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A Project of Liquidity Analysis &

Trend Analysis

Coal India Limited


July to December

BY
Name: Dipika Chakraborty
ROLL NO. –50/2010 (Class roll - 54)

GUIDED BY
Prof. Manab Mukherjee(faculty member IISWBM)
&
MR. PROBIR CHAKRABORTY
FINANCE MANAGER (CIL)

For the partial fulfillment of


POST GRADUATE DIPLOMA IN MANAGEMENT
Of INDIAN INSTITUTE OF SOCIAL WELFARE
AND
BUSINESS MANAGEMENT

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ACKNOLEDGEMENT

At the very outset, I take the opportunity to express my sincere regards &
gratitude for every individual linked with my Research work. I am grateful
for the inspiration and wisdom of many people for their insights and
encouragement. I mention the names of all those people who have enriched
and improved my thinking through their conversations.
First and foremost, I would like to express my sincere gratitude towards my
External Guide MR. PROBIR CHAKRABORTY-SR.FINANCE MANAGER (CIL) for
his relevant support, guidance, valuable advice and suggestions. His vision
and the valuable time that he shared with me will always be a source of
inspiration for me.

I am extremely grateful to him for giving me an opportunity to undertake


my project in their esteemed organization.

Then I would like to thank my Internal Guide, Prof. Manab Mukherjee


(Faculty, member of IISWBM) who allowed me to initiate the project and
provided valuable suggestions and guidance during the whole project. His
perspective has encouraged me to incorporate a different dimension to the
project.

DIPIKA CHAKRABORTY
PGDBM: 2008-2010
EXAM ROLL-50/2009
CLASS ROLL-54

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TABLE OF CONTENT

Acknowledgement 3
Table of Contents 4
List of Illustrations 5
• Tables
• Diagrams
• Charts
Objective of the study 6
Introduction: Company Profile 11
• COAL INDIA LIMITED(Introduction) 21

• Introduction of Working Capital Management with


Ratio Analysis & Trend Analysis 22

Ratio Analysis-Current asset & current liabilities 33

Activity analysis 36

Concluding remarks on Working Capital Management 40

A Case Study 42

Result & Conclusion 46

Bibliography 50

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LIST OF ILLUSTRATION

TABLES

The Various types of tables……

DIAGRAMS

Research Methodology Flowchart

CHARTS

Various types of Bar & Pie Charts

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OBJECTIVE OF THE STUDY

In this project we are looking at the Financial Statement Analysis


and behavioral analysis of cost in a core sector industry. Balance
sheet review of the last five years along with the changes in the
Working Capital and component wise analysis of Current Asset and
Current Liabilities to identify the causes of changes, covering a
case study of a company to establish” The story of revival of a sick
company”.

In the words of Myers, “Financial Statement Analysis is largely a


study of relationship among the various financial factors in a
business as disclosed by a single set of statements and a study of
the trends of these factors as shown in a series of statements.”

The purpose of financial analysis is to diagnose the information


content in financial statements so as to judge the profitability and
financial soundness of the firm.

In this project we will perform the financial analysis of Coal India


Limited we will go through the financial statements of the company
to diagnose financial soundness.

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ABSTRACT

In this project we are looking at the Financial Statement Analysis and


behavioral analysis of cost in a core sector industry. Balance sheet review of
the last five years along with the changes in the Working Capital and
component wise analysis of Current Asset and Current Liabilities to identify
the causes of changes, covering a case study of a company to establish” The
story of revival of a sick company”.

In the words of Myers, “Financial Statement Analysis is largely a study of


relationship among the various financial factors in a business as disclosed by a
single set of statements and a study of the trends of these factors as shown in
a series of statements.”

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


financial statements so as to judge the profitability and financial soundness of
the firm.

In this project we will perform the financial analysis of Coal India Limited;
we will go through the financial statements of the company to diagnose
financial soundness.

SCOPE OF THE RESEARCH


The financial statement is the depiction of companies’ growth and establishing
its available resources. . The statements are prepared for a particular period.
The financial statements by nature are summaries of items recorded in the
business and these statements are prepared periodically. They are prepared
for the purpose of presenting a periodical review of reports on progress by the
management and deal with the status of investment in the business and the
results achieved during the period under review.

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RATIO ANALYSIS

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as “the


indicated quotient of two mathematical expressions” and as “the relationship
between two or more things”. In financial analysis, a ratio is used as a
benchmark for evaluating the financial position and performance of the firm.
The absolute accounting figures reported in the financial statements do not
provide a meaningful understanding of the performance and a financial
position of the firm. An accounting figure conveys meaning when ‘it is related
to some other relevant information’. For example, a Rs. 5 crores net profit
may look impressive, but the firm’s performance can be said to be good or
bad only
When the net profit figure is related to the firm’s investment. The relationship
between two accounting figures, expressed mathematically, is known as a
financial ratio.
Ratios help to summarize large quantities of financial data and to make
qualitative judgment about the financial performance.

EXECUTIVE SUMMARY

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A SHORT CHRONOLOGICAL HISTORY OF THE COMPANY

Year Event

1774 Warren Hastings initiates commercial coal mining at


Raniganj (West Bengal)
1815-1820 First Shaft Mine opened at Ranigunj

1835 Carr, Tagore & Company takes over the Ranigunj Coal
Mines
1843 Bengal Coal Company takes over Ranigunj Coal Mines
and others; is first Joint Stock Coal Company in India.
Up to 1900 Minimal development; River transportation used to
transport coal to Calcutta; railway lines at Calcutta
leads to expansion of Coal Production

Early 1900s Capacity at 6 million tones per annum

1955-56 Focus on Coal Industry; capacity up to 38.4 Million


tones.
1956 National Coal Development Corporation (NCDC) formed
to explore and expand coal mining in Public Sector
1972 Coking Coal Industry Nationalized, Bharat Coking Coal
Limited formed to manage operations of all Coking Coal
mines in Jharia Coalfield.
1973 Non-coking coal nationalized; Coal Mine Authority
Limited set up to manage these mines; NCDC
operations bought under the ambit of CMAL.
1975 Coal India Limited formed as holding Company with 5
subsidiaries viz. Bharat Coking Coal Limited (BCCL), Central
Coalfields Limited (CCL), Western Coalfields Limited (WCL),
Eastern Coalfields Limited (ECL) and Central Mine Planning
and Design Institute Limited (CMPDIL).

1985 Northern Coalfields Limited (NCL) and South Eastern


Coalfields Limited (SECL) carved out of CCL and WCL
1992 Mahanadi Coalfields Limited (MCL) formed out of SECL
to manage the Talcher and IB Valley Coalfields in
Orissa.
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2000 De-regulation of Coal pricing and distribution of coal.
COMPANY PROFILE

Coal India Limited has been incorporated under the companies Act 1956 on
21.10.1975 and is wholly owned by the Government of India. The company is
chiefly in to the business of coal mining, coal based products and mining
consultancy.
The wholly owned subsidiaries of the company are as follows:
1. Eastern Coalfields Limited.
2. Bharat Coking Coal Limited
3. Central Coalfields Limited
4. Northern Coalfields Limited
5. Western Coalfields Limited
6. Southeastern Coalfields Limited
7. Mahanadi Coalfields Limited.
8. Central Mine Planning and Design Institute Limited
North Eastern Coalfields is directly under control of Coal India
Limited.
Registered office of the Company is Coal Bhawan, 10 Netaji Subhas
Road, Kolkata – 700 001, West Bengal, India.
India is the 3rd largest coal producing country in the world and Coal India
Limited produces 85% of total coal production in India. It is the largest
company in the world in terms of coal production. It employs around
436 thousand people and is the largest corporate employer in the
country.
The objectives of the company are as follows:
1) To promote the development and utilization of the coal reserves in the
country for meeting the present and likely future requirement of the nation
with due regard to need for conservation of non-renewable resources and
safety of mine workers.
2) To raise the productivity of coal mining and related activities through
introduction of improved technology, streamlining of organization,
management and improving the skills, motivation of the work-forces.
3) Efficiency of operations and adopting appropriate cost reduction and cost
control methods.

