5

FINANCIAL STATEMENT ANALYSIS

5.1 INTRODUCTION

Before going to the financial statement analysis of NALCO, the researcher consider it is
his prime duty to give a clean and clear idea about financial statement analysis in
general, which the researcher thinks might be helpful for the readers.

User of financial statements can be get further insight about financial strengths and
weakness of the firm if they properly analyse information reported in these statements.
Management should be particularly interested in knowing financial strength of the firm
to make their best use and to be able to spot out financial weakness of the firm to take
suitable corrective actions. The future plans financial strength and weakness. Thus
financial analysis is the starting point for making plans, before using any sophisticated
forecasting and planning procedures.

Financial statement analysis is the process of identifying the financial strength and
weaknesses of a firm by properly establishing relationship between the items of balance
sheet, the profit and loss account and cash flow statement. The first task of the financial
relevant to the decision under consideration from the total information contained in the
financial statements. The second step is to arrange the information in a way to highlight
significant relationships. The final step is interpretation and drawing of conclusion.

5.2 METHODS OF FINANCIAL STATEMENT ANALYSIS

The analysis and interpretation of financial statement is used to determine the financial
position and results of operations. A number of methods are used to study the
relationship between different statements. The following methods are generally used for
financial statement analysis:

 Comparative Statements
 Common-size Statements
 Trend Analysis
 Cash flow Analysis
 Ratio Analysis
  Cost-Volume-Profit analysis

The researcher has mainly concentrated on ratio analysis. Therefore he has analysed the
ratios in the following chapter. While Cash Flow, Comparative Statements, Common-
size Statements, Trend Analysis has been made in this chapter. While the researcher was
unable to make cost-volume-profit analysis items separately due to lack of relevant data.

5.3 COMPARATIVE STATEMENT ANALYSIS

Comparative Statement Analysis consists of:

 Comparative Balance Sheet

 Comparative Income Sheet

5.3.1 COMPARATIVE BALANCE SHEET ANALYSIS

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 sheets of the same business
enterprise on two different dates. The comparative analysis of balance sheets has two
columns for the data of original balance sheets of two years. Its third column is used to
show increase in figures. The fourth column may be added for giving percentages of
increases or decreases. Since, only two balance sheets can be compared with, the
researcher has taken the balance sheet of the year 2010-11 and 2011-12 for convenience
of all concerned.
 COMPARATIVE BALANCE SHEET OF NALCO
As on 31st March 2011 and 2012
(Rs in crores)
Increase/ Increase/
Particulars 2010-11 2011-12
Decrease Decrease (%)
Equity and Liabilities
Shareholder’s Fund
Share Capital 1288.62 1288.62 - -
Reserve and Surplus 9875.99 10426.46 + 550.47 + 5.57
Total 11,164.61 11715.08 + 550.47 + 4.93
Non-Current Liabilities
Deferred Tax Liabilities 693.46 849.11 + 155.65 + 22.44
Other Long term liabilities 56.81 41.41 - 15.4 - 27.10
Long Term Provisions 212.79 238.29 + 25.5 + 11.98
Total Non-Current Liabilities 963.06 1128.81 + 165.75 + 17.21
Current Liabilities
Short Term Borrowings 14.88 - + 14.88 + 100
Trade payable 671.47 693.98 + 22.51 + 3.35
Other Current Liabilities 1960.30 1937.93 - 22.37 - 1.14
Short term Provisions 174.58 44.98 - 129.6 - 74.23
Total Current Liabilities 2821.23 2676.89 - 144.34 - 5.11
Total Liabilities 14,947.90 15,520.78 + 571.88 + 3.82
Non-Current Asset
Fixed Asset
Tangible Asset 5488.69 6498.96 + 1010.27 + 18.40
Intangible Asset 4.84 113.39 + 108.55 + 2,242.76
Capital Working Progress 1706.82 684.44 - 1,022.38 - 59.89
Non-current Investment 116.02 1.02 - 115 - 99.12
Long Term Loans and Adverse 791.75 1165.15 + 373.4 + 47.16
Other Non-Current Asset 35.70 35.49 - 0.21 - 0.58
Total Fixed Asset 8143.92 8498.45 + 354.63 + 4.35
Current Investment 1215.65 753.24 - 462.41 - 38.03
Inventories 1071 1212.70 + 141.70 + 13.23
Trade Receivable 111.66 138.12 + 26.46 + 23.69
Cash and Bank Balance 3795.23 4168.35 + 373.12 + 9.83
Short term Loans advance 435.54 515.34 + 79.8 + 18.32
Other Current Asset 176.00 234.58 + 58.58 + 33.28
Total Current Asset 6805.1 7022.33 + 217.23 + 3.19
Total Asset 14,948.92 15,520.78 + 571.86 + 3.82
Source: Compiled by the author
ANALYSIS

Shareholder’s Fund

No equity share capital was issued in the year 2011-12. But in the year 2011-12 the
reserve and surplus of NALCO has increased by Rs 550.47 crores (i.e. 5.57%). It is
mainly due to increase in general reserves.

