Financial analysis of_SAIL

A STUDY ON FINANCIAL PERFORMANCE OF STEEL AUTHORITY OF INDIA LIMITED

ABOUT INDIAN STEEL INDUSTRY

HISTORY OF THE INDUSTRY:

The Indian Steel industry is almost 100 years old now. Till 1990, the Indian steel

industry operated under a regulated environment with insulated markets and large scale

capacities reserved for the public sector. Production and prices were determined and

regulated by the Government, while SAIL and Tata Steel were the main producers, the

latter being the only private player. In 1990, the Indian steel Industry had a production

capacity of 23 MT. 1992 saw the onset of liberalization and the Indian economy was

opened to the world. Indian steel sector also witnessed the entry of several domestic

private players and large private investments flowed into the sector to add fresh

capacities.

Steel Industry in India is on an upswing because of the strong global and domestic

demand. India's rapid economic growth and soaring demand by sectors like

infrastructure, real estate and automobiles, at home and abroad, has put Indian steel

industry on the global map. According to the latest report by International Iron and Steel

Institute (IISI), India is the seventh largest steel producer in the world.

The origin of the Indian steel industry can be traced back to 1953 when a contract

for the construction of an integrated steelworks in Rourkela, Orissa was signed between

the Indian government and the German companies Fried Krupp und Demag AG. The

initial plan was an annual capacity of 500,000 tonnes, but this was subsequently raised to

1 million tonnes. The capacity of Rourkela Steel Plant (RSP), which belongs to the SAIL

(Steel Authority of India Ltd.) group, is presently about 2 million tonnes. At a very early

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stage the former USSR and a British consortium also showed an interest in establishing a

modern steel industry in India. This resulted in the Soviet-aided building of a steel mill

with a capacity of 1 million tonnes in Bhilai and the British-backed construction in

Durgapur of a foundry which also has a million tonne capacity.

The Indian steel industry is organized in three categories i.e., main producers,

other major producers and the secondary producers. The main producers and other major

producers have integrated steel making facility with plant capacities over 0.5 MT and

utilize iron ore and coal/gas for production of steel. The main producers are Tata Steel,

SAIL, and RINL, while the other major producers are ESSAR, ISPAT and JVSL. The

secondary sector is dispersed and consists of:

(1) Backward linkage from about 120 sponge iron producers that use iron ore and non-

coking coal, providing feedstock for steel producers;

(2) Approximately 650 mini blast furnaces, electric arc furnaces, induction furnaces and

energy optimizing furnaces that use iron ore, sponge iron and melting scrap to produce

steel; and

(3) Forward linkage with about 1,200 re-rollers that roll out semis into finished steel

products for consumer use.



PRESENT STATUS OF THE STEEL INDUSTRY:

1. Indian economy growing @ 8 to 9 %, is one of the fastest growing economies in the

world.

2. Industrial prodn. Showing encouraging trends. Index of industrial production for

Capital goods is growing @ 8.4% CAGR and growth in index for consumer

durables was @10.5% CAGR during 2005-06.

3. The 10th plan investment in infrastructure has been envisaged at around Rs.880,550

crores.

4. The major sector wise anticipated investment is likely to be Rs.292000 crores in

Power, Rs.145000 crores in Roads & Bridges, irrigation Rs. 111000 crores.

5. During 11th plan (2007-08 to 2011-12), the projected investment towards

infrastructure is likely to be Rs. 2027000 crores, an increase of 180% over 10th

plan.

6. Per capita steel consumption at 35 kg low as compared to world average of 150 kg.

And 300kg for china.

7. National Steel Policy, as formulated by Indian Ministry of Steel envisages the

following -

i. Crude steel production of 110 million tones by 2019-20 at CAGR of 7.1% from

2004-05.

ii. The demand of steel by 2020 is likely to be 90 million tones at CAGR of 6.9%

from 04-05.



iii. Steel exports by 2020 are likely to grow at CAGR of 13.3% from 04-05 to 26

million tones.

iv. Steel imports to the country by 2020 shall grow at CAGR of 7.1% from 04-05 to

6 million tones.

8. Lot of steel projects both Brownfield and Greenfield likely to come up and are in

various stage of execution.

9. As per the news paper reports (Eco. Times dt.14-11-07), Steel Minister has

projected India's steel production to be around 124 million tones by 2012 and a

capacity of around 275 million tones by 2019-20.

10. During the year 06-07, India produced around 49 million tones of finished steel

which was higher by 11 % over 05-06.

11. Imports at 4.1 million tones during 06-07 were higher by 6.5%. Exports at 4.7

million tones grew by 6.1% during 06-07.

12. During 05-06 Iron ore exports at 84 million tones was almost at the previous

year's level of 87 million tones.

13. During April - Sept.'07 following has been the performance-

i. Crude steel prodn. at 25.7 million tones, exhibited a growth of 5 %

over corresponding period last year

ii. Exports at 2.6 million tones shows an increase by around 8% over the

same period of last year.

iii. Imports were around 3.2 million tones which was an increase by 63%

over April-Sept'06.



14. Due to infrastructure focus, production of long products is gradually increasing

and ratio of flat to long products is narrowing.

15. During Ap-Sept'07 non flat steel produced at 12.4 million tones showed an

increase of around 9% over April-Sept'06.

16. In case of flat products prodn. during April-Sept'07 at 12.2 million tones was

almost at same level of last year.

17. Apparent Consumption of steel during April-Sept'07 was 22 million tones which

was an increase by 11 % over April-Sept'06. While long products (excl. semis) at

12.3 million tones registered a growth of 9%, the flat products consumption at

12.5 million tones indicated an increase of 12%.

18. With due focus on infrastructure development and strong economic indicators, the

demand for steel in India shall continue to remain robust.



WAY FORWARD FOR THE INDIAN STEEL INDUSTRY:

"We still have a number of persons in our country in SAIL, TISCO and other big and

small steel plants who have the capabilities. They have the will to excel and transform the

country, given a long term vision."

"We should be ready to compete in outside markets…..If our steel industry gears up in

about 3 to 4 years, Indian steel can be both in Indian and foreign markets. Our vision

should be towards this."

- Indian 2020: A vision for the new millennium by APJ Adbul Kalam and YS Rajan

The Government envisions India becoming a developed nation by 2020 with a per capita

GDP of $1540. For a nation that is economically strong, free of the problems of

underdevelopment and plays a meaningful role in the world as befits a nation of over one

billion people, the groundwork would have to begin right now. The Indian Steel Industry

will be required and is willing to play a critical role in achieving this target.

With abundant iron ore resources and well-established base for steel production in

the country, steel is poised for growth in the coming decades. Production has increased

from 17 MT in 1990 to 36 MT in 2003 and 66 MT is targeted for 2011. While steel will

continue to have a stronghold in traditional sectors such as construction, housing, ground

transportation, special steels will be increasingly used in hi-tech engineering industries

such as power generation, petrochemicals, fertilisers etc. Steel will continue to be the

most popular, versatile and dominant material for wide ranging applications. While India

may not become a leader in world steel market, it can become a powerful force.



To help the Indian Steel Industry achieve its potential and play a meaningful role

in India’s development some steps need to be taken:

 Steel is yet to touch the lives of millions of people in India. Per capita

consumption of steel in India is only 29 kg and has to go a long way to

reach consumption levels of around 400 kg in developed countries like

USA and world average of 140 kg.

 There is a need to continue the current thrust on infrastructure related

activities and extend them to rural India. Rural Indian today presents a

challenge for development of the country and the opportunity to increase

usage of steel in these areas through projects such as rural housing etc.

