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equity research

  1. 1. Project Report OnStudy of Financial System of MIEL
  2. 2. 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
  3. 3. This is to certify that the internship project titled “Working Capital & Ratio Analysis” issuccessfully completed by Mr. Sonu Samdariya under my supervision in partial fulfillment & forthe award of MBA for the period from 3rd May 2010 to 30th June 2010. This report neither full nor inpart has ever been submitted for awarding of any degree of either this university or any otherUniversity. I am pleased to say that his performance during this period was very good.Internal GuideMr. Manmeet Singh Arora (Faculty Guide)
  4. 4. DECLARATIONI hereby declare that this project work entitled “Working Capital & Ratio Analysis” is my sincerework, carried out under the guidance of faculty guide Mr. Manmeet Singh Arora . This neither fullnor in part has ever been submitted for award at any other University.Name : Sonu SamdariyaPlace : RaipurDate :
  5. 5. ACKNOWLEDGEMENTIt is my pleasure to acknowledge gratefully all those honorable personalities who have helped meinto 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 FinanceDepartment) and my project guide Mr. Anand Pal for giving me the opportunity and their valuableguidance to make this project successful.I wish to express my indebtedness and sincere thanks to Dr. Vinay Goyal (Dean of PROTONbusiness 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 theirbusy schedule.Finally, I wish to extend my sincere acknowledgement to my parents for their moral and financialsupport.With regards Sonu Samdariya
  6. 6. Table of Contents
  7. 7. Executive Summary The project is about Working Capital Management in “Monnet Ispat & Energy Ltd” at RaipurChhattisgarh, Project is an opportunity given to management student where one gets an insight in to thepractical aspects in the day to day working of an organization. It imparts a real time environment tothe theoretical knowledge that one acquire in a business school. The project was undertaken tomake 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 thegreat importance of Working Capital Management. It covers specific introduction of WorkingCapital 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 releasein the company‟s annual report and financial statements.
  8. 8. 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.
  9. 9. Scope of the Study Working Capital Management is widely used in all the organization. The scope of this studyis 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 workingcapital requirements for the period under review. The study was conducted at “Monnet Ispat & Energy Ltd Raipur”. The duration of the studywas 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.
  10. 10. Research and Methodology There are two methods of data collection – Primary Data Collection Secondary Data CollectionCollection of Primary Data The primary data are those which are collected and for the first time and thus happened tobe 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 bysomeone else and which already have been passed through statistical process. The secondarydata is collected from annual reports, magazines, office files and records etc.
  11. 11. 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 theWorking Capital Management and related Financial Ratio of the company. A ratio is themathematical relationship between two quantities in the form of fraction or percentage. Ratioanalysis is essentially concerned with the calculation of relationship which after properidentification and interpretation may provide information about the operations and state of affairs ofbusiness enterprises. The analysis is used to provide indicators of past performance in terms of critical successfactors of a business. This assistance in decision-making reduces reliance on guesswork andintuition and establishes a basis for sound judgment. The ratio analysis concentrates on the inter-relationship among the figure appearing in theaforementioned for financial statements. Working Capital Ratio Analysis allow interested partieslike shareholders, investors, creditors, Government and analyst to make an evaluation of certainaspect of a firms performance. The appraisal of the Working Capital will make proper analysisabout 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.
  12. 12. 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.
  13. 13. 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.
  14. 14. IntroductionMonnet Ispat & Energy Ltd is the flagship company of Monnet Group. It was incorporatedOn 1st February 1990; Mr. Sandeep Jajodia and Jindal Strips Ltd jointly promoted thecompany. It is located at Mandir Hasaud, Dist.Raipur. The first trial production Of the plantcame on 07/02/94 and the first commercial production of the plant came On 05/08/94. ISO9001 certifies the MIEL.Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction thatmakes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipurand 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 largestunderground coal mine in the country. Pursuing balanced integration, we have acquired additionalcoal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous technology,backward & forward integration and economies of scale.Company descriptionMIEL is the second largest sponge iron based steel manufacturer in India, next only to JSPL. Thebusiness 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 completedby Q4FY09CorporateMonnet 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 andother minerals. The Group has also a highly skilled set of professionals who guide the industrythrough Coal Consulting Services.In addition to its current thrusts, the group has envisaged ambitious growth plans in diverse sectorsand has devised strategic partnerships with world leaders to continue forays into sectors viz cleancoal technologies, port development and oil & gas sectors.
  15. 15. Monnet Group 1 Monnet Ispat & Energy Ltd, Mandir Hasaud ,Raipur . 2 Monnet Power Ltd, Angul 3 Monnet Global Ltd. 4 Monnet Danial Coal Washery Ltd (Ranchi) 5 Rameshwaram Steel & Power LtdMonnet todayMonnet is an industrial conglomerate born out of a conviction. It is this strength of conviction thatmakes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipurand Raigarh in the State of Chhattisgarh.Today, Monnet has a combined capacity of 0.86 million TPA of Sponge Iron, 0.3 million TPA ofSteel, 0.06 million TPA of Ferro Alloys and power generation facility of 150MW besides running thelargest underground coalmine in the Country. Pursuing balanced integration, we have acquiredadditional coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenoustechnology, 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 fieldof activity - be it steel, mining on power. Such diverse specialists make Monnet a picture of multi-faceted excellence.Future, empoweredMonnets growth story is marked by natural progression. Our 1.2 million TPA steel manufacturingfacility coming up at Raigarh is at an advanced stage of implementation. Brisk progress is beingmade in the setting up of an additional 80 MW Power Plant atRaigarh. Yet another mega venture will be completed on schedule - a 1050 MW IndependentPower Plant under the banner of Monnet Power Company Ltd. Quite simply, we are empoweringthe future. With our mettle, andour metal!Company performanceYour Company has recorded impressive growth in the top line and bottom line in spite of thedeteriorated economic environment, sudden fall in demand in 2nd half of thefinancial year followed by steep decline in selling prices. Additional capacity of Sponge Iron andPower became operational in the 2nd half of the year, contributing to thegrowth of the Company.