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4) To make efficient arrangements for marketing and supply of coal so that
coal, coke and other similar derivatives are available to consumers throughout
the country conveniently and at reasonable prices.
5) To promote research and development activities on a continuing basis in
the areas of coal mining, beneficiation development of new coal based
products or by-products, fuel technology or any other area having a bearing
on conservation, development for utilization of the coal reserves of the
country.

EVOLUTION OF CIL AS COAL


GIANT SAGA OF 32 YEARS JOURNEY

PRIOR 1970 S EARLY1990 1996 2000-07


TO S
1972-
73
Mostl 1972-73 1993 Capital Pricing and
y in Coal mines Amendment Restructurin distributio
Nationalizatio in act to g and n fully
privat n Act. decontrol of deregulated
e 1975-92
allow price & .
hands CIL formed as Captive distribution
excep Holding mining by . 2007
t for Company with 5 private
subsidiaries operator Introductio
two
Expanded in and not n of new
public Phases to 8 distributio
sector for sale
subsidiaries n policy by
units by 1992. Government
namel 1995-96
y Budgetary
support
SCCL
withdrawn
&
NCDC
.
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Completing a M ajor T ransformation
PRE-
N AT IO N AL ISAT ION PRAGM AT ISM L AU N CH IN G PAD
 Sector grew <2%  Phase out budgetary support H ighest production growth
– 5.2 % CA G R
 L ow returns overI X thplan
 E nforcing financial discipline
 I mprovement in capacity utilisation
 L ow investments  Profitable from 1991/ 1992  Reduced manpower by over 81,000
 “Born Sick
”  A ccessed financial markets I mproved productivity by 37 %
 Funded investment from internal resou
 D ebt/ T otal capital reduced from 60 to

1975 1991 1997 2002 2007 an d B ey on d

CO AL AT AN Y COST CO N SO L ID AT ION T AKE O FF


 N ationalisation  Consolidated financial  Plans to grow to
position 520.5M T of
 M assive public investment
 Slow growth in production by 2012
 A chieved target growth of 5% demand
CA G R  I nternational growth
 Foreign funding plans by acquiring
 Balance sheet weakness coal fields abroad
26

Coal –the mainstay of India’s Energy Security.

Strategic role of coal in India’s Energy/Economic Scenario.

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 -Coal the dominant energy source in India meets 55% of country’s
primary commercial energy supply.
 ---In India, 84% of hard coal is produced by Coal India Limited (CIL), a
Navaratna Coal Mining PSU and 7% by Singareni Collieries Company
Limited (SCCL)-under Ministry of Coal.

 ---Coal prices in India are deeply discounted compared to international


prices even in the face of Global Economic meltdown.

 ---Coal Sector in India thus plays an extremely important strategic role


in making the end user industry globally competitive.

 ---The benefit granted without creating any burden on Government of


India or on the producing company.

 ---CIL contributes more than Rs 5000Crores to per annum to the


exchequer on account of Dividend and corporate taxes alone and meets
its investment requirement entirely from internally generated funds.

CURRENT PICTURE OF THE COMPANY

Coal India Limited has been able to maintain its record of growth and
excellence in performance in another fiscal 2009-10. Coal India Ltd. (CIL) as a
whole achieved raw coal production of 431.27 million tones in the year under
review against 403.73 million tones in the last year

Table1.2 Statement Showing Coal Production, OBR & Coal off-take


Coal OB Off- Coal OB Off-
(Mt) (Mcum) take (Mt) (Mcum) take

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(Mt) (Mt)
Actual Actual Actual Actual Actual Actual
Company\Year 08-09 08-09 08-09 09-10 09-10 09-10
ECL 28.13 43.07 28.26 30.07 49.96 29.19
BCCL 25.51 53.60 24.60 27.52 61.94 25.07
CCL 43.24 55.63 43.84 47.08 56.04 44.21
NCL 63.65 202.75 64.23 67.67 190.18 66.65
WCL 44.70 126.66 45.37 45.73 134.01 45.51
SECL 101.75 107.00 103.02 108.01 129.97 106.07
MCL 96.34 51.84 91.30 104.08 65.96 98.15
NEC/CIL 1.01 4.58 0.84 1.11 7.23 1.07
OVERALL 403.73 645.13 401.46 431.27 695.59 415.92

'Note: - OB=Over burden specially stone & muddy, top surface of the soil

Since after nationalization the Dispatch shoots from 81.73Mt during 75-76 to
415.22 Mt being a yearly record of 2009-10. Improved dispatch is due to
deployment of Rail, Road, MGR, and Belt & Rope.
An all-time high turnover (Gross Sales) of over Rs. 52,188 crores was
achieved during the year registering a growth of about 13%. The pre tax
profit for the year was Rs. 13965 crores. It was recommended a dividend
payment of Rs. 2210 crore. CIL, the single largest coal producing company in
the world is now venturing into new initiatives in India and abroad.

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Glance View of the Company

COAL VISION 2025

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Inputs for Coal Vision 2025 have been submitted, which aims at laying down
the framework for guiding the policies relating to the coal sector for next 20
years. India now possesses about 8.6% of the total recoverable coal reserves
of the world and contributes about 7.5% of the world’s coal production.
Considering an overall GDP growth of 8%, India would be requiring about
1267 Mt of coal (1147 Mt in case of overall GDP growth of 7%) by 2025 to
drive its energy economy on coal as projected by the studies. It has been
proposed to develop coal sector as a globally competitive industry through of
state-of-the art high productive mining & beneficiation technologies and
capacity building.
Coal India Ltd., with an impressive track record in meeting the coal
requirement of energy need of the country by registering a growth in
production in excess of 5% annually over the years, is aiming at playing a
more purposeful role in establishing itself as the prime supplier of coal for
power generation. In this respect, CIL has not restricted itself within the
conventional gamut of coal mining, but is also exploring the possibilities of
expanding its horizon in harnessing the potential of non-conventional energy
sources viz. (i) Coal Bed Methane (CBM), (ii) Underground Coal Gasification
(USG), (iii) Coal Liquefaction and (iv) Over ground Coal Gasification (OCG).
CIL is also contemplating setting up of Power Plants in Joint Venture. For this
purpose, CIL is negotiating with both Naively Lignite Corporation Limited
(NLC) and National Thermal Power Corporation (NTPC) for power plant in
Orissa.

CIL has also taken up various initiatives for non-


conventional energy sources, which are as follows:

 Coal Bed Methane (CBM): The consortium of CIL and ONGC, an un-
incorporated joint venture, had already obtained Petroleum Exploration
License (PEL) from the respective Governments against the two blocks

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allotted by Govt. Of India, one at Jharia Coalfields in Jharkhand. The
Project is in progress since August 2003 under the guidance of CMPDIL,
a subsidiary of CIL. Besides this, Govt. of India, in collaboration with
UNDP/GEF (Global Environment Facility) had taken up a ‘Demonstration
Project’ at Moonidh and Sudamdih mines of BCCL. A subsidiary of CIL in
Jharia Coalfields for Coal Bed Methane Recovery and Commercial
Utilization. The project costing about Rs. 100 crores is under
implementation by CMPDIL and BCCL since 15th September 1999.

