Project Report

On

Study of Financial System of MIEL

A PROJECT REPORT

ON

“Working capital & Ratio analysis”

AT

Monnet Ispat & Energy Limited

Submitted by

Sonu Samdariya

Id: 09PR00101B061

INTERNAL GUIDE EXTERNAL GUIDE

Mr. Manmeet Arora Mr. Kamal Tanna (Sr. Manager )

IN PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION

PROTON b school, Indore

2009 - 2011

This is to certify that the internship project titled “Working Capital & Ratio Analysis” is

successfully completed by Mr. Sonu Samdariya under my supervision in partial fulfillment & for

the award of MBA for the period from 3rd May 2010 to 30th June 2010. This report neither full nor in

part has ever been submitted for awarding of any degree of either this university or any other

University. I am pleased to say that his performance during this period was very good.

Internal Guide

Mr. Manmeet Singh Arora

(Faculty Guide)

DECLARATION

I hereby declare that this project work entitled “Working Capital & Ratio Analysis” is my sincere

work, carried out under the guidance of faculty guide Mr. Manmeet Singh Arora . This neither full

nor in part has ever been submitted for award at any other University.

Name : Sonu Samdariya

Place : Raipur

Date :

ACKNOWLEDGEMENT

It is my pleasure to acknowledge gratefully all those honorable personalities who have helped me

into the creation of this project and shared their experience about management and the market.

I express my deep regards and solemn gratitude to Mr. Kamal Tanna (Senior Manager Finance

Department) and my project guide Mr. Anand Pal for giving me the opportunity and their valuable

guidance to make this project successful.

I wish to express my indebtedness and sincere thanks to Dr. Vinay Goyal (Dean of PROTON

business School) for giving me opportunity to work in the organization.

I would also like to express my sincere gratitude and special thanks to Mr. Mnameet Singh Arora

(Faculty of Financial Management), and all the faculty members for being supportive to me.

Special thanks are due to all the respondents who gave me their time and attention despite their

busy schedule.

Finally, I wish to extend my sincere acknowledgement to my parents for their moral and financial

support.

With regards

Sonu Samdariya

Table of Contents

Executive Summary

The project is about Working Capital Management in “Monnet Ispat & Energy Ltd” at Raipur

Chhattisgarh,

Project is an opportunity given to management student where one gets an insight in to the

practical aspects in the day to day working of an organization. It imparts a real time environment to

the theoretical knowledge that one acquire in a business school. The project was undertaken to

make a study on the various aspect of the “Working Capital Management”.

The Project highlights the main aims and objects of the project report. It also explains the

great importance of Working Capital Management. It covers specific introduction of Working

Capital Management. It gives theoretical aspects as well as covers all dimensions of the topic.

Research methodology adopted for getting data is empirical in nature and therefore release

in the company’s annual report and financial statements.

Objective of Study

To present an introductory profile of Monnet Ispat Energy Ltd.

To study in depth the finance management of Monnet Ispat & Energy. Ltd

To study the financial position of the concern through Working Capital Management.

To estimate the working capital requirement of the company and the composition of the

net current assets for the period under review.

To analyze and interpret the working of the company through the use of tools such as

Working Capital Management.

To know the liquidity position of the company for the period under consideration.

To know the efficiency of the concern.

To study the level of current assets and current liabilities for the company.

To study the nature of expense in company and estimate the future expense base on

past data.

To understand how the expense are control by the use of Working Capital Management.

To understand how Working Capital Management helps the company.

To draw a conclusion regarding Finance Management of Monnet Ispat & Energy Ltd.

Scope of the Study

Working Capital Management is widely used in all the organization. The scope of this study

is limited to the study of different types of ratios and fund control of Monnet Ispat & Energy Ltd.

The study includes the computation and comparison of various ratios and the estimation of working

capital requirements for the period under review.

The study was conducted at “Monnet Ispat & Energy Ltd Raipur”. The duration of the study

was confined to about 60 day’s.

This study is limited to Monnet Ispat & Energy. Ltd. This study is specially related with Finance management in particular. This study is presented on the basis of information and knowledge which could be

gained during the course of SIP at Monnet Ispat & Energy Ltd. This study does not involve any survey or interaction with other company The data collected is related to Monnet Ispat & Energy Ltd and not the industry as a

whole. The data collected is purely from company records and discussion with the top

management only. This study is limited to time and does not consider the long run effect on the financial

position of the firm.

Research and Methodology

There are two methods of data collection –

Primary Data Collection

Secondary Data Collection

Collection of Primary Data

The primary data are those which are collected and for the first time and thus happened to

be original in character. For this project primary data is collected by discussion with authorities.

Collection of Secondary Data

The secondary data on the other hand are those which have already been collected by

someone else and which already have been passed through statistical process. The secondary

data is collected from annual reports, magazines, office files and records etc.

Introduction to the Study

The project is done on “Working Capital Management” of “Monnet Ispat & Energy Limited.”

This project was undertaken with an aim to gather information and get knowledge about the

Working Capital Management and related Financial Ratio of the company. A ratio is the

mathematical relationship between two quantities in the form of fraction or percentage. Ratio

analysis is essentially concerned with the calculation of relationship which after proper

identification and interpretation may provide information about the operations and state of affairs of

business enterprises.

The analysis is used to provide indicators of past performance in terms of critical success

factors of a business. This assistance in decision-making reduces reliance on guesswork and

intuition and establishes a basis for sound judgment.

The ratio analysis concentrates on the inter-relationship among the figure appearing in the

aforementioned for financial statements. Working Capital Ratio Analysis allow interested parties

like shareholders, investors, creditors, Government and analyst to make an evaluation of certain

aspect of a firms performance. The appraisal of the Working Capital will make proper analysis

about the strengths and weaknesses of the firm operations.

Working Capital Analysis is an accounting tool that reflects the followings:

The ability of the firm to meet its short-term commitments.

The debt financing of the company.

The degree of the efficiency and the standard of performance of the company.

Ratio provides an easy way to compare present performance with past.

Ratio depicts the areas in which a particular business is competitively advantaged or

disadvantaged through the comparison ratio to those of other business.

The overall efficiency of the company.

Monnet Vision

To achieve holistic in terms of cost, quality and customer satisfaction

in a systematic and planned manner.

A symbol of corporate excellence with strong focus for benefiting stakeholders and

society at large.

Monnet Mission

To achieve total integration in operations with global cost and quality

Standards with the use of latest technology and to be perceived as the

“Preferred “ choice of our customers.

To build a team of motivated and dedicated work force with high

Work Ethos.

To strive to emerge as an ideal corporate citizen.

Introduction

Monnet Ispat & Energy Ltd is the flagship company of Monnet Group. It was incorporated On 1st February 1990; Mr. Sandeep Jajodia and Jindal Strips Ltd jointly promoted the company. It is located at Mandir Hasaud, Dist.Raipur. The first trial production Of the plant came on 07/02/94 and the first commercial production of the plant came On 05/08/94. ISO 9001 certifies the MIEL.

Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction that makes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipur and Raigarh in the State of Chhattisgarh as well as the largest underground coal mineoperators in the country.

Today, Monnet has a combined capacity of 860,000 TPA of Sponge Iron, 300,000 TPA of Steel, 60,000 TPA of Ferro Alloys and Power generation facility of 150MW besides running the largest underground coal mine in the country. Pursuing balanced integration, we have acquired additional coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous technology, backward & forward integration and economies of scale.

Company description

MIEL is the second largest sponge iron based steel manufacturer in India, next only to JSPL. The business operations are backed by captive linkages of coal, power and to some extent, iron ore. MIEL is expanding its capacity across its product range and the same is expected to be completed by Q4FY09

Corporate

Monnet Ispat & Energy Ltd (MIEL) is the flagship company of the well diversified Monnet Group.

The Group currently manages manufacturing units for Sponge Iron,  Steel Melting & Rolling Mill, Ferro- Alloys Plant, Power Generation units, Mining & Mineral Beneficiation of Coal, Iron Ore and other minerals. The Group has also a highly skilled set of professionals who guide the industry through Coal Consulting Services.

In addition to its current thrusts, the group has envisaged ambitious growth plans in diverse sectors and has devised strategic partnerships with world leaders to continue forays into sectors viz clean coal technologies, port development and oil & gas sectors.

Monnet Group

1 Monnet Ispat & Energy Ltd, Mandir Hasaud ,Raipur .2 Monnet Power Ltd, Angul3 Monnet Global Ltd.4 Monnet Danial Coal Washery Ltd (Ranchi)5 Rameshwaram Steel & Power Ltd

Monnet today

Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction that makes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipur and Raigarh in the State of Chhattisgarh.Today, Monnet has a combined capacity of 0.86 million TPA of Sponge Iron, 0.3 million TPA of Steel, 0.06 million TPA of Ferro Alloys and power generation facility of 150MW besides running the largest underground coalmine in the Country. Pursuing balanced integration, we have acquired additional coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous technology, backward & forward integration and economies of scale.