  16. 16. Expansion PlansAfter completing the expansion in Sponge Iron and Power Divisions, your Company is movingahead with the implementation of 1.2 Million TPA Integrated Steel Plant at Raigarh. The integratedfacility will comprise of structural and a plate mill. The expansion will be completed in financial year2011. 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, theorders for BTG Package have been placed with BHEL and the arrangements for evacuation andsale of power have also been concluded. This marks a major milestone for your Company. Overthe next 3 years, your company would see substantial growth on a consolidated basis afterfactoring the expansions being undertaken in steel and power.Companys Philosophy on code of GovernanceMonnet is committed to ethical corporate citizenship by following systemic process of healthygovernance practices and discharging societal responsibilities towards capital providers, businessassociates, stakeholders and employees in conducting its affairs in a fair and professional mannerand in maintaining the high standards. The Company has also taken a series of other measuressuch as having professional Directors on the Board who have achieved prominence in theirprofessional career, adopting pragmatic policies and effective systems and procedures, sharing ofinformation with shareholders on a regular basis, through newspapers, audits and checks. Thepolicies and actions of the Company, while being in full compliance of applicable laws andregulations, are dictated by the underlying objective of maximizing shareholder value on a long-term basis.
  17. 17. ORGANIZAIONAL FLOW CHART OF MONNET ISAPT & ENERGY LTD M.D. Marketing Finance Corporate planning C.E.O. Accounts Materials Personnel Technical dept. dept. Dept. Dept. G.M. Dispatch EDP Stores Manager dept. Procurement Manager stores Deputy A.G.M Purchase Manager Process dept. Mechanical Electrical Civil & Quality dept. dept. control Maintenance Dept. Process Process Sponge Steel
  18. 18. FORWARD AND BACKWARD INTEGRATIONCoalMines Sale in Sponge Market Iron Induction Liquid Liquid Captive use Furnace Metal Metal By-Product Prospecting for iron ore & Mines Poured into Continuo Waste us Moulds Caster Coal Char Waste Ingot Billet Fines Gas Market Market WHRB AFBC Steam Turbine Power ARC Ferro Alloys Market Furnace
  19. 19. 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 qualitymanagement systems through the active involvement.Divisions Sponge Iron. Steel Melting shop. Rolling Mill Power division Ferro divisionPRODUCTS AND MANUFACTURING CAPACITY (Raipur)Sponge Iron:Monnet Ispat & Energy Ltd has total capacity of 3,00,000 Tonnes /annum SpongeIron. 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.
  20. 20. 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-IIts the total installed capacity is 67,000 tonnes p.a. This shop isHaving the total five furnaces, they are as follows 4 furnaces of 3 tonnes each 1 furnace of 4 tonnes eachSteel 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 tonneRolling 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 Furnaces2 furnaces of 7.5MVA1 furnace 5 MVA1 furnancesof9 MVA Power division:Its total installed capacity is 60 MW first unit is of 7.5MW second is 37.5MW andthird is 15MW.
  21. 21. Board of DirectorsShri 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, SecretaryFinance Committee Executive CommitteeShri Sandeep Jajodia Shri Sandeep JajodiaShri J.P. Lath Shri J.P. LathRemuneration Committee Share Transfer CommitteeShri M.S. Gujral Shri J.P. LathShri G.C. Mrig Shri V. N. KediaShri J.P. Lath Shri M.P. KharbandaCompany SecretaryShri M.P. KharbandaRegistered OfficeMonnet Marg, Mandir Hasaud,Raipur - 492101 (Chhattisgarh)
  22. 22. WorksUnit-IMonnet Marg, Mandir Hasaud,Raipur - 492 101 (Chhattisgarh)Unit-IIVillage - Naharpali,Tehsil Kharsia, Dist. RaigarhChhattisgarhCoalmineVillage - Milupara, Block-Tamnar,Distt. Raigarh, ChhattisgarhCorporate OfficeMONNET HOUSE,11, Masjid Moth, Greater Kailash Part-IINew Delhi-110048MIEL Corporate Website : www.monnetgroup.comBankersBank 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
  23. 23. InvestmentsA host of steel companies have lined up major investment proposals. Furthermore, with anexpanding consumer market, the Indian steel industry is likely to receive huge domestic andforeign investments. The domestic steel sector has attracted a staggering investment of about US$236 billion. This consists of nearly 222 MoUs signed between the investors and various stategovernments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal. According to the Investment Commission of India investments of over US$ 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 millionstainless 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 toLong term investment.Sector structure/Market sizeThe steel industry in India has been moving from strength to strength and according to theyear-endreview by the Press Information Bureau, India has emerged as the fourth largest producer of steelin 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 ofUS$ 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.
