A STUDY ON FINANCIAL PERFORMANCE OF BESCAL STEEL

INDUSTRIES PVT LTD

ABSTRACT

The project titled “A study on financial performance” conducted in Bescal Steel Industries Pvt
Ltd is to analyse the financial position of the Company. The objective of this project is to find
out the efficiency of the Company using financial ratios like profitability ratios, turnover ratio &
solvency ratio of the Company, to find out the liquidity position of the Company, to study the
performance of Company through comparative analysis and to provide suitable suggest
improving the financial performance of the Company.

The project is pertained to the Company’s data available for the past five years. The conclusions
are drawn from the analysis done with the ratios, comparative, common size study. The study
elucidates the financial position of the Company with respect to the past five years. It helps the
Company to place itself among various other competitive companies.

The study through the analysis reveals the pros and cons of the Company’s financial status. It
enables the reader to understand the various financial aspects of a Company through
uncomplicated interpretation and findings for study purpose.

Financial performance can improve the financial strength of Company. The Company’s
liquidity position has to increase and it will solve future problem. The Company is maintaining
the reserves and surplus better so it can face financial stress in the future. To proper maintain of
financial performance to achieve the Company goal.

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TABLE OF CONTENTS

CHAPTER PARTICULARS PAGE NOS

I INTRODUCTION

II INDUSTRY PROFILE

COMPANY PROFILE

III REVIEW OF LITERATURE

IV RESEARCH METHODOLOGY

4.1 RESEARCH DESIGN

4.2 NEED FOR THE STUDY

4.3 OBJECTIVES OF THE STUDY

4.4 SCOPE OF THE STUDY

4.5 LIMITATIONS OF THE STUDY

4.6 TOOLS USED FOR ANALYSIS

V DATA ANALYSIS AND INTERPRETATION

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VI FINDINGS

VII SUGGESTIONS

VIII CONCLUSION

REFERENCE

ANNEXURE

3
TABLE CONTENTS

CHAPTER PARTICULARS PAGE NOS

1 Proprietary ratio

2 Current ratio

3 Cash position ratio

4 Earning per share

5 Divident payout ratio

6 Debt-equity ratio

7 Fixed asset ratio

8 Fixed assets to networth ratio

9 Debt to total capital ratio

10 Debt to total assets ratio

11 Comparative balance sheet for the year 2015-2016

12 Comparative balance sheet for the year 2016-2017

13 Comparative balance sheet for the year 2017-2018

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14 Comparative balance sheet for the year 2018-2019

15 Common size balance sheet – 2015-2016

16 Common size balance sheet – 2016-2017

17 Common size balance sheet – 2017-2018

18 Common size balance sheet – 2018-2019

19 Trend percentage of total income

20 Trend percentage of current asset

21 Trend percentage current liabilities

22 Trend percentage total debt

23 Trend percentage total income

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CHART CONTENTS

CHAPTER PARTICULARS PAGE NOS

1 Proprietary ratio

2 Current ratio

3 Cash position ratio

4 Earning per share

5 Divident payout ratio

6 Debt-equity ratio

7 Fixed asset ratio

8 Fixed assets to networth ratio

9 Debt to total capital ratio

10 Debt to total assets ratio

11 Trend percentage of total income

12 Trend percentage of current asset

13 Trend percentage current liabilities

14 Trend percentage total debt

15 Trend percentage total income

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 CHAPTER 1

Financial Performance in broader sense refers to the degree to which financial objectives being
or has been accomplished and is an important aspect of finance risk management. It is the
process of measuring the results of a firm's policies and operations in monetary terms. It is used
to measure firm's overall financial health over a given period of time and can also be used to
compare similar firms across the same industry or to compare industries or sectors in
aggregation.

Financial statements are primarily prepared for decision-making. They play a dominant role in
setting the framework of managerial decision. The published financial statements of business
may be of considerable interest to present the same to their respective potential shareholders,
managers, moneylenders, banks, financial institutions, trade organization and many others.

MEANING OF FINANCIAL STATEMENT ANALYSISDEFINATION:

Financial analysis is the process of identifying the financial strengths and weakness of firm by
properly establishing relationship between the items of the balance sheet and profit and loss
account. The purpose of financial analysis is to diagnose the information contained in the
financial statements so as to judge the profitability and financial soundness of the firm. A
financial analyst, analyses the financial statements with various tools of analysis before
commenting upon the financial position of the enterprises

Significance of Financial Performance Measurement:

The interest of various related groups is affected by the financial performance of a firm. The type
of analysis varies according to the specific interest of the party Involved:

• Trade creditors: interested in the liquidity of the firm (appraisal of firm’s liquidity)
• Bond holders: interested in the cash-flow ability of the firm (appraisal of firm’s capital
structure, the major sources and uses of funds, profitability over time, and projection
of future profitability)
• Investors: interested in present and expected future earnings as well as stability of
these earnings (appraisal of firm’s profitability and financial condition)

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• Management: interested in internal control, better financial condition and better
performance (appraisal of firm’s present financial condition, evaluati on of
opportunities in relation to this current position, return on investment provided by
various assets of the company etc.)