Team monnetOur growth plans have been fuelled by our workforce. As we expanded vertically and horizontally, we added strength to our organizational structure by inducting seasoned professionals in each field of activity - be it steel, mining on power. Such diverse specialists make Monnet a picture of multi-faceted excellence.

Future, empoweredMonnet's growth story is marked by natural progression. Our 1.2 million TPA steel manufacturing facility coming up at Raigarh is at an advanced stage of implementation. Brisk progress is being made in the setting up of an additional 80 MW Power Plant atRaigarh. Yet another mega venture will be completed on schedule - a 1050 MW Independent Power Plant under the banner of Monnet Power Company Ltd. Quite simply, we are empowering the future. With our mettle, andour metal!

Company performance

Your Company has recorded impressive growth in the top line and bottom line in spite of the deteriorated economic environment, sudden fall in demand in 2nd half of thefinancial year followed by steep decline in selling prices. Additional capacity of Sponge Iron and Power became operational in the 2nd half of the year, contributing to thegrowth of the Company.

Expansion Plans

After completing the expansion in Sponge Iron and Power Divisions, your Company is moving ahead with the implementation of 1.2 Million TPA Integrated Steel Plant at Raigarh. The integrated facility will comprise of structural and a plate mill. The expansion will be completed in financial year 2011. Your company has also commenced implementation of 1050 MW Power Plant in its 100% subsidiary company Monnet Power Company Limited (MPCL). The project is financially closed, the orders for BTG Package have been placed with BHEL and the arrangements for evacuation and sale of power have also been concluded. This marks a major milestone for your Company. Over the next 3 years, your company would see substantial growth on a consolidated basis after factoring the expansions being undertaken in steel and power.

Company's Philosophy on code of Governance

Monnet is committed to ethical corporate citizenship by following systemic process of healthy governance practices and discharging societal responsibilities towards capital providers, business associates, stakeholders and employees in conducting its affairs in a fair and professional manner and in maintaining the high standards. The Company has also taken a series of other measures such as having professional Directors on the Board who have achieved prominence in their professional career, adopting pragmatic policies and effective systems and procedures, sharing of information with shareholders on a regular basis, through newspapers, audits and checks. The policies and actions of the Company, while being in full compliance of applicable laws and regulations, are dictated by the underlying objective of maximizing shareholder value on a long-term basis.

Manager

Procurement

A.G.M Purchase

Manager stores DeputyManager

Process dept. Mechanical dept. Electrical dept. Quality control Dept.

C.E.O.

Accounts dept.

Dispatch dept.

Materials dept.

M.D.

Marketing Finance Corporate planning

Stores

PersonnelDept.

G.M.

TechnicalDept.

EDP

Civil &Maintenance

ProcessSponge

ProcessSteel

ORGANIZAIONAL FLOW CHART OF MONNET ISAPT & ENERGY LTD

AFBC

Coal Mines

Prospecting for iron ore Mines

SpongeIron

Sale in Market

Captive use

By-Product&

Waste

CoalFines

Char WasteGas

WHRB

Steam

Turbine

Power

ARCFurnace

FerroAlloys Market

Induction Furnace

LiquidMetal

Poured intoMoulds

Continuous

Caster

IngotBillet

MarketMarket

LiquidMetal

FORWARD AND BACKWARD INTEGRATION

Quality Policy

Monnet Ispat & ENERGY LIMITED shall strive to: -

Achieve & Sustain Product Quality as per customer requirement and satisfaction.

Adhere to Approved Quality Assurance system in conformance to ISO

9001:2000.

M/S MONNET ISPAT& ENERGY LTD. strive for continual improvement of their quality

management systems through the active involvement.

Divisions

Sponge Iron.

Steel Melting shop.

Rolling Mill

Power division

Ferro division

PRODUCTS AND MANUFACTURING CAPACITY (Raipur)

Sponge Iron: Monnet Ispat & Energy Ltd has total capacity of 3,00,000 Tonnes /annum Sponge Iron. It has the four Kilns to produce sponge iron , whose capacities are as follows

300 MT / day capacity which started

It’s Commercial Production on 05/08/1994

350 MT / day capacity which started its

Commercial production on 25/12/2001.

100 MT / day capacity which started its

Commercial Production on 19/08/2003.

100 MT / day capacity which started its

Commercial Production on 01/01/2004.

Steel Melting Shop : Steel melting is consisting of two Products they are as follows.

Steel Melting Shop – I (For Ingot)Steel Melting Shop – II (For Billet)

Steel Melting Shop-I

Its the total installed capacity is 67,000 tonnes p.a. This shop is

Having the total five furnaces, they are as follows

4 furnaces of 3 tonnes each1 furnace of 4 tonnes each

Steel Melting Shop – II Its Total installed capacity is 2,33,000 Tonnes p.a. It has got 5 Furnaces as follows, along with a double stand continuous caster for Billet Casting.

2 furnaces of 12 tonnes.2 furnaces of 8 tonnes. 1 furnacesof 18 tonne

Rolling Mill : Its Total installed capacity is 200,000 Tonnes p.a. It has got 2 Furnaces.

Ferro Division:

Its Total installed capacity is 46400 Tonnes It has got 4 Furnaces

2 furnaces of 7.5MVA

1 furnace 5 MVA

1 furnancesof9 MVA

Power division:Its total installed capacity is 60 MW first unit is of 7.5MW second is 37.5MW and third is 15MW.

Board of Directors

Shri Mohinder Singh Gujral ChairmanShri P.L. Nene Non Executive DirectorShri G.C. Mrig Non Executive DirectorShri J.P. Lath Non Executive DirectorShri V.N. Kedia Non Executive DirectorShri Sandeep Jajodia Executive Vice-Chairman

& Managing DirectorBoard CommitteesAudit CommitteeShri M.S. Gujral, Chairman Investors' Grievance/

Shareholders CommitteeShri P.L. Nene, Member Shri M.S. GujralShri G.C. Mrig, Member Shri Sandeep JajodiaShri V.N. Kedia, Member Shri J.P. LathShri M.P. Kharbanda, Secretary

Finance Committee Executive CommitteeShri Sandeep Jajodia Shri Sandeep JajodiaShri J.P. Lath Shri J.P. Lath

Remuneration Committee Share Transfer CommitteeShri M.S. Gujral Shri J.P. LathShri G.C. Mrig Shri V. N. KediaShri J.P. Lath Shri M.P. Kharbanda

Company SecretaryShri M.P. Kharbanda

Registered OfficeMonnet Marg, Mandir Hasaud,Raipur - 492101 (Chhattisgarh)

Works

Unit-IMonnet Marg, Mandir Hasaud,Raipur - 492 101 (Chhattisgarh)Unit-IIVillage - Naharpali,Tehsil Kharsia, Dist. RaigarhChhattisgarhCoalmineVillage - Milupara, Block-Tamnar,Distt. Raigarh, ChhattisgarhCorporate Office

MONNET HOUSE,11, Masjid Moth, Greater Kailash Part-IINew Delhi-110048MIEL Corporate Website : www.monnetgroup.com

Bankers Bank of BarodaBarclays Bank PLCCitibank N.A.DBS Bank Ltd.HDFC Bank Ltd.Hongkong and Shanghai Banking Corp. Ltd.IDBI Bank Ltd.IndusInd Bank Ltd.ING Vysya Bank Ltd.Jammu & Kashmir Bank Ltd.JP Morgan Chase Bank N.A.Punjab National BankStandard Chartered BankState Bank of Bikaner & JaipurState Bank of IndiaState Bank of IndoreState Bank of MysoreState Bank of PatialaState Bank of TravancoreSyndicate BankUCO Bank

Investments

A host of steel companies have lined up major investment proposals. Furthermore, with an expanding consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments. The domestic steel sector has attracted a staggering investment of about US$ 236 billion. This consists of nearly 222 MoUs signed between the investors and various state governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal. According to the Investment Commission of India investments of over US$ 30 billion insteel are in the pipeline over the next 5 years. Tata Steel has raised US$ 500 million by issuing 'global depository receipts' (GDRs)aiming at expansion of its Jamshedpur plant and overseas mining projects. The state-owned Steel Authority of India Ltd (SAIL) will invest US$ 724.12 million to set up a 4-million tonne per annum steel mill at its Bhilai Steel Plant. SAIL is also planning to set up a 12-million tonne plant in Jharkhand. Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ 171.63 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur. India’s largest engineering conglomerate Larsen & Toubro (L&T) and state-ownedNuclear Power Corporation of India Limited (NPCIL) have formed a US$ 370.09 millionjoint venture for specialised steel and forging products.

Monnet Group has embarked upon a major investment program in the short term.More than US $ 1.5 billion worth of investments have been lined up in various businesssegments.We expect that the company will keep its growth story in the coming quarters also. Werecommend ‘BUY’ in this particular scrip with a target price of Rs.438.00 for Medium to

Long term investment.