 Current shortage of inputs has pushed up the costs for the steel industry.

Government should ensure that quality raw material such iron-ore and

coke are available to the industry. With Ministry of Steel targeting an

output of 100 MT of steel by 2020 there is an urgent need to develop raw

material resources for inputs like iron-ore and coal within or outside the

country. Countries like Japan have already taken similar steps to safeguard

their industries.

 Adequate enabling infrastructure such as power, ports, roads, rail transport

is pre-requisite for the Indian steel industry to remain competitive.

 Government should not regulate prices and free market forces should

prevail. Intervention by the Government is only a short-term solution to

the issue of steel prices in the country. Once left alone, market dynamics



will automatically ensure price corrections and determine the optimum

price of steel.

 The Indian steel Industry is amongst the least protected in the world.

While developed countries have put numerous tariff and non-tariff barriers

on steel exports from the country, the domestic industry is exposed to

cheaper imports from competing nations. As in case of other important

industries, the Government should give reasonable levels of protection to

the domestic steel industry, which is just starting to get back on its feet.

 Industry should be allowed to have a fair return on investment and

contribute to the overall health of the Indian manufacturing segment. The

steel industry has invested a capital of over Rs 90, 000 crores. CRISIL in a

recent study has concluded that given the large exposure that banks and

financial institutions have to the steel industry.

 Today, Indian producers employ world-class standards of technology.

Steel from Indian finds growing acceptability in international markets. But

despite this India’s share in world trade steel is a miniscule 2%. Given the

capabilities of the Indian steel industry there is tremendous scope to

increase this share further. While the steel industry will continue servicing

the domestic demand there is a lot of untapped export potential with the

industry. The Government, in line with EXIM policy 2002-07, should take

steps to make Indian exports more competitive.



STRUCTURAL WEAKNESSES OF INDIAN STEEL INDUSTRY:

• Although India has modernized its steelmaking considerably, however, nearly 6%

of its crude steel is still produced using the outdated open-hearth process.

• Labour productivity in India is still very low. According to an estimate crude steel

output at the biggest Indian steelmaker is roughly 144 tonnes per worker per year,

whereas in Western Europe the figure is around 600 tonnes.

• India has to do a lot of catching in the production of stainless steel, which is

primarily required by the plant and equipment, pharmaceutical and chemical

industries.

• Steel production in India is also hampered by power shortages.

• India is deficient in raw materials required by the steel industry. Iron ore deposits

are finite and there are problems in mining sufficient amounts of it. India's hard

coal deposits are of low quality.

• Insufficient freight capacity and transport infrastructure impediments too hamper

the growth of Indian steel industry.

STRENGTHS OF INDIAN STEEL INDUSTRY

• Low labour wage rates.

• Abundance of quality manpower.

• Mature production base.

• Positive stimuli from construction industry.

• Booming automobile industry.



ABOUT STEEL AUTHORITY OF INDIA

HISTORY OF THE SAIL:

THE PRECURSOR: SAIL traces its origin to the formative years of an emerging nation

- India. After independence the builders of modern India worked with a vision - to lay the

infrastructure for rapid industrialization of the country. The steel sector was to propel the

economic growth. Hindustan Steel Private Limited was set up on January 19, 1954. The

President of India held the shares of the company on behalf of the people of India.

EXPANDING HORIZON (1959-1973):

Hindustan Steel (HSL) was initially designed to manage only one plant that was

coming up at Rourkela. For Bhilai and Durgapur Steel Plants, the preliminary work was

done by the Iron and Steel Ministry. From April 1957, the supervision and control of

these two steel plants were also transferred to Hindustan Steel. The registered office was

originally in New Delhi. It moved to Calcutta in July 1956 and ultimately to Ranchi in

December 1959.

A new steel company, Bokaro Steel Limited, was incorporated in January 1964 to

construct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela

Steel Plants were completed by the end of December 1961. The 1 MT phase of Durgapur

Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle

plant. The crude steel production of HSL went up from .158 MT (1959-60) to 1.6 MT.

The second phase of Bhilai Steel Plant was completed in September 1967 after



commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of Rourkela - the

Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage of Durgapur

Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS.

Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT

at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT in

1968-69 and subsequently to 4MT in 1972-73.

The Ministry of Steel and Mines drafted a policy statement to evolve a new model

for managing industry. The policy statement was presented to the Parliament on

December 2, 1972. On this basis the concept of creating a holding company to manage

inputs and outputs under one umbrella was mooted. This led to the formation of Steel

Authority of India Ltd. The company, incorporated on January 24, 1973 with an

authorized capital of Rs. 2000 crore, was made responsible for managing five integrated

steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and

the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.

Since its inception, SAIL has been instrumental in laying a sound infrastructure

for the industrial development of the country. Besides, it has immensely contributed to

the development of technical and managerial expertise. It has triggered the secondary and

tertiary waves of economic growth by continuously providing the inputs for the

consuming industry.



SAIL Today
SAIL today is one of the largest industrial entities in India. Its strength has been

the diversified range of quality steel products catering to the domestic, as well as the

export marketsanda large pool of technical and professional expertise. Today, the accent

in SAIL is to continuously adapt to the competitive business environment and excel as a

business organization, both within and outside India.

TYPE OF ORGANISATION:

Steel Authority of India' - a Government of India Enterprise and one of the

largest and profit making public sector steel products manufacturing company.

Steel Authority of India produces for both basic and special steels for

construction, engineering, power, railway, automotive and defense industries and caters

to Indian and International markets. Steel Authority of India has five steel plants, one

subsidiary, three special steel plants, multi marketing units at all regions and nine other

specialized units to support growth and development of the Steel Industry in India. Its

produces are Blooms, Billets, Slabs, Crane Rails, Bars, Rods & Re-bars, Wire Rods,

HR Coils, Sheets, Plates, CR Coils & Sheets,GC Sheets,GP Sheets and Coils,

Tinplates, Electrical Steel, Tubular Products, Pipes, Railway Products, Rails,

Wheels, Axles, Wheel Sets.



Activities: Steel Authority of India production lines are -

• Hot Rolled Coils, Sheets

• Cold Rolled Products.

• Bars and Rods.

• Semi-Finished Products.

• Railway Products.

• Specialty Products.

• Plates.

• Structurals.

• Alloy and Stainless Products.

Moreover, Steel Authority of India offers technological services in the following

domains -

• Know-how transfer of technologies developed by its R&D wing.

• Consultancy services.

• Specialized testing services.

• Contract research.

• Training



ABOUT SALEM STEEL PLANT

A steel plant in Salem was a long cherished dream. Government of India decided in

May 15, 1972 to set up an integrated special steel plant in Salem in the state of Tamil Nadu

for the production of sheets and stripe of electrical , stainless and other special and mild steel

on the basis of sound techno- economic consideration.

The construction of plant was inaugurated in June 143, 1972 by the late Shri Mohan

Kumaramanglam, the minister of steels and mines. Thus a dream of having a steel plant in

Salem started taking shape in the foot hills of kanjamalai. The company “SALEM STEEL

LIMITED” was registered on Oct25, 1972. it was Government of India undertaking

subsidiary of Steel authority of India limited (SAIL).The plant was designed to roll out

32000 tonnes of cold rolled stainless steel strips and wide sheets per annum in the first phase.

In the second phase, the production capacity was increased to 70000 tonnes per annum by

installing Sendzimir mill.