 Underground Coal Gasification (UCG): Underground Coal


Gasification (UCG) is the in-site gasification of coal in the seam. It is
achieved by injecting oxidants, gasifying the coal and bringing the
product (gas) to surface through boreholes drilled from the surface. The
gas is used for power generation, industrial heating or as chemical
feedstock. UCG was developed as a large-scale gas production process
in the former Soviet Union and trial schemes have been evaluated in
many other countries including United States, China, Australia and UK.
Coal India has given high priority to the issue of Underground Coal
Gasification. CIL and ONGC is likely to take up jointly a pilot project for
establishing UCG technology. A draft MOU after its approval by CIL
board is presently under consideration of the ministry of Coal (MOC)
for approval. However, initial work of data exchange needed for
identification of trial site has already been taken up.
 Coal Liquefaction: Oil India Limited (OIL) has approached CIL to
become a partner in its venture of producing oil from coal in its Duliajan
plant in Assam and requested for supply of about 3.5 Mt of coal per
annum from NEC. CMPDIL has prepared a report on possibilities of
producing 3.5 MTPA coal in NEC. CIL and OIL held a meeting on July 11,
2005 to discuss future possibilities when OIL had indicated that the
tentative cost of production of oil obtained from this process was about
US $ 35 per barrel which appears to be quite attractive particularly
keeping in view the burgeoning oil price in international market which
has reached a level of US $61 per barrel. It was decided to form a ‘joint
task force’ of CIL and OIL which would study the CMPDIL report as also
the possibility of formation of two joint ventures- one for coal production
and the other for setting up a Coal Liquefaction plant and its upstream
activities.
 Over ground Coal Gasification (OCG): Director (Planning & Business
Development), GAIL (India) Limited met Director (Technical), Coal India
Limited on 20th July, 2005 in connection with their interest to form a
joint venture with CIL for joint evolution of work in various coal sector

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related potential opportunities including OCG. Accordingly, a draft
memorandum of co-operation has been made.

The nature of actions needed to penetrate into the coal business opportunities
in a foreign land is somewhat different from those in homeland. CIL has
therefore, already decided to float a new subsidiary viz Coal India Ltd. which
is expected to come into being very shortly. Considering the fact that the
demand for coal in India is always greater than supply from indigenous
sources, more particularly for coking coal and low ash non- coking coal
primarily because of their limited availability, CIL is poised to venture into coal
business potentialities abroad either through acquisition of equity in any
existing coal company or through coal mining on green field area in order to
ensure energy security of our country. On a quest for meeting the said
objectives, CIL has, based on the extensive interactions with consultants of
international repute, High Commissions/Embassies and Coal MNCs, short
listed countries like Australia, Indonesia, South Africa, Mozambique and
Zimbabwe as first preferred destinations and countries like Russia,
Kazakhstan, Mongolia, China, Canada and Venezuela as second line of
priority. CIL has so far participated in the bidding process of two opportunities
– one for green field venture in Mozambique and the other for acquisition of a
part of equity in a company in Australia. But both the attempts ultimately
could not materialize for some reasons or the other. CIL is, however geared
up for taking an aggressive drive for fulfilling its objective in this direction.
Apart from taking various measures for better consumer satisfaction, coal
companies have also introduced the system of sale of coal through E-Auction
in order to put in place more transparency in marketing of coal more
particularly to non-core consumers. This is, basically, based on the sole idea
of going by market economy and eliminating the scope of black-marketing in
coal distribution. During the year 2004-05, CIL and one of its subsidiaries viz
BCCL, as a trial-run could sell more than 2 lakhs tones of coal through E-
Auction and the coal companies have planned to achieve a sale of 10 million
tones of coal through this mode during the year 2005-06. Besides this, CIL
had, in order to mitigate the problem being faced by them in getting coal
through official channel, introduced the system of releasing coal to small and
dry consumers (whose requirement of coal is small) through the channel of
Union Ministry of Consumer affairs, Food & Public Distributions and state
undertakings nominated by various states for the purpose.

In this connection it is heartening to note that consequent upon net worth of


CCL being positive, AAIFR, the appellate Authority under the Sick Industrial
Companies (Special provisions) Act, 1985 (SICA), in its hearing held on 31st
January, 2005 had granted the prayer of CCL to withdraw its case from them.
Accordingly, the CCL is no longer under the purview of SICA. The other two
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subsidiary companies viz. ECL and BCCL are still sick as per the provisions of
SICA. Rehabilitation Scheme (March 2004) of ECL as approved by the Board
for Industrial and Financial Reconstruction (BIFR) on 2nd November 2004 and
recommended by the office of the Controller General of Accounts for revival of
the company is under implementation. As directed by the BIFR, BCCL had
already submitted its Revival Plan on 12th April 2004 and valuation Report of
its assets carried out by a Govt. approved values on 31st 2004 to it.
But above all topmost priority is being given to safety in mines though in
recent times we have witnessed some of the most horrendous and pathetic
accidents where the precious lives of the miners have been lost.
Lastly apart from safety measures in mines, welfare for employees,
environment protection remains the main priority while envisaging new
capacity additions.

INTRODUCTION
AN OVERVIEW OF COAL INDIA

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INDIA is the 3rd largest coal producing country in the world. In terms of hard
coal production COAL INDIA limited, is the single largest producing company
in the world, employing 4.36 lakhs manpower with its h.q. In KOLKATA is a
holding company under ministry of coal, GOVT OF INDIA. It was formed as
public sector undertaking in 1975 pursuant to nationalization of the coking
coalmines in 1971 and non-coking coalmines in 1973 for reorganizing the
nationalized coalmines and ensuring integrated development of coal the prime
source of energy.
Coal India presently contributes 85%of the total coal production in India. It
operates through eight subsidiaries. Seven producing companies and one
Planning and Design institute. Subsidiaries are as under: -
Eastern coalfields limited. (ECL) Sanctoria.W.B
Bharat coking coal limited. (BCCL) Dhanbad, Jharkhand.
Central coalfields limited. (CCL) Ranchi. Jharkhand.
Northern coalfields limited. (NCL) Singrauli.MP.
Western coalfields limited. (WCL) Nagpur, Maharashtra.
Southeastern coalfield limited (SECL) Bilaspur, Chattisgarh.
MAHANADI Coalfields Limited. (MCL) Sambalpur, Orissa.
Central mine planning & design institute limited (CMPDIL) Ranchi, Jharkhand.
For mine planning, design & engineering consultancy services and exploration
activity The mines of North Eastern coalfields (Assam & Meghalaya) operate
directly under COAL INDIA.
COAL INDIA currently operates 467 mines and 17 washeries (11 coking and 6
non-coking) spread over eight states to produce and beneficiate coal for
meeting the demand of the consumers all over the country. The ranges of
products are: Raw coal, (coking and non-coking), washed coal, middling, Soft
coke, Hard coke, Coal tar, Coal gas, coal chemicals etc.
78% of CIL total production contributes towards electricity generation. COAL
INDIA, for over three decades, has been fuelling economic growth of INDIA
keeping its wide array of consumers like Thermal power plants, steel plants,
cement plants, fertilizer units and innumerable industrial units satisfied with
supply of coal.

COAL INDIA has played a significant role in securing India’s energy future
.The integrated energy policy of the country clearly indicates that coal is the
main and cheapest source for Indian energy sector. CIL currently accounts for
85% of the total coal produced in the country and Power sector is the largest
consumer utilizing 80% of CIL production.