Sector structure/Market size

The steel industry in India has been moving from strength to strength and according to theyear-end review by the Press Information Bureau, India has emerged as the fourth largest producer of steel in the world and the second largest producer of crude steel.Significantly, state-owned steel maker, Steel Authority of India (SAIL), which reported a net profit of US$ 571 million in January-June 2009, has become the most profitable steel company globally, beating steel majors such as ArcelorMittal, Posco, Bao Steel and Nippon in the half yearly profits.

Production

Steel production reached 28.49 million tonne (MT) in April-September 2009. The National Steel Policy has a target for taking steel production up to 110 MT by 2019–20. Nonetheless, with the current rate of ongoing greenfield and brownfield projects, the Ministry of Steel has projected India's steel capacity is expected to touch 124.06 MT by 2011–12. In fact, based on the status of memoranda of understanding (MoUs) signed by the private producers with the various state governments, India's steel capacity is likely to be 293 MT by 2020.

Expansion plans

Monnet Group has embarked upon a major investment program in the short term. Morethan US $ 1.5 billion worth of investments have been lined up in various businesssegments. Briefly the investment plan envisages the following:-

Steel Plant expansion at Raigarh, Chhattisgarh is USD 555 million,Thermal Power Plant at Angul in Orissa, 1050MW is USD 855 million,Coal Washery at Talcher, Orissa is USD 10 million,Open cast mining in Orissa & amp; Chhattisgarh is USD 102 million,4 Cement Plant at Raipur USD 180 millionThe projects are being undertaken by the Project Division of the Monnet Group

with a majority of equipment orders for the steel plant and the power plant having been placed.

Growth

Net Growth in the financial yearsAs At Dec-08 Dec-09 08 %changeNet sales 3721.90 4000.80 -6.97Net profit 680.10 335.00 103.01Basic EPS 14.18 6.80 108.43

Peer Group Comparison

Name of Company

CMP(Rs.) Market Cap.(Rs.mn.)

EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)

MIEL 381.00 18272.76 50.80 7.50 1.52 50.00SAIL 236.15 975394.1 1487 15.88 3.49 26.00Jindal Steel & power

697.00 649303.0 13.85 50.34 11.99 550.00

JSW Steel

1184.35 221568.5 72.44 16.35 2.91 10.00

Power Generation

MIEL has extensive experience in setting up and operating power plants. It is presently generating 150 MW of power from it’s Raipur and Raigarh Plant for captive consumption & sale.

MIEL is enhancing the power generation capacity at Raigarh from 90 MW to 180 MW. The new 90 MW plant is slated for commencing power generation in the financial year 2010-11

MIEL is setting up 1050 MW power plant in Angul, Orissa as an IPP. MIEL is executing the project through its wholly owned subsidiary, Monnet Power Company Limited. The allocation of coal block is testimony to the capability of MIEL to execute projects of large magnitude in coal mining and power generation.

The plant shall be commissioned by year 2011-12.

Encouraged by these spurt of positive activities the company proposed to install two more super critical power projects with the rated capacity of 2 x 660 MW i.e. equal to 1320 MW and at costal states with captive Jetties and imported coal proposed to be unloaded at the western ports and eastern ports respectively.

The company has envisaged to become a major power player by simultaneously entering into Hydro Sector also and has been qualified for 3 small Hydro project in the state of Uttrakhand on pinder river. Negotiation are also in progress for a 96 MW Hydro Power Project in the State of Arunachal with the State Government.

Not contended with above the surplus power from the captive power plants of Raigarh and Raipur has been traded to various beneficiaries on short term basis and company has been able to sell sufficient units during the financial year 2009-2010 till date.

Sponge Iron

Sponge iron is formed through the reduction of iron ore to metallic iron through reaction with carbon in the form of coal, etc at approx 1100 degree Celsius.  Sponge iron is also referred to as direct reduced iron, metalized iron, or hot briquetted iron.

Sponge iron is used in the iron and steel industry as a substitute for scrap in induction and electrical arc furnaces. Over the years, the shortage of expensive melting scrap has made sponge iron a significant raw material for manufacturing high quality steel. In India, the abundance of Iron Ore deposits has led to absorption of the renowned by the Indian industry and use of ore lumps and fines has led to the country becoming the largest producer of sponge iron in the world.

Monnet Group ventured into this segment in early nineties and over the years has perfected the technology and become the second larges sponge iron manufacturer in India. For Manufacturing Sponge Iron below three are the Raw Material required.

i. Iron ore.ii. Coal.

iii. Dolomite.

QUALITY A ND SUPPLIERS OF 3 MAJOR INPUTS

IRON ORE

Physical properties Chemical properties

Size 5-18mm Fe (iron) 65% min.

Gangue 5% max .

Sulphur 0.02% max.

Phosphorus 0.04% max.

Loss on ignition 1.5 % max.

Moisture 1% max.

SUPPLIERS.

i. Orissa Mining Corporation (OMC) .ii. Essel Mining & Industries Ltd (Orissa).iii. Rungta Mines (Orissa)iv. Orissa Mineral & Development Corporation Ltdv. National Minerals Development Cop (NMDC). Bailadilavi. Aryan Training Ltd

COALPhysical Properties

Steam coal Slack coal

1.Size 25-150mm 0-25 mm

2.Stone &Shale 2 % max 2 % max

Chemical PropertiesFixed carban (FC) 48 % 45%

Volatile Mater(VM) 30 + 2 % 28 + 2 %

Ash 20 %max 25 % max

Moisture 10 % max 10 % max

Sulphur 1 % max 1% max

Calorific value 5500Kcal/kg(min)

Ash softening temp. 1300 c (min)

SUPPLIERS

1. South Eastern coalfields limited .i. Bishrampur Mines .

ii. Delwadih .

iii. Singhali

iv. Rajgamaer .

v. Banki

vi. Surakachar .

vii. Dipika

viii. Gevra .

2. Mahanadi coalfields limited.

i. Samaleshwari Mines.

ii. Orient Valley Mines.

DOLOMITEPhysical Properties Chemical Properties

Size 2 – 6 Cao 28 % min 48 % max

Moisture 5

Mgo 20 % min

Sio2 2.5 % max

Al2o3 2.5 % max 5 %max

LOI 44 %

SUPPLIERS

i. R.K. Agrawal Mandla

ii. Vinod Kumar Agrawal Mandla

iii. Shree Shakti Minerals Bhilai

iv. Prem Enterprises Mandl

Steel

As a part of on going down stream integration process to sponge iron manufacture, Monnet has set up a steel melt shop for manufacturing structural steels. The capacity of the continuous mill is 500,000 MT per annum at Raipur in Chatisgarh. This Mill has been set up on better technological platform for manufacturing various sizes of structural sections covering wide range of structural grades to cater to the needs of the construction and engineering sectors and to create superior values for the customers.

Further capacity additions are underway at Raigarh works where a greenfield steel plant is being set up for manufacture of 1.5 million MT per annum of long and flat steel products at an investment of Rs 4,000 crores.

Monnet’s Medium and Heavy class structural Sections are suitable for all kinds of conceivable Steel structural Construction of conventional and innovative types at any geographical location.

For manufacturing steel basic raw materials required as follows: -

Sponge Iron Pig Iron M.S. Scrap Silico manganese Ferro silicon Calcinied Petroleum Coke Aluminum Shorts/Notch Bar

RAW MATERIAL FOR ROLLING MILL: -

M.S.Billet Furnace oil

RAW MATERIAL FOR FERRO DIVISION: -

Manganese ore Dolomite Pearl Coke Higher Silico Manganese Slag Higher Ferro manganese slag Quartez

IngotsPoured it to moulds

Moulds

Taken in ladle To continuous caster

Caster.

Sponge iron + scrap+ pig iron

Induction Liquid metal

Metal

Billets

Additive Ferro alloys

Electricity

PROCESS OF PRODUCING STEEL:

Ferro Division:

Its Total installed capacity is 46400 Tonnes It has got 4 Furnaces

2 furnaces of 7.5MVA

1 furnace 5 MVA

1 furnancesof9 MVA

RAW MATERIAL FOR FERRO DIVISION: -

Manganese ore

Dolomite

Pearl Coke

Higher Silicon Manganese Slag

Higher Ferro manganese slag

Quartez

Ferro Alloys :

These are alloys of iron with elements such as chromium, manganese, silicon, tungsten,

molybdenum or vanadium. The Monnet Group portfolio of Ferro-alloys includes vital alloys such as

Ferro Manganese (Fe-Mn) and Silicon-Manganese (Si-Mn).  These are supplied in diverse of

shapes and forms from billets and ingots to powders, fillers and allied reinforcements.

Ferro alloys are used in the steel making process for introducing alloying elements into the

molten metal or as de-oxidizing agents.

Currently the entire production is made for captive purposes in the production of value added steel

products.

