A Study on Ratio Analysis

With Reference to Rasthriya Ispat Nigam ltd., Visakhapatnam Steel Plant

A project report submitted to JNTU University, Kakinada is partial fulfillment for the a ard of the de!ree of

MASTER O !"SINESS A#MINISTRATION

"ubmitted #$ Mr.k.Ankineedu Re!d%No&&'(&)**+( Under the ,uidance of #r. M.Srini$as Rao, M!A %M&Phil' -rofessor, .epartment of /ana!ement "tudies

.)-ART/)NT 01 /ANA,)/)NT "TU.2)"

32,NAN4" 2N"T2TUT) 01 2N10R/AT20N T)56N0'0,$
7Approved by A25T), Ne .elhi8 Affiliated to JNTU, Kakinada9

32"AK6A-ATNA/

:*&:;:*&+

VI(NAN)S INSTIT"TE O IN ORMATION TE*+NO,O(#epartment O. Management Studies 7Approved by A25T) and affiliated to JNT University Kakinada9 #"VVA#A, VISA/+APATNAM
00000000000000000000000000000000000000000000000000000000 #ate1

Certificate

This is to certify that the project report titled A STUDY ON RATIO ANALYSIS with special refere ce to RASTRIYA IS!AT NI"A# LI#IT$D% &ISA'(A!ATNA# is )ei * s+),itted )y #r- '-A .i eed+ i partial f+lfill,e t for the award of the De*ree of #/A has )ee carried o+t )y hi, + der ,y *+ida ce a d s+per0isio %

%Mr. ! Satya Rao' +ead o. the #epartment #ept. o. M!A VIIT, Visakhapatnam

%Mr. M Srinu' Pro2e3t (uide #ept. o. M!A VIIT, Visakhapatnam

E4ternal E4aminer

.)5'ARAT20N 2 hereby solemnly declare that the project report entitled A "TU.$ 0N RAT20N ANA'$"2" in RA"T6R2$A 2"-AT N2,A/ '2/2T).,

32"AK6A-ATNA/ is a !enuine and bonafide

ork done by me and is not

submitted to any other university or published anytime before%

The project

ork is for the partial fulfillment of the re<uirement for the

a ard of /%#%A de!ree of Andhra University, 3isakhapatnam%

-lace= .ate= 7K%ANK2N)).U9

A*/NO5,E#(EMENT
The satisfaction that accompanies the successful completion of any task ould be incomplete 2 ith out mentionin! people ho made it possible and ith success% hose encoura!ement and constant !uidance cro ned my effort

ish to e>press my deep sense of !ratitude to MRS% /.A,I*E MAR-,

PRIN*IPA,, VIIT and #r. !.SAT-A RAO, +ead o. the #epartment , 32,NAN4" 2N"T2TUT) 01 2N10R/AT20N T)56N0'0,$ % 2 am !rateful to e>ternal project !uide SRI P.A.S"R-ANARA-ANA, SENIOR MANA(ER % 6A' and 2 am also thankful to SRI O.R.M.RAO , ASST. (ENERA, MANA(ER, +R# 6 PRO7E*T 5OR/S in VIS+A/APATNAM STEE, P,ANT for his co; operation and in providin! the information of the company needed by me% 2 especially thank all those ho have helped me directly or indirectly% 2 e>press my profound thanks to my affectionate parents for their constant encoura!ement throu!hout my educational career%

%K. ANKINEEDU'

*ONTENTS
CHAPTER I 2ntroduction 0bjectives of the study Need for the study "cope of the study /ethodolo!y of the study 'imitations of the study CHAPTER II 2ndustry profile III 5ompany profile IV Theoretical frame ork 11- 25 6 -10

CHAPTER

26 - 40

CHAPTER

41 - 63

CHAPTER

V 64 - 86 .ata Analysis 82nterpretation VI

CHAPTER

87 - 91 1indin!s "u!!estions 5onclusion #iblio!raphy

*+APTER&I

INTRO#"*TION
The end products of the business transactions are the financial statements comprisin! the position statement or #alance "heet and the 2ncome "tatement or -rofit and 'oss Account% 1inancial statements are the basics for the decision makin! by the mana!ement and as ell as all other stakeholder ho are interested in the affairs of the firm such as investors, creditors , customers ,suppliers , financial institutions , employees ,potential investors , !ovt%, and the !eneral public% 2n this project an attempt is made to kno throu!h Ratio Analysis% the financial performance of RAS+TRI-A ISPAT NI(AM ,IMITE#, VISA/+APATNAM STEE, P,ANT

O!7E*TIVES O T+E ST"#-1

The main objective of the study is to apply theoretical concepts to the practical situations of R2N' so as to compare and correlate the actual achievements ith a theoretical conclusion% The main objectives of the study are= To kno the e>tent to operations% hich R2N'?3"- is efficiently utili@in! its sources to its

To study the efficiency of overall operations% To analy@e the financial position of the R2N'?3"-% To understand the capital structure of the R2N'?3"- throu!h calculatin! of levera!e ratios% To kno ratios% the profitability of the R2N'?3"- throu!h calculation of profitability

To !ive appropriate su!!estions to the best performance of the or!ani@ation%

MET+O#O,O(- O T+E ST"#-1

/ethodolo!y is a systematic procedure of collectin! information in order to analy@e and verify a phenomenon% The collection of information is from t o principle sources% They are= 8. 9. 8. Primary #ata1 2t is the information collected directly !athered throu!h intervie s ith out any references% 2n this study it is ith personal ith concerned officers and staff, either individually or ith the concerned officers of 1inance Primary #ata Se3ondary #ata

collectively, sum of the information has been verified or supplemented observation conductin! personal intervie s .epartment of 3isakhapatnam "teel -lant% 9. Se3ondary #ata1 The "econdary .ata

as collected from already published sources such as,

-amphlets of Annual Reports, Returns and 2nternal Records, reference from Te>t #ooks and Journals relatin! to 1inancial /ana!ement% The data collection includes= 7a9 7b9 5ollection of re<uired data from Annual Reports of 3isakhapatnam "teel -lant% Reference from Te>t #ooks and Journals relatin! to 1inancial /ana!ement%

,IMITATIONS O T+E ST"#-1

Thou!h the project is completed successfully a fe limitations may be there% "ince the procedure and polices of the company data !iven to us% The study is carried basin! on the information and documents provided by the or!ani@ation and based on the interaction departments% ith the various employees of the respective ill not allo to disclose some ith the available confidential financial information, the project has to be completed

Analysis is limited to the results of R2N'?3"- and not compared to industry standards ? results%

.ata in some of the ratios has been directly taken from the prepared reports of R2N' due to non;disclosure of input data due to confidentiality%

10

*+APTER&II

11

IN#"STR- PRO I,E

#EVE,OPMENT O STEE, IN#"STR- IN IN#IA1

Japan remained the lar!est e>porter of semi;finished and finished steel products in :**: follo ed by Russia and Ukraine% 0ther si!nificant recent developments in The .evelopment of "teel 2ndustry in 2ndia should be vie ed in conjunction ith the type and system of ,overnment that has been rulin! the country% 6o ever, its production in si!nificant <uantity started only after &A**% The !ro th of steel industry can be studied by dividin! the period into pre and post independence era% #y &AB*, the total installed capacity of in!ot steel production folds to about &C /T by the A*4s% as &%B million tons per year% 2n a short span of about ( decades or so the capacity as increased &&

&%&

(ro:th o. Steel Industry1

The !ro th in a chronolo!ical order is depicted belo = " No &% :% (% +% B% C% E% D% $ear &D(* &DE+ &DAA &A*C &A&& &A&D &A+*;&AB* &AB&;&ABC ,ro th 0sier /arshall heather constructed the first manufacturin! plant at port;motor in /adras -residency% James )rskin founded the #en!al 1rame Works% Jamshedji TATA initiated the scheme for an inte!rated "teel -lant 1ormation of T2"50 T2"50 started production T2"50 as founded 1ormation of /y sore 2ron and "teel initiated at #hadravathi in Karnataka% 1irst 1ive;$ear -lan ; The 6industan "teel 'imited 76"'9 as born in the year &AB+ ith decision of settin! up three

12

plants each

ith & million tones in!ot steel per year at

Rourkela, #hilai, and .ur!apur% T2"50 started its A% &ABC;&AC& e>pansion pro!rammed% "econd 1ive;$ear -lan ; A bold decision as taken up to

increase the in!ot steel output in 2ndia to C million tones per year and its production at Roukema, #hilai and &*% &&% &:% &(% &AC&;&ACC &AC+ &ACC;&ACA &ACA;&AE+ .ur!apur "teel -lant started% Third 1ive;$ear -lan F .urin! the plan the three "teel -lants under 6"' 8 T2"50 ere e>panded% #okaro "teel -lant came into e>istence Recession -eriod F Till the e>pansion pro!rams

ere

actively e>isted durin! this period 1ourth 1ive;$ear -lan F "alem "teel -lant started% 'icenses ere !iven for settin! up of many /ini "teel -lants and re;rollin! mills ,overnment of 2ndia% -lants in south are each in 3isakhapatnam and Karnataka% "A2' as formed durin! this period on :+th January &AE(% 1ifth 1ive;$ear -lan F The idea of settin! up the fifth inte!rated "teel -lant, the first re;based plant at 3isakhapatnam took a definite shape% At the end of the 1ifth 1ive;$ear -lan the total installed capacity from si> inte!rated plants as up to &*%C million tons% Annual -lan ; The )rst hile "oviet Union a!reed to help in settin! up the 3isakhapatnam "teel -lant% "i>th 1ive;$ear -lan F Work on 3isakhapatnam "teel -lant started ith a bi! ban! and top priority as accorded to start the plant% "chemes for moderni@ation of #hilai "teel -lant, Rourkela "teel -lant, .ur!apur steel plant and T2"50 ere initiated% 5apacity at the end of "i>th 1ive; $ear -lan from si> inte!rated plants stood &&%B* million

&+%

&AE+;&AEA

&B% &C%

&AEA;&AD* &AD*;&ADB

&E%

&ADB;&AA&

tons% "eventh 1ive;$ear -lan F )>pansion

orks at #hilai and

#okaro "teel -lant completed% -ro!ress of 3isakhapatnam "teel -lant picked up and the nationali@ed concept has been introduced to commission the plant ith (* /T li<uid steel &D% &AA:;&AAE capacities by &AA*% )i!ht 1ive;$ear -lans F The 3isakhapatnam "teel -lant 13

as commissioned in &AA:% The cost of plant has become around DEBB cores% 3isakhapatnam "teel -lant started the production and moderni@ation of other steel plants is also &A% &AAE;:**: duly en!a!ed% Ninth 1ive;$ear -lant F Restructurin! of 3isakhapatnam "teel -lant and other public sector undertakin!s%

:*

:**:;:**E

Tenth 1ive;$ear -lan F"teel industry re!isters a !ro th of A%AG%3isakhapatnam steel plant has hi!h re!ime tar!ets and achieved the best of them%

irst i$e&-ear Plan

No ne 6o ever, 22"50

%8;<8 to 8;<='1
as mainly a!riculture oriented%

steel plant came up, as the first plan

as allo ed to e>pand form &/T?year to : /T?year of in!ots, and from

*%B /T?year to &%* /T?year of steel% And, the 1irst 1ive;$ear -lan contemplated a ne "teel -lant to be erected in -ublic "ector% Thus the 6industan "teel 'imited 76"'9 as born on &Ath Jan &AB+ ith the decision of settin! up three steel plants each its e>pansion pro!ram% ith one million tons in!ot steel per year at Rourkela, #hilai and .ur!apur% Thou!h T2"50 and 22"50 ere scheduled to e>pand, T2"50 started

Se3ond .i$e&year plan %8;<= to 8;=8'1

.urin! this period, additional steel producin! capacity as added and a decision as taken to increase the in!ot steel output in 2ndia to C million tons per year% The three one million ton steel plant one each at Rourkela, #hilai and .ur!apur this period% They started production durin! the end of this plan% ere completed durin!

