ANALYSIS OF

FINANCIAL REPORT

SUBMITTED TO: submitted by:

Professor shilp shah
Mayank upadhaya shounik vig
Sanket patel
Hitesh keshkani
Gaurav bagaria
 ACKNOWLEDGEMENT
Though in the completion of the project report many people have helped us
but there are few names which are to be mentioned in person.
Therefore,
We would thank our parents, who have been our role models and the prime
inspiration behind our zeal to work hard.
Then we would like to thank our professors, our guides and our well
wishers, people who taught us and the best way to learn the latest, new and
best: Mr. Mayank Upadhyaya, professor finance.
We would also like to mention our college which provided us with the base,
the platform upon which we stand and hence could develop this project:
Entrepreneurship Development Institute of India (EDI)
In the end we thank GOD ‘almighty’ who did give us strength, knowledge
and showed us the right path.
We would also like to apologize if anyone would have been hurt in the due
course of the project report.
 Table of contents

Background of the steel sector…………………………………01-02

Analysis of the sector…………………………………………….03-04

Brief introduction of Tata steels……………………………….05-06

Balance sheet………………………………………………………….07

Profit and loss account………………………………………………08

Ratio analysis……………………………………………………..09-27

Conclusion…………………………………………………………28-29

Bibliography……………………………………………………………30
BACKGROUND OF THE STEEL SECTOR

The Indian iron and steel industry is nearly a century old, with Tata Iron & Steel
Co (Tata Steel) as the first integrated steel plant to be set up in 1907. It was the
first core sector to be completely freed from the licensing regime (in 1990-91)
and the pricing and distribution controls. The steel industry is expanding
worldwide. For a number of years it has been benefiting from the exceptionally
buoyant Asian economies (mainly India and China). The economic
modernization processes in these countries are driving the sharp rise in demand
for steel.

The New Industrial policy adopted by the Government of India has opened up
the iron and steel sector for private investment by removing it from the list of
industries reserved for public sector and exempting it from compulsory
licensing. Imports of foreign technology as well as foreign direct investment are
freely permitted up to certain limits under an automatic route.

This, along with the other initiatives taken by the Government has given a
definite impetus for entry, participation and growth of the private sector in the
steel industry. While the existing units are being modernized/expanded, a large
number of new/Greenfield steel plants have also come up in different parts of
the country based on modern, cost effective, state of-the-art technologies.
Soaring demand by sectors like infrastructure, real estate and automobiles, at
home and abroad, has put India's steel industry on the world map.

Dominating the Indian horizon is steel giant Tata Steel, whose takeover of the
UK-Dutch steel company Corus is the country's biggest buyout. Meanwhile, the
LN Mittal-owned Mittal Steel acquired French steel company Arcelor to create
the world's number one steel company, Arcelor Mittal and Korean steel giant
POSCO is pumping money into mines and steel plants in Orissa to emerge as
one of the biggest steel plants in the state.

Consumption
Already, India's consumption of stainless steel is much higher at 14 per cent,
compared to the global consumption of six per cent in the last 15 years.
Domestic consumption of finished (carbon) steel is on the rise, driven by a
boom in the automobile sector and a nation-wide thrust on infrastructure and
real estate.
Source: International Iron and Steel Institute
During April and October 2005-06, domestic consumption of steel stood at
21.25 MT as compared to 19.53 MT in the corresponding period of the previous
year.
1
Corporate Catalyst India A report on Indian Iron and Steel Industry

Industry Structure
Indian Iron and steel Industry can be divided into two main sectors Public
sector and Private sector. Further on the basis of routes of production, the
Indian steel industry can be divided into two types of producers.

2
ANALYSIS OF THE SECTOR
India is a reputed name in the world steel industry; the country’s steel industry
is catching up the pace and luring the steel majors from all over the world. The
industry has gained strength from the strong Indian economy, and strong sectors
like infrastructure, construction and automobile. Although India consumes less
steel as compared to other Asian countries, it was ranked the fifth major crude
steel producer in the world in 2008. Thus, the country offers vast scope for the
steel industry in future.

