A STUDY ON RATIO ANALYSIS TOWARDS STEEL

AUTHORITY OF INDIA LIMITED, SALEM

A PROJECT REPORT

Submitted by

A.KRISHNAMOORTHY (18501018)

in the partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

PAAVAI ENGINEERING COLLEGE, NAMAKKAL

(AUTONOMOUS)

MAY 2019
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PAAVAI ENGINEERING COLLEGE, NAMAKKAL

(AUTONOMOUS)

BONAFIDE CERTIFICATE

Certified that this project report titled “A STUDY ON RATIO ANALYSIS

TOWARDS STEEL AUTHORITY OF INDIA LIMITED, SALEM” is the

bonafide work of A.KRISHNAMOORTHY (18501018) who carried out the research
under my supervision.

HEAD OF THE DEPARTMENT SUPERVISOR

Department of MBA Department of MBA

Paavai Engineering College, Paavai Engineering College,

Namakkal – 637018 Namakkal - 637018

Submitted for the End Semester Examinations held on …………………………………….

INTERNAL EXAMINER EXTERNALEXAMINER

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DECLARATION

I KRISHNAMOORTHY.A hereby declare that the project report titled “A

STUDY ON RATIO ANALYSIS TOWARDS STEEL AUTHORITY OF

INDIA LIMITED, SALEM” done by me under the guidance of Dr.R.N.Padma

B.Sc., MBA., M.Phil., Ph.D., is submitted in partial fulfillment of the

requirements for the award of Master of Business Administration. Certified

further that, to the best of my knowledge, the work reported herein does not form

part of any other project report or dissertation on the basis of which a degree or

award was conferred on an earlier occasion on this or any other candidate.

DATE:

PLACE: SIGNATURE OF THE CANDIDATE

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ACKNOWLEDGEMENT
A great deal of arduous work and effort has been spent in implementing this project
work. Several special people have guided us and have contributed significantly to this work and
so this becomes obligatory to record our thanks to them.

I express my profound gratitude to our honorable Chairman, Shri.

CA.N.V.NATARAJAN, B.com., F.C.A and also to our Correspondent, Smt. MANGAI
NATARAJAN, M.Sc., for providing all necessary facilities for the successful completion of
my project.

I wish to express my sincere thanks to our respected Director-Administration,

Dr.K.K.RAMASAMY, M.E., Ph.D., for all the blessing and help provided during the period
of project work.

I would like to thank our respected Principal, Dr.M.PREMKUMAR, M.E., Ph.D., for
allowing us to this project and providing required time to complete the same.

I wish to express my sincere gratitude to Dr.R.N. PADMA, B.Sc., MBA., M.Phil.,

Ph.D., Head of the Department, for the able guidance and useful suggestions, which helped
me for completing project work in time.

I express my sincere thanks to Dr.R.N. PADMA, B.Sc., MBA., M.Phil., Ph.D., Project
Coordinator for the useful suggestions, which helped me for completing the project work in
time.

I would like to extend my sincere thanks to all our department staff members and my
parents for their advice and encouragement to do the project work with full interest an
enthusiasm.
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PAAVAI ENGINEERING COLLEGE (AUTONOMOUS),

PACHAL, NAMAKKAL.
MBA Summer Project Work
(Batch 2018– 2020)

Title of the project A study on Ratio Analysis towards Steel

Authority of India Limited, Salem

Name of the student A.Krishnamoorthy

Name of the supervisor Dr. R.N.Padma

ABSTRACT

In any organization, two important financial statements are the balance sheet and profit
and loss account of the business. Balance sheet is a statement of financial position of an enterprise at
a particular point of time. Profit and loss account shows the net profit or net loss of a company for a
specified period of time. When these statements of the last few year of any organization are studied
and analyzed, significant conclusions may be arrived regarding the changes in the financial position,
the important policies followed and trends in profit and loss etc. Analysis and interpretation of
financial statement has now become an important technique of credit appraisal. The investors,
financial experts, management executives and bankers all analyses these statements. Though the
basic technique of appraisal remains the same in all the cases but the approach and emphasis in the
analysis vary. A banker interprets the financial statements so as to evaluate the financial soundness
and stability, the liquidity position and the profitability or the earning capacity of borrowing
concern. Analysis of financial statement is necessary because it helps in depicting the financial
position on the basis of past and current records. Analysis of financial statements helps in making
the future decisions and strategies. Therefore it is very necessary for every organization whether it is
a financial or manufacturing, to make financial statement and to analyses it.
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LIST OF TABLES

TABLE NO CONTENTS PAGE NO

ABSTRACT v
LIST OF TABLES vii
LIST OF CHARTS viii

I INTRODUCTION
1.1 Introduction of the study 1
1.2 Need of the study 2
1.3 Objectives of the study 3
1.4 Scope of the study 3
1.5 Limitations of the study 3
1.6 Chapterization of the study

II CONCEPTS AND REVIEW 5

2.1 Review of related literature 5
2.2 Industry profile 9
2.3 Company profile 13

III RESEARCH METHODOLOGY

3.1 Research design 18
3.2 Data collection details 18
3.3 Tools of the study 19
IV DATA ANALYSIS AND INTERPRETATION
4.1 Analysis of the data 20
V RESULT AND DISCUSSION
5.1 Findings of the study 42
5.2 Suggestions 43
5.3 Conclusion 43
Appendices
References
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LIST OF TABLES

TABLE NO. CONTENTS PAGE NO.

4.1 Current Ratio 21

4.2 Quick Ratio 22

4.3 Financial Performance Turnover Ratio 24

4.4 Current Asset Turnover Ratio 25

4. 5 Debtors Turnover Ratio 26

4.6 Working Capital Turnover Ratio 27

4.7 Creditors Turnover Ratio 29

4.8 Inventory Turnover Ratio 30

4.9 Operating Profit Ratio 31

4.10 Net Profit Ratio 33

4.11 Return On Investment 34

4.12 Statement of Changes in Working Capital 36

for the Year 2015-16
4.13 Statement of Changes in Working Capital 38
for the Year 2016-17
4.14 Statement of Changes in Working Capital 40
for the Year 2017-18
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LIST OF CHARTS

TABLE NO. CONTENTS PAGE NO.

4.A Current Ratio 21

4.B Quick Ratio 23

4.C Financial Performance Turnover Ratio 24

4.D Current Asset Turnover Ratio 25

4. E Debtors Turnover Ratio 27

4.F Working Capital Turnover Ratio 28

4.G Creditors Turnover Ratio 29

4.H Inventory Turnover Ratio 31

4.I Operating Profit Ratio 32

4.J Net Profit Ratio 33

4.K Return On Investment 34

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CHAPTER 1
INTRODUCTION
1.1 Introduction to the study

The ratio analysis is the most powerful tool of financial analysis. Several ratios
calculated from the accounting data can be grouped into various classes according to
financial activity or function to be evaluated. “The indicate quotient of two mathematical
expressions “and as “The relationship between two or more things. “It evaluates the financial
position and performance of the firm. As started in the beginning many diverse groups of
people are interested in analyzing financial information to indicate the operating and
financial efficiency and growth of firm. These people use ratios to determine those financial
characteristics of firm in which they interested with the help of ratios one can determine.