The salient features are !iven belo =

14

-lant 5apacity R"#"."-

'ocation "undar!arh, 0rissa .ur!apur, /%-% #urd an, W%#%

5ollaboration ,ermany U%"%"%R UK

-roduction 7Tons9 E:*,*** EE*,*** D**,***

2n addition to the above #"- and ."- each (**,*** tons of pi! iron for sale%

ere havin! the capacity to produce

Third .i$e&year plan %8;=8 to 8;=='1

.urin! this period, the three steel plants under 6"', T2"50, and 22"50 ere e>panded as sho n belo % 6o ever, these could be completed only by &ACD F &ACA%

Recession -eriod 7&ACC F &ACA9=

The amblin! e>pansion pro!ram taken up durin! the Third 1ive;$ear -lan could not be completed durin! that period% All the e>pansion pro!rams ere actively e>ecuted durin! this period

ourth i$e&-ear Plan %8;=; > 8;?@'1

#alancin! facilities ere incorporated in all the steel plants% "alem "teel -lant ork as taken up durin! this period% 'icenses ere !iven for settin! up of many /ini "teel ere

-lants and Rollin! /ills% ,overnment accepted the idea of settin! up t o more "teel -lants in the "outh one at 3isakhapatnam and other at 6ospet in Karnataka% #oth of them of in!ots% "teel authority of 2ndia 'td%, envisa!ed to produce plain lo 5arbon "teel -roducts initially ith a capacity of : /T?year as also formed durin! this period on : nd Jan &AE(%5entral Research and .evelopment 0r!ani@ation as set up in June, &AE( to tackle the research and development problems of 2ron and "teel 2ndustry%

i.th i$e&-ear Plan %8;?@ to 8;?;'1

Work on "alem project pro!ressed ell% #okaro ith &%E /T capacities started in

1eb &AED% The e>pansions of #hilai "teel -lant form :%B /T to + /T and #okaro from &%E /T to +%* /T picked up momentum% The idea of settin! up the Bth inte!rated steel plant at 3i@a! took a definite shape% #y the end of fifth five;year plan the total installed capacity from si> inte!rated plants as &*%C /T?year% 15

Annual plans &AEA to &AD*= various plans named above 3i@a! steel plant%

ere revie ed and the

pro!ress on different plants consolidated% "oviet F Union has a!reed to help in settin! up the

Si4th i$e&-ear Plan %8;AB > 8;A<'1

Work in e>pansion of #hilai and #okaro -lant intermediate sta!e of :%B /T completed% /any of the units "alem steel plant ban! and c9 top priority as pro!ressed% #okaroHs ere commissioned e%!% a9 ith a

as commissioned b9 on (&%A%D& ork on 3i@a! "teel -lant started

as accorded to moderni@e the plant at T2"50% "chemes for ere initiated at the end of si>th five;year

moderni@ation of #"-, R"-, ."-, and 22"50

plan% The capacity from si> inte!rated steel plants stood at &&%BC /T%

Se$enth i$e&-ear Plan %8;A< to 8;;8'1

Almost all the units in the e>pansion ork of #hilai and #okaro to + /T completed% -ro!ress of 3i@a! "teel -lant picked up and the rationali@ed concept has been introduced to commission the plant ith ( /T li<uid steel capacities by &AA*%

Eighth i$e&-ear Plan %8;;9 to 8;;?'1

All units of 3i@a! "teel -lant ere commissioned by July, &AA:% ,overnment of 2ndia has !iven permission to set up /ini "teel -lants in -rivate "ectors%

Ninth i$e&-ear Plan %8;;A to 9BB9'1

National .evelopment 5ouncil under 5entral ,overnment has deposited Rs% DBA%:** corers in ninth five year plan that tar!ets an overall C%BG !ro th !ross domestic production and ill necessitate a EG !ro th in the remainin! years of plan%

(loCal S3enario1
As per 22"2 2n /arch :**B World 5rude "teel output as A:%D/T hen compared to /arch :**+ 7DE%: /T9, the chan!e in percenta!e as C%BG%

16

 5hina remained the 7D%D/T9

orld4s lar!est 5rude "teel producer in :**B also

7:E%B/T9

follo ed by Japan 7A%C/T9 and U"A 7D%&/T9% 2ndia occupied the D th position U"A remained the lar!est importer of semi;finished and finished steel products in :**: follo ed by 5hina and ,ermany% the !lobal steel scenario have been= Under the auspices of the 0)5. 70r!ani@ation for )conomic 5o;operation 8 .evelopment9 the ne!otiations amon! the major steel producin! countries for a "teel "ubsidy A!reement 7""A9 held in :**( ith the objective to a!ree on a complete ne!otiatin! te>t for the ""A by the middle of :**+% 2t also set subsidies for the "teel 2ndustry of a ceilin! of *%BG of the value of production to be used e>clusively for Research 8 .evelopment% The !lobal economy itnessed a !radual recovery from late :**( on ards% 5hina has become one of the major factors currently drivin! the orld economy% As a result of these economic developments 22"2 has projected an increase by C%:G or B( million metric tones in :**+ in the !lobal consumption of finished steel products% 22"2 has split the !ro th into t o separate areas, 5hina and the Rest of the World 7R0W9% "teel consumption in 5hina has been estimated to increase by &(%&G or (& met in :**+% U"A has repealed the safe!uard measures on import of steel as a result of a rulin!, by a WT0 .ispute Resolution -anel, the WT0 re!ime% hich held these measures to be ille!al under

Present S3enario o. Indian Steel Industry1

2ndia is uni<uely placed to become a very lar!e producer and consumer of finished steel products in the orld% "ubstantial reserves of hi!h !rade iron ore, lo a!e rates, technical and mana!erial skills of a hi!h order have all enabled 2ndia to !ain this stature, by becomin! &*th lar!est producer of steel in the industry, the price and distribution controls to orld% Unfortunately for the 2ndian steel hich it as subjected till about economic

liberali@ation process be!an in the early &AA*4s did not permit the lar!e inte!rated steel plants to moderni@e their steel manufacturin! facilities or to up!rade their technolo!ies to the state of art levels from time to time%

17

With the economic liberali@ation that competition and some ho

as initiated in &AA:, 2ndian "teel 2ndustry has to

accept the inevitable i%e% to appreciate the implications of lo import duty rated, face forei!n improve its stren!ths and competitive ed!e to produce !ood <uality products at lo er prices and learn to survive in the market place% 1ollo in! liberali@ation, the steel 2ndustry is ell set on the path of !lobali@ation% The dynamics of the World "teel 2ndustry has a close relation ith 2ndian steel 2ndustry% -resently in 2ndia, "teel products are bein! produced from four different sources vi@%, 2nte!rated "teel -lants /ini "teel -lants Re;rollin! /ills Alloy 8 "pecial "teel -lants 2nte!rated "teel -lants have lar!er capacity and produce "teel from basic ra and the other three cate!ories mentioned are characteri@ed by lo break;even point% materials

investment and lo

*hara3teristi3s o. Integrated Steel Plants1

They have lar!e capacities% 6i!hly capital intensive% They have lon! !estation period% 'abour intensive% They ould have all facilities includin! ra materials resources, ater supply,

po er supply, testin! and inspection facilities, to nship facilities, medical, educational and recreational etc% 2nter dependency of all the processin! units on the proceedin! and succeedin! units in the path of materials flo % A potential source for earnin! forei!n e>chan!e throu!h e>ports% They serve as centers for the development of ancillary industries%

18

 They are major consumer of refractory materials%

The integrated Steel Plants in India are1

Rourkela "teel -lant #hilai "teel -lant #okaro "teel -lant .ur!apur "teel -lant 2ndian 2ron and "teel 5ompany 722"509 Tata 2ron and "teel 5ompany 7T2"509 3isakhapatnam "teel -lant 73"-9

E4im Poli3y %9BB9&9BB?'1

To facilitate sustained !ro th in e>ports to attain a share of &G of !lobal merchandise trade% To stimulate sustained economic !ro th by providin! access to essential ra materials, intermediates, components, consumables and capital !oods re<uired for au!mentin! production and providin! services% To enhance the technolo!ical stren!th and efficiency of 2ndian a!riculture, industry and services, thereby improvin! their competitive stren!th accepted standards of <uality% To provide consumers competitive prices producers ith !ood <uality !oods and services at internationally hile at the same creatin! a level playin! field for the domestic hile !eneratin! ne employment opportunities, and to encoura!e the attainment of internationally

The Ne: Industrial Poli3y Regime1

The Ne investment by 19 2ndustrial policy has opened up the iron and steel sector for private

7a9 Removin! it from the list of industries reserved for public sector and 7b9 )>emptin! it from compulsory licensin!% 2mports of forei!n technolo!y as ell as forei!n direct investment are freely and e>istin! steel plants, in the

permitted up to certain limits under an automatic route% /inistry of "teel plays the role of facilitator, providin! broad directions and assistance to ne liberali@ed scenario%

The (ro:th Pro.ile1 STEE,1

The liberali@ation of industrial policy and other initiatives taken by the ,overnment have !iven a definite impetus for entry, participation and !ro th of the private sector in the steel industry% While the e>istin! units are bein! moderni@ed?e>panded, a lar!e number of ne ?!reen field steel plants have also come up in different parts of the country based on modern, cost effective, state of;the;art technolo!ies% At present, total 7crude9 steel makin! capacity is over (+ million tons and 2ndia, the Dth lar!est producer of steel in the orld, has to its credit, the capability to produce a variety of !rades and that too, of international <uality standards% As per the ratin!s of the presti!ious IWorld "teel .ynamicsJ, 2ndian 6R products are classified in the Tier 22 cate!ory <uality products; a major reason behind their acceptance in the orld market% )U, Japan has <ualified for the top slot, class as 2ndia% hile countries like "outh Korea, U"A share the same

2n pi! iron also, the !ro th has been substantial% -rior to &AA&, there

as only one projects

unit in the secondary sector% -ost liberali@ation, the A212s has sanctioned :& ne

ith a total capacity of appro> (%A million tones% 0f these, &C units have already been commissioned% The production of million tones in :**:;*(% .urin! the year :**(;*+, the production of -i! 2ron as B%::& million tones%

Market S3enario1

20

After liberali@ation, ith hu!e scale addition to steel makin! capacity% Apparent consumption of steel increased from &+%D+ million tons in &AA&;A: to (*%:CB million tons to :**(;*+%

The production of steel in :**(;*+ is (C%&A( million tons as a!ainst ((%CE million tons in :**:;*( thereby re!isterin! E%BG !ro th% The demand of steel has been firmed up both at home as ell as internationally% )fforts are bein! made to boost demand particularly in rural areas and also to increase e>ports%

Produ3tion1
"teel industry as de;licensed and decontrolled in &AA& and &AA: respectively% 2ndia is the Dth lar!est producer of steel in the orld% 2n :**(;*+, finished steel production as (C%&A( million tones% -i! iron production in :**(;*+ as B%::& million tons% "pon!e iron production as D%*DB million tons durin! :**(;:**+% The annual !ro th rate of crude steel production in :**:;:**( as DG and in :**(; :**+ as CG% 'ast + years production performance is as under=;

#emand > A$ailaCility Pro2e3tion1

.emand; Availability of iron and steel in the country is projected by /inistry of "teel annually% ,aps in Availability are met mostly throu!h imports% 2nterface ith consumers by ay of "teel 5onsumer 5ouncil e>ists, hich is

conducted on re!ular basis%

21

 2nterface helps in redressin! availability problems, complaints related to <uality%

Pri3ing 6 #istriCution
-rice re!ulation of iron 8 steel as abolished on &C%&%&AA:% .istribution controls on iron 8 steel removed e>cept B priority sectors, vi@% .efence, Rail ays, "mall "cale 2ndustries 5orporations, )>porters of )n!ineerin! ,oods and North )astern re!ion% Allocation to priority sectors is made by /inistry of "teel% ,overnment has no control over prices of 2ron 8 "teel% 0pen market prices are !enerally on rise% -rice increases of late have taken place mostly in lon! products than flat products%

Imports o. Iron 6 Steel1

2ron 8 "teel are freely importable as per the e>tant policy% 2ndia has been annually importin! around :%*B /illion Tones of "teel% 2mport duty on several ra materials used by the steel sector like non;cokin! coal,

met coke and nickel has been reduced to BG% 2mport duty on cokin! coal has been reduced to KNil4%

E4ports o. Iron 6 Steel1

2ron 8 "teel are freely e>portable and 2ndia is a net e>porter of steel% Advance 'icensin! "cheme allo s duty free import of ra materials for e>ports% .uty )ntitlement -ass #ook "cheme 7.)-#9 also facilitates e>ports% The ,overnment has temporarily suspended the .)-# on iron 8 "teel 8 ferroalloys 22

%e%f :Eth /arch :**+ as a measure to increase 2ron 8 "teel availability in the domestic market% "teel )>porter4s 1orum has been set up to boost steel e>ports% An Anti .umpin! .irectorate has been set up under the /inistry of 5ommerce ith ade<uate po er to fi!ht trade actions hile remainin! ithin the WT0 frame ork%

*ustoms #uty1
The peak rate of 5ustom .uty has been reducin! sharply durin! the last B years% 2n the interim bud!et for :**+;*B, announced in January4:**+ the peak rate iron as further reduced to BG% The custom duty on scrap as nil% 2mport duty on cokin! coal has been reduced to Knil4, and on metallur!ical coke reduced to BG% as reduced from :BG to :*G% 2n :**+ the 5ustoms .uty on carbon steel items and pi!