Non-Current Liabilities

In the year 2011-12, non-current liabilities have increased by Rs 165.75 crores i.e.
17.21% in comparison to the year 2010-11. It is mainly due to increase of deferred tax
liability and long term provisions.

Current Liabilities

Total current liabilities in the year 2011-12 have been decreased by Rs 144.34 crores,
which is mainly due to decrease in short-term borrowings and short term provisions.

Fixed Assets

Fixed assets in the year 2011-12 are increased by Rs 354.63 crores. But upon individual
examination it is revealed that the increase is mainly due to increase in tangible assets
(building, railway siding, plant & equipment, furniture and fixture, vehicles and office
equipment), intangible assets (software, mining rights, licenses & franchise) long term
loans and advances.

Current Assets

The comparative balance sheet of the company reveals the fact that during the year 2011-
12 there has been an increase of Rs 217.23 crores in current assets. The increase has been
primarily due to increase of inventories, trade receivables, cash and bank balances and
short term loans and advances.

INTERPRETATION

Liquidity

The net current assets (current assets minus current liabilities) in the year 2010-11 were
Rs 3983.87 crores which is increased to 4345.44 crores in 2011-12. It shows that increase
in working capital will mean improvement in the current financial position of NALCO.
In 2011-12 there has been increase of trade receivables, cash and bank balances, short
term loans and advances and other current assets over the year 2010-11.It shows that the
liquidity position of NALCO has improved. But there is an increase of inventory of Rs
141.70 crores in the year 2011-12 which is not good for NALCO. Because it is the sign
of accumulation of stock for want of customers, decrease in demand or inadequate sales
promotion.

Solvency

During 2011-12, the tangible assets has been increased by Rs 1010.27 crores and
intangible assets by Rs 108.55 crores. However in the year 2011-12 no equity share
capital was issued and non-current liabilities has been increased only Rs 165.75 crores. It
indicates that NALCO has utilized some of its working capital for purchase of non-
current assets.

Profitability

Though in the year 2011-12 profit after tax has decreased, but reserve and surplus has
been increased by Rs 550.47 crores. It indicates that though the profitability position of
NALCO is not so good in the year 2011-12 in comparison to the previous year 2010-11
but it is satisfactory in the year 2011-12.

5.3.2 COMPARATIVE INCOME STATEMENT ANALYSIS

The comparative income statement gives an idea of the progress of a business over a
period of time. The changes in absolute data in money values and percentages can be
determined to analyse the profitability of the business. Like comparative balance sheet,
the income statement also has for columns. First two columns give figures of various
items for two years. Third and fourth columns are used to show increase or decrease in
figures in absolute amount and percentage respectively.

COMPARATIVE INCOME STATEMENT

As on 31st March 2010 and 2011
(Rs in crores)
 2009- 2010- Increase / % Increase/
Particulars
10 11 Decrease Decrease
Exports 2209 2065 -144 -6.51
Domestic Sales 3101 4305 +1204 +38.82
Gross Sales 5310 6370 +1060 +19.96
Less : Excise Duty 256 411 +155 +60.54
Net Sales 5054 5959 +905 +17.90
Add : Other Operating Income 119 98 -21 -17.64
5173 6051 +884 +17.08
Less : Operating Expenses 4071 4464 +393 +9.65
Operating Profit 1102 1593 +491 +44.55
Add : Non - Operating Profit 374 353 -21 -5.61
1476 1946 +470 +31.84
Less : Exceptional Expenditure - - - -
Earnings before Interest Depreciation and
1476 1946 +470 +31.84
Taxes (EBIDIT)
Less : Interest and Financial Charges - - - -
Earnings before Depreciation & Taxes 1476 1946 +470 +31.84
Less : Depreciation and Authorization 319 422 +103 +32.28
Profit Before Tax (PBT) 1155 1524 +369 +31.94
Less Provision for Tax 341 455 +114 +33.43
Net Profit (PAT) 814 1069 +255 +31.32
Source: Compiled by the author

ANALYSIS

Net Sales

The above comparative income statement reveals that during the year 2010-11, there has
been an increase of Rs 905.00 Crores in the net sales in comparison to the year 2009-10.
The increase in net sales is mainly due to domestic sales of alumina and aluminum.