OBJECTIVES OF FINANCIAL ANALYSIS

Financial statement analysis is very much helpful in assessing the financial position and
profitability of a concern. The main objectives of analyzing the financial statements are as
follows:

1. The analysis would enable the present and the future earning capacity and the
profitability of the concern.
2. The operational efficiency of the concern as a whole as well as department wise can be
assessed. Hence the management can easily locate the areas of efficiency and
inefficiency.
3. The solvency of the firm, both short-term and long-term, can be determined with the help
of financial statement analysis which is beneficial to trade creditors and debenture
holders.
4. The comparative study in regard to one firm with another firm or one department with
another department is possible by the analysis of financial statements.
5. Analysis of past results in respects of earning and financial position of the enterprise is of
great help in forecasting the future results. Hence it helps in preparing budgets.
6. It facilitates the assessments of financial stability of the concern.
7. The long-term liquidity position of funds can be assessed by the analysis of financial
statements.

LIMITATIONS OF FINANCIAL ANALYSIS

1. Owing to the fact that financial statements are compiled on the basis of historical costs,
while there is a market decline in the value of the monetary unit and resultant rise in
prices, the figures in the financial statement loses its functions as an index on current
economic realities. Again the financial statements contain both items. So an analysis of
financial statements cannot be taken as an indicator for future forecasting and planning.
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 2. Analysis of financial statements is a tool which can be used profitably by an expert
analyst but may lead to faulty conclusions if used by unskilled analyst. So the result
cannot be taken as judgments or conclusions.
3. Financial statements are interim reports and therefore cannot be final because the final
gain or loss can be computed only at the termination of the business. Financial statement
reflects the progress of the position of the business so analysis of these statements will
not be a conclusive evidence of the performance of the business.
4. Financial statements though expressed in exact monetary terms are not absolutely final
and accurate and it depends upon the judgment of the management in respect of various
accounting methods. If there is change in accounting methods, the analysis may have no
comparable basis and the result will be biased.
5. The reliability of analysis depends on the accuracy of the figures used in the financial
statements. The analysis will be vitiated by manipulations in the income statement or
balance sheet and accounting procedure adopted by the accountant for recording.
6. The results for indications derived from analysis of financial statements may be
differently interpreted by different users.
7. The analysis of financial statement relating to a single year only will have limited use.
Hence the analysis may be extended over a number of years so that results may be
compared to arrive a meaningful conclusion.
8. When different firms are adopting different accounting procedures, records, policies and
different items under similar headings in the financial statements, the comparison will be
more difficult. It will not provide reliable basis to access the performance, efficiency,
profitability and financial condition of the firm as compared to industry as a whole.
9. There are different tool of analysis available for the analyst. However, which tool is to be
used in a particular situation depends on the skill, training, and expertise of the analyst
and the result will vary accordingly

Usefulness of financial performance to various stakeholders.

The analysis of financial performance is used by most of the business communities. They include
the following.

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1. Trade Creditors The creditors provide goods / services on credit to the firm. They always face
concern about recovery of their money. The creditors are always keen to know about the
liquidity position of the firm. Thus, the financial performance parameters for them evolve around
short term liquidity condition of the firm.

2. Suppliers of long term debt the suppliers of long term debt provide finance for the on-going /
expansion projects of the firm. The long term debt providers will always focus upon the solvency
condition and survival of the business. Their confidence in the firm is of utmost importance as
they are providing finance for a longer period of time. Thus, for them the financial performance
parameters evolve around the following:

i) Firm’s profitability over a period of time.

ii) Firm’s ability to generate cash - to be able to pay interest and

iii) Firm’s ability to generate cash – to be able to repay the principal and iv) The relationship
between various sources of funds.

The long term creditors do consider the historical financial statements for the financial
performance.

However, the financial institutions \ bank also depends a lot on the projected financial statements
indicating performance of the firm. Normally, the projections are prepared on the basis of
expected capacity expansion, projected level of production \ service and market trends for the
price movements of the raw material as well as finished goods.

3. Investors are the persons who have invested their money in the equity share capital of the firm.
They are the most concerned community as they have also taken risk of investments – expecting
a better financial performance of the firm. The investors’ community always put more
confidence in firm’s steady growth in earnings. They judge the performance of the company by
analyzing firm’s present and future profitability, revenue stream and risk position.

4. Management for a firm is always keen on financial analysis. It is ultimately the responsibility
of the management to look at the most effective utilization of the resources. Management always

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tries to match effective balance between the asset liability management, effective risk
management and short-term and long-term solvency condition.

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 CHAPTER 2

1.2 INDSTRY PROFILE

India is the world’s third-largest producer of crude steel (up from eighth in 2005) and is expected
to become the second-largest producer by the end of 2019. The growth in the Indian steel sector
has been driven by domestic availability of raw materials such as iron ore and cost-effective
labour. Consequently, the steel sector has been a major contributor to India’s manufacturing
output.

The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for
continuous modernization and up-gradation of older plants and higher energy efficiency levels.

Market Size

India’s crude steel production grew by 9.4 per cent year-on-year to at8.1Million Tonnes (MT) in
August 2019.! During April-August 2019, crude steel production in the country grew by 7 per
cent year-on-year to 39.98 MT.

Over April-August 2019, steel imports fell 34.5 per cent year-on-year to 3.01 MT, while steel
exports rose 23.6 per cent year-on-year to 2.38 MT.