E43ise #uty1
The ,overnment has taken a number of steps to ensure the availability of iron and steel items hich inter;alias includes reduction in )>cise .uty by &CG ith addition to )ducational 5ess :G on &CG%

,e$ies on Iron 6 Steel1 # ,EV-1

This as a levy started for fundin! moderni@ation, e>pansion and development of

steel sector% The fund, inter;alias, supports= 5apital e>penditure for moderni@ation, rehabilitation,diversification, rene al 8 replacement of 2nte!rated "teel plants% 23

Research 8 .evelopment Rebates to ""2 5orporations )>penditure on )RU of J-5 ".1 levy as abolished on :&%+%A+ 5abinet decided that corpus could be recycled for loans to /ain producers 2nterest on loans to /ain -roducers is set aside for promotion of R8. on steel etc% An )mpo ered 5ommittee has been set up to !uide the R8. effort in this sector%

24

*+APTER&III

*OMPAN- PRO I,E

The ,overnment of 2ndia has decided to set up an inte!rated "teel -lant at 3isakhapatnam to meet the !ro in! domestic needs of steel% 3isakhapatnam "teel -lant as the effect of the persistent demands and mass movements% 2t is another step to ards increasin! the country4s steel production%

25

The decision of the ,overnment to set up an inte!rated steel plant :*th January &AE&%

as laid do n by

the then -rime /inister "mt% 2ndia ,andhi% The -rime /inister laid the foundation stone on

The consultant, /?s / N .astur 8 5o 7-vt9 'td% submitted a techno;economic feasibility report in 1ebruary &AE:, and detailed project report for the plant, capacity of (%+ million tones of li<uid steel% The ,overnment of 2ndia and U""R si!ned an a!reement on &: th June &AEA for the co;operation in settin! up (%+ million tones inte!rated "teel -lant% The project as estimated to cost to Rs%(, DAE%:D crores based on prices as on +th Luarter of &AD&%6o ever, on completion of the construction and commissionin! of the hole -lant in &AA:, the cost escalated to Rs%D, EBB crores based on prices as on :nd Luarter of &AA+% Unlike other inte!rated "teel -lants in 2ndia, 3isakhapatnam "teel -lant is one of the most modern steel plants in the country% The plant as dedicated to the nation on & st Au!ust &AA: by the then -rime /inister, "ri%-%3%Narasimha Rao% Ne technolo!y, lar!e;scale computeri@ation and automation etc, are incorporated in the -lant at the international levels and attain such labor productivity, the or!ani@ational manpo er has been rationali@ed% The manpo er in the 3"- has been limited to&E, B** employees% The plant has the capacity of producin! (%* million tones of li<uid steel and :%CBC million tones of saleable steel% 2t has set up t o major #last 1urnaces, the ,odavari and the Krishna, envy of any modern steel makin! comple>% The economy of a nation depends on core sector industries like iron and steel% "teel is the basic input for construction, machines buildin! and transport industries% Keepin! in vie the importance of steel the follo in! inte!rated steel plant ith forei!n collaborations as constructed in the public sector in the post independence era% hich are the ith an annual

26

OR(ANIDATION *+ART

C(AIR#AN CU# #ANA"IN" DIR$CTOR

.irector 71inance9 ). 71inance9 5ompany "ecretary A,/ 72nt% Audit9

.irector 75ommercial9 ). 7//9 Addl% ,/ 7/kt!9 Addl% ,/ 7/kt!9 ; "ervices 8 )>ports

.irector 7-ersonnel9 .,/ 7/86"9 2?5 ,/ 7-8A9 Addl% ,/ 7-82R9 .,/ 7Tr!9 .,/ 76R.9 .,/ 7'e!al Affairs9 ,/ 7Works9

.irector 70perations9 ). 7/aint%9

.irector 73i!ilance9 Addl% ,/ 73i!%9

Addl% ,/ 7LAT.9 Addl% ,/ 7Audio 8 Telco9 Addl% ,/ 7"ervices9 Addl% ,/ 7"teel9 Addl% ,/ 75, " 8 59

,/ 7/aint%9 Addl% ,/ 75R8R/9 .,/ 7"ystem9 ,/ 7.8)98 2?5 -)5"

A5/ 75ordon9

VISION1
To be a continuously !ro in! orld;class company= We shall= 6arness our !ro th potential and sustain profitable !ro th% .eliver hi!h <uality and cost competitive products and be the first choice of customers%

27

 5reate an inspirin! ork environment to unleash the creative ener!y of people% Achieve e>cellence in enterprise mana!ement% #e a respected corporate citi@en, ensure clean and !reen environment and develop vibrant communities around%

Mission1
To attain &C million tone li<uid steel capacity throu!h technolo!ical up ;!radation, operational efficiency and e>pansion, to produce steel at international standards of cost and <uality, and to meet the aspirations of the stakeholders%

*ore Values1
5ommitment 5ustomer satisfaction 5ontinuous improvement 5oncern of environment 5reativity and innovation

!RIE I#EA A!O"T STEE, MA/IN( PRO*ESS

The modern era in steel makin! be!an cheaply, so that /ild "teel is no ith the introduction of 6enry #essemerHs 8 hich rou!ht iron as

#essemer process in the late &DB*4s% This enabled steel to be produced in lar!e <uantities used for most purposes for

28

formerly used% This

as only the first of a number of methods of steel production% The ith a basic material to remove phosphorus% Another as the

,ilchrist;Thomas process 7or basic #essemer process9 as an improvement to the #essemer process, linin! the converter "iemens;/artin process of open hearth steelmakin! hich like the ,ilchrist;Thomas

process complemented, rather than replaced, the ori!inal #essemer process% These ere rendered obsolete by the 'in@;.ona it@ process of basic o>y!en steel

makin!, developed in the &AB*4s, and other o>y!en steelmakin! processes% 0ne third of orldHs steel is currently produced in 5hina% Arcelor;/ittal is ho ever the production% White;hot steel pourin! out of an electric arc furnace% #last furnaces have been used for t o millennia to produce pi! iron, a crucial step in hich has proven to be a !reat deal more efficient

HRD POLICY the steel production process, from iron ore by combinin! fuel, charcoal, and air% /odern
methods use coke instead of charcoal, and is creditin! century there

ith contributin! to the #ritish 2ndustrial Revolution% 0nce the iron is ere many

focu s

refined, converters are used to create steel from the iron% .urin! the late &Ath and early :*th

2dentifyin! needs process and the idely used methods competence such as the #essemer
hich pure o>y!en is fed steel% They can

"iemens;/artin process% 6o ever, basic o>y!en steelmakin!, in

to the furnace to limit impurities, has !enerally replaced these older systems% )lectric arc furnaces are a common method of reprocessin! scrap metal to create ne also be used for convertin! pi! iron to steel, but they use a !reat deal of electricity 7about ++* kWh per metric ton9, and are thus !enerally only economical supply of cheap electricity% hen there is a plentiful

-rovidin! trainin! inputs

/onitorin! trainin! effectiveness

5reatin! learnin! environment

1acilitatin! "elf .evelopment, innovativeness 8 self e>pression

)nablin! employees to assume hi!her responsibility

29

30

+"MAN RESO"R*ES
+R# P+I,OSOP+- IN VISA/+APATNAM STEE, P,ANT
)mployees of the or!ani@ation are !reatest and most valuable resources% Whole on the one hand, 6R. should appropriately harness the employee potential for the attainment of the company objectives, the company on the other, as its corporate responsibility, should create an enablin! climate here in human talent

!ets the best opportunity for self e>pression, all round development and fulfillment% -eople are more than mere resources and therefore it endeavor to treat people ill be the company4s sincere arranted hen employees

ith all the respect and that is

are seen as more mere instrumentalities% 6R. as a mana!ement function ill be !iven a place of strate!ic priority, alon! ith function like production, maintenance, materials on finance in the overall scheme of mana!ement action in the company% 6R. does not refer to trainin! alone, nor it is just a ne name for trainin!% 2n

R2N'?3"- 6R. refers to creative and innovative initiatives in several mana!ement functions for the development and !ro th of employees 6R. should eventually be a core philosophy of all mana!ement actions and should not remain merely a departmental ? sectional activity% All functional and divisional heads responsible for various activities of the company ill imbibe the 6R. spirit and suitability inte!rate 6R. into their plans, decisions and actions

31

+R# OC2e3ti$es o. Visakhapatnam Steel Plant1

To provide initially a suitable match bet een employee competence level and company4s ork re<uirements To foster an appropriate climate and culture hich nurtures employee competence

and ade<uate motivational levels for the application of their abilities to assi!ned jobs?roles ith re<uired commitment% To enable employees seek !reater identification mana!ement decisions and actions developmental approach% To initially enable the employees and the or!ani@ation achieve its mission and objectives and business !oals throu!h 6R.% ith the company by fusin!

ith the re<uisite care, concern and

O+SAS& 8ABB8 *erti.i3ation1

2t is idely reco!ni@ed that the ork itself and the ell;bein! of the ith certain ork environment are factors are orkin! and !eneral population% orkin! conditions hich are

paramount importance for health and inimical to health and

/ost industrial jobs are inherently associate

orkers e>posed to them sooner or later succumb to their adverse ide diversity

influence unless ade<uately protected% The principles of occupational risk mana!ement may be the same in developed and developin! countries% 6o ever, there can be a in practice% A major trend in the re!ulation of industrial risks to human health and the environment is the provision of relevant information to all stakeholders and risk bearers% The #ritish "tandard 2nstitute 7#"29= 0ccupational 6ealth and "afety Assessment "eries 706"A"9 specification provide theoretical insi!hts to enable an or!ani@ation to control its occupational health and safety 7068"9 risks and improve its performance%

32

3isakhapatnam "teel -lant 73i@a! "teel9 is an 2"0 A**&, 2"0 &+**&, and 06"A" &D**&, certified public sector or!ani@ation in 2ndia% 2t is the only steel plant in 2ndia, had all the three certificates% This paper revie s key aspects like ha@ard identification and risk assessment762RA9 carried out in B* departments for physical, chemical and #iolo!ical ha@ards, risk control measures taken, dissemination of occupational risk mana!ement information to &E,*** orkforce as a part of 06"A" &D**& certification process% We ith an emphasis on continual summari@e the role of occupational health services department in ha@ard identification, risk assessment and risk control at various orkin! environments improvement and occupational risk mana!ement%

OC2e3ti$es1
)>pand plant capacity to C%(mT by :**D;*A subse<uent phases as per the corporate plan "ustain !ross mar!in to turnover ration M :BG #e amon!st top five lo est steel producers in the orld by :**A;&* Achieve hi!her levels of customer satisfaction than competitors #e reco!ni@ed as an e>cellent business or!ani@ation by :**D;*A 2nstill ri!ht attitude amon!st employees and facilitate them to e>cel in their professional, personal and social life% ith the mission to e>pand further in

