOR’S TURNOVER RATIO:

This ratio shows how many times sundry debtors or trade receivables
turnover during the year. It also estimates the number of times a business
collects its average accounts receivables balance during a period.

Generally a high value of accounts receivable turnover is favorable and lower

figure may indicate inefficiency in collecting outstanding sales. Increase in
accounts receivable turnover overtime generally indicates improvement in
the process of cash collection on credit sales.

DEBTOR’S TURNOVER RATIO= Net Sales

Average Trade Receivable

45 | P a g e
 DEBTER TURNOVER RATIO
200
DEBTER TURNOVER RATIO

180
160
140
120
100
80
60
40
20
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 186.95 105.27 116.91 48.55 40.51 52.94 49.12 34.58 40.52 38.29
HINDALCO 13.3 12.51 13.17 15.55 18.48 19.83 17.71 19.9 22.16 17.82
VEDANTA 25.85 27.85 42.12 39.52 26.41 23.05

Interpretation:

 NALCO keeps on following the tradition of the “Zero-Debt” company and

encourage the 0% credit policy as far as possible, they ley emphasis on 100%
advance payment.
 The maximum ratio was achieved in the year 2007, when it observed a
staggering ratio of 186.95, which indicates a high and efficient management of
credit policies of the firm.
 I can be said that this ratio is due to the fact that company operates in advance
payment on a cash basis. One can also argue about the conservatism of credit
policy of the company, which is an area to be kept in check, because it can
drive away potential customers and competitors can thrive.
 The minimum ratio observed was 34.58 in the year 2013-14, which is not a
bad ratio in itself as compared to the industry peers. But this decrease in the
ratio since the 186.95 value in 2007, is indicating the loosening up of the
credit policies.
 In my opinion, NALCO should reassess its credit policies on more frequent
intervals, in order to ensure the timely collection of imparted credit that is not
earning interest for the firm.

46 | P a g e
 Competitor Analysis:

 Competitor analysis is way of the charts till 2013, the reason being huge
difference between NALCO with its peer position regarding this ratio, NALCO
being way above both HINDALCO and BALCO in those years.
 In the year2014 and2015 ,NALCO seams to be loosening the huge different
,but yet it is in a batter standing grounds than HINDALCO and VEDANTA.
 Overall ,NALCO is having an upper hand in the ratio over the peers.

III.AVERAGE COLLETION PERIOD:

This represent the number of days worth of credit sales that is look in
receivable. It may be compaired with the firms credit terms to judge the
efficiency of the credit management. An average collocations period which is
shorter than credit period than the credit period allowed by the firms need to
be interpreted carefully. it may means efficiency in credit management or
excessive conservation in credit granting that may result in loss of some
desired sales.

AVERAGE COLLETION PERIOD=Average trade receivable/Average Daily Sales

OR

Average Colletion Period=365/ DEBTOR’S TURNOVER RATIO

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 AVERAGE COLLECTION PERIOD
35
AVERAGE COLLECTION

30
25
20
(IN DAYS)
PERIOD

15
10
5
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 2 3 3 8 9 7 7 11 9 10
HINDALCO 27 29 28 24 20 18 21 18 16 20
VEDANTA 14 13 9 9 14 16

Interpretation

 NALCO is again due to its batter management of receivables , ahead of it peers

in this ratio too.
 period achieved by NALCO was in the year 2007 which was just 2 day ,which
is the low as it gets ,indicating a strong receivable management at NALCO.
 The maximum average collection period that that is observed in the 10 year
period was in year 2014 ,but it managed to reduce it by 2 more days in the
next year time , which is batter sign from the company perspective.
Competitor analysis
 HINDALCO and VEDANTA are not at par with NALCO in this ratio from the
period stating form 2005 till 2013, where NALCO is leading both of them by a
lowest of 1.5 times Vedanta-2012 and highest of 13 times in case of Hindalco-
2007.
 As for VEDANTA is concerned ,it is also having a lesser collection period than
HINDALCO, but not less than that of NALCO.
 Overall NALCO is having the batter of its peers in this ratio too.

IV:FIXED ASSETS TURNOVER-

This ratio measures sales per rupee of investment in fixed assets. It is

defined as: This ratio is supposed to measure the efficiency with which
fixed assets are employed-a high ratio indicates a high degree of

48 | P a g e
 efficiency in asset utilization and a low ratio reflects inefficient use of
assets. However interpreting this ratio on caution should be borne in
mind. When the fixed assets of the firm are old and substantially
depreciated the fixed assets turnover ratio tends to be high because the
denominator of the ratio is very low.