As one steps ahead in reaching the goal of backward integration. HOT ROLLING

STECKEL MILL was commissioned during Nov 3, 1995 with an installed capacity of

around 2 lakhs tonnes with an appropriate investment of Rs.839 crores. The mill is capable of

rolling both stainless and non stainless steels. On Sep 13 1977 the detailed project was

approved by the government and sanction was accorded for implementation of the first stage

to the completed in sep 1981.Salem steel plant is premier producer of international quality

stainless steel in India. The plant has capacity to roll out 1,86,000 tonnes of Hot Rolled

carbon and stainless steel flat products and 70000 tonnes of Cold rolled stainless steel sheets

and coils per annum.



A blanking line, the first of its kind in India, was established in 1993, with an annual

capacity to produce 3000 tonnes of ferritic grade coin blanks or 3600 tonnes of utility blanks.

Coinage of Re 1, 50paise, and 25 paise denomination are minted from the blanks supplied by

SSP to the government Mint in Noida, Mumbai, Kolkata and Hyderabad.

IMPORTANT DATA:-

Go a head - 13.09.77

Commissioning

Phase I - 13.03.82

Phase II - 26.03.91

Blanking line - 24.12.93

Hot rolling mill - 11.09.95

EXPANSION PROJECT:-

In SSP had expansion of CRM on 13.03.82 on phase I at cost 181.90 crores for

sendimir mill, slitting line etc. At next phase II on 26.03.91 costing 76.27 crores. After that

India only one blanking line for production blank coins on 24.12.93. On 11.09.95 expanding

the Hot Rolling Mill on 11.09.95 at a cost of 838.97 crores.



MAN POWER:-

As on 1.05.07 the man power of SSP is 1352 employees are working at Salem

steel plant.

AREA ACQUIRED:-

Nearly 15.5 sq.kms are cover by SSP.

ISO CERTIFICATE:

The company has got ISO 9000, ISO 9001 and 9002. This is got from RWTUV,

Germany. Another one the total SAIL industry, the Salem steel plant is first unit got ISO

certificate.

The ISO 9000 certificate relates to quality management and quality assurance,

standard, guidance for selection.

The ISO 9001 certificate relates to quality specification for design, development,

product, installation and servicing.

The ISO 9002 certificate for assurance, production insulation.

MISSION OF THE ORGANISATION:

Sustained growth through internal generation of resources is the hallmark of the corporate

mission.

VISSION OF THE ORGANISATION:

To be respected world class corporation and the leader in Indian Steel business in

Quality, productivity, profitability and customer satisfaction.



BOARD OF DIRECTORS:

 Shri S.K. Roongta - Chairman of SAIL

 Managing director:

 Shri Nilotpal Roy - Burnpur

 Shri V. Shyamsundar - Durgapur

 Shri B.N. Singh - Rourkela

 Shri V.K. Srivastava - Bokaro

 Shri R. Ramaraju - Bhilai

FUNCTIONAL DIRECTORS:

Shri Shoeb Ahmed - Commercial

Shri S. Bhattacharya - Finance

Shri G. Ojha - Personnel

Shri K.K. Khanna - Technical



ADDRESS OF REGISTER OFFICE AND ITS BRANCHES:

Corporate Office Ispat Bhawan,

Lodi Road, New Delhi – 110003

Phone : 011-24367481-86 Fax : 011-24367015

E-mail : sailco@vsnl.com

SCOPE Minar, North Tower,

Laxmi Nagar District Centre, New Delhi -110092

Phone: (011) 22467360

Fax: (011) 22467458

E-mail : sailco@vsnl.com

Salem Steel Plant

Salem – 636013 (Tamil Nadu)

Phone: 0427-2383 021

Fax: 0427-2382800 (Admn), 2383249 (Mktg),

E-mail: sspmkt@sancharnet.in



INTRODUCTION TO THE STUDY

Finance is one of the most primary requisites of a business and the modern

management obviously depends largely on the efficient management of the finance.

Financial statements are prepared primarily for decision making. They play a

dominant role in setting the frame work of managerial decisions. The finance manager

has to adhere to the five R’s with regard to money. This right quantity of money for

liquidity consideration of right quality. Whether owned or borrowed funds. at the right

time to preserve solvency from the right sources and at the right cost of capital.

The term financial analysis is also known as ‘analysis and interpretation of

financial statements’ refers to the process of determining financial strength and weakness

of the firm by establishing strategic relationship between the items of the Balance Sheet,

Profit and Loss account and other operative data.

The purpose of financial analysis is to diagnose the information contained in

financial statements so as to judge the profitability and financial soundness of the firm.



OBJECTIVES OF THE STUDY

 To study the financial position of the company.

 To analyse the financial stability and overall performance of SAIL in general.

 To analyse and interpret the trends as revealed by various ratios of the company in

particular.

 To analyse the profitability and solvency position of the unit with the existing

tools of financial analysis.

 To study the changes in the assets, liabilities structure of the company during the

period of study.

IMPROTANCE OF THE STUDY

 By “FINANCIAL PERFORMANCE ANALYSIS OF SAIL” we would be able to

get a fair picture of the financial position of SAIL.

 By showing the financial performance to various lenders and creditors it is

possible to get credit in easy terms if good financial condition is maintained in the

company with assets outweighing the liabilities.

 Protecting the property of the business.

 Compliances with legal requirement,



LIMITATIONS OF THE STUDY

 The analysis and interpretation are based on secondary data contained in the

published annual reports of SAIL for the study period.

 Due to the limited time available at the disposable of the researcher the study has

been confined for a period of 7 years (2001-2007).

 Ratio itself will not completely show the company’s good or bad financial

position.

 Inter firm comparison was not possible due to the non availability of competitors

data.

 The study of financial performance can be only a means to know about the

financial condition of the company and cannot show a through picture of the

activities of the company.



RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. it

may be understood as a science of studying how research is done scientifically. So, the

research methodology not only talks about the research methods but also considers the

logic behind the method used in the context of the research study.

RESEARCH DESIGN:

Descriptive research is used in this study because it will ensure the minimization

of bias and maximization of reliability of data collected. The researcher had to use fact

and information already available through financial statements of earlier years and

analyse these to make critical evaluation of the available material. Hence by making the

type of the research conducted to be both Descriptive and Analytical in nature.

From the study, the type of data to be collected and the procedure to be used for

this purpose were decided.

DATA COLLECTION:



The required data for the study are basically secondary in nature and the data are

collected from the audited reports of the company.

SOURCES OF DATA:

The sources of data are from the annual reports of the company from the year

2000-2001 to 2006-2007.

METHODS OF DATA ANALYSIS:

The data collected were edited, classified and tabulated for analysis. The

analytical tools used in this study are:

ANALYTICAL TOOLS APPLIED:

The study employs the following analytical tools:

1. Comparative statement.

2. Common Size Statement.

3. Trend Percentage.

4. Ratio Analysis.

ANALYSIS AND INTERPRETATION



Financial statement is an organized collection of data according to logical and consistent

accounting procedures. It purposes is to convey an understanding of some financial aspects of a

business firm. It may show a position at a moment of time as in the case of a balance sheet, or

may reveal a series of activities over a given period of time, as in the case of an Income

Statement. Thus the term “Financial Statement “generally refers to two basic statements: (i) the

Income Statement and (ii) the Balance sheet.

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:

The financial statements are indicators of the two significant factors:

1. Profitability and

2. Financial soundness

Analysis and interpretation of financial statement therefore, refers to such a treatment

of the information contained in the Income Statement and Balance Sheet so as to afford full

diagnosis of the profitability and financial soundness of the business.