Euality Poli3y1
)mployees of 3isakhapatnam "teel -lant are committed to supply their customers4 <uality products and services% To accomplish this 3isakhapatnam "teel -lant ill= /anufacture products as per specification and standards a!reed ith the customer% 1ollo clearly documented procedures for achievin! e>pected <uality standard of

products and services%

33

 5ontinuously strive to improve <uality of all material, processes and products% /aintain an enablin! environment, hich encoura!es actives involvement of all

employees to pursue continuous improvement of <uality%

Te3hnologi3al +ighlights o. VSP1

1irst shore based inte!rated steel plant% "elective crushin! ith pneumatic separation of coal blend% E /eter tall 5oke 0vens% .ry Luenchin! of hot coke and production of steam and po er from hot inert !ases% #ase;mi> yard for the "inter -lant% (:** cu% m #last 1urnace havin! belled;less top e<uipment ith conveyor char!in!% ,ranulation of &**G molten sla! at the 5ast 6ouse% #%1% top pressure recovery turbine for po er !eneration% .esulphuri@ation facilities for pre;treatment of hot metal% "ub lance measurement of dynamic blo in! control ith computer% &**G continuous castin! of li<uid steel% 6i!h capacity, hi!h speed, computer controlled multi;line mills% Use of on;line heat treatment ITemp coreJ processes for reinforcement bars% Use of No t ist rollin! and controlled coolin! I"telmoreJ of ire rods% 2ncorporation of peripheral yard for incomin! and out!oin! materials% 1irst inte!rated steel plant to receive 2"0 A**: certification for all its products%

34

Ma2or sour3es o. Ra: Materials1

2ron 0re lumps 8 fines #1 'ime "tone "/" 'ime "tone #1 .olomite "/" .olomite /an!anese 0re #oiler 5oal 5okin! 5oal Water supply -o er supply /edium cookin! coal #ailadilla, /%Ja!!ayyapeta, A%UA) .ubai /adharam, A%5hipuripalli, A%Talcher, 0rissa Australia $eluru canal, Andhra -radesh 5aptive po er plant ,idi?" an!?Rajarappa?Kar!il

Ma2or "nits1
ANNUA' 5A-% 7K***T9 :,:C& B,:BC (,+** (,*** E&* DB* DB*

.)-ART/)NT" 50K) 03)RN" "2NT)R -'ANT #'A"T 1URNA5) "T))' /)'T "60'/// WR/ //"/

UN2T" 7(%* /T "TA,)9 ( #atteries each of CE ovens 8 E /ts 6ei!ht : "inter machines of (&: "<m !rate area each : 1urnaces of (:** cu m volume each ( '. 5onverters each of &B* 5um% 3olume and si@e + strand bloom casters + "tand finishin! /ill : > &* "tand finishin! /ill C "tand finishin! /ill

35

Statisti3al In.ormation1 MANPO5ER PRO I,E > (RO5T+ PATTERNS

$)AR (&;(;&AAA (&;(;:*** (&;(;:**& (&;(;:**: (&;(;:**( (&;(;:**+ (&;(;:**B (&;(;:**C (&;(;:**E (&;(;:**D (&;(;:**A (&;(;:*&* (&;(;:*&& (&;(;:*&: )N)5UT23)" :C&E :C&E :C&E :CD( +*:E +:*( +(*D +B(( +B&: +C:A +CE+ +ACE B:&D B:C( N0N;)N)5UT23)" &+BE* &+BE: &+*DE &(BA( &(&*+ &:D:( &:BDC &:::: &:&*& &&A(: &&E:E &&++A &:**E &:BCE

MAN PO5ER PRO I,E

36

16000 14000 12000 10000 8000 6000 4000 2000 0 EXECUTIVES NONEXECUTIVES

31-3-1999 31-3-2000 31-3-2001 31-3-2002 31-3-2003 31-3-2004 31-3-2005 31-3-2006 31-3-2007 31-3-2008 31-3-2009 31-3-2010 31-3-2011 31-3-2012

Error1 Re.eren3e sour3e not .oundEuali.i3ation Pro.ile as on F8.BF.9B891

)n!ineerin! .iploma
,rad?-, 'iterates 2T2

;&+%(+G ;&*%((G
;&&%CBG ;:+%((G ;(A%(BG
Engineering Diploma Graduation/PG ITI iterate!

37

#IVISION&5ISE MAN PO5ER1

Works -rojects /ines 0thers ;D:%*(G ;:%&*G ;:%&+G ;&(%E:G
"or#! Pro$e%t! &ine! 't(er!

A5AR#S1
&% 2"0 A**: for "/" and all the do n stream units F a uni<ue distinction in the steel industry% :% 2ndira -riya .arshini 3riksha /itra a ard &AA:;A(, Nehru memorial national a ard for pollution control &AA:;A( 8 &AA(;A+% (% +% B% C% E% D% A% &*% ))-5 e>port e>cellence a ard F &AA+;AB% 522 7"outhern Re!ion9 ener!y conservation a ard F &AAB;&AAC% 5ontinuously !ro in! peacock 7&st pri@e9 national <uality a ard F &AAC% "teel ministries trophy I#est safety performance F &AAC%J 22/ national <uality commitment a ard F &AAE% ,old star a ard for e>cellent performance in productivity% Udyo! e>cellence !old medal for e>cellence in steel plant% )>cellence a ard for out standin! performance in productivity mana!ement, <uality and innovation% &&% &:% &(% 2"-AT "uraksha -uraskar 7&st pri@e9 for lar!est accident free period &AA&;A+% -/ Trophy for the year :**:;*( as the #est 2nte!rated "teel -lant World <uality commitment international star a ard in :**+

38

&+% &B% &C% &E% &D% &A% :*%

5ll;,#5 National A ard in :**B "afety innovation a ard in :**C 0r!ani@ational e>cellence a ard in :**C National )ner!y 5onservation A ard in :**C )nterprise )>cellence A ard F :**E 3is akarma Rashtriya -uraskar F :**E #est Luality 5ircles implementin! 0r!ani@ation A ard ;:**E

Employee in$ol$ement 6 Pro3ess impro$ements1

The ima!ination and creativity of employees have al ays been key success factors for the company% )mployees of R2N' have al ays been at the forefront in contributin! ideas for process improvements% 3oluntary involvement of employees in +:B& <uality circles projects is a testimony of the interest e>hibited by employees in process improvements%

Sa.ety 6 +ealth1
"afety and health of employees has al ays been the prime concern in the plant and all efforts have been made to levera!e upon the safety initiatives to ma>imi@e employee morale and satisfaction% These initiatives have yielded positive results ith a &(%((G reduction in reportable accidents hen compared to year :**E;*D%

*orporate So3ial ResponsiCility1

R2N' continues to contribute in the area of 5orporate "ocial Responsibility 75"R9% 5"R activities in R2N' focus mainly on )nvironmental care, education, community health care, people care, peripheral development, cultural efflorescence, activities as a responsible corporate citi@en and help durin! natural calamities%

39

*+APTER&IV

40

*on3eptual rame 5ork

inan3ial Ratio Analysis
Introdu3tion1
The traditional financial statements comprisin! the balance sheet and the profit and loss account are provin! the information related to the financial operation of the firm% They provide some e>tremely useful information that mirrors the financial position on a particular date in terms of the structure of assets, liabilities and o ner4s e<uity and so on% The profit and loss account sho s the results of operations durin! a certain period of time in terms of the revenues obtained and the cost incurred durin! the year% Therefore, much can be learnt about a firm from a careful e>amination of its financial statements% Users of financial statements can !et further insi!ht about financial stren!ths and particularly interested in kno in! financial stren!ths and eaknesses of the firm if they properly analy@e information reported in these statements% /ana!ement should be eakness of the firm to take suitable corrective of the firm4s financial actions% The future plans of the firm should be laid do n in vie

eaknesses% Thus, financial analysis is the startin! point for makin! plans,

before usin! any sophisticated forecastin! and plannin! procedures% Understandin! the past is a pre;re<uisite for anticipatin! the future%

Ratio Analysis & Introdu3tion1

Ration analysis is a idely F used tool of financial analysis% 2t is used to interpret eaknesses of the firm as ell as its

the financial statements so that the stren!ths and

historical performance and current financial condition can be determined% A ratio is defined as Ithe indicated <uotient of t o mathematical e>pressionsJ and as the Ithe relationship bet een t o or more thin!sJ% 2t is a benchmark for evaluatin! the financial position and performance of a firm% The term ratio refers to the numerical or <uantitative relationship bet een t o items?variables% This relationship can be e>pressed as= 41

&% -ercenta!es, say, Net -rofits are :BG of "ales 7assumin! Net -rofit of Rs%:B,*** and "ales of Rs%&,**,***9, :% 1raction 7Net profit is &?+th of "ales9 and (% -roportion of numbers 7the relationship bet een Net profits and "ales is &=+9% These alternative methods of e>pressin! items, hich are related to each other, are,

for purpose of financial analysis, referred to as ratio analysis% 2t should be noted that computin! the ratios does not add any information already inherent in the above fi!ures of profits and sales% meanin!ful What the ratios do is that they reveal the relationship in a more conclusions from them% The rationale of ratio ay so as to enable us to dra

analysis lies in the fact that it makes related information comparable% A sin!le fi!ure by itself has no meanin! but hen e>pressed in terms of a related fi!ure, it yields si!nificant inferences% 1or instance, the fact that the Net profits of a firm amount to, say Rs% Ten 'akhs thro s no li!ht on its ade<uacy or other ise% The fi!ure of Net profit has to be considered in relation to other variables% 6o does it stand in relation to salesO 2f, therefore, Net profits ith items such as "ales, Assets, 5apital employed, are sho n in terms of their relationship

)<uity capital and so on, meanin!ful conclusions can be dra n re!ardin! their ade<uacy% To carry the above e>ample further, assumin! the capital employed to be Rs%B* lakh and Rs%&** lakh, the Net profit are :*G and &*G each respectively% Ratio analysis, thus, as a <uantitative tool, enables analysts to dra firm meet its current obli!ations and so onO <uantitative ans ers to <uestions such asP are the Net profits ade<uateO Are the assets bein! used efficientlyO 2s the firm solventO 5an the

Ratio Analysis & Importan3e1

42

As a tool of financial mana!ement, ratios are of crucial si!nificance% The importance of ratio analysis lies in the fact that presents facts on a comparative basis and enables the dra in! inference re!ardin! the performance of a firm% Ratio analysis is relevant in assessin! the performance of a firm in respect to the follo in! aspects% &% 'i<uidity position :% 'on!;term solvency (% 0perational efficiency +% 0verall profitability B% 2nter;firm comparison, and C% Trend analysis

8.

,iGuidity position1&
With the help of ratio analysis conclusions can be dra n re!ardin! the li<uidity position of a firm% The li<uidity position of a firm to meet its current obli!ations ould be satisfactory if it is able hen they become due% A firm can be said to have ithin a year as ell as to repay the

the ability to meet its short;term liabilities if it has sufficient li<uid funds to pay the interest on its short;maturin! debt usually principal% This ability is reflected in the li<uidity ratio of a firm% The li<uidity ratios are particularly useful in credit analysis by banks and other suppliers of short;term loans% 5ommon li<uidity ratios include The 5urrent ratio, Luick ratio and The operatin! 5ash flo ratio%

9.

,ong&term sol$en3y1&
Ratio analysis is e<ually useful for assessin! the lon!;term financial viability of a firm% This aspect of the financial position of a borro er is of concern to the lon!; term creditors, security analysts and the present and potential o ners of a business% The lon!;term solvency is measured by the levera!e?capital structure and profitability ratios, ratios, for instance, hich focus on earnin! po er and operatin! efficiency% Ratio eaknesses of a firm in this respect% The levera!e hether a firm has a reasonable proportion of ith debt in hich case its solvency is e>posed to ould reveal hether or not ill indicate analysis reveals the stren!th and

various sources of finance or if it is heavily loaded proportion of various sources of finance or if it is heavily loaded serious strain% "imilarly the various profitability ratios 43

the firm is able to offer ade<uate return to its consistent

ith the risk involved% 2t

includes .ebt;e<uity ratio, 5ash covera!e ratio , The times interest earned ratio etc%

F. Operating E..i3ien3y1&
Another dimension of the usefulness of the ratio analysis, relevant from the vie point of mana!ement, is that it thro s li!ht on the de!ree of efficiency in the mana!ement and utili@ation of its assets% The various activity ratios measure this kind of operational efficiency%

@.

