Financial Analysis of SHIL

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A

Project Report

On

Financial Analysis

Of

Presented to

Mr. Nikunj Patel

Assistant Professor,S.V.Institute of Management,Kadi

Hemchandracharya North Gujarat University

On

December 7, 2007

In Partial fulfillment of the requirement for theManagerial Accounting-I course in the

Master of Business Administration Programme

By

Ashwin Chaudhary


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PREFACE

We are the student of Master of Business Administration and as per theuniversity curriculum, we are required to prepare a project report on financialanalysis of any particular company. For this purpose we selected the SteelAuthority of India Limited, as it is a new task for us, which provide greatknowledge to us.

We got a chance to keep in the real business world for the financial analysiswhich helpful for us to know new things about the finance department of thecompany that from where the cash in come in the company and where it is go.Also the report helps us to know how companies prepare their financialstatement. What are their accounting policies and to know about other financialaspect of the company.

This report highlights the financial position of the company. This report includeanalysis of balance sheet, profit &loss account and cash flow statement for thelast five years. It also focuses on firms working capital requirement, sources andinstrument of working capital finance. And also ratios have been calculated topresent a clear picture of the financial profitability and liquidity position of thecompany.

This project really enhance our knowledge about industry and I have reallygained a lot of knowledge from this project. I hope this will also help in future.

S.V.Institute of Management, Kadi By

Ashwin


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ACKNOWLEDGEMENT

Through this acknowledgement we would like to express our sincere gratitudetowards all those people who helped us in the preparation of this project report,which has been a learning experience for us.

Firstly, we would like to thank Mr. S.M. Shah, Director of the S.V. Institute of Management, Kadi, who gave us this valuable opportunity to prepare this report.

Secondly, we would like to thank to my In charge Mr.Nikunj Patel who guided usand also always willing to help us with proper guidance in making the projectreport.

Finally, we were thankful to our friends who guide us directly and indirectly incollecting data and preparing the report as well as imparting their knowledge withus.

S.V.Institute of Management, Kadi By Ashwin


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Executive Summary

Our this documents contain the comparative performance of the Steel AuthorityOf India Ltd. Of the latest five years i.e. 2002-03 to 2006-07. this include theanalysis of the five years data of the company.

Our this report include the introduction of the company, brief history of thecompany, its business and vision of the company. Our this report also include theanalysis of the balance sheet and the profit & loss Account for the same fiveyears. The cash flow statements are also analyzed. the report contain the ratioanalysi of the company to measure the performance of the company withinterpretation required. The all aspects of the ratios are considered and theefficiency of the company is also judge by us. Thus the recommendation andsuggestion is also provided for the company to be consider for the better working. After analyzing all the available financial data of the Steel AuthorityOf India Ltd. ,we are able to understand the financial position of the company bycomputing various ratios and by making graphical presentations :

If we look at companys assets side we can see that there is a over all increase inthe assets of the company from 2002 to 2007. In the last two years i.e. in 2006 &2007 there is a increase of 15%. This shows that company is also purchasingnew assets in this five years. Company is also making a proper provision duringthis years. Company is investing in many areas like quoted investments andmutual fund. Company is also making a proper redord of inventories andreceivables. There is an increasing trend in current ratio, so it is showing a goodworking capital of the company. At the end company is also making a proper system of written off of assets.

From the above data and analysis we can say that company is earning a goodprofit in these five years. And the effect of this we can see on the net worth of thecompany. Company is also consistent in declaring dividend to the shareholders.As companys profit increasing from one year to another there is a proper recordof reserve and surplus. Company is increasing its reserve and surplus its showsthat company is aware about the future and also aware of the contingency. Sowe can say that companys future is good as far as growth is concerned.

Now we can see that companys borrowing is decreasing year by year. Companyrepaid the bank loan and debentures. So the burden of the company is

decreasing. And it is good for companys reputation.

At the end we can say that in these five years companys performance istremendous as far as growth is concerned. There is a continuous increase in theprofit of the company at a higher rate.


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A Liquidity Ratios 54A.1 Current Ratio 55A.2 Acid Test/Quick Ratio 56

A.3 Defensive Interval Ratio 56A.4 Cash Ratio 57B Leverage/Capital Structure Ratios 59B.1 Long Term Funds To Fixed Assets Ratio 59B.2 Total Debt Equity ratio 60B.3 Capital Employed Ratio 61B.4 Interest Coverage Ratio 62C Profitability Ratios 63C.1 Gross Profit Ratio 64C.2 Operating Profit Ratio 65C.3 Net Profit Ratio 65C.4 Cost Of Goods Sold Ratio 66C.5 Operating Expense Ratio 67C.6 Return On Total Assets Ratio 68C.7 Selling Expense Ratio 69C.8 Earning Per Share 70C.9 Return On Total Shareholders Equity 71D Activity Ratios 72D.1 Inventory Turnover Ratio 72D.2 Debtors Turnover Ratio 72D.3 Total Assets Turnover Ratio 73D.4 Fixed Assets Turnover Ratio 74D.5 Debt Collection Period 74

9 DU POINT CHART 769.1 INTRODUCTION TO DU POINT CHART 769.2 DU POINT CHART OF SAIL 779.3 Interpretation of Due Point Chart 78

10 Recommendations & Suggestions 7911 Contemporary Issue in SAIL 8012 Annexure 8113 Bibliography 90


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CHAPTER - 1 ABOUT THE COMPANY

1.1 Introduction to SAIL1.2 History & Development1.3 Contact Information1.4 Board of Directors1.5 Bankers and Auditors1.6 Basic information of SAIL1.7 Vision and Mission1.8 Awards and Accolades1.9 Product Profile1.10 Shareholding Pattern


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1.1 Introduction to SAIL

is the leading steel-making company in India. It is afully integrated iron and steel maker, producing bothbasic and special steels for domestic construction,

engineering, power, railway, automotive and defence industries and for sale inexport markets.SAILRanked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, includinghot and cold rolled sheets and coils, galvanised sheets, electrical sheets,structurals, railway products, plates, bars and rods, stainless steel and other alloysteels. SAIL produces iron and steel at five integrated plants and three specialsteel plants, located principally in the eastern and central regions of India andsituated close to domestic sources of raw materials, including the Company's ironore, limestone and dolomite mines. The company has the distinction of beingIndias largest producer of iron ore and of having the countrys second largestmines network. This gives SAIL a competitive edge in terms of captive availabilityof iron ore, limestone, and dolomite which are input for steel making.

SAIL's wide range of long and flat steel products are much in demand in thedomestic as well as the international market. This vital responsibility is carried outby SAIL's own Central Marketing Organisation (CMO) and the International TradeDivision. CMO encompasses a wide network of 34 branch offices and 54stockyards located in major cities and towns throughout India.

Today, the accent in SAIL is to continously adapt to the competitive businessenvironment and excel as a business organisation, both within and outside India.SAIL has consolidated its position and is endeavouring towards shaping asustainable future, turning indias dream into an inspiring reality. SAIL is wellpoised to play a vital role in the current unprecedented growth phase in thecountry.


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1.2 HISTORY AND DEVELOPMENT

THE PRECURSOR

SAIL traces its origin to the formative years of an emerging nation - India. After independence the builders of modern India worked with a vision - to lay theinfrastructure for rapid industrialisaton of the country. The steel sector was topropel the economic growth. Hindustan Steel Private Limited was set up onJanuary 19, 1954. The President of India held the shares of the company onbehalf of the people of India

EXPANDING HORIZON (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only one plant that wascoming up at Rourkela. For Bhilai and Durgapur Steel Plants, the preliminarywork was done by the Iron and Steel Ministry. From April 1957, the supervisionand 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 July1956 and ultimately to Ranchi in December 1959.

A new steel company, Bokaro Steel Limited, was incorporated in January 1964 toconstruct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai andRourkela Steel Plants were completed by the end of December 1961. The 1 MTphase of Durgapur Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel production of HSLwent up from .158 MT (1959-60) to 1.6 MT. The second phase of Bhilai SteelPlant was completed in September 1967 after commissioning of the Wire RodMill. The last unit of the 1.8 MT phase of Rourkela - the Tandem Mill - wascommissioned in February 1968, and the 1.6 MT stage of Durgapur Steel Plantwas 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 and1.6 MT at Durgapur, the total crude steel production capacity of HSL was raisedto 3.7 MT in 1968-69 and subsequently to 4MT in 1972-73.

HOLDING COMPANY

The Ministry of Steel and Mines drafted a policy statement to evolve a new modelfor managing industry. The policy statement was presented to the Parliament onDecember 2, 1972. On this basis the concept of creating a holding company tomanage inputs and outputs under one umbrella was mooted. This led to theformation of Steel Authority of India Ltd. The company, incorporated on January24, 1973 with an authorized capital of Rs. 2000 crore, was made responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and


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Burnpur, the Alloy Steel Plant and the Salem Steel Plant. In 1978 SAIL wasrestructured as an operating company.

Since its inception, SAIL has been instrumental in laying a sound infrastructurefor the industrial development of the country. Besides, it has immensely

contributed to the development of technical and managerial expertise. It hastriggered the secondary and tertiary waves of economic growth by continuouslyproviding the inputs for the consuming industry.

SAIL TODAY

SAIL today is one of the largest industrial entities in India. Its strength has beenthe diversified range of quality steel products catering to the domestic, as well asthe export markets and a large pool of technical and professional expertise.

Today, the accent in SAIL is to continuously adapt to the competitive businessenvironment and excel as a business organization, both within and outside India.


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1.3 CONTACT INFORMATION

Steel Authority of India Ltd.