Classification of Balance Sheet of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001 2002 2003 2004 2005 2006 2007

ASSETS

Fixed Assets 16398 15354 14414 13550 12851 12920 12834

Investment 435 539 543 543 606 293 514

8376 7129 7312 8246 14333 15630 20375
Current Assets
372 578 536 378 294 215 131
Mis.Expenditure
754 2460 2765 - - - -
P&L a/c
Total Assets 26335 26060 25570 22717 28084 29058 33854

LIABILITIES

Shareholder’s Funds 5290 5290 5290 5037 10306 12601 17313

Loan Funds 14250 14019 12969 8690 5770 4298 4180

Current Liabilities

& Provisions 6795 6751 7311 8990 10166 1484 1412

Deferred Liabilities - - - - 1842 10675 10949
TOTAL LIABILITIES 26335 26060 25570 22717 28084 29058 33854



Classification of Income Statement of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001 2002 2003 2004 2005 2006 2007

Sales 16233 15502 19207 24178 31805 32280 39189

EBIDT 2167 1011 2165 4652 11097 7381 10966

1144 1156 1147 1123 1127 1207 1211
Less: Depreciation

EBIT 1023 (145) 1018 3529 9970 6174 9755

Less: Interest Charges 1752 1562 1334 901 605 468 322

PBT (729) (1707) (316) 2628 9365 5706 9423

Less : Tax - - (12) 116 2548 1693 3221

PAT (Net Profit) (729) (1707) (304) 2512 6817 4013 6202

Comparative Income Statement of Steel Authority of India Limited from 2000-2001 to 2006 - 2007



( Rs.in Crores)
PARTICULARS 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Absolute % of Absolute% of Absolute% of Absolute% of Absolute % of Absolute% of

Change Change Change Change Chang Change Chang Change Chang Change Chang Change

Sales (731) (4.50) 3705 23.90 4971 25.88 7627 31.54 475 1.49 6909 21.40

EBIDT (1156) (53.34) 1154 114 2487 114.8 6445 138.54 (3716) (33.4) 3585 48.57

12 1.04 (9) (0.77) (24) (2.09) 4 0.35 80 7.09 4 0.33
Less: Depreciation

EBIT (878) (85.82) 873 602 2511 246.6 6441 182.51 (3769) (38) 3581 58.00

Less: Interest Charges (190) (10.84) (228) (14.5) (433) (32.4) (296) (32.70) (137) 22.64 (146) (31.1)

PBT 978 134.1 (1391) (81.4) 2312 731.6 6737 256.3 (3659) (39) 3717 65.1

Less : Tax - - 12 0 104 866.6 2432 2096 (855) (33.5) 1528 90.25

PAT (Net Profit) 978 134.15 (1403) (82.1) 2208 726 4305 171.3 (2804) (41.1) 2189 54.54



COMPARATIVE INCOME STATEMENT:

1. The Net Sales figure shows a fluctuation i.e. it is negative in the year 2001 & 2002. After the

year 2003 it shows an increasing which will help to make increase in Net Profit.

2. The company has sufficient control over its depreciation which shows a decreasing from the

period of 2003 and it has 0.33% in 2007.

3. The company has considerable change in Interest Charges and rather the latter has decreased

in recent years.

4. The company has able to attain Profit after Tax of Rs.6202 in the year 2007 compare to 2189

more from the previous year 2006.

5. It may conclude that there is a sufficient progress in the company and the overall profitability

of the concern is very good.



Comparative Balance Sheet of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
Absolute % of Absolute % of Absolute % of Absolute % of Absolute % of Absolute % of

Change Change Change Change Chang Change Chang Change Change Change Change Change

ASSETS

Fixed Assets (1044) (6.36) (940) (6.12) (864) (5.9) 699 (5.15) 69 0.53 (86) (0.6)

104 23.90 4 0.74 0 0 63 11.60 (313)(51.6) 221 75.4
Investment
(1247) (14.88) 183 2.56 934 12.77 6087 73.81 1297 9.04 4745 30.3
Current Assets
206 55.37 (42) (7.26) (158) (29.4) (184) (22.22) (79) (26.8) (84) (39)
Mis.Expenditure
1706 226.2 305 12.39 - - - - - - - -
P&L a/c

LIABILITIES

Shareholder’s Funds 0 0 0 0 (253) (4.78) 5269 104.6 2295 22.26 4712 37.3

Loan Funds (231) (1.62) (1050) (7.48) (4279) (32.9) (2920) (33.6) (1472) (25.5) (118) (2.7)

Current Liabilities

& Provisions (44) (6.47) 560 8.29 1679 22.96 1176 13.08 (8682) (85.4) (72) (4.8)

Deferred Liabilities - - - - - - - - 8833 479.5 274 2.56

INTERPRETATION:

COMPARATIVE BALANCE SHEET


Long Term Financial Position:

1. The comparative Balance Sheet of the company reveals that during the financial year

2005 – 2006 there has been an increase in fixed assets and 2006-2007 it gets to decrease

to Rs. 86 crores i.e. (.66)% due to modification in various plants while the long term

liabilities to outsiders have decreased by 118 cores i.e.2.74% but the contribution by the

owners has shows continuous increase by Rs. 4712 crores i.e.37.39.

Current Financial position and liquidity position:

2. The company has increased its current assets by increasing the level of inventories of

Rs.4745 crores i.e.30.35%. The current liabilities highly fluctuate and show continuous

decrease in the year 2006-2007 by Rs.72 crores i.e.4.85% decreased. The Net Working

Capital was in peak by the continuous increase after the year 2005. The company got

good liquidity position due increase in Current assets but it may affect the profitability of

the company.

3. The overall financial position of the company is very good.

Common Size Balance Sheet of Steel Authority of India Limited from 2000-2001 to 2006 - 2007
( Rs.in Crores)
PARTICULARS 2001 2002 2003 2004 2005 2006 2007



ASSETS

Fixed Assets 62.21 58.91 56.37 59.64 45.75 44.46 37.90

Investment 1.65 2.12 21.23 2.39 2.15 1.00 1.54

31.80 27.38 28.59 36.29 51..06 53.78 60.18
Current Assets
1.41 2.21 2.09 1.68 1.04 0.76 0.38
Mis.Expenditure
2.88 9.38 10.72 - - - -
P&L a/c

Total Assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00

LIABILITIES

Shareholder’s Funds 20.08 20.29 20.60 22.17 36.69 43.36 51.14

Loan Funds 54.11 53.79 50.73 38.25 20.54 14.79 12.34

Current Liabilities

& Provisions 25.81 25.92 28.59 39.58 36.19 5.10 4.17

Deferred Liabilities - - - - 6.58 36.75 32.35

TOTAL LIABILITIES 100.00 100.00 100.00 100.00 100.00 100.00 100.00

INTERPRETATION:

COMMON-SIZE BALANCE SHEET



1. Out of the total investment the owners funds is more compare to outsider’s fund

in the company which shows that the company has depended more on its own

funds. It shows that the company is traditionally financed

2. The proportion of current assets to total assets has increased comparing to

current liabilities which serve as an evidence for good working capital position

of the company.

3. Investments, Miscellaneous expenditure and deferred liabilities have their own

limited contribution to their respective side totals.

Trend Percentage of Steel Authority of India Limited from

2000-2001 to 2006 - 2007
Base Year 2000-2001 Figure in %
Particulars 2001 2002 2003 2004 2005 2006 2007



100 96 118 149 196 199 242
SALES
100 (14) 99 345 975 604 954
PBIT
100 98 92 87 82 80 76
FIXED ASSETS
100 85 87 97 170 208 243
CURRENT ASSETS
100 92 91 114 125 154 132
CURRENT LIABILITIES
100 73 81 66 245 300 434
WORKING CAPITAL
100 93 91 83 110 117 137
CAPITAL EMPLOYED
100 91 88 87 109 122 134
TOTAL ASSETS

INTERPRETATION:

The sales of the product was very low in the year 2002 because of the competition

existing in the field and general economics constraints but later it recovered and moved in

the favorable direction there onwards.