O$erall Pro.itaCility1&
Unlike the outside parties, hich are interested in one aspect of financial position of a firm, the mana!ement is constantly concerned about the over;all profitability of the enterprise% That is, they are concerned about the ability of the firm to meet its short; term as ell as lon!;term obli!ations to its creditors, to ensure a reasonable return to its o ners and secure optimum utili@ation of the assets of the firm% This is possible if an inte!rated vie is taken and all the ratios are considered to!ether%

<.

Inter&.irm *omparison1&
Ratio analysis not only thro s li!ht on the financial position of a firm but also serves as a steppin! stone to remedial measures% This is made possible due to inter;firm comparison and comparison ith industry avera!es% A sin!le fi!ure of a particular ith the industry avera!e% An ratio is meanin!less unless it is related to some standard or norm% 0ne of the popular techni<ues is to compare the ratios of a firm inter;firm comparison competitors% ould demonstrate the firm4s position vis;Q;vis its

=.

Trend Analysis1&
Ratio analysis enables a firm to take the time dimension into account% 2n other ords, hether the financial position of a firm is improvin! or deterioratin! over the years% This is made possible by the use of trend analysis% The si!nificance of a trend analysis of ratios lies in the fact that the analysis can kno movement, i%e%, the direction of hether the movement is favorable or unfavorable% 1or e>ample,

the ratio may be lo as compared to the norm but the trend may be up ard% 0n the

44

other hand, thou!h the present level may be satisfactory but the trend may be a declinin! one%

Ratio Analysis&,imitations1
Ratio Analysis is a various limitations% idely used tool of financial analysis% $et, it suffers from hile usin! ratios, the hich "ome of the limitations, The operational implication of this is that

conclusions should not be taken on their face value% characteri@e ratio analysis, are i% ii% iii% .ifficulty in comparison% 2mpact of 2nflation, and 5onceptual .iversity

i.

#i..i3ulty in 3omparison1&
0ne serious limitation of ratio analysis arises out of the difficulty associated such comparison is vitiated by different procedures adopted by various firms%

ith

there comparability% 0ne techni<ue that is employed is inter;firm comparison% #ut .ifferences in basis of inventory valuation 7e%!%=; last in first out, avera!e cost and cost9P

.ifferent depreciation methods 7i%e% strai!ht line 3s% ritten do n basis9P )stimated orkin! life of assets, particularly of plant and e<uipmentP Amorti@ation of deferred revenue e>penditure such as preliminary e>penditure and discount on issue of sharesP

5apitali@ation of leaseP Treatment of e>traordinary items of income and e>penditureP and so on%

"econdly, apart from different accountin! procedures, companies may have different accountin! procedures, implyin! differences in the composition of assets, particularly current assets% 1or these reasons, the ratios of t o firms may not be strictly comparable%

ii.

Impa3t o. In.lation1&
45

The second major limitation of the ratio analysis is associated chan!es% This is a eakness of the traditional financial statements,

ith price level hich are based

on historical cost% An implication of this feature of the financial statements as re!ards ratio analysis is that assets ac<uired at different periods are, in effect, sho n at different prices in the balance sheet, as they are not adjusted for chan!es in the price level% As a result, ratio analysis ill not be strictly comparable%

iii.

*on3eptual #i$ersity1 &

The factor that influences the usefulness of ratios is that there is difference of opinion re!ardin! the various concepts used to compute the ratios% There is al ays room for diversity of opinion as to assets, profit and so on% 1inally, ratios are only a post;mortem analysis of hat has happened bet een t o balance sheet dates% 1or one thin! the position in the interim period is not revealed by ratio analysis% /oreover, they !ive no clue about the future% 2n brief, ratio analysis suffers from some serious limitations% The analysis should not be carried a ay by its over simplified nature, easy computation ith hi!h de!ree of precision% The reliability and si!nificance attached to ratios depend upon the <uality of data on data itself, nevertheless, they are an important tool of financial analysis% ill lar!ely hich they are based% They are as !ood as the hat constitutes shareholderRs e<uity, debt,

Ratio Analysis&(uidelines to use1

The calculation of ratios may not be a difficult task but their use is not easy% The information on ratios% 1ollo in! !uidelines?factors may be kept in mind in interpretin! various ratios% The reliability of ratio is linked to the accuracy of information in financial statements% #efore calculatin! ratios one should see hether proper concepts and hich these are based, the constraints of financial statements, objectives for hich influence the use of usin! them, the caliber of the analyst, etc, are important factors,

conventions are used for preparin! financial statements of not%

46

 The purpose of the user is also important for the analysis of ratios% A creditor, a banker, an investor, a shareholder, all has different objects for studyin! ratios% The purpose 7or9 object for hich ratios are re<uired to be studied should al ays be kept in mind for studyin! various ratios% .ifferent objects may re<uire the study of different ratios% Another precaution in ratio analysis is the proper selection of appropriate ratios% The ratios should match the purpose for hich these are re<uired%

Ratio Analysis&*on3lusion1
5alculatin! a lar!e number of ratios ithout determinin! their need in the present conte>t hich

may confuse the thin!s instead of solvin! them% 0nly those ratios should be selected can thro proper li!ht on the matter to be discussed% Unless other ise the ratios calculated are compared ith certain standards one

ill

not be reach at conclusions% These standards may be a rule of thumb as in current ratio 7:=&9, may be industry standards, may be projected ratios etc% The comparison of calculated ratios ith the standards ill help the analyst in formin! his opinion

about financial situation of the concern%

The ratios are only the tools of analysis but their interpretation caliber and competence of the analyst% 6e should be familiar statements and the si!nificance of chan!es etc%

ill depend upon the ith various financial

ron! interpretation may create havoc for the concern since ron! decisions% The utility of ratios is linked

ron! conclusions ith e>pertise of the

may lead to analyst%

47

The ratios are only !uidelines for the analystP he should not base his decisions entirely on them% 6e should study any other relevant information, situation in the concern, !eneral economic environment etc%, before reachin! final conclusions% The study of ratios in isolation may not al ays prove useful% The interpretation

should use the ratios as !uide and may try to solicit any other relevant information helps is reachin! a correct decision%

hich

Ratio Analysis&Types1
"everal ratios, calculated from the accountin! data, can be !rouped into various classes accordin! to financial activity or function to be evaluated% As stated earlier, the parties interested in financial analysis are short;term and lon!;term creditors, o ners and mana!ement% "hort;term creditorsR main interest is in the li<uidity position or the short; term solvency of the firm% 'on!;term creditorsR, on the other hand, are more interested in the lon!;term solvency and profitability of the firm% "imilarly, o ners concentrate on the firm4s profitability and financial condition% /ana!ement is interested in evaluatin! every aspect of the firm4s performance% They have to protect the interests of all parties and see that the firm !ro s profitably% 2n vie of the re<uirements of the various users of ratios, e may classify them into the follo in! four important cate!ories= '2LU2.2T$ RAT20" ')3)RA,) RAT20" A5T232T$ RAT20" -R012TA#2'2T$ RAT20"

,IE"I#IT- RATIOS1
2t is e>tremely essential for a firm to be able to meet its obli!ations as they become due% 'i<uidity ratios measure the firm4s ability to meet current obli!ations%

48

2n fact, analysis of li<uidity needs the preparation of cash bud!ets and cash and 1und 1lo statementsP but li<uidity ratios, by establishin! a relationship bet een cash and other current assets to current obli!ations provided a <uick measure of li<uidity% A firm should ensure that it does not suffer from lack of li<uidity, and also that it does not have e>cess li<uidity% The failure of a company to meet its obli!ations due to lack of sufficient li<uidity, ill result in a poor credit orthiness, loss of creditorsR confidence, or even in le!al tan!les resultin! in the closure of the company% A very hi!h de!ree of li<uidity is also badP idle assets earn nothin!% The firm4s funds ill be unnecessarily tied up in current assets% Therefore, it is necessary to strike a proper balance bet een hi!h li<uidity and lack of li<uidity% The most common ratios, hich indicate the e>tent of li<uidity or lack of it, are= &% 5URR)NT RAT20 :% LU25K RAT20 (% 5A"6 RAT20

8.

*"RRENT RATIO1
The current ratio is calculated by dividin! current assets by current liabilities%
5urrent assets

5urrent Ratio

S 5urrent liabilities

5urrent assets include cash and those assets, hich can be converted into cash ithin a year, such as /arketable "ecurities, .ebtors and 2nventories% -repaid e>penses are also include in current assets as they represent the payments that ill not be made by the firm in future% 5urrent 'iabilities include 5reditors, #ill payable, Accrued e>penses, "hort;term bank loan, and 2ncome Ta> 'iability and 'on!;term debt maturin! in the current year%

The current ratio is a measure of the firmsR short;term solvency% The hi!her the current ratio, the lar!er is the amount of rupees available per Rupee of current liability, the more is the firmsR ability to meet current obli!ations and the !reater is the safety of funds of short;term creditors%

9.

E"I*/ RATIO1
49

The Luick ratio is calculated by dividin! <uick assets by <uick liabilities% Luick assets Luick Ratio S Luick liabilities Luick assets or 'i<uid assets mean those assets into cash hich are immediately convertible hich are payable ithout much loss% All current assets e>cept prepaid e>penses and inventories are

cate!ori@ed in li<uid assets% Luick liabilities means those liabilities, permanent mode of financin! are in <uick liabilities%

ithin a short period% Normally, #ank overdraft and 5ash credit facility, if they become

As this ratio concentrates on cash, marketable securities and receivables in relation to current obli!ation, it provides a more penetratin! measure of li<uidity than current ratio%

F.

*AS+ RATIO1
The cash ratio is calculated by dividin! cash T marketable securities by current

liabilities 5ash Ratio S 5ash T /arketable "ecurities 5urrent liabilities "ince cash is most li<uid asset, a financial analyst may e>amine cash ratio and its e<uivalent to current liabilities% Trade investment or marketable securities are e<uivalent of cashP therefore, they may be included in the computation of cash ratio%

,EVERA(E RATIOS1
The short;term creditors like bankers and suppliers of ra concerned ith the firmsR current debt;payin! ability% material are more ith the

0n the other hand, lon!;term ell as lon!;

creditors like debenture holders, financial institutions etc%, are more concerned firmsR lon!;term financial stren!th% 2n fact, a firm should have stron! short;as

term financial position% To jud!e the lon!;term financial position of the firm, financial levera!e, or 5apital structure, ratios are calculated% These ratios indicate mi> of funds provided by o ners and lenders% As a !eneral rule, there should be an appro>imate mi> of debt and o ner4s e<uity in financin! the firmsR assets% 50

The manner in

hich assets are financed has a number of implications% 1irst,

bet een debt and e<uity, debt is more risky from the firmsR point of vie % The firm has a le!al obli!ation to pay interest on debt holders, irrespective of the profits made or losses incurred by the firm% 2f the firm fails to debt holders in time, they can take le!al action a!ainst it to !et payment and in e>treme cases, can force the firm into li<uidation% "econdly, use of debt is advanta!eous for shareholders in t o ays= a% They can retain control of the firm ith a limited stake and b% Their earnin!s ill be ma!nified, hen the firm earns a rate of return on the total

capital employed hi!her than the interest rate on the borro in! funds% The process of ma!nifyin! the shareholders return throu!h the use of debt is called Ifinancial levera!eJ or Ifinancial !earin!J or Itradin! on e<uityJ%

'evera!e ratios may be calculated from the balance sheet to determine the proportion of debt in total financin!% /any variations of these ratios e>istP but all these ratios indicate the same thin!;the e>tent to hich the firm has relied on debt in financin! assets% 'evera!e ratios are also computed from the profit and loss items by determinin! the e>tent to hich operatin! profits are sufficient to cover the fi>ed char!es%