Steel consumption in the country is expected to grow 5.3 per cent year-on-year to 85.8 MT
during FY2019-17, led by growth in the construction and capital goods sector.

Investments

Steel industry and its associated mining and metallurgy sectors have seen a number of major
investments and developments in the recent past.

According to the data released by Department of Industrial Policy and Promotion (DIPP), the
Indian metallurgical industries attracted Foreign Direct Investments (FDI) to the tune of US$
8.89 billion, respectively, in the period 2012-2017.

Some of the major investments in the Indian steel industry are as follows:

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• Tidfore Heavy Equipment Group, the China-based infrastructure giant, is looking to enter
the Indian market by signing an investment agreement worth US$ 150 million with
Uttam Galva Metallics, to expand its Wardha unit along with South Korean steel major
Posco.
• ArcelorMittal SA is looking to set up a joint venture (JV) factory in India with state-
owned Steel Authority of India Ltd (SAIL), to manufacture high-end steel products
which could be used in defence and satellite industries.
• JSW Group plans to invest around Rs 10,000 crore (US$ 1.49 billion) at Salboni in West
Bengal to set up 1,320 Megawatt (MW) coal-based power plant, 4.8 million tonne cement
plant and paints factory over a period of next five to seven years.
• National Mineral Development Corporation (NMDC) has planned toinvest Rs 40,000
crore (US$ 5.96 billion) in the next eight years to achieve mining capacity of 75 Million
Tonnes Per Annum (MTPA) by FY2020-21 and 100 MTPA by FY2022-23, compared to
48 MTPA current capacity.
• Posco Korea, the multinational Korean steel company, has signed an agreement with
Shree Uttam Steel and Power (part of Uttam Galva Group) to set up a steel plant at
Satarda in Maharashtra.
• ArcelorMittal, world’s leading steel maker, has agreed a joint venture with Steel
Authority of India Ltd (SAIL) to set up an automotive steel manufacturing facility in
India.
• Iran has evinced interest in strengthening ties with India in the steel and mines sector,
said ambassador of the Islamic Republic of Iran, Mr Gholamreza Ansari in his
conversation with Minister of Steel and Mines, Mr Narendra Singh Tomar.
• Public sector mining giant NMDC Ltd will set up a greenfield 3-million tonne per annum
steel mill in Karnataka jointly with the state government at an estimated investment of Rs
18,000 crore (US$ 2.67 billion).
• JSW Steel has announced to add capacity to make its plant in Karnataka the largest at 20
MT by 2023.

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Government Initiatives

Some of the other recent government initiatives in this sector are as follows:

• The Government of India has approved a joint venture (JV) between MSTC Ltd and
Mahindra Intertrade Ltd, for setting up India's first Greenfield auto shredding and
recycling facility, which will aide in saving of foreign currency, as a result of import
substitution of scrap.
• Mr Narendra Singh Tomar, Union Minister of Steel, Mines, Labour and Employment, has
launched the National Mineral Exploration Policy (NMEP), which will help to adopt
comprehensive exploration of non-fuel and non-coal mineral resources that would give a
major boost to the economy.
• Metal Scrap Trade Corporation (MSTC) Limited and the Ministry of Steel have jointly
launched an e-platform called 'MSTC Metal Mandi' under the 'Digital India' initiative,
which will facilitate sale of finished and semi-finished steel products.
• The Parliament of India has cleared amendments to the Mines and Minerals Development
and Regulation (MMDR) Act, which will enable companies to transfer captive mines
leases similar to mines won through an auction, and which is expected to lead to
increased Mergers and Acquisitions (M&A) of steel and cement companies.
• The Ministry of Steel has announced to invest in modernisation and expansion of steel
plants of Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited
(RINL) in various states to enhance the crude steel production capacity in the current
phase from 12.8 MTPA to 21.4 MTPA and from 3.0 MTPA to 6.3 MTPA respectively.
• The Minister of Steel & Mines, Mr Narendra Singh Tomar, has reiterated commitment of
Central Government to support the steel industry to reach a production target of 300
Million Tonne Per Annum (MTPA) in 2026.
• The Ministry of Steel is facilitating setting up of an industry driven Steel Research and
Technology Mission of India (SRTMI) in association with the public and private sector
steel companies to spearhead research and development activities in the iron and steel
industry at an initial corpus of Rs 200 crore (US$ 29.65 million).

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 • The Central Board of Excise and Customs (CBEC) has issued a notification announcing
zero export duty on iron ore pellets, which will help the domestic industry to become
more competitive in the international market.
• Government has planned Special Purpose Vehicles (SPVs) with four iron ore rich states
i.e., Karnataka, Jharkhand, Orissa, and Chhattisgarh to set up plants having capacity
between 3 to 6 MTPA.
• SAIL plans to invest US$ 23.8 billion for increasing its production to 50 MTPA by 2025.
SAIL is currently expanding its capacity from 13 MTPA to 23 MTPA, at an investment
of US$ 9.6 billion.

Road ahead

India is expected to become the world's second largest producer of crude steel in the next 10
years, moving up from the third position, as its capacity is projected to increase to about 300 MT
by 2025. Huge scope for growth is offered by India’s comparatively low per capita steel
consumption and the expected rise in consumption due to increased infrastructure construction
and the thriving automobile and railways sectors.