Registered Office :-

Address

Street :- Ispat bhavan, Lodhi Road, P.B. No. 3049

City :- New Delhi Pincode :- 110003

State :- Delhi

E-Mail Address :- [email protected] / [email protected]

Website :-www.sail.co.in

Telephone and Fax Number

Head Office :-

Address

Country Code :- 91 Area Code :- 11

Telephone Number :- 24367481

Fax Number :- 24367015

Stereet :- Bokaro Steel Plant, Bokaro Steel City, Jharkhand

State :- Jharkhand

Pincode :- 827001
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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1.4 BOARD OF DIRECTORS

Mr. S.K. Roongta {Chirman}

Mr. K.K. Khanna {Technical Director}

Mr. G.Ojha {Personnel Director}

Mr. Soiles Bhattacharya {Finance director}

Mr. Shoeb S.Ahmed {Commercial Director}

Mr. Nilotpal Roy {Managing Director - IIsco Plant}

Mr. V. Shyamsundar {Managing Director Durgapur steel Plant}

Mr. B.N. Singh {Managing Director - Rourkela Steel Plant}

Dr. S.C. Jain {Independent Director}

Prof. R.P. Sengupta { Independent Director}

Dr. Velu Annamalai { Independent Director}

Prof. Deepak Nayyar { Independent Director}

Shri Siddharth Kak { Independent Director}

Shri Shyamal Ghosh { Independent Director}

Shri P.K. Sengupta { Independent Director}

Shri Devinder Kumar {Secretary}


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1.5 BANKER AND AUDITORS

State Bank of IndiaPunjab National BankCanara BankBank Of BarodaUnited Bank Of IndiaBank Of IndiaUnion Bank Of IndiaAllahabad BankUCO BankCentral Bank Of IndiaIndian Overseas BankSyndicate BankJammu & Kashmir BankState Bank Of HyderabadState Bank Of SaurashtraIDBI BankHDFC Bank Ltd.

Auditors:-

M/s. S.K. Mittal & Co.M/s. Ray & RayM/s. Dass Maulik Mahendra K.Agrawala & Co.

Bankers:-


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1.6 BASIC INFORMATION OF SAIL

ROC Registration Number :- 55 6454

Incorporation year :- 1954

Ownership :- Central Govt. - Commercial Enterprises

Main Activity :- Finished steel (incl. saleable steel)

Subsidiary/ies :- Maharashtra Elektrosmelt Ltd.

Other Integrated Plants :- Bhilai steel plants (BSP)Durgapur steel plants (DSP)Rourkela steel plants (RSP)Bokaro steel plants (BSL)IISCO steel plant (ISP)


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1.7 VISION AND MISSION OF SAIL

VISION :-

Our vision to be a respected world class corporation and the leader in Indiansteel business in quality, productivity, profitability and customer satisfaction.

Mission :-

We build lasting relationship with customers based on trust and mutual benefit;uphold highest ethical standards in conduct of our business. We create andnurture a culture that supports flexibility, learning and is proactive to change. Wechart a challenging career for employees with opportunities for advancement andrewards and also we value the opportunity and responsibility to make ameaningful difference in peoples lives.


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1.8 AWARDS & ACCOLADES

The excellent performance of the company has been widely recognized. It haswon number of awards and accolades in various fields. These include :

The prestigious SCOPE Gold Trophy to SAIL for excellence andOutstanding Contribution to the Public Sector Management institutionalcategory for 2004-05.SCOPE Meritorious Award to SAIL for Environmental Excellence &Sustainable Development for 2004-05.Prime Ministers Shram Awards to 10 SAIL employees for 2004.Businessworld FICCI SEDF Corporate Social Responsibility Award

2006 to SAIL for its innovative corporate social responsibility initiatives inthe fields of education, access to drinking water, medical and healthcare,sanitation, womens empowerment, tribal welfare, sports, child healthcare,heritage preservation, cultural and recreational activities.National Safety Awards for the year 2002 & 2003to Raw Material Devision.B.M.L. Munjal Award to SAIL for excellence in learning and developmentfor 2006 by Hero Honda Mindmine Institute.Dun & Bradstreets American Express Award 2006 SAIL as the topIndian company in Iron & Steel sector.Regional Trophy for Top Exporter to SAIL in the category of ManufacturingUnit (Non SSI category) for 2003-04 by the Engineering Export PromotionCouncil, Northern Region.First Prize to SAIL pavilion at Udyog Mela in Ranchi by JarkhandGovernment.SAIL bagged the Construction World NICMAR Award 2006 and wasadjudged number one company in turnover and profitability amongst steelmanufacturing industries.First Pinnacle Award to SAIL for best steel company for supply of steel for construction industry by ZEE Business.


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1.9 PRODUCT PROFILE

Own Products

Other Product

Product Wise

Semis Blooms, Billets and Slabs Long Products Structurals ,

Crane Rails,Bars, Rods & RebarsWire Rods

Flat Products HR Coils, Sheets & Skelp,

Plates,CR Coils & sheetsTinplatesElectrical Steel

Tabular Products Pipes

Railway Products Rails,Wheel, Axles, Wheel Sets

Main Steel Plant Pig IronSteel Ingots/LiquidSaleable Steel-FinishedSaleable Steel-SemiFinished

Alloy Steel Plant Pig IronSteel Ingots/LiquidSaleable Steel-FinishedSaleable Steel-SemiFinished


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1.10 Shareholding PatternAs on 31 st March 2007

Category Number of Equity sharesheld

Number of holders

Amount(Rs. InCrore)

% of Equity

Government of India 3544690285 1 3544.69 85.82Financial Institutions &Banks

164232264 55 164.23 3.98

Mutual Funds and UTI 58188578 81 58.19 1.41Foreign InstitutionalInvestors (FIIs)

254199047 119 254.20 6.15

Global DepositoryReceipts (GDRs)

1546835 2 1.55 0.04

Companies( includingTrusts & ClearingMembers)

23359147 3090 23.36 0.56

Individuals (includingEmployees& NRIs)

84184389 209382 84.18 2.04

Total 4130400545 212730 4130.40 100.00

Shareholding Pattern (% of equity)

85.82

3.98

1.41

6.15

0.04

0.56

2.04

Government of India

Financial Institutions& Banks

Mutual Funds and UTI

Foreign InstitutionalInvestors (FIIs)

Global DepositoryReceipts (GDRs)

Companies( includingTrusts & ClearingMembers)

Individuals (includingEmployees& NRIs)


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CHAPTER 2 FINANCE AND FINANCIAL ANALYSIS

2.1 Introduction to Finance

2.2 Financial Analysis and Techniques


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2.1 INTRODUCTION TO FINANCEAND FINANCE ANALYSIS

Introduction to Finance

Preface

The position of finance in business can be matched with the position of blood in the human body. Finance is the lifeblood of the business.Finance, today is not only limited up to function that circulates businessbut also extended its boundaries. Today success or failure concernheavily depends upon how effective financial management a firm has. It isthe portfolio that give maximum return at minimum cost. Further differentparties, both inside and outside of firm are interested in financial positionof firm and at fixed interval they often evaluate financial position byassessing financial statement of firm.


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2.2 Financial Analysis & Technique

Financial statement analysis is the collective name for the tools andtechniques that are intended to provide relevant information to decisionmakers. The purpose of financial statement analysis is to assess acompanys financial health and performance. Financial statement analysisconsists of comparison for the same company over period of time andcomparison of different companies either in the same industry or indifferent industries.

There are mainly seven techniques of analyzing financial statements arefollows :-

Comparative Statement Trend Percentages Common Size Statement Statement showing change in net working capital Fund flow statement Cash flow statement Ratio Analysis

By using these techniques management or any person who knows thesetechniques can analyze the financial position with adequate data and interpret itand also deriving conclusion from it.

(A)Comparative Statement.

Under this, The logic is if we put financial statement of different year together we can easily know the changes in the business that occurs time bytime and slowly gradually. This method is very useful for the owners of business;by this they can better know their performance in business in last few years.Here, this method needs financial statement of firm of more than two years.Because if we compare current years position with previous years position then itmay give wrong information i.e. it may happen that previous year is affected by

inflation or vice a versa than in this situation we cant get correct conclusion.Thus by putting last three or five years statement together we can know theincrease or decrease in assets, liabilities, income and expense of the business.With this method we can interpret profit and loss account as well as balancesheet.


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(B)Trend Percentage.

Trend analysis involves calculation of percentage changes in financialstatement items for a number of successive years. It is an extension of comparative statement to several years. Trend analysis is carried out by first

assigning a value of 100 to the financial statement items in a past financial year used as the base year and then expressing financial statement items in thefollowing year as a percentage of the base year value. Suppose, we haveinformation about cash and bank balance of business as follow for one particular company.

So, in trend analysis we put 100 for 2003-04 and get 120 for 2004-05 andalso get 140 for the year 2005-06. So by comparing data in percentage we caneasily get conclusion about financial position. But some limitation are that if baseyear is not normal year than we can not get correct conclusion, further sometimein current year it may be possible that price of some goods is increased or decreased or due to some new Govt. policies, business have to be changeaccordingly so in this type of condition business in trend analysis cannot givecorrect conclusion.

(C) Common Size Statement.

Common size statement is the proportional expression of each item on afinancial statement to the statement total. In this statement all the elements withineach statement are expressed in percentage of some common number andalways add up to 100 percent. The items in the profit and loss account areusually expressed as percentage of sales, while the balance sheet items aregiven as percentage of total shareholders funds and liabilities or of total assets.This type of statement is also called as 100% statement.