  24. 24. ProductionSteel production reached 28.49 million tonne (MT) in April-September 2009. The National SteelPolicy has a target for taking steel production up to 110 MT by 2019–20. Nonetheless, with thecurrent rate of ongoing greenfield and brownfield projects, the Ministry of Steel has projectedIndias steel capacity is expected to touch 124.06 MT by 2011–12. In fact, based on the status ofmemoranda of understanding (MoUs) signed by the private producers with the various stategovernments, Indias steel capacity is likely to be 293 MT by 2020.Expansion plansMonnet 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 million The 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 6.80 108.43Peer Group ComparisonName of CMP(Rs.) Market EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)Company Cap.(Rs.mn.)MIEL 381.00 18272.76 50.80 7.50 1.52 50.00SAIL 236.15 975394.1 1487 15.88 3.49 26.00Jindal 697.00 649303.0 13.85 50.34 11.99 550.00Steel &powerJSW 1184.35 221568.5 72.44 16.35 2.91 10.00Steel
  25. 25. Power GenerationMIEL has extensive experience in setting up and operating power plants. It is presently generating150 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 90MW plant is slated for commencing power generation in the financial year 2010-11MIEL is setting up 1050 MW power plant in Angul, Orissa as an IPP. MIEL is executing the projectthrough its wholly owned subsidiary, Monnet Power Company Limited. The allocation of coal blockis testimony to the capability of MIEL to execute projects of large magnitude in coal mining andpower generation.The plant shall be commissioned by year 2011-12.Encouraged by these spurt of positive activities the company proposed to install two more supercritical power projects with the rated capacity of 2 x 660 MW i.e. equal to 1320 MW and at costalstates with captive Jetties and imported coal proposed to be unloaded at the western ports andeastern ports respectively.The company has envisaged to become a major power player by simultaneously entering intoHydro Sector also and has been qualified for 3 small Hydro project in the state of Uttrakhand onpinder river. Negotiation are also in progress for a 96 MW Hydro Power Project in the State ofArunachal with the State Government.Not contended with above the surplus power from the captive power plants of Raigarh and Raipurhas been traded to various beneficiaries on short term basis and company has been able to sellsufficient units during the financial year 2009-2010 till date.Sponge Iron
  26. 26. Sponge iron is formed through the reduction of iron ore to metallic iron through reaction withcarbon in the form of coal, etc at approx 1100 degree Celsius. Sponge iron is also referred to asdirect 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 andelectrical arc furnaces. Over the years, the shortage of expensive melting scrap has made spongeiron a significant raw material for manufacturing high quality steel. In India, the abundance of IronOre deposits has led to absorption of the renowned by the Indian industry and use of ore lumpsand 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 thetechnology and become the second larges sponge iron manufacturer in India. For ManufacturingSponge Iron below three are the Raw Material required. i. Iron ore. ii. Coal. iii. Dolomite.QUALITY A ND SUPPLIERS OF 3 MAJOR INPUTSIRON ORE Physical properties Chemical properties Size 5-18mm Fe (iron) 65% min. Gangue 5% max . Sulphur 0.02% max. Phosphorus 0.04% max.
  27. 27. 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 Ltd v. National Minerals Development Cop (NMDC). Bailadilavi. Aryan Training Ltd COAL Physical Properties Steam coal Slack coal 1.Size 25-150mm 0-25 mm 2.Stone &Shale 2 % max 2 % max Chemical Properties Fixed 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 .
  28. 28. 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 PropertiesSize 2– 6 Cao 28 % min 48 % maxMoisture 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
  29. 29. Steel
  30. 30. As a part of on going down stream integration process to sponge iron manufacture, Monnet hasset up a steel melt shop for manufacturing structural steels. The capacity of the continuous mill is500,000 MT per annum at Raipur in Chatisgarh. This Mill has been set up on better technologicalplatform for manufacturing various sizes of structural sections covering wide range of structuralgrades to cater to the needs of the construction and engineering sectors and to create superiorvalues for the customers.Further capacity additions are underway at Raigarh works where a greenfield steel plant is beingset up for manufacture of 1.5 million MT per annum of long and flat steel products at an investmentof Rs 4,000 crores.Monnet‟s Medium and Heavy class structural Sections are suitable for all kinds of conceivableSteel 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 BarRAW MATERIAL FOR ROLLING MILL: - M.S.Billet Furnace oilRAW MATERIAL FOR FERRO DIVISION: - Manganese ore Dolomite Pearl Coke Higher Silico Manganese Slag Higher Ferro manganese slag Quartez
  31. 31. PROCESS OF PRODUCING STEEL: Additive Ferro alloys Poured it IngotsSponge iron to moulds Induction Liquid Moulds+ scrap metal+ pig iron Taken in ladle To continuous Billets Metal caster Electricity Caster.
