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7/30/2019 Accounts Project - Financial Statement Analysis of Steel Authority of India Limited - By Irfan Ahmad & Manisha Yadav
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7/30/2019 Accounts Project - Financial Statement Analysis of Steel Authority of India Limited - By Irfan Ahmad & Manisha Yadav
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INTRODUCTION
Steel Authority of India Limited (SAIL) is one of the largest state-owned steel makers in India and
one of the top steelmakers in World. With a turnover of 48,681 crore (US$9.87 billion), the company
is among the top five highest profit earning corporates of the country. It is a public sector undertaking
which trades publicly in the market is largely owned by Government of India and acts like an operating
company. Incorporated on January 24, 1973, SAIL has more than 1 lakh employees. During 2010-
11,the manpower of SAIL reached a level of 110794 (as on 31.3.2011) from 116950 (as on 1.4.2010)
The company's current chairman is C.S Verma. With an annual production of 13.5 million metric tons,
SAIL is the 14th largest steel producer in the world.
Major plants owned by SAIL are located Bhilai, Bokaro, Durgapur, Rourkela, Burnpur (near Asansol)
and Salem. SAIL is a public sector company, owned and operated by the Government of India.
According to a recent survey, SAIL is one of India's fastest growing Public Sector Units. Besides, it
has R&D centre for Iron & Steel (RDCIS), Centre for Engineering and Technology (CET),Management Training Institute (MTI) and SAIL Safety Organization (SSO) located at Ranchi capital
of Jharkhand.
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HISTORY
1959-1973
SAIL traces its origin to the Hindustan Steel Limited (HSL) which was set up on January 19, 1954.HSL was initially designed to manage only one plant that was coming up at Rourkela.
For Bhilai and Durgapur Steel Plants, the preliminary work was done by the Iron and Steel Ministry.
From April 1957, the supervision and control of these two steel plants were also transferred to
Hindustan Steel. The registered office was originally in New Delhi. It moved to Calcutta in July 1956,
and ultimately to Ranchi in December 1959.
A new steel company, Bokaro Steel Limited (Bokaro Steel Plant), was incorporated in January 1964
to construct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela Steel
Plants were completed by the end of December 1961. The 1 MT phase of Durgapur Steel Plant was
completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel
production of HSL went up from 1.58 MT (195960) to 1.6 MT. The second phase of Bhilai Steel Plant
was completed in September 1967 after commissioning of the Wire Rod Mill. The last unit of the 1.8
MT phase of Rourkela - the Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage
of Durgapur Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS.
Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur,
the total crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to
4MT in 1972-73.
1973-present
The Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing
industry. The policy statement was presented to the Parliament on December 2, 1972. On this basisthe concept of creating a holding company to manage inputs and outputs under one umbrella was
mooted. This led to the formation of Steel Authority of India Ltd. The company, incorporated on
January 24, 1973 with an authorized capital of Rs. 2000 crore, was made responsible for managing
five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant
and the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.
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RATIO ANALYSIS
Ratio analysis is a process of identifying the financial strengths and weaknesses of the firm.
This may be accomplished either through a trend analysis of the firms ratios over a period of
time or through a comparison of the firms ratios with its nearest competitors and with the
industry averages.
Ratio analysis is a very useful tool to raise relevant questions on a number of managerial
issues. It provides clues to investigate those issues in detail. However, caution needs to be
applied while interpreting ratios as they are calculated from the accounting numbers.
Accounting numbers suffer from accounting policy changes, arbitrary allocation procedures
and inflation.
1.PROFITABILITY RATIOA class of financial metrics that are used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs incurred during
a specific period of time. For most of these ratios, having a higher value relative to a
competitor's ratio or the same ratio from a previous period is indicative that the
company is doing well.
a) Gross Profit Margin Ratio:
The gross profit margin reflects the efficiency with which management produces
each unit of product. This ratio indicates the average spread between the cost of goods
sold and the sales revenue.
Gross Profit Margin Ratio = (Gross Profit / Sales) * 100
Gross profit = PBDITA (profit before depreciation, interest, tax and amortization)
2006 2007 2008 2009 2010
22.322 27.425 28.086 22.176 27.339
Analysis: Decrease in gross profit ratio indicates that direct expenses are increasing
and cost of goods sold is increasing.