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Coal based power generation constitutes 75% of power generation in the
country and CIL supplies coal to as many as 71 power station.
FINANCIAL HIGHLIGHTS

2001-02 2039.98

2002-03 3132.79

2003-04 4679.12

2004-05 4894.05

2005-06 8788.46

2006-07 8602.47

2007-08 8738.46

2008-09 5744.10

2009-10 13964.93

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IMPROVED DEBTORS POSITION SHOWS IMPROVED LIQUIDITY

2.5

2.34
2

2.06
1.5

1
1.09
0.77

0.5
0.6
0.49

0.5
0.45
0.47

0
09-10 08-09 07-08 06-07 05-06 04-05 03-04 02-03 01-02

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REVIEW OF LITERATURE

The financial statement is the depiction of companies’


growth and establishing its available resources. The
financial growth is highlighted from profit and loss and the
position of resource and liabilities id depicted from Balance
sheet.

Ratio Analysis:
Ratio Analysis is a powerful tool of financial analysis. In
financial analysis, a ratio is used as a benchmark for
evaluating the financial position and performance of the
firm. It can be used to compare the risk and return
relationships of firms of different sizes.

Working Capital Management:


Working Capital management is the managing of the
imbalance between current asset and current liabilities and
the right determination of resources to manage the
business cycle. The interaction between current assets and
current liabilities is, therefore the main theme of the theory
of working management.

RESEARCH METHODOLOGY

HYPOTHESIS

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The financial statements are mirror which reflect the financial position and
operating strength of a concern, practical application of financial statement is
reviewed through ratio analysis and working capital management. Multifarious
behavior is projected through pictorial representation.

OUTLINE METHODOLOGY OF THE RESEARCH


Stage 1: Recorded Facts.
The figures of various accounts such as cash in hand, cash at bank, sundry
debtors, fixed assets, etc., are taken as per the figure recorded in the
accounting books. Since, all these recorded facts are based on original cost or
historical costs and not on replacement costs, financial statements do not
show current financial position of the concern.
Stage 2: Accounting Conventions.
Fundamental accounting principles are followed to prepare the financial
statements. Provisions are made for expected losses but expected profits are
ignored on account of the ‘convention of conservatism.’
Various accounting conventions are used to make financial statements simple,
comparable and realistic.
Stage 3: Accounting Postulates
While preparing accounting records, certain assumptions are also made like
the enterprise is treated as an ongoing concern, etc. These assumptions are
fundamental while preparing financial statements.
Stage 4: Calculations
At this stage after gathering the required information the calculations are
made by using the methods or tools of the financial statement analysis.
Stage 5: Write up
This stage involves the writing up of the contents of the dissertation and
should cover the chapter proposed in the following section.

DISSERTATION CONTENTS
1. Ratio Analysis.

SOURCE OF DATA
1) Audited financial statement and an annual report of the company.
2) Management information statement.-prepared by cost and budget
section of Coal India.
3) Statistical information is obtained from Annual Action Plan.-
prepared by the corporate planning and project monitoring
department.

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ANALYSIS OF THE SURVEY

FINANCIAL STATEMENT ANALYSIS


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Meaning:
A Financial Statement is an organized collection of data which
contains summarized information of the firm’s financial affairs,
organized systematically. Its purpose is to convey an
understanding of the financial aspect of the business concern.
The term ‘Financial Statement’ generally refers to two basic
statements: (i) The income statement or the profit and loss
account, and (ii) Position statement or balance sheet. These two
statements are combine called financial report of a concern. They
are the means to present the firms financial position to the users.
Financial statements are prepared primarily for decision making.
They play an important role in setting the framework of managerial
decisions. The information provided in financial statements is of
great use in making decisions through analysis and interpretation
of financial statements. Here a distinction can be made between
the two terms ‘Analysis’ and ‘Interpretation’. The term ‘Analysis’
means methodical classification of the data given in the financial
statements so that they are put in a simpler form. On the other
hand, ‘Interpretation’ means explaining the meaning and
significance of the data so simplified. However, both ‘Analysis’ and
‘Interpretation’ are complementary to each other. Interpretation
requires analysis while analysis is useless without interpretation.
The term ‘Financial Analysis’ which is also known as ‘Analysis and
Interpretation of Financial Statements’ refers to the process of
determining financial strengths and weaknesses of the firm by
stabilizing relationship between the terms of balance sheet, profit
and loss accounts and other operative data.

The comparative financial statements are the statement of the


financial position at different period of time. The elements of
financial position are shown in a comparative form to give an idea
of the financial position of two or more periods. Generally two
financial statements (Balance sheet and income statements) are
prepared in comparative form for the purpose of financial analysis.

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Common Size Statements:
Common size statements are those in which the figures are
converted into percentage on some common basis. The figures are
shown as a percentage of total assets, total sales and total
liabilities. The advantage of this conversion is that the analyst is
able to assess the figures in relation to total value.
Trend Analysis:
The financial statement may be analyzed by computing trends of
several years. The method of calculating trend percentage involves
the calculation of percentage relationship that each item bears to
the same item in the base year. Any year may be taken as the
base year. It is usually the earliest year. Each item of base year is
taken as 100 and on that basis the percentages for each of the
items of each of the years are calculated.
Analysis of the Flow of Fund:
Every business concern prepares the basic fundamental
statements, i.e. Profit and Loss Account and Balance Sheet which
shows the net effect of various transactions on the operational and
financial position of the concern. The Profit and Loss Account
reflects the results of the business operation for a period of time. It
contains a summary of expenses incurred and the revenues
realized on the accounting period. The Balance Sheet gives the
summary of the assets and liabilities of the undertaking at a
particular point of time. Both the financial statements provide the
basic essential information about the financial activities of a
business, but their utility is limited for the purpose of analysis and
interpretation. There are many transactions that take place in an
undertaking which do not operate through profit and loss account.
Hence the need for preparing another statement is realized to
show the changes in the assets and liabilities from the end of one
period of time to the end of another period of time. The statement
is called ‘Fund Flow Statement’.

Ratio Analysis:
Ratio analysis is a technique of analysis and interpretation of financial
statement. It is the process of establishing various ratios which help in making

Page 29 of 56
certain decisions. However, ratio analysis is not an end in itself. It is only a
means of better understanding of financial strength and weaknesses of the
firm. Calculations of these ratios do not serve any purpose, unless several
appropriate ratios are analyzed and interpreted. There are a number of ratios
which can be calculated from the information given in the financial statements
but the analyst have to select the appropriate data and calculate the
appropriate ratios keeping in mind the objectives of analysis.

Ratio Analysis:

Ratio analysis is the most widely used method. It is process of


establishing and interpreting quantitative relationship between
figures and groups of figures. With the help of ratios, the financial
statements can be analyzed more clearly and decisions can be
made more logically.

“Ratio analysis of financial statements is a study of relationship


among various financial factors in a business, as disclosed by a
single set of statements and study of the trend of these factors as
shown in series of statements.” -Myers

Thus, the ratio analysis is a tool to present the figures of financial


statements in simple concise and intelligible form. It is the process
of stabilizing meaningful relationship between two figures or set of
figures of financial statements.

An Overview on Ratios>---------
Page 30 of 56
KEY BUSINESS RATIOS

The 14 most widely used financial ratios.

Every Dun’s Financial Profile Report, PRO Model Statement and


Industry Norm Report deliver the advantage of D&E Norms and
Key Business Ratios. These specific measures of business
performance provide significant insights into a companies financial
condition, based on its performance compared to others in its
industry.

 Simplifies the task of evaluating a company’s financial


condition by providing objective, quantitative measurements
of business performance.