(D)Statement Showing Increasing or Decreasing in Net working Capital

Net working capital means increase of current assets over currentliabilities. Working capital is necessary for day-to-day functioning of businesstherefore, for knowing the year by year change in it; Statement of changing inworking capital is to be prepared. There are many different methods for preparingthis statement but popular among it is to compare current assets with currentliabilities and not increase or decrease in it

(E) Fund Flow Statement.This statement is prepared in intention to know that during the year how muchinflow come and how many outflows goes from business. Further from where thisinflow occurred and to where these outflow goes. It also indicates investment of

Year 2003-04 2004-05 2005-06Cash & Bank 10000 12000 14000


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funds. If we have issued shares during the year than it is considered as inflowand if we have purchase machinery than it is considered as outflow of funds.

(F) Cash Flow Statement.Fund flow statement and working capital statement shows change in working

capital as well as flows for the period of one year. While cash flow statement canrepresent flows of working capital for short period of time. It is prepared quaterly,half yearly or yearly. This statement also compares previous years flow withcurrent years flow so that we can best predict position of business. Cash flowinformation is widely used by incestors, analysts, managers, creditors and others.It is a part of full set of financial statement.

(G) Ratio AnalysisFinancial statement cannot useful for proper guidance independently but it moreuseful for knowledge of interrelation between two information. In simple words,after comparison of different financial statement if we want to put this can

compare ratio of particular firm with other firm for knowing the performance of particular company. Ratio is a figure showing the logical relationship betweenany two items taken from financial statement. Ratio analysis method is classifiedas :-

(A) Traditional method includei) Profit & loss Account Ratioii) Balance sheet Ratioiii) Mix Ratio

(B) Classification According to Nature of ratio include

i) Liquidity Ratioii) Profitability Ratioiii) Leverage Ratioiv) Activity Ratio


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CHAPTER 3 BALANCE SHEET ANALYSIS

3.1 Introduction to Balance Sheet

3.2 Balance Sheet3.3 Comparative Analysis of Balance Sheet3.4 Common size statement of Balance Sheet3.5 Trend Analysis of Balance Sheet


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3.1 INTRODUCTION TO BALANCE SHEET

A balance sheet is a list of assets and liabilities and claims of a business

at some specific point of time and is prepared from an adjusted Trial Balance. Itshows the financial position of a business by detailing the source of funds andutilization of these funds. A Balance Sheet shows the assets and liabilitiesgrouped, properly classified and arranged in a specific manner .

USES OF BALANCE SHEET It enables us to ascertain the proprietary interest of a person or business

organization. It enables us to calculate the actual capital employed in the business. The lender can ascertain the financial position of the business. It may serve as the basis for determining purchase consideration of the

business. Different ratio can be calculated from the Balance Sheet and these ratios

can be utilized for better management of the business.

LIMITATION OF BALANCE SHEET Fixed assets are shown in the Balance Sheet as historical cost less

depreciation up-to-date. A conventional Balance Sheet can not reflect thetrue value of these assets. Again intangible assets are shown in theBalance Sheet at book values which may bear no relationship to themarket values.

Sometimes, balance sheet contains some assets which command nomarket value such as expense, debenture discount etc. the inclusion of these assets unduly inflate the total value of assets.

The balance sheet can not reflect the value of certain factors such as skilland loyalty of staff.

A conventional balance sheet may mislead untrained readers ininflationary situations.

The value of major number of current assets depends upon someestimates, so it cannot reflect the true financial position of business.


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3.2 BALANCE SHEETBalance Sheet of Steel Authority of India Limited

As On 31 st March

SOURCES OF FUNDS Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Rs.Crore 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Net Worth 2829.75 2525.24 5037.67 10306.65 12601.41 17313.15Authorised Capital 5000 5000 5000 5000 5000 5000Issued Equity Capital 4130.4 4130.4 4130.4 4130.4 4130.4 4130.4Paid-up Equity Capital 4130.4 4130.4 4130.4 4130.4 4130.4 4130.4Preference Capital 0 0 0 0 0 0Bonus Equity capital 0 0 0 0 0 0Buy back amount 0 0 0 0 0 0Buy back shares(nos.) 0 0 0 0 0 0Reserve & Surplus -1300.65 -1605.16 907.27 6176.25 8471.01 13182.75Borrowing 13562 12387.67 8012.99 4959.11 3388.45 3291.52Deferred Tax Liabilities 0 0 0 3032.05 2889.53 2707.79CurrentLiabilities&Provision 7326.59 7944.14 9783.5 11163.73 11765.05 12011.86Total Liabilities 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32

APPLICATION OFFUNDSRs.CroreGross Fixed Assets 27767.21 27901.85 28057.06 28335.05 29913.51 30927.22Land & Building 1985.94 1874.52 1888.29 2269.25 2604.88 2608.23Plant & Machinery 23286.87 23608.46 23713.23 24085.01 25021.73 25489.78Other Fixed Assets 1938.46 2057.62 2073.34 1614.31 1528.96 1593.17

Capital WIP 555.94 361.25 382.2 366.48 757.94 1236.04Less:Cumulativedepreciation 12393.76 13490.26 14547.46 15542.3 17134.62 18232.91Net Fixed Assets 15373.45 14411.59 13509.6 12792.75 12778.89 12694.31Revalued Assets 0 0 0 0 0 0Investment 568.03 543.17 543.17 606.71 292 513.79Deferred Tax Assets 0 0 0 1187.74 1405.07 1295.13Inventories 4020.32 3722.52 3057.05 4220.69 6210.06 6651.47Receivable 2760.37 3123.18 3277.84 4167.8 3428.77 4291.2Cash & Bank Balance 416.37 512.91 2017.16 6132.12 6172.64 9609.93

Cash in hand 263.71 217.97 192.99 355.61 280.47 420.22Bank balance 152.66 294.94 1824.17 5776.51 5892.17 9189.61

Intangible/DRE not

written off 579.8 543.68 429.34 353.73 357.01 268.59Total Assets 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32


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Interpretation :-

The balance sheet is the statement showing the increase or decrease in theassets and liabilities. This indicates the change in capital structure as well asincrease or decrease in assets.In the last four year net worth is increases very rapidly. It is increases by 4711.14in 2006-07 as compared to previous year. The reserves & surplus is also getincrease in last four years very rapidly. It is increases by 4711.74 in 2006-07 ascompared to previous year.Now, here the strongest point of the company that companys debt is decreaseyear by year and proportion of the debt in capital structure is decrease that is in2005-06 borrowing debt is 3388.45 and in 2006-07 debt is 3291.52. So it isdecrease by 96.43.The balance sheet also shows the balance of assets and other investment madeby the company. The gross fixed assets are increased in 2006-07 by 1013.71 ascompared to previous year. The investment is also increase in 2006-07 by221.79 as compared to previous year. The overall inventory turnover ratio showsthe good position of the company is good.We also conclude that the liquid position of the company is good because cashbalance is increases year by year.


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3.3 COMPARATIVE ANALYSIS OFBALANCE SHEET

Steel Authority Of IndiaLtd. Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Rs.Crore 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

SOURCE OF FUNDSNet Worth 2829.75 2525.24 5037.67 10306.65 12601.41 17313.15Change -304.51 2512.43 5268.98 2294.76 4711.74Reserve & surplus -1300.65 -1605.16 907.27 6176.25 8471.01 13182.75Change -304.51 2512.43 5268.98 2294.76 4711.74Borrowings 13562 12387.67 8012.99 4959.11 3388.45 3291.52Change -1174.33 -4374.68 -3053.88 -1570.66 -96.93Deferred Tax Liabilities 0 0 0 3032.05 2889.53 2707.79Change 0 0 3032.05 -142.52 -181.74Current Liabilities &

Provision 7326.59 7944.14 9783.5 11163.73 11765.05 12011.86Change 617.55 1839.36 1380.23 601.32 246.81Total Liabilities 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32

APPLICATION OFFUNDSRs.CroreGross Fixed Assets 27767.21 27901.85 28057.06 28335.05 29913.51 30927.22Change 134.64 155.21 277.99 1578.46 1013.71Investment 568.03 543.17 543.17 606.71 292 513.79change -24.86 0 63.54 -314.71 221.79Deferred Tax Assets 0 0 0 1187.74 1405.07 1295.13Change 0 0 1187.74 217.33 -109.94Inventories 4020.32 3722.52 3057.05 4220.69 6210.06 6651.47Change -297.8 -665.47 1163.64 1989.37 441.41Receivable 2760.37 3123.18 3277.84 4167.8 3428.77 4291.2Change 362.81 154.66 889.96 -739.03 862.43Cash &Bank Balance 416.37 512.91 2017.16 6132.12 6172.64 9609.83Change 96.54 1504.25 4114.96 40.52 3437.19Intangible/ DRE notwritten off 579.8 543.68 429.34 353.73 357.01 268.59Change -36.12 -114.34 -75.61 3.28 -88.42Total Assets 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32


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3.4 COMMON SIZE STATEMENT OFBALANCE SHEET

SOURCE OF FUNDS March-

02

March-

03

March-

04

March-

05

March-

06

March-

07Rs.Crore 12mths 12mths 12mths 12mths 12mths 12mthsNet Worth 11.93% 11.05% 22.06% 34.98% 41.12% 49.01%Authorised Capital 21.08% 21.88% 21.90% 16.97% 16.32% 14.15%Issued Equity Capital 17.41% 18.07% 18.09% 14.02% 13.48% 11.69%Paid up Equity Capital 17.41% 18.07% 18.09% 14.02% 13.48% 11.69%

Reserve & Surplus -5.48% -7.02% 3.97% 20.96% 27.64% 37.32%Borrowings 57.18% 54.20% 35.09% 16.84% 11.06% 9.32%Deferred tax liabilities 0.00% 0.00% 0.00% 10.29% 9.43% 7.67%Current liabilities&provisions 30.89% 34.76% 42.85% 37.89% 38.39% 34.00%