Operating Income

Operating income in 2010-11 is increased by Rs 884.00 Crores in comparison to the year

2010-11. The increase has been primarily due to increase in net sale of Rs 905.00 Crores.

Operating Expenditure

Operating expenditure in 2010-11 is increased by Rs 393.00 Crores in comparison to the

year 2010-11. The increase in operating expenses is mainly due to increase in cost of
coal, fuel oil, increase in salary and wages of employee.

Operating Profit

Operating Profit has been also increased by Rs 491.00 Crores. This is due to increase in
net sale of Rs 905.00 Crores.

Non – Operating Profit

Non-operating profit has been decreased by Rs21 Crores. Upon individual observation it
is reveal that decrease of non-operating profit is mainly due to decrease of non-operating
income of interest on bank deposit and profit in sale of long term investment.

INTERPRETATION

The comparative income statement given above reveals that there has been increase in
net sale of 17.90% during 2010-11 while the operating expenses in 2010-11 has
increased by 9.65% in comparison to the year 2009-10 which is less than the percentage
of increased in net sale which result in increase in operating profit by 44.55% during the
year 2010-11. This shows that increase in net sale is sufficient to compensate for the
increased in operating expenses.

The net profit in 2010-11 is increased by Rs 255 Crores which is 31.32% comparison to
the year 2009-10. But the percentage of increase in operating profit. In the year 2010-11
percentage of operating profit was 44.55%. But the percentage of net profit was 31.32%,
it was mainly due to increase in increase in depreciation which was 32.28%.

It may be concluded that there is a sufficient progress in the company during the year
2010-11 in comparison to the year 2009-10 and overall probability of the company is
good.

COMPARATIVE INCOME STATEMENT

As on 31st March 2011 and 2012
(Rs in crores)
2010- 2011- Increase/ % Increase /
Particulars
11 12 Decrease Decrease
Exports 2065 2569 +504 +24.40
Domestic Sales 4305 4358 +53 +1.23
Gross Sales 6370 6927 +557 +8.74
Less : Excise Duty 411 427 +16 +3.89
Net Sales 5959 6500 +541 +9.07
Add : Other Operating Income 98 112 +14 +14.28
6051 6612 +555 +9.16
Less : Operating Expenses 4464 5467 +1003 +22.46
Operating Profit 1593 1145 -448 -28.12
Add : Non - Operating Profit 353 542 +189 +53.54
1946 1687 -259 -13.30
Less : Exceptional Expenditure - 22 +22 +100
Earnings before Interest debt and taxes
1946 1665 -281 -14.43
(EBIDIT)
Less : Interest and Fin Charges - 1 +1 +100
Earnings before Depreciation and Taxes 1946 1664 -282 -14.49
Less: Depreciation and Authorization 422 467 +45 +10.66
Profit Before Tax (PBT) 1524 1197 -327 -21.45
Less Provision for Tax 455 348 -107 -23.51
Net Profit (PAT) 1069 849 -220 -20.57
 Source: Compiled by the author

ANALYSIS (2011-12 & 2010-11)

Net Sales

The comparative income statement of the company reveals that during the year 2011-12
there has been an increase of Rs 504.00 Crores in net sales in comparison to the year
2010-11. But upon individual examination it is revealed that the increase in net sales is
mainly due to increase in export sales and domestic sale of alumina and aluminum.

Operating Income

Operating income in 2011-12 is increased by Rs 555.00 Crores in comparison to the year

2010-11 has been primarily due to increase in net sale of Rs504.00 Crores.

Operating Profit

There has been a decrease of Rs.448.00 Crores in operating profit during the year 2011-
12 in comparison to previous year 2010-11. It is mainly due to increase in operating
expenses of ` 1003.00 Crores during the year 2011-12 in comparison to the year 2010-11.

Non-Operating Profit

Non-Operating profit in 2011-12 in increased by Rs. 189.00 Crores. This is mainly due to
increase in interest income on bank deposits. Upon individual examination interest on
bank deposit during the year 2010-11 was ` 264.28 Crores which was increased to `
421.93 Crores by the year 2011-12.

INTERPRETATION

The comparative income statement reveals that there has been increase in net sales of `
9.07% in the year 2011-12 while the operating expenses has increased by 22.46% in the
year 2011-12 in comparison to the year 2010-11 which result in decreased in operating
profit by 28.12% during the year 2011-12. So increase in net sale is not sufficient to
compensate for the increase in operating expenses.

The net profit in 2011-12 is decreased by 20.57% because of increase in operating

expenses and exceptional expenditure during the year 2011-12 is increased to 22 crores
which is 100% in comparison to previous year 2010-11. Depreciation is increased by
45% in comparison to previous years 2010-11.