22.32227.425 28.086
22.17627.339
0
20
40
2006 2007 2008 2009 2010
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b) Net Profit Margin Ratio:
Net profit margin ratio establishes the relationship between net profit and sales and
indicates management efficiency in manufacturing, administrating and selling of the
product. Net profit is obtained when operating expenses, interest and taxes aresubtracted from the gross profit.
Net Profit Margin Ratio = (Net Profit / Sales) * 100
2006 2007 2008 2009 2010
11.99 15.253 16.246 12.151 14.842
Analysis: Previously the net profit was increasing but after 2008 it goes down, this
indicates operating expenses increases year to year.
c) Operating Ratio:
The operating ratio is a financial term defined as a company's operating expenses as a
percentage of revenue. This financial ratio is most commonly used for industries
which require a large percentage of revenues to maintain operations, such as railroads.
Operating ratio= (Cost of Goods Sold + Operating Expenses)/Net Sales
2006 2007 2008 2009 2010
0.8756 0.8417 0.8345 0.8738 0.8462
11.99
15.25316.246
12.15114.842
0
5
10
15
20
2006 2007 2008 2009 2010
0.8756
0.84170.8345
0.8738
0.8462
0.8
0.85
0.9
2006 2007 2008 2009 2010
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2006 2007 2008 2009 2010
16.75 14.16 8.36 11.28 30.69
Analysis: It indicates that the company is borrowing less from outside in the later
years.
c) Proprietary Ratio or Equity Ratio:The equity ratio is a financial ratio indicating the relative proportion
of equity used to finance a company's assets. The two components are often taken
from the firm's balance sheet or statement of financial position (so-called book
value), but the ratio may also be calculated using market values for both, if the
company's equities are publicly traded.
Equity Ratio = Proprietary Fund / Total Assets
2006 2007 2008 2009 2010
0.42 0.49 0.54 0.5 0.47
Analysis: In the year 2008 it increases, which shows that the business expands but in
the later years it decreases which indicates that the business is not expanded.
3)ACTIVITY RATIOS:Activity ratios measure the effectiveness of the firms use of resources.
a) Capital Turnover Ratio:A ratio of how effectively a publicly-traded company manages
the capital invested in it to produce revenues. It is calculated by taking the
total of the company's annual sales and dividing it by the average stockholder
0.420.49
0.540.5 0.47
0
0.2
0.4
0.6
2006 2007 2008 2009 2010
16.7514.16
8.3611.28
30.69
0
10
20
30
40
2006 2007 2008 2009 2010
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equity, which is the average amount of money invested in the company. A
high ratio indicates that the company is using its capital well, while a low ratio
indicates the opposite. It is also called equity turnover.
Capital Turnover Ratio = Net Sales/ Capital Employed
2006 2007 2008 2009 2010
2.58 1.66 1.48 1.42 1.09
Analysis: In the previous years it decreases, which indicates that the sales are less but later it
increases which indicates that the sales are increased.
b) Net Working Capital Turnover Ratio:
Working capital is used by lenders to help gauge the ability for a company to
weather difficult financial periods. Working capital is calculated by
subtracting current liabilities from current assets. Due to differences in
businesses and the fact that working capital is not a ratio but an absolute
amount, it is difficult to predict what the ideal amount of working capital
would be for your business.
Net Working Capital Turnover Ratio = Net Sales/Net Working Capital
2006 2007 2008 2009 2010
8.58 4.74 3.86 3.01 2.1
Analysis: It decreases which is not good for the company because all the
assets are not utilized by the company.
2.58
1.661.48 1.42
1.09
0
1
2
3
2006 2007 2008 2009 2010
8.58
4.743.86
3.012.1
0
5
10
2006 2007 2008 2009 2010
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c) Inventory Turnover Ratio:In accounting, the Inventory turnover is a measure of the number of times
inventory is sold or used in a time period such as a year. The equation for
inventory turnover equals the cost of goods sold divided by the
average inventory. Inventory turnover is also known as inventoryturns, stockturn, stock turns, turns, and stock turnover.