INTERPRETATION:

The profit after tax (PAT) which is also known as Net Profit slopes downwards in

the year 2002 but moves in the favorable direction due to less financial and interest

charges and high sales value.



TREND PERCENTAGE:

Trend percentage is immensely helpful in making a comparative study of the

financial statement for several years. The method of calculating trend percentages

involves the calculating of percentages relationship that each item bears to the same item

in the base years.

The method of trend percentage is a useful analytical device for the management

since by substitutes percentages for large amounts; the brevity and readability are

achieved

Year Wise (2001 – 2007) Sales Figures

CHART SHOWING SALES

Chart No.1



45000
39189
40000
35000 31805 32280
30000
24178
25000
19207
20000
16233 15502
15000
10000
5000
0
2001 2002 2003 2004 2005 2006 2007

Year wise (2001-2007) Profit Figures:

Chart No.2

CHART SHOWING NET PROFIT



8000
6817
7000 6202
6000
5000
4013
Profit in Rs. Crores

4000
3000 2512
2000
1000
0
-1000 2001 2002 2003 2004 2005 2006 2007

-2000 -729 -304
-1707
-3000
years

RATIO ANALYSIS:

Financial ratio analysis is the calculation and comparison of ratios which are

derived from the information in a company's financial statements. The level and historical



trends of these ratios can be used to make inferences about a company's financial

condition, its operations and attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from a

company's financial statements. For example, the "gross margin" is the gross profit from

operations divided by the total sales or revenues of a company, expressed in percentage

terms. In isolation, a financial ratio is a useless piece of information. In context, however,

a financial ratio can give a financial analyst an excellent picture of a company's situation

and the trends that are developing.

A ratio gains utility by comparison to other data and standards. Taking our

example, a gross profit margin for a company of 25% is meaningless by itself. If we

know that this company's competitors have profit margins of 10%, we know that it is

more profitable than its industry peers which are quite favorable. If we also know that the

historical trend is upwards, for example has been increasing steadily for the last few

years, this would also be a favorable sign that management is implementing effective

business policies and strategies.

CLASSIFICATION OF RATIOS:

Financial ratio analysis involves the calculation and comparison of ratios which

are derived from the information given in the company's financial statements. The



historical trends of these ratios can be used to make inferences about a company's

financial condition, its operations and its investment attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the

different facets of a company's financial state of affairs. Some of the categories of ratios

are described below:

a Liquidity Ratios give a picture of a company's short term financial situation or

solvency

s Turnover Ratios show how efficient a company's operations and how well it is using

its assets.

i Profitability Ratios : show the quantum of debt in a company's capital structure.

LIQUIDITY RATIOS:

Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the

liquidity of the company as on a particular day i.e. the day that the Balance Sheet was



prepared. These ratios are important in measuring the ability of a company to meet both its

short term and long term obligations.

1. Current Ratio

2. Liquid Ratio

3. Net working capital ratio

1. CURRENT RATIO:

An indication of a company's ability to meet short-term debt obligations; the

higher the ratio, the more liquid the company is. Current ratio is equal to current assets



divided by current liabilities. If the current assets of a company are more than twice the

current liabilities, then that company is generally considered to have good short-term

financial strength. If current liabilities exceed current assets, then the company may have

problems meeting its short-term obligations.

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY

Table No.1
Table showing Current ratio
(Rs. In Crores)
CURRENT ASSETS CURRENT CURRENT RATIO
YEAR LIABILITIES

2001 8362 5274 1.59

2002 7107 4849 1.47

2003 7282 4777 1.52

2004 8075 6025 1.34

2005 14187 6608 2.15

2006 17384 8108 2.14

2007 20379 6984 2.91

An ideal solvency ratio is 2. The ratio of 2 is considered as a safe margin of solvency due

to the fact that if current assets are reduced to half (i.e.) 1 instead of 2, then also the

creditors will be able to get their payments in full.



INTERPRETATION:

Here, the current ratio fluctuates from year to year below the ideal ratio of 2. But

reaches the Ideal ratio from after the year 2005 which is positive consideration

Chart No.3

CURRENT RATIO OF SAIL FOR THE PERIOD OF 2001-2007



3.5
2.91
3

2.5
2.15 2.14
2
1.59
RATIO

1.47 1.52
1.5 1.34

1

0.5

0
2001 2002 2003 2004 2005 2006 2007
YEARS

2. LIQUID RATIO:



Liquid ratio is also known as ‘quick’ or ‘Acid test ‘ratio. Liquid assets refer to assets

which are quickly convertible into cash. Current Assets other stock and prepaid expenses are

considered as quick assets. The ideal liquid ratio accepted ‘norm’ for liquid ratio ‘1’.

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets (minus) Inventory

Table No.2
Table showing Quick ratio
(Rs. In Crores)
Liquid ASSETS CURRENT Quick RATIO
YEAR LIABILITIES
2001 33843 5274 6.41
2002 3065 4849 0.06
2003 3537 4777 0.74
2004 4993 6025 0.82
2005 9966 6608 1.50
2006 11174 8108 1.37
2007 13728 6984 1.96

INTREPRETATION:

The liquid ratio denotes the concern had achieved more than the ideal ratio of 1:1

in the years 2001,2005,2006,2007 and lower liquid ratio in the remaining years. If

inventories do not sell and the company has to meet its current obligations

Chart No.4



LIQUID RATIO OF SAIL FOR THE PERIOD OF 2001-2007

7
6.41

6

5

4
RATIO

3

1.96
2
1.5 1.37

1 0.74 0.82

0.06
0
2001 2002 2003 2004 2005 2006 2007
YEARS

3. NET WORKING CAPITAL RATIO:



Working Capital is more a measure of cash flow than a ratio. The result of this

calculation must be a positive number. Companies look at Net Working Capital over time to

determine a company's ability to weather financial crises. Loans are often tied to minimum

working capital requirements.

NET WORKING CAPITAL RATIO = Net Working Capital / Capital Employed

Table No.3
Table showing Net Working Capital Ratio
(Rs. In Crores)
Net Working Capital Employed Net Working
YEAR Capital Capital Ratio
2001 3088 18205 0.16
2002 2258 17056 0.13
2003 2505 16541 0.15
2004 2050 15218 0.13
2005 7579 20064 0.37
2006 9276 21438 0.43
2007 13395 24992 0.53

INTERPRETTION:

Net Working capital measures the firm’s potential reserve of funds. It can be related to

net assets. This ratio represents the availability of working capital in relation with capital

employed.

Chart No.5


NET WORKING CAPITAL RATIO OF SAIL FOR THE

PERIOD OF 2001-2007

0.6
0.53
0.5
0.43
0.4 0.37

Ratio0.3

0.2 0.16 0.15
0.13 0.13
0.1

0
2000 2001 2002 2003 2004 2005 2006 2007
years

TURNOVER RATIO:



The turnover ratio is also known as activity or efficiency ratios. They indicates the

efficiency with which the capital employed is rotated in the business (i.e.) the speed at

which capital employed in the business rotates. Higher the rate of rotation, the greater

will be the profitability. Turnover ratios indicate the number of times the capital has been

rotated in the process of doing business.

 Fixed Asset Turnover Ratio

 Working Capital Turnover Ratio

 Debtor Turnover Ratio

 Stock Turnover Ratio

1. FIXED ASSETS TURNOVER RATIO:



Fixed asset turnover is the ratio of sales (on your Profit and loss account) to the

value of your fixed assets (on your balance sheet). It indicates how well your business is

using its fixed assets to generate sales.