The company needs to look into the cause of increase in operating expenditure and
control the same.

5.4 COMMON-SIZE STATEMENT ANALYSIS

The Common-size statement, balance sheet and income statement are shown in analytical
percentages. The figures are shown as percentage of total assets, total liabilities and total
sales. The total assets are taken as 100 and different assets are expressed as a percentage
of the total. Similarly, various liabilities are taken as a part of total liabilities. These
statements are also known as 100 percent statements. Common-size Statement Analysis
consists of:
a) Common-size Balance Sheet.
b) Common-size Income statement.

5.4.1 COMMON-SIZE BALANCE SHEET ANALYSIS

A statement in which balance sheet items are expressed as the ratio of each asset to total
assets and the ratio of each liability is expressed as ratio of total liabilities is called
common-size balance sheet.

COMMON-SIZE BALANCE SHEET

As on 31st March 2011 and 2012
(Rs in crores)
Particulars 2010-11 % 2011-12 %
Equity and Liabilities :
Shareholder’s Fund :
Share Capital 1288.62 8.62 1288.62 8.31
Reserve and Surplus 9875.99 66.06 10426.46 67.17
Total 11,164.61 74.68 11715.08 75.47
Non-Current Liabilities :
Deferred Tax Liabilities 693.46 4.64 849.11 5.47
Other Long term liabilities 56.81 0.38 41.41 0.26
Long Term Provisions 212.79 1.42 238.29 1.54
Total Non-Current Liabilities 963.06 6.44 1128.81 7.27
Current Liabilities :
Short Term Borrowings 14.88 0.09 - -
Trade payable 671.47 4.49 693.98 4.47
Other Current Liabilities’ 1960.30 13.12 1937.93 12.38
Short term Provisions 174.58 1.17 44.98 0.29
Total Current Liabilities 2821.23 18.87 2676.89 17.24
Total Liabilities 14,948.90 100 15,520.78 100
Non-Current Asset :
Fixed Asset :
Tangible Asset 5488.69 36.72 6498.96 41.87
Intangible Asset 4.84 0.03 113.39 0.73
Capital Working Progress 1706.82 11.42 684.44 4.41
Non-current Investment 116.02 0.77 1.02 0.006
Long Term Loans and Adverse 791.75 5.29 1165.15 7.51
Other Non-Current Asset 35.70 0.24 35.49 0.23
Total Fixed Asset 8143.92 54.47 8498.45 54.75
Current Asset :
Current Investment 1215.65 8.13 753.24 4.85
 Inventories 1071 7.16 1212.70 7.82
Trade Receivable 111.66 0.75 138.12 0.89
Cash and Bank Balance 3795.23 25.39 4168.35 26.85
Short term Loans advance 435.54 2.92 515.34 3.32
Other Current Asset 176.00 1.18 234.58 1.52
Total Current Asset 6805.1 45.53 7022.33 45.25
Total Asset 14,948.92 100 15,520.78 100
Source: Compiled by the author

INTERPRETATION

1. An analysis of pattern of financing in both the year i.e. in 2010-11 and 2011-12, it
shows that NALCO is more traditionally financed. It means that NALCO has
depended more on its own funds as it shown by balance sheet .In 2010-11 out of
total investments, 74.68% of funds are shareholder’s fund and outsider’s fund
account only 25.32%.In 2011-12 shareholder’s fund raised to 75.47% while
outsider’s share is reduced to 24.50%.It shows that in both the year NALCO has
good financial planning but in 2011-12 NALCO is more financed on traditional
lines.
2. The of NALCO in the year 2010-11 and 2011-12 is good. In 2010-11 NALCO
has 45.53% of current asset while current liabilities are 18.87% of total
investments. In 2011-12 current assets are 45.25% while current liabilities are
17.24% of total investments. Looking at the difference of percentages of current
assets and current liabilities, the position in 2011-12 is much better than in the year
2010-11. The difference is 26.66% in 2010-11and 28.01% in 2011-12.
3. In the year 2010-11, the investments in fixed assets are 54.47% while long-term
funds are 81.12%. These figures in 2011-12 are 54.75% and 82.74%. This shows
that in both the year the working capital of NALCO is financed from long-term
funds.
4. The analysis of various figures shows that in both the year, the NALCO has
satisfactory short term and long-term position.
5.4.2 COMMON-SIZE INCOME STATEMENT ANALYSIS

The items in income statement can be shown as percentage of sales to show the relation
of each item to sales. So a relationship is established between sales and other items in
income statement and his relationship is helpful in evaluating operational activities of the
enterprise.