Financial performance analysis is the process of identifying the financial strengths

and weakness of the firm by properly establishing the relationship between the items of
balance sheet and profit and loss account. It also helps in short-term and long term
forecasting and growth can be identified with the help of financial performance analysis.
Financial analysis (also referred to as financial statement analysis or accounting analysis or
analysis of finance) refers to an assessment of the viability, stability and profitability of a
business, sub-business or project.
The information contained in these statements is used by management, creditors,
investors and others to form judgment about the operating performance and financial
position of firm. Uses of financial statement can get further insight about financial strength
and weakness of the firm if they properly analyze information reported in these statements.
Management should be particularly interested in knowing financial strength of the firm to
make their best use and to be able to spot out financial weaknesses of the firm to take
suitable corrective actions. The further plans firm should be laid down in new of the firm’s
financial strength and weaknesses. Thus financial analysis is the starting point for making
plans before using any sophisticated forecasting and planning procedures. Understanding the
past is a prerequisite for anticipating the future.
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Standards of comparison:

The ratio analysis involves comparison for a useful interpretation of the financial
statements. A single ratio in itself does not indicate favourable or unfavourable condition. It
should be compared with some standard. Standards of comparison may consist of:

• Past ratio - ratios calculated form the past financial statements of the same firm;

• Competitor ratio - some selected firms, especially the most progressive and
successful competitor, at the same pint in time;

• Industry ratio - ratios of the industry to which the firm belongs; and

• Protected ratio - developed using the protected or Performa, financial statements of

the same firm.

1.2 NEED OF THE STUDY:

The prevalent educational system providing the placement training at an industry being a
part of the curriculum has helped in comparison of theoretical knowledge with practical
system. It has led to note the convergences and divergence between theory and practice. The
study enables us to have access to various facts of the organization. It helps in understanding
the needs for the importance and advantage of materials in the organization, the study also
helps to exposure our minds to the integrated materials management the various procedures,
methods and technique adopted by the organization. The study provides knowledge about
how the theoretical aspects are put in the organization in terms of described below

• To pay wages and salaries.

• For the purchase of raw materials, spares and components parts.

• To incur day-to-day expenses.

• To meet selling costs such as packing, advertising.

• To provide credit facilities to customers.

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1.3 Objectives of the study:

• To study and analyze the financial position of the Company through ratio analysis.

• To suggest measures for improving the financial performance of organization.

• To analyze the profitability position of the company.

• To assess the return on investment.

• To analyze the asset turnover ratio.

• To determine the solvency position of company.

1.4 Scope of the study:

The scope of the study is limited to collecting financial data published in the annual
reports of the company every year. The analysis is done to suggest the possible solutions.
The study is carried out for 4 years (2008-13).

Using the ratio analysis, firms past, present and future performance can be analyzed
and this study has been divided as short term analysis and long term analysis. The firm
should generate enough profits not only to meet the expectations of owner, but also to
expansion activities.

1.5 Limitations of the study:

• The study duration (summer in plant) is short
• Personal bias
• Price level changes affect ratios
• Limited comparability
• Absence of standard universally accepted terminology
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1.6 Chapterization:
This study has been presented in five chapters.
CHAPTER - I
This chapter deals with Introduction of the study, about the study, Importance of the
study and Chapterization.

CHAPTER - II
This chapter deals with the Concept and review.
CHAPTER – III
This chapter deals with the Research Methodology.
CHAPTER – IV
This chapter provides the Data Analysis and Interpretation.
CHAPTER - V
This chapter gives a summary of Findings, Suggestions and Conclusion
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CHAPTER II

CONCEPTS AND REVIEW

2.1 Review of Literature:

Chandrasekaran N (2000) has studied about the market structure of the Indian Cement industry
like demand and supply. It was analyzed in that study that the demand and supply gap has been
considerably reduced and supply of cement during the period of study has increased due to
creation of additional capacity and capacity utilization.

Srinivasa Rao.G and Indrasena Reddy.P (2000), in their study, analyzed the financial strength
of paper industry had been improving from year to year. The company's performance in relation
to generating internal funds in the form of reserves and surplus was excellent and also the
company was doing well in mobilizing outsiders' funds. The liquidity position of the company
was sound as revealed by current ratio and quick ratio which were above the standard. The
performance of the company in relation to its profitability was not up to the expected level. The
company's ability to utilize assets for generation of sales had not been improved much during the
period of study period as revealed by its turnover ratios.

Govind Rao (2002) studied the impact of working capital on profitability in Indian cement
industry. It can be analyzed both positive as well as negative correlations between working
capital related ratios and profitability.

Rajeswari. N (2000), in her study on liquidity management of Tamil Nadu Cement Corporation
Ltd., Alangulam, identified that the liquidity position of the Tamil Nadu Cements Corporation
Ltd. (TANCEM) was not satisfactory in terms of Quick ratio and Current ratio. She concluded
that necessary steps ought to be taken to improve the liquidity position of the company.

Nand Kishore Sharma (2002), in his Study on financial appraisal of cement industry in India,
has found that the liquidity position was decreasing, current ratio and quick ratio showed a
decreasing trend and also these ratios varied from time to time. On comparing the current ratio
and quick ratio of cement industry, six companies were found higher than the industry average
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and four companies lower than industry average. The solvency position in term of debt-equity
ratio has showed a decreasing trend in the first 4 years of study, after that, it registered an
increasing trend. The ratio of fixed assets to total debt always showed more than 100 percent
which indicated that the claims of outsiders were covered by the fixed assets of the cement
companies.

Ghosh S.K., and Maji S.G. (2004), in their paper, to examine the efficiency of Working capital
management of the Indian cement companies from the year 1992- 1993 to 2001-2002. They
conclude from the study indicated that the Indian cement industry, as a whole, did not perform
well during the selected period of the study.

Bardia (2006), in his study on Liquidity Management of Steel Authority of India Limited, has
analyzed the overall performance of liquidity maintained by steel sector and the amount tied-up
in various components of working capital. This study has found that there was a positive
relationship between liquidity and profitability.

Amalendu Bhunia (2007), studied on liquidity management, analyzed the short term financial
strength through the analysis of the working capital management of selected iron and steel
companies in India. The study revealed that actual values of working capital have been found to
be lower than the estimated values of working capital for the companies, such as Steel Authority
of India Limited (SAIL) and Indian Iron and Steel Corporation (IISCO). There was a poor
liquidity performance existed in case of both SAIL and IISCO, inefficient inventory management
in case of SAIL and inefficient receivable management in case of both the enterprises. It
suggested that increase in additional investment in raw materials, reduction in the burden of
current liabilities were necessary in order to improve the inventory management and liquidity
position of these steel companies.

Sudipta Ghosho (2008) has analyzed the liquidity performance of Tata Iron and Steel Company
(TISCO). During the selected period of the study, it was found that the liquidity position of the
company, on the basis of current ratio as well as quick ratio, was not satisfactory. It indicated
that the share of current assets in total assets of the company, on an average, was 29.1 percent
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during the period of study. It was suggested that to maintain overall control of liquidity position,
the company should give special attention to the management of current assets. He found that the
degree of influence of liquidity on its profitability was low and insignificant.

Rajamohan .S and Vijayaragavan T. (2008) have studied on production performance of

Madras Cement Limited. it can be analyzed the comparative production performance of Madras
cement and all other cement companies in India. Statistical method Mann-Whitney U-test was
applied. The results of analysis indicated that the production performance of selected unit was
equal to production performance of all other cement units in India.