#E!T > EE"IT- RATIO1

The relationship describin! the lender contribution for each rupee of the o ner4s contribution is called .)#T;)LU2T$ RAT20% .)#T F )LU2T$ RAT20 is directly computed by the follo in! formula% .)#T .ebt;)<uity Ratio S )LU2T$

PROPRIETAR- RATIO1
This ratio states relationship bet een share capital and total assets%

51

-roprietors e<uity represents e<uity share capital, preference share capital and reserves and surplus% The latter ratio is also called capital employed to total assets% )LU2T$ "6AR) 5A-2TA' -roprietary Ratio S T0TA' TAN,2#') A"")T" -R0-R2)T0R" )LU2T$ 70R9 T0TA' TAN,2#') A"")T"

INTEREST *OVERA(E RATIO1

This ratio indicates the e>tent to hich earnin!s can decline ithout resultant ould be financial hardship to the firm because of its inability to meet annual interest cost% 1or e>ample, covera!e of B times means that a fall in earnin!s unto 7&?B th 9 level ratio is measured ad follo s= 2nterest 5overa!e Ratio S )#2T ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 2NT)R)"T 56AR,)" tolerable, as earnin!s to service interest on debt capital ould be sufficiently available% This

IHE# ASSETS TO NET 5ORT+1

This ratio indicates the e>tent to hich )<uity capital is invested in the net fi>ed assets% 2t is e>pressed as follo s= 12N). A"")T" 1i>ed Assets To Net Worth S N)T W0RT6 Net Worth is represented by )<uity "hare 5apital plus Reserves and "urpluses% 2f the fi>ed assets are more than the Net Worth, difficulties may arise, as the depreciation the less ill reduce profit% This also means that creditors have contributed to fi>ed assets% The hi!her this ratio, ill be the protection to creditors% 2f this ratio is too hi!h, the firm may find itself handicapped, as too much capital is tied up in fi>ed assets but not circulatin!%

52

A*TIVIT- RATIOS1
1unds creditors and o ners are invested in various assets to !enerate sales and profits% The better the mana!ement of assets, the lar!er is the amount of sales% Activity ratios are employed to evaluate the efficiency ith hich the firm mana!ers and utili@es its ith assets% These ratios are also called Turnover Ratios because they indicate the speed

hich assets are bein! converted or turned over into sales% Activity ratios, thus, involve a relationship bet een sales and assets% A proper balance bet een sales and assets !enerally reflects that assets are mana!ed effectiveness of asset utili@ation% ell% "everal activity ratios can be calculated to jud!e the

INVENTOR- T"RNOVER RATIO1

2nventory turnover ratio indicates the efficiency of the firm in producin! and sellin! its products% 2t is calculated by dividin! the cost of !oods sold by the avera!e inventory% The avera!e inventory is the avera!e of openin! and closin! balance of inventory% 2n a manufacturin! company inventory of finished !oods is used to calculate inventory turnover% 5ost of !oods sold 2nventory Turnover Ratio S Avera!e inventory

#E!TORS T"RNOVER RATIO1

A firm sells !oods for cash and credit% 5redit is used marketin! tool by a number of companies% When the firm e>tends credits to its customers, debtors 7accounts receivables9 are created in the firmsR accounts% The debtors are e>pected to be converted into cash over a short period and, therefore, are included in current assets% The li<uidity position of the firm depends on the <uality of debtors to a !reater e>tent% .ebtors turnover ratio indicates the velocity of debt collection of a firm% Un simple avera!e debtors are turned over durin! a year% 5redit "ales .ebtors Turnover Ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Av!% Accounts Receivable 53 ards it indicates the number of times

IHE# ASSETS T"RNOVER RATIO1

The fi>ed assets turnover ratio measures the efficiency ith hich the firm is utili@in! its investments in fi>ed assets, such as land, buildin!, plant and machinery, furniture, etc% 2t also indicates the ade<uacy of sales in relation to the investment in fi>ed assets% The fi>ed assets turnover ratio is sales divided by net fi>ed assets% The firm assets turnover ratio should be compared ith past and future ratios and also hile lo ith ratio of similar firms and the industry avera!e% The hi!h fi>ed assets turnover ratio indicates efficient utili@ation of fi>ed assets in !eneratin! sales, mana!ement and utili@ation of fi>ed assets% This ratio indicates the e>tent to hich the debts have been collected in time% The hether their borro er is debt collection period indicates the avera!e debt collection period% This ratio is a !ood indicator to the lenders of the firm, because it e>plains to them debtors% collectin! from its debt in time% An increase in this period indicates blocka!e of funds in ratio indicates inefficient

"ales 1i>ed Assets Turnover Ratio S Net fi>ed assets

5OR/IN( *APITA, T"RNOVER RATIO1

Workin! capital turnover ratio indicates the velocity of the utili@ation of net orkin! capital% This ratio indicates the number of times the orkin! capital is turned over in the course of a year% This ratio measures the efficiency ith hich the orkin! capital is bein! used by a firm% A hi!her ratio indicates efficient utili@ation of orkin! capital and lo ratio indicates other ise% #ut a very hi!h orkin! capital turnover ratio is not a !ood situation hile interpretin! the ratio% /akin! of for any firm and hence care must be taken

comparative and Trend Analysis can at best use this ratio for different firms in the same industry and for various periods% This can be calculated as follo s= "ales Workin! 5apital Turnover Ratio S

54

Net Workin! 5apital Net Workin! 5apital S 5urrent Assets ; 5urrent 'iabilities 7)>cludin! short;term bank #orro in!s9

PRO ITA!I,IT- RATIOS1

A company should earn profits to "urvive and ,ro -rofits are essential, but it conse<uences% -rofit is the difference bet een revenues and e>penses over a period of time 7usually a year9% -rofit is the ultimate I0utputJ of a company, and it ill have no future if it fails to make sufficient profits% Therefore, the financial mana!er should continuously evaluate to the efficiency of the company in term of profits% The profitability ratios are calculated to measure the operatin! efficiency of the company% #esides mana!ement of the company, creditors and o ners are also interested in the profitability of the firm% 5reditors ant to !et interest and repayment of principle re!ularly% 0 ners ant to !et a re<uired rate of return on their investment% This is possible only hen the company earns enou!h profits% ould be over a lon! period of time% ron! to assume that every action initiated by

mana!ement of a company should be aimed at ma>imi@in! profits, irrespective of social

,enerally t o major types of profitability ratios are calculated% PRO ITA!I,IT- IN RE,ATION TO SA,ES PRO ITA!I,IT- IN RE,ATION TO INVESTMENT

PRO ITA!I,IT- RATIOS IN RE,ATION TO SA,ES

&% :% (% +% ,R0"" -R012T /AR,2N 5A"6 /AR,2N 0-)RAT2N, /AR,2N N)T -R012T RAT20

8.

(ROSS PRO IT MAR(IN1

55

,ross profit mar!in reflects the efficiency !oods sold and the sales revenue%

ith

hich the mana!ement produces

each unit of product% This ratio indicates the avera!e spread bet een the cost of

This sho s profits relative to sales after the deduction of production costs, and indicates the relation bet een -roduction costs and sellin! price% A hi!h !ross profit mar!in relative to the industry avera!e implies that the firm is able to produce at relatively lo er cost% A hi!h !ross profit mar!in ratio is a si!n of !ood mana!ement% A !ross mar!in ratio may increase due to any of the follo in! factors% i% ii% iii% iv% 6i!her sales prices, cost of !oods sold remainin! constant, 'o er cost of !oods sold, sales prices remainin! constant, A combination of variations in sales prices and costs, the mar!in idenin!, and 2ncreases in the proportionate volume of hi!her mar!in items% The analysis of these factors profit mar!in can be improved% A lo !ross profit mar!in may reflect hi!her cost of !oods sold due to the materials at favorable terms, inefficient utili@ation of plant ill also be lo due to fall firmsR inability to purchase ra ill reveal to the mana!ement that ho a depressed !ross

and machinery, resultin! in hi!her cost of production% The ratio

in prices in the market, or market reduction in sellin! price by the firm in an attempt to obtain lar!e sales volume, the cost of !oods sold remainin! unchan!ed% The financial mana!er must be able to detect the causes of a fallin! !ross mar!in and initiate action to improve the situation% "ales F 5ost of !oods sold 7or9 ,ross profit ,ross -rofit /ar!in Ratio S "ales

Net Pro.it Margin Ratio1

Net profit is obtained hen operation e>penses, interest and ta>es are subtracted from the !ross profit%

56

2f the non;operatin! income fi!ure is substantial, it may be e>cluded from -AT to see profitability arisin! directly from sales% Net profit mar!in ratio establishes a relationship bet een net profit and sales and indicated mana!ement4s efficiency in manufacturin!, administerin! and sellin! the products% This ratio is the overall measure of the firmsR ability to turn each rupee sales into net profit% 2f the net mar!in is inade<uate, the firm achieve satisfactory return on shareholderRs funds% This ratio also indicates the firmsR capacity to conditions% A firm for the product% 2t ith a hi!h net mar!in ratio ithstand in adverse economic ould be in an advanta!eous position to net mar!in firm to ithstand these ill fail to

survive in the case of fallin! sellin! prices, risin! costs of production or declinin! demand ould really be difficult for a lo adversities% "imilarly, a firm hi!her net profit mar!in can make better use of favorable condition, such as risin! sellin! pricesP fall in costs of production or increasin! demand for the product% "uch a firm ill be able to accelerate its profits at a faster rate than a firm ith a lo net profit mar!in ill% An analyst ill be able to interpret the firm4s profitability more meanin!fully if he?she evaluates both the ratios;!ross mar!in and net mar!in;jointly% To illustrate, if the !ross profit mar!in has increased over years, but the net profit mar!in has either remained constant or declined, or has not increased as fast as the !ross mar!in, this implies that the operatin! e>penses relative to sales have been increasin!% The increasin! e>penses should be identified and controlled% ,ross profit mar!in may decline due to fall in sales price or increase in the cost of production%

-rofit after Ta> Net -rofit /ar!in Ratio S "ales

*AS+ MAR(IN RATIO1

5ash profit e>cludes depreciation% 2t means Net profit after interests and ta>es but before depreciation% This ratio indicates the relationship bet een the profit, the correct profit earned by the firm% This ratio is e>pressed as cash profit to sales% hich accrues in cash and sales% ,reater percenta!e indicates better position and 3ice;3ersa as it sho s

57

5ash profit 5ash /ar!in Ratio S "ales N &**

OPERATIN( MAR(IN RATIO1

0peratin! mar!in ratio is also kno n as 0peratin! Net profit ratio% 2t is the ratio of operatin! profit to sales% This ratio establishes the relationship bet een the total cost incurred and sales% 0peratin! profit is the Net profit after depreciation but #efore 2nterests and Ta>es% The purpose of computin! this ratio is to find out the overall operational efficiency of the business concern% 2t measures the const of operations per rupee of sales% This ratio is e>pressed as operatin! profit to sales%

0-)RAT2N, /AR,2N RAT20 S

0peratin! profit "ales

N&**

PRO ITA!I,IT- RATIOS IN RE,ATION TO INVESTMENT1

&% R)TURN 0N 2N3)"T/)NT :% R)TURN 0N N)T W0RT6 (% R)TURN 0N 5A-2TA' +% R)TURN 0N ,R0"" #'05K

RET"RN ON INVESTMENT1
The term investment refers to Total Assets% The funds employed in Net assets are kno n as 5apital )mployed% Net assets e<ual net fi>ed assets plus current assets minus 5urrent liabilities e>cludin! #ank loans% Alternatively, 5apital employed in e<ual to Net orth plus total debt% The conventional approach of calculatin! return on investment 7R029 is to divide -AT by 2nvestment% 2nvestment represents pool of funds supplied by shareholders and lenders, hile -AT represents residual income of shareholdersP therefore, it is conceptually

58

unsound to use -AT in the calculation of R02% Also, as discussed earlier, -AT is affected by capital structure% 2t is, therefore more appropriate to use one of the follo in! measures of R02 for comparin! the operatin! efficiency of firms% )#2T 7&;T9 R02 7or9 R0TA S Total Assets )#2T 7&;T9 R02 7or9 R0NA S N)T Assets