COMMONSIZE INCOME STATEMENT

As on 31st March 2010 and 2011
(Rs in crores)
Particulars 2009-10 % 2010- %
 11
Exports 2209 43.70 2065 34.65
Domestic Sales 3101 61.35 4305 72.27
Gross Sales 5310 105.06 6370 106.89
Less : Excise Duty 256 5.06 411 6.89
Net Sales 5054 100.00 5959 100.00
Add : Other Operating Income 119 2.35 98 1.64
5173 102.35 6051 101.64
Less : Operating Expenses 4071 80.55 4464 74.91
Operating Profit 1102 21.80 1593 26.73
Add : Non - Operating Profit 374 7.40 353 5.92
1476 26.20 1946 32.65
Less : Exceptional Expenditure - - - -
Earnings before Interest debt and taxes (EBIDIT) 1476 26.20 1946 32.65
Less : Interest and Financial Charges - - - -
Earnings before Depreciation and Taxes 1476 26.20 1946 32.65
Less : Depreciation and Authorization 319 6.31 422 7.08
Profit Before Tax (PBT) 1155 22.85 1524 25.51
Less Provision for Tax 341 6.75 455 7.63
Net Profit (PAT) 814 16.10 1069 17.94
Source: Compiled by the author

INTERPRETATION

1. The sales and operating profit has increased in absolute figure in 2010-11 as
compared to 2009-10 and the percentage of operating profit to sales has also
increased in 2010-11.
2. The decrease in operating expenditure as a percentage of sales has increased the
operating profit form 21.80 % to 26.73 %.
3. Net profits after tax have decreased both in absolute figure and as a percentage in
2010-11 as compared to 2009-10.
4. The overall profitability of the company has improved a lot in 2010-11. This has
been possible for two reasons, one is that the company has increased sales by Rs.
905.00 Crores in 2010-11 from 2009-10, which in 17.90% increases, the second
reason in that the company has not only controlled but it reduced operating
expenditure as a percentage of sales as compared to 2009-10.

COMMONSIZE INCOME STATEMENT

As on 31st March 2011 and 2012
(Rs in crores
2010- 2011-
Particulars % %
11 12
Exports 2065 34.65 2569 39.52
Domestic Sales 4305 72.27 4358 67.04
Gross Sales 6370 106.89 6927 106.56
Less : Excise Duty 411 6.89 427 6.56
 Net Sales 5959 100.00 6500 100.00
Add : Other Operating Income 98 1.64 112 1.72
6051 101.64 6612 101.72
Less : Operating Expenses 4464 74.91 5467 84.10
Operating Profit 1593 26.73 1145 17.61
Add : Non - Operating Profit 353 5.92 542 8.33
1946 32.65 1687 25.95
Less : Exceptional Expenditure - - 22 0.33
Earnings before Interest debt and taxes (EBIDIT) 1946 32.65 1665 25.61
Less : Interest and Financial Charges - - 1 0.015
Earnings before Depreciation and Taxes 1946 32.65 1664 25.60
Less : Depreciation and Authorization 422 7.08 467 7.18
Profit Before Tax (PBT) 1524 25.51 1197 18.41
Less Provision for Tax 455 7.63 348 5.35
Net Profit (PAT) 1069 17.94 849 13.06
Source: Compiled by the author

INTERPRETATION

1. The net sales and operating profit has increased in absolute figures in 2011-12 as
compared to 2010-11 but the percentage of operating profit to sale has given down in
2011-12.
2. The increase in operating expenditure as percentage of sale has brought the operating
profit from 26.73% to 61%.
3. Net profit after tax has decreased both in absolute figures and as a percentage of sales
in 2011-12 as compared to 2010-11.
4. The overall profitability has decreased in 2011-12 and the reason is a rise in operating
expenditure. The company should take immediate steps to control its operating
expenditure and otherwise the company will be in trouble.

5.5 TREND ANALYSIS

In financial analysis the direction of change over a period of years is of crucial

importance. Trend analysis of ratios indicates the direction of change. This method
determines the direction upwards or downwards and involves the computation of the
percentage relationship that each statement item bears to the same item in base year. The
information for a number of years is taken up and one year, generally the first year, is
taken as a base year. The figures of the base year are taken as 100 and trend ratios for
trend analysis such as sales, operating expenses, profit after tax, working capital,
production of alumina and aluminum, reserves and surplus. The trend analysis tables
have been given in the following