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2.2 COMPANY PROFILE

The modern plant incorporates a complete thermal treatment system and a structural mill. The
complete range of requirements can therefore be met under one roof. Chennai being one of
India’s premiere steel hubs, the billets is locally procured from Steel Authority of India.
Proximity to other raw materials and markets means that Bescal steel industries products are
competitively priced despite their superior quality.

Our Vision

Trusted by the best

Over the years, Bescal steel industries has developed an enviable roster of customers in India, as
well as a growing export market in Nepal, Bhutan, etc. We are enlisted with numerous
multinational companies, who recognize the quality of our steel. Many prestigious buildings
have been made with our steel.

The 21st century has marked good times for the Indian steel industry. Both domestic and
international demand has been robust. For producers like Bescal steel industries, the boom in the
infrastructure sector has fuelled demand from the construction industry. Almost all steel
companies have done well and we are no exception.

Good times, however, do not last forever. In our quarter century of industry experience we have
seen the ferrous cycle rise, fall and rise again. We have learnt that what survive are quality - and
the trust of customers.

It is this trust that is our most precious asset. We seek to sustain it with technology, engineering
skills and ethical behaviour.

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In the last few years we have consistently invested in building a modern plant and implementing
quality systems and processes. Today we use the best steel as raw material, process it with the
best equipment, and follow best practices to assure quality products.

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 MISSION

The Mission statement set by the visionaries of Bescal Steel Industries Pvt Ltd. is To be
integral to the nation’s industrial progress and a responsible partner of the country’s
infrastructural growth and to earn due respect in the steel industry by serving with complete
integrity and loyalty towards their clientele.

Quality Policy

Bescal Steel Industries Pvt Ltd is committed to:

o Delivering the required products at the right place at the right time at the right cost from
our Integrated Steel Plant (original producer) form the very backbone of our Principles of
Manufacturing.

o We view improvement as a continuous process. We are constantly aspiring to achieve

betterment of our core processes, be it manufacturing, quality control, sales or delivery.
There is a joint effort to achieve Manufacturing Excellence.

Corporate Social Responsibility Policy

As a Corporate organization we believe that it is our primary purpose to give back to society.
Giving and sharing what we have received is embedded deeply in us. We have actively
pursued to raise the quality of life of the people around us. We hold hands in our joint effort
to create better tomorrows.

Occupational Health & Safety Policy

At our world class Integrated Steel Plant we treat our worker’s wellbeing as a mandate and
not as an option. Ensuring the highest standards of safety is imperative. We follow the
occupational health and safety policy certified under ISO 18001: 2008. We aim to:

o Create an environment which is safe and secure for everyone in its vicinity, be it a
worker, contractor, visitor and even the local community. All identifiable OHSAS risks
and hazards are treated with the gravest concern.

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 o To constantly endeavour towards the highest level of health and safety such that injuries,
waste and emissions are reduced to the bare minimum.

o Train all employees to work safely and responsibly thus preventing injury to themselves
and others.

o Ensure that optimum conditions exist for the proper execution of all the stipulated health
and safety norms.

PRODUCTS

1. TMT BARS

Production Capacity: 100,000 MT pa

Size (mm) Standard Weight Kg/m.

8 0.385

10 0.617

12 0.888

16 1.580

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20 2.470

25 3.850

28 4.830

32 6.310

2. ANGLES

Production Capacity: 150,000 MT pa

Section Mass kg/m. Root Radius mm.

35x35x3 1.6 5.0

4 2.1 5.0

5 2.6 5.0

6 3.0 5.0

40x40x3 1.8 5.5

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4 2.4 5.5

5 3.0 5.5

45x45x3 2.1 5.5

4 2.7 5.5

5 3.4 5.5

6 4.0 5.5

50x50x3 2.3 6.0

4 3.0 6.0

5 3.8 6.0

6 4.5 6.0

55x55x4 3.3 6.5

5 4.1 6.5

60x60x4 3.7 8.0

5 4.5 6.5

65x65x4 4.0 6.5

5 4.9 6.5

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6 5.8 6.5

8 7.7 6.5

70x70x5 5.3 7.0

6 6.3 7.0

75x75x5 5.7 7.0

6 6.8 7.0

8 8.9 7.0

10 11.0 7.0

80x80x6 7.3 8.0

8 9.6 8.0

90x90x6 8.2 8.5

7 9.6 10.0

8 10.8 8.5

10 13.4 8.5

100x100x6 9.2 8.5

7 10.7 12.0

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8 12.1 8.5

10 14.9 8.5

110x110x8 13.4 10.0

10 16.6 10.0

12 19.7 10.0

120x120x8 14.7 13.0

10 18.2 13.0

12 21.6 13.0

130x130x8 15.9 10.0

10 19.7 10.0

12 23.5 10.0

16 30.7 10.0

150x150x10 22.9 12

12 27.3 12.0

15 33.8 16.0

16 35.8 12.0

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18 40.1 16.0

20 44.1 12.0

200x200x12 36.9 15.0

16 48.5 15.0

18 54.0 15.0

20 60.0 18.0

24 71.1 18.0

25 73.9 15.0

3. CHANNELS

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Production Capacity: 150,000 MT pa