 Teamed with industry norms – as in the Customized


Information Systems and Services family of products and
services – Key Business Ratios allow quick comparison of a
company’s performance to others in its industry.

 Includes more than 800 lines of business segmented by up


to 15 asset ranges and four geographic areas.

SOLVENCY RATIOS

Page 31 of 56
Here’s what each of the 14 Key business ratios used
by customized information Systems and Services
means:

 QUICK RATIO: Cash \ Accounts Receivable \ Total Current Liabilities

 CURRENT RATIO: Total Current Assets \ Total Current Liabilities

 CURRENT LIABILITIES TO NET WORTH:

 Total Current Liabilities \ Net Worth


This contrasts the amounts due creditors within a year with the funds
permanently invested by the owners. The smaller the net worth and the
larger the liabilities, the greater the risk.

 CURRENT LIABILITIES TO INVENTORY: Total Current Liabilities \


Inventory. This tells you how much a firm relies on funds from disposal of
unsold inventories to meet debt.

 TOTAL LIABILITIES TO NET WORTH: Total Liabilities \ Net Worth


The effect of long term debt on a business can be determined by
comparing this ratio with that of Current Liabilities to Net Worth.

 FIXED ASSETS TO NET WORTH: Fixed Assets \ Net Worth


The amount of net worth that consists of Fixed Assets will vary greatly from industry to
industry, but generally a smaller portion is desirable.

EFFICIENCY RATIOS

  COLLECTION PERIOD: Accounts Receivable \ Sales x 365


Days
Page 32 of 56
Gives you an idea of the quality of receivables.

 INVENTORY TURNOVER: Sales \ Inventory


When compared to industry norms this ratio tells you how fast inventory is
moving and the cash flow into business.

 ASSETS TO SALES: Total Assets \ Sales


This rate ties in sales and the total investment that is used to generate
those sales.

 SALES TO NET WORKING CAPITAL: Sales \ Net


Working Capital

This measurement indicates whether a company is over-trading or,


conversely, carrying more liquid assets than needed for its volume.

 ACCOUNTS PAYABLE TO SALES: Accounts Payable \ Sales


This measures how the company is paying its suppliers in relation to the
volume being transacted.

PROFITABILITY RATIOS

 RETURN ON SALES (Profit margin): Net Profit after Taxes \


Sales
Tells you profits earned per dollar of sales and measures the efficiency of
the operation.

Page 33 of 56
  RETURN ON ASSETS: Net Profit after Taxes \ Total Assets
This is the key indicator of profitability for a firm. It matches operating
profits with the assets available to earn a return. A high rate will tell you a
company is well run and has a good return on assets.

 RETURN ON NET WORTH (Return of Equity):


Net Profit after Taxes \ Net Worth

Analyzes the ability of the firm’s


management to realize an adequate
return on the capital invested by the
owners of the firm.

What does Liquidity Ratios Mean……

Financial Metrics is used to determine a company’s ability to


discharge its short term debt obligations. Higher the ratios
shall indicate larger Margin of Safety. This will register that
the company will able to cover short term debt obligation.

Liquidity Ratios –
Page 34 of 56
Current Ratio, Quick Ratio and Operating Cash Flow
Ratio. It is observed from Analytical angle that
liquidity is the assessment of volatility of the
company to combat the discharge of liability.
Determination of liquidity and volatility is a
technique to assess judiciously to continue the
company as a going concerned.
Liquidity Ratios

As per Consolidated Audited


Accounts

Year Ending 31st March 2009-10 2008-09 2007-08 2006-07 2005-06

(A) LIQUIDITY RATIOS


Current Assets 54324 47096 36307 28828 14412
Current Liabilities 42909 41153 29695 22821 21741
(a) Current Ratio 1.27 1.14 1.22 1.26 0.66
(Current Asset / Current
Liability)

Quick Asset 41246 31521 22618 17516 15232


Current Liabilities 42909 41153 29695 22821 21741
(b) Quick Ratio 0.96 0.77 0.76 0.77 0.70
(Quick Asset / Current Liability)

Net Working Capital 11415 5943 6612 6007 2670


Net Asset 54324 47096 36307 28828 14412
(c) Net Working Capital
Ratio 0.21 0.13 0.18 0.21 0.19
(Net Working Capital / Net
Asset)

Year Ending 31st March 2009-10 2008-09 2007-08 2006-07 2005-06


(A) LIQUIDITY RATIOS
(a) Current Ratio 1.27 1.14 1.22 1.26 0.66
(b) Quick Ratio 0.96 0.77 0.76 0.77 0.70
(c) Net Working Capital
Ratio 0.21 0.13 0.18 0.21 0.19

Page 35 of 56
1.4 0.25

1.2 0.21 0.21

1.22
0.2
0.18

1.14
1.27

1.26
1 0.19

0.15
0.96

0.8 0.13

0.77
0.76
0.6

0.7
0.1

0.66
0.77
0.4
0.05
0.2

0 0
1 2 3 4 5

As observed by Short Term Creditors that High


Current Ratio is a buffer as it reduces their risk.

Equity Holder allows Low Current ratio since it allows the


assets to be deployed in the business and it can grow.

Cyclical Industry shall prefer High Current ratio since it can


put buffer during Slack Season.

Movements of Current Assets


To Current Liabilities

Year ending 31st 2009- 2008- 2007- 2006- 2005-


March 10 09 08 07 06
CURRENT RATIO

Current Assets 54324 47096 36307 28828 14412

Page 36 of 56
Current Liabilities 42909 41153 29695 22821 21741

Ratio of CA : CL 1.27 1.14 1.22 1.26 0.66

60000 1.4
1.27
1.22 1.26
50000 1.14 1.2
54324

1
40000 47096
42909

41153
0.8

36307
30000
0.66

29695

28828
0.6
20000

22821

21741
0.4

14412
10000 0.2

0 0
1 2 3 4 5

The liquidity position of the company is improving significantly and


the terminal year has registered its growth positively and has
established that Current Assets has exceeded over Current
Liabilities.

Movement to Quick Assets


To Current Liabilities

Year ending 31st March 2009-10 2008-09 2007-08 2006-07 2005-06


QUICK RATIO
Quick Asset 41246 31521 22618 17516 15232

Page 37 of 56
Current Liabilities 42909 40506 29695 22821 21741
Ratio of Q.A/CL 0.96 0.78 0.76 0.77 0.70

50000 1.2
45000
0.96 1
40000
35000 0.78 0.76 0.77
0.8
41246

42909

30000 31521 0.70

25000 40506 0.6

29695
20000

22821
22618
0.4

21741
15000

17516

15232
10000
0.2
5000
0 0
1 2 3 4 5

Quick convertibility of current assets is a very sensitive symptom


to discharge the company's Creditors. CR.is not a true indicator of
Liquidity Analysis since it comprises with Inventories some of it is
not easily converted into cash easily. So Quick ratios exclude the
Inventories to determine easy liquidity and it further termed as
Acid Test Ratio. Company can also establish its credential in the
market to fetch more funds.

For better Liquidity identification finer approach is Cash


Ratio. (Cash Marketable Securities)/Current Liabilities.

More liquidity is establishes from '04-05 onward. And simultaneous


growth in CL is registered from the same period also

Movement of Net Working Capital


To Net Asset

Year Ending 31st March 2009-10 2008-09 2007-08 2006-07 2005-06


NET WORKING CAPITAL

Page 38 of 56
RATIO
Net Working Capital 11415 5943 6612 6007 2670
Net Asset 54324 47096 36307 28828 14412
Share of Working Capital on 21.01 12.62 18.21 20.84 18.53
Net Assets % % % % %

As we can see from the above bar diagram that the net working
capital is improving and getting its grip from the year 2005-06.