  32. 32. 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 MVARAW MATERIAL FOR FERRO DIVISION: -  Manganese ore  Dolomite  Pearl Coke  Higher Silicon Manganese Slag  Higher Ferro manganese slag  Quartez
  33. 33. 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 asFerro Manganese (Fe-Mn) and Silicon-Manganese (Si-Mn). These are supplied in diverse ofshapes 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 themolten metal or as de-oxidizing agents.Currently the entire production is made for captive purposes in the production of value added steelproducts.High Carbon Silicon manganese:Chemical Composition: Element % age by Weight Manganese(Mn) 60 Minimum Carbon (C) 2 – 2.5 Silicon (Si) 15 Minimum Sulphur (S) 0.05 Maximum Phosphorus (P) 0.35 Maximum
  34. 34. High Carbon Ferro Manganese: Chemical Composition : Element % age by Weight Manganese(Mn) 70 Minimum Carbon (C) 6–8 Silicon (Si) 1.5 Minimum Sulphur (S) 0.05 Maximum Phosphorus (P) 0.4 MaximumCustomers a) Govt plant sail/Rinl/Railway. b) Private Plants c) Export market 1500 t/month.Key Concerns Steel 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 is
  35. 35. going 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 industrial margins 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 & BSE Energy Ltd
  36. 36. ConsumptionIndia accounts for around 5 per cent of the global steel consumption. Almost 70 per cent of thetotal steel used is for kitchenware. However, its use in railway coaches, wagons, airports, hotelsand retail stores is growing immensely. Indias 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 sectorslike automobile and consumer durables. Indias steel consumption will continue to grow by 16 percent annually till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scopefor raising the total consumption of steel is huge, given that per capita steel consumption is only 35kg – 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 retailoutlets pan India with growth in domestic demand. JSW Steel currently has 50 such steel retailoutlets called JSW Shoppe and is targeting to increase it to 200 by March 2010. They expect atleast 10-15 per cent of their total production to be sold by their retail outlets. Essar Steel whichcurrently has over 300 retail outlets across the country, plans to set up 5,000 outlets of variousformats soon. It expects to sell 3MT of steel through the retail route in two years.ExportsOut of Indias annual iron ore production of more than 200 MT, about 50 per cent is exported.Indias iron ore exports more than doubled to 9.3 million tone in October 2009 as compared to 4.4million tone in the same month a year ago on the back of increase in demand from Chinese steelproducers, as per a joint study by a group of iron ore exporters. 14 Iron ore is a key input in steelmaking. The country‟s iron ore exports during April-October 2009 period grew 20 per cent over theyear ago period to 53 million tonne, as per the study.
  37. 37. The term Working Capital Management refers to the plants, techniques and policies adopted tomanage the working capital. To be precise, by working Capital Management is meant thesystematic process, plants and techniques of managing the current assets the liabilities of theconcern and estabilishing an effective link between current assets and current liabilities. It has theultimate objectives of maintaining the liquidity and attaining the financial goal of increasing the networth 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 lesscurrent liabilities.Current Assets – Current Liability = Working CapitalThe 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 effectiveutilization of fixed facilities and for maintaining the circulation of current assets.
  38. 38. Every firm has to maintain a minimum level of raw material, work- in-process, finished goodsand cash balance. This minimum level of current assets is called permanent or fixed working capital as this partof working is permanently blocked in current assets. As the business grow the requirements ofworking 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 tomeet the seasonal demands and some special exigencies. Variable working capital can further beclassified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal workingcapital. Special working capital is that part of working capital which is required to meet specialexigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that isrequired for short periods and cannot be permanently employed gainfully in the business.
  40. 40. Adequacy of Working Capital The firm should maintain a sound working capital position. It should have adequate workingcapital to run its business operations. Working capital should be adequate for the followingreasons: 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 RequirementsThe working capital needs of a firm are influenced by the numerous factors. The important onesare,1. Nature of Business The working capital requirements of a firm is closely related to the nature if its business. Aservice firm, like an electricity undertaking or a transport corporation, which has a short operatingcycle and which sells predominately on cash basis, has a modest working capital requirement. Onthe other hand a manufacturing concern, which has a long operating cycle, has substantial workingcapital requirements.2. Seasonality of Operations
  41. 41. Firms which have marked seasonality in their operations usually have highly fluctuatingworking capital requirements. To illustrate consider a firm manufacturing ceiling fans. The sale ofceiling 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 productionpolicy 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 inworking capital needs. When competition is keen, a larger inventory of finished goods is requiredto promptly serve customers. Further, generous credit terms may have to be offered to attractcustomers in a highly competitive market.If the market is strong and competition is weak, a firm can manage with smaller inventory offinished goods.5. Condition of Supply The inventory of raw materials spares and stores depends on the condition of supply. If thesupply is prompt and adequate the firm can manage with small inventory. However, if the supply isunpredictable and scant then the firm, to ensure the continuity of production would have to acquirestock as and when they are available and carry larger inventory on an average. A similar policymay have to be followed when the raw material is available only seasonally and productionoperations are carried out round the year.6. Taxes Taxation has an important impact on the profit earned by an enterprise. Nearly one-half ofthe profit earned is drained off. Tax liability when arise will be drain on working capital funds eventhough this liability happens only ones in a year. Yet the management should be able to calculatethis liability and make the provision for payment when due. Payment of taxes in installments duringthe year will drain off the liquidity more quickly.
  42. 42. 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 thedividend payment. When ones dividend is declared and the same has to be paid in cash, itconsequently drains off large amount from working pool.8. Operating Efficiency If the operating cycle operates successfully, the working structure becomes strong. If thereis decline or loss of operating efficiency there will be drain of the cash flows before the competitionof 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 retainedearning. However, expansion programme sometimes drain off working capital funds account ofincrease in stock and debtors. Even though such programme is sign of successful growth, theyhave influence over working capital reserves.10. Price Level Changes Changes in the price level also affect the working capital requirements. Generally rise in pricesleads 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.