Standard wt.
Size Flange WEB Thickness R1 R2
Kg/Mtr

75x40 7.5 4.8 8.5 2.4 07.140

100x50 7.7 5.0 9.0 2.4 09.560

125x65 8.2 5.3 9.5 2.4 13.100

150x75 9.0 5.7 10.0 2.4 16.800

200x75 11.4 6.2 11.0 3.2 22.300

250x82 14.1 9.0 12.0 3.2 34.200

300x90 13.6 7.8 13.0 3.2 36.300

400x100 15.3 8.8 15.0 4.8 50.100

4. BEAMS/JOISTS

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Production Capacity : 150,000 MT pa

Standard wt.
Size Flange WEB Thickness R1 R2
Kg/Mtr

125x70 8.0 5.0 9.0 4.5 13.350

150x75 8.0 5.0 9.0 4.5 15.000

175x85 9.0 5.8 10.0 5.0 19.600

200x100 10.0 5.7 11.0 5.5 24.200

250x125 12.5 6.9 13.0 6.5 37.300

300x140 13.1 7.7 14.0 7.0 46.000

350x140 14.2 8.1 14.0 7.0 52.400

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5. H-BEAMS

Production Capacity : 150,000 MT pa

Size Flange WEB Thickness R1 R2 Standard Wet/Mtr

HB 150x150 9.0 11.8 8.0 4.0 34.600

SC 152x152 11.9 7.9 11.7 3.0 37.100

WB 203x152 16.5 8.9 15.5 7.6 52.000

6. ROUNDS

Production Capacity : 150,000 MT pa

Up to 160mm

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7. FLATS

Production Capacity : 150,000 MT pa

Up to 400mm

Size in mm Weight Kg/M

5.5 0.186

6 0.222

7 0.302

8 0.395

10 0.617

12 0.887

16 1.57

International Standard materials can be rolled based on orders

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8. WIRE ROD

Coil Weight :
Up to 1000 Kg per Coil.
Coil Dimension :
Outer Diameter 1240/1380mm Inner,
Diameter 830/956mm,
Height 512/620mm.
Packing:
Each Coil is strapped with metallic straps.

Grades:
Alloy Steel, Carbon Steel, Electrode quality Steel, Grade-High Carbon steel, Spring Steel,
Bearing Quality Steel, CHq Steel, Free Cuting steel, Low Carbon Steel.

Specification:
As Per Indian Standard.

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9. BILLETS

100 X 100MM
130 X 130MM
160 X 160MM

Length :
3M, 6M,9M

Grade :
Alloy Steel, Carbon Steel, Electrode quality Steel, High Cutting Steel, Spring Steel, Bearing
Quality Steel, CHq Steel, Free Cutting steel, Low Carbon Steel.

Specification:
As Per Indian Standard.

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 CHAPTER 3

REVIEW OF LITERATURE

The study of (Shin & Soenen, 1998) consistent with later study on the same objective that
done by (Deloof, 2003) by using sample of 1009 large Belgian non-financial firms for the period
of 1992-1996. However, (Deloof, 2003) used trade credit policy and inventory policy are
measured by number of days accounts receivable, accounts payable and inventories, and the cash
conversion cycle as a comprehensive measure of working capital management. He founds a
significant negative relation between gross operating income and the number of days accounts
receivable, inventories and accounts payable. Thus, he suggests that managers can create value
for their shareholders by reducing the number of days accounts receivable and inventories to a
reasonable minimum. He also suggests that less profitable firms wait longer to pay their bills.
In other study, (Lyroudi & Lazaridis, 2007) use food industry Greek to examined the cash
conversion cycle () as a liquidity indicator of the firms and tries to determine its relationship with
the current and the quick ratios, with its component variables, and investigates the implications
of the terms of profitability, indebtness and firm size. The results of their study indicate that there
is a significant positive relationship between the cash conversion cycle and the traditional
liquidity measures of current and quick ratios. The cash conversion cycle also positively related
to the return on assets and the net profit margin but had no linear relationship with the leverage
ratios. Conversely, the current and quick ratios had negative relationship with the debt to equity
ratio, and a positive one with the times interest earned ratio. Finally, there is no difference
between the liquidity ratios of large and small firms.

Working capital policy refers to the firm's policies regarding 1) target levels for each
category of current operating assets and liabilities, and 2) how current assets will be financed.
Generally good working capital policy (i.e. under conditions of certainty) is considered to be one
in which holdings of cash, securities, inventories, fixed assets, and accounts payables are
minimized. The level of accounts receivables should be used as a means of stimulating sales and
other income. Previous literature on working capital management has found a negative
association, overall, between level of working capital and operating performance as measured by