TREND ANAYSIS : FINANCIAL PERFORMANCE

(2007-08 = 100)
 Sales Operating Expenses Profit After Tax
Year Amount Trend Amount Amount Trend
Trend %
(Crores) % (Rs Crores) (Rs Crores) %
2007-08 4988.80 100 2822 100 1631.52 100
2008-09 5094.52 102.12 3427 121.44 1272.27 77.98
2009-10 5055.66 101.34 4074 144.36 814.22 49.91
2010-11 5958.98 119.46 4461 158.07 1069.30 65.54
2011-12 6500.27 130.29 5467 193.73 849.50 52.06
Working Capital Reserve
Year
Amount (Rs Crores) Trend % Amount (Rs crores) Trend %
2007-08 3500 100 8230.14 100
2008-09 2596 74.17 9125.50 110.88
2009-10 2998 85.66 9751.27 118.48
2010-11 3304 94.40 9875.99 119.99
2011-12 4193 119.80 10426.46 126.68
Source: Compiled by the author

PRODUCTION TREND ANAYSIS

(2007-08 = 100)
Bauxite Alumina Hydrate Aluminum
Year UNIT (MT UNIT
Trend % UNIT (MT) Trend % Trend %
) (MT)
2007-08 4,684,684 100 1,575,500 100 360,457 100
2008-09 4,700,027 100.33 1,576,500 100.06 361,262 100.22
2009-10 4,878,888 104.14 1,591,500 101.01 431,488 119.70
2010-11 4,823,908 106.79 1,556,000 98.76 443,597 123.06
2011-12 5,002,626 106.79 1,687,000 107.08 413,089 114.60
Source: Compiled by the author

POWER TREND ANAYSIS

(2007-08 = 100 )
Power ( Net )
Year
UNIT ( MT ) Trend %
2007-08 5,609 100
2008-09 5,541 98.79
2009-10 6,293 112.19
2010-11 6,608 117.81
2011-12 6,200 110.54
Source: Compiled by the author

Interpretation
The sales have continuously increased in all years, except in the year 2009-10 when there
was a fall in sales by Rs 38.86 Crores in comparison to previous year. But after 2009-10
sales were increased and it was reached to Rs 6500.27 Crores. The performance in sales
was quite satisfactory.

The trend of operating expenses has been gradually increasing from 100% in 2007-08 to
193.73 % in 2011-12. The increase in operating expenses is mainly due to increase in
cost of coal and fuel.

The profits of the company have been inconsistent over the 4 years. Form 100% in
2007-08, it fell to record low of 49.19% in 2009-10. Again it was up to 65.51% in 2010-
11, which fell to 52.06% in 2011-12. The trend shows that the company’s profit
performance has not been satisfactory.

Working capital has continuously increased from 2008-09 to 2011-12. It was 74.17% in
the year 2008-09 then it has increased to 119.80% in the year 2011-12. It indicates that
the company has maintained adequate working capital to meet the day to day
expenditure.

There was no fall in the trend percentage of reserve and surplus in all the 4 year even in
the year of low profit. Thus the position of reserve and surpluses has been quite
satisfactory.

The production of bauxite has been increasing over the four years. It is the highest ever
performance in bauxite transportation in the year 2011-12. It was 100% in 2007-08,
which rose to 106.79% in 2011-12.

The production of alumina hydrate has continuously increased except in the year
2010-11, when there was a fall in production to 98.76% (Previous year 101.01%). But
after then production has increased to 107.08%. Thus production of alumina hydrate is
quite satisfactory.

The production of aluminum has continuously increased except in the 2011-12. It was
114.60% in the year 2011-12, which was 123.06% in the year 2010-11. The production
of aluminum was lower in 2011-12, is mainly due to coal constraints and low metal price
in the later part of the year.

The production of power has been inconsistent over the 4 years. In the year 2007-08 it
was 100%, then it fell to 98.79% in the year 2008-09. Then it rose to 112.19% in the year
2009-10 and 117.81% in the year 2010-11. But after then it has decreased to 110.54% in
the year 2011-12. So the reason of power generation was reduced to coal constraints.
5.6 CASH FLOW ANALYSIS

Cash Flow Statement is a statement which describes the inflows (Sources) and Outflows
(Uses) of cash and cash equivalents in an enterprise during a specified period of time.
Such a statement enumerates net effects of various business transactions on cash and its
equivalents and takes into account receipts and disbursements of cash. Cash flow
statement summaries the causes of changes in cash position of a business enterprise
between dates of two balance sheets. According to As– 3 (Revised), an enterprise should
prepare a cash flow statement and should present it in the annual report for each period
for which financial statements are prepared. The terms cash, cash equivalents and cash
flows are used in this statement with the following meaning:

Cash comprises cash on hand and demand deposits with banks.

Cash equivalent: It consists of short-term highly liquid investment having original

maturity less than three months, which can be readily converted into cash without decline
in its value. In other words, these investments can be converted into cash without any
risk.