As net working capital measures the firm’s potential reservoir of


funds, so we can estimate its importance. Year 2007-08 and
2008-09 were not impressive but it gained its pace in the year
2006-07 and increased further in 2009-10.

60000 25.00%

50000 21.01% 20.84%


20.00%
18.21% 18.53%
40000
54324

15.00%
12.62%
36307

30000
10.00%
28828

20000
47096
11415

6612
5943

6007

14412

5.00%
2670

10000

0 0.00%
1 2 3 4 5

Leverage Ratios
As per Consolidated Audited Accounts

2009- 2008- 2007- 2006- 2005-


Year Ending 31st March 10 09 08 07 06

(B) LEVERAGE RATIOS


Total Debt 2087 2148 2082 2386 2800

Page 39 of 56
Capital Employed 23451 16964 17108 16224 12741
(a) Debt Ratio 0.09 0.13 0.12 0.15 0.22
(Total Debt / Capital
Employed)

Total Debt 2087 2148 2082 2386 2800


Net Worth 25794 19165 19342 17889 14115
(b) Debt Equity Ratio 0.08 0.11 0.11 0.13 0.20
(Total Debt / Net Worth)
23451 16964 17108 16224 12741
Capital Employed 25794 19165 19342 17889 14115
Net Worth
(c) Capital Employed to Net 0.91 0.89 0.88 0.91 0.90
Worth Ratio
(Capital Employed / Net
Worth)

2009- 2008- 2007- 2006- 2005-


Year Ending 31st March 10 09 08 07 06
(B) LEVERAGE RATIOS
(a) Debt Ratio 0.09 0.13 0.12 0.15 0.22
(b) Debt Equity Ratio 0.08 0.11 0.11 0.13 0.20
(c) Capital Employed to Net 0.91 0.89 0.88 0.91 0.90
Worth Ratio

0.25 0.92
0.91
0.91 0.91
0.2
0.90 0.9
0.15 0.89
0.89
0.22
0.20

0.88
0.15

0.1
0.13

0.88
0.13

0.11
0.09

0.08

0.12

0.05
0.11

0.87

0 0.86
1 2 3 4 5

From the graph above it can be seen that there is immense reduction of the
percentage of debt during the years. Thus, we can say that the company has
low financial risk and the company can use its debt to its shareholder’s
advantage.
Movement of Total Debt
To Capital Employed

Page 40 of 56
2009- 2008- 2007- 2006- 2005-
Year ending on 31st March 10 09 08 07 06
DEBT RATIO
Total Debt 2087 2148 2082 2386 2800
Capital Employed (NW+Debt) 23451 16964 17108 16224 12741
% of Debt /Capital Employed 8.90% 12.66% 12.17% 14.71% 21.98%

25000 25.00%
21.98%
23451

20000 20.00%

15000 14.71% 15.00%


12.66% 12.17%

16224
16964
8.90%

17108

12741
10000 10.00%
2087

2800
5000 5.00%
2148

2082

2386
0 0.00%
1 2 3 4 5

Dipped in the debt position is indicated a significant improvement in the


company's financial health.
If we look year 2005-06 we can see that the debt ratio is 0.2198 which means
that the lenders have financed 21.98% of the company’s net assets. Whereas,
in the year 2009-10 the debt ratio is 0.0890 which means that the lenders
have financed only 8.90% of the company’s net assets. This says that the
company has less debt which is good for the financial health of the company.

Movement of Total Debt


To Net Worth

Year ending on 31st March 2009-10 2008-09 2007-08 2006-07 2005-06


DEBT-EQUITY RATIO
Total Debt 2082 2386 2800 3396 3647
Net Worth 25794 19165 19342 17889 14115
% of Debt / Net Worth 8.09% 11.21% 10.76% 13.34% 19.84%

Page 41 of 56
30000 25.00%
25000 19.84%

25794
20.00%

19165
20000
13.34% 15.00%
15000 11.21% 10.76%

17889
10.00%

14115
19342
10000 8.09%
5.00%

2800
2082
2087

2386
5000

2148
0 0.00%
1 2 3 4 5

Debt burden of the company is drastically reducing, is a good indication for


the stakeholders that the company is able to withstand its financial need from
its own generation and the siphoning of fund from outer sources is gradually
in decreasing order.

Movement of Capital Employed To Net Worth

Year ending 31st March 09-10 08-09 07-08 06-07 05-06


CAPITAL EMPLOYED to NW
RATIO
Capital Employed
(NW+DEBT) 23451 16964 17108 16224 12741
Net Worth 25794 19165 19342 17889 14115
Growth rate of Stake holder
(%) 90.92% 88.52% 88.45% 90.69% 90.27%

Page 42 of 56
30000 91.50%
90.92% 91.00%
25000 90.69%
90.27% 90.50%
20000 90.00%
23451

25794

19342
89.50%

17108
15000

17889
16224
88.52% 89.00%

14115
10000 88.50%

12741
88.45%
88.00%

19165
16964
5000
87.50%
0 87.00%
1 2 3 4 5

Profitability Ratios

As per Consolidated Audited Accounts

Year Ending 31st March 09-10 08-09 07-08 06-07 05-06

(C) PROFITABILITY RATIOS


Gross Profit 14101 5901 8888 8687 8879
Sales 52188 46131 38866 35129 33997
(a) Gross Profit Margin 0.27 0.13 0.23 0.25 0.26

Page 43 of 56
(Gross Profit / Sales)

PAT 9622 2079 5243 5709 5892


Sales 52188 46131 38866 35129 33997
(b) Net Profit Margin 0.18 0.16 0.13 0.16 0.17
PAT / Sales

Assuming tax to be 33%


EBIT 14101 5901 8888 8602 8788
Sales 52188 46131 38866 35129 33997
(c} Net Margin
based on NOPAT 0.26 0.26 0.23 0.24 0.26
(EBIT (1 - T) / Sales)

Assuming tax to be 33%


EBIT 14101 5901 8888 8602 8788
Net Asset 12035 11021 10497 28828 14412
(d) Return on Investment 0.61 0.61 0.61 0.30 0.61
(EBIT (1 - T) / Net Asset)

PAT 9622 2079 5243 5709 5892


Net Worth 25794 19165 19342 17889 14115
(e) Return on Equity 0.32 0.32 0.27 0.32 0.42
(PAT / Net Worth)

Year Ending 31st March 09-10 08-09 07-08 06-07 05-06


(C) PROFITABILITY RATIOS
(a) Gross Profit Margin 0.27 0.13 0.23 0.25 0.26
(b) Net Profit Margin 0.18 0.16 0.13 0.16 0.17
(c} Net Margin
based on NOPAT 0.26 0.26 0.23 0.24 0.26
(d) Return on Investment 0.61 0.61 0.61 0.30 0.61
(e) Return on Equity 0.32 0.32 0.27 0.32 0.42

1
1 2 3 4 5
0.61 0.61 0.61 0.61

0.32 0.42
0.32 0.32
0.27 0.30 0.26
0.27 0.26 0.24 0.26
0.23 0.25
0.26
0.18 0.23 0.17
0.16 0.16
0.13
0.13

0.1

Page 44 of 56
If we compare the Gross Profit Margin, Net profit Margin, Net Margin based on
NOPAT, Return on Investment and Return on Equity of the year 2005-06 with
2009-10 we will see that the company is making profit and its operating
efficiency is sound.
Movement of Gross Profit
To Sales

Year ending 31st March 09-10 08-09 07-08 06-07 05-06


GROSS PROFIT MARGIN
Gross Profit 14101 5901 8888 8687 8879
Sales 52188 46131 38866 35129 33997
Return on Turnover 27.03% 12.80% 22.86% 24.73% 26.12%

60000 30.00%
27.02% 26.12%
24.73%
50000 22.87% 25.00%
46131
52188

40000 20.00%
38866
30000 15.00%

35129

33997
12.79%
20000 10.00%
14101

8888

10000 8687 5.00%

8879
5901

0 0.00%
1 2 3 4 5

Graphical presentation is highlighting that the trend of return as well as the


trend of Gross Turnover is in improving order but the rate signifies that there
is marginal decline during 8-09 only due to pay revision and thus PBT has
dropped.