31
operating returns and operating margins (Peterson and Rajan, 1997). Under conditions of
certainty (i.e. sales, costs, lead times, payment periods, and so on, are known), firms have little
reason to hold more working capital than a minimum level. Larger amounts would increase the
level of operating assets, increase the need for external funding, resulting in lower return on
assets and a lower return on equity, without any increase in profit.
However the picture changes when uncertainty (i.e. uncertain growth) is introduced
(Brigham and Houston, 2007). Larger amounts of cash, securities, accounts receivables,
marketable securities, inventories, and fixed assets will be needed to support increased sales
Required levels will be based on expected sales levels and expected order lead times. Additional
holdings may be needed to enable the firm to deal with departures from the expected values.
Further, firms will also attempt to increase their accounts payable balances as a means of
financing increased levels of current operating assets. Firms which are in high growth stages will
face the challenge of maintaining the necessary level of operating assets to support subsequent
growth, while at the same time attempting to maintain adequate performance indicators.
This study focuses on understanding how IPO companies manage their working capital
and other balance sheet items to support subsequent growth. This study supports the existing
literature on working capital and contributes to the existing literature by examining a sample of
firms (i.e. recent IPO firms) which have a wider range of growth levels than non-IPO firms. Our
study examines the impact of working capital management on the operating performance and
growth of new public companies. The study also examines these relationships under three
categories of growth (i.e. negative growth, moderate growth, and high growth). The study also
examines other selected firm characteristics in light of working capital management: firm
operating and financial risk, amount of debt, firm size, and industry.
An underlying theme of this study is that high growth certainly does not ensure high
operating performance. Consistent with prior research (Peterson and Rajan, 1997) this study
provides further evidence that good working capital management is positively associated with
better operating performance. Higher levels of accounts receivable are associated with higher
operating performance, in all three of the growth rate categories. The study also finds that
maintaining control over levels of cash, securities, inventory, fixed assets, and accounts payables
is associated with higher operating performance. We find that firms which are experiencing very
high growth will hold higher levels of cash, securities, inventory, fixed assets, and accounts

32
payable to support the high growth. The study suggests that these firms are sacrificing operating
performance (accepting lower operating returns) to support the high growth. This, in turn,
increases financial and operating risk for these firms. Perhaps IPO firms should stay more
focused on their operating performance, while maintaining more moderate growth levels.

1. In the article of financial analysis Dr.Kamm, Department of Finance. GSB

Financial Analysis is designed for finance majors in order to improve their skills at analyzing
companies and to advance their knowledge of finance theory and application. The overall
financial analysis includes: bond valuation, financial statement analysis, financial ratios,
financial forecasting, beta and the CAPM, the weighted average cost of capital, the Gordon
Growth model, discounted cash flow analysis and multiples. Students are expected to integrate
skills of finance, economics, and accounting in the course. The course is quantitative and
analytical in nature; we made use of the trading center throughout most of the term. Students
calculate and interpret financial data, build spreadsheet models, and make general conclusions
about the financial health of a Company and its intrinsic value.

2. IN THE ARTICLE OF MEASURING FINANCIAL PERFORMANCE (A Critical Key

to Managing Risk)
Dr. Laurence M. Crane.
FINANCIAL STATEMENTS
Financial statements help assess the financial well-being of the overall operation.
Information about the financial results of each enterprise and physical asset is important for
management decisions, but by themselves are inadequate for some decisions because they do not
describe the whole business. An understanding of the overall financial situation requires three
key financial documents: the balance sheet, the income statement and the cash flow statement.

FINANCIAL PERFORMANCE MEASURES

The recommended measures for financial analysis are grouped into five broad categories:
liquidity, solvency, profitability, repayment capacity and financial efficiency.

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 Financial measures are intended to help operations analyze their activities from a
financial standpoint and provide useful information needed to make good management decisions.
By themselves, the financial measures discussed don’t provide answers—they need to be
reviewed in relation to each other and to other non-operation activities. It is not possible to
control or predict all of the factors that influence the final outcome of any operational decision.
Nor is it possible to have available all of the information that would be ideal. But decision
making can be improved through using available information and through effective financial
planning and analysis.

3. ADVANCED FINANCIAL STATEMENTS ANALYSIS

By David Harper

The System
Financial statements paint a picture of the transactions that flow through a business. Each
transaction or exchange - for example, the sale of a product or the use of a rented a building
block - contributes to the whole picture.
Let's approach the financial statements by following a flow of cash-based transactions. In the
illustration below, we have numbered four major steps:

1. Shareholders and lenders supply capital (cash) to the Company.

2. The capital suppliers have claims on the Company. The balance sheet is an updated record of
the capital invested in the business. On the right-hand side of the balance sheet, lenders hold
liabilities and shareholder’s hold equity. The equity claim is "residual", which means
shareholders own whatever assets remain after deducting liabilities. The capital is used to buy
assets, which are itemized on the left-hand side of the balance sheet. The assets are current, such
as inventory, or long-term, such as a manufacturing plant.
3. The assets are deployed to create cash flow in the current year (cash inflows are shown in
green, outflows shown in red). Selling equity and issuing debt start the process by raising cash.
The Company then "puts the cash to use" by purchasing assets in order to create (build or buy)
inventory. The inventory helps the Company make sales (generate revenue), and most of the
revenue is used to pay operating costs, which include salaries.

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4. After paying costs (and taxes), the Company can do three things with its cash profits. One, it
can (or probably must) pay interest on its debt. Two, it can pay dividends to shareholders at its
discretion. And three, it can retain or re-invest the remaining profits. The retained profits
increase the shareholders' equity account (retained earnings). In theory, these reinvested funds
are held for the shareholders' benefit and reflected in a higher share price.
4. Financial Statements why it’s important for all business? By: john irronPosted: Jun 15,
2015
Financial statements are a formal record of the financial activities of a business, person,
or other thing. Financial statements like a written statement which quantitatively describes the
financial strength of a Company. This includes an income statement and a balance sheet, and
regularly also includes a cash flow statement. Financial statements are regularly compiled on a
quarterly and yearly basis.
Financial statements are important futures for each and every business. For a business venture,
all the appropriate financial information, offered in a structured way and in a form simple to
understand, are called the financial statements.
The purpose of financial statements is to give information regarding the financial
situation, performance and changes in financial situation of a venture that is helpful to a wide
range of users in making financial decisions. Financial statements should be comprehensible,
appropriate, reliable and comparable. Reported property, liabilities and equity are directly
connected to an organization's financial situation. Reported income and operating cost are
directly connected to an organization's financial performance.
5. THE PROFESSION OF PROFESSIONAL “Financial Analysis” By: Abdullah
Mohammad Khan WAHID Post on: October 4, 2015.