SWOT ANALYSIS:

STRENGTHS
• Strongly globalised industry and emerging global competitiveness
• Modern new plants & modernized old plants
• Strong DRI production base
• Regionally dispersed merchant rolling mills
• Abundant resources of iron ore
• Low cost and efficient labor force
• Strong managerial capability

WEAKNESSES
• Labor laws
• infrastructure
• higher rates of duties and taxes
• Quality of coking coal
• High cost of energy
• Dependence on imports for steel manufacturing equipments &
technology
• Slow statutory clearances for development of mines

3
OPPORTUNITIES
• Huge Infrastructure demand
• Rapid urbanization
• Increasing demand for consumer durables
• Untapped rural demand
• Increasing interest of foreign steel producers in India

THREATS
• Slow growth in infrastructure development
• Market fluctuations and China’s export possibilities
• Global economic slowdown.

4
 BRIEF INTRODUCTION
ABOUT TATA STEELS

VISION
“We aspire to be the global steel industry benchmark
for Value Creation and Corporate Citizenship”

Tata steel one of the most reputed names in steel making since a century and
more in India as well over the world has an annual production capacity to
produce around 30 million metric tonnes per annum and expected to be 50
metric tonnes in few years. It was established in 1907. It is the Asia’s first
integrated steel plant and one of the most geographically spread company and is
listed in fortune 500 companies.

Tata Steel has a balanced global presence in over 50 developed European and
fast growing Asian markets, with manufacturing units in 26 countries.

It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th
February, 1908, the first stake was driven into the soil of Sakchi.  His vision
helped Tata Steel overcome several periods of adversity and strive to improve
against all odds.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of
10 MTPA. The Company also has proposed three Greenfield steel projects in
the states of Jharkhand, Orissa and Chhattisgarh in India with additional
capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand)

and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and
marketing network in Europe, South East Asia and the pacific-rim countries.
Corus, which manufactured over 20 MTPA of steel in 2008, has operations in
the UK, the Netherlands, Germany, France, Norway and Belgium.

5
Tata Steel Thailand is the largest producer of long steel products in Thailand,
with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5
MTPA mini blast furnace project in Thailand. NatSteel Holdings produces
about 2 MTPA of steel products across its regional operations in seven
countries.

Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also
entered the steel building and construction applications market

The iron ore mines and collieries in India give the Company a distinct
advantage in raw material sourcing. Tata Steel is also striving towards raw
materials security through joint ventures in Thailand, Australia, Mozambique,
Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with
Steel Authority of India Limited to establish a 50:50 joint venture company for
coal mining in India. Also, Tata Steel has bought 19.9% stake in New
Millennium Capital Corporation, Canada for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil Nadu, ferro-

chrome plant in South Africa and setting up of a deep-sea port in coastal Orissa
are integral to the Growth and Globalisation objective of Tata Steel.

Tata Steel’s vision is to be the global steel industry benchmark for Value

Creation and Corporate Citizenship.

Balance Sheet
March, 2009 March, 2008 March, 2007 March, 2006

6
 March,
2010
FUNDS EMPLOYED
SHARE CAPITAL 887.41 6203.45 6,203.30 580.67 553.67
SHARE WARRANTS 147.06
RESERVES AND SURPLUS 36074.38 23972.81 21,097.43 13368.42 9201.63
TOTAL SHAREHOLDERS' FUNDS 36961.80 30176.26 27,300.73 14096.15 9755.3
LOANS
Secured 2259.32 3913.05 3,520.58 3758.92 2191.74
Unsecured 22979.88 23033.13 14,501.11 5886.41 324.41
Total Loans 25239.20 26946.18 18,021.69 9645.33 2516.15
DEFERRED TAX LIABILITY 867.67 585.73 681.8 748.94 957

PROVISION FOR EMPLOYEE SEPARATION 957.16 1033.6 1,071.30 1107.08 1388.71

COMPENSATION
TOTAL FUNDS EMPLOYED 64232.78 58741.77 47,075.52 25597.5 14617.16
APPLICATION OF FUNDS :
FIXED ASSETS
Gross Block 26149.66 23544.69 20,847.04 18526.93 16564.9
Less — Impairment 106.07 100.47 100.47 100.41 94.19
Less — Depreciation 10037.56 8962 8,123.01 7385.96 6605.66
Net Block 16006.03 14482.22 12,623.56 11040.56 9865.05
INVESTMENTS 44979.67 42371.78 4,103.19 6106.18 4069.96
CURRENT ASSETS
Stores and spare parts 623.76 612.19 557.67 505.44 442.66
Stock-in-trade 2453.99 2868.28 2,047.31 1827.54 1732.09
Sundry debtors 434.83 635.98 543.48 631.63 539.4
Interest accrued on investments 0.29 0.2 0.2 0.2
Cash and Bank balances 3234.14 1590.6 465.04 7681.35 288.39
6747.01 5707.05 3,613.70 10646.16 3002.74
LOANS AND ADVANCES 5499.68 4578.04 33,348.74 3055.73 1234.86
12246.69 10285.09 36,962.44 13701.89 4237.6
Less:CURRENT LIABILITIES AND
PROVISIONS
Current Liabilities 6653.09 6039.86 3,855.26 3523.2 2835.99
Provisions 2346.52 2934.19 2,913.52 1930.46 972.73
8999.61 8974.05 6,768.78 5453.66 3808.72
NET CURRENT ASSETS 3247.08 1311.04 30,193.66 8248.23 428.88
MISCELLANEOUS EXPENDITURE

Employee Separation Compensation - 105.07 155.11 202.53 253.27

TOTAL ASSETS 64232.78 58741.77 47,075.52 25597.5 14617.16

Profit and Loss Account

7
 March, 2010 March, 2009 March, 2008 March, 2007 March, 2006
INCOME :
SALE OF PRODUCTS AND
SERVICES 26757.80 26843.73 22,191.80 19762.57 17144.22
Less — Excise Duty 1735.82 2527.96 2,498.52 2210.55 2004.83
25875.77 24315.77 19,693.28 17552.02 15139.39
OTHER INCOME 853.79 308.27 335 433.67 254.76
25875.77 24624.04 20,028.28 17985.69 15394.15
EXPENDITURE :
MANUFACTURING AND OTHER EXPENSES 16396.00 15525.99 11,645.24 10814.77 9320.5
DEPRECIATION 1083.18 973.4 834.61 819.29 775.1
17479.18 16499.39 12,479.85 11634.06 10095.6
Less — EXPENDITURE 326.11 343.65 175.5 236.02 112.62
17153.07 16155.74 12,304.35 11398.04 9982.98
INTEREST 1508.40 1152.69 878.7 173.9 118.44
TOTAL EXPENDITURE 18661.47 17308 13,183.05 11571.94 10101.42
PROFIT BEFORE TAXES & EXCEPTIONAL
ITEMS 7214.30 7315.61 6,845.23 6413.75 5292.73
EMPLOYEE SEPARATION COMPENSATION - -226.18 -152.1 -52.77
-150
-
EXCHANGE GAIN/(LOSS) 597.31
PROFIT BEFORE TAXES 7214.30 7315.61 7,066.36 6261.65 5239.96
TAXES
CURRENT TAX 1998.00 2173 2,252.00 2076.01 1579
DEFERRED TAX 169.50 -75.13 108.33 -52.51 127.58
FRINGE BENEFITS TAX - 16 19 16 27
2167.50 2113.87 2,379.33 2039.5 1733.58
PROFIT AFTER TAXES 5046.80 5201.74 4,687.03 4222.15 3506.38
BALANCE BROUGHT FORWARD FROM
LAST y 9508.98 6387.46 4,593.98 2976.16 1790.21
AMOUNT AVAILABLE FOR
APPROPRIATIONS 14555.78 11589.2 9,281.01 7198.31 5296.59
APPROPRIATIONS :
PROPOSED DIVIDENDS 709.77 1168.95 1,168.93 943.91 719.51
DIVIDEND ON CUMULATIVE CONVERTIBLE
45.88
PREFERENCE SHARES 109.45 22.19
TAX ON DIVIDENDS 122.80 214.1 202.43 160.42 100.92
400
GENERAL RESERVE 504.68 600 1,500.00 1500 1500
1783.13 2090.5 2,893.55 2604.33 2320.43
BALANCE CARRIED TO BALANCE 12772.65 9496.7 6,387.46 4593.98 2976.16
SHEET
Basic Earnings per Share Rs. 60.26 69.45 67.17 73.76 63.35

8
 RATIOS AND THEIR
INTERPRETATIONS

There are different types of ratios that constitute ratio analysis. They
can be classified as Liquidity Ratios, Activity ratios, Profitability
ratios and Solvency ratios. Lets we discuss about various types of
ratios used in ratio analysis.

The basic kinds of Classifications under which various ratios can

be placed are as follows:

A. Liquidity Ratios
B. Leverage Ratios
C. Profitability Ratios
D. Turnover Ratios
E. Valuation Ratios

LIQUIDITY RATIOS:
9
 Liquidity Ratio is the ability of a firm to satisfy its current
or short term obligations as they become due. The ratios
which indicate the liquidity of a firm are:

 Net working capital,

 Current ratios,
 Acid test\quick ratios,
 Super quick ratios,
 Defensive interval ratios,
 Cash flow from operations ratio etc.

The above has a special relationship with Liquidity & hence

there establishes again a direct relationship between Liquidity
& investments in Current Assets, as higher the Current Assets
higher would be an Organizations liquidity, since it resembles
that there are enough of working capital to meet day to day
obligations.

CURRENT RATIO:
10
MEANING
The Current Ratio is a measure of liquidity calculated dividing the current
assets by the current ratio. Current ratio represents the liquidity position of the
company. Higher the ratio, higher the ability of the company to meets its short
term obligations keeping the ratio higher means the company has to
compromise towards its profitability.

Working Note
Total Current Assets
Current Ratio = ____________________
Working Note-1 Total Current Liabilities
Current Ratio

Types of Ratio March, March, March, March, March,

2010 2009 2008 2007 2006

CURRENT ASSETS
Stores and spare parts 623.76 612.19 557.67 505.44 442.66
Stock-in-trade 2453.99 2868.28 2,047.3 1827.54 1732.09
1
Sundry debtors 434.83 635.98 543.48 631.63 539.4
Interest accrued on investments 0.29 0.2 0.2 0.2
Cash and Bank balances 3234.14 1590.6 465.04 7681.35 288.39
6747.01 5707.05 3,613.70 10646.1 3002.74
6
LOANS AND ADVANCES 5499.68 4578.04 33,348. 3055.73 1234.86
74
12246.6 10285.0 36,962.4 13701.8 4237.6
9 9 4 9
Less:CURRENT LIABILITIES AND
PROVISIONS

Current Liabilities 6653.09 6039.86 3,855.2 3523.2 2835.99

6
Provisions 2346.52 2934.19 2,913.5 1930.46 972.73
2
8999.61 8974.05 6,768.78 5453.66 3808.72
NET CURRENT ASSETS 3247.08 1311.04 30,193.6 8248.23 428.88
6
Advance against equity - 247.61 30,896. - -
16
Current Ratio 1.36 1.11 5.46 2.51 1.11

Interpretation for Tata steel

11
This ration shows that company has high bank balance
or cash on hand. This ration is higher than the normal
mark of 1.33 the ratio of the company is 1.36 this shows
that they have money but they are not investing. They
have recovered money from the debtors and their bank
balance is very high so they can use that money for
increase in operational activity or reduce their liability.

LIQUID RATIO:

Working Note
Total Liquid Assets
Liquid Ratio = ____________________
Working Note-1 Total Liquid Liabilities
Liquid Ratio

Types of Ratio March, March, March, March, March,

2010 2009 2008 2007 2006

Liquid ASSETS
Stores and spare parts 623.76 612.19 557.67 505.44 442.66

Sundry debtors 434.83 635.98 543.48 631.63 539.4

Interest accrued on investments 0.29 0.2 0.2 0.2
Cash and Bank balances 3234.14 1590.6 465.04 7681.35 288.39
6747.01 5707.05 3,613.70 10646.1 3002.74
6
LOANS AND ADVANCES 5499.68 4578.04 33,348. 3055.73 1234.86
74
9792.7 7416.81 34,915.1 11874.3 2505.51
3 5
Less:CURRENT LIABILITIES AND
PROVISIONS

Current Liabilities 6653.09 6039.86 3,855.2 3523.2 2835.99

6
Provisions 2346.52 2934.19 2,913.5 1930.46 972.73
2
8999.61 8974.05 6,768.78 5453.66 3808.72

Liquid Ratio 1.08 5.15 2.18 0.66

12
 0.83

Liquid ratio
This ratio shows the company’s capacity of paying. Liquid ratio
ideally it should be 1:1 but for the Tata steel the liquid ratio is 1:1.08.
This position shows that tata steel has excess liquidity. They should
invest their amount in other activity or as an investment.

LEVERAGE RATIOS:-
13
The second category of financial ratios is leverage or capital
structure ratios. The Long term lenders\creditors would judge
the soundness of a firm on the basis of the long term financial
strength measured in terms of its ability to pay the interest
regularly as well as repays the installment of the principal on
due dates or in one lump sum at the time of maturity.
The ratios which are included in the leverage ratios are:-
 Debt-Equity Ratio
 Debt-asset Ratio
 Interest Coverage Ratio

1. DEBT-EQUITY RATIO

14
 The relationship between borrowed funds and owner’s capital is
a popular measure of the long-term financial solvency of a firm.
The relationship is shown by the debt-equity ratios. The ratio
reflects the relative claims of creditor or share holders against
the assets of firms & relatively indicates the proportions of debt
& equity in financing the assets of a firm.

The relationship between outsider’s claims and owner’s capital

can be shown in different ways and, accordingly, there are
many variants of the debt-equity ratio.

Debt Equity Ratio

Debt
Debt Equity Ratio = ____________________
Equity (Net worth)

March, 2010 March, 2009 March, 2008 March, March,

2007 2006
FUNDS EMPLOYED
SHARE CAPITAL 887.41 6203.45 6,203.30 580.67 553.67
SHARE WARRANTS 147.06
RESERVES AND SURPLUS 36074.39 23972.81 21,097.43 13368.4 9201.63
2
Less misc expenditure - 105.07 155.11 202.53 253.27
TOTAL SHAREHOLDERS' 36961.80 30071.19 27,145.62 13893.6 9502.03
FUNDS 2
LOANS
Secured 2259.32 3913.05 3,520.58 3758.92 2191.74
Unsecured 22979.88 23033.13 14,501.11 5886.41 324.41
Total Loans 25239.2 26946.1 18,021.6 9645.3 2516.1
0 8 9 3 5
Debt Equity Ratio 0.68 0.90 0.66 0.69 0.26

Debt equity ratio

Debt to equity ratio indicates the proportionate claims of owners and the
outsiders against the firms assets. The purpose is to get an idea of the cushion
available to outsiders on the liquidation of the firm. However, the interpretation
of the ratio depends upon the financial and business policy of the company. The
owners want to do the business with maximum of outsider's funds in order to
take lesser risk of their investment and to increase their earnings (per share) by
paying a lower fixed rate of interest to outsiders. The outsiders’ (creditors) on
the other hand, want that shareholders (owners) should invest and risk their
share of proportionate investments. A ratio of 1:1 is usually considered to be
satisfactory ratio although there cannot be rule of thumb or standard norm for
15
all types of businesses. Theoretically if the owners’ interests are greater than
that of creditors, the financial position is highly solvent. In analysis of the long-
term financial position it enjoys the same importance as the current ratio in the
analysis of the short-term financial position. In the tata steel the debt is lower
than the equity borrowing. This gives cushion to the debtors.

2. DEBT ASSET RATIO:

16
 Debt
Debt Asset Ratio Debt Asset Ratio = ____________________
Total asset

17
Fixed Assets March, 2010 March, 2009 March, 2008 March, March, 2006
2007

Gross Block 26149.66 23,544.69 20,847.04 18526.93 16564.90

Less : Impairment 106.07 100.47 100.47 100.41 94.19
Less : Depreciation 10,037.56 8962 8123.01 7385.96 6605.66
Net Block 16,006.03 14482.22 12623.56 11040.5 9865.05
6
Investment 44979.67 42,371.78 4103.19 6106.18 4069.96
CURRENT ASSETS
Stores and spare parts 623.76 612.19 557.67 505.44 442.66
Stock-in-trade 2453.99 2868.28 2,047.31 1827.54 1732.09

Sundry debtors 434.83 635.98 543.48 631.63 539.4

Interest accrued on investments 0.29 0.2 0.2 0.2
Cash and Bank balances 3234.14 1590.6 465.04 7681.35 288.39
6747.01 5707.05 3,613.70 10646.1 3002.74
6
LOANS AND ADVANCES 5499.68 4578.04 33,348.74 3055.73 1234.86
12246.69 10285.09 36,962.44 13701.8 4237.6
9
Less:CURRENT LIABILITIES AND
PROVISIONS
Current Liabilities 6653.09 6039.86 3,855.26 3523.2 2835.99
Provisions 2346.52 2934.19 2,913.52 1930.46 972.73
8999.61 8974.05 6,768.78 5453.66 3808.72
NET CURRENT ASSETS 3247.08 1311.04 30,193.66 8248.23 428.88
Misc expenditure - 105.07 155.11 202.53 253.27
Total asset 64232.78 58741.77 47,075.52 25,597.50 14,617.16
LOANS
Secured 2259.32 3913.05 3,520.58 3758.92 2191.74
Unsecured 22979.88 23033.13 14,501.11 5886.41 324.41
Total Loans 25239.2 26946.18 18,021.6 9645.33 2516.15
0 9
Debt Asset Ratio 0.39 0.46 0.38 0.38 0.17

3. INTEREST COVERAGE RATIO:

It is the second category of leverage ratios. It is also known as

‘time-interest earned ratio’. This ratio measures the debt servicing
18
 capacity of a firm in so far as fixed interest on long-term is
concerned. It is determined by dividing the operating profits or
earnings before interest and taxes (EBIT) by the fixed interest
charges on loan. This ratio, as the name suggests, shows how
many times the interest charges are covered by the EBIT out of
which they will be paid. In other words, it indicates the extent to
which a fall in EBIT is tolerable in the sense that the ability of the
firm to service its interest payments would not be adversely
affected.

EBIT
Interest coverage ratio Intrest coverage Ratio = ____________________
interest

March, March, March, 2008 March, March,

2010 2009 2007 2006
EXPENDITURE :
MANUFACTURING AND OTHER 8658.41 15525.99 11,645.2 10814.7 9320.5
EXPENSES
4 7
DEPRECIATION 618.78 973.4 834.61 819.29 775.1
9277.19 16499.39 12,479.8 11634.0 10095.6
5 6
Less — EXPENDITURE 204.82 343.65 175.5 236.02 112.62
9072.37 16155.74 12,304.3 11398.0 9982.98
5 4
INTEREST 186.8 1152.69 878.7 173.9 118.44
TOTAL EXPENDITURE 9259.17 17308 13,183.05 11571.94 10101.4
2
PROFIT BEFORE TAXES & EXCEPTIONAL 5387.81 7315.61 6,845.23 6413.75 5292.73
ITEMS
EMPLOYEE SEPARATION -226.18 -152.1 -52.77 -119.11
COMPENSATION
CONTRIBUTION FOR SPORTS INFRASTRUCTURE -150
EXCHANGE GAIN/(LOSS) 597.31 28.58
PROFIT BEFORE TAXES 7315.61 7,066.36 6261.65 5239.96 5297.28
1152.69 878.7 173.9 118.44 186.8
PROFIT BEFORE INEREST 8468.3 7,945.0 6435.55 5358.4 5484.0
TAXES 6 8
Interest coverage ratio 7.34 9.04 37.00 45.24 29.36

Interest coverage ratio:

19
Interest Coverage Ratio indicates the extent to which a fall in EBIT is
tolerable in the sense that the ability of the firm to service its interest
payments would not be adversely affected. In the early 3 years
interest coverage ratio was 29.36 but it decreased to 7.34 in the year
08-09 which shows that the company is using excessive debt and does
not have the ability to offer assured payment of interest to the
creditors.

C. PROFITABILITY RATIOS:

20
The operating efficiency of the business firm is measured on the basis of
profit earned during any financial year. The management and the owner’s of
the company are always eager to measure profit as the efficiency of the
management and return on investment of owners both depend upon the
profit. The profitability of the firm is measured by profitable ratios. The
purpose of study and analysis of profitability ratios are to help assessing the
adequacy of profits earned by the company and also to discover whether
profitability is increasing or declining. The profitability ratios show the
combined effects of liquidity asset management and debt management on
operating results. Profitability ratios are measured with reference to sales,
capital employed, total assets, employed shareholders funds etc. The major
profitability ratios are as follows:-

 EBIDTA / Turnover Ratio

 Gross Profit Ratio
 Net Profit Ratio
 Operating Profit Ratio
 Operating ratio
 Expenses ratio
 Returns on Shareholders funds
 Return on Total Assets
 Return on Capital Employed

21
1. NET PROFIT MARGIN
Net profit ratio is also known as net margin. This measures the
relationship between net profits and sales of a firm. To ascertain
the value of the ratio, the Profit after Tax is divided by net sales
and then their percentage is taken.

The net profit margin is indicative of management’s ability to

operate the business with sufficient success not only to recover
from revenue of the period but also earning profit after
deducting all expenses, depreciation, financial charges and
taxes.

Working Note-4

Net Profit Margin (%)

Net profit after tax
Net Profit Ratio = ____________________
Net sales

March, March,
March, 2010 March, 2009 March, 2008 2007 2006
24,940.6 24,348.3 19,654.4 17452.6 15132.0
Net Sales 5 2 1 6 9
PROFIT AFTER TAXES 5046.80 5201.74 4,687.03 4222.15 3506.38
Net Profit Margin (%) 20.23 21.36 23.84 24.19 23.17

Net profit ratio

In this year sales of tata steel has increase but net profit decline
shows that the company’s operating expense has increased this
year and therefore the net profit as percentage has gone down
from 21.36% to 20.23%.

22
EBDITA Ratio:
Working Note- 8
EBDITA ratio PBDIT
EBDITA Ratio = ____________________
NET SALES

March, 2010 March, 2009 March, 2008 March, 2006 March, 2007

Net Sales 24940.65 24,348.32 19,654.41 15132.09 17452.66

Add: Other income 1241.08 603.07 586.41 252.58 362.12
Add: Stock adjustment -134.97 289.27 38.73 104.91 82.47
Total income 26,046.76 25,240..66 20,279.55 15,489.58 17,897.25
Less expenditure
Raw materials 8,356.45 8568.71 6,063.53 4,766.44 5,762.42
Power & fuel cost 1383.44 1222.48 1038.77 897.57 1,027.84
Employee cost 2361.48 2305.81 1589.77 1,351.51 1,454.83
Other manufacturing 2,419.89 2127.48 1654.96 1466.83 1,561.40
expenses
Selling & admin 417.90 400.24 247.77 255.93 244.92
expenses
Misc expenses 1,287.04 1180.08 1029.30 727.12 805.99
Preoperative exp -326.11 -343.65 -175.50 -112.62 -236.02
capitalized
Total expenses 15,900.09