Dharmendra S (2011) analyzed that Liquidity is in closely relation with the profitability of the
Indian Cement Industry as compared to the solvency ratios like Total Assets Ratio, Inventory
Turnover Ratio, Debt-Equity Ratio and Operating Expenses Ratio.

Harshad R. Tandel (2013) Analyzed that the Financial Analysis of selected Plastic
Manufacturing Industrial Units of Gujarat for the period 2000-01 to 2009-10. The main objective
of this study was to analysis and evaluate the financial performance of selected companies in
particular and the plastic industry in general with the help of composited such ratios like
Profitability, Activity, Liquidity and solvency. He judges the financial performance with the help
of Trend Analysis and Analysis of Variance. He can conclude that the liquidity and profitability
performance was not good, but in terms of activity and solvency performance of industry was
satisfactory.

Alovsat Muslumov (2005) analyzed that the privatization was associated with a declining value
added and shareholders’ profitability in Turkish cement industry. A decline in the value added
and shareholders’ profitability were mainly caused by the decrease in return on assets. The
decline in the return on asset was traced to declining asset productivity. These results are not
consistent with previous cross-sectional privatization studies and number of country studies.
 8

Adolphus J. Toby (2008) has conducted a study on liquidity performance relationship of

Nigerian manufacturing companies. The results of the study have revealed a significant
relationship between liquidity, .profitability, efficiency and leverage measures. The study has
also made an attempt to suggest that in order to target money supply, monetary policy could be
used to facilitate monetary transmission mechanism by integrating a minimum liquidity
requirement for the manufacturing industry.

Haq and Sohail and Zaman and Alam (2011) analyzed the relationship between Working
Capital Management and Profitability: A Case Study of Cement Industry in Pakistan. In this
study to analyzed the relationship between working capital management and profitability.
Researcher selected 14 companies in cement industry in the Khyber Pakhton khuwa Province
(KPK) of Pakistan. The study is totally depend on secondary data collected from the audited
financial statements of these companies which are listed in Karachi Stock Exchange for the
period spanning 2004- 2009.

16Hajihassani (2012) This study exhibited comparison of financial performance for the period
study 2006 to 2009. It can be analyzed comparison of financial performance of selected cement
companies by using various financial ratios and measures of cement companies working in Iran.
Financial ratios are divided into three categories In this concludes that the performance of
cement companies on the basis of profitability ratios different than on the basis of liquidity ratio
and leverage ratio.

Dr. Abdul Ghafoor Awan, Pervaiz Shahid, Jahanzeb Hassan, Waqas Ahmad (2014) has
analyzed the impact of Working Capital Management on performance of cement sector in
Pakistan. The study is totally depending on secondary data collected from the audited financial
statements of these companies which are listed in Karachi Stock Exchange. Return on was used
as the dependent variable in order to test the impact of Working Capital Management on firm’s
profitability and independent variables were, Inventory Turnover in Days, Cash Conversion
Cycle, Current Ratio, Quick Ratio, Gross Working Capital, Average Payment, size of firm, and
Funds allocated by government in Public Sector Development Program.
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2.2 INDUSTRY PROFILE

Steel Authority of India Limited (SAIL) is a leading steel-making company in India and
one of the seven Maharatnas Central Public Sector Enterprises. It has fully integrated iron and
steel plants and produces basic and special steel products. It caters the need of construction,
engineering, power, railway, automotive and defense industries in India (SAIL, n.d.) and also
exports it to overseas markets. SAIL produces a broad range of steel products, like hot &cold
rolled sheets and coils, galvanized sheets, electrical sheets, structural’s, railway products, plates,
bars, rods, stainless steel and other alloy steels (SAIL, 2014).

SAIL has five integrated plants i.e. Bhilai Steel Plant, Durgapur Steel Plant, Rourkela
Steel Plant, Bokaro Steel Plant and IISCO Steel Plant and three special steel plants i.e. Alloy
Steel Plant, Salem Steel Plant and Visvesvaraya Iron and Steel Plant. All these plants are located
in the eastern and central regions of India. These plants are situated close to domestic sources of
raw materials. SAIL also has Company’s iron ore, limestone and dolomite mines near its plants.
SAIL is the India’s second largest producer of iron ore and has the country’s second largest
mines network. Therefore, SAIL is competitive in terms of availability of iron ore, limestone,
and dolomite, the inputs for steel making.

SAIL has a Central Marketing Organization (CMO) which has a network of 37 Branch
Sales Offices spread across the country, 25 Departmental Warehouses, 42 Consignment Agents
and 27 Customer Contact Offices. CMO has the responsibility to carried out the marketing of
wide range of long and flat steel products which are much in demand in India as well as in the
overseas markets. The demands of customers in the remote areas of the country is meet by an
ever increasing network of rural dealers, these dealer supplemented marketing efforts of CMO in
domestic market. At present there are more than 2000 rural dealers in the country. SAIL's wide
spread marketing ensures availability of quality steel in all the districts of the country.

OWNERSHIP AND MANAGEMENT

The Government of India owns about 75% of SAIL's equity and retains voting control of
the Company. However, by virtue of its ‘Maharatna’ status, SAIL enjoys significant operational
and financial autonomy (SAIL, n.d.).
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VISION
To be a respected world Class Corporation and the leader in Indian steel business in
quality, productivity, profitability and customer satisfaction. (SAIL, n.d)

PLANTS OF SAIL
SAIL produces and provide vital as well as basic infrastructure facilities across the length
and breadth of India. SAIL is continuously meeting the growing demand for steel from different
sectors contributing in the growth of Indian economy like infrastructure, railways, power,
transportation, defense, oil & gas, heavy industries, construction, white goods, automobiles, etc.
With an unmatched range of mild steel, both in long and flat categories, as well as a wide variety
of special and stainless steels. Different products of SAIL are as follows:

PLANTS LOCATION
Bhilai Steel Plant (BSP) : Chhattisgarh
Durgapur Steel Plant (DSP) : West Bengal
Rourkela Steel Plant (RSP) : Orissa
Bokaro steel Plant : Jharkhand
IISCO Steel Plant (ISP) : West Bengal
Alloy Steels Plants (ASP) : West Bengal
Salem Steel Plant (SSP) : Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) : Karnataka
Chandrapur Ferro Alloy Plant : Maharashtra

Integrated Plants
1. Bhilai steel Plant (BSP) Bhilai Steel Plant (BSP) is India's only manufacturer of rails and
heavy steel plates and a major producer of structural. It was set up with the help of the USSR in
1955. The plant also specializes in other products such as wire rods and merchant products. BSP
has an annual production capacity of 3.153 Million Tonnes of saleable steel.)

2. Durgapur Steel Plant (DSP) Established in the 1955, DSP started with an initial capacity of
one million tonnes of crude steel per year which later expanded to 1.6 million tonnes in 70's.
Further, with a massive modernization programme in early 90's, the capacity of the plant
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increased to 2.088 million tonnes of hot metal, 1.8 million tonnes crude steel and 1.586 million
tonnes saleable steel. The plant is accredited with ISO 9001: 2000 quality management system,
accredited with ISO: 9002 quality assurance certification (SAIL, n.d).

3. Rourkela Steel Plant (RSP) The plant was set up with German collaboration in 1955 with an
installed capacity of 1 million tonnes which later enhanced to 1.9 million tonnes. The plant has
undergone modernization in the mid-1990s. RSP was the first plant in India to incorporate LD
technology of steel making and the first steel plant in SAIL and the only where 100% of slabs are
produced through the cost-effective and quality-centric continuous casting route.