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
2006 2007 2008 2009 2010
5.1 5.8 6.55 4.75 4.79
Analysis: It indicates that the cost of goods is increasing due to which the
company earns less profit.
5.15.8
6.55
4.75 4.79
0
2
4
6
8
2006 2007 2008 2009 2010
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Appendices
Appendix I Executive Summary of Statement
Appendix II Assets
Appendix III Liabilities
Appendix IV Income and Expenditure
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APPENDIX I
Steel Authority Of India Ltd. Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths
-
Total income 33415.79 40822.07 47454.82 51374.62 46815.5
Sales 32377.96 39312.59 45685.04 48837.27 44059.72
Income from financial services 475.15 809.72 1311.33 1846.81 2075.6
Total expenses 30534.13 34904.99 40354.32 47077.09 38903.68
Raw material expenses 12283.58 13421.64 13829.23 19902.42 16990.85
Power, fuel & water charges 2528.45 2594.04 2852.03 3260.62 3445.25
Compensation to employees 4359.18 5252.04 8069.15 8745.38 5540.28
Indirect taxes 4625.1 5437.26 6272.14 5569.67 3497.12
Selling & distribution expenses 1043.39 888.31 936.16 986.92 877.93
Other operational exp. of indl.enterprises 0 67.36 79.69 78.65 113.69
Other oper. exp. of non-fin. serviceenterprises 0 0 0 0 0
PBDITA 7356.8 10987.71 12945.78 11066.36 12260.25
PBDTA 6922.39 10671.55 12707.31 10742.29 11544.5
PBT 5707.33 9456.52 11471.43 9454.52 10207.26
PAT 4012.97 6202.29 7536.78 6170.4 6754.37
Net worth 12601.41 17313.15 23063.57 28148.22 33316.7
Paid up equity capital (net of forfeitedcapital) 4130.4 4130.4 4130.4 4130.4 4130.4
Reserves & surplus 8471.01 13182.75 18933.17 24017.82 29186.3
Total borrowings 3388.45 3291.52 2137.29 6700.21 15688.62
Current liabilities & provisions 11765.05 11957.99 14254.62 18131.99 18093.54
Total assets 30644.44 35270.45 42015.47 55476.02 69545.67
Gross fixed assets 30118.39 31111.23 33312.28 39400.55 50416.7
Net fixed assets 12920.08 12796.23 13960.86 18855.1 28641.41
Investments 292 513.79 557.13 672.85 703.61
Current assets 15525.72 19645.73 26049.33 34340.08 38685.01Loans & advances 285.75 323.92 397.28 444.51 483.75
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Growth (%)
Total income1.6808049
822.164012
916.247951
28.2600671
5
-8.8742651
5
Total expenses
15.597537
2
14.314670
2
15.611893
9
16.659356
4
-17.361757
1
PBDITA
-34.842180
449.354474
817.820546
8
-14.517626
610.788461
6
PAT -41.13264454.556101
821.516085
2 -18.1294939.4640541
9
Net worth23.710910
838.741876
633.869238
822.361806
118.361658
4
Total assets4.0150650
615.095756
4 19.12371432.037128
225.361678
8
Profitability ratios (%)
PBDITA Net of P&E/Total income netof P&E
21.7219887
26.5624796
27.1065565
21.1835446 25.856089
PAT Net of P&E/Total income net ofP&E 11.6721457 14.7729577 15.6799407 11.6074244 14.0375634
PAT Net of P&E/Avg. net worth33.906057
540.090243
736.765690
723.176303
721.279324
9
PAT/Avg. net worth35.035441
741.466697
237.332304
4 24.09757621.977967
3
PAT Net of P&E/Avg. total assets12.922541
218.194401
919.207612
512.174395
910.461640
7
PAT/Avg. total assets13.352980
918.819086
219.503630
212.658335
610.805117
1
Liquidity ratios (times)
Current ratio1.3677578
31.6409484
3 1.91366681.9920885
12.1079245
1