High Carbon Silicon manganese:

Chemical Composition:

Element % age by Weight Manganese(Mn) 60 MinimumCarbon (C) 2 – 2.5Silicon (Si) 15 MinimumSulphur (S) 0.05 Maximum Phosphorus (P) 0.35 Maximum

High Carbon Ferro Manganese:

Chemical Composition :

Element % age by Weight Manganese(Mn) 70 MinimumCarbon (C) 6 – 8Silicon (Si) 1.5 MinimumSulphur (S) 0.05 Maximum Phosphorus (P) 0.4 Maximum

Customersa) Govt plant sail/Rinl/Railway.b) Private Plantsc) Export market 1500 t/month.

Key ConcernsSteel imports jumped by 46 percent in 2007-08. During that period, India Imported seven million tonnes of steel and exported five million tonnes. Consumption of steel isgoing up by 8-10 million tonnes per annum. This will continue for several years. Then, we have to import 25 million tonnes of steel in the next five years.

The extensive involvement of the government to keep price stable, the industrialmargins are going into the pressure.The ongoing credit crisis and slowing demand from global markets has forced companies across sector to postpone expansion plans.

One Year Comparative graph

Monnet Ispat & Energy Ltd

BSE

Consumption

India accounts for around 5 per cent of the global steel consumption. Almost 70 per cent of the total steel used is for kitchenware. However, its use in railway coaches, wagons, airports, hotels and retail stores is growing immensely. India's steel consumption rose by 6.8 per cent during April-November 2009 over the same period a year ago on account of improved demand from sectors like automobile and consumer durables. India's steel consumption will continue to grow by 16 per cent annually till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 35 kg – compared to 150 kg across the world and 250 kg in China.Steel players like JSW Steel and Essar Steel are increasing their focus on opening up more retail outlets pan India with growth in domestic demand. JSW Steel currently has 50 such steel retail outlets called JSW Shoppe and is targeting to increase it to 200 by March 2010. They expect at least 10-15 per cent of their total production to be sold by their retail outlets. Essar Steel which currently has over 300 retail outlets across the country, plans to set up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through the retail route in two years.

Exports

Out of India's annual iron ore production of more than 200 MT, about 50 per cent is exported. India's iron ore exports more than doubled to 9.3 million tone in October 2009 as compared to 4.4 million tone in the same month a year ago on the back of increase in demand from Chinese steel producers, as per a joint study by a group of iron ore exporters. 14 Iron ore is a key input in steel making. The country’s iron ore exports during April-October 2009 period grew 20 per cent over the year ago period to 53 million tonne, as per the study.

The term Working Capital Management refers to the plants, techniques and policies adopted to manage the working capital. To be precise, by working Capital Management is meant the systematic process, plants and techniques of managing the current assets the liabilities of the concern and estabilishing an effective link between current assets and current liabilities. It has the ultimate objectives of maintaining the liquidity and attaining the financial goal of increasing the net worth of the business.

What Is Working Capital

Working capital refers to the investment by the company in short term assets such as cash,

marketable securities etc. Net current assets or net working capital refers to the current assets less

current liabilities.

Current Assets – Current Liability = Working Capital

The aspects of management of working capital are,

1. Determine the requirements of working capital.

2. Financing the requirements.

3. Efficient utilization of requirements of working capital.

Classification of Working Capital

Working capital may be classified in to ways:

On the basis of concept. On the basis of time.

On the basis of concept working capital can be classified as

Gross Working Capital Net Working Capital.

On the basis of time, working capital may be classified as:

Permanent or Fixed Working Capital. Temporary or Variable Working Capital

Permanent or Fixed Working Capital

Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets.

Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance.

This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets.

Temporary or Variable Working Capital

Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital.

The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.

OPERTING CYCLE

CASH

DEBTORS RAW MATERIAL

SALES WORK IN PROCES

FINISHED GOODS

Adequacy of Working Capital

The firm should maintain a sound working capital position. It should have adequate working

capital to run its business operations. Working capital should be adequate for the following

reasons:

1. It protects a business from the adverse effect of shrinkage in the values of current assets.

2. It is possible to pay all the current obligations promptly land to take advantage of cash

discount.

3. It permits the carrying of inventories at a level of that would be enabling a business to save

satisfactorily the needs of its customers.

4. It enables a company to extend favorable credit terms to customers.

5. It enables a company to operate its business more efficiently because there is no delay in

obtaining materials etc. because of credit difficulties.

6. There may be operating or non operating losses.

7. There may be increasing price necessitating bigger investment in inventories and fixed

assets.

8. It enables business to with stand periods of depression smoothly.

Factors Affecting Working Capital Requirements

The working capital needs of a firm are influenced by the numerous factors. The important ones

are,

1. Nature of Business

The working capital requirements of a firm is closely related to the nature if its business. A

service firm, like an electricity undertaking or a transport corporation, which has a short operating

cycle and which sells predominately on cash basis, has a modest working capital requirement. On

the other hand a manufacturing concern, which has a long operating cycle, has substantial working

capital requirements.

2. Seasonality of Operations

Firms which have marked seasonality in their operations usually have highly fluctuating

working capital requirements. To illustrate consider a firm manufacturing ceiling fans. The sale of

ceiling fans reaches a peak during the summer months and drops sharply during the winter period.

On the other hand, a firm manufacturing a product, which have fairly even sale round the year,

tends to have stable working capital needs.

3. Production Policy

A firm marked by pronounced seasonal fluctuation in its sales may pursue a production

policy which may reduce the sharp variations in working capital requirements.

4. Market Condition

The degree of competition prevailing in the market place has an important bearing in

working capital needs. When competition is keen, a larger inventory of finished goods is required

to promptly serve customers. Further, generous credit terms may have to be offered to attract

customers in a highly competitive market.

If the market is strong and competition is weak, a firm can manage with smaller inventory of

finished goods.

5. Condition of Supply

The inventory of raw materials spares and stores depends on the condition of supply. If the

supply is prompt and adequate the firm can manage with small inventory. However, if the supply is

unpredictable and scant then the firm, to ensure the continuity of production would have to acquire

stock as and when they are available and carry larger inventory on an average. A similar policy

may have to be followed when the raw material is available only seasonally and production

operations are carried out round the year.

6. Taxes

Taxation has an important impact on the profit earned by an enterprise. Nearly one-half of

the profit earned is drained off. Tax liability when arise will be drain on working capital funds even

though this liability happens only ones in a year. Yet the management should be able to calculate

this liability and make the provision for payment when due. Payment of taxes in installments during

the year will drain off the liquidity more quickly.

7. Dividend Policy

Dividend policy has a dominant influence on working capital position of an enterprise.

Dividend policy cannot liquidity – the ability of the concern to find necessary cash to meet the

dividend payment. When ones dividend is declared and the same has to be paid in cash, it

consequently drains off large amount from working pool.

8. Operating Efficiency

If the operating cycle operates successfully, the working structure becomes strong. If there

is decline or loss of operating efficiency there will be drain of the cash flows before the competition

of the cycle. If the cost rise up, there will be decline in the net profit – drain on cash realization.

Therefore effective control of costs will have on impact on the net profit and liquidity.

9. Expansion Programme

Capital investment in capital projects is generally financed by permanent capital or retained

earning. However, expansion programme sometimes drain off working capital funds account of

increase in stock and debtors. Even though such programme is sign of successful growth, they

have influence over working capital reserves.

10. Price Level Changes

Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.

11.Others Factors

Management ability. Import policy. Asset structure. Importance of labor. Banking facilities, etc.

Sources of Working Capital Financing

The need of working capital working capital increase by raising prices of end products and

relative inputs on the other hand the government and monetary authorities play their own

role to curb the mallet in the period’s o f inflation. The control measures of ten takes the

form of dear money policy and restrictive credit financing of addition working capital

requirements in such an environment become a real problem to a finance manager of a

concerned unit.

SOURCES OF WORKING CAPITAL

A) Long term sources (Fixed working capital)

1. Loan from financial institutions

2. Floating of debentures]

3. Accepting public deposits

4. Issue of shares by operational results

5. Raising funds by operational results

B) Short term sources (Temporary working capital)

1. Trade credit

2. Notes bills payable

3. Bank credit, Cash loan, Cash credit etc.

4. Bank acceptance

A) Long Term Sources

It includes the following sources

Loan from financial institutions

This option is normally rules out because financial

institutions do not provide finance for working capital. The IDBI,

FCI and ICICI these various types of financial institution set in each and every state for providing

finance to the business concern. But these institutions do not provide finance for working capital

requirements.

Floating of Debentures

The probability of successful floating of debentures to be another measure In Indian capital

market floating of debentures has still to gain popularity. The company raising funds by issuing

convertible debentures are also considered which may attract a number of investments.

Accepting Public Deposits

The next alternative is public deposits. This source of finance is most profitable in company.