  43. 43. 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 acceptanceA) Long Term Sources It includes the following sourcesLoan from financial institutions This option is normally rules out because financialinstitutions do not provide finance for working capital. The IDBI,FCI and ICICI these various types of financial institution set ineach and every state for providing finance to the business concern. But these institutions do notprovide finance for working capital requirements.Floating of Debentures The probability of successful floating of debentures to be another measure In Indian capitalmarket floating of debentures has still to gain popularity. The company raising funds by issuingconvertible 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. Butgenerally this course is used for purchasing of fixed assets or long term assets.Raising Funds by Operational Results
  44. 44. Raising Funds by Operational Results are the most important source of finance. In whichthe company earning fund out of profit to pay reasonable dividend to shareholders and retain profitto cover margin money requirements to finance additional requirements.Short Term Sources 1. Internal SourcesDepreciation funds: The depreciations funds constitute important source for working capital. Some authorize ofbusiness 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 accruedexpenses also constituted an important source of working capital. 2. External DepositsTrade Credit Trade credit refers to the credit that a customer gets from suppliers of goods in the normalcourse of business. Normally the buying firms do not have to pay cash immediately for thepurchase made by them. The time gap between the receipt of goods and services and paymentthereof provide a firm with a source of finance i.e. trade credit. Trade credit can be in the form of anopen account or bills payable.Short term bank credit The bank credit is the primary institutional sources of financing working capital. The amountapproved by bank for the company working capital is called credit limit. Credit limit thus denotesthe 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. Usuallythe bank credit is available in following form,i) Letter of CreditA letter of credit is the guarantee provided by the buyers‟ bank to the sellers that in the cases ofdefault or failure of the buyer, the bank should make the payment of the buyer.
  45. 45. ii) Cash Credit This type of credit is provided mainly to individuals or enterprises engaged inmanufacturing 7 trading activities to enable them to carry on their activities. The amt of cash creditfacility to be sanctioned to a unit is need based and is worked out as per well defined parametersin each bank. The guidelines of RBI may also affect the quantum of facility in some cases. Thisfacility is generally granted against the security of stock of goods, bills/books debts representinggenuine sales.iii) Bills Finance The banks extend assistance to the borrowers against the bills. The finance against billsis 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 majorportion is in the form of working capital demand loan. These arrangements presently applicable toborrowers having working capital facilities of Rs 10 core or aboveWorking Capital Management Policy Working capital management policies have a great effect on firm‟s profitability, liquidity andits structural health. As pointed out earlier gross working capital consist of cash, receivables andinventory, if a firm has relatively high investment in these assets in comparisons to a firm, which istransacting 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. Thismay require reduction of investment in working capital but, if it is reduced disproportionately, it willaffect the liquidity position of the firm. Generally the current ratio and the quick ratio indicateliquidity aspect of firm. If current assets are reduced beyond limit, the current and quick ratios willbe adversely affected leading the firm to poor liquidity. Therefore, it is essential that finance manager laid down such working capital managementpolicies that a proper balance is struck between profitability and liquidity. Infact profitability and
  46. 46. liquidity are inversely related. When one increase the other decrease. A firm have high liquidity willhave a lower profitability and vice versa.Handling Receivables (Debtors) Cash flow can be significantly enhanced if the amounts owing to a business are collectedfaster. Every business needs to know.... who owes them money.... how much is owed.... how longit 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 canleast afford it. If you dont manage debtors, they will begin to manage your business as you willgradually lose control due to reduced cash flow and, of course, you could experience an increasedincidence 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 dont let any debts get too large or too old.
  47. 47. 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 immediateattention. 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 peopledislike for many reasons and therefore put on the long finger because they convince themselvesthere is something more urgent or important that demands their attention now. There is nothingmore important than getting paid for your product or service. A customer who does not pay is not acustomer. 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. Dont 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.
  48. 48. 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. Dont 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 toenhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasingfunction 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. Managementof your creditors and suppliers is just as important as the management of your debtors. It isimportant to look after your creditors - slow payment by you may create ill-feeling and can signalthat your company is inefficient (or in trouble!). Remember, a good supplier is someone who will work with you to enhance the future viabilityand profitability of your company.Working capital performance is comprised of a complicated set of interactions within the corporateecosystem that can be viewed through the lenses of Accounts Receivable, Accounts Payable and
  49. 49. Inventory. Understanding these interactions, their performance drivers, and the affect on WorkingCapital requires accurate and timely information. This six-step process in plan has been shown toincrease 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 theorganization and understand that it is going to take a team effort involving members from severaldifferent areas and management levels within your organization. Starting with a project charter toclearly 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, steeringcommittee 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 oninvestment should be fully quantified as well as the metrics that are going to be used to quantifythe return. It is important to have an executive sponsor for a project such as this, as well as a steeringcommittee. The steering committee should be comprised of high level managers from operationsand finance. Areas that should be represented are Inventory, Purchasing, Manufacturing, AccountsReceivable, Sales, Accounts Payable, Information Technology and Treasury. The steeringcommittee is invaluable in helping to implement process changes that otherwise might meet withresistance within the organization.Get the information you requireUnderstanding Working Capital performance starts with data. Information that is accurate and easyto use for analysis is critical in the assessment phase. Information feedback which provides acommon view of targets and achievements across the enterprise is essential in measurement andplays a key role in making certain Process improvements fix. Information needs to serve all of thedirect and indirect members of the team. One barrier to having effective information is the lack of a common customer, vendor, andor product master within the organization..