Debt to equity ratio
0.2735800
2
0.1915456
2
0.0929091
3
0.2380331
7
0.4708935
8
Interest cover13.840335
230.259362
348.624606
9 29.44638514.960950
1
Debtors (days)23.618611
221.389345
623.096965
724.189701
828.452866
9
Creditors (days)63.199842
461.330637
763.286015
563.465386
6108.57055
1
Efficiency ratios (times)
Total income / Avg. total assets1.1214249
91.2451462
5 1.23103731.0545737
50.7489180
5
Total income / Compensation toemployees
7.66561372
7.77261217
5.88101845
5.87448687
8.45002419
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APPENDIX II
Steel Authority Of India Ltd.Mar
2006Mar
2007Mar
2008Mar
2009Mar
2010
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths
-
Gross fixed assets 30118.39 31111.23 33312.28 39400.55 50416.7
Land & building 2604.88 2608.23 2697.05 2773.19 2873.67
Plant & machinery 25021.73 25489.78 26202.33 27742.15 28866.54
Transport & comm.equipment/infrastructure 1089.1 1138.19 1226.82 1373.17 1614.55
Furniture,amenities & other fixed assets 415.45 431.02 456.76 534.25 565.46
Capital work-in-progress 753.48 1193.01 2372.89 6549.86 15029.59
Intangible assets 204.88 221.53 314.25 401.25 1439.04
Net pre-operative expenses pendingallocation 4.46 5.51 16.66 0.84 4.62
Net lease reserve adjustment 0 0 0 0 0
Less: Cumulative depreciation 17198.31 18315 19351.42 20545.45 21775.29
Less: Arrears of depreciation 0 0 0 0 0
Net fixed assets 12920.08 12796.23 13960.86 18855.1 28641.41
Investments 292 513.79 557.13 672.85 703.61
Equity shares 296.49 521.49 545.9 660 676.13
Preference shares 0 0 0 0 0
Mutual funds 0 0 0 0 0Debt instruments 0 0 0 0 0
Approved securites (slr/statutory req.) 0 0 0 0 0
Assisted companies 0 0 0 0 0
Others 0.18 0.18 19.11 20.33 34.96
Less: Provision for dimunition in value ofinvestments 4.67 7.88 7.88 7.48 7.48
Group companies 284.48 509.48 533.89 647.99 664.12
Non-group companies 12.01 12.01 12.01 12.01 12.01
Market value of quoted investments 3.33 4.31 5.12 2.7 6.08
Deferred tax assets 1405.07 1295.13 991.39 1162.39 1031.89
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Borrowings from promoters / directors 0 0 0 0 0
Commercial paper 0 0 0 0 944.78
Hire purchase borrowings 0 0 0 0 0
Deferred credit 0 0 0 0 0
Other borrowings 1454.05 995.05 491.9 1147.9 413.4
Secured borrowings 1122.16 1556.39 925.31 1497.64 7755.9
Unsecured borrowings 2266.29 1735.13 1211.98 5202.57 7932.72
Current portion of long term debt 1448.23 2047.12 1028.64 5211.51 3041.31
Current liabilities & provisions 11765.05 11957.99 14254.62 18131.99 18093.54
Sundry creditors 2427.36 2545.07 2987.25 4104.87 6232.36
Acceptances 0 0 0 0 0
Deposits & advances from customers &employees 768.56 889.51 886.63 1021.22 1216.36
Interest accrued 1284.99 1087.79 1023.59 958.2 1223.75
Share application money 0 0 0 0 0
Other current liabilities 1619.96 1764.47 2411.45 2467 3087.02Provisions 5664.18 5671.15 6945.7 9580.7 6334.05
Deferred tax liability 2889.53 2707.79 2559.99 2495.6 2446.81
Total liabilities 30644.44 35270.45 42015.47 55476.02 69545.67
Net worth (net of reval & DRE) 12385.59 17184 23004.09 28148.22 33316.7
Contingent liabilities 5705.22 5605.9 17262.72 32076.05 28384
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APPENDIX IV
Steel Authority OfIndia Ltd.