Movement of PAT
To Sales

Year ending 31st


March 09-10 08-09 07-08 06-07 05-06
NET PROFIT MARGIN
Profit After Tax 9622 2079 5243 5709 5892
Gross Sales 52188 46131 38866 35129 33997
Rate of Return on
Turnover 18.44% 4.51% 13.49% 16.25% 17.33%

Page 45 of 56
60000 20.00%
18.44%
16.25%
17.33% 18.00%
50000 16.00%
13.49%
14.00%

46131
40000

52188
12.00%
30000 10.00%

38866

35129

33997
8.00%
20000 4.51% 6.00%
4.00%
9622

5709
10000

2079

5892
5243
2.00%
0 0.00%
1 2 3 4 5

Improvement in the Gross Turnover is followed by improved return has


established the positive growth of the company. Double digit growth has been
witnessed during the year ’05-06 followed by ’06-07,07-08 and ’09-10.

Movement of EBIT
To Sales

Year ending 31st March 09-10 08-09 07-08 06-07 05-06


NET MARGIN based on
NOPAT
EBIT 14101 5901 8888 8602 8788
Sales 52188 46131 38866 35129 33997
Return on Turnover 27.02% 12.80% 22.87% 24.49% 25.85%

60000 30.00%
27.02% 25.85%
50000 24.49% 25.00%
22.87%
40000 20.00%
52188

38866

30000 12.79% 15.00%


33997
35129

20000 10.00%
46131
14101

8788
8602

10000 5.00%
5901

8888

0 0.00%
1 2 3 4 5

Page 46 of 56
Growing growth in the turnover is viewed from the graph and the return is
also following the same pattern, the growth is significantly high during 09-10
compared to all other years and there is marginal decline during the year of
08-09 during pay revision.

Movement of EBIT
To Net Asset

Year ending 31st March 09-10 08-09 07-08 06-07 05-06


RETURN ON INVESTMENT
EBIT 14101 5901 8888 8687 8879
Net Asset 12035 11021 10497 10217 10143
Share of Return on Investment 117.17% 53.54% 84.67% 85.02% 87.53%

16000 140.00%
117.17%
14000 120.00%
14101

12000 100.00%
87.54%
12035

84.67% 85.02%
10000
80.00%

10143
8000

10217

8879
53.54%
10497

8687
8888

60.00%
6000
11021
5901

4000 40.00%
2000 20.00%
0 0.00%
1 2 3 4 5

Return on Investment is significantly very high during the year 09-10.


Viewed from the graphical representation it is appended that during the
year of 05-06 and 09-10 the return is high but during 08-09 the return has
dipped down significantly due to pay revision.

Page 47 of 56
A CASE STUDY

THE STORY OF REVIVAL OF A SICK COMPANY (BCCL)

BHARAT COKING COAL LIMITED


Bharat coking coal limited (BCCL), the DHANBAD based coal India subsidiary,
rich in coking coal reserve in the forerunner of the Indian nationalized coal
sector. It was formed in 1971 through nationalization of coking coal mines
and subsequently with nationalization of non coking coal mines BCCL become
a unit of Coal India Limited (CIL) on 1-11-1975
It operates 76 mines -74 arc in JHARIA COALFIELD

Page 48 of 56
2 in RANIGUNJ COALFIELD
It has 41 underground mines 13 opencast mines 22 mixed mines
Besides, bccl operates 6 coking coal washieres, 2 non-coking coal washeries
and various other units

PERFORMANCE PARAMETRES-:
Production – 23.3 mts during 05-06
Registering the growth of coal production of 1 mt over last year
Profit reported during five year 05-06 – Rs 205.08 cr
Gross sales reported during five year 05-06- Rs 3467.04 cr
Net sales reported during five year 05-06- Rs 3112.28 cr Washeries loss till
(03-04)
It was managed to turn around in o4-05 with a profit of 58.38 cr and earned a
profit of Rs 293.40 cr in 2005-06
BCCL contributed an amount of Rs 458.05 cr to government exchange in the
term from Royalty, Cess, Sales tax, Stowing excise duty (SED) and Entry tax
during 2005.

PAST SCENARIO AND MEASURES INITIATED FOR TURN


AROUND -:

Owing to various reasons BCCL has been consistently incurring losses over the
years. Its turn- around in 2005-06 is the result of perseverance, dedication
and resolve to its employee. The company reported loss of Rs 569.85 cr and
cash loss of Rs 209 cr in 03-04.
The turn around in less than 2 years from a near bankruptcy
Situation has been made possible through dedicated and sustained pursuit of
a revival strategy focused on -:

Enhancing production of high value coking and washed coal


Internalizing premium on coal marketed to non core sector through e –
marketing
Arresting / reversing the trend of persistent decline in coal production since
1999-2000 Several decisive steps were taken towards the end of 03-04 and
the order of priorities was re adjusted to turn around. In order to procure
production holding items on a fast track and subsequent payment
Worn out machines were surveyed off. Procurement of heavy earth moving
machinery (HEMM) was adjusted as a new major thrust area

Page 49 of 56
To supplement the drive to improve production from departmental mines by
revamping the existing capacity.

Efforts were made to obtain coal from isolated patches by deployment of hired
HEMM. A number of contracts were awarded in 05-06 for deployment of
HEMM.

In 03-04 on a production of 22.68 mts the company incurred a loss of Rs.


569.85 cr. This loss was equivalent to contribution of around 8 mts. In other
words the break even level was 30.68mts achieving increase in production of
such magnitude was ruled out under the given circumstances it therefore
became imperative to focus on -:
-Increase in production of high value prime washed coking coal & unshakable
the constraints in value realization, wherever possible. Accordingly efforts
were made to reserve the steep decline in washed coal production witnessed
during the earlier year.

As a consequence of all the above measures, acting in Tandem. BCCL earned


profit slowly from operations, for the first time in its history of 05-06.
During 06-07 BCCL has also registered it performance in line with 05-06 & the
estimated profit is Rs.21crore

FUTURE PLAN
Revamping departmental capacity
Deploying hired HEMM for coal production from isolated patches. Long wall
Mechanization is Moonidihi project Developments of MANDRA Block in BARORA
Area Up gradation & modernization of washeries
It is estimated that net worth will be positive by
2010-11 & production will tend to 30mts by 2011-
12.
A Similar Project like BCCL is ECL:
Eastern coalfield limited (ECL)
Eastern coalfield limited (ECL) a subsidiary of coal India limited was
incorporated on Nov 1975; ECL’s estimated command area stretches over
1620 sq km of which 1530 sq km in Raniganj coalfield and remaining 90 sq
km in Santal Parganas and Rajmahal coalfield. ECL mining operations are
located in west Bengal and Jharkand and it operates a total of 113 mines of
which 88 are underground and 19 opencast and rest 6 combined (OC and UG)
spread over Ranigunj, Mugha-Salanpur and Hura coalfields.