Total liabilities 100% 100% 100% 100% 100% 100%APPLICATION OFFUNDS(Rs.Crore )Gross fixed assets 117.07% 122.07% 122.87% 96.17% 97.61% 87.55%Land & building 8.37% 8.20% 8.27% 7.70% 8.50% 7.38%Plant & machinery 98.18% 103.29% 103.85% 81.75% 81.65% 72.16%Other fixed assets 8.17% 9.00% 9.08% 5.48% 4.99% 4.51%Capital WIP 2.34% 1.58% 1.67% 1.24% 2.47% 3.50%Less: depreciation -52.25% -59.02% -63.71% -52.75% -55.91% -51.62%Net fixed assets 64.82% 63.05% 59.16% 43.42% 41.70% 35.94%Revalued assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Investment 2.39% 2.38% 2.38% 2.06% 0.95% 1.45%Deferred tax assets 0.00% 0.00% 0.00% 4.03% 4.59% 3.67%Inventories 16.95% 16.29% 13.39% 14.33% 20.26% 18.83%Receivables 11.64% 13.66% 14.35% 14.15% 11.19% 12.15%Cash & Bank balance 1.76% 2.24% 8.83% 20.81% 20.14% 27.20%Cash in hand 1.11% 0.95% 0.85% 1.21% 0.92% 1.19%Bank balance 0.65% 1.29% 7.98% 19.60% 19.22% 26.01%Intangible/ DRE written off 2.44% 2.38% 1.8%9 1.20% 1.17% 0.76%Total assets 100% 100% 100% 100% 100% 100%


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INTERPRETATION OF COMMON SIZE STATEMENT OFBALANCE SHEET

Source of Funds :-

For the source of Funds we have taken the totalliabilities as 100. As we see in the table that in first two year borrowing

constitutes a largest part of the source of funds and after that currentliabilities and provision constitutes largest part of the source of funds.

The deferred tax liabilities decrease year by year. Inthe 2006-2007 it reported as 7.67% which is lower than the last twoyears.

Application of Funds :-

For the analysis of application of funds we have taken the total assetsas 100.

From the table we can interpret that the investment in the companydecrease in last three year. So it is not good for company.

The sundry debtor of the company in last three year is increasing. As we see in the table cash balance increase very rapidly in last two

year We see in the table that net fixed assets increase in last three year. In

2006-07 fixed assets is 38.94% which is lower than previous year by5.76%.

FOR THE YEAR 2001-02

APPLICATION OF FUND

64.82%

2.39%

0.00%

16.95%

11.64%

1.76%

2.44%

Net fixed assets

Investment

Deferred tax asset s

Inventories

Receivables

Cash & Bank balance

Intangible/ DRE writteoff


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APPLICATION OF FUND S

63.05%

2.38%

0.00%

16.29%

13.66%

2.24%

2.38%

Net fixed assets

Investment

Deferred tax assets

Inventories

Receivables

Cash & Bank balance

Intangible/ DRE writtenoff


APPLICATION OF FUNDS

59.16%

2.38%

0.00%

13.39%

14.35%8.83% 0

Net fixed assets

Investment

Deferred tax assets

Inventories

Receivables

Cash & Bank balance



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APPLICATION OF FUN D

43.42%

2.06%

4.03%14.33%

14.15%

20.81% 1.20%

Net fixed assets

Investment

Deferred tax assets

Inventories

Receivables

Cash & Bank balance




41.70%

0.95%4.59%

20.26%

11.19%

20.14% 1.17%

Net fixed assets

Investment

Deferred tax assets

Inventories

Receivables

Cash & Bank balance



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Source of funds

14.02%

20.96%

16.84%10.29%

37.89%

Paid up EquityCapital

Reserve & Surplus

Borrowings

Deferred taxliabilities

Currentliabilities&provision


Source of funds

13.48%

27.64%11.06%9.43%

38.39%


Reserve & Surplus

Borrowings




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Source of funds

11.69%

37.32%

9.32%

7.67%

34.00%


Reserve & Surplus

Borrowings




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3.5 TREND ANALYSIS OF BALANCE SHEET

SOURCE OF FUNDS March-02 March-03 March-04 March-05 March-06 March-07Rs.Crore 12mths 12mths 12mths 12mths 12mths 12mths

Net Worth 100.00 89.24 178.03 364.22 445.32 611.83Authorized capital 100.00 100.00 100.00 100.00 100.00 100.00Issued Equity capital 100.00 100.00 100.00 100.00 100.00 100.00Paid-up equity capital 100.00 100.00 100.00 100.00 100.00 100.00Bonus equity capital 100.00 100.00 100.00 100.00 100.00 100.00Reserves & surplus 100.00 123.41 -69.76 -474.85 -651.29 -1013.55Borrowings 100.00 91.34 59.08 36.57 24.98 24.27Current liabilities &provision

100.00 108.43 133.53 152.37 160.58 163.95

Total liabilities 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32Total liabilities 100.00 96.37 96.27 124.21 129.20 148.93


Rs.CroreGross Fixed Assets 100.00 100.48 101.04 102.05 107.73 111.38Land & building 100.00 94.39 95.08 114.27 131.17 131.33Plant & machinery 100.00 101.38 101.83 103.43 107.45 109.46Other fixed assets 100.00 106.15 106.98 83.28 78.87 82.19Capital WIP 100.00 64.98 68.75 65.92 136.33 222.33Less:cumulative depreciation 100.00 108.85 117.38 125.40 138.25 147.11Net fixed assets 100.00 93.74 87.88 83.21 83.12 82.57Revalued assets 100.00 100.00 100.00 100.00 100.00 100.00Investments 100.00 95.62 95.62 106.81 51.41 90.45Inventories 100.00 92.59 76.04 104.98 154.47 165.45Receivables 100.00 113.14 118.75 150.99 124.21 155.46

Cash & bank balance 100.00 123.19 484.47 1472.76 1482.49 2308.00Intangible / DRE not writtenoff

100.00 93.77 74.05 61.00 61.57 46.32

Total Assets 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32Total Assets 100.00 96.37 96.27 124.21 129.20 148.93


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TREND ANALYSIS OF INVENTORIES

Inventories

165.45154.47

104.9876.0492.59

1000

50100150200

2002 2003 2004 2005 2006 2007

Years

A m o u n t ( % )

The above graph of trend of inventories shows continuously decrease till 2003-04 but after that it is icreasing continuously. So there is a fluctuation theinventories.

In the year 2002-03 it was 100%. In the 2006-07 year it is 165.45. so it isincrease by 65.45%

In real it was 4020.32 Rs.Crore in the year 2001-02 and increased to 6651.47Rs. Crore in the year 2006-07.

Because there is a continuously increasing in store and spares and finishedgoods.

SOURCE OF FUNDS :-

TREND NALYSIS OF NET WORTH

Net Wort

611.83

445.32364.22

178.0389.24100

0200400600800

2002 2003 2004 2005 2006 2007

Years

A m o u n t ( % )


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Here the net worth of the company is increasing till 2006-07.It was 100% in the base year 2001-02 and in 2006-07 it is 611.83% in the year

2006-07. so it is increase by 511.83%The reason behind that reserve and surplus increase very rapidly, but share

capital remain same.

TREND ANALYSIS OF BORROWINGS

Borrowings

24.27

24.9836.57

59.0891.34100

0

50

100

150

2002 2003 2004 2005 2006 2007

Years

A m o u n t ( % )

Borrowings of the company is continuously decreasing.In the year 2001-02 it is 100% but in the year 2006-07 it is 24.27% so it is

decrease by 75.73%.The reason behind that company repaid the short term borrowings and

debentures.

TREND ALYSIS OF CURRENT LIABILITIES AND PROVISION

Current liabilities & provision

163.95160.58152.37133.53

108.43100

050

100150200

2002 2003 2004 2005 2006 2007

Years

A m o u n t ( % )

The above graph of trend of current liabilities & provisions shows continuouslyincrease in the current liabilities & provisions compared to the base year 2001-02

In the year 2001-02 it was 100% it has been continuously increase to 163.95%in the year 2006-07. It means it has been increased 63.95% in this period.

Current liabilities & provisions constitutes of liabilities & provisions.The reason behind that sundry creditors and other current liabilities are

increasing.


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CHAPTER 4 PROFIT AND LOSS ACCOUNT ANALYSIS

4.1 Introduction to P&L Account4.2 Profit & Loss Account

4.3 Comparative Analysis of P&L Account4.4 Common Size Statement of P&L Account4.5 Trend Analysis of Profit & Loss Account


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4.1 INTRODUCTION TO PROFIT AND LOSS ACCOUNT

The Profit & Loss account is also known as the income statement. It canbe defined as a report that summaries the revenues and expenses of anaccounting period to reflect the changes in various critical areas of firms

operation. It is of greatest interest and import and importance to end-users of accounting statements because it enables them to ascertain whether thebusiness operations have been profitable or not during that particular period. Theimportant destination between the balance sheet and income statement is for aperiod of one year. The two broad categories of item shown in the incomestatement are revenue and expenses. Revenues derived from a companiesoperation say manufacturing and selling products. During transaction businesshas also incurred revenues other than main business operation. Expenses areoccurred in day-to-day transactions. Here expenses regarding manufacturingactivities do not considered but office and administrative expenses areconsidered. By deducting total expenses from total revenue we get profit and by

deducting total revenue from total expenses we get total loss. Income tax amountis also decided by profit that incurred in business with help of this statement.


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4.2 PROFIT & LOSS ACCOUNTProfit & loss of Steel Authority Of India Limited

As On 31 st March

Steel Authority Of India Ltd.