Cash flows are inflows and outflows of cash and cash equivalents. Flow of cash is said to
have taken place when any transaction makes changes in the amount of cash and cash
equivalents available before happening of the transaction results in the increase of cash
and its equivalents, it is called an inflow (Source) and if it results in the decrease of total
cash, it is known as outflow (Use) of cash.

Classification of Cash Flows

According to As-3 (Revised), the cash flow statement should report cash flows during
the period classified by operating, investing and financing activities. Thus, cash flows are
classified into three main categories:

 Cash Flows from Operating Activities.

 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
 Cash Flows from Operating Activities:

Cash Flows from Operating Activities

Operating activities are the principal revenue – producing activities of the enterprise and
other that are not investing or financing activities.

Cash flows from Investing Activates

Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents. The separate disclosure of cash flows
arising from investing activities is important because the cash flows represent the extent
to which expenditures have been made for resources intended to generate future income
and cash flows.

Cash Flows from Financing Activities

Financing activities are activities that result in changes in the size and composition of the
owners’ capital (Including preference share capital in the case of a company) and
borrowing of the enterprise.
 CASH FLOW STATEMENT (AS-3)
(Rs in crores)
Particulars 2008-09 2009-10
A. Cash flow from Operating Activities
1,927.16 1,154.8
Net Profit before tax and Extraordinary Income
6
Adjustments for:
Depreciation 272.96 319.40
Interest and Financing charges 3.96 2.28
Provisions(Net) 55.10 71.54
Claims/Recoverable written off 0.14 0.13
Stores and spares written off 16.72 19.54
Dividend Income (6.31) (84.46)
Loss/Profit on sale of assets(net) (0.04) 332.53 (0.20) 328.23
Operating Profit before working capital changes 2259.69 1483.09
Adjustments for:
Inventories (163.47) (94.89)
Trade & other receivables 65.09 (241.88)
Trade & other payables 459.13 360.75 317.20 (19.51)
Cash generated from Operations 2620.44 1463.58
Direct taxes paid (682.22) (291.93)
Cash flow before Extraordinary Items 1938.22 1171.65
Extraordinary Items - -
Net cash from operating activities 1938.22 1171.65
B. Cash Flow from Investing Activities
(2211.08 (677.60)
Purchase of Fixed Assets & Investments
)
Dividend Income from Mutual fund 13.10 84.46
(2197.98 (593.14)
Net cash used in investing Activities
)
C. Cash Flow from Financing Activities
Interest and Financing charges (3.96) (2.28)
Payment/proceeds of Short term Borrowings (6.79) -
Dividends including dividend tax paid (376.91) (301.53)
Cash Flow from Financing Activities (387.66) (303.81)
D. Net changes in Cash & cash equivalents (647.49) 283.31
(A+B+C)
E. Cash & Cash equivalents-Opening balance 3516.46 2869.04
F. Bank Overdraft - 8.61
F. Cash & Cash equivalents-(Closing balance) 2869.04 3152.35
Source: Annual Reports of NALCO

NOTES
 Figure in brackets represent outflows.
 Balances with bank includes Rs 295.50 crores (previous year Rs 220.93 crores) not
available for used by the company.
 During the year the company availed working capital loan facility (Fund based) of
Rs 650 crores (Previous Year Rs 300 crores), sanctioned by bankers. The loan
balance at the end of the year as per books of account is Rs 8.61 crores on account
of cheques issued but not presented).
 Working capital loan facility is mortgaged by hypothecation of raw materials,
Stock-in–process, finished goods, consumables, stores and spares, book debts,
receivables and other current assets of the Company.

CASH FLOW STATEMENT (AS-3)