Issue of Shares

Issue of shares is one of the important sources for to fulfill the need of working capital. But

generally this course is used for purchasing of fixed assets or long term assets.

Raising Funds by Operational Results

Raising Funds by Operational Results are the most important source of finance. In which

the company earning fund out of profit to pay reasonable dividend to shareholders and retain profit

to cover margin money requirements to finance additional requirements.

Short Term Sources

1. Internal Sources

Depreciation funds:

The depreciations funds constitute important source for working capital. Some authorize of

business finance do not accept them as a sources of funds but it is not reasonable.

Accrued Expenses

The firm can postpone the payment of expenses for short period. Hence the accrued

expenses also constituted an important source of working capital.

2. External Deposits

Trade Credit

Trade credit refers to the credit that a customer gets from suppliers of goods in the normal

course of business. Normally the buying firms do not have to pay cash immediately for the

purchase made by them. The time gap between the receipt of goods and services and payment

thereof provide a firm with a source of finance i.e. trade credit. Trade credit can be in the form of

an open account or bills payable.

Short term bank credit

The bank credit is the primary institutional sources of financing working capital. The amount

approved by bank for the company working capital is called credit limit. Credit limit thus denotes

the maximum limit of finance, which the firm can raise in the form of loan from the bank.

Sometimes the bank may approve separate limits for peak season and non peak season. Usually

the bank credit is available in following form,

i) Letter of Credit

A letter of credit is the guarantee provided by the buyers’ bank to the sellers that in the cases of

default or failure of the buyer, the bank should make the payment of the buyer.

ii) Cash Credit

This type of credit is provided mainly to individuals or enterprises engaged in

manufacturing 7 trading activities to enable them to carry on their activities. The amt of cash credit

facility to be sanctioned to a unit is need based and is worked out as per well defined parameters

in each bank. The guidelines of RBI may also affect the quantum of facility in some cases. This

facility is generally granted against the security of stock of goods, bills/books debts representing

genuine sales.

iii) Bills Finance

The banks extend assistance to the borrowers against the bills. The finance against bills

is meant to finance, the actual sales transaction. The finance against bills can take three forms.

1. Purchase of bills by the bank if these are payable on demand.

2. Discounting of bills by bank if these are usance bills (or time) bills.

3. Advanced against bills under collection from the drawees whether sent for realization through

the bank or sent directly by the drawer to the drawee.

iv) Working Capital Demand Loan

In compliances of RBI directions, bank presently grants only a small part of the fund-

based working capital facilities to a borrower by the way of running cash credit amount, a major

portion is in the form of working capital demand loan. These arrangements presently applicable to

borrowers having working capital facilities of Rs 10 core or above

Working Capital Management Policy

Working capital management policies have a great effect on firm’s profitability, liquidity and

its structural health. As pointed out earlier gross working capital consist of cash, receivables and

inventory, if a firm has relatively high investment in these assets in comparisons to a firm, which is

transacting the same volume of sale, it will have lower profitability in comparison to the latter.

Therefore, a firm which has high working capital turnover will have higher profitability. This

may require reduction of investment in working capital but, if it is reduced disproportionately, it will

affect the liquidity position of the firm. Generally the current ratio and the quick ratio indicate

liquidity aspect of firm. If current assets are reduced beyond limit, the current and quick ratios will

be adversely affected leading the firm to poor liquidity.

Therefore, it is essential that finance manager laid down such working capital management

policies that a proper balance is struck between profitability and liquidity. Infact profitability and

liquidity are inversely related. When one increase the other decrease. A firm have high liquidity will

have a lower profitability and vice versa.

Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it owes for what it is owed. Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small businesses who can least afford it. If you don't manage debtors, they will begin to manage your business as you will

gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves.

2. Establish clear credit practices as a matter of company policy.

3. Make sure that these practices are clearly understood by staff, suppliers and customers.

4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc.

6. Establish credit limits for each customer... and stick to them.

7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector.

8. Keep very close to your larger customers.

9. Invoice promptly and clearly.

10.Consider charging penalties on overdue accounts.

11.Consider accepting credit /debit cards as a payment option.

12.Monitor your debtor balances and ageing schedules, and don't let any debts get too large or too old.

Recognize that the longer someone owes you, the greater the chance you will never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects:

weak credit judgment

poor collection procedures

lax enforcement of credit terms

slow issue of invoices or statements

errors in invoices or statements

Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention. Look for the warning signs of a future bad debt. For example

longer credit terms taken with approval, particularly for smaller orders

use of post-dated checks by debtors who normally settle within agreed terms

evidence of customers switching to additional suppliers for the same goods

new customers who are reluctant to give credit references

Receiving part payments from debtors.

Profits only come from paid sales. The act of collecting money is one which most people dislike for many reasons and therefore put on the long finger because they convince themselves there is something more urgent or important that demands their attention now. There is nothing more important than getting paid for your product or service. A customer who does not pay is not a customer. Here are a few ideas that may help you in collecting money from debtors:

Develop appropriate procedures for handling late payments.

Track and pursue late payers.

Get external help if your own efforts fail.

Don't feel guilty asking for money.... its your and you are entitled to it.

Make that call now. And keep asking until you get some satisfaction.

In difficult circumstances, take what you can now and agree terms for the remainder. It lessens the problem.

When asking for your money, be hard on the issue - but soft on the person. Don't give the debtor any excuses for not paying.

Make it your objective is to get the money - not to score points or get even.

Managing Payables (Creditors)

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following:

Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do you use order quantities which take account of stock-holding and purchasing costs?

Do you know the cost to the company of carrying stock?

Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier.

How many of your suppliers have a returns policy?

Are you in a position to pass on cost increases quickly through price increases to your customers?

If a supplier of goods or services lets you down can you charge back the cost of the delay?

Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-

time basis?

There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to enhance the future viability and profitability of your company.

Working capital performance is comprised of a complicated set of interactions within the corporate ecosystem that can be viewed through the lenses of Accounts Receivable, Accounts Payable and Inventory. Understanding these interactions, their performance drivers, and the affect on Working Capital requires accurate and timely information. This six-step process in plan has been shown to increase the probability of success in Working Capital performance improvement initiatives.

Six Steps

The Project Charter: Define the initiative.

Get the information you require.

Create a cross-functional team to identify strategies for improvement.

Put the initiative to work.

Monitor, measure, and validate the improvements against baseline information.

Make adjustments and re-iterate over these steps.

Step 1: The Project Charter: Define the initiative

It is important to view Working Capital performance improvement as strategic within the organization and understand that it is going to take a team effort involving members from several different areas and management levels within your organization. Starting with a project charter to clearly define goals and the scope, will give a greater chance of success for your initiative.

In the project charter, identify the teams and team players, executive sponsorship, steering committee members, objective of the initiative, scope of the initiative, and high level milestones. Also define any risks in the project along with the steps that will moderate the risks. Return on investment should be fully quantified as well as the metrics that are going to be used to quantify the return.

It is important to have an executive sponsor for a project such as this, as well as a steering committee. The steering committee should be comprised of high level managers from operations and finance.

Areas that should be represented are Inventory, Purchasing, Manufacturing, Accounts Receivable, Sales, Accounts Payable, Information Technology and Treasury. The steering committee is invaluable in helping to implement process changes that otherwise might meet with resistance within the organization.

Get the information you require

Understanding Working Capital performance starts with data. Information that is accurate and easy to use for analysis is critical in the assessment phase. Information feedback which provides a common view of targets and achievements across the enterprise is essential in measurement and plays a key role in making certain Process improvements fix. Information needs to serve all of the direct and indirect members of the team.

One barrier to having effective information is the lack of a common customer, vendor, and or product master within the organization..

Following are some tips around information:

o Leverage off-the-shelf analytics software packages that automatically gather and organize this information for you.

o Align the information needs with the initiative’s directives and Priorities. The steering committee can help with this.

o Implement the solution so that over time you have a complete and accurate representation of the business.

o Make the information visible on a daily basis. Working Capital performance management is not a quarter-end activity, current performance information should be monitored regularly and the data should support real time decisions and corrective actions.

Step 3: Create a cross-functional team to identify

Strategies for improvement At first glance, effectively managing Working Capital seems simple: extend supply payments, reel in customer payment timeframes, minimize inventory and maximize inventory turns. Unfortunately, things are not that simple – every action has a reaction. Extending payment terms to vendors without an overall strategy will probably result in higher prices for products they supply.

An Inventory team might be created to focus on improvement around inventory and sourcing. For improvements around Accounts Payable, a team might be put together involving AP and sourcing. Define these teams in the project charter. Each team should have a clear set of directives and should understand what they are trying to achieve. These teams should be directed by the steering committee. Put your teams to work to develop the right strategy. Following are some suggestions.