A financial analysis is responsible for a wide range of functions such as account

processing payable and receivable operations, taking into account the transfer of assets and the
closing of the books as soon as possible. Properly fulfill these functions is essential for a
Company, on the basis of precise handling operations and accurate financial statements. These
activities are clearly on the basis of any successful career in financial analysis. However, the
organizer has exceptional skills in analyzing appropriate funding for success.

This article was calculated to facilitate analysis financial support for a breadth and depth
of the largest financial analysis.
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 Traditionally – the main objective of the accounting department has been processing
transactions, customer billing, payments to suppliers, etc. These are routine activities that are
invisible, but vital. Most employees of the Company, but it is always necessary for the success of
an organization.

However, the role of accounting staff that has been changed companies facing increasing
competition from organizations around the world. Now, managing a business needs advice and
transaction flow smoothly? Accordingly, the financial analyst is not only to fill the role of
traditional transaction processing, but also to continue to review Company operations, evaluating
investments, relationship problems and recommendations for management, and respond to
requests by the management team of Special Investigations. All these new tasks can be
considered as financial analysis, because require the application of review procedures for
operational activities and financial investment in a Company.

6. Financial Statement Analysis By: Rashid Javed

Posted: Jan 19, 2017

All financial statements are essentially historically historical documents. They tell what has
happened during a particular period of time. However most users of financial statements are
concerned about what will happen in the future. Stockholders are concerned with future earnings
and dividends. Creditors are concerned with the Company's future ability to repay its debts.
Managers are concerned with the Company's ability to finance future expansion. Despite the fact
that financial statements are historical documents, they can still provide valuable information
bearing on all of these concerns.

Financial statement analysis involves careful selection of data from financial statements for the
primary purpose of forecasting the financial health of the Company. This is accomplished by
examining trends in key financial data, comparing financial data across companies, and
analyzing key financial ratios.

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 CHAPTER 4

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of study how research is done scientifically. In this study the various
steps that are generally adopted by the researcher in studying his research problem along with the
logic behind them.

4.1 Research design

The proposed study is of DESCIRPTIVE IN NATURE. Research design is needed

because it facilitates the smooth sailing of the various research operations, thereby making
research as efficient as possible. A research design for a particular problem usually involves the
consideration of the following factors.

SOURCE OF INFORMATION

Basically there are two sources of information. The researcher has collected secondary
data for his study.

PRIMARY DATA

Information was collected through this source comprises of discussions with the
personnel of Bescal Steel Industries Pvt Ltd

SECONDARY DATA

The data was collected from sources like magazine, journals, Company reports and
industrial magazines (annual reports).

RESEARCH TYPE

Research type is the basic frame work which provides guidelines for the research process.
The research design chosen for the study by the researcher was Analytical in nature. The

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researcher has to use facts of information already available. The researcher has to analyze facts
to make critical evaluation of the material.

The choice of the research type depends on the depth and extent of data recording, the
cost and benefits of research, the urgency of work, the time availability of competing its research
and the blue print of the research project.

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4.1 NEED FOR THE STUDY

Financial analysis is a powerful mechanism which helps in ascertaining the strengths and
weakness in the operation and financial position of an enterprise. Financial analysis is the
starting point for making plans, before using any sophistical forecasting and planning
procedures. This study helps to understand financial position of the company. This study
suggests possible solution to overcome working capital problem. The financial statements need
to evaluate a company's profitability, liquidity, and solvency. The most common methods used
for financial statement analysis are trend analysis, common‐size statements, and ratio analysis.
These methods include calculations and comparisons of the results to historical company data,
competitors, or industry averages to determine the relative strength and performance of the
company being analyzed.

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4.3 OBJECTIVES OF THE STUDY

Primary Objectives

The main aim of the study is to ascertain financial performance of Bescal Steel
Industries Pvt Ltd for the past five years.

Secondary Objectives

➢ To find out the efficiency of using financial ratios like profitability ratios, turnover ratio
& solvency ratio.
➢ To find out the liquidity position.
➢ To study the performance of through comparative analysis.
➢ To provide suitable suggest to improve the financial performance.

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4.4 SCOPE OF THE STUDY

The project is pertained to the company’s data available for the past five years. The
conclusions are drawn from the analysis done with the ratios, comparative, common size study.
The study elucidates the financial position of the company with respect to the past five years. It
helps the company to place itself among various other competitive companies.

The study through the analysis reveals the pros and cons of the company’s financial
status. It enables the reader to understand the various financial aspects of a company through
uncomplicated interpretation and findings for study purpose.