  50. 50. 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 seemssimple: extend supply payments, reel in customer payment timeframes, minimize inventory andmaximize 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 pricesfor products they supply. An Inventory team might be created to focus on improvement around inventory andsourcing. For improvements around Accounts Payable, a team might be put together involving APand sourcing. Define these teams in the project charter. Each team should have a clear set ofdirectives and should understand what they are trying to achieve. These teams should be directedby the steering committee. Put your teams to work to develop the right strategy. Following aresome 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
  51. 51. Understand relationships between turns, demand, and customer service requirements Implement lean processes and techniquesStep 4: Put your Initiative to work: Being able to put an initiative into motion and realize its benefits is a discipline and takesresources - people, processes, and information. Detailed project plans should be used to makesure that the project stays on track. An experienced project leader is also critical to the success ofthe initiative. Be sure to keep the project‟s objectives realistic and focus on near-term results. Becareful 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 onesystem at a time. It may be that your first initiative might be to tackle one identified defect thatneeds attention, not all of them at once. It might be around billing efficiency or more accurate cashflow projections. Make sure that the initiative under way is being monitored by the steering committee and itis understood that progress is being made. Having information at your fingertips to assist inimproving your business is a critical success factor, but having information that shows progress onthe 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 tomeasure success and validate that improvements are being made. To do this, you must havehistorical baseline information so that you can measure impact of the initiative. Having a timelineof informational metrics is essential. This information should be made available to all members ofall 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 thatthis will be the case and use this step to analyze the issues todetermine how it could be made better. Reflect this in the projectcharter and re-iterate steps 1-5. Commitment means doing this. Usethis step to adjust the strategy and address the issue. Leverage your early success to justify the investment in thefollow-on iterations of the project. View this as a performanceimprovement discipline which never ends. Continue to monitor andmake adjustments to the process where necessary. In order to make sure your process improvements stick, continue to monitor and analyzethe suggested metrics. Keep the improvement initiatives in the forefront of your managers‟ mindsby distributing performance reports. Tie compensation to continuous improvement of the key
  52. 52. measurements. This will ensure that managers and employees stay motivated and contribute tothe continued success of the initiative.Analysis of Working Capital:Working Capital Requirements:Net Working Capital = Current Assets – Current LiabilityParticular 31/03/2009 31/03/2008 31/03/2007Current Asset 12224.85 10353.06 6407.02Current Liability 2318.48 1994.52 1070.46Net Working 9906.37 8358.54 5336.57Capital 14000 12224.85 12000 10353.06 9906.37 10000 8358.54 8000 Current Asset 6407.02 5336.57 Current Liability 6000 Net working Capital 4000 2318.48 1994.52 2000 1070.46 0 31/03/2009 31/03/2008 31/03/2007
  53. 53. Ratio AnalysisRatio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient oftwo mathematical expression “ and as “the relationship between two or more things”. In financialanalysis, a ratio is used as a benchmark for evaluating the financial position and performance of afirm. The absolute accounting figures reported in the financial statement do not provide ameaningful understanding of the performance and the financial position of a firm. An accountingfigure conveys meaningful when it is related to some other relevant information.Standards of comparisonThe ratio analysis involves comparison for a useful interpretation of the financial statement. Asingle ratio in itself does not indicate favorable of unfavorable conditions. It should be comparedwith 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 andsuccessful 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 thesame firm.Types Of RatioLiquidity Ratio Liquidity ratio measure the liquidity of he firm and its ability to meet its maturing short-termobligations. Liquidity is defined as the ability to realize value in money, the most liquid assets. Itrefers to the ability to pay in cash, the obligations that are due. The important ratios in measuringshort term solvency are1. Current Ratio2. Quick RatioCurrent Ratio This ratio is used to assess the short-term financial position of the business concern. In otherwords, it is an indicator of firm‟s ability to meet its short-term obligations. It matches the totalcurrent assets of the firms against its current liabilities. Current assets means the assets are eitherin the form of cash or cash equivalents or can be converted into cash or cash equivalents in theshort run and current liabilities means liabilities repayable in the short run. The ratio is calculatedas follow: Current Assets Current Ratio = -------------------------- Current Liabilities