Mar

2002

Mar

2003

Mar

2004

Mar

2005

Mar

2006

Mar

2007

Rs. Crore (Non-Annualised) 12 mths 12 mths12

mths 12 mths 12 mths 12 mths-Income

Sales 16624.2 20500.09 25584 33219.84 34288.05 41288.89Other income 226.39 201.36 297.34 558.93 764.46 1134.64Change in stocks -422.38 -433 -485.84 247.61 1131.31 289.15Non-recurring income 753.27 215.55 124.02 291.4 388.7 303.46

-Expenditure

Raw materials, stores, etc. 7312.01 7355.21 8184.11 11647.61 14129.12 15259.95Wages & salaries 3255.33 3087.23 4155.02 3823.2 4182.86 5131.38Energy (power & fuel) 1709.59 2036.56 2158.86 2196.86 2495.47 2584.6Indirect taxes (excise, etc.) 2009.09 2400.27 2899.01 3358.53 4625.1 5419.5Advertising & marketing

expenses 88.74 142.82 149.14 69.19 61.27 82.8Distribution expenses 675.54 615.76 625.5 828.01 982.12 872.87Others 1090.68 2616.6 2607.74 1110.13 2485.45 2609.13Less: expenses capitalized 21.3 20.66 26.47 36.85 47.66 67.43Non-recurring expenses 24.53 26.07 59.9 132.83 31.03 51.84

-

Profits / losses PBDIT 1037.27 2224.14 4706.71 11188.27 7627.76 11071.5Financial charges (incl.

lease rent) 1588.27 1381.79 953.57 651.98 467.76 332.13PBDT -551 842.35 3753.14 10536.29 7160 10739.37

Depreciation 1155.89 1146.66 1122.59 1126.95 1207.3 1211.48PBT -1706.89 -304.31 2630.55 9409.34 5952.7 9527.89

Tax provision 0 0 118.47 2592.37 1939.73 3325.6PAT -1706.89 -304.31 2512.08 6816.97 4012.97 6202.29-Appropriation of profits

Dividends 0 0 0 1548.27 941.94 1478.4Retained earnings -1706.89 -304.31 2512.08 5268.7 3071.03 4723.89


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PAT

-1706.89

-304.31

2512.08

6816.97

4012.97

6202.29

-3000

-2000

-1000

0

1000

2000

3000

4000

50006000

7000

8000

2002 2003 2004 2005 2006 2007

Years

A m o u n t ( % )

INTERPRETATION :-

The profit and loss account of the company shows the overall income andexpenditure, made by the company in a particular time period. The differencebetween the debit and credit side of the P&L account, shows the net profit or netloss.

Here the profit and loss account of the company shows the satisfactory level but

as compared to previous year the expenses of the company is increases. Herethe sales turnover is increase year by year. The sales in 2005-06 is 34288.05and now it is increase by 7000.84 Crore Rs. In 2006-07. So, by this way theincome of the company is increase by 6444.12 in 2006-07 as compared toprevious year.

While on the other side the expenditure shows the expenses meet by thecompany in a particular period. The expenditure met by the company is highestin 2006-07, while in other year the expenditure of the company are increases.The overall analysis of the expenditure side of the company shows the averageincrease in expenses of the company.

After analyzing the income and expenditure side of the company, there isdifference between both sides which is known as the net profit / loss. The netprofit of the company shows an overall increase year by year. In 2001-02 it is1037.27 and now it is increasing and in 2006-07 it is 11071.5 Crore Rs.

Therefore, On the basis profit and loss account the overall performance isgrowing very well. But on the basis of the calculating various ratio, the ratios are


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clearly indicates the good and bad position of the company. The profitabilityratios are increasing year by year, which shows the good performance of thecompany.


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4.3 COMPARATIVE ANALYSIS OF PROFIT & LOSSACCOUNT

Steel Authority Of India

Ltd. Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Rs.Crore 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Income 17181.48 20484 25519.52 34317.78 36572.52 43016.14Change 3302.52 5035.52 8798.26 2254.74 6443.62Expenditure 16186.81 18301.18 20865.75 23203.21 29040.08 32079.5change 2114.37 2564.57 2337.46 5836.87 3039.42PBDIT 1037.27 2224.14 4706.71 11188.27 7627.76 11071.5Change 1186.87 2482.57 6481.56 -3560.51 3443.74PBDT -551 842.35 3753.14 10536.29 7160 10739.37Change 1393.35 2910.79 6783.15 -3376.29 3579.37PBT -1706.89 -304.31 2630.55 9409.34 5952.7 9527.89Change 1402.58 2934.86 6778.79 -3456.64 3575.19

PAT -1706.89 -304.31 2512.08 6816.97 4012.97 6202.29Change 1402.58 2816.39 4304.89 -2804 2189.32


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4.4 COMMON SIZE STATEMENT OF PROFIT AND LOSSACCOUNT

Steel Authority Of India Ltd. March- 02 March-03 March-04 March-05 March-06 March-07

Rs.Crore 12mths 12mths 12mths 12mths 12mths 12mths

IncomeSales 98.65% 99.03% 98.85% 98.35% 97.82% 97.33%Other Income 1.35% 0.97% 1.15% 1.65% 2.18% 2.67%Total Revenue 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00Change in stocks -2.51% -2.09% -1.88% 0.73% 3.23% 0.68%Non-recurring income 4.47% 1.04% 0.48% 0.86% 1.11% 0.72%

ExpenditureRaw materials, stores, etc. 43.39% 35.53% 31.62% 34.48% 40.31% 35.97%Wages & salaries 19.32% 14.91% 16.05% 11.32% 11.93% 12.10%Energy( power & fuel) 10.15% 9.84% 8.34% 6.50% 7.12% 6.09%Indirect taxes (excise etc.) 11.92% 11.59% 11.20% 9.94% 13.19% 12.77%Advertising & marketing expenses 0.53% 0.69% 0.58% 0.20% 0.17% 0.20%Distribution expenses 4.01% 2.97% 2.42% 2.45% 2.80% 2.06%Others 6.47% 12.64% 10.08% 3.29% 7.10% 6.15%Less: expense capitalized -0.13% -0.10% -0.10% -0.11% -0.14% -0.16%Non-recurring expenses 0.15% 0.13% 0.23% 0.39% 0.09% 0.12%Profits / lossesPBDIT 6.16 % 10.74 % 18.19 % 33.13 % 21.77 % 26.10- Financial charges (incl. lease rent) 9.43% 6.67% 3.68% 1.93% 1.33% 0.78%PBDT -3.27 % 4.07 % 14.51 % 31.19 % 20.44 % 25.32Depreciation 6.86% 5.54% 4.35% 3.34% 3.44% 2.86%PBT -10.13 % -1.47 % 10.16 % 27.85 % 17.00 % 22.46Tax Provision 0.00% 0.00% 0.46% 7.67% 5.54% 7.84%PAT -10.13 % -1.47 % 9.70 % 20.18 % 11.46 % 14.62-Appropriation of profitDividends 0.00 % 0.00 % 0.00 % 4.58 % 2.69 % 3.48Retained Earnings -10.13 % -1.47 % -9.70 % 15.60 % 8.77 % 11.14


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INTERPRETATION OF COMMON SIZE STATEMENTOFPROFIT AND LOSS ACCOUNT

For the analysis of Profit & Loss account we have taken the sales and

other income as base. From the analysis of common size statement, we can interpret that theincome of the company increase year by year.

The expenditure also increases year by year. It recorded in % . In currentyear expenditure is higher than previous year.

As we see in the table Raw Material consumed increases very largeproportion. It shows that production of the company increases year byyear.

The PBDIT of the company is also increase in current year. In previousyear it is 21.77% and in current year it is 26.10%.


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4.5 TREND ANALYSIS OF PROFIT AND LOSS ACCOUNTSteel Authority Of India Ltd. March- 02 March-03 March-04 March-05 March-06 March-07Rs. Crore 12mths 12mths 12mths 12mths 12mths 12mthsIncomeSales 100.00 123.31 153.90 199.83 206.25 248.37

Other income 100.00 88.94 131.34 246.89 337.67 501.19Change in stocks 100.00 102.51 115.02 -58.62 -267.84 -68.46Non-recurring income 100.00 28.62 16.46 38.68 51.60 40.29ExpenditureRaw materials, stores, etc. 100.00 100.59 111.93 159.29 193.23 208.70Wages & salaries 100.00 94.84 127.64 117.44 128.49 157.63Energy(power & fuel) 100.00 119.13 126.28 128.50 145.97 151.18Indirect taxes (excise, etc.) 100.00 119.47 144.29 167.17 230.21 269.75Advertising & marketingexpenses

100.00 160.94 168.06 77.97 69.04 93.31

Distribution expenses 100.00 91.15 92.59 122.57 145.38 129.21Others 100.00 239.91 239.09 101.78 227.89 239.22Less: expenses capitalized 100.00 97.00 124.27 173.00 223.76 316.57Non recurring expenses 100.00 106.28 244.19 541.50 126.50 211.33Profit / lossesPBDIT 100.00 214.42 453.76 1078.63 735.37 1067.37Financial charges (Incl. leaserent)

100.00 87.00 60.04 41.05 29.45 20.91

PBDT 100.00 -152.88 -681.15 -1912.21 -1299.46 -1949.07Depreciation 100.00 99.20 97.12 97.50 104.45 104.81PBT 100.00 17.83 -154.11 -551.26 -348.75 -558.20Tax provision 100.00 100.00 100.00 1.18 25.92 33.25PAT 100.00 17.83 -147.17 -399.38 -235.10 -363.37Appropriation of profitDividends 100.00 100.00 100.00 15.48 9.00 15.00Retained earnings 100.00 17.83 -147.17 -308.67 -179.92 -276.75


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TREND ANALYSIS OF SALES

Sales

248.37

206.25199.83153.9123.31100

0

100200

300

2002 2003 2004 2005 2006 2007

Years

A m o u n t (

The above graph of sales shows continuously increase in the sales comparedto the base year 2001-02

In the year 2001-02 it was 100% it has been continuously increase to 248.37%in the year 2006-07. It means it has been increased 148.37% in this period.