FIXED ASSETS TURNOVER RATIO = NET SALES / NET FIXED ASSETS

Generally speaking, the higher the ratio, the better, because a high ratio indicates

your business has less money tied up in fixed assets for each dollar of sales revenue. A

declining ratio may indicate that you've over-invested in plant, equipment, or other fixed

ass

Table No.4
Table showing fixed asset turnover ratio

NET SALES FIXED ASSETS FIXED ASSET

YEAR (Rs. In Crores) (Rs. In Crores) TUENOVER RATIO
(In times)
2001 16223 15177 1.07
2002 15502 14798 1.04
2003 19207 14036 1.37
2004 24178 13168 1.84
2005 31805 12485 2.55
2006 32280 12162 1.65
2007 39189 11598 3.37

INTERPRETATION:



Here, the value of fixed assets employed in the business shows a reducing trend

which implies that company didn’t occur any more fixed asset during the period 2002 –

2007. Only the depreciation effect had been given to fixed asset.

There has been a decline in the year 2002 but rising there onwards favorably

which indicates that the net fixed assets is used more effectively to increase the sales

without additional investment in the period of study.

Chart No.5

FIXED ASSETS RATIO OF SAIL FOR THE PERIOD OF 2001-2007



4

3.5 3.37

3
2.55
2.5

2 1.84
RATIO

1.65
1.5 1.37
1.07 1.04
1

0.5

0
2001 2002 2003 2004 2005 2006 2007
YEARS

2. WORKING CAPITAL TURNOVER RATIO:

Working capital refers to investment in current assets. This is also known as gross

concept of working capital. There is another concept of working capital known as net



working capital. Net working capital is the difference between cur-rent assets and current

liabilities. Analysts intend to establish a relationship between working capital and salsas the

two are closely related. Through this ratio we are attempting to see that one rupee blocked by

the organization in net working capital is generating how much sales. Higher the ratio better

it is.

WORKING CAPITAL TURNOVER RATIO = NET SALES / NET WORKING CAPITAL

In recent years for operating an industry have not only become scarce, but also costly in

the wake of macro level policies on credit squeeze an increase in Interest rate. So, the

working capital can be defined either as a gross working capital, which include funds

invested in all current assets, or as net working capital, which denotes the difference between

the current assets current liabilities of an organization.

Table No.5
Table showing Working capital turnover ratio



NET SALES WORKING CAPITAL WORKING CAPITAL
YEAR (Rs. In Crores) (Rs. In Crores) TURNOVER RATIO
(In times)

2001 16223 3088 5.26

2002 15502 2258 6.87

2003 19207 2505 7.67

2004 24178 2050 11.79

2005 31805 7579 4.19

2006 32280 9276 3.47

2007 39189 13395 2.96

INTERPRETATION:

Here, the Working Capital ratio shows a increasing trend from 2001 to 2004 and then

slope downwards due to holding high current assets in the form of cash, bank balances and

receivables in the year 2005 to 2007.

Chart No.6

WORKING CAPITAL TURNOVER RATIO OF SAIL FOR THE

PERIOD OF 2001-2007


14
11.79
12

10
7.67
8 6.87
RATIO

6 5.26
4.19
4 3.47
2.96

2

0
2001 2002 2003 2004 2005 2006 2007

YEARS
3. DEBTORS TURNOVER RATIO:

Debtor’s turnover ratio measures the efficiency with which the debtors are

converted into cash. This ratio indicates both the quality of debtors and the collection

efforts of the business enterprise. This ratio is calculated as follows:

I. Debtors’ turnover ratio



II. Debt collection period.

DEBTOR’S TURNOVER RATIO = CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLES

The numerator of this ratio should preferably be credit sales. This is so because

the denominator is logically related to credit sales as it arises from credit sales only. Cash

sales do not generate debtors. However, as the information related to credit sales is not

separately available in corporate accounts, so total sales could be taken in the numerator.

Average debtors are calculated by dividing the sum of beginning-of-year and end-of-year

balance of debtors by 2.

Table No.6
Table showing Debtors’ turnover ratio
(Rs. In Crores)

CREDIT SALES DEBTORS Debtors’ turnover
YEAR (Rs. In Crores) (Rs. In Crores) ratio
(In times)
2001 16223 1688 9.62



2002 15502 1390 11.16

2003 19207 1660 11.57

2004 24178 1550 15.60

2005 31805 1908 16.67

2006 32280 1882 17.15

2007 39189 2315 16.92

INTERPRETATION:

There has been increase in the turnover ratio which shows the efficiency of the

collection department

Chart No.7

DEBTOR’S TURNOVER RATIO OF SAIL FOR THE PERIOD

OF 2001-2007



20
18 16.67 17.15 16.92
15.6
16
14
12 11.16 11.57
9.62
RATIO

10
8
6
4
2
0
2001 2002 2003 2004 2005 2006 2007
YEARS

Debt collection period:
The ratio indicates the extent to which the debt has been collected in time. It gives

the average debt collection period. The ratio is very helpful to lenders because it explains

to them whether their borrowers are collecting money within a reasonable time. An

increase in the period will result in greater blockage of funds in debtors.



Debt collection period = Months/Days in a year/ Debtor’s turnover ratio

Table No.7
Table showing Debt collection period
(In Days)

YEAR COLLECTION
PERIOD
2001 38
2002 33
2003 32
2004 23
2005 22
2006 21
2007 21

Debtors’ collection period measures the quality of debtors since it measures the

rapidity or slowness with which money is collected from them

INTERPRETATION;

Here, there has been decreasing trend in the debt collection period which is

favorable for the company. Because, the quicker the collection period. Then more the

utilization of cash collected from debtors. It moves from 38 days in 2001 to 21 days in

2007.

Chart No.8

DEBTOR’S COLLECTION PERIOD OF SAIL FOR THE PERIOD

OF 2001-2007



40 38

35 33 32
30

25 23 22 21 21
DAYS

20
15

10
5

0
2001 2002 2003 2004 2005 2006 2007
YEARS

4. STOCK TURNOVER RATIO:

This ratio indicates whether investment in inventory is efficiently used or not. It is

therefore explains whether investment in inventories is within proper limits or not. This

ratio is calculated as follows.

Stock Turnover Ratio = Net Sales / Average Inventory



Table No.8
Table showing Stock turnover ratio

CREDIT SALE AVERAGE STOCK STOCK TURNOVER
YEAR (Rs. In Crores)S (Rs. In Crores) RATIO
(In times)

2001 16223 4519 3.59

2002 15502 4042 3.84

2003 19207 3745 5.13

2004 24178 3082 7.91

2005 31805 4221 7.53

2006 32280 6210 5.19

2007 39189 6651 5.89

The Inventory turnover ratio signifies the liquidity of the Inventory. A high

inventory turnover ratio indicates brisk sales. The ratio is, therefore a measure to discover

the possible trouble in the form of over stocking or over valuation.

It is difficult to establish a standard ratio of inventory because it will differ from

industry to industry.

INTERPRETATION:

Here, there has been a rising trend in the Inventory turnover ratio which implies

that the inventories are efficiently managed and utilized which directly contributes to

companies’ productivity. The stock position is known as the graveyard of the balance

sheet. A low inventory turnover ratio results in blocking of funds in Inventory which may



ultimately result in heavy losses due to inventory becoming obsolete or deteriorate in

quality.