  54. 54. Generally the ratio of 2:1 is considered satisfactory but this does not mean if the ratio is lower thebusiness 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 thecurrent 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 beconverted in cash within a very short time. The ratio is calculated as follow: Liquid AssetsQuick or Liquid Ratio = ---------------------- Liquid LiabilitiesLiquid assets includes cash, bills receivable, marketable securities and debtors (excluding bad anddoubtful debts) etc. According to accounting principles, a quick ratio of 1:1 has usually beenconsidered favorable.Net Working Capital Turnover Ratio This ratio indicates the number of times a unit invested in working capital produces sales. Inother words, this ratio indicates the efficiency or otherwise in the utilization of short term funds inmaking the sales. The ratio is calculated as follow: SalesNet Working Capital Turnover Ratio = ----------------------------- Net Working CapitalInventory Turnover Ratio This ratio establishes a relationship between the cost of goods sold during a given periodand the average amt of inventory carried during the period. It is usually considered better to workout the turnover against coat of sales since sales include an element of profit, whereas stock isusually at cost.The ratio is calculated as follow: Cost of Good Sold Stock Turnover Ratio = --------------------------- Average stockCost of goods sold is calculated as follow:Cost of goods sold = Opening stock + Purchases + Direct Exp - Closing stock ORCost of goods sold = Sales – Gross profit
  55. 55. Inventory turnover in days Indicates the length of time that it will take to use up the inventory through sales Indicate theliquidity of the inventory in days. On average, you turn over the value of your entire stock every xdays. 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, fewerproduct lines, just in time ordering will reduce average days.Inventory turnover in days = Ending Inventory ------------------------------------- Cost of Goods Sold / 365Debtors Turnover Ratio This ratio establishes a relationship between the net credit sales and average debtors of theyears. Average debtors are calculated by dividing the sum of debtors in the beginning and the endby 2. Credit SalesDebtors Turnover Ratio = ------------------------ Account receivablesAverage Collection Period or Debtors collection Period This ratio deals with the same subject and shows the number of days, for which normallysales 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 ormonth in a year by debtor ratio 365 or 52 or 12 Average Collection Period = ------------------------ Debtor RatioCreditor Turnover Ratio This ratio establishes a relationship between the net credit Purchase and average Creditorsof the years. Average debtors are calculated by dividing the sum of debtors in the beginning andthe end by 2. Credit PurchaseCreditor Turnover Ratio = -------------------------- Account PayablesAverage Payment Period or Creditors collection Period This ratio deals with the same subject and shows the number of days, for which normallyPurchase remain unpaid. It indicates the extent to which the debts have been paid in time. For
  56. 56. calculation of average payment period, one should divide the number of days or week or month ina year by creditor ratio 365 or 52 or 12Average Payment Period = ------------------------ Creditor RatioStock to Working Capital Ratio This ratio indicated the efficiency between stock and working capital. This ratio is calculatedas follows Closing Stock Stock to Working Capital Ratio = ----------------------------------- Net Working CapitalLong-term Debt to Net Working Capital Provides insight into the ability to pay long term debt from current assets after payingcurrent liabilities Long-term Debt ------------------------------------------- Current Assets - Current LiabilitiesCash Turnover Measures how effective a company is utilizing its cash. Net Sales Cash Turnover = -------------------------- CashOperating Cycle Indicates the time between the acquisition of inventory and the realization of cash fromsales of inventory for most companies the operating cycle is less than one year, but in someindustries it is longer.Operating Cycle =Accounts Receivable Turnover in Days+ Inventory Turnover in DayReturn on Investment (DU PONT Approach) Return on investment is one of the most successful yet simple techniques ever conceived toaid both decision making and performance evaluation. This technique was first developed by DUPONT Company for making analysis and controlling financial performance. It brings together the
  57. 57. activity ratio and profit margin as sales and shows how these ratios interact to determineprofitability of asset. This ratio is calculated as follows Sales X Net Profit after TaxReturn on Investment (ROI) = -------------- ---------------------- Total Asset SalesFixed Assets Turnover Ratio This ratio shows how well the fixed assets are being utilized. If compared with the previousperiod, it indicates whether the investment in fixed assets has been judicious or not the ratio iscalculated as follow: In computing the fixed assets turnover ratio, the fixed assets are generally taken at the writtendown value at the end of the year. It may also be taken at the original cost or at the present marketvalue depending on the object of comparison. Often this ratio is also calculated by taking cost ofsales instead of sales figures. Net SalesFixed Assets Turnover Ratio = ---------------- Fixed Assets
  58. 58. Financial Statement : Monnet Ispat & Energy Ltd Profit & 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 40.21Administrative ,selling & others 664.33 519.13 360.52ExpLoss 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 231.04 280.44 125.82taxationLess: 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 57.20 0 0Redemption ReserveDividendProposed Dividend on Equity 239.79 123.11 0ShareInterim Dividend on Equity Share 0 119.98 154.51Corporate Dividend Tax 40.87 41.31 21.67Balance Carried To Balance 6036.55 4434.25 3224.02
