CORPORATE FINANCE JSW STEEL FINANCIAL ANALYSIS

I.
RATIO Current Quick Debt-Equity Inventory Turnover Assets Turnover Interest Cover Earnings Per Share Net Profit Margin% Operating Profit Margin% Debtors Turnover Ratio ROCE(Capital Employed)%

FINANCIAL RATIOS OF JSW STEEL AND ITS COMPETITORS

JSW STEEL March 12 0.76 0.54 0.69 7.97 1.07 3.43 71.62 5.04 17.42 29.12 13.22 March 11 0.78 0.49 0.74 7.10 0.92 4.44 88.87 8.64 20.08 32.95 11.73 March 10 0.58 0.31 1.26 8.95 0.90 3.81 106.59 11.09 23.52 37.79 15.08 March 09 0.44 0.28 1.51 8.75 0.81 3.00 22.96 3.23 20.42 38.09 11.53 March 08 0.51 0.28 1.06 9.26 0.82 6.13 90.84 14.92 29.46 39.11 18.76 TATA STEEL March 12 0.79 0.52 0.45 9.40 0.44 5.93 68.95 19.47 35.49 50.80 15.03 SAIL March 12 1.22 0.82 0.40 3.71 0.81 9.00 8.58 7.44 13.15 10.30 10.91

SHASHANK JOGANI

S.Y. B.F.M.

ROLL NO. 28

CORPORATE FINANCE JSW STEEL FINANCIAL ANALYSIS

II. RATIO ANALYSIS

1. Current ratio The current ratio is a popular financial ratio used to test a company's liquidity by deriving the proportion of current assets available to cover current liabilities. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its shortterm liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). This indicates that JSW Steel has 0.76 in short-term resources to service each rupee of current debt. It is a low current ratio in comparison to its competitors, which indicates a developing cash flow problem. 2. Quick ratio The quick ratio or the acid-test ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. There is considerable difference between the current ratio and quick ratio of JSW Steel, which means the current assets are heavily dependent on inventories. 3. Debt-Equity Ratio The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. JSW has a debt-equity ratio of 0.69, which is significantly low from previous years, which means that the company has paid off their debt and is in a better leverage position. 4. Inventory Turnover An important resource that requires considerable management attention is inventory. Control of inventory is important and is commonly assessed with the inventory turnover measure. The JSW number of 7.97 indicates that goods were bought and sold about 8 times in the year. Generally, the higher the number the better it is. The less time goods spend in inventory the better the return the company is able to earn from funds tied up in inventory. A large stale inventory can distort the asset position of the company and should be monitored for that reason also.

SHASHANK JOGANI

S.Y. B.F.M.

ROLL NO. 28

CORPORATE FINANCE JSW STEEL FINANCIAL ANALYSIS

5. Asset Turnover This indicates how efficiently assets are being used to support sales. This indicates that JSW Steel with a ratio of 1.07 is generating about 1 rupee for every rupee invested in assets. A high level of return suggests that corporate resources are being well managed and that the firm is able to realize high level of sales from its asset investments. Asset turnover ratio of JSW Steel is much higher than that of its competitors. 6. Interest Coverage Ratio A ratio used to determine how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. JSWs interest coverage ratio has fallen considerably in the past few years, thus questioning its capacity to pay further debt expense. 7. Earnings Per Share - EPS The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. JSW has one of the highest EPS in the industry. An EPS of 71.62% can be accredited to the lower number of outstanding shares with the company and the higher profit margins. 8. Net Profit Margin Net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends have been deducted from a company's total revenue. The formula for net profit margin is: (Total Revenue Total Expenses)/Total Revenue = Net Profit/Total Revenue = Net Profit Margin JSW has maintained a lower profit margin ratio of 5.04% as compared to the other players. This signifies that the companys return on sale is quite less and the company is not taking advantage of economies of scale as the sales are comparatively low. 9. Operating Profit Margin Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin to determine the quality of a company, it is best to look at the change in operating margin over time and to compare the company's yearly or quarterly figures to those of its competitors. If a company's margin is increasing, it is earning more per dollar of sales. The higher the margin, the better it is. The operating profit percentage of JSW Steel has been reducing since the past few years, indicating fall in increase of earnings every year.

SHASHANK JOGANI

S.Y. B.F.M.

ROLL NO. 28

CORPORATE FINANCE JSW STEEL FINANCIAL ANALYSIS

10. Debtors Turnover Ratio Debtor turnover ratio is the relationship between net sales and average debtors. It is also called account receivable turnover ratio because the debtor and bill receivables' total is used for following formula Debtor Turnover Ratio = Net Credit Sales / Average Debtors ( sundry debtors + bill receivables) JSW Steel has a debtor turnover ratio of 29.12, which indicates that its average debtors are converted into cash roughly 29 times. It is a good turnover ratio, since it implied that money is being collected faster. 11. Return on Capital Employed The return on capital employed (ROCE) ratio, expressed as a percentage, narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital. JSW has a ROCE of 13.22% in 2012, which is a major decline compared to its ROCE of 18.76% in 2008. This is an indicator to the fact that the company has utilised its shareholders funds to the optimum level.

SHASHANK JOGANI

S.Y. B.F.M.

ROLL NO. 28