4. Bokaro Steel Plant (BSL) Incorporated originally as a limited company on 29th January
1964, BSL later merged with SAIL. The Plant is the country’s first Swadeshi steel plant. It was
built with local equipment, material and know-how. The modernization of 90s' has further
upgraded the capacity to 4.5 MT of liquid steel. Many other new features have been added by
modernization of plant.

5. IISCO Steel Plant (ISP) Established in 1918 with the name Indian Iron & Steel Company
(IISCO), ISP amalgamated with SAIL on 16th February 2006 and renamed as IISCO Steel Plant
(ISP). With time, the plant was upgraded to produce 4.26 lakh tonnes of saleable steel and 2.54
lakh tonnes of pig iron per annum. ISP produces a wide range of products that have been
acknowledged for their finest quality and enjoys exclusive market dominance for some products..

Special Steel Plants

1. Alloy Steels Plants (ASP) in West Bengal It was set up in January 1965 to make India self-
reliant in alloy & special steels production. ASP is located at Durgapur in Burdwan district of
West Bengal. It is spread over an area of around 4.67 Sq. KM (467.22 Hectare). M/s MN Dastur
& Co. Chapter – 4 Profile of Steel Authority of India Limited 112 was the Consultant for ASP
and the Technology knowhow was provided from M/s Atlas Steels, Canada.
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2. Salem Steel Plant (SSP) in Tamil Nadu SSP is the supplier of wider width stainless steel
sheets/coils in India. It has an installed capacity of 70,000 tonnes per year in Cold Rolling Mill
and 1, 86,000 tonnes per year in Hot Rolling Mill. In addition, the plant has country's first top-of-
the-line stainless steel blanking facility with a capacity of 3,600 tonnes per year of coin blanks
and utility blanks/circles. Salem Steel Plant is presently going through Expansion and
modernization (SAIL, n.d).

3. Visvesvaraya Iron and Steel Plant (VISL) in Karnataka Visvesvaraya Iron and Steel Plant
(VISL) was set up as the Mysore Iron Works on January 18, 1923 by Sir M Visvesvaraya. It is a
pioneer in production of high quality alloy and special steels and pig iron. VISL has an installed
capacity of 77,000 tonnes of alloy and special steels and 205,000 tonnes of hot metal. VISL has
accredited with the ISO / TS 16949: 2009 certificate for steel production through rolled and
forged routes and pig iron production (SAIL, n.d).

PRODUCTS OF SAIL:
• Rails (13/26m), Long Rails, (65- 260m), Blooms, Billets, Slabs, Channels, Joists, Angles,
TMT Rebars, Wire Rods, Crane Rails, Plates, Pig iron & Coal Chemicals
• Plate Mill Plates, HR Plates, HR Coils, Slabs, CR Sheet/ Coil, Galvanized Sheets (plain
& Corrugated), ERW Pipes, Spiral Weld pipes, CRNO, Pig iron & Coal Chemicals
Bokaro steel Plant Jharkhand Hr Coils
• Slabs, HR Sheets. Plates, CR Coils. Sheets, GP Sheets. coils, GC Sheets, Galvanized
Steel, HRPO, Pig iron & Coal Chemicals
• Alloy Steel Squares & Rounds, Wear Resistant Plates, Forgings, Carne Wheels, Forged
Rolls/ Plates, Special Quality Slabs & Stainless Steel Slabs
• Cold Rolled Stainless Steel, Hot Rolled Carbon & Stainless Steel Products, Micro-
Alloyed Carbon Steel
• Wire rods, Bars & Rebars, Joists, Channels, Angles, Blooms, Billets, Universal & Special
section (Z-bar, MS Arch), Pig iron & Coal Chemicals
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2.3 COMPANY PROFILE

ORIGIN OF SALEM STEEL PLANT
A Steel Plant in Salem was a long cherished dream. Government of India decided in May
15, 1972 to set up an integrated special steel plant at Salem in the state of Tamil Nadu for the
production of steel and strips of electrical, stainless and other special and mild steel on the basis
of sound techno — economic considerations.
The construction of the plant was inaugurated in June 13, 1972, by the late Shri. Mohan
Kumaramangalam, the then Minister of Steel and Mines. Thus a dream of having a steel plant in
Salem had started taking a shape in the foot hills of Kanjamalai. It was a Government of Indi
undertaking and subsidiary of Steel Authority of India Limited.
AN OVERVIEW OF SALEM STEEL PLANT
IMPORTANT DATES:
Go Ahead : 13-03-1977
COMMISSIONING:
• Phase I : 13-09-1981
• Phase II : 26-03-1991
• Blanking Line : 24-12-1993
• Hot Rolling Mill (IIRM) : 11-09-1995
• Capacity Installed (CRM) : 70,000 tonnes
• Capacity Installed (HRM) : 1, 86,200 tonnes

PROJECT COST:

• Phase I : 181.19 Crores

• Phase II : 76.27 Crores

• HRM : 623.10 Crores (Revised)

• Man Power : 1357

• Area Acquired : 15.5 Sq.Km.

• Township Dwellings : 832 units

• Consulting Engineers : MIS MN Dastar &Co., Ltd.,

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INFRASTRUCTURE:

An 11.5 km four — lane road connects the plant with the Salem — Bangalore National
Highway No: 7 and an 8.6 km long road gauge railway siding links the plant to Salem railway
junction. The total area acquired by Salem Steel Plant is 15.5 sq.km

ORGANISATION STRUCTURE:

Organization is where a hub of different activities are planned and executed to achieve a
common corporate goal. In SSP its corporate goal is manufacturing various grades of stainless
steel sheets and coils of having different finishes based on the customer's requirements. 45 An
organization structure clearly indicates the individual's responsibility to achieve the
organization's goal. It is designed to clarify who is to do what and who is responsible for what
results, to remove obstacles to performance caused by confusion and uncertainty of assignment,
to furnish decision making and communication networks which reflects and supports enterprise
objectives.

An organization is a powerful system. Purpose or mission is the reason for the creation,
existence, continuance and functioning of any organization. The primary overall objective of an
organization is reflected in its mission. Organisational objectives are the desired end influenced
by the external environment, resources and human values of the particular organization.
Organisational objectives are not mere good intentions or policy wishes. They are commitments
to action and to attain specific performance levels over a defined period of time.

As a structure, organization is the network of vertical relationships among the members

of group designed to accomplish that govern the activities of the people. The horizontal
dimension reflects the hierarchy of authority relationships with a number of levels from top to
bottom. It is the structure of objectives. An organization chart provides a bird's eye view of the
relationships between different departments or divisions of an enterprise as well as the
relationships between people at various levels.

Executive Director (ED) is the Chief Executive of Salem Steel Plant. Next to ED,
General Manager (Works) is the vice-captain of SSP. In order to ensure smooth functioning of
the enterprise, various departments as given below have been setup.
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Departmentalization is the efficient grouping of jobs into meaningful work units to achieve the
organizational objectives.

