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Sumit Rawat Fsa

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This was a part of end term assignment in the financial accounting class.

This was a part of end term assignment in the financial accounting class.

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    Sumit Rawat Fsa Sumit Rawat Fsa Document Transcript

    • FINANCIAL STATEMENT ANALYSIS OF NATIONAL ALUMINIUM COMPANY LIMITED (A government of India Enterprise) A Navratna Company BSE Code: 532234, Group A NSE Symbol: Nationalum Corporate Office: Nalco Bhawan Plot No P/1 , Nayapalli , Bhubaneswar , Orissa , India – 751 SUMIT RAWAT PGDM B10 / 86 NALCO FINANCIAL STATEMENT ANALYSIS Page 1
    • BACKGROUND INDUSTRY Aluminium Industries in India is one of the leading industries in the Indian economy. The India aluminum industry falls under the category of non iron based which include the production of copper, tin, brass, lead, zinc, aluminum, and manganese. The main operations of the of the India aluminum industry is mining of ores, refining of the ore, casting, alloying, sheet, and rolling into foils. At present, Hindalco and Nalco are one of the most economical in the production of aluminum in the world. For the sustenance of the growth the aluminum industry in India has to develop research and development units to assist the production and improve on the quality measures to keep a stringent quality control. The India aluminum Metal Industries sector in the previous decade experienced substantial success among the other industries. The India aluminum industry is developing fast and the advancement in its technologies is boosting the growth even faster. The utilization of both international and domestic resources was significant in the rapid development of the India aluminum industry. This rapid development has made the India aluminum industry prominent among the investors. The India aluminum industry has a bright future as it can become one of the largest players in the global aluminum market as in India the consumption is fairly low, the industry may use the surplus production to cater the international need for aluminum which is used all over the world for several applications such as aircraft manufacturing, automobile manufacturing, utensils, etc. COMPETITION In India aluminium industry is an oligopoly market. NALCO faces tough competition mainly with: Hindalco (Hindalco Industries Ltd) Indal (Indian Aluminum Co Ltd) Balco (Bharat Aluminum Co Ltd) Malco (Madras Aluminum Co Ltd The index for Indian primary aluminium industry shows that the aluminium market is evenly distributed among the top three players namely ; NALCO, HINDALCO, STERLITE INDUSTRIES (BALCO and MALCO). NALCO FINANCIAL STATEMENT ANALYSIS Page 2
    • FIRM Incorporated in 1981, as a public sector enterprise of the Government of India, National Aluminium Company Limited (Nalco) is Asia's largest integrated aluminium complex, encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail and port operations. Commissioned during 1985-87, Nalco has emerged to be a star performer in production, export of alumina and aluminium, and more significantly, in propelling a self-sustained growth. The firm had zero long term debt as on 15 June `09 and a rating of LAAA. The firm is investing in nuclear projects as an independent power producer. They are planning to enter into copper mining, copper smelting and coal mining in india and abroad. STRATEGY NALCO adheres to good corporate practices and emphasizes on commitment to values and ethical business conduct. It believes in adopting the best practices laid down in dif ferent statutes and goes beyond adherence of statutory framework to bring transparency, accountability and equity in all facets of its operation. It perceives Corporate Governance as an endeavour for focusing on its resources, strengths and strategies. The Board redefines its role under the aegis of Corporate Governance as trustees of the shareholders as well as other stakeholders and thrives for continuous creation and enhancement of their wealth. HISTORY 7 Jan 1981- National Aluminium Company Limited (NALCO), a public sector enterprise of the Government of India was incorporated. A Navratna status company is Asia's largest integrated aluminium complex, encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail and port operations in both domestic and also export. Commissioned during 1985-87, Nalco has emerged to be a star performer in production and export of alumina and aluminium, and more significantly, in propelling a self-sustained growth. Nov 1985 - At Panchpatmali hills of Koraput district in Orissa, the company started its Bauxite Mines. Sep 1986 - In the picturesque valley of Damanjodi in Koraput district, the company formed the Alumina Refinery. Early 1987 - Aluminium Smelter of the company at Angul in Orissa was came to existence. NALCO FINANCIAL STATEMENT ANALYSIS Page 3