  59. 59. Sheet 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 Ltd Balance Sheet As on (Rs. In Million ) Mar-2009 Mar-2008 Mar-2007A Sources Of Funds: 1.Shareholder‟s Funds a. Share Capital 479.65 479.97 34.42 b. Share Warrants & 0 209.25 0.00 Subscription c. Reserve & Surplus 12383.00 10198.36 5365.95 Shareholder‟s Funds 12862.65 10887.58 5709.37 2.Loan funds: a. Secured loan 10168.54 9456.67 5241.43 b. 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 2395.68 1747.97 1303.27 Depreciation c. Net Block 11268.85 10373.01 6999.30 Capital Work in Progress 3096.63 2661.19 3589.45 14365.48 13.034.2 10588.75 2. Investment 2156.28 1384.07 448.43 3.Current Assets ,Loan & Advance: a. Inventories 1844.56 2217.07 1219.75 b. Sundry Debtors 1097.32 1050.93 462.76 c. Cash &Bank Balance 2455.85 3708.34 2896.94 d. Loan & Advance 6827.11 3376.72 1827.59 12224.85 10353.06 6407.02 Less: Current Liability & Provisions:` a. Current liability 1719.14 1452.52 883.16 b. Provisions 599.34 542.00 187.30 Total current Liability: 2318.48 1994.52 1070.46 Net working Capital: 9906.37 8358.54 5336.57 Deferred Tax Assets /Liability: (1139.52) (908.48) (628.04)
  60. 60. Miscellaneous Expenditure 825.84 0 0 Total Application of Funds 26114.45 21868.32 15745.70Calculated Different Types of RatioTypes of ratio 2009 2008 2007Liquidity RatioCurrent Ratio 5.2 5.1 5.9Quick Ratio 4.4 4.0 4.8Net Working capital 0.37 0.38 0.33Leverage RatioDebt ratio 0.5 0.5 0.6Debt-Equity Ratio 1.03 1.00 1.75Coverage Ratio 4.83 6.30 7.39Activity RatioDebtor Turnover 15.59 12.55 15.95Creditors Turnover 9.38 9.00 7.40Net asset turnover 2.25 2.16 1.82Total asset turnover 0.85 0.82 0.61Working Capital Turnover 1.82 1.74 1.51Profitability RatioNet 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 RatioReturn 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
  61. 61. Debt ratioParticulars 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 30 26.11 25 21.86 20 15.74 Total Debt(in billion) 15 13.25 Capital Debt(in billion) 10.98 10.03 Ratio 10 5 0.5 0.5 0.63 0 2009 2008 2007Analysis or Comment: Dept ratio is Generally used the long term solvency of the firm‟s ,in the year2007 dept ratio is0.63 it means lender have contributed more funds than owners lender contribution is 1.70 times ofowner 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
  62. 62. 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 14 13.25 12.86 12 10.98 10.88 10.03 10 8 Total Debt(in billion) 5.7 Net Worth(in billion) 6 Ratio 4 1.75 2 1.03 1 0 2009 2008 2007Analysis or Comment : It is clear that the total dept ratio is more because of lender‟s contribution is more fundsthan the owner funds .in 2007 dept ratio is 1.75 it means company rises the more fund from thelender in this year but in 2008, 2009 this will be reduce ,if the company rise the more funds fromthe lender that time company has to pay more interest to the lender, either company making theprofit or loss
  63. 63. Coverage RatioParticulars 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 7.68 8 7.28 7 6 4.87 5 EBIT(in billion) 4 3.41 Interest(in billion) 3 2.55 Ratio 1.92 2 0.7 1 0.35 0.25 0 2009 2008 2007Analysis or Comment: Coverage ratio is used to describe the firm‟s dept servicing capacity .and this ratio alsoindicating the number of times the interest charges are covered funds that ordinarily available fortheir payment. In 2007,2008 7.68 & 7.28 company‟s ratio is higher. but the higher ratio indicate thatthe firm‟s very conservative in using the dept, in the year 2009 ratio 4.87 will be very low this ratiowill indicate the excessive use of dept or inefficient operation.
  64. 64. Debtor Turnover RatioParticulars 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 18 17.1 15.65 16 16 13.19 14 12.56 12 10 Credit sales(in billions) 7.38 Average Debtors(in billions) 8 Ratio 6 4 2 1.09 1.05 0.46 0 2009 2008 2007Analysis or Comment: Debtors turnover ratio indicate the number of times debtors turnover each year , Generallyhigher the debtors turnover is more efficient as compare to lower .Monnet Ispat & Energy Ltd showthe higher debtors turnover in the year 2007, it is 16.00 times it means company‟s sales areincreases but in the year 2008 this will be reduce 12.56 times, because of recessions but after thatit will increase 15.65 times in the year 2009 and this will continue in 2010 also,
  65. 65. Creditors Turnover RatioParticulars 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 13.49 14 12 10.88 9.9 10 9 7.45 8 Credit purchase(in billions) 5.52 Average Creditors(in billions) 6 Ratio 4 1.36 1.2 2 0.74 0 2009 2008 2007Analysis or Comment: Creditors Turnover Ratio is similar to the debtors’ turnover ratio. It compares creditors with the totalcredit purchases. In the year 2007ratio is 7.45 it means company purchasing power is more and this willcontinue in the year 2008,2009Respectively 9.00,& 9.9, company con grow their business very efficient way
  66. 66. Net asset TurnoverParticulars 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 25 22.24 20 18.04 15 Sales(in billions) 9.9 9.7 Net Assets(in billions) 10 8.35 Ratio 5.33 5 2.24 2.16 1.81 0 2009 2008 2007Analysis or Comment: Net asset turnover ratio .it means a firm‟s ability to produce a large volume of sales for a givenamount of net asset. It is most important aspect of its operating performance, in the 2007 ratio willbe 1.81 it means company producing large volume of sales and this will be continue in the year2008,2009Respectively 2.16,& 2.24 , this will be more effective to the company to produce thelarge amount of sales
  67. 67. Total Assets Turnover ratioParticulars 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 30 26.11 25 22.24 21.86 20 18.04 15.74 Sales(in billions) 15 Total Assets(in billions) 9.7 Ratio 10 5 0.85 0.82 0.61 0 Category 1 Category 2 Category 3Analysis or comment: This ratio show‟s the firm‟s ability in generating sale from all the financial resourcescommitted 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,