Indicators / Segments
Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010
-
Segment sales 33884.32 41250.1 48276.09 52068.69 47561.07Alloy Steel Plant 669.21 772 1051.45 1132.75 1215.83
Bhilai Steel Plant 11386.52 13867.87 16709.24 18916.13 16606.04
Bokaro Steel Plant 10069.26 11519.21 12757.04 12284.72 11550.09
Durgapur Steel Plant 3839.9 4488.07 5642.83 6626.63 5917.24
I S P 1358.58 1590.56 1840.26 2351.11 2220.58
Others 486.25 563.65 707.15 1100.22 1028.15
Rourkela Steel Plant 4632.72 6395.01 7384.85 7741.74 7092.69
Salem Steel Plant 785.04 1305.24 1397.13 1265.04 1373.34
Visvesvaraya Iron &Steel Plant
656.84 748.49 786.14 650.35 557.11
Visvesvaraya Iron &Steel
557.11
Less: inter segment 1604.57 2061.44 2720.75 3149.56 3626.37Alloy Steel Plant 174.16 240.1 500.31 587.92 806.36
Bhilai Steel Plant 169.25 341.56 191.43 419.43 731.74
Bokaro Steel Plant 531.89 514.52 719.47 427.03 253.12
Durgapur Steel Plant 79.41 200.39 368.1 420.08 315.47
I S P 19.35 108.19 124.44 325.33 387.1
Others 482.95 554.86 677.42 779.75 970.74
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Rourkela Steel Plant 46.07 59.11 63.19 118.57 100.45
Salem Steel Plant 14.92 5.97 22.86 10.55 4.65
Visvesvaraya Iron &
Steel Plant
23.81 36.74 53.53 60.9 56.54
Visvesvaraya Iron &Steel
56.54
Net sales (net of intersegment) 32279.75 39188.66 45555.34 48919.13 43934.7
Alloy Steel Plant 495.05 531.9 551.14 544.83 409.47
Bhilai Steel Plant 11217.27 13526.31 16517.81 18496.7 15874.3
Bokaro Steel Plant 9537.37 11004.69 12037.57 11857.69 11296.97
Durgapur Steel Plant 3760.49 4287.68 5274.73 6206.55 5601.77
I S P 1339.23 1482.37 1715.82 2025.78 1833.48
Others 3.3 8.79 29.73 320.47 57.41
Rourkela Steel Plant 4586.65 6335.9 7321.66 7623.17 6992.24
Salem Steel Plant 770.12 1299.27 1374.27 1254.49 1368.69
Visvesvaraya Iron &Steel Plant
633.03 711.75 732.61 589.45 500.57
Visvesvaraya Iron &Steel
500.57
PBIT 6173.5 9755.18 11719.67 9658.29 10534.04Alloy Steel Plant 30.15 22.73 8.35 -106.94 -22.05
Bhilai Steel Plant 2921.7 4286.24 5425.28 5030.44 4403.49
Bokaro Steel Plant 2169.72 2771.13 2870.84 1345.55 2166.65
Durgapur Steel Plant 311.24 639.23 1036.34 783.64 693.54
I S P -242.21 -245.37 -280.06 -178.59 185.94
Others 401.13 818.27 1122.3 1825.79 1744.18
Rourkela Steel Plant 608.74 1369.2 1480.98 1099.73 1443.11
Salem Steel Plant -56.92 123.55 107.69 7.12 19.16
Visvesvaraya Iron &Steel Plant
29.95 -29.8 -52.05 -148.45 -99.98
Visvesvaraya Iron &Steel
-99.98
-Interest / dividend income
0 0 0 0 0
Less: interest expense 467.76 332.13 250.94 259.41 402.01Net unallocableincome/expenditure 0 0 0 0 0
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Less: Tax1692.77 3220.76 3931.95 3226.48 3377.66
Deferred Taxes0 0 0 0 0
PAT4012.97 6202.29 7536.78 6172.4 6754.37
PAT/sales (%)12.4318497 15.8267468 16.5442295 12.6175588 15.3736568
PAT/capital employed
(%) 21.8292065 27.0767513 27.2307994 16.6622305 13.1810923PAT/total assets (%)13.0242055 18.3199918 18.4380822 11.3916451 9.87605167