• Computer and Informational Technology

• Finance and Accounts

• General Administration

• Human Resources Development

• Maintenance

• Marketing

• Materials Management

• Operation

• Personnel

• Production, Planning and Control

• Public Relations

• Town Administration

• Quality Control Department, etc.,

IMPORTANT FEATURES OF SSP:

The most important features of SSP are

• The Cold Rolling Mill Complex (CRIVI)

• The Hot Rolling Mill Complex (HRIVI)

• Stainless Steel Blanking Line

PROCESS OF SSP:

The Salem Steel Plant has the latest technology in cold rolling, and the most modern equipment,
supplied by the leading manufacturers of machinery from different parts of the world.
 16

The raw material for the manufacturing process is hot rolled stainless steel coils, called
hot bands. This is partly imported and partly taken from Ahoy Steel Plant, Durgapur. These coils
are built up on a coil build up line. The built up coils are softened and descaled in Annealing and
Pickling lines. From here, the coils are sent for cold rolling in the Sendizimir mill to get the
desired final thickness. The rolled coils are again softened and descaled to obtain the optimum
finish and mechanical properties. The coils are then passed through the skin pass mill to give
them a bright finish and necessary flatness. They are ultimately slit or sheared into finished
products in the form the slit / divided coils or cut lengths. The special surface finishes are
obtained in sheet form in the sheet finding, and in the coil form in the strip grinding lines.

MAJOR PRODUCTION EQUIPMENTS AT SSP:

• Coil Buildup line

• Bell Annealing Furnaces.

• Annealing and Pickling lines

• Sendizimir Cold Rolling Mill

• Skin Pass Mill

• Shearing Line

• Sheet Grinding and Polishing Unit

• Stretcher

The plant has a highly equipped laboratory, and effects stringent quality control measures
aided by modern process control, inspection and testing facilities, which ensures supply of
quality products conforming to international standards.

QUALITY CONTROL:

• 9002 Certification FOR COLD ROLLING MILL COMPLEX

• ISO 9002 CERTIFICATION FOR HOT ROLLING MILL COMPLEX

• SSP, A BENCHMARK FOR ISO 9002

 17

AWARDS WON BY SSP:

• SSP won the SAIL Corporate Award for excellent implementation of suggestion scheme
for 1994-95 among special Steel Plants

• Salem Steel has achieved ISO 14001 for its pollution free environment. This is the first
plant in the family of SAIL to receive this award

• Stainless News, The prestigious publication of SIAL from Salem Steel Plant, has won the
'House Journal for the year 1995' Award from the Institute of Management Training

HUMAN RESOURCE PROFILE:

Salem Steel Plant has 291 executives and 1066 non-executives employees. Human
Resource Management has been given due to importance, and as such the activities for the
development of employees are carefully planned and implemented in order to enable itself to
sustain as a progressive business organization and to have the capability to meet the challenges
of the market economy.

The plant is trying for ISO 9000 accredition to meet the quality standards set by the
European community countries. Salem Steel Plant has a well-organized Human Resource
Development Center.

The facilities available at the center include a workshop consisting of fitting, machine
shop, electrical and steel metal section, an audio-visual section which has a 16 mm projector,
overhead projector, automatic slide projector, slide-cum-ship projector, stereo record player, tape
recorder and radio, a library having a good collection of books journals, and magazines on
technical and management subjects.

EXPORT PERFORMANCE OF SSP

The product of SSP plant especially stainless steel occupies a pride of place in
international market. And is exported to more than 37 countries worldwide such as Spain, UK,
Japan Germany Switzerland. Denmark Portugal, morocco, Netherlands, Rumania, turkey Kuwait
Thailand Singapore Australia and Bangladesh. Quality occupies the summit of SSP priorities .the
product is well accepted in the national and international markets for it’s too much quality.
 18

CHAPTER III

RESEARCH METHODOLOGY
3.1 Research Design
“A research design is the arrangement of conditions for collection and analysis data in a
manner that aims to combine relevance to the researcher purpose with economy in procedure”. It
constitutes the blueprint for the collection, measurement and analysis of data. As such the design
includes an outline of what the researcher will do form writing the hypothesis and its operational
implication to the final analysis of data.

In view of the objects of the study listed above an exploratory research design has
been adopted. Exploratory research is one which is largely interprets and already available
information and it lays particular emphasis on analysis and interpretation of the existing and
available information.
• To know the financial status of the company.
• To know the credit worthiness of the company.
• To offer suggestions based on research finding.

3.2 Data Collection Details

Sources of data:
The study is based on Secondary data.
Secondary Data:
Secondary data is the data that have been already collected by and readily available from
other sources. Such data are cheaper and more quickly obtainable than the primary data and also
may be available when primary data cannot be obtained at all.
An incorrect capital structure can mean ruin of an otherwise healthy firm. This is
because, if the firm is funded by too much debt, it has a lot of interest bills to pay. Therefore in a
lean period, the firm is likely to default on its interest obligations. The worst part is that if the
firm defaults a few times, debt holders have the right to seek legal counsel and start liquidating
the firm. In such a scenario, an otherwise healthy firm may have to sell its assets at throw away
prices. Thus an ideal capital structure is one that provides enough cushions to shareholders so
 19

that they can leverage the debt – holder’s funds but it should also provide surety to debt holders
of the return of their principal and interest. Since capital structure ratio reveal these facts, analyst
pay careful attention to them.
Since the study is aimed at the financial aspects of the whole data has been gathered from,
• Annual report of the company
• Broachers of the company
• Library books
• Tally reports

The Secondary data, on the other hand, are those which have already been collected by someone
else and which have already been passed through the statistical process. Usually published data
are available in:
• Various publications of the central, state or local government;
• Various publications of foreign governments or of international bodies and their
subsidiary organizations;
• Technical and trade journals;
• Books, Magazines and Newspapers:
• Reports and publications of various associations connected with business and industry,
banks, stock exchange etc.,

3.3 Tools of study

Ratio Analysis:
Ratio is a relationship between two figures expressed mathematically. Financial ratio
provides numerical relation between two relevant financial data. Financial ratios are calculated
from the Balance sheet and Profit & loss A/c. The relationship can be either expressed as a ratio
on as a quotient. Ratios summarize the data for easy understanding, comparison and
interpretation.
The ratio analysis is the financial statement. It provides a yardstick to measure the
relationships between the variable of figures.
The term ratio analysis simply means one number expressed in terms of another. It
describes in mathematical term as the qualitative relationship that exists between two numbers.
Nowadays it is used by all business and industrial concern in their financial analysis.
 20

CHAPTER – IV

4.1 ANALYSIS THE WORKING CAPITAL:

INTRODUCTION:
Ratio Analysis is a powerful tool of financial analysis. Alexander Hall first presented it in
1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one figure against
other, which makes a ratio and the appraisal of the ratios of the ratios to make proper analysis
about the strengths and weakness of the firm’s operations. The term ratio refers to the numerical
or quantitative relationship between two accounting figures. Ratio analysis of financial
statements stands for the process of determining and presenting the relationship of items and
group of items in the statements.

1. LIQUIDITY RATIOS:
It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios help
in establishing a relationship between cast and other current assets to current obligations to provide a
quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also
that it does not have excess liquidity. A very high degree of liquidity is also bad, idle assets earn
nothing. The firm's funds will be unnecessarily tied up in current assets. Therefore it is necessary to
strike a proper balance between high liquidity. Liquidity ratios can be divided into three types:
• Current ratio
• Acid Test Ratio / Quick Ratio / Liquidity Ratio
• Absolute liquid ratio

2. TURNOVER/ACTIVITY RATIOS:
These are the ratios which indicate the speed with which assets are converted or turned
over into sales.
• Inventory Turnover Ratio
• Debtors/ Accounts receivables Turnover Ratio
• Creditors/Accounts Payables Turnover Ratio
 21

CURRENT RATIO:-
It is a ratio, which express the relationship between the total current Assets and current
liabilities. It measures the firm’s ability to meet its current liabilities. It indicates the availability
of current assets in rupees for every one rupee of current liabilities. A ratio of greater than one means
that the firm has more current assets than current liabilities claims against them. A standard ratio between
them is 2:1.