Where R0TA and R0NA respectively Return on Total assets and Return on Net assets% R0NA is e<uivalent of Return on 5apital )mployed%

RET"RN ON NET 5ORT+1

N)T Worth is also kno n proprietors Net 5apital )mployed% The Return should be calculated ith reference to profits belon!in! to shareholders, and therefore, profit shall be ill include even non;tradin! Net profit after interest and ta>% The profit for this purpose profit% This is !iven as follo s= Net profit after interest 8 ta> R)TURN 0N N)T W0RT6 S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;U&** "hareholders funds

RET"RN ON *APITA,1
The R05) is the second type of R02% The term capital employed refers to lon!; term funds supplied by the creditors and o ners of the fund% 2t can be computed in t o ays% 1irst, it is e<ual to non;current liabilities 7lon!;term liabilities9 plus o ner4s e<uity% Alternatively, it is e<uivalent to Net Workin! 5apital plus 1i>ed Assets% Thus, the 5apital

59

)mployed provides a basis to test the profitability related to the sources of lon!;term funds% A comparison of this ratio ith similar firms, ith the industry avera!e and overtime ould provide sufficient insi!ht into ho efficiency the lon!;term funds of o ners and creditors

are bein! used% The hi!her the ratio, the more efficient is the use of 5apital )mployed% N)T -R012T A1T)R TAN?)#2T R05) S Avera!e Total 5apital )mployed N &**

RET"RN ON (ROSS !,O*/1

This ratio establishes a relationship bet een net profit and !ross fi>ed assets% This ratio emphasi@es the profit on investment in 1i>ed Assets% This ratio is e>pressed as follo s= Net profit R)TURN 0N ,R0"" #'05K S ,ross #lock N &**

N)T -R012T is profit before Ta>% ,ross #lock means ,ross fi>ed assets i%e%, 1i>ed assets before deductin! depreciation%

60

*+APTER&V

#ATA ANA,-SIA 6 INTERPRETATION

Ratio analysis in VSPIRIN,
,iGuidity ratios1
5urrent assets 5urrent ratioS ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 5urrent liabilities

TA!,E S+O5S -EAR 5ISE *"RRENT RATIO

7Rs% 2n 5rores9

61

-articulars 2nventory "undry debtors 5ash 8 bank 0ther Assets 'oans 8 advances 5urrent assets 5urrent liabilities 5urrent ratios

:**E;*D &:&C%+B &CB%CB BC:&%E* &D+%(C &*C(%D+ D:B:%** &BDE%DC B%:*

:**D;*A &:*(%:+ :&C%D* E&A+%CD (&+%+D &B&D%A* &*++D%&* :&*+%(* +%AE

:**A;&* &EC&%&B A(%+& ECAA%&& :A:%+( &ABD%+A &&D*+%C* (&A&%C: (%E*

:*&*;&& (:&B%:D &A&%:E CC:+%&E :BD%A& &BCA%CA &&DBA%(: +&D&%(: :%D+

:*&&;&: :+B&%B: &D&%&D B+&B%B+ &(E%+* &(CB%*: ABB*%CC +(*E%D+ :%:&

INTEPRETATION1
The current ratio durin! the study period that is from :**E; :**D to :*&&;:*&:, it has been observe that ,in the year :**E to :**D it is very hi!h that is B%:*% The current ratio has been decreasin!, but the company is able to maintain hi!her current ratio than that of ideal ratio% As the current ratio is hi!her than the ideal current ratio, the li<uidity position is said to be !ood%

,IE"I#IE"I*/ RATIO1
62

'i<uid assets 'i<uid ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;; 5urrent liabilities

TA!,E S+O5IN( -EAR 5ISE ,IE"I# RATIOS

7Rs in 5rores9 Parti3ulars "undry debtors 5ash 8 bank 0ther assets 'oans 8 advances ,iGuid assets *urrent liaCilities ,iGuid ratio 9BB?&BA &CB%CB BC:&%E* &D+%(C &*C(%D+ E*(B%BB &BDE%DC @.@F 9BBA&B; :&C%D* E&A+%CD (&+%+D &B&D%A* A:++%DC :&*+%(* @.F; 9BB;&8B A(%+& ECAA%&& :A:%+( &ABD%+A &**+(%++ (&A&%C: F.8@ 9B8B&88 &A&%:E CC:+%&E :BD%A& &BCA%CA DC++%*+ +&D&%(: 9.B= 9B88&89 &D&%&D B+&B%B+ &(E%+* &(CB%*: E*AA%&+ +(*E%D+ 8.=<

INTERPRETATION1
2t has been observed that the <uick ratio of 3"- is hi!h compared ratio% ith ideal

As the <uick ratio durin! the period of study is hi!her than that of then ideal ratio, the li<uidity position is very !ood%

A!SO,"TE ,IE"I#I *AS+ RATIO1

63

A#"0'UT) A"")T" Absolute li<uid? cash ratio= ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 5URR)NT '2A#2'2T2)"

TA!,E S+O5IN( -EAR 5ISE A!SO,"TE ,IE"I# RATIO %Rs. in 3rores' Parti3ulars 5ash 8 bank Absolute Assets 5urrent liabilities A!SO,"TE ,IE"I# RATIO 9BB?&BA BC:&%E* BC:&%E* &BDE%DC F.< 9BBA&B; E&A+%CD E&A+%CD :&*+%(* F.@9 9BB;&8B ECAA%&& ECAA%&& (&A&%C: 9.@8 9B8B&88 CC:+%&E CC:+%&E +&D&%(: 8.<A 9B88&89 B+&B%B+ B+&B%B+ +(*E%D+ 8.9=

INTERPRETATION1

2deal Ratio *=B=&

The absolute li<uid? cash ratio of 3"- is more than the ideal ratio% 2t means the company is enjoyin! hi!h li<uidity and secured position%

,EVERA(E RATIO1

64

0utsider4s funds .ebt )<uity Ratio S;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; "hareholders4 funds

TA!,E S+O5IN( -EAR 5ISE #E!T EE"IT- RATIO

%Rs. in 3rores' Parti3ulars "ecured loans Unsecured loans 0utsiders funds "hareholders funds .ebt e<uity ratio 9BB?&BA &E(%DE (CA%++ B+(%(& D&E(%E *%&( 9BBA&B; C*+%+B (&:%B& A&C%AC AB(D%: *%&A 9BB;&8B ((:%ED &*E%AB ++*%E( &&+D&%*+ *%*D 9B8B&88 A*E%E: &**%*+ &**E%EC &:+&A%A& *%&C 9B88&89 +*E%:D D:B%:E &:((%BB &:DDB%** *%&A

INTERPRETATION1
5ompany is less dependent on outsider4s funds% 2ts capital base is hi!h and stron!% 2t can be concluded that the company is maintainin! less percent of debt in its capital structure%

INTEREST *OVERA(E RATIO1

)#2T 2nterest covera!e ratioS;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 65

12N). 2NT)R)"T

TA!,E S+O5IN( -EAR 5ISE INTEREST *OVERA(E RATIO

%Rs. in 3rores' !ARTICULARS )#2T 1i>ed interest Interest *o$erage Ratio 1223425 &A:*%BE (&%*C =8.AF 1225426 ::E*%EC +D%+: @=.;B 1226472 (*:C%A( (&%BE ;<.AA 1272477 :&&+%*C DD%&+ 9F.;; 1277471 &(:B%:* &A%EC =?.B=

INTERPRETATION1
5ompany4s 2nterest 5overa!e Ratio is very hi!h and e>traordinarily satisfactory% 2t indicates that !reater ability of the firm to handle fi>ed char!es% 6i!h interest covera!e ratio does not indicate unutili@ed debt capacity in case of R2N', since the company is havin! its o n funds%

PROPRIETAR- RATIO1

66

"hare holders funds -roprietary ratioS;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Total assets

TA!,E S+O5IN( T+AT -EAR 5ISE PROPRIETAR- RATIO

7Rs%in 5rores9 PARTI*",ARS "hare holders funds Total assets Proprietary Ratio 9BB?&BA ED:E%(& &*B&%AA EDG 9BBA&B; ED:E%(& &:D(B%D E+G 9BB;&8B ED:E%(: &B:EC%B& EBG 9B8B&88 ED:E%(: &EE((%+( EAG 9B88&89 ED:E%(& &DB:(%:& +:G

INTERPRETATION1
-roprietary ratio is a test of lon! term financial position% )>cept for the year :**&&;&:, all other years sho in! hi!her ratio, this indicates sound lon! term financial position% 2t is also indicatin! the sufficient use is bein! made of e<uity to finance the business%

SO,VEN*- RATIO1
Total 'iabilities of outsiders "olvency ratio S;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Total assets

67

TA!,E S+O5IN( -EAR 5ISE SO,VEN*- RATIO1

7Rs% 2n 5rores9 PARTI*",ARS "ecured loans Unsecured loans Total liaCilities to outsiders Total assets Sol$en3y ratio 9BB?&BA &E(%DE (CA%++ B+(%(& &*B&&%** <.8J 9BBA&B; C*+%+B (&:%B& A&C%AC &:D(B%D ?.8J 9BB;&8B ((:%*D &*E%AB ++*%E( &B:EC%B& 9.AJ 9B8B&88 A*E%E: &**%*+ &**E%EC &EE((%+( <.=AJ 9B88&89 +*E%:D D:B%:E CB*%BD &DB::%AC F.<8J

INT ERPRETATION1
"olvency ratio of 3"- ltd durin! the year :**&*;&& is hi!h as compared to other years% 2t solvency ratio is stable for last three years% 2t indicates the the solvency position of 3"ltd is more satisfactory%

"N#E# #E!T TO TOTA, *APITA,IDATION1

1UN.). .)#T 1unded .ebt To Total 5apitali@ation S;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; T0TA' 5A-2TA'2VAT20N

68

TA!,E S+O5IN( -EAR&5ISE "N#E# #E!T TO TOTA, *APITA,IDATION RATIO 7Rs% in crores9

Parti3ulars "ecured loans Unsecured loans 1unded debt7A9 Total 1unds 7#9 Total capitali@ation 7A?#9

9BB?&BA &E(%DE (CA%++ B+(%(& D&E(%E* C%C*G

9BBA&B; C*+%+B (:&%B& A&C%AC AB(D%:* A%C*G

9BB;&8B ((:%ED &*E%AB ++*%E( &&+D&%*+ (%D*G

9B8B&88 A*E%E: &**%*+ &**E%EC &:+&A%A& DG

9B88&89 +*E%:D D:B%:E &:(:%BB &:DDB A%B*G

INTERPRETATION1
.urin! the year :*&&;&&:, the funded debt to total capitali@ation is AG%2t is hi!h as compared to other periods but in the real sense it is <uite lo % There is enou!h scope for the company to raise lon! term loans from outsiders%

A*TIVIT- RATIO1
INVENTOR- T"RNOVER RATIO1
N)T "A')" 2nventory Turnover Ratio S;;;;;;;;;;;;;;;;;;;;;;;;;;;;; A3, 2N3)NT0R$

69

TA!,E S+O5IN( -EAR 5ISE INVENTOR- T"RNOVER RATIO

7Rs% in crores9
!ARTICULARS Net sales Av! inventory 2nventory Turnover Ratio 1223425 E(*B%E& &:(C%AA B%A& Times 1225426 EA(:%CC &:&*%D* C%BB Times 1226472 A*DD%(E &+D:%:* C%&( Times 1272477 A&:D%(D &C::%&+ B%C: Times 12774 71 AD*A%&B :D((%+* (%+C Times

INTERPRETATION1
The 2nventory Turn 0ver Ratio durin! the year :*&&;&: as (%+C Normally hi!her the ratio indicates the better inventory mana!ement% 6i!her ratio also indicates that the company is not able to met the customers demand properly%

INVENTOR- *ONVERSION PERIO#1

No of orkin! days 2nventory 5onversion -eriod S;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 2nventory turnover ratio

TA!,E S+O5IN( -EAR 5ISE INVENTOR- *ONVERSION PERIO#

70

%Rs. in 3rores'
Parti3ulars No% of orkin! days 2nventory turnover ratio 2nventory conversion period 9BB?&BA (CB B%A& C: days 9BBA&B; (CB C%BB BC days 9BB;&8B (CB C%&( C* days 9B8B&88 (CB C%DB B( days 9B88&89 (CB E%:+ B* days