Know your customers, how they pay and why

Improve cash flow visibility by customer

Consider Securitization

Analyze true (net) customer profitability

Know your vendors

Constantly evaluate vendor performance

Associate costs with vendor performance

Arm buyers with vendor performance data

Communicate more with Customers and Suppliers

Collaborate and share more information

Publish vendor performance scorecards

More communication decreases variability

Evaluate Inventory Efficiency

Understand turns down to the item level

Understand relationships between turns, demand, and customer service requirements

Implement lean processes and techniques

Step 4: Put your Initiative to work:

Being able to put an initiative into motion and realize its benefits is a discipline and takes resources - people, processes, and information. Detailed project plans should be used to make sure that the project stays on track. An experienced project leader is also critical to the success of the initiative. Be sure to keep the project’s objectives realistic and focus on near-term results. Be careful not to over complicate the project by attempting to boil the ocean.

Identify this as a risk in the project charter and moderate the risk by perhaps integrating one system at a time. It may be that your first initiative might be to tackle one identified defect that needs attention, not all of them at once. It might be around billing efficiency or more accurate cash flow projections.

Make sure that the initiative under way is being monitored by the steering committee and it is understood that progress is being made. Having information at your fingertips to assist in improving your business is a critical success factor, but having information that shows progress on the project is equally important.

Step 5: Measure and Validate the Improvements

Against Baseline Information As the initiative unfolds, it is important that you be able to measure success and validate that improvements are being made. To do this, you must have historical baseline information so that you can measure impact of the initiative. Having a timeline of informational metrics is essential. This information should be made available to all members of all teams so that they can see progress and feel good that their efforts are paying off.

Step 6: Adjust Project Charter and Re-iterate

Every initiative will have room for improvement. Assume that this will be the case and use this step to analyze the issues to determine how it could be made better. Reflect this in the project charter and re-iterate steps 1-5. Commitment means doing this. Use this step to adjust the strategy and address the issue.

Leverage your early success to justify the investment in the follow-on iterations of the project. View this as a performance improvement discipline which never ends. Continue to monitor and make adjustments to the process where necessary.

In order to make sure your process improvements stick, continue to monitor and analyze the suggested metrics. Keep the improvement initiatives in the forefront of your managers’ minds by distributing performance reports. Tie compensation to continuous improvement of the key measurements. This will ensure that managers and employees stay motivated and contribute to the continued success of the initiative.

Analysis of Working Capital:

Working Capital Requirements:

Net Working Capital = Current Assets – Current Liability

Particular 31/03/2009 31/03/2008 31/03/2007

Current Asset 12224.85 10353.06 6407.02

Current Liability 2318.48 1994.52 1070.46

Net Working

Capital

9906.37 8358.54 5336.57

31/03/2009 31/03/2008 31/03/2007

0

2000

4000

6000

8000

10000

12000

1400012224.85

10353.06

6407.02

2318.48 1994.521070.46

9906.36999999992

8358.54

5336.57

Current AssetCurrent LiabilityNet working Capital

Ratio Analysis

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expression “ and as “the relationship between two or more things”. In financial

analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and the financial position of a firm. An accounting figure conveys meaningful when it is related to some other relevant information.

Standards of comparison

The ratio analysis involves comparison for a useful interpretation of the financial statement. A single ratio in itself does not indicate favorable of unfavorable conditions. It should be compared with some standards. Standards of comparison may consists of :Past ratios, i.e., ratios calculated from the past financial statement of the same firm;Competitors’ ratio, i.e., ratios of some selected firms, especially the most progressive and successful firms, at the same time;Industry ratios, i.e., ratio of the industry to which the firms belongs; andProjected ratios, i.e., ratios developed using the projected, or Performa, financial statement of the same firm.

Types Of Ratio

Liquidity Ratio Liquidity ratio measure the liquidity of he firm and its ability to meet its maturing short-term

obligations. Liquidity is defined as the ability to realize value in money, the most liquid assets. It

refers to the ability to pay in cash, the obligations that are due. The important ratios in measuring

short term solvency are

1. Current Ratio

2. Quick Ratio

Current Ratio

This ratio is used to assess the short-term financial position of the business concern. In other

words, it is an indicator of firm’s ability to meet its short-term obligations. It matches the total

current assets of the firms against its current liabilities. Current assets means the assets are either

in the form of cash or cash equivalents or can be converted into cash or cash equivalents in the

short run and current liabilities means liabilities repayable in the short run. The ratio is calculated

as follow:

Current Assets

Current Ratio = --------------------------

Current Liabilities

Generally the ratio of 2:1 is considered satisfactory but this does not mean if the ratio is lower the

business is in financial difficulty.

Quick Ratio or Liquid Ratio or Acid Test Ratio

Liquid ratio is worked out to test the short-term liquidity of the firm in its current form. If from the

current assets, stock and prepaid expenses are removed, the reminder is known as liquid assets.

Liquid assets are those, which are either in the form of cash or cash equivalents or can be

converted in cash within a very short time. The ratio is calculated as follow:

Liquid Assets

Quick or Liquid Ratio = ----------------------

Liquid Liabilities

Liquid assets includes cash, bills receivable, marketable securities and debtors (excluding bad and

doubtful debts) etc. According to accounting principles, a quick ratio of 1:1 has usually been

considered favorable.

Net Working Capital Turnover Ratio This ratio indicates the number of times a unit invested in working capital produces sales. In

other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in

making the sales. The ratio is calculated as follow:

Sales

Net Working Capital Turnover Ratio = -----------------------------

Net Working Capital

Inventory Turnover Ratio This ratio establishes a relationship between the cost of goods sold during a given period

and the average amt of inventory carried during the period. It is usually considered better to work

out the turnover against coat of sales since sales include an element of profit, whereas stock is

usually at cost.

The ratio is calculated as follow:

Cost of Good Sold

Stock Turnover Ratio = ---------------------------

Average stock

Cost of goods sold is calculated as follow:

Cost of goods sold = Opening stock + Purchases + Direct Exp - Closing stock

OR

Cost of goods sold = Sales – Gross profit

Inventory turnover in daysIndicates the length of time that it will take to use up the inventory through sales Indicate the

liquidity of the inventory in days. On average, you turn over the value of your entire stock every x days. You may need to break this down into product groups for effective stock management. Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days.Inventory turnover in days =

Ending Inventory -------------------------------------

Cost of Goods Sold / 365

Debtors Turnover Ratio This ratio establishes a relationship between the net credit sales and average debtors of the

years. Average debtors are calculated by dividing the sum of debtors in the beginning and the end

by 2.

Credit Sales

Debtors Turnover Ratio = ------------------------

Account receivables

Average Collection Period or Debtors collection Period

This ratio deals with the same subject and shows the number of days, for which normally

sales remain uncollected. It indicates the extent to which the debts have been collected in time.

For calculation of average collection period, one should divide the number of days or week or

month in a year by debtor ratio

365 or 52 or 12

Average Collection Period = ------------------------

Debtor Ratio

Creditor Turnover Ratio

This ratio establishes a relationship between the net credit Purchase and average Creditors

of the years. Average debtors are calculated by dividing the sum of debtors in the beginning and

the end by 2.

Credit Purchase

Creditor Turnover Ratio = --------------------------

Account Payables

Average Payment Period or Creditors collection Period

This ratio deals with the same subject and shows the number of days, for which normally

Purchase remain unpaid. It indicates the extent to which the debts have been paid in time. For

calculation of average payment period, one should divide the number of days or week or month in

a year by creditor ratio

365 or 52 or 12

Average Payment Period = ------------------------

Creditor Ratio

Stock to Working Capital Ratio

This ratio indicated the efficiency between stock and working capital. This ratio is calculated

as follows

Closing Stock

Stock to Working Capital Ratio = -----------------------------------

Net Working Capital

Long-term Debt to Net Working Capital

Provides insight into the ability to pay long term debt from current assets after paying current liabilities

Long-term Debt-------------------------------------------

Current Assets - Current Liabilities

Cash Turnover

Measures how effective a company is utilizing its cash.

Net Sales Cash Turnover = -------------------------- Cash

Operating Cycle

Indicates the time between the acquisition of inventory and the realization of cash from sales of inventory for most companies the operating cycle is less than one year, but in some industries it is longer.Operating Cycle =Accounts Receivable Turnover in Days+ Inventory Turnover in Day

Return on Investment (DU PONT Approach)

Return on investment is one of the most successful yet simple techniques ever conceived to

aid both decision making and performance evaluation. This technique was first developed by DU

PONT Company for making analysis and controlling financial performance. It brings together the

activity ratio and profit margin as sales and shows how these ratios interact to determine

profitability of asset. This ratio is calculated as follows

Sales X Net Profit after Tax

Return on Investment (ROI) = -------------- ----------------------

Total Asset Sales

Fixed Assets Turnover Ratio

This ratio shows how well the fixed assets are being utilized. If compared with the previous

period, it indicates whether the investment in fixed assets has been judicious or not the ratio is

calculated as follow:

In computing the fixed assets turnover ratio, the fixed assets are generally taken at the written

down value at the end of the year. It may also be taken at the original cost or at the present market

value depending on the object of comparison. Often this ratio is also calculated by taking cost of

sales instead of sales figures.