In real it was 16624.2 in the year 2001-02 and increased to 41288.89 Rs.CroreSo it is favorable for the company & increases the reputation of the company.

TREND ANALYSIS OF PBDIT

PBDIT

100 214.42453.76

1078.63735.37

1067.37

0

5001000

1500

2002 2003 2004 2005 2006 2007

Years

A m o u n t ( % )

The above graph shows the continuously increasing in the PBDIT compared tothe base year 2001-02.

In the year 2001-02 it was 100%. And now in 2006-07 it is 1067.37. so it isincrease by 967.37%. It is favourable for the company.

It has increased due to increase in sales over the years.


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CHAPTER 5 CASH FLOW STATEMENT ANALYSIS

5.1 Introduction to Cash Flow Statement5.2 Cash Flow Statement


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5.1 INTRODUCTION TO CASH FLOW STATEMENT

Cash is the nerve center around which business activity flow. The profit figureshown in the profit & loss statement in the book profit. It does not represent cashprofit. For knowing the cash profit we prepare cash flow statement in thebusiness. This statement provides information about the cash flows of anenterprise. This statement is also useful in taking economic decision that aretaken by users require an evaluation of the ability of an enterprise to generatecash and cash equivalents. The cash flow statement deals with the provision of information about the historical changes in cash. Cash flow statement whichclassifies cash flows during the period among (i) Operating (ii) investing (iii)financing activities.


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5.2 CASH FLOW STATEMENT

el Authority Of India Ltd. Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

IT -1706.89 -315.87 2685.06 9365.35 5705.74 9422.62d: depreciation 1164.12 1146.5 1174.38 1192.2 1217.47 1236.75

Interest payable 1562.03 1334.01 899.43 605.05 467.76 215.25Gain or loss on forex transactions 79.66 94.13 44.95 24.86 -20.54 -5.61Write offs / amortisation 232.54 339.45 321.33 194.18 188.2 131.93Profit on sale of investments 0 0 0 0 0 0Profit on sale of assets -662.47 -144.19 -52.42 6.52 -58.24 -13.97Interest income -105.3 -88.96 -74.76 -262.76 -461.49 -752.6Dividend income -5.74 -2.67 -8.22 -13.38 -13.66 -17.34Other income / provision

ustments 490.88 740.38 1648.37 -691.64 428.92 -180.48

h flow before working cap.nges 1048.83 3102.78 6638.12 10420.38 7454.16 10036.55

Trade receivables 426.98 -413.9 78.42 -149.96 -1149.52 -832.15Inventories 477.16 297.46 662.93 -1163.63 -1766.94 -441.41Trade payables -17.28 -36.41 84.21 645.29 79.55 337.9Others 0 0 0 0 0

h flow from operations 1935.69 2949.93 7463.68 9752.08 4617.25 9100.89Direct taxes paid 0 0 -118.47 -777.93 -746.45 -3427.31Dividend tax paid 0 0 0 -80.97 -176.68 -136.13

h flow before extra ord. items 1935.69 2949.93 7345.21 8893.18 3694.12 5537.45Extraordinary items -785.02 -282.19 -160.01 -74.68 -46.87 76.21

h flow from operating activities 1150.67 4085.95 8242.61 9735.73 4268.81 6122.82

cash used in investing activities 676.26 13.3 -339.76 -240.56 -338.01 -587.53Purchase of fixed assets -322.03 -299.35 -363.32 -527.59 -896.65 -1137.66Sale of fixed assets 703.17 177.69 89.48 60.91 87.65 46.82Acquisition / merger of cos. 0 0 0 0 0 0Purchase of investments -103.34 -4.51 0 -40 -60.17 -225Sale of investments 0 0 0 0 0 0Project expenses 0 0 0 0 0 0Loan to group / subsidiary cos. 15.93 44.91 -153.31 45.98 -0.83 25.45Loan to other cos. 0 0 0 0 0 0Interest received 186.47 91.89 79.17 206.76 518.33 685.52

Dividend received 5.74 2.67 8.22 13.38 13.66 17.34Other income 190.32 0 0 0 0 0

cash used in financing activities -2077.99 -2584.5 -5341.19 -4481.64 -3396.75 -1588.94Proceeds from share issues 0 0 0 0 0 0Total proceeds from borrowings 0 0 0 0 0 0

Proceeds from long termrowings 0 0 0 0 0

Proceeds from short term 0 0 0 0 0 0


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rowingsTotal Repayment of borrowings -318.71 -1166.09 -4284.13 -2945.13 -1515.63 -111.49

Repayment of long termrowings -318.71 0 0 0 0

Repayment of short termrowings 0 0 0 0 0

Share issue expenses 0 0 0 0 0 0Interest paid -1759.04 -1418.21 -1057.41 -917.23 -621.56 -509.16Dividend paid 0 0 0 -619.56 -1259.77 -970.64Other cash from financing activities -0.24 -0.2 0.35 0.28 0.21 2.35

cash flow -251.06 96.54 1504.25 4096.3 -87.51 3437.19

ening cash balance 667.43 416.37 512.91 2035.82 6260.15 6172.64

sing cash balance 416.37 512.91 2017.16 6132.12 6172.64 9609.83


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ANALYSIS OF CASH FLOW STATEMENT

Cash Flow From Operating Activities :

From the table of cash flow statement of the company we caninterpret that in 2006-07 cash from operating activities isincrease as compared to previous year because in 2006-07PAT is increase more compared to previous years. But in 2005-06 it is decrease because in this year PAT is decrease.

The other reason is that current assets of the company isincreasing every year but current liabilities are increasing withminor changes in last five years.

Cash Flow From Investing Activities :

From the cash flow statement we can interpret that cash frominvesting activities is performed very good in last two years.

The reason behind it is that the purchase of the fixed assets bythe company is increase very rapidly. So we can say that thecompany expand its business.

The other side the sale of fixed assets is increasing in last fiveyear. In 2006-07 the sale of fixed assets is too high.

Cash Flow From Financing Activities :

From the cash flow statement we can say that the cash fromfinancing activities is decreasing year by year.

The reason behind it is that company repaid the borrowing andloan. And also paid to the dividend in last three years to theshareholders.


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CHAPTER 7 UTILITY OF RATIO ANALYSIS

The use of ratio was started by banks for ascertaining the liquidity andprofitability of the companys business for the purpose of advancing loan to them.It gradually become popular and other creditors began to use them profitably.Now even the investor calculates ratio from the published account of thecompany before investing their savings. The ratio analysis provides usefulinformation to management, which would help them in taking important policydecision. Diverse group of people make use of ratios, to determine the particular aspect of the financial position of the company, in which they are interested.

1) ProfitabilityUseful information about the trend of profitability is available from the

profitability ratios. The gross profit ratio, net profit ratio and ratio of return oninvestment give a good idea of profitability of business.

2) LiquidityIn fact, the use of this ratio to ascertain the liquidity of the business. The

current ratio and liquid ratio will tell whether the business will be able to meet itscurrent liabilities as and when they mature.

3) EfficiencyThe turnover ratio are excellent guides to measures the efficiency of

managers. For e.g. the stock turnover will indicate how efficiency the sales arebeing made, the debtors turnover shows the efficiency of collection departmentand assets are used in business.

4) Inter- firm comparisonThe absolute ratio of the firm are not of much use, unless they are

compared with similar ratio of other firm belongs to the same industries.

5) Indicate TrendThe ratio of the last three to five years will indicate the trend in the

respective fields.


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6) Useful for budgetory ControlRegular budgetary reports are prepared in business where the system of

budgetary control in use. If various ratios are prepared in this reports, it will give afairly good idea about various aspect of financial position.

7) Useful for decision makingRatios guide the management in making some of the important decision.


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CHAPTER 8 CLASSIFICATION OF RATIO

{A} Liquidity Ratios{B} Leverage / Capital Structure Ratios

{C} Profitability Ratios{D} Activity Ratios


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CLASSIFICATION OF RATIOS

Ratios can be classified into four broad group :-1. Liquidity Ratio2. Leverage / Capital structure Ratio3. Profitability Ratio4. Activity / Efficiency Ratio

{A}LIQUIDITY RATIOSLiquidity is the most important factor in successful financial management.

A firm should have enough money to meets its short term liabilities, as and whenthey become due for payment. If affirm fails to meet its short term liabilitiesfrequently, its prestige and creditworthiness would be adversely affected. A veryhigh degree of liquidity is also bad; idle assets earn nothing. Therefore it isnecessary to strike a proper balance between high liquidity and lack of liquidity.