    • Jan, Sep 1988 - The Company had commenced the Alumina export and Aluminium export. 1997 - NALCO made a technical collaboration with Aluminum Pechiney (AP), France, the largest integrated aluminium company in Asia and also in the same year, the company had opened a stockyard at Bhiwandi in Thane district. 1998 - NALCO bagged the top export award of Chemical and Allied Products Export Promotion Council(Capexil). 1999 - The Company established new records in bauxite mining, alumina production and exports. 2001 - NALCO made its footprint in detergent business. 2000-2002 NALCO received the Niryat Shree award for two straight years, 2000-01 and 2001-02 from the Federation of Indian Export Organisation (FIEO) for excellence in exports. Revenue Recognition policies Sales include excise dut y and are net of rebates and price concessions. Sales in the domestic market are recognized at the time of despatch of materials to the buyers. Export sales are recognized on issue of bill of lading. Claims and interest receivables are accounted for in the Profit and Loss Account based on certainty of their realization. Export incentives in the form of duty credit on exports made during the year, under Duty Entitlement Pass Book (DEPB) scheme are accounted for on accrual basis af ter providing for expected short fall in realization based on last sale. Expenses Timing Income/ Expenditure relating to prior period and pre-paid expenses not exceeding Rs.1 lakh in each case is treated as income/ expenditure of the current year. Expenses on account of new potential projects incurred till Investment Approval are charged to revenue. Expenditure incurred thereafter in case of successful projects are accounted for under Capital Work-in-Progress and capitalized subsequently. NALCO FINANCIAL STATEMENT ANALYSIS Page 4
    • Accounting policies The financial statements are prepared under historical cost convention on accrual basis of accounting, in accordance with the generally accepted accounting principles, accounting standards issued by the Institute of Chartered Accountants of India, and the relevant provisions of the Companies Act, 1956. Inventory valuation Raw materials, stores and spares are valued at lower of monthly weighted average cost net of CENVAT/VAT credit wherever applicable or net realizable value. Shortage of coal up to 1% of receipt quantity is treated as normal loss and beyond 1% is treated as abnormal loss. Work in process is valued at lower of cost and net realizable value. Cost is ascertained on the basis of annual average cost of material, appropriate share of labor and related overheads. Finished goods are valued at lower of cost and net realizable value. Cost is determined on the basis of material cost plus appropriate share of labor, related overheads and duties. Intermediary products viz. Anodes are valued at cost, anode butts and anode rejects are valued at lower of past realized value or 45% of direct material cost. Scrap of various nature is valued at estimated net realizable value. Inventory of stores and spares, other than insurance spares identified as not moved for more than 5 years is valued at 5% of the cost. R & D Accounting Research expenditure is charged to Profit & Loss Account in the year in which incurred. Development expenditure except of capital nature is charged to Profit & Loss Account in the year incurred af ter setting of f of incidental income, if any. NALCO FINANCIAL STATEMENT ANALYSIS Page 5
    • Depreciation and Amortization Depreciation on fixed assets is provided on straight-line method at the rates and manner prescribed under Schedule XIV of the Companies Act, 1956 except in case of certain assets where depreciation at higher rates is provided based on their estimated remaining useful life, evaluated on the basis of technical estimate made periodically :- Earth work portion of: a) Red mud pond at Alumina Refinery b) Ash pond at Alumina Refinery c) Ash ponds at Captive Power Plant Certain assets at Port Facilities are depreciated at rates calculated on the basis of balance lease period of land belonging to the Port Authority on which these assets are installed. Assets costing Rs.5,000/- or less individually are depreciated fully in the year in which they are put to use. Assets on land not owned by the Company are depreciated over a period of five years. Cost of leasehold land including development expenses thereon is amortized over the period of lease. However, where lease agreement is yet to be signed, such expenses are amortized over a period of 20 years commencing from the year of commercial operation. Classification of plant and machinery into continuous and non-continuous is made on the basis of technical opinion and depreciation provided accordingly. Taxes Tax expense or benefit is recognized on timing difference being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. NALCO FINANCIAL STATEMENT ANALYSIS Page 6