Chart No.9

STOCK TURNOVER RATIO OF SAIL FOR THE PERIOD

OF 2001-2007



9
7.91
8 7.53
7
5.89
6 5.13 5.19
5
RATIO

4 3.59 3.84
3
2
1
0
20001 2002 2003 2004 2005 2006 2007
YEARS

PROFITABILITY RATIO

Profitability is an indication of the efficiency with which the operation of the

business is carried on. Poor operational performance may indicate poor sales and hence

poor profits. A lower profitability may arise due to lack of control over the expenses.



Bankers, financial institutions and other creditors look at the profitability ratios as an

indicator whether or not the firm earns substantially more than it pays interest for the use

of borrowed funds.

 Return on Investment

 Return on Shareholders’ fund

 Return on total asset

 Earning per Share

 Net profit Ratio

 Operating ratio

 Payout ratio

 Dividend yield ratio

RETURN ON INVESTMENT:


It is also called as “Return on Capital Employed”. It indicates the percentage of

return on the total capital employed in the business.

Operating profit

RETURN ON INVESTMENT ------------------------------- X 100

Capital employed

The term ‘operating profit ‘ means ‘profit before interest and tax’ and the term ‘

capital employed ‘ means sum-total of long term funds employed in the business. i.e.

Share capital + Reserve and surplus + long term loans – [non business assets +

fictitious assets]

Table No.9
Table showing Return on Investment

OPERATING CAPTITAL RETURN ON
YEAR PROFIT EMPLOYED INVESTMENT
(Rs. In Crores (Rs. In Crores) (In %)

2001 1023 18265 5.60



2002 -145 17056 -0.85
2003 1018 16541 6.15
2004 3530 15218 23.19
2005 9970 20064 50
2006 6174 21438 29
2007 9755 24992 39

INTERPRETATION:

Here the Return on Investment of the firm is moving in a row as 5.60, -0.85, 6.15,

23.19, 50, 29 and 39 during the period 2001 to 2007. In 2002, the return on investment is

negative, because the profit before interest and tax is also in negative due to low sales

value in the corresponding year. But the year 2005, 2006 and 2007 shows a good rate

return due to low interest and finance charges and selling price of the steel is also

contributing factor.

Chart No.10

RETURN ON INVESTMENT OF SAIL FOR THE PERIOD

OF 2001-2007



60
50
50
39
40
29
30
23.19
RATIO

20

10 5.6 6.15
-0.85
0
2001 2002 2003 2004 2005 2006 2007
-10
YEARS

RETURN ON SHAREHOLDER’S FUND:

In case it is desired to work out the productivity of the company from the

shareholder’s point of view, it should be computed as follows:



Net profit after Interest and Tax
Return on shareholder’s fund = ------------------------------------------------------ X 100
Shareholders’ fund

The term profit here means ‘Net Income after the deduction of interest and tax’. It

is different from the “Net operating profit” which is used for computing the ‘Return on

total capital employed’ in the business. This is because the shareholders are interested in

Total Income after tax including Net non-operating Income (i.e. Non- Operating Income -

Non-Operating expenses).

Table No.10
Table showing return on Shareholders’ Fund
NET SHAREHOLDERS’ RETURN ON
YEAR PROFIT FUNDS SHAREHOLDERS’
(Rs. In Crores) (Rs. In Crores) FUNDS
(In %)

2001 -729 5291 -14
2002 -1707 5290 -32
2003 -304 5290 -6
2004 2512 5038 50
2005 6817 10307 66
2006 4013 12601 32
2007 6202 17313 36
INTERPRETATION:

Here, the Net Profit (i.e.) Profit after Interest and Tax has been in negative

during the year 2001 to 2003 due to net losses in the corresponding year because of very

high interest and finance charges of the company. But the Repayment of loan Funds and

increase in the sales value has contributed for the rise in the return on shareholder’s fund

from the year 2004 onwards.



Chart No.11

RETURN ON SHAREHOLDER’S FUND OF SAIL FOR THE
PERIOD OF 2001-2007



80
66

60
50

40 36
32
RATIO

20

-32 -6
0
2001 2002 2003 2004 2005 2006 2007

-20 -14

-40
YEARS

RETURN ON TOTAL ASSETS:

This ratio is computed to know the productivity of the total assets.



Net profit after Tax
Return on Total Assets = --------------------------------- X 100
Total Assets

Table No.11

Table showing return on Total Assets

(Rs. In Crores)

NET RETURN ON
YEAR PROFIT TOTAL ASSETS TOTAL ASSETS
(Rs. In Crores) (Rs. In Crores) (In %)

2001 -729 24760 -2.94
2002 -1707 22461 -7.59
2003 -304 21679 -1.40
2004 2512 21625 11.58
2005 6817 27058 25.19
2006 4013 30304 13.24
2007 6202 33213 18.67

The term ‘Total Assets’ includes the fixed asset, current asset and capital work in

progress of the company. The above table clearly reveals the relationship between the net

profit and Total Assets employed in the business.

INTERPRETATION:

Here the Return on Total Assets shows the Negative points due to net loss on

the corresponding year. But the Return on Total Assets turns into positive as soon as Net

Profit occurs



Chart No.12

RETURN ON TOTAL ASSETS OF SAIL FOR THE PERIOD OF
2001-2007



30
25.19
25

20 18.67

15 13.24
RETURN ON TOTAL ASSETS

11.58
10

5 -7.59
-2.94 -1.4
0
2001 2002 2003 2004 2005 2006 2007
-5

-10
YEARS

EARNING PER SHARE:



In order to avoid confusion on account of the varied meanings of the term capital

employed, the overall profitability can also be judged by calculating earning per share

with the help of the following formula:

Earning Per Equity Share = Net Profit after Tax / Number of Equity Shares X 100

The earning per share of the company helps in determining the market price of the

equity shares of the company. A comparison of earning per share of the company with

another will also help in deciding whether the equity share capital is being effectively

used or not. It also helps in estimating the company’s capacity to pay dividend to its

equity shareholders.

Table No.12
Table showing Earning per Share
(Rs. In Crores)
NET NUMBER OF EARNING PER
PROFIT EQUITY SHARES SHARE
YEAR
(Rs. In Crores) (Rs. In Crores) (In %)
2001 -729 413 -1.76
2002 -1707 413 -4.13
2003 -304 413 -0.73
2004 2512 413 6.08
2005 6817 413 16.50
2006 4013 413 9.71
2007 6202 413 15.01

INTERPRETATION:



Here the Earning per Share is the result of Net Profit after Tax. It shows the
positive correlation during the period of study.
Earning Per share for the year 2005 is 150% higher than 2004 due to more Net
Profit as the consequence of high sales value and low interest charges. In the year 2006
and 2007 earning per share is comparatively less with compare to 2005 due to economic
conditions.

Chart No.13

EARNING PER SHARE OF SAIL FOR THE PERIOD

OF 2001-2007



20
16.5
15.01
15

9.71
10
EZARNING PER SHARE

6.08
5

0
2001 2002 2003 2004 2005 2006 2007

-5 -1.76
-0.73
-4.13

-10
YEARS

NET PROFIT RATIO:

This ratio indicates the Net margin on a sale of Rs.100. It is calculated as follows:



Net Operating Profit
Net Profit Ratio = ----------------------------------------- X 100
Net Sales

Table No.13
Table showing Net Profit Ratio
(Rs. In Crores)
OPERATING SALES NET PROFIT
YEAR PROFIT (Rs. In Crores) RATIO
(Rs. In Crores) (in %)
2001 1023 16223 6.30
2002 -145 15502 -0.94
2003 1018 19207 5.30
2004 3530 24178 14.60
2005 9970 31805 3.35
2006 6174 32280 19.12
2007 9755 39189 24.89

This ratio helps in determining the efficiency with which affairs of the business

are being managed. An increase in the ratio over the previous period indicates

improvement in the operational efficiency of the business. The ratio is thus on effective

measure to check the profitability of business. However, constant increase in the above

ratio after year is a definite indication of improving conditions of the business.