INTERPRETATION1
The inventory conversion period durin! :*&&;:*&: is B* days% 2t means that the inventory has been disposed off or sold on an avera!e of once in every B* days%

#E!TORS T"RN OVER RATIO1

Net credit annual sales .ebtors Turn 0ver Ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Avera!e trade debtors

71

TA!,E S+O5IN( -EAR 5ISE #E!TORS T"RN OVER RATIO %Rs. in 3rores'
Parti3ular 9BB?&BA A% net sales E(*B%E& b% avera!e trade debtors &*E%+D debtor turn over ratio CD times 9BBA&B; EA(:%CC &A&%B+ +& times 9BB;&8B A*DD%(E &BB%&*B BA times 9B8B&88 A&:D%(D &+:%(+ C+ times 9B88&89 AD*A%&B &DC%:( B( times

INTERPRETATION1
The debtor turnover ratio for the year :*&&;&: is B( 2t can be concluded that the mana!ement is efficient in convertin! the debtors into cash

AVERA(E *O,,E*TION PERIO#1

No of Workin! .ays 72

Avera!e 5ollection -eriod S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; .ebtor4s turnover ratio TA!,E S+O5IN( -EAR 5ISE AVERA(E *O,,E*TION PERIO#

%Rs. in 3rores'
PARTI*",ARS No of orkin! days .ebtors turnover ratio Av!%collection period 9BB?&BA (CB C*%AE B days 9BBA&B; (CB +&%+D A days 9BB;&8B (CB BD%BA C days 9B8B&88 (CB BB%CD C days 9B88&89 (CB CE%&: B days

INTERPRETATION1
The av! collection period durin! the year :*&&;&:, is B days= it represents the av!% no of days for hich the firm has to ait before its receivables are converted into cash% .urin! the period of study it has been observed that debt collection period varies from B to A days 6o ever, the av!% collection period durin! different periods is <uite lo % 2t indicates the better <uality of debtors and the efficiency of the debt collection department%

5OR/IN( *APITA, T"RNOVER RATIO1 Net sales Workin! capital turnover ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; Workin! capital TA!,E S+O5IN( -EAR 5ISE 5OR/IN( *APITA, T"RNOVER RATIO 73

%Rs. in 3rores'
PARTI*",ARS a%net sales b% net orkin! capital Workin! capital turnover ratio7a?b9 9BB?&BA E(*B%E& CCC+%&+ &%&* times 9BBA&B; EA(:%CC D(+(%D *%AB times 9BB;&8B A*DD%(E DC&:%AE &%*B times 9B8B&88 A&:D%(D ECED%** &%&D times 9B88&89 AD*A%&B B:+:%D: &%DE times

INTERPRETATION1
The orkin! capital turnover ratio durin! the year :*&&;&: i &%DE times% 2t sho s

that only &%*B of net current assets are used to !enerate & rupee of sales% The hi!her capital% orkin! capital ratio indicates that the efficient utili@ation of orkin!

PRO ITA!I,IT- RATIOS1

(ROSS PRO IT RATIO1
,ross profit ,ross profit ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;U&** Net sales TA!,E S+O5IN( -EAR 5ISE (ROSS PRO IT RATIO

74

7Rs in crores9 PARTI*",ARS a% !ross profit b% net sales ,ross profit ratio7a?b9 9BB?&BA &A:&%** E(&+%** :C%(*G 9BBA&B; ::E&%** EA((%** :D%E*G 9BB;&8B (*:E%** A*DD%** ((%(*G 9B8B&88 :&&B%** A&:D%** :(%:*G 9B88&89 &(:C%** AD*A%** &(%C*G

INTERPRETATION1
2t has been observed that the !ross profit ratio is in increasin! tread upto :**A;&* and it is decreasin! from :*&*;&& "ales are in increasin! trend but the profit ratio is decreasin!% 2t is due to increased cost of production%

OPERATIN( PRO IT RATIO1

0peratin! profit 0peratin! profit ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;U&** "ales TA!,E S+O5IN( -EAR 5ISE OPERATIN( PRO IT RATIO 75

%Rs. in 3rores'
PARTI*",ARS 0peratin! profit Net "ales Operating pro.it ratio 9BB?&BA :*&&%:& E(&+%** 9?.<BJ 9BBA&B; :((A%:& EA((%** 9;.<BJ 9BB;&8B ((:B%&A A*DD%** F=.=BJ 9B8B&88 +ADD%&: A&:D%** <@.?BJ 9B88&89 :+B*%B* AD*A%** 9<.BBJ

INTERPRETATION1
5ompany recorded hi!her operatin! profit durin! :*&*;&& and in other years, it is more or less recorded same trends% 2t is indicates, the company4s operational efficiency%

NET PRO IT RATIO1

Net profit Net profit ratio S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;U&** "ales TA!,E S+O5IN( -EAR 5ISE NET PRO IT RATIO 76

7Rs% in crores9
PARTI*",ARS A%net profit #% net sales Net profit ratio7A?#9 9BB?&BA &:B:%(E E(*B%E& &E%&+G 9BBA&B; &(C(%+( EA(:%CC &E%&DG 9BB;&8B &A+:%E+ A*DD%(E :&G 9B8B&88 &((B%BE A&:D%(D &+%C(G 9B88&89 EAC%CE AD*A%&B D%&:G

INTERPRETATION1
Net profit is in decline position from :*&*;&& in comparative ith :**E;*D% /ain attributable reason for the declinin! the profit is overall !lobal meltdo n )ven in adverse market conditions, the company is able to earn net profits% PRO ITA!I,IT- RATIOS !ASE# ON INVESTMENT1 RET"RN ON S+ARE+O,#ERS INVESTMENT1 Net -rofit 7After 2nterest 8 Ta>9 R0 2S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;> &** "hare 6olders 1unds

TA!,E S+O5IN( -EAR 5ISE RATIOS !ASE# ON INVESTMENT

7Rs% in crores9
77

PARTI*",ARS A%net profit #%share holders funds Return on in$estment%AI!'

9BB?&BA &:B:%(E D&E(%E 8<.F9J

9BBA&B; &(C(%+( AB(D%: 8@.9;J

9BB;&8B &A+:%E+ &&+D&%*+ 8=.;9J

9B8B&88 &((B%BE &:+&A%A& 8B.?<J

9B88&89 EAC%&* &:DDB =.8AJ

INTERPRETATION1
6i!hest return on investment as recorded in :**A;&*% 2t has been observed that the R02 is fluctuatin! from year to year% /ore reserves and surplus funds have been diverted to e>pansion activities

RET"RN ON EE"IT- *APITA,1

Net profit 7after interest 8 ta>9 Return on e<uity capital S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; )<uity capital

TA!,E S+O5IN( -EAR 5ISE RET"RN ON EE"IT- *APITA,

7Rs% in crores9
PARTI*",ARS 9BB?&BA 9BBA&B; 9BB;&8B 9B8B&88 9B88&89

78

A%net profit #%e<uity share capital Return on e<uity capital

&:B:%(E +DA*%** :B%C&

&(C(%+( +DA*%** :E%DD

&A+:%E+ +DA*%** (A%E(

&((B%BE +DA*%** :E%(&

EAC%CE +DA*%** &C%:A

INTERPRETATION1
)<uity share capital is constant in in all the year hereas net profit is fluctuatin!% )ven thou!h the return on e<uity capital is in decreasin! position, the rate of return in comparison ith the marketin! conditions is very satisfactory% ,lobal market conditions, increasin! in operatin! costs, decrease in net profits are the main reasons for the recordin! of lo ratio%

EARNIN(S PER S+ARE1

)arnin! available to e<uity share holders )arnin! -er "hare S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; No% of e<uity shares

TA!,E S+O5IN( -EAR 5ISE EARNIN( PER S+ARE 7Rs% in crores9

PARTI*",ARS )arnin! available to e<uity shareholders 9BB?&BA &:B:%(E 9BBA&B; &(C(%+( 9BB;&8B &A+:%E+ 9B8B&88 &*AB%** 9B88&89 BBC%DA

79

No% of e<uity shares 7in crs9 Earning per share

+%DA 9<=.89

+%DA 9?A.AF

+%DA F;?.FB

+%DA 99F.;F

+%DA 88F.A;

INTERPRETATION1
The earnin!s per share is declinin! year by year% The least rate of return is &&%+*G "ince the company is in e>pansion activity, the future earnin!s per share increase% ill

RET"RN ON *APITA, EMP,O-E#1

Net profit Return on capital employed S ;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;; 5apital employed

TA!,E S+O5IN( -EAR 5ISE RET"RN ON *APITA, EMP,O-E#

7Rs% in crores9
PARTI*",ARS A%net profit 9BB?&BA &:B:%(E 9BBA&B; &(C(%+( 9BB;&8B &A+:%E+ 9B8B&88 &((B%BE 9B88&89 EAC%CE

80

#%capital employed D+A(%** 7incl% term deposits9 Return on 3apital employed 8@.ABJ

A+:E%** 8@.<BJ

AA(B%** 8;.<<J

EDA:%** 8?.BBJ

B+EC%** 8@.=BJ

INTERPRETATION1
)ven thou!h the return on capital employed is declinin!, but it is satisfactory, considerin! the present market conditions and from the security point of vie %

81

*+APTER&VI

82

S"MMAR-1
3isakhapatnam "teel -lant as founded on :*th Jan 4E& but became fully operational on &st Au! 4A:% 3"- is the first shore based inte!rated steel plant lar!e scale computeri@ation and automation% ith ne technolo!y,

The or!ani@ational manpo er has been

rationali@ed to operate it at international levels of efficiency and to attain international labor productivity% The production, commercial and financial performance has been improvin! ith the

passa!e of years% The financial analysis of 3"- by the use of various techni<ues i%e% Ratio, 5ash flo analysis sho s that= &9 :9 (9 +9 B9 C9 E9 The li<uidity position of the company is e>cellent% The company is @ero debt?lo debit company% The net orth of 3"- is satisfactory 2t is noted that the inventory level is increasin!% The profitability ratio is in decline state 'i<uidity position of 3"- is very !ood% The company has accumulated funds business operations and e>pansion orks% D9 "ecurity to share holders is envisa!ed hich are available for e>pandin!

83

S"((ESTIONS
The follo in! su!!estions ill improve the financial position of the 3"-%

PRO#"*TION
&9 Need for continuous up !radation of technolo!y for improvin! the processes% :9 )ffort should be made at cost savin!s particularly in spares and ener!y consumption% (9 Usin! the natural !as reserves of K, basin, 6ot metal production capacity can be enhanced ith the present #1 facility ith ne!li!ible investment%

INAN*E &9 PERSONNE,1

&9

2mprovin! financial levera!e ratio for better returns%

Rationali@ation of e>istin! man;po er e>pansion of the plant%

ith effective trainin! for future

:9 (9 +9

2mprovin! efficiency throu!h better 6R. pro!rams% -rovidin! better motivation% "trivin! to ards becomin! the most chosen employer%

MAR/ETIN(
&9 5ontinuously monitorin! the indi!enous sale, e>port sale ratio to capture the best of

markets% :9 (9 2ncreasin! the net reali@ation by sellin! in the most profitable re!ion% 2dentifyin! ne markets and ne application of the company4s product%

84

+9

2mprovin! reali@ation by identifyin! value added products and providin! feedback to

production department% B9 3alue added products 7hi!h value items9 are to be produced instead of selected%

!I!,IO(RAP+-

!OO/S1
&% 1inancial /ana!ement= Theory 8 -ractice 7+th )dition9 )u!ene 1% #ri!ham and /ichael 5% ,erhardt :% )lements of /ana!ement Accountin! 'eslie 5had ick (% -rinciples of 5orporate 1inance 7Eth )dition9 Richard #erkley "te art /yers +% Accountin! 8 1inance for /ana!ers #arry J% 5ooper

5E!SITES1
http=??vi@a!steel%com http=?? http=?? http=?? %indiansteel%com %bee;india%nic%in%com %ans er%com

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