FIXED ASSETS TURNOVER= Revenue from operation

Average Net fixed Assets

FIXED ASSET TURNOVER RATIO

14
FIXED ASSET TURNOVER RATIO

12
10
8
6
4
2
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 1.55 1.38 1.35 1.14 0 1.1 1.06 1.03 1.12 1.06
HINDALCO 2.66 2.59 2.32 2.5 3.11 3.61 3.66 2.21 1.57 1.4
VEDANTA 10.1 12.62 11.57 2.36 1.45 1.2

Interpretation:

 In the year 2007 ,NALCO observed the highest fixed assets turnover ratio of
1.55 but since then it came down by 33.55% over the 8year to a meager 1.03
in the year 2014.The reason behind this decline is the net fixed assets over
the year.
 But in the last year of the analysis ,i.e.,in 2015 ,the ratio went up by 8.33%to
1.12, which is not huge increase,but a slightly better indication of progress in
fixed-assets management at NALCO.
Competitor analysis
 In this ratio both HINDALCO and VEDANTA have a upper hand over NALCO ,
as HINDALCO is having higher ratio as compared to that off NALCO, and on

49 | P a g e
 the hand .Vedanta is also having the highest ratio over the given analysis
period .
 Overall,the most efficient to least can be suggested as VEDANTA being on top ,
followed by HINDALCO,which is followed by NALCO.

V.TOTAL ASSETS TURNOVER-

This ratio measures how efficiently assets are employed, overall.It is an

efficiency ratio which tells how successful the company is using its assets
to generate revenue .

This ratio measures how efficiently overall assets are employed.

TOTAL ASSETS TURNOVER=Revenues from operation /Average total assets

TOTAL ASSET TURNOVER RATIO

90
TOTAL ASSET TURNOVER

80
70
60
50
40
RATIO

30
20
10
0
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 69.88 48.55 43.64 39.5 42.73 43.4 43.43 40.87 45.12 53.5
HINDALCO 83.59 68.78 54.34 50.12 54.3 52.06 42.54 39.68 46.1 52.5
VEDANTA 48.55 53.54 50.58 55.99 40.12 38.6

Interpretation:

 After 2011, the ratio went up by 5.59% to 45.12%, which is not a huge
increase,but a slightly better indication of progress in total assets
management at NALCO.

50 | P a g e
 The total assets turnover was on average of 48.9%in past 10 year.
Competitor analysis
 The ratio is very competitive in nature as is seen in the industry .There is a
stiff competition between all three companies to be at the top .
 HINDALCO leads NALCO in almost all year except 2013&2014.
 VEDANTA leads the chart for 3 consecutive year from 2011 to 2014.
 NALCO have to look in to the Assets Management side of the business and
batter it up reach the pedestal in the industry.

d)PROFITABLITY RATIO:

Profitability reflects the final result of business operations. There are two type
of profit margin ratio namely , Profit Margin ratio and Rate of Return Ratio.

 Profit margin ratio: The ratio show the relationship between profit and sales .
Since profit can be measured in different stage, there are several method of
profit margin .The Profit margin ratio used in this study are as follows.
a) i. GROSS PROFIT RATIO-
Gross profit ratio measures the relationship of Gross profit to net sales
and is usually represented as a percentage.

Gross profit is defined as difference between net sales and cost of goods
sold. this ratio shows the margin left after meeting manufacturing costs.
The Gross profit should be adequate to cover the office, administrative,
selling’s distribution expenses and to provide for fixed charges,
dividends, accumulation of reserves. A low gross profit ratio generally
indicates high costs of goods sold due to unfavorable purchasing
policies, lesser sales, lower selling prices, excessive competition over
investment in plants machinery.