Current Ratio: Current Assets

Current Liabilities
Table no: 4.1
Year Current Assets Current Liabilities Current Ratio
2014-15 14333.63 6147.21 2.33
2015-16 17383.73 8013.21 2.16
2016-17 26317.62 7232.61 3.63
2017-18 20378.62 8049.33 2.53
2018-19 18201.33 6147.21 2.96

Chart no: 4.A

Current Ratio
4
3.63
3.5
2.96
3
2.53
2.5 2.33
2.16
2

1.5

0.5

0
2014-15 2015-16 2016-17 2017-18 2018-19
0
 22

INTERPRETATION:-
It is seen from the above chart that during the year 2014-15 the current ratio was
2.33, during the year 2015-16 it was 2.16 and in the year 2016-17 it was 3.63. This shows
the current ratio increases every year but in the year 2016-17 the current ratio was suddenly
increased to 3.63 due to increase in current assets. In the year 2017-18 the current ratio has
decreased to 2.53. The current ratio is above the standard ratio i.e., 2:1. Hence it can be said
that there is enough current assets in SSP to meet its current liabilities.

ACID TEST RATIO / QUICK RATIO / LIQUIDITY RATIO:-

This ratio establishes a relationship between quick/liquid assets and current liabilities. It
measures the firms’ capacity to pay off current obligations immediately. An asset is liquid if it
can be converted in to cash immediately without a loss of value; Inventories are considered to be
less liquid. This ratio is also known as acid-test ratio. The standard quick ratio is 1:1 is
considered satisfactory.

Quick Ratio = Quick Assets (current assets - Inventory)

Current Liabilities
Table no: 4.2

Current Assets
Year Current Liabilities Quick Ratio
Inventories
2014-15 10112.94 8013.21 1.26

2015-16 11173.67 7232.61 1.54

2016-17 13727.15 8049.33 2.41

2017-18 19460.39 7123.09 1.92

2018-19 11119.89 6147.21 1.26
 23

Chart no: 4.B

Quick Ratio
2.5 2.41

2 1.92
1.54
1.5 1.26
1.26
1

0.5

0
2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION:-
During the year 2014-15 the quick ratio was 1.26, in the year 2015-16 it increases to 1.54
This shows the company maintains satisfactory quick ratio, in the year 2016-17 the quick ratio
increases to 2.41, in the year 2017-18 it decreases to 1.92, in the year 2018-19 it is about 1.26.
The quick ratio is above the standard ratio i.e., 1:1. Hence it shows that the liquidity position of
the company is adequate.

FINANCIAL PERFORMANCE TURNOVER RATIO

Financial performance turnover ratio indicates firm’s velocity of utilization of net
financial performance. This ratio indicates the number of times the financial performance is
turned over in the course of a year. This ratio measures the efficiency with which the workings
capital is being used by a firm.
Financial performance turnover ratio = Cash & Bank Balance
Current Liabilities
 24

Table no: 4.3

Financial Performance Turnover

Years Net sales Ratio
2014-15 28523 6320.42 4.51
2015-16 27860 10151.42 2.71
2016-17 39508 10151.12 2.98
2017-18 33923 13255.53 1.86

2018-19 30126 16896.38 1.78

Chart no: 4.C

Financial Performance Turnover Ratio

5 4.51

3 2.71 2.98

2
1.86
1 1.78

0
2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION:
During the year 2014-15 the financial performance turnover ratio was 4.51, during the
year 2015-16 it was 2.71 and in the year 2016-17 it was 2.98, in the year 2017-18 it was 1.86.
This shows the financial performance turnover ratio decreases every year but it is below the
standard ratio. In the year 2018-19 the Absolute liquidity ratio decreased to 1.78. Hence it shows
that there is significant decrease in financial performance due to decreased inventories and
sundry debtors were not used effectively.
 25

CURRENT ASSET TURNOVER RATIO:-

Current Asset turnover ratio indicates velocity of utilization of current assets by the firm.
Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to
maximize sales. A firm’s ability to produce a large volume of sales for a given amount of assets
is most important aspect of its operating performance.
Current Asset Turnover Ratio = Net Sales
Current assets
Table no 4.4:

Current Asset
Year Net Sales Current Assets
Turnover ratio
2014-15 28523 14333.63 1.99
2015-16 27860 17383.73 1.61
2016-17 39508 26317.62 1.50
2017-18 33923 20378.62 1.66
2018-19 30126 18201.33 1.65

Chart no 4.D:

Current Asset Turnover Ratio

2.5

2 1.99

1.61 1.66 1.65

1.5 1.5

0.5

0
2014-15 2015-16 2016-17 2017-18 2018-19
 26

INTERPRETATION:
The current assets turnover ratio has decreased in the year 2015-16 indicating that
investment made in current assets has been used effectively for generating more sales than the
previous year. The decrease in the ratio is because decreased investments in current assets in the
form of cash and bank balance is not fully utilized to make sales. In the year 2017-18 there has
been slight improvement in this ratio as the company has managed its current assets of sundry
debtors and interest receivables.

DEBTORS / ACCOUNTS RECEIVABLES TURNOVER RATIO:-

Debtor’s turnover ratio indicates the speed of debt collection of the firm. This ratio computes
the number of times debtors (receivables) has been turned over during the particular period.

Debtors Turnover Ratio = Credit Sales

Average Debtors

Table no: 4.5

Year Credit Sales Average Debtors Debtors Turnover Ratio

2014-15 28523 1908.45 14.95

2015-16 27860 1881.73 14.81
2016-17 39508 2314.75 14.66
2017-18 33923 3110.27 12.70
2018-19 30126 2846.63 10.58

INTERPRETATION:
The debtor’s turnover ratio has been increased in the year 2014-15. The decreasing ratio
indicates that the firm could not maintains quality debtors who make prompt payment and has
less change for bad debts. Though the debtor’s collection period is getting reduced indicating
efficiency in prompt collection, the tough credit policy may affect the profitability. The decrease
in ratio due to changing economic conditions and decrease in sales.
 27

Chart no: 4.E

Accounts Receivables Ratio

16 14.95 14.81 14.66
14 12.7
12 10.58
10
8
6
4
2
0
0
2014-15 2015-16 2016-17 2017-18 2018-19

WORKING CAPITAL TURNOVER RATIO:-

This ratio indicates the number of times the working capital is turned over in the course of
the year. This ratio measures the efficiency with which the working capital is used by the firm. A
higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.
But a very high working capital turnover is not a good situation for any firm.

Working Capital Turnover Ratio = Net Sales

Net Working Capital
Table no: 4.6

Year Net Sales Net Working WCTR

Capital
2014-15 28523 6320.42 4.51
2015-16 27860 10151.12 2.74
2016-17 39508 18268.29 2.16
2017-18 33923 13255.53 2.55
2018-19 30126 12054.12 2.49
 28

Chart no: 4.F

WCTR

5 4.51

4
3 2.74
2.16 2.55
2 2.49
1
0
2014-15
2015-16 WCTR
2016-17
2017-18
2018-19

INTERPRETATION:
The working capital t/o ratio is fluctuating year to year that was high in the year 2014-15,
4.51 times; there was a subsequent decrease in the year 2015-16 and 2016-17 to 2.74 times and
2.16 times. But it increases in the year 2017-18 and 2018-19 to 2.55 and 2.49 times respectively.
This shows the company is utilizing working capital effectively.
CREDITORS TURNOVER RATIO:
Creditor’s turnover ratio indicates the speed with which the payments for credit purchases
are made to the creditors. The ratio is also known as account payable or creditor’s velocity. The
ratio indicating the numbers of times the payable rotate in a year.