    • Analysis of Balance Sheet Fixed Assets The company’s fixed assets increased from 9137.26 Cr in mar’08 to 9899.84 Cr in mar’09. Inventories The inventories rose from 686.65 Cr in mar’08 to 841.9 Cr in mar’09. Current Assets The company saw a decline in current assets from 5041.33 Cr in mar’08 to 4528.8 Cr in mar’09. Total current Liabilities The company’s net liabilities were noticed to rise from 1540.88 Cr in mar’08 to 1933.24 Cr in mar’09. Working capital The excess of current assets over current liabilities is working capital. 4000 3755.47 3500 3500.45 3000 Value in Rs Crores 2500 2595.57 2356.93 2000 working Capital 1500 1000 1004.65 500 0 126.23 2004 2005 2006 2007 2008 2009 The company has seen a steep rise in working capital in 2004-2007 after which it started declining. It means that the company has been in good health earlier to have sufficient funds to meet its short term obligations. NALCO FINANCIAL STATEMENT ANALYSIS Page 7
    • Trend Analysis of Balance Sheet 2008 2007 2006 2005 2004 SOURCES OF FUNDS : Share Capital 100 100 100 100 100 Reserves Total 264.4341 226.5455 168.6296 130.2388 100 Total Shareholders Funds 236.2318 204.8415 156.8589 125.0525 100 Total Liabilities 201.1863 174.4529 133.5885 106.5007 100 APPLICATION OF FUNDS : Gross Block 112.9157 111.6447 110.7397 108.5468 100 Less : Accumulated Depreciation 133.5037 126.8008 119.748 110.8885 100 Less:Impairment of Assets 0 0 0 0 100 Net Block 90.4785 95.09668 101.0716 106.0336 100 Lease Adjustment 0 0 0 0 100 Capital Work in Progress 295.0173 106.2009 29.33758 26.10888 100 Investments 57.515 0 0 0 100 Current Assets, Loans & Advances Inventories 142.9092 132.1512 122.9562 110.1107 100 Sundry Debtors 59.32121 33.38224 28.77543 90.7766 100 Cash and Bank 3575.092 3747.997 2230.287 767.802 100 Loans and Advances 251.2911 199.8707 156.1484 140.245 100 Total Current Assets 508.9631 502.1736 332.8669 182.8391 100 Less : Current Liabilities and Provisions Current Liabilities 240.6202 159.1626 110.8509 112.479 100 Provisions 70.3445 109.5417 105.1896 60.09482 100 Total Current Liabilities 178.2848 140.9971 108.7784 93.30194 100 Net Current Assets 2773.073 2975.101 1867.171 795.8885 100 Deferred Tax Assets 100.2135 110.8721 78.78141 83.41271 100 Deferred Tax Liability 99.63779 101.3967 102.8053 104.8235 100 Net Deferred Tax 99.58032 100.4508 105.2034 106.9608 100 Total Assets 201.1863 174.4529 133.5885 106.5007 100 Contingent Liabilities 318.2653 365.8329 137.2167 110.4419 100 Current Assets have shown a rise over the past few years. Though net current assets have declined as compared to the previous year. The company has shown a rise in inventories held which is a indicator of less business. The cause may be the economic slowdown. The company’s reserves are improving year on year, which is a good indicator of financial strength. NALCO FINANCIAL STATEMENT ANALYSIS Page 8
    • Analysis of income statement Sales The company’s sales figures increased from 4988.8 Cr in year ending mar’08 to 5094.52 Cr in year ending mar’09. Total income The company’s total income rose from 5575.22 Cr in mar’08 to 5616.8 Cr in mar’09. Total Expenditures The company’s total expenditures increased from 3083.24 Cr in mar’08 to 3703.45 Cr in mar’09. Profit Before Tax It decreased from 2491.98 Cr as on mar’08 to 1913.35 Cr as on mar’09. Net Profit It decreased from 1652.29 Cr on mar’08 to 1276.91 Cr on mar’09. Net Profit Ratio It is the % of net profit over net sales. = (net profit / net sales) * 100 = (1276.91/5094.52 ) * 100 = 25.06 % This figure in percentage means that the company earned 25 paise in profits for every rupee of goods sold. NALCO FINANCIAL STATEMENT ANALYSIS Page 9
    • Trend Analysis of Income Statement 2008 2007 2006 2005 2004 INCOME : Sales Turnover 164.1387 194.568 157.872 132.2259 100 Excise Duty 217.4399 256.5776 198.199 142.7487 100 Net Sales 160.3495 190.1596 155.0051 131.4778 100 Other Income 264.2177 191.071 122.2585 114.4569 100 Stock Adjustments 210.6736 125.1813 618.9637 268.4974 100 Total Income 167.0347 190.03 154.2786 130.8004 100 Raw Materials 140.4166 136.3167 127.3836 108.6055 100 Power & Fuel Cost 153.0827 131.0464 144.3423 116.8895 100 Employee Cost 213.9824 152.0515 130.9945 112.1266 100 Other Manufacturing Expenses 146.1065 138.7491 121.3451 102.8545 100 Selling and Administration Expenses 133.0255 120.6379 113.5055 109.1009 100 Miscellaneous Expenses 646.5067 336.3444 343.5427 289.9083 100 Total Expenditure 160.286 137.1572 133.8863 112.9571 100 Operating Profit 174.3236 247.134 176.3027 150.0717 100 Interest 51.81879 38.25296 29.05056 73.04355 100 Gross Profit 184.1652 263.9148 188.1325 156.2598 100 Depreciation 64.00128 72.20464 