{A.1}-Current RatioThis most widely used ratio shows the proportion of current assets to

current liabilities. It is also known as Working Capital Ratio. It is a measure of short term financial strength of business and shows whether the business willable to meet its current liabilities. Generally, it is believed that ratio of 2:1 is goodand shows a comfortable working capital position. But this ratio is differ companyby company. The formula for calculating this ratio is as under :-

Current Ratio = Current AssetsCurrent Liabilities

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07

Current Assets 7137.7 7350.32 8181.01 14374.42 15795.11 20536.14Currentliabilities &Provision

11353.24 9462.98 9938.01 11237.02 12080.29 12278.1

CurrentRatio(times)

0.63 0.77 0.82 1.28 1.31 1.67


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Current Ratio

0.63 0.770.82

1.28 1.311.67

0

0.5

1

1.5

2

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-This calculation implies that the fluctuation in the current ratio. As compared toprevious year the current years ratio shows the better liquidity position. In theprevious year this ratio is 1.31:1 and in the current year it is 1.67:1 which showsincrease in liquidity. The reason behind that cash balance and receivable isincreasing. But as compared to standard ratio it is not good but as per chorecommittee it is good because as per chore committee 1.33 ratio is good. Thecurrent liabilities also increase year by year. But finally company had tried tomaintain and improve this ratio.

{A.2} Acid Test / Quick RatioThe Acid test ratio is the ratio between quick current assets and current

liabilities and is calculated by dividing the quick assets by the liquid liabilities.Most people believe that liquid ratio is acid test ratio, but sometimesbusiness is able to repay its liquid quick assets. The reason behind that isemergency requirement cash and business cannot get it from debtors, so quickassets include cash balance + investment certificate that can be immediatelytransferable into cash. The satisfactory ratio is 1:1 but lower limit is 0.5:1. Herequick assets does not include stock.

= Quick Assets (Current assets-Inventories)Current Liabilities

Rs. Crore

Year Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07QuickAssets

3153.38 3627.80 5123.96 10153.73 9585.05 13884.67

Currentliabilities

11353.24 9462.98 9938.01 11237.02 12080.29 12278.1

QuickRatio(times)

0.28 0.38 0.52 0.90 0.79 1.13


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Quick Ratio(times)

0.28 0.380.52

0.9 0.791.13

0

0.5

1

1.5

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-So as per the current year ratio of the company is up to some extent satisfactory.This ratio shows the repay ability of the company which is satisfactory as per lower level all over the year. As compared to previous year in current year it isgood. In 2002 it is 0.28 and in current year it is 1.13:1.

{A.3}Defensive Interval RatioThe defensive interval ratio provides such a measure of liquidity. It is a

ratio between the quick assets and the projected daily cash requirement. Apartfrom paying current liabilities, the liquidity position of a firm should be examinedin relation to it liability to meet projected daily expenditure from operations.

= Liquid AssetsProjected Daily Cash Requirement

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07LiquidAssets

3153.38 3627.80 5123.96 10153.73 9585.05 13884.67

Daily cashrequirement

82.18 92.18 104.62 116.14 143.37 157.67

DefensiveIntervalRatio(days)

38 39 49 87 67 88


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Defensive Interval Ratio(day

38 3949

8767

88

0

20406080

100

2002 2003 2004 2005 2006 2007

Year

R a t i o

Interpretation :-This ratio shows the recovery of invested liquid assets. Therefore higher the ratio

shows the longer the period of recovery of liquid assets. Here the defensiveinterval ratio of the company is increasing till 2005 but it has decreased for oneyear and than again it has increase. So it is fluctuating. That means requirementof more investment of liquid assets .

{A.4}Cash RatioCash ratio is the most liquid asset; Financial analyst may examined the

cash ratio and its equivalent to current liabilities. Trade investment or marketablesecurities are equivalent of cash, they may be include in the computation of cashratio.

= Cash + Marketable Securities X 100Current Liabilities

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Cashbalance

416.38 512.92 2017.17 6132.13 6172.70 9609.89

Currentliabilities

11353.24 9462.98 9938.01 11237.02 12080.29 12278.1

CashRatio (%)

3.67 5.42 20.30 54.57 51.10 78.27


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Cash Ratio (%)

3.67 5.4220.3

54.57 51.1

78.27

020406080

100

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-

This ratio shows the available percentage of cash as compare to currentliabilities. The total cash available to the company is average increased year byyear and also average ratio i.e. 3.67, 5.42, 20.30, 54.57, 51.10, 78.27 increasedwhich shows the good performance of the company. But in the 2005-06 it isdecreased from 54.57% to 51.10%. Because cash does not increase ascompared to increase current liabilities.


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{B}CAPITAL STRUCTURE/LEVERAGE RATIO

The second category of financial ratios is leverage or capital structureratios. The long term creditors would judge the soundness of a firm on the basisof the long term financial strength measured in terms of its ability to pay theinterest regularly as well as repay the installment of the principal of due dates or in one lump sum at the time of maturity. Leverage means proportion of ownerscapital to debt capital. It shows the proportion of outside funds used in businessas compared to funds provided by the owners in terms of share capital, reservesetc.

{B.1} Long Term Funds to Fixed Assets Ratio This ratio is obtained by dividing the long term funds with fixed assets.

Here long term fund include owners fund plus long term debt. This ratio must be1:1 or more. If fixed capital is less than fixed assets, it would mean that shortterm funds have been used in purchasing fixed assets the business would be putto trouble.

= Owners fund + Long term debtFixed assets

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Long termfunds

12365.1 13394.07 12896.45 15192.47 15674.62 20338.43

Fixedassets

15373.45 14411.59 13509.6 12792.75 12778.89 12694.31

Long termfund tofixedassetsratio(times)

0.80 0.93 0.95 1.19 1.23 1.60


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Long term fund to fixed assets ratio(times

0.8 0.93 0.951.19 1.23

1.6

0

0.5

1

1.5

2

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-This ratio is increasing year by year. In 2004-05 ,2005-06 2006-07 the fixedcapital was more than adequate to cover the fixed assets. In the year 2003-04 itis 0.95 and now it is 1.60 in 2006-07. It is increase by 0.65.

{B.2} Total Debt Equity RatioThis ratio can be called as a proprietary ratio and it is another form of it. It

establishes relationship between the outside long term & short term liabilities andowners funds. This ratio is obtained by dividing the total debt by net worth.

= Total DebtNet Worth

Rs.Crore

Debt Equity Ratio (times)

6.02 6.22

1.720.5 0.27 0.19

0

2

4

6

8

2002 2003 2004 2005 2006 2007

Years

R a t i o

Year Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Debt 13562 12387.67 8012.99 4959.11 3388.45 3291.52Net Worth 2252.1 1988.93 4659.17 10011.72 12385.59 17184Debt EquityRatio (times)

6.02 6.22 1.72 0.50 0.27 0.19


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1.18. In 2001-02, 2002-03 there is better utilization of employed capital of the networth.

{B.4} Interest Coverage RatioThe interest coverage ratio is also known as Time interest earned ratio.

This ratio measures the debt servicing capacity of a firm in so far as fixed intereston long term loan is concerned. It is determined by dividing the total profit or earning before interest and taxes by the fixed interest charges on loans.

= EBITInterest

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07EBIT -1706.89 -315.87 2685.06 9365.35 5705.74 9422.62Interest 1588.27 1381.79 953.57 651.98 467.76 332.13InterestCoverageRatio (times)

-1.07 0.23 2.82 14.36 12.20 28.37

Interest coverage ratio(times)

0.23 2.82

14.36 12.2

28.37

-1.07

-10

010

20

30

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-This ratio shows whether the company has sufficient income to cover its interestrequirement by a wide margin. This ratio is as increasing rate. This is very good

for company. It implies that adequate safety for payment of interest even if therewere to be a drop in the companys earning. The companies interest cover continuous to be exceptionally high. This ratio shows that EBIT has power 28.37times covering interest in 2006-07.


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{C}PROFITABILITY RATIO

Profit is the main objective of any business enterprise. Besides,profitability is the measure of efficiency. The owners invest their funds inexpectation of receiving reasonable return. Hence profitability ratios are veryimportant from the view point of various shareholders. Profitability ratio indicatingprofitability in relation to sales and investment.

{C.1}Gross Profit RatioGross profit margin ratio reflect the efficiency with which management

produces each unit of product. It expressing the relationship between GrossProfit earned to Net Sales. This ratio usually expressed as percentage.

= Gross Profit X 100Sales

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07GrossProfit

760.93 2713.41 5309.77 10601.09 6277.49 10266.25

Net Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39GrossProfitRatio(%)

5.21 15.00 23.41 35.50 21.16 28.62

Gross Profit Ratio(%)

5.21

1523.41

35.5

21.1628.62

0

10

20

30

40

2002 2003 2004 2005 2006 2007

Years

R a t i

Interpretation :-Gross profit ratio shows the relation between gross profit and sales. That meanshow much proportion of gross profit in sales. This ratio is increase still 2004-05but in 2005-06 it is decreasing by 19.34% that is 21.16%. It indicate that cost of sale is high or that the purchasing is inefficient.


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{C.2} Operating Profit Ratio It is a ratio showing relationship between Operating Profit and Net Sales.

It shows the efficiency of management.

= EBIT X 100

Net Sales Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07EBIT -1706.89 -315.87 2685.06 9365.35 5705.74 9422.62Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39OperatingProfitRatio (%)

-11.68 -1.75 11.84 31.36 19.24 26.27

Operating Profit Ratio (%)

-11.68-1.75

11.84

31.3619.24

26.27

-20-10

010203040

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-Operating profit ratio shows the proportion of profit before interest and tax insales revenue. This ratio is in 2002, it is -11.68%, in 2003 it is -1.75%, in 2004 itis 11.84%, in 2005 it is 31.36%, in 206 it is 19.24% and in 2007 it is 26.27%which means operating profit is increasing. So operating expenses is decreasing .

{C.3} Net Profit ratio Net Profit is obtained when operating expense, interest and taxes aresubtracted from the gross profit. The net profit ratios measured by dividing PAT(Profit After tax) by sales. This ratio indicates the firms capacity to withstandadverse economic conditions.