Creditor’s turnover ratio = Credit purchase

Accounts payable
 29

Table no: 4.7

Year Credit Accounts Payable CTOR

Purchase
2014-15 6394.08 1780.81 3.59
2015-16 8020.91 2207.50 3.63
2016-17 12894.00 2545.07 5.06
2017-18 11305.65 2427.36 4.66
2018-19 10826.32 2397.28 4.51

Chart no: 4.G

Creditor's Turnover Ratio

6
5.06
4.66 4.51
5

3.59 3.63
4

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION:
The creditor’s turnover ratio has increased from 3.63 in the year 2015-16 to 5.06 in the
year 2016-17 due to increased the promptness of paying to its creditors. This has increased the
credit worthiness of the firm. The ratio has been decreased in the last year. However it has to be
taken into account that the company may not be takings full advantages of credit facilities
allowed by the credit.
 30

INVENTORY TURNOVER RATIO:

Inventory turnover indicates the efficiency of the firms in producing and selling its
product the inventory turnover shows how rapidly the inventory is turning into receivables
through sales. Generally, a high inventory turnover is indicative of good inventory management.

Inventory turnover ratio = Sales

Average Inventory
Table no: 4.8
Year Sales Inventory ITOR
2014-15 28523 4220.69 6.76
2015-16 27860 6201.06 4.49
2016-17 39508 6857.23 5.76
2017-18 33923 6651.47 5.10
2018-19 30126 6468.64 4.66

INTERPRETATION:
Inventory turnover ratio has been low in 2015-16 indicating excessive inventory level.
Inventory constitutes half of the total current assets which are not warranted by production and
sales activities. The ratio has significantly decreased indicating low level management of
inventories. The inventory is sale able steel and raw material has been reduced indicating bricks
sales.
Chart no: 4.H
 31

Inventory Turnover Ratio

8

7 6.76

6 5.76
5.1
5 4.49 4.66

0
2014-15 2015-16 2016-17 2017-18 2018-19

OPERATING PROFIT RATIO:

Operating profit shows earnings arising directly from commercial operations of the
business. It reflects the efficiency with which management produces each unit of product. A high
ratio is a sign of good management. The ratio may increases due to increase in sales price or
decrease in cost of goods sold. A low ratio may reflect higher costs of goods sold due to
purchase of materials at unfavorable terms, inefficient utilization of resources, etc.

Operating Profit Ratio = EDBIT

Sales
Table no: 4.9
Year EDBIT Sales Ratio
2014-15 11097 28523 0.39
2015-16 7381 27860 0.26
2016-17 12955 39508 0.33
2017-18 10966 33923 0.32
2018-19 9756 30126 0.32
 32

Chart no: 4.I

Operating Profit Ratio

0.45

0.4 0.39
0.35
0.33 0.32 0.32
0.3

0.25 0.26

0.2

0.15

0.1

0.05

0
2014-15 2015-16 2016-17 2017-18 2018-19

INTERPRETATION:
The company faced escalation in the price of some of the key inputs such as imported and
indigenous cooking coal boiler coal and Ferro manganese and also increased expenditure on
salary and wages. This has affected the operating profit. The ratio has fluctuation trend in year by
year and has peaked in the year 2016-17. This is due to higher efficiency in the operational areas
by some way of improved sales and lower energy consumptions. The decrease in ratio is due to
decline in prices and reduced the new technology used in production.

NET PROFIT RATIO

Net profit margin ratio establishes a relationship between the net profit and sale indicates
management’s efficiency in manufacturing, administering and selling the products. This ratio is
the overall measure of the firm’s ability to turn each rupee sales into net profit. If the net margin
is inadequate, the firm will fail to achieve satisfactory return on shareholder funds. This ratio
also indicates the firm’s capacity to with stand adverse economic conditions.
Net profit ratio = Net profit
Net Sales
 33

Table no: 4.10

Year Net Profit Sales Ratio
2014-15 6812 28523 0.24
2015-16 4013 27860 0.14
2016-17 7537 39508 0.19
2017-18 6202 33923 0.18
2018-19 5732 30126 0.19

Chart no: 4.J

Net Profit Ratio

0.24
0.25
0.2 0.19
0.18 0.19
0.15 0.14

0.1
0.05
0
2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION:
Steel business is cyclic in nature and the company suffered a loss of Rs. 1707 crore due to
high input cost and declined prices of steel. Various steps like market oriented product,
concentration on customer satisfaction has cut the lose by 80%. In 2014-15, the steel industry
recovered and demand for steels registered a growth of 5%. Improved product mix, improvement
in net sales realization increases the net profit ratio. In 2015-16, the net profit ratio has been the
lowest due to thrust on cost reduction measures and reduction in debt resulting substantial
savings in interest. In 2016-17 the ratio has increased due to slightly improvement in domestic
and international steel prices and small sales of value added products.
 34

RETURN ON INVESTMENT
Return on investment measures the sufficiency otherwise of profit in relation to capital
employed. This ratio is calculated by dividing the operating profit by capital employed. Return
on investment is used to measure the operational and managerial efficiency. As comparison of
ROI with that of similar firm, with industry and with past ratio will be helpful in determining
how efficiently the long funds of owners and creditors being put into use.

ROI = Operating Profit

Capital Employed
Table no: 4.11

Year Operating Capital Ratio

Profit
2014-15 3259 15218 0.21
2015-16 9970 20064 0.49
2016-17 9755 24992 0.39
2017-18 6174 21438 0.28
2018-19 5987 20087 0.30

Chart no: 4.K

Return On Investment
0.49
0.5
0.45 0.39
0.4
0.35 0.3
0.28
0.3
0.25 0.21
0.2
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19
 35

INTERPRETATION:
The ratio has been lowest in 2014-15 and then has gradually increased and reached its
peak in 2015-16. In 2015-16 the ratio has come down indicating reduced return on investment.
The company faced high cost due to escalation in prices of input materials. With the introduction
has increase in 2015-16 and 2016-17. The declination of steel prices and inclination of cost of
operation, the return on investment has come down.