Page 50 of 56
PERFORMANCE PARAMETER
During 2005-06 ECL recorded a coal production of 31.11 Million Tones at a
growth of 14.18%. Coal dispatches to consumers were to the turn of 28.20
million tones registering a growth of 5.74 % .For the first time since its
inception ECL achieved a profit of Rs. 371.96 crores during the year. This was
way beyond the projected profit of Rs 55.11 cr. Reported to BIFR. ECL period
Rs 884.91 Crore towards state central exchequer in the form of Royalty
During 2005-06. During 06-07 the profitability is also ensured by at the end
of March 07 to the tune of Rs 101 crore

PAST PERFORMANCE AND FACTORS THAT HELPED IN TURN


AROUND
Upon nationalization of coal sector in mid seventies centuries ECL acquired
mines where the mining methods adapted by erstwhile private owners were
unscientific. It also inherited large unskilled manpower the cumulative effect
of these factors resulted in continuous losses since ECL come into being and
the company had to b referred to BIFR in Nov 1999. ECL was declared as sick
and state bank of India was appointed as its operating agency to prepare a
revival plans for rehabilitation. Some of the silent features of the revival plan
are -:
Incremental production of 18.91 mts during 03-04 onwards till 2012-13
Increase in underground production to 13.81 mts by ’10-’11 through
introduction of continuous mines, long wall technology at jhnajra,
mechanization of manual districts
Increase in opencast production to 33.70 mts during 2012 –13 through
Rajmahal expansion. Opening in green field projects, expansion of Sonepur
Bazari Project and Chitra opencast Outsourcing of 17 opencast patches to
produce 23.25 mts from 2003-04 to 2010-2011 Introduction of high wall
mining to produce 3.2 mts Conversion of current account balance into equity
share capital by coal India limited and waiver of unsecured loan by CIL
Investment of Rs 2591.40 crore from 03-04 to 12-13 through internal accrual.
All these measure shall render net worth to become positive by Rs. 82.74
crore. During 2009-10 ECL is then expected to come out of BIFR.

RESULTS AND CONCLUSION


AIM: To analyze the Financial Statement of Coal India Limited for the past
five years.
COMMENT on OBJECTIVES:
1. To measure the efficiency of the Organization – If we go through the ratio
analysis part we will see that during the analysis of liquidity ratio there is
positive growth from 2005-06 onwards. The liquidity position of the company
is improving significantly and the terminal year has registered its growth

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positively and has established that current assets has exceeded over current
liabilities.
There is also immense reduction of the percentage of debt during the
years, which is the company has low financial risk which is beneficiary to the
shareholders. If we go through the profitability ratios we will see that the
company is making profit and its operating efficiency is sound.
2. To judge the profit earning capacity of the Organization – The profitability
position of the organization on the whole for last five years as has been
depicted before is following a healthy and rising trend because of improved
productivity, increased turnover and containing cost between single digit
inflation.
3. To know about the financial strength of the Organization – The debt burden
of the company is drastically reducing, which is a good indication for the
shareholders that the company is able to withstand it financial needs from its
own generation and the siphoning of funds from outer sources is gradually in
decreasing order.
From the information in the dissertation, it can be said that the
company is financially sound and it is identified that the company including its
eight subsidiaries has attained the stage of profitability and it is a remarkable
achievement in the arena of Financial Management.
4. Information about activities in the Organization - In addition to above, the
following jobs were also undertaken:

Revision of project reports/cost estimates.


Feasibility reports for coking/non-coking coal washeries.
Study on improvement/modernization of existing BCCL washeries.
Operational plans for large OC mines.
Environmental Management Plan (EMP) including EMP for Post-facto
environmental clearance for incremental production.
Special reports for dealing with fire, subsidence and rehabilitation etc.
Detailed design and drawings, NIT, tender scrutiny etc.
Mine capacity assessment of underground & opencast mines of CIL.
Various technical studies relating to opencast & underground mines.

Performance analysis of HEMM operating in OC mines, Powered Support Long


wall faces, Continuous Miners and intermediate technology using SDLs and
LHDs in CIL mines.
Preparation of Global bid documents for introduction of Long wall and
Continuous Miner Technology in underground mines of CIL.
COMMENT on HYPOTHESIS:-

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The hypothesis was ‘The financial statements are mirrors which reflect the
financial position and operating strength of the concern’, which is absolutely
true because after analyzing and going through the data of the dissertation we
can say that the financial position and operating strength of the company is
sound.
As we have marked before, we will see that during the analysis of
liquidity ratio there is positive growth from 2005-06 onwards. The liquidity
position of the company is improving significantly and the terminal year has
registered its growth positively and has established that current assets has
exceeded over current liabilities.
There is also immense reduction of the percentage of debt during the
years, which is the company has low financial risk which is beneficiary to the
shareholders. If we go through the profitability ratios we will see that the
company is making profit and its operating efficiency is sound.
Personal recommendation
From the overall analysis of financial statements and component wise cost,
the company is being looked from all the dimension and finally it can be
concluded that economic health is sufficiently strong with huge cash reserve
can enable the company for diversification and many other venture is being
processed apart from the main business of coal mining. Cost aspect is also
registering that the price increase is contained within the level of inflation in
spite of many other extraneous factors.
In my opinion it is a cash rich PSU and should go for diversification meeting all
social commitment. In global context for its survival and growth many other
conditional ties to be complied. Under corporate governance more
transparency should be maintained and many other commitment to be
achieved.

LIMITATIONS OF THE STUDY


AND FUTURE SCOPE OF THE
WORK

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After reviewing all sets of financial data as well as statistical
information of the company, an effort is taken to highlight the
company’s financial position along with sufficient comment to
diagnose the financial health from time to time. It is a drive with
time constraint so overall review of the company from several
direction cannot be viewed which can help the management to
take concrete managerial decision. Further to note that the
structure of company is massive in nature with manpower of
4, 26,000 with 465 mines scattered throughout whole of India
varying geo-mining conditions with a different cost structure, it is
not similar to any other industry to study the whole company in a
single thrust.
From my observation, it is identified that the company had
tremendous potential for its growth and expansion. Now the facing
problem of land acquisition, so further expansion is restricted, so
the company should think for alternative set of business and the
new venture which the company has already adopted viz. setting
up of Coal Videsh, approved by the Coal India board for its
formation as its separate subsidiary to pursue foreign ventures.

APPENDICES

CIL – Coal India Limited


ONGC- Oil and Natural Gas Corporation
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CA- Current Asset
CL- Current Liabilities
Formulas used in Ratio Analysis
1. Current Ratio= CA/CL
2. Quick Ratio=Quick Asset/Current Liability
3. Net Working Capital Ratio=Net Working Capital/Net Asset
4. Debt Ratio=Total Debt/Capital employed
5. Debt Equity Ratio=Total Debt/Net Worth
6. Capital Employed to Net Worth Ratio=Capital Employed/Net Worth
7. Gross Profit Margin=Gross Profit/Sales
8. Net Profit Margin=Profit After Tax(PAT)/Sales
9. Net Margin based on NOPAT=EBIT-Tax/Sales
10. Return on Investment=EBIT-Tax/Net Asset
11. Return on Equity=PAT/Net Worth
EBIT=Earning before interest and tax
NOPAT=Net operating profit after tax

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BIBLIOGRAPHY

Reference book:

Financial Management by I.M. Pandey


Financial Management by Dr.S.P. Gupta
Management Accounting by Khan & Jain

Annual Reports and accounts of 2006-07 of Coal India Limited.


Non-print media

www.coalindia.nic.in
www.coalindialimited.com
www.cil.com

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