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4.5 LIMITATIONS OF THE STUDY

The limitations of the study are as follows

1. The study is covered only to the past financial performance of Bescal Steel Industries
Pvt Ltd
2. Some of the data has not given by the company due to maintenance of financial secrecy.
3. The period of the study is restricted to 5 years
4. So the study cannot be covered to all the areas. The financial data cannot be estimated
accurately for the future period due to the financial crisis.

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4.6 TOOLS USED FOR ANALYSIS

The following are major tools used in analysis and interpretation.

✓ Ratio analysis
✓ Common size balance sheet statement.
✓ Comparative balance sheet statement.
✓ Trend percentage analysis.
RATIO ANALYSIS

A ratio is a mathematical relationship between two items expressed in a quantitative

form. Ratio can be defined as “Relationship expressed kin quantitative terms between figures
which have cause and effect relationship which are connected with each other in some manner or
the other. Ratio analysis involves the process of computing determining and presenting the
relationship of items or groups of items of financial statements.

CURRENT RATIO

The ratio of current assets to current liabilities is called current ratio. In order to measure
the short-term liquidity or solvency of a concern, comparison of current assets and current
liabilities is inevitable. Current ratio indicates the ability of a concern to meet its current
obligations as and when they are due for payment.

Current ratio = Current assets / Current liabilities

LIQUID RATIO

A measure of Company’s liquidity and ability to meet its obligations. Quick ratio, often
referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then
dividing by current liabilities.

Liquid ratio = Liquid assets / current liabilities

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 WORKING CAPITAL TURNOVER RATIO

A measure comparing the depletion of working capital to the generation of sales over a
given period. This provides some useful information as to how effectively a Company is using its
working capital to generate sales.

Working capital turnover ratio = Net sales / Working Capital

PROFITABILITY RATIO

Profit making is the main objective of business. Aim of every business concern is to earn
maximum profits in absolute term and also in relative terms i.e. profit is to be maximum in term
of risk undertaken.

Profitability Ratio =Profit after tax / Sales

CASH POSITION RATIO

This ratio also known as absolute liquidity ratio or super quick ratio. It’s calculated when
liquidity is highly restricted in terms of cash and cash equivalents.

Cash position ratio= cash and Company balances + marketable securities/ current
liabilities.

OPERATING RATIO

Operating ratio represent the different between the cost of goods sold and sales.
Operating ratio measures the amount of expenditure incurred in production, sales and
distribution of output. It indicates operational efficiency of the concern.

OPERATING RATO= cost of goods sold + operating expenses / net sales *100

DEBTORS TURNOVER RATIO

It represents how quickly the debtors are converted into cash. This ratio is used to
measure the firm’s liquidity position. This ratio establishes the relationship between receivables
and credit sales.

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 Debtors turnover ratio = Net sales / Average debtors.

PROPRIETARY RATIO

This ratio is also termed as capital ratio or net worth to total asset ratio. This is one of the variant
of dept equity ratio. This shows the relationship between shareholders funds and total assets

Proprietary ratio = Net worth / Total Assets

GROSS PROFIT RATIO

Gross profit ratio establishes the relationship between gross profit and net sales. It also
reveals the amount of gross profit for each rupee of sale. This ratio is calculated by dividing the
gross profit by Net sales. It is usually indicated as a percentage.

Gross Profit Ratio = Gross Profit / Net sales * 100

NET PROFIT RATIO

Net profit ratio is also termed as sales margin ratio or profit margin ratio or net profit to
sales ratio. This ratio reveals the firm’s overall efficiency in operating the business. Net profit
ratio is used to measure the relationship between net profit (either before or after taxes) and
sales.

Net Profit Ratio = Net Profit / Net Sales * 100

COMPARETIVE BALANCE SHEET:

The comparative balance sheet analysis is the study of the trend of the same
items, group of items and computed items in two or more balance sheet of the same business
enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a
business. The changes can be observed by comparison of the conduct of a business the changes
can be observed by comparison of the balance sheet at the beginning at the end of period and
these changes can help in forming an opinion about the progress of an enterprise.

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Procedure of Comparative Balance Sheet:

➢ The Comparative balance sheet has two columns for the data of original balance
sheet.
➢ Third column is used to show increases in figures.
➢ The Fourth column is use to give percentages of increase or decrease.

Uses of comparative balance sheet:

➢ comparative statement helps to comparing the figures with those of the previous
year’s event, it is possible to determine where expenses increased or decreased
➢ Comparative balance sheet helps to how to plan the following year’s event.

COMMON SIZE BALANCE SHEET:

A balance sheet in which the items are expressed as percentages of total assets or total
liabilities. A common-size statement is most useful when one attempts to compare a Company to
similar companies of different size or when one is comparing year-to-year variations in capital
structure in the same Company. This type of financial statement can be used to allow for easy
analysis between companies or between time periods of a Company.

TREND PERCENTAGE ANALYSIS

The next important tools of analysis are trend percentage which plays significant role in
analyzing the financial stature of the enterprise through base years’ performance ratio
computation. This not only reveals the trend movement of the financial performance of the
enterprise but also highlights the strengths and weaknesses of the enterprise This trend ratio is
being computed for every component for many numbers of years which not only facilitates
comparison but also guides the firm to understand the trend path of the firm.
The following ratio is being used to compute the trend percentage.

Current year
= -------------- X 100
Base year

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