INTERPRETATION:

The operating profit and value of sales are the causes for the fluctuation in the Net

Profit ratio. The Net Profit Ratio declines more during 2002 but recovers later and



managed to move in the favorable direction. It occurs due to low sales value and change

in economic policy.

The above said may be due to increase in operating profit and increase in

selling price of the saleable steel of the company.

Chart No.14

NET PROFIT RATIO OF SAIL FOR THE PERIOD

OF 2001-2007



30

24.89
25

20 19.12

14.6
15
RATIO

10

6.3
5.3
5 3.35

0
2001 2002 2003 2004 2005 2006 2007
-0.94
-5
YEARS

OPERATING RATIO:
This ratio is a complementary of Net Profit ratio. In case the net profit ratio is

20%. It means that the operating profit ratio is 80%. It is calculated as follows:



Operating Cost
Operating Ratio = ----------------------------------------- X 100
Net Sales

The operating cost include the cost of direct materials, direct labour and other

overheads, viz., factory, office or selling.

Direct Material
Direct Material cost to sales = ----------------------------------- X 100
Net Sales

Table No.14
Table showing Operating Ratio
(Rs. In
Crores)
DIRECT SALES OPERATING
YEAR MATERIAL (Rs. In crores) RATIO
(Rs. In crores) (In %)

2001 5420 16223 33.39
2002 5656 15502 36.48
2003 6226 19207 32.42
2004 6892 24178 28.50
2005 9351 31805 29.40
2006 12326 32280 38.18
2007 13275 39189 33.87

This ratio is the test of the operational efficiency with which the business is being

carried. The operating ratio should be low enough to leave a portion of sales to give a fair

to the investors.

INTERPRETATION:



A comparison of operating ratio or expenses ratio will indicate whether the cost

components is high or low in the figure of sales. In case comparison shows that there is

increase in this ratio, the reason for such increase should be found out and management

be advised to check the increase.

Chart No.15

OPERATING RATIO OF SAIL FOR THE PERIOD

OF 2001-2007



45

40 38.18
36.48
35 33.39 33.87
32.42
29.4
30 28.5

25
RATIO

20

15

10

5

0
2001 2002 2003 2004 2005 2006 2007
YEARS

PAYOUT RATIO:

This ratio indicates what proportion of earning per share has been used for paying

dividend.



Dividend per equity share
Pay Out Ratio = --------------------------------------- X 100
Earning per equity share

Here the company had paid dividend only after 2005 in the course of seven years

period from 2001 to 2007. The company has paid 33%,20% and 31% of dividend for the

face value of Rs.10 in the year of 2005, 2006 and 2007 which comprises Rs. 3.3 ,2.0 and

3.10 as dividend.

Table No.15
Table showing Pay out Ratio
(In %)
DIVIDEND PER EARNING PER PAY OUT RATIO
YEAR EQUITY EQUITY
2005 3.3 16.50 20
2006 2.0 9.71 20.59
2007 3.10 15.01 20.65

The pay out ratio is the indicator of the amount of earnings that have been

ploughed back in the business. The lower the pay out ratio, the higher will be the amount

of earnings ploughed back in the business and vice versa.

INTERPRETATION:

The pay out ratio for the year 2005 is 20%, 2006 is 20.59 and 2007 is 20.65

which implies that remaining 80% of earning per share is kept as retained earning by the

company



Chart No.16

PAYOUT RATIO OF SAIL FOR THE PERIOD

OF 2001-2007



20.8
20.65
20.59
20.6

20.4
PAYOUT RATIO

20.2

20
20

19.8

19.6
2005 2006 2007
YEARS

DIVIDEND YIELD RATIO:

This ratio is particularly useful for those investors who are interested only in

dividend income. The ratio is calculated by comparing the ratio of dividend per share

with its market value.



Dividend per Share
Dividend yield = ----------------------------------- X 100
Market price per share

Since, company had issued dividend only after 2005 in last seven years period.

We can calculate this ratio only for that period as follows:

Table No.16
Table showing Dividend yield
(In %)
DIVIDEND PER MARKET PRICE Dividend yield
YEAR EQUITY
2005 3.3 62.87 5.25
2006 2.0 83.30 2.40
2007 3.10 114.30 2.71

INTERPRETATION:

This percentage implies that 5.25% of market price of the share was issued as

dividend in the year 2005 and later on it get decreases due to various economic changes

in SAIL.

Chart No.17

DIVIDEND YIELD RATIO OF SAIL FOR THE PERIOD

OF 2001-2007



6
5.25
5

4
DIVIDEND YIELD RATIO

3 2.71
2.4

2

1

0
2005 2006 2007

YEARS

FINDINGS
This study is carried out with the objective of analyzing the financial performance

of SAIL to examine and understand the role of finance in the growth of the company.

This chapter attempts to highlight the findings of the study.



1. The comparative statement shows that the sales of the year 2007 are very high

compared to the past.

2. The profit before interest and tax is in positive during the period of study

excluding the year 2002 because of low sales value in the corresponding year.

3. The sales, PBIT, PBT, PAT all shows the increasing trend during the period under

review. It depicts that the company is working with more efficiency.

4. The repayment of loan funds which reduces the interest charges and increase in

the selling price of the steel contributes the rising trend.

5. The interest and finance charges in the year 2007 are one third of 2001. It made a

favorable impact towards the company.

6. Return on Investment fluctuates more due to the charges in the operating profit of

the company.

7. Net Profit ratio shows increasing trend. It depicts that the efficiency is maintained

in sales value and operating expenses.

8. Payout ratio and Dividend Yield ratio had been shown only after the year 2005

because dividend was paid only during after that year.

9. Fixed Assets turnover ratio shows the increasing trend. It depicts that the

company’s fixed assets are utilized properly in relation to the sales.

10. Working Capital turnover ratio depicts the increasing trend shows from 2002 to

2004 and then slope downwards due to holding high cash and bank balance after

the year 2005.

11. Debtor turnover ratio and debt collection period shows increasing trend. It

depicts the higher performance of debt collection department of the company.



12. Stock turnover ratio depicts the efficiency of the inventory utilization in relation

to the corresponding sales value.

13. The ideal current ratio is 2 which the firm obtains only after the year 2005 it

shows the positive impact.

14. The ideal liquid ratio is 1 which is also obtained by the firm only after the year

2005, which enables the company to meet the emergency requirements.

15. Proprietary ratio of the company fluctuates during the period of study. It shows

the change in the value of reserves and surplus in the form of shareholders’ fund.

RECOMMENDATION AND SUGGESTIONS

1. The company may increase the performance by reducing the borrowed capital, so

that the interest an finance charges will be less.

2. The company may increase the sales if it attempts to move into export market.



3. The company may reduce the operating inefficiencies through effective utilization

of all the resources.

4. The company may strike a balance between the current assets and current

liabilities to maintain the solvency position.

5. Optimum utilization of Working Capital can be planned so as to result in sound

financial position.

6. There is an urgent need to upgrade and modernize the plants for improving the

profitability of SAIL.

CONCLUSION
Finance is the life blood of every business. Without effective financial

management a company cannot in this competitive world. A Prudent financial Manager

has to measure the working capital policy followed by the company.



SAIL continues to play an important role in the industrial development of

country. There is every possibility that SAIL would establish for itself a permanent and

unshakable position in the industrial map of India and also in the emerging international

market for steel.


Financial analysis of_SAIL

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