Net Sales

Fixed Assets Turnover Ratio = ----------------

Fixed Assets

Financial Statement :

Monnet Ispat & Energy LtdProfit & Loss Account For The Year Ended

(Rs. In Million )Particulars Mar -2009 Mar-2008 Mar-2007Gross Sales 22248.92 18040.63 9703.95Less :inter division transfer 5141.59 4846.22 2320.95Less: sales return 0 0 0Less: Excise 1620.07 1603.72 1004.99Net sales 15487.26 11590.69 6378.01Other income 476.66 483.69 246.83Increase / Decrease in stocks (444.87) 455.39 225.73

15519.05 12529.77 6850.57ExpenditureRaw material consumed 15108.50 13396.48 6732.91Less: inter division transfer 5141.59 4846.21 2505.18

9966.91 8550.27 4227.73Salaries, wages & Amenities 608.16 408.97 233.51Repair & maintenance 56.27 48.35 40.21

Administrative ,selling & others Exp

664.33 519.13 360.52

Loss on sale of investment 157.03 0 0Financial charges 706.04 350.52 (2.91)Depreciation 653.03 444.85 330.47

12811.77 10322.09 5189.53Profit before tax 2707.28 2207.68 1661.04Less : provision for taxation 306.01 251.80 183.10Less: provision for deferred taxation

231.04 280.44 125.82

Less: provision for FBT 12.70 5.80 4.20Add : Income from adjustment 2.63 (8.00) (0.5)Profit After Tax 2160.16 1661.63 1347.85Balance As per Last Year 4434.25 3224.02 2187.36Profit Available For Appropriation 6594.41 4885.65 3535.21AppropriationTransfer To General Reserve 220.00 167.00 135.00Transfer To Debenture Redemption Reserve

57.20 0 0

Dividend Proposed Dividend on Equity Share

239.79 123.11 0

Interim Dividend on Equity Share 0 119.98 154.51Corporate Dividend Tax 40.87 41.31 21.67Balance Carried To Balance Sheet

6036.55 4434.25 3224.02

6594.41 4885.65 3535.21Basic Earnings Per Share (Rs) 44.22 42.98 39.36Diluted Earnings Per Share (Rs) 43.63 39.02 36.39

Monnet Ispat & Energy LtdBalance Sheet As on

(Rs. In Million )Mar-2009 Mar-2008 Mar-2007

A Sources Of Funds:

1.Shareholder’s Funds a. Share Capital 479.65 479.97 34.42b. Share Warrants &

Subscription 0 209.25 0.00

c. Reserve & Surplus 12383.00 10198.36 5365.95Shareholder’s Funds 12862.65 10887.58 5709.372.Loan funds: a. Secured loan 10168.54 9456.67 5241.43b. unsecured Loan 3083.26 1524.07 4794.90 Total Debts 13251.80 10980.74 10036.33

Total Sources Of Funds : 26114.45 21868.32 15745.70B Application Of Funds:

1. Fixed Asset: a. Gross Block 13664.53 12120.98 8302.57 b.Less Accumulated Depreciation

2395.68 1747.97 1303.27

c. Net Block 11268.85 10373.01 6999.30Capital Work in Progress 3096.63 2661.19 3589.45

14365.48 13.034.2 10588.752. Investment 2156.28 1384.07 448.43

3.Current Assets ,Loan & Advance: a. Inventories 1844.56 2217.07 1219.75b. Sundry Debtors 1097.32 1050.93 462.76c. Cash &Bank Balance 2455.85 3708.34 2896.94d. Loan & Advance 6827.11 3376.72 1827.59

12224.85 10353.06 6407.02Less: Current Liability & Provisions:`a. Current liability 1719.14 1452.52 883.16b. Provisions 599.34 542.00 187.30Total current Liability: 2318.48 1994.52 1070.46

Net working Capital: 9906.37 8358.54 5336.57Deferred Tax Assets /Liability: (1139.52) (908.48) (628.04)Miscellaneous Expenditure 825.84 0 0Total Application of Funds 26114.45 21868.32 15745.70

Calculated Different Types of Ratio

Types of ratio 2009 2008 2007

Liquidity Ratio

Current Ratio 5.2 5.1 5.9Quick Ratio 4.4 4.0 4.8Net Working capital 0.37 0.38 0.33Leverage Ratio

Debt ratio 0.5 0.5 0.6Debt-Equity Ratio 1.03 1.00 1.75Coverage Ratio 4.83 6.30 7.39Activity Ratio

Debtor Turnover 15.59 12.55 15.95Creditors Turnover 9.38 9.00 7.40

Net asset turnover 2.25 2.16 1.82Total asset turnover 0.85 0.82 0.61Working Capital Turnover 1.82 1.74 1.51Profitability Ratio

Net profit margin 0.10 0.09 0.14Return on Investment(ROI) 0.091 0.083 0.085Return on Equity(ROE) 0.17 0.24 0.15Earning Per Share(EPS) 44.22 42.98 39.36Dividend Per Share (DPS) 4.91 6.29 5.15Dividend-payout ratio 0.11 0.15 0.13Combined Ratio

Return on Capital Employed 0.07 0.08 0.10Return on Total Resources 0.100 0.103 0.105Return on Shareholders Funds 0.16 0.15 0.23

Debt ratio

Particulars 2009 2008 2007Total Debt (in billions) 13.25 10.98 10.03Capital Employed (In billions) 26.11 21.86 15.74Dept Ratio 0.50 0.50 0.63

2009 2008 20070

5

10

15

20

25

30

13.25

10.9810.03

26.11

21.86

15.74

0.5 0.50.63000000000000

1

Total Debt(in billion)Capital Debt(in billion)Ratio

Analysis or Comment:

Dept ratio is Generally used the long term solvency of the firm’s ,in the year2007 dept ratio is 0.63 it means lender have contributed more funds than owners lender contribution is 1.70 times of owner contribution but in the Future owner contribution is more as compare to the lender’s in 2008, &2009 this will be 0.5 ,0.5 Respectively

Particulars 2009 2008 2007Total Debt(in billion) 13.25 10.98 10.03Net Worth(in billion) 12.86 10.88 5.70Ratio 1.03 1.00 1.75

2009 2008 20070

2

4

6

8

10

12

14 13.25

10.9810.03

12.86

10.88

5.7

1.03 11.75

Total Debt(in billion)Net Worth(in billion)Ratio

Analysis or Comment :

It is clear that the total dept ratio is more because of lender’s contribution is more funds than the owner funds .in 2007 dept ratio is 1.75 it means company rises the more fund from the lender in this year but in 2008, 2009 this will be reduce ,if the company rise the more funds from the lender that time company has to pay more interest to the lender, either company making the profit or loss

Coverage Ratio

Particulars 2009 2008 2007EBIT(in billion) 3.41 2.55 1.92Interest(in billion) 0.706 0.35 0.25Ratio 4.87 7.28 7.68

2009 2008 20070

1

2

3

4

5

6

7

8

3.41

2.55

1.92

0.700000000000001

0.35 0.25

4.87

7.287.68

EBIT(in billion)Interest(in billion)Ratio

Analysis or Comment:

Coverage ratio is used to describe the firm’s dept servicing capacity .and this ratio also indicating the number of times the interest charges are covered funds that ordinarily available for their payment. In 2007,2008 7.68 & 7.28 company’s ratio is higher. but the higher ratio indicate that the firm’s very conservative in using the dept, in the year 2009 ratio 4.87 will be very low this ratio will indicate the excessive use of dept or inefficient operation.

