7.

5 RATIO ANALYSIS

The following financial data has been extraced from the Annual Reports of SAIL for the purpose

of Ratio Analysis.

Financials of Last Five Years - For the Purpose Ratio Analysis Rs. in Crores
S. No. Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
1 Gross Sales 43935 48738 45555 39189 32280
2 Net Sales 40551 43204 39508 33923 27860
3 EBDITA 11871 10946 12955 10966 7381
4 Depreciation 1337 1288 1235 1211 1207
5 EBIT 10534 9658 11720 9755 6174
6 Interest & Finance Cost 402 259 251 332 468
7 Profit Before Tax (PBT) 10132 9399 11469 9423 5706
8 Provisions for Tax 3378 3229 3932 3221 1693
9 Profit After Tax (PAT) 6754 6170 7537 6202 4013
10 Dividends 1363 1074 1528 1280 826
11 Equity Capital 4130 4130 4130 4130 4130
12 Reserve & Surplus 29186 24018 18874 13054 8255
13 Net Worth 33317 28148 23004 17184 12386
14 Total Loans – (Debts) 16511 7563 3045 4181 4298
15 Net Fixed Assets 13615 12305 11571 11598 12162
16 Capital work in progress 15026 6550 2390 1199 758
17 Current Assets 39081 34676 26318 20379 17384
18 Opening Stock 10161 6857 6651 6210 4220
19 Closing Stock 9027 10161 6857 6651 6210
20 Liquid Assets 30054 24515 19461 13728 11174
21 Current Liabilities 11092 12277 9439 6500 8108
Net Working Capital
22 Or Net Current Assets 27989 22398 16879 13879 9276
Capital Employed
23 Or Net Assets 41604 34703 28450 25476 21438
24 Total Assets 68391 54184 40876 33818 29058
25 Purchases* 17430 20197 13964 13276 12326
26 Debtors 3494 3028 3048 2315 1882
27 Creditors 4085 2922 2460 2160 2099

* Consumption of Raw Material during the year has been considered as purchases of the year.
7.5.1 Liquidity Ratios

Liquidity ratios are used to determine the short-term solvency position of a business enterprise.

The term ‘liquidity’ means the conversion of the assets into cash without taking much time.

The objective is to find out the ability of the business enterprise to meet its short-term liabilities.

Table 00: Liquidity Ratios

Statement Showing Liquidity Ratios

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
i Current Ratio 3.53 2.83 2.79 3.14 2.15
ii Quick Ratio 2.71 2.00 2.07 2.12 1.38

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = Quick Assets / Current Liabilities (Quick Assets = Current Assets – Stock)

Ideal Standards, always measured in times.

Current Ratio = 2:1 Quick Ratio = 1:1

Graph 00: Liquidity Ratios

Interpretations

By looking at the Current Ratio (CR) of SAIL it can be interpreted that SAIL is a Cash Rich

Company. Because in the comparision of five years it has been noticed that, the company has

maintained the standard of CR which is 2:1. In the past five years company has never seen the

cash crunch. In 2005-06 company has maitained its CR by keeping it at 2.15:1, the company has

engough level of cash to meet its current obligations. But in 2006-07 CR has been increased to

3.14:1, which can be interpreted as inefficeincy in managing the working capital or it may be the
case that company has maintained it, due to some mordernization and expansion plan. Year

2006-07 also indicates the increase in total current assets and decrese in current liabilities due to

which the CR has been incresed. Year 2007-08 shows the decrease in CR which gives the sign of

efficeint working capital management. In 2008-09 CR has increased slightly which has

neglectable impact.

CR of 2009-10 has been increased to 3.53, as we have dicussed that above standard CR is not

good but it may be the case that SAIL has maintained it disparately because if a company has

good amount of deposits with the banks they can get the funds at the competetive interest rates.

Company has replaced its high cost short term loans with low cost debts. Due to the better fund

management company has earned the Interest of Rs. 1772 Crore through short term deposits with

the banks. The Company continued to maintain its virtual debt free status with term deposits of

Rs. 22023 Crore against borrowing of Rs. 16511 Crore as at the year end.

Quick Ratio (QR) helps in understanding the liquidity of a frim excluding the stock part. Also

known as the Acid Test ratio, it is a stringent test that indicates if a firm has enough short-term

assets (without selling inventory) to cover its immediate liabilities. It is more reliable than

current ratio because it considers only the liquid assets and does not include the hidden factors

like window dressing that may skew the actual scenario. The reason for keeping inventory out is

that it may become obsolete, unsalable or out of fashion and always requires time for realizing

into cash. Moreover, the inventories have tendency to fluctuate in value. Quick ratio of 1:1 is

considered ideal because this means that the quick assets of the firm are just equal to the quick

liabilities and there does not seem to be a possibility of default in payment by the firm. QR of

SAIL in 2005-06 was maintained at its standard level. But from 2006 to 2009 it was quite high,

which gives the insight that company has enough cash to meet its cuurent obligations excluding

the stock. QR of SAIL in year 2009-10 has been increased to 3.53 :1 which is very high, it is due

to decrease in inventory level and increase in short term deposites as discussed above.