85.89058 104.9794 100 Profit Before Tax 234.2975 343.896 230.7876 177.654 100 Tax 297.8569 448.4654 312.8083 212.8621 100 Deferred Tax -14.4215 -46.9853 -29.1146 115.3178 100 Reported Net Profit 221.2621 322.9559 211.8611 167.4655 100 Extraordinary Items 35 -320 -11370 -230 100 Adjusted Net Profit 221.2115 322.7816 208.7205 167.3577 100 P & L Balance brought forward 1146.667 333.0159 494.6032 215.873 100 Appropriations 225.1881 317.9292 213.6087 167.1019 100 P & L Balance carried down 226.3235 531.1765 154.2647 229.1176 100 Dividend 150.0039 187.5019 125.0039 100 100 Equity Dividend % 150 187.5 125 100 100 Earnings Per Share-Unit Curr 222.3239 327.8134 215.3705 170.2653 100 Book Value-Unit Curr 236.2202 204.8191 156.8513 125.0386 100 The company sales, profit after tax, operating profit, have decreased in year 2008. NALCO FINANCIAL STATEMENT ANALYSIS Page 10
    • Analysis of Trend Sales and Net Income 7000 6000 5955.59 Values in Rs Crores 5000 4854.59 5021.975121.1 4000 4117.74 Net sales 3000 3131.89 Net income 2597.73 2263.662246.51 2381.38 2000 1990.61 1562.2 1631.52 1234.84 1276.91 1000 737.37 511.5 655.83 409.35 520.92 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Dividends Dividend over past ten years 600 500 dividend ( in Rs crores) 483.23 400 386.59 386.59 322.16 321.16 300 257.73 257.73 257.72 257.72 200 128.87 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NALCO FINANCIAL STATEMENT ANALYSIS Page 11
    • Earnings per share of common stock It is equal to the ratio of net income to the average number of common shares outstanding. 40 EPS over past ten years EPS value in Rs Crores 35 35.83 30 25 24.3 23.54 20 19.75 18.61 15 10 9.77 10.93 7.66 7.32 6.35 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Analysis of Cash Flow Statement Quality of Earning It is the ratio of the operating cash flow to the net income (PAT). OCF OCF Vs Net income Analysis 3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 The quality of earning has been consistently positive throughout from 2000 to 2009 which indicates that the company has been doing business fairly well in the past. NALCO FINANCIAL STATEMENT ANALYSIS Page 12
    • Cash Flow Analysis Cash Flows from Operating,Financing & Investing Activities 3000 2000 Cash flows in Rs Crores 1000 OCF ICF 0 FCF 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -1000 -2000 -3000 NALCO has shown positive operating cash flow throughout the period considered. Investing and the financing cash flows have been negative in the period of study. This suggests that the company is mature and robust enough to sustain a negative cash flow from investing and financing activities. DuPont Analysis NALCO HINDALCO 2009 2008 2009 2008 PBDIT/Sales % 37.828098 49.44255 16.81646 9.065568 Sales/Net Assets 1.962775 1.425188 0.56272 0.742022 PBDIT/Net Assets 0.8474439 0.784953 0.112989 0.21039 PAT/PBDIT % 0.5784097 0.593749 0.942388 0.432196 ROE 13.647847 19.69285 15.21797 15.76852 There is a dip in profit margin for Nalco as compared with Hindalco whose PBDIT/Sales ratio has increased over the past financial year. NALCO FINANCIAL STATEMENT ANALYSIS Page 13
    • Though there is a low profit margin the company has effectively used the assets in the business which can be seen by analyzing sales/net assets ratio. Hindalco has decreased in this ratio. RoE for Nalco is decreasing due to less net income as compared to the stockholder’s equity . For hindalco it is almost the same for this fiscal year. Analysis of Key Ratios The following ratios are calculated for comparison of NALCO’s key ratios with that of its competitor HINDALCO and hence with the industry. NALCO HINDALCO INDUSTRY Profitability Ratios 2009 2008 2009 2008 2009 2008 gross profit margin % 30.98 41.82 12.48 14.02 25.98567 26.35366 net profit margin % 22.68 29.27 11.87 14.56 17.65221 18.65106 operating margin % 36.2 47.28 16.03 17.1 - - PBIDTM% 28.84 38.59 12.07 13.64 25.09 25.29 CPM% 27.25 34.79 13.76 14.31 19.87 20.26 liquidity ratios current ratio 1.75 2.31 1.2 1.08 1.37 1.46 quick ratio 1.4 1.97 0.53 0.88 1.158788 1.339209 debt equity ratio - - 0.35 0.48 0.41 0.34 Turnover ratios inventory turnover ratio 11.01 13.47 5.16 4.32 5.05 4.94 asset turnover 0.53 0.56 1.37 1.53 1.12 1.25 Though the ratio’s are generally decreasing in the recent fiscal year but they are better than the competitor’s and the industry averages. The downfall is may be due to the economic crisis which had affected the industry. Following are few observations: The company is way above the industry gross profit margin as well as its competitor. The operating margin is high and above the competitor’s figures. The company has lower asset turnover so they are utilizing current assets in making profit. We suggest the investors to BUY shares in the company for a long term growth. NALCO FINANCIAL STATEMENT ANALYSIS Page 14