= PAT X 100Sales


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COGS ratio(%)

94.7985 76.59

64.578.84 71.38

02040

6080

100

2002 2003 2004 2005 2006 2007

Years

R

a t i

Interpretation :-This ratio indicates proportion of cost of good sold in the sales revenue. The costof good sold ratio is decrease year by year from 2002 to 2005 but in 2006 due tosome unknown reason the cost is increase from 64.50% to 78.84 %.

{C.5} Operating Expense Ratio The operating expense ratio explains the changes in the profit margin

(EBIT to sales) ratio. This ratio computed by dividing operating expenses viz.cost of good sold plus selling expenses and general and sellingexpenses(excluding interest) by sales.

= Operating Expense X 100SalesRs.Crore

Year Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07OperatingExpenses

16144.21 18259.86 20812.81 23129.51 28944.76 31944.64

Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39Operating

profitratio (%)

110.46 100.88 91.75 77.46 97.58 89.06


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Operating Profit Ratio(

110.46 100.88 91.7577.46

97.58 89.06

0

50

10 0

15 0

2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7

Ye a r

R a t i o

Interpretation :-The operating expenses are very high as compared to sales. In the 2002 and2003 it is very high but in 2005 it is controlled by company. But in 2006 and 2007

it is increasing because indirect taxes and other expenses is increasing veryrapidly. Here company try to control this expenses.

{C.6} Return On Total Investment :- Profitability ratio can also be computed by relating the profit of a

company to its total assets. The ROA may also be called profit to asset ratio.This ratio can be computed by dividing the PAT by total assets.

= PAT X 100Total Assets

Rs.CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07PAT -1706.89 -304.31 2512.08 6816.97 4012.97 6202.29Total Assets 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32Return OnInvestment(%)

-7.20 -1.33 11.00 23.14 13.10 17.56

Return On Investment (%)

-7.2

-1.33

11

23.1413.1

17.56

-100

10

20

30

2002 2003 2004 2005 2006 2007

Years

R a t i o


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Interpretation :-This ratio shows companys profit earned on the total investment made in thecompany. This ratio is increasing every year. In 2002 it is -7.20% and now it is17.56 %in 2007. so it is increasing by 24.76%. It is very good for the company.

{C.7} Selling Expense Ratio This ratio shows the relationship between the selling expenses and sales

obtained by the company. This ratio is obtains dividing the selling expenses bythe sales as follows:-

= Selling Expenses X 100Sales

Rs.CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Selling expenses 764.28 758.28 774.64 897.2 1043.39 955.67

Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39Sellingexpensesratio(%)

5.23 4.19 3.41 3.00 3.52 2.66

Selling expenses ratio(%)

5.234.19

3.41 33.52

2.66

0

2

4

6

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-The average of all years ratio shows the reduction in selling expenses of thecompany. The ratios are 5.23, 4.19, 3.41, 3.00, 3.52, 2.66. because theadvertising and marketing expenses decreases year by year and sales areincreases year by year. But in 2006-07 the advertising expenses suddenlyincreases.

{C.8} Earning Per Share Financial analyst regard the earning per share as an important measure

of profitability. EPS measures the profit available to the equity shareholders on aper share basis, that is the amount that they can get on every share held. It iscomputed by dividing the PAT to the No. of equity share.


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= Profit After TaxNo. of equity share

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07PAT -1706.89 -304.31 2512.08 6816.97 4012.97 6202.29

No.Of equityshare 4130.4 4130.4 4130.4 4130.4 4130.4 4130.4

EPS Ratio -4.13 -0.74 6.08 16.50 9.72 15.02

EPS Ratio

-4.13-0.74

6.08

16.59.72

15.02

-10-505

101520

2002 2003 2004 2005 2006 2007

Years

E P S

Interpretation :-The earning per share is increases very rapidly. But in 2005-06 EPS isdecreases because PAT is decrease. EPS is as -4.13, -0.74, 6.08, 16.50, 9.72,15.02. It is very good for shareholders. They get good return.

{C.9} Return On Total shareholders Equity :- In this ratio profitability is measured by dividing the net profit after tax by

the total shareholders equity. The term shareholders equity include paid upcapital and reserve & surplus less accumulated loss. This ratio reveals howprofitably the owners fund have been utilized by t he firm.

= Net Profit After Tax X 100Total shareholders equity


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Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07PAT -1706.89 -304.31 2512.08 6816.97 4012.97 6202.29Totalshareholders

equity

2829.75 2525.24 5037.67 10306.65 12601.41 17313.15

Return ontotalshareholdersequity ratio

-60.32 -12.05 49.87 66.14 31.85 35.82

Return on toal shareholders equity ratio

-60.32

-12.05

49.8766.14

31.85 35.82

-100

-50

0

50

100

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-The ratio is in minus in first two years because PAT is in minus. but in 2004 &

2005 year it is increases very rapidly. In this period company use owners fundvery profitably. But in 2006 it is decreasing because shareholders funds areincreasing and PAT is decreasing. But, though the company is earning goodprofit.


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{D} ACTIVITY RATIOThe activity ratio measures the efficiency with which assets are being

used in business. They are also known as Turnover Ratio. The efficiency withwhich the assets are used would be reflected in the speed and rapidly with whichassets are converted into sales. The greater the rate of turnover or conversation,

the more efficient is the utilization / management, other things being equal.

{D.1} Stock / Inventory Turnover Ratio This ratio indicate how fast inventory is sold. High ratio is good from the

view point of liquidity and vice-versa. A low ratio would signify that inventory doesnot sale fast stays on the self or in the warehouse for long time.

= COGSInventory

Rs.Crore

Year Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07COGS 13854.18 15386.41 17375.22 19260.22 23385.46 25603.14Inventory 4020.32 3722.52 3057.05 4220.69 6210.06 6651.47Inventoryturnover Ratio(times)

3.45 4.13 5.68 4.56 3.77 3.85

Inventory turnover Ratiio (times)

3.454.13

5.684.56

3.77 3.85

0

24

6

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-

Here, we have taken total inventory as base. The overall result of this ratio showsbad result of inventory turnover. The result of 2002 to 2004 it is increasing ratebut after 2004 it is decreasing. Stock does not sale fast. Here company try toincrease this ratio.

{D.2} Debtors Turnover RatioThis ratio suggests that the number of times the amount of credit sales is

collected during the year. A high ratio indicate that shorter time period between


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credit sales and collection. A low ratio shows that debt is not being collectedrapidly.

= SalesDebtors+ Bills Receivable Rs.Crore

Year Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39Debtors

+Receivables

2474.15 2917.74 2914.11 3046.80 3183.91 4003.42

Debtorsturnover

Ratio (Times)

5.91 6.20 7.78 9.80 9.32 8.96

Debtors turnover Ratio (Times)

5.91 6.27.78 9.8 9.32 8.96

0

5

10

15

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-Here we have taken debtor plus bills receivable as base. Till 2005 it is increasingtrend but after 2005 it is decreasing trend. The conversation of debtors into cashshows a good collection policy of the company. It is increasing in earlier yearsbecause debtors are increasing and sales are also increasing.

{D.3} Total Assets Turnover Ratio The amounts invested in business are invested in all assets jointly and

sales are affected through them to earn profits. So in order to find out relationbetween total assets to sales. Total assets include net fixed assets and current

assets. = Net SalesTotal Assets Rs. Crore

Year Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39Total Assets 23718.34 22857.05 22834.16 29461.54 30644.44 35324.32Total AssetsTurnover

0.62 0.79 0.99 1.01 0.97 1.02


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Ratio (times)

Total Ass ets Turnover Ratio (tim

0.620.79

0.99 1.010.97

1.02

0

0.5

1

1.5

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-Here we have taken as total assets as base. The total assets are increasing year by year. The investment in assets in 2001-02 it is 23718.34 and in 2006-07 it is35324.32 which was approximately 1.5 times more. The company is using theassets efficiently thats why the ratio is increasing trend. The ratios are increasingthat is 0.62, 0.79, 0.99, 1.01, 0.97, 1.02.

{D.4} Fixed Assets Turnover Ratio Here we have also taken fixed assets as base. To ascertain the efficiency

and profitability of business of business, the total fixed assets are compared tosales. This ratio can be finding out by dividing sales with the total fixed assets.The more the sales in relation to amount invested in fixed assets, the moreefficient is the use of fixed assets.

= Net SalesFixed Assets

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Sales 14615.11 18099.82 22684.99 29861.31 29662.95 35869.39Fixed Assets 15373.45 14411.59 13509.6 12792.75 12778.89 12694.31Fixed AssetsTurnover Ratio

0.95 1.26 1.68 2.33 2.32 2.83


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Fixed Ass ets Turnover Ratio (times)

0.951.26

1.682.33 2.32

2.83

0

1

2

3

2002 2003 2004 2005 2006 2007

Years

R a t i o

Interpretation :-This ratio shows an efficiently and profitability of the business. This ratio is

continuous increasing. This shows the fixed assets are being used effectively toearn profits in the business. It is good for the company. In 2001-02 this ratio is0.95 and in 2006-07 it is 2.83 .

{D.5} Debt Collection PeriodThis ratio shows the number of days taken to collect the dues of credit

sales. It shows the efficiency of the collection policy of the enterprise. It iscalculated by dividing 365 by debtors turn over ratio.

= 360 DaysDebtors Turnover

Rs. CroreYear Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07Days 360 360 360 360 360 360Debtorsturnover

5.91 6.20 7.78 9.80 9.32 8.96

Debtcollectionperiod (days )

61 58 46 37 39 40


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Debt collection period (days)

61 5846

37 39 40

0

20

40

60

80

2002 2003 2004 2005 2006 2007

Years

R

Documents

Financial Analysis of SHIL