(Rs in crores)
PARTICULARS 2010-11 2011-12
A. Cash flow from Operating Activities:
Net Profit before tax and Extraordinary
1,523.83 1,197.75
Income
Adjustments for:
Depreciation 421.72 466.65
Interest and Financing charges - 0.87
Provisions(Net) 0.34 1.29
Claims/ Recoverable written off 0.01 2.81
Stores and spares written off 8.57 16.30
Dividend Income (64.74) (98.47)
Loss/Profit on sale of assets(net) (0.04) 365.86 0.21 389.56
Operating Profit before working capital
1,889.69 1,587.31
changes
Adjustments for:
Inventories (122.26) (162.91)
Trade & other receivables 13.50 (163.39)
Trade & other payables 396.79 288.03 (70.26) (396.56)
Cash generated from Operations 2,177.72 1,190.75
Direct taxes paid (547.24) (304.05)
Cash flow before Extraordinary Items 1,630.48 886.70
Extraordinary Items - -
Net cash from operating activities 1,630.48 886.70
B. Cash Flow from Investing Activities:
Purchase of Fixed Assets & Investments (833.22) (180.75)
Dividend Income from Mutual fund 64.74 (768.48) 98.47 (82.28)
Net cash used in investing Activities (768.48) (82.28)
C. Cash Flow from Financing Activities :
Interest and Financing charges - (0.87)
 Payment/proceeds of Short term Borrowings 6.27 (14.88)
Dividends including dividend tax paid (431.30
(225.39) (219.12) (415.55)
)
Cash flow/used from Financing Activities (431.30
(219.12)
)
D. Net changes in Cash & cash equivalents
642.88 373.12
(A+B+C)
3,795.2
E. Cash & Cash equivalents-Opening balance 3,152.35
3
F. Cash & Cash equivalents-Closing balance 4,168.3
3,795.23
(D+E) 5
Source: Annual Reports Of NALCO

NOTES
 Figure in brackets represent outflows.
 Cash and cash equivalents includes Rs 415.97 crores (Previous Year Rs 368.58
crores) towards disputed Electricity Duty, Rs 3.18 crores towards Unpaid dividend
(Previous Year Rs 0.85 crores), Rs Nil (Previous Year Rs 0.11 crores) towards
Debenture interest, not freely available for used by the Company.
 During the year the company availed working capital loan facility (Fund based) of
Rs 650 crores (Previous Year Rs 650 crores), sanctioned by bankers. The loan
balance at the end of the year as per books of account is Rs Nil (Previous Year Rs
14.88 crores on account of cheques issued but not presented).
 Working capital loan facility is mortgaged by hypothecation of raw materials,
Stock-in –process, finished goods, consumables, stores and spares, book debts,
receivables and other current assets of the Company.

INTERPRETATION

1. Cash flow From Operating Activities

Cash flow from operating activities provides feedback on a company’s ability to generate
income from internal sources. Thus these cash flows are essential to helping analysis
assess the company’s ability to meet on going funding requirements contribute to long
term projects and pay a dividend.

Considering the net cash inflow from operating activities of NALCO, it is found that,
cash flow from operating activities has decreased to Rs 886.70 crores in the year 2011-12
in comparison to the preceding years. It was Rs 1938.22 crores in the year 2008-09, in
the year 2010-11. The reason of decrease is increase of inventories and trade receivable,
decrease of trade and other payable and decrease of net profit during the year 2011-12.

It is thus viewed that NALCO has not improvised in its operating activities through its
managerial talent both in qualitative and quantitative.
2. Cash flow from investing activities

In investing activities there is outflow of cash in all the years. In the year 2011-12 there
was an outflow of Rs 82.28 crores, while it was Rs 768.48 crores in 2010-11, Rs 593.14
crores in 2009-10, Rs 2197.98 crores in 2008-09. There was huge difference between
these years. The reason of this difference is huge amount of fixed asset was purchased in
the year 2008-09 which was Rs 2211.08 Cores. The purchased of fixed assets gradually
decreased and it came down to Rs 180.75 crores in the year 2011-12.

Thus it is viewed that in the year 2008-09 the company has already replaced
technologically absolute equipment to keep up with latest trend. So in near future there is
no need of investment in fixed assets by NALCO to keep up with the latest technology.

There was an inflow of Rs 98.47 crores from dividend income from mutual in 2011-12,
which was Rs 64.74 crores in 2010-11, Rs 284.46 crores in 2009-10, Rs 13.10 crores in
2008-09.

3. Cash Flow from Financing Activities

In financing activities there is outflow of cash in all the year. In the year 2011-12 there
was an outflow of Rs 431.30 crores, while it was Rs 219.12 crores in the year 2010-11,
Rs 295.20 crores in the year 2009-10, Rs 387.66 Crores in the year 2008-09. The major
item of change was dividend tax paid. In 2008-09 dividend tax paid was Rs 376.91,
while it was Rs 301.53crores in 2009-10, Rs 225.39 crores in 2010-11, Rs 415.55 crores
in 2011-12. The company has not issued any share in all these years to make the cash
flow positive.

4. Overall

It was found that all these 4 years, the outflow was decreasing. In the year 2008-09,
2009-10, 2010-11, 2011-12 the cash flow was Rs 647.42crores, +Rs 283.21crores,+ Rs
642.88 crores, Rs 373.12 crores respectively. But in the year 2011-12 the cash flow is
less than the previous year 2010-11. It was ` 642.88 crores in 2010-11 and ` 373.12
crores in 2011-12. The management should look into the matter and improve this through
its managerial talent.