Debtor Turnover Ratio

Particulars 2009 2008 2007Credit sales(in billions) 17.10 13.19 7.38Average Debtors(in billions) 1.09 1.05 0.46Ratio 15.65 12.56 16.00

2009 2008 20070

2

4

6

8

10

12

14

16

1817.1

13.19

7.38

1.09 1.050.46

15.65

12.56

16

Credit sales(in billions)Average Debtors(in billions)Ratio

Analysis or Comment:

Debtors turnover ratio indicate the number of times debtors turnover each year , Generally higher the debtors turnover is more efficient as compare to lower .Monnet Ispat & Energy Ltd show the higher debtors turnover in the year 2007, it is 16.00 times it means company’s sales are increases but in the year 2008 this will be reduce 12.56 times, because of recessions but after that it will increase 15.65 times in the year 2009 and this will continue in 2010 also,

Creditors Turnover Ratio

Particulars 2009 2008 2007Credit purchase(in billions) 13.49 10.88 5.52Average creditors(in billions) 1.36 1.20 0.74Ratio 9.9 9.0 7.45

2009 2008 20070

2

4

6

8

10

12

1413.49

10.88

5.52

1.36 1.2 0.740000000000001

9.99

7.45Credit purchase(in billions)Average Creditors(in billions)Ratio

Analysis or Comment:

Creditors Turnover Ratio is similar to the debtors’ turnover ratio. It compares creditors with the total

credit purchases. In the year 2007ratio is 7.45 it means company purchasing power is more and this will

continue in the year 2008,2009Respectively 9.00,& 9.9, company con grow their business very efficient way

Net asset Turnover

Particulars 2009 2008 2007Sales(in billions) 22.24 18.04 9.70Net Assets(in billions) 9.90 8.35 5.33Ratio 2.24 2.16 1.81

2009 2008 20070

5

10

15

20

2522.24

18.04

9.79.98.35000000000001

5.33

2.24 2.16 1.81

Sales(in billions)Net Assets(in billions)Ratio

Analysis or Comment:

Net asset turnover ratio .it means a firm’s ability to produce a large volume of sales for a given amount of net asset. It is most important aspect of its operating performance, in the 2007 ratio will be 1.81 it means company producing large volume of sales and this will be continue in the year 2008,2009Respectively 2.16,& 2.24 , this will be more effective to the company to produce the large amount of sales

Total Assets Turnover ratio

Particulars 2009 2008 2007Sales(in billions) 22.24 18.04 9.70Total Assets(in billions) 26.11 21.86 15.74Ratio 0.85 0.82 0.61

Category 1 Category 2 Category 30

5

10

15

20

25

30

22.24

18.04

9.7

26.11

21.86

15.74

0.850000000000001

0.820000000000001

0.610000000000001

Sales(in billions) Total Assets(in billions)Ratio

Analysis or comment:

This ratio show’s the firm’s ability in generating sale from all the financial resources committed to total asset. In 2007 this will be 0.61 times and in the year 2008,2009 this will be 0.82 & 0.85 times . it means company investment is more for the purpose of making the sales,

Working Capital turnover

Particulars 2009 2008 2007Sales(in billions) 22.24 18.04 9.70Current Assets(in billions) 12.22 10.35 6.40

Ratio 1.82 1.74 1.51

2009 2008 20070

5

10

15

20

2522.24

18.04

9.7

12.22

10.35

6.4

1.82 1.74 1.51

Sales(in billions) Current Assets(in billions)Ratio

Analysis or Comment:

The firm may also like to relate net current asset (or net working capital gap) to sales . it may thus compute the net working capital turnover for making the sales over the current asset. In 2007 working capital turnover is 1.51 times and this will be continue grow in the 2008,2009 respectively 1.74 & 1.82 ,

Net Profit Margin

Particulars 2009 2008 2007PAT(in billions) 2.16 1.66 1.34

Sales(in billions) 22.24 18.04 9.70Ratio 1 0.14 0.09

2009 2008 20070

5

10

15

20

25

2.16 1.66 1.34

22.24

18.04

9.7

10.14 0.09

PAT(in billions)Sales(in billions)Ratio

Analysis or Comment:

Net profit ratio established the relationship between net profit and sales and it will indicate the management efficiency in manufacturing ,administrative , selling the product, this ratio is the over all measure of the firm’s ability, the with a high net margin ratio would be in an advantages it means company can make the better use of favourable condition, in 2007this will be 0.09 there after it will continue grow in 2008,2009 respectively 0.14,& 1

Earning Per sahre

Particulars 2009 2008 2007PAT(in billions) 2.16 1.66 1.34

No. of Share Outstanding(in billions) 0.048 0.038 0.034Ratio 45 43.68 39.41

2009 2008 20070

5

10

15

20

25

30

35

40

45

2.16

1.66

1.34

0.04

8

0.03

8

0.03

4

45

43.6

8

39.4

1

PAT(in billions)No. of Share Outstanding(in bil-lions)Ratio

Analysis or Comment:

The EPS of the company should be compared with the industry average and the earning per share of the other firm’s , The EPS simply show’s the profitability of the firm on a per share basis and it does not reflect how much is paid as dividend and how much is retained in the business . Monnet Ispat & Energy Ltd . EPS is more effective in the 2007 it will be 39.41 and 2008,2009 this will be 43.68 & 45, it means company EPS is increases every year, company will expected to grow up to 50.00 in 2010,

Dividend Per Share

Particulars 2009 2008 2007

Dividend(in billions) 0.23 0.24 0.17No. of Share Outstanding(in billions)

0.048 0.038 0.034

Ratio 4.79 6.31 5.0

2009 2008 20070

1

2

3

4

5

6

7

0.23

0.24

0.17

0.04

8

0.03

8

0.03

4

4.79

6.31

5

Dividend(in billions)No. of Share Outstanding(in bil-lions)Ratio

Dividend Payout Ratio

Particulars 2009 2008 2007

Dividend Per Share(in billions) 4.79 6.31 5.0Earning Per Share(in billions) 45 43.68 39.41Ratio 0.10 0.14 0.12

2009 2008 20070

5

10

15

20

25

30

35

40

45

4.796.31

5

4543.68

39.41

0.1 0.14 0.12

Dividend Per Share(in billions)Earning Per Share(in billions)Ratio

Analysis or Comment:

Dividend payout ratio show’s the high rate of return to the shareholder , dividend payout ratio also indicate the growth of the company also, in 2007,2008 it is 0.12 or 12% and 0.14 or 14% but this will declined in the year 0.10 or 10% ,

Current Ratio:

Particular 31/03/2009 31/03/2008 31/03/2007

Current Asset 12.22 10.35 6.40

Current Liability 2.31 1.99 1.07

Current Ratio5.27 5.195 5.98

2009 2008 20070

2

4

6

8

10

12

1412.2

10.3

6.4

2.3 1.91

5.2 5.15.9

Current AssetCurrent LibilityRatio

Quick Ratio or Liquid Ratio or Acid Test Ratio

Particular 31/3/2009 31/03/2008 31/03/2007Quick Asset 10.38 8.13 51.87Quick Liability 2.31 19.94 10.70Quick Ratio 4.4 4.0 4.8

31/03/2009 31/03/2008 31/03/20070

2

4

6

8

10

1210.38

8.13

5.18

2.31 1.99

1.07

4.44

4.8Quick Assetquick liabiityquick Ratio

Combine Ratio :

Return On Capital Employed :

Particular 31/03/2009 31/03/2008 31/03/2007NPBIT 3.41 2.55 1.92Capital Employed 26.11 21.86 15.94Return on Capital Employed 0.13 0.11 0.12

31/03/2009 31/03/2008 31/03/20070

5

10

15

20

25

30

3.41 2.55 1.92

26.11

21.86

15.94

0.13 0.11 0.12

NPBITCapital EmployedReturn Capital Employed

Analysis or Comment:

The Return on Capital Employed ratio (ROCE) tells us how much profit we earn from the investments the

shareholders have made in their company. It is commonly used as a measure for comparing the performance

between businesses and for assessing whether a business generates enough returns to pay for its cost of

capital. Return on capital employed , in 2007 0.12, and in the year2007,2008 respectively 0.11&0.13

It basically can be used to show how much a business is gaining for its assets, or how

much it is losing for its liabilities.

Return on Total Resource:

Particular 31/03/2009 31/03/2008 31/03/2007NPBT 2.70 2.20 1.66Total Resource 26.11 21.86 15.94Return on total Resource 0.103 0.109 0.105

31/03/2009 31/0./2008 31/03/20070

5

10

15

20

25

30

2.7 2.2 1.66

26.11

21.86

15.94

0.103 0.109 0.105

NPBTTotal resourceReturn on total resource

Analysis or Comment:

In this ratio, we can analyze how good the resources are managed to get more and more profits. Return on

total resource, in 2007is 0.105,and 2008,2008 respectively 0.109&0.103 it means company earning more

profit and management can utilize all the resource

Return On Shareholder Funds:

Particular 31/03/2009 31/03/2008 31/03/2007NPAT 2.16 1.66 1.34Shareholder Funds 12.86 10.88 5.70Return On Shareholder Funds 0.16 0.15 0.23

31/03/2009 31/03/2008 31/03/20070

2

4

6

8

10

12

14

2.161.66 1.34

12.86

10.88

5.7

0.16 0.15 0.23

NPATSharholder fundsReturn on Shareholder Funds

Analysis or Comment:

The Return on Shareholders’ Funds (ROSF) ratio has historically been used by industry investors as a

measure of the profit for the period which is available to the owner’s stake in a business. The Return on

Shareholders’ Funds ratio is therefore a measure of profitability.

Return on Equity Shareholder Funds:

Particular 31/03/2009 31/03/2008 31/03/2007NPADT 2.16 1.66 1.34Equity Shareholder 12.86 10.88 5.70Return on Equity Shareholder 16.79 15.26 23.60

31/03/2009 31/03/2008 31/03/20070

5

10

15

20

25

2.16 1.66 1.34

12.86

10.88

5.7

16.7915.26

23.6

NPATEquity ShareholderReturn on Equity

Analysis or Comment :