Gross profit ratio = Gross Profit x 100

Net sales

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 GROSS PROFIT MARGIN RATIO
80.00%
GROSS PROFIT MARGIN

70.00%
60.00%
50.00%
40.00%
RATIO

30.00%
IN %

20.00%
10.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 66.78% 55.52% 46.33% 34.05% 38.99% 43.41% 40.54% 44.52% 52.25% 54.70%
HINDALCO 23.34% 17.71% 16.67% 15.10% 13.35% 20.78% 19.64% 20.44% 21.34% 25.32%
VEDANTA 4.10% 14.91% 10.05% 18.84% 23.48% 20.90%

Interpretation:

 The gross profit of NALCO was 54.70% in the year 2015-16 which was
maximum and unattainable by firms of same sector.
 It decrease from 66.78% in the year 2007 to 34.05%in the
year2010,indicating a slag in that period.
 NALCO has been having an upper hand in all the years over both the peers.
Competitor Analysis:
 NALCO is the leader in case of this ratio ,a clear winner,as it is having highest
profit in comparison to both HINDALCO and VEDANTA that too for all the
year.
 HINDALCO is having almost 2-3 time less the profit(%) as compared to that of
NALCO
 Overall, NALCO is having a greater gross profit margin in all the years as
compared to its peers.

iii. OPERATING PROFIT MARGIN RATIO

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 This ratio shows the margin left after meeting manufacturing expenses ,
selling, general, and administration expenses (SG&A), and depreciation
charges.
It reflects the operating efficiency of the firm.
Operating Margin Ratio=Operating Profit/Revenues from operations

OPERATING PROFIT MARGIN RATIO

60.00%
OPERATING PROFIT MARGIN

50.00%
40.00%
30.00%
20.00%
RATIO
IN%

10.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 54.19% 38.34% 28.10% 13.47% 17.99% 9.93% 5.73% 5.31% 19.51% 13.76%
HINDALCO 18.44% 13.65% 13.12% 11.68% 10.47% 9.08% 5.75% 5.99% 7.47% 9.66%
VEDANTA 3.45% 4.32% 2.92% 9.42% 11.13% 13.10%

Interpretation
 The operating profit of Nalco was 54.19% in year 2006-07 which was
maximum and unattainable by firms of same sector.
 It decreases from 54.19%in the year 2007 to 13.47% in the year
2010,indicating a slag in that period.
 The reason behind fall in operating profit form was decrease in operating by
66.7%in that period (2007 to2010).even the tax paid played a crucial role.

Competitor Analysis
 NALCO is the leader in case of this ratio, a clear winner, as it is having highest
profit in comparison to both HIDALCO and VEDANTA and that too for all the
year (except 2013&2014).
 HINDALCO is having almost 2-3 time less the profit(%) as compared to that
of NALCO For most of the year.

53 | P a g e
 Overall, NALCO is having a greater operating profit margin in all the years as
compared to its peers,indicating the batter operating efficiency of NALCO.

iii.NET PROFIT MARGIN RATIO;

It measures the overall efficiency of production, administration, selling,

financing pricing & tax management. This ratio also indicates the firm
capacity to face adverse economic conditions such as price competition,
low demand etc. Higher the ratio , better is the profitability.

Net profit margin ratio = Net profit /Revenue from Operation

NET PROFIT MARGIN RATIO

35.00%
NET PROFIT MARGIN RATIO

30.00%
25.00%
20.00%
15.00%
IN%

10.00%
5.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 20.86% 32.70% 24.97% 16.11% 17.94% 12.85% 8.57% 9.47% 17.90% 10.72%
HINDALCO 14.00% 14.90% 12.24% 9.81% 8.96% 8.41% 6.52% 5.07% 2.68% 1.76%
VEDANTA 9.28% 9.16% 8.33% 3.77% 5.93% 18.35%

Interpretation:

 The net profit of NALCO was 32.70%in the year 2007-08 which was
maximum and unattainable by firms of same sector.
 It decreases from 32.70% ln the year 2007-08 to 8.57% in the year 2012-
13, indicating a slag in that period ,including some peak in certain year
like 2008 and 2011.
 The reason behind fall in decrease in the net profit (PAT) from Rs.1562
crores (2005-06) to Rs.642.35 (2013-14)
54 | P a g e
 Competitor Analysis:

 NALCO is the leader in case of this ratio, a clear winner, as it is having highest
profit in comparison to both HIDALCO and VEDANTA and that too for all the
year.
 HINDALCO is having almost 2-3 time less the profit(%) as compared to that
of NALCO For most of the year.
 Overall, NALCO is having a greater operating profit margin in all the years as
compared to its peers ,indicating the batter and secure profitability of NALCO
and also batter control over its cost ,as compared to its peer group.
 RATE OF RETURN RATIO: This reflect the relationship between profit and
investment .The important rate of return ratios are as follows..

i. RETURN ON ASSET

ROA is the relationship between net profits and assets employed to earn
the profits. This ratio measures the profitability of the firm in relation to
the assets employed in the firm.

ROA = PAT_(Profit after Tax)____

Average total assets

RETURN ON ASSET
18.00%
RETURN ON ASSET

16.00%
14.00%
12.00%
10.00%
IN%

8.00%
6.00%
4.00%
2.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 14.58% 15.88% 10.90% 6.36% 7.67% 5.58% 3.33% 3.91% 8.08% 4.47%
HINDALCO 11.70% 10.25% 6.65% 4.92% 4.86% 4.38% 2.78% 2.01% 1.24% 0.80%
VEDANTA 4.51% 4.91% 4.22% 2.11% 2.38% 6.27%

55 | P a g e
 Interpretation:
 ROA for Nalco was maximum in year 2007-08 which was 15.88% as the
PAT was maximum along with the combination of lower average of total
assets, in the last 10 years.
 Over the last 2 years of analysis period, the ROA have moved up by
142.6% incremental value indicating a positive sign of higher return
hinting as the higher profitability of NALCO.

Competitor analysis

 ROA for HINDALCO was lower then that of Nalco in all the years .its also
decreased in similar fashion , but more drastically as compared to that of
NALCO.
 VEDANTA gave a good competition to HINDALCO in case of return on
assets as it was higher in ROA for last 4 years .
 BUT, overall NALCO really led by example , as it had the highest ROA in
all the years (except 2013) as compared to its peers.

ii.RETURN ON EQUITY:

Return on share holder’s investment popularly known as ROI or Return

on shareholders fund is the relationship between Net profit (after
interest tax) and the proprietor’s und or Net worth.

Shareholders funds include equity share capital, free reserve such as

share premium, revenue reserve, capital reserve, retained earnings &
surplus less accumulated losses if any.

This ratio is of great importance to the prospective shareholders as well

as the management of the company. It not only indicates the primary
objective of the business i.e. to maximize its earnings is achieved or not
but also reveals how well the resources of the firm are being used.
56 | P a g e
 Higher the ratio better are the results. The return on shareholders funds
should be compared with the return of similar firms in the same
industry. The inter comparison of this ratio determines whether the
investment in the firm are attractive or not as the investors would like to
invest only when return is higher.

Return On Equity=Profit After tax/Equity

RETURN ON EQUITY
25.00%
RETURN ON EQUITY

20.00%
15.00%
IN %

10.00%
5.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 16.10% 18.38% 13.02% 7.83% 9.57% 7.25% 4.96% 5.29% 10.32% 5.69%
HINDALCO 20.65% 16.41% 9.38% 6.86% 7.19% 6.98% 5.00% 3.85% 2.48% 1.63%
VEDANTA 6.11% 6.70% 6.17% 3.20% 5.66% 15.11%

Interpretation:

 ROE for NALCO was 10.32% in year 2014-15 .It was maximum among the
6 years in comparison from 2010 to 2016.
 In year 2010 it dropped to 7.83% as PAT reduce to Rs. 814.22 crores
from Rs . 1272.27 cores of previous year, which is almost 36% fall and
increase in equity by Rs.625.77 which are resulted in drop of ROE to
7.83%.

Competitor Analysis:

 ROE for HINDALCO was lower then that of NALCO most of the years, but
yet it was having close competition with NALCO form 2010 till
2013.Since2013 NALCO have an ROE almost 2 times more in 2014 and 5

57 | P a g e
 times more in 2015, showing a better profitability measure in favour of
NALCO.
 VEDANTA gave a good competition to HINDALCO as well as NALCO in
case of return on equity .
 BUT, overall NALCO really the batter one among the rest of its peer
group ,as it had the highest ROE in most of the years as compared to its
peers.
iv. EARNING POWER.

Earning power is measure of business performance which is not affected

by interest charges and tax burden .it abstracts away the effect of capital
structure and tax factor and focuses on operating performance .Hence it
is eminently suited for inter firm comparison . Further it is internally
consistent. The numerator represent a measure of pre-tax earning
belonging to all source of finance and denominator represent total
financing.

Earning Power=Profit before Interest and Tax

Average Total Assets

58 | P a g e
 EARNING POWER
45.00%
EARNING POWER IN%

40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 42.59% 24.02% 3.15% 9.02% 10.93% 7.87% 5.70% 5.58% 12.92% 4.00%
HINDALCO 17.09% 20.89% 9.03% 6.52% 6.41% 5.93% 4.10% 3.98% 4.62% 2.66%
VEDANTA 6.83% 8.96% 7.07% 8.84% 6.94% 5.30%

Interpretation:

 Earning power of NALCO was maximum in year 2006-07 which was

42.59%as the profit before Interest and Tax(PBIT) was maximum along
with the combination of lower average of total assets , in last 10 years .
 Since 2006-07 PBIT kept on reducing and to Rs.905.04 crores in
2012-13,where as total assets kept on increasing and reach the
maximum of Rs.16548 in2014.
 Earning power shows a over the years decline trend till 2014 and
reach its minimum value of 5.58%.

Competitor Analysis .

 Earning power of HINDALCO was lower than that of NALCO in all the year
(except 2009).
 VEDANTA proved to be batter and more investment worthy than
HINDALCO as per as this ratio is concerned ,and also gave stiif
competition to Nalco in 3 consecutive years from 2012 to 2014.
 BUT, overall NALCO really the batter one among the rest of its peer
group ,as it had the highest Earning Power in most of the years as
compared to its peers.
59 | P a g e
iv.RETURN ON CAPITAL EMPLOYED:

It is defined as the relationship between profit before interest & tax and
the capital employed by the firm.

It is a prime test of the efficiency of the business. The owners are

interested in knowing the profitability of the business in relation to the
amount invested in it. A higher percentage of Return on capital
employed will satisfy the owners that their money is profitably utilized.

The borrowing policy of the enterprise may be properly formulated. The

rate of interest on the borrowings should always be less than the return
on capital employed.

The outsiders like bank, creditors and financial institutions will be able
to find whether the concern is viable for giving credit or extending loans
or not.

ROCE may help in devising future businesses policies for expansion or

diversification etc.

Return On Capital Employed (ROCE)=profit before Interest and Tax-

Tax

Average Total Assets

60 | P a g e
 RETURN ON CAPITAL EMPLOYED
30.00%
RETURN ON CAPITAL

25.00%
EMPLOYED

20.00%
IN %

15.00%
10.00%
5.00%
0.00%
2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015-
07 08 09 10 11 12 13 14 15 16
NALCO 28.01% 15.88% 10.93% 6.36% 7.67% 5.58% 3.74% 3.91% 8.08% 9.68%
HINDALCO 12.81% 11.78% 7.66% 5.63% 5.37% 4.95% 3.49% 3.59% 4.19% 4.70%
VEDANTA 5.39% 7.93% 6.29% 4.62% 6.83% 11.83%

Interpretation:

 ROCE for NALCO was 8.08% for the latest year of 2014-15. It was
maximum among the 6 years in comparison from 2009 to 2015. Before
2009, it was the year 2006-07 ,when NALCO achieved the highest ROCE
of 28.01% whereas it was lowest in the year 2012-13 which is 3.74%.
 In 2010, it further dropped to 3.36% as PBIT` was reduced to Rs.1155.1
crores from Rs.1927.16 crores of previous year , which is almost 40%
fall along with an increase in average total assets resulted in the drop of
ROCE to 6.36%.
Competitor Analysis:
 ROC of HINDALCO was lower than that of NALCO in all the years, but the
concerning factor for NALCO is that HINDALCO is closing up in
competition.
 VEDANTA gave a good competition to HINDALCO as well as NALCO in
case of return on capital employed .
 BUT, overall NALCO really the batter one among the rest of its peer
group ,as it had the highest ROCE in most of the years as compared to its
peers.

61 | P a g e
 Thus , we can infer that NALCO generated higher and batter profits with
the money that shareholder have invested in NALCO as compared to that
of the peer group in the industry.

CONCLUSION

The tools of analysis that we have discussed in this chapter are helpful
for NALCO and also its stakeholder in making business decisions
,evaluating performance, and forecasting future development.

Properly combined , the discussed , analyzed and calculated financial

ratio in this chapter can be used to assess corporate excellence ,judge
creditworthiness, predict bankruptcy measure market risk and the
financial position of NALCO as well as HINDALCO and VEDANTA .While
financial statement analysis can be a very useful, tool , there are certain
problem and issue encountered in such analysis that call for care,
circumspection and judgment.

62 | P a g e
 This section clearly suggests the state of Aluminimum sectors three
major companies , NALCO,HINDALCO and VEDANTA . It is evident from
the analysis of the financial performance of all the respective companies
that NALCO is in a good state of financial position in many aspects as we
have already observed. But , the main catch is not only the good part
,rather the part of fact that the competitors are closing up day and are
really giving a stiff competition . Thus in my opinion ,NALCO must be
speculative about each and every details and work in the area of
improvement even if it seem it is far ahead of the rest in the industry ,the
reason can be quoted as “Hope for the best, but prepare for the worst”.

FINDINGs

 NALCO recently broke the previous production record by producing

63.40 lakhs tones of bauxite and 19.53 lakhs tones of alumina at its
mines and refinery during the 2015-16 financial year.This fact is an
excellent achievement by the company and is an evident fact to make
the level of efficiency of the management that is carried out here in
NALCO.
 NALCO has been far ahead of rest of peer group companies as far as
liquidity is concerned .The liquidity ratio is evidence of the fact that
NALCO is a better company in this genre as compared to HINDALCO and
VEDANTA.
 In case of generating revenue from the inventory available NALCO is
better than HINDALCO by 62.21% and by 0.08 as compared to VEDANTA.
 The company is efficiently managing its working capital without keeping
is resources idle.
 As far as debtors turnover ratio and average collection period are
Concerned,NALCO is the clear leader by a huge margin, as is evident
from the fact that NALCO it is clear leader by a huge margin , as is
evident from the fact that NALCO is having twice the better ratio as

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 compare to HINDALCO and VEDANTA, which show the way better
efficiency of NALCO’s receivables management.
 As far as Total Assets Turnover is an area of concerned , it appears to be
a very comparative area, as all the 3 companies are going head-to-head
each year .In the latest year HINDALCO is leading this area with 46.10%
followed by NALCO with 45.12%.
 Return on assets are most efficient in case of NALCO with peer
comparison ,being 8.08% in the latest year ass compare to 1.24% and
2.38%of HINDALCO and VEDANTA respective.
 Return on Equity , Earning Power and Capital Employed are also well
established in case of Nalco , but a stiff competition is being given by
HINDALCO and VEDANTA.

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 SUGGESTIONS AND RECOMMENDATIONS

 NALCO must be speculative of the fact related to the Inventory Turnover

as the competition is closing up especially as that with BALCO being just
0.08% behind NALCO’s figures, which marks the level of competition in
recent times.
 The big concern considered as the area of improvement is the fixed-
Assets Turnover. In this area, NALCO is really not upto the bank, as are
the peer companies. NALCOs management need to look into the very
details of the fixed assets, both Tangible assets and Intangible assets
and using those assets continuously and not letting its merchandise
build up in storage.
 It should limit purchases of inventory, until it needs it. Also, NALCO can
improve in this area of assets turnover by increasing the sales via
various production and marketing strategies, and using the assets
efficiently to generate higher revenues.

 The company should start concentrating on sales and promotion

activities and should make use of internet media (social networking) as
a weapon to explore its vast opportunities.

“NALCO’s overall financial position is in a very good and healthy

condition. The company achieved remarkable profits over the last
decade .The long term solvency position of the company is excellent. The
company’s efficiency in liquidity and profitability is remarkable.”

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 LIMITATION OF THE PROJECT

Though there are many merits involved in my study ,but it is not free
from certain limitations. They are given bellow..

 The report is based on secondary data from public domain.

 There are certain information which are deemed to be confidential ,
which would not be used in the project.
 Since NALCO is a “Zero-Debt” company thus there may be difficulty in
some area data collection and less options to explore.
 Time may act as another hindrance, since to prepare a quality report of
this magnitude, time plays a major role.
 The data used is limited to past ten years and ratio analysis is the only
financial analysis tool used in this project .The resources available are
utilized to the optimum.

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 . BIBILIOGRAPHY

Websites:

 Annual report of NALCO. Available at :http:/www.nalcoindia.com

 Annual report of HINDALCO. Available at :http:/www.hindalco.com
 Annual report of VEDANTA. Available at:http:/www.vedantalimited.com
 www.world.aluminium.org

Books

 Financial Management - I.M. PANDEY

 Management Accounting - R.K. SHARMA & S.K. GUPTA

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