Statement of Changes in Working Capital:

The purpose of preparing this statement is for finding out the increase or decrease in
working capital and to make a comparison between two financial years.
 36

Table 4.12: Statement of Changes in Working Capital for the Year 2015-16

Particulars As on As on Increase Decrease

31-3- 2015 31-3-2016

CURRENT ASSETS
Inventories 4220.69 6210.06 1989.37
Sundry debtors 1908.45 1881.73 26.72
Cash & Bank balance 6132.12 6172.64 40.52
Other current assets 142.18 85.48 56.70
Loans and Advances 1930.19 3033.82 1103.63

(A)Total Current Assets 14333.63 17383.73 3133.52 83.42

CURRENT LIABILITIES
Sundry creditors 2207.5 2427.36 219.83
Advances 524.72 536.26 11.54
Scanty deposits 199.83 232.3 32.47
Interest accrued 527.75 375.82 151.93
Unpaid dividends 0.19 3.27 3.08
Unclaimed matured 11.86 5.74 6.12
Interest on matured deposits 4.37 2.59 1.78
Other liabilities 1304.45 1608.36 303.91
Provisions 3232.54 2040.91 1191.63
(B)Total Current 8013.21 7232.61 1351.46 570.86
Liabilities
Financial Performance (A-B) 6320.42 10151.12 4484.98 654.28
Decrease in Financial 3830.70
Performance
4484.98 4484.98
 37

INTERPRETATION:
By analyzing the current assets and current liabilities of the company for the two years,
the financial performance shows Rs. 6320.42 crore in 2015-16 and Rs. 10151.12 crore in 2016-
2017. It shows net increase of Rs. 3830.70 crore which is mainly due to increased inventories
and loans and advances and reduced provisions.
 38

Table 4.13: Statement of Changes in Working Capital for the Year 2016-17

Particulars As on As on
Increase Decrease
31-3- 2016 31-3-2017

CURRENT ASSETS
Inventories 6210.06 6857.23 647.17
Sundry debtors 1881.73 2314.75 433.02
Cash & Bank balance 6172.64 13759.44 7586.8
Other current assets 85.48 152.56 67.08
Loans and Advances 3033.82 1650.01 1383.81
17383.73 26317.62 9617.96 1383.81
(A)Total Current Assets
CURRENT LIABILITIES
Sundry creditors 2427.36 3073.96 646.6
Advances 536.26 631.68 95.42
Scanty deposits 232.3 257.76 25.46
Interest accrued 375.82 198.79 177.03
Unpaid dividends 3.27 4.30 1.03
Unclaimed matured 5.74 2.39 3.35
Interest on matured deposits 2.59 0.74 1.85
Other liabilities 1608.36 1757.47 149.11
Provisions 2040.91 1724.89 316.02
(B)Total Current Liabilities 7232.61 8049.33 498.25 388.73
Financial Performance (A-B) 10151.12 18268.29 9118.82 1772.54
Decrease in Financial 7346.28
Performance
9118.82 9118.82
 39

INTERPRETATION:
By analyzing the current assets have increased by Rs. 8963.89 crore while current
liabilities have increased the financial performance by Rs. 816.72. This has increased the
financial performance by Rs. 7346.28 crore. The increase in current asset is due to increase in
value of all constituents except loans & advances.
 40

Table 4.14: Statement of Changes in Working Capital for the Year 2017-2018

Effect on working capital

Particulars As on As on
31-3- 2016 31-3-2017
Increase Decrease

CURRENT ASSETS
Inventories 6857.23 6651.47 205.76
Sundry debtors 2314.75 3078.12 763.37
Cash & Bank balance 13759.44 9606.83 4152.61
Other current assets 152.56 273.08 120.52
Loans and Advances 1650.01 2379.75 729.74
26317.62 20378.62 1613.63 4358.37
(A)Total Current Assets

CURRENT LIABILITIES
Sundry creditors 3073.96 2545.07 528.89
Advances 631.68 648.08 16.40
Scanty deposits 257.76 270.04 12.28
Interest accrued 198.79 118.40 80.39
Unpaid dividends 4.30 5.91 1.61
Unclaimed matured 2.39 2.35 0.04
Interest on matured deposits 0.74 0.66 0.08
Other liabilities 1757.47 2521.06 763.59
Provisions 1724.89 1408.87 316.02
(B)Total Current Liabilities 8049.33 7123.09 925.42 793.88
Financial Performance (A-B) 18268.29 13255.53 688..21 3564.49
Decrease in Financial 2876.28
Performance
3564.49 3564.49
 41

INTERPRETATION:
By analyzing the current assets have decreased by Rs. 2744.74 crore while current
liabilities have increased the financial performance by Rs. 131.54. This has decreased the
financial performance by Rs. 2876.28 crore. The increase in current asset is due to increase in
value of all constituents except inventories and cash & bank balance.
 42

CHAPTER V
RESULTS AND DISCUSSIONS
5.1 FINDINGS OF THE STUDY:

• The current ratio has been increased from the year 2014-15 to 2018-19. In the year 2017-
2018 the ratio has been decreased from 3.63 to 2.53, because the company shall not be
able to pay its current liabilities and advances in time due to financial difficulties.
• Quick ratio highest value 2.41 for the period of 2016-17.
• Current asset turnover ratio shows that there has been decrease in the ratio in the year
2015-16 and 2016-17 this is because decreased investments in current assets in the form
of cash and bank balance is not fully utilized to make sales.
• Current Asset Turnover Ratio highest value 1.99 for the period 2014-15.
• The Debtors Turnover Ratio highest value 14.95 for the period 2014-15.
• The Creditors Turnover Ratio shows that turnover has reduced from 5.06 in 2016-17 to
4.66 in 2017-18 due to reduced credit purchases. The increase in ratio in the year 2016-17
indicating that the company has gradually increased the promptness of paying to its
creditors.
• Inventory turnover ratio has been low in the year 2015-16 indicating excessive inventory
level. Inventory constitutes half of the total current assets which are not warranted by
production and sales activities.
• This has affected the operating profit. The ratio has fluctuation trend in year by year and
has peaked in the year 2014-15. This is due to higher efficiency in the operational areas
by some way of improved sales and low energy consumptions.
• The Net profit ratio highest value 0.24 for the period 2014-15.
• Comparative statement of 2015-16 and 2016-17 shows that there is large increase in cash
and bank balance and decrease in inventories in 2016-17.
• Common size statement shows that inventories and cash & bank balances contribute
heavily to current assets and sundry creditors have kept increasing in the first 4 years.
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5.2 SUGESTTIONS:
• The SAIL to make investment by way of share capital
• The ratio relating to liquidity shows that the current assets are sufficient to increase the
performance of the company.
• Company should face necessary efforts to speed up various activities like collection to
debts effective utilization of assets and working capital.
• Company forecast denotes constants increase in profit margin.
• High exports of steel are necessary.
• Profitability is also being improved.
• Proper effort should be taken to improve the operational efficiency.

5.3 CONCLUSION:
Finance is the lifeblood of every business and financial performance is a vital element in
it. A company should maintain balanced financial performance because excessive financial
performance will result in unnecessary accumulate of inventoried, defective credit policy etc.
Adequate financial performance stagnate the growth of SAIL which plays an important role in
steel industry has low liquidity position in the last year. The firm has got low financial
performance in the last year of study.
The study reveals that company has manages its financial performance efficiently. Thus
financial performance concepts are very important and have to be considered for efficient
functioning.
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BIBLIOGRAPHY
TEXT BOOKS
• Pandy, I.M, “Financial Management”, Ninth Edition, Vikas Publishing House pvt, Ltd.,
Noida.
• Reddy T.S and Hari Prasad Reddy y, Management Accounting (Third Edition 2006;
Chennai; Margham publications).
• Shashi k. Gupta and Sharma R K, Financial Management, (Fifth Edition; Chennai:
Kalyani Publisher, 2007).
• Maheswari, S.N. “Financial Statement Analysis” Sultan Chand &Sons, New Delhi.
• Kothari, C.R. “Research Methodology”, New Age international Pvt., Ltd New Delhi

WEBSITES VISITED

www.google.com
www.wikipedia.org
www.transtutors.com
www.sail.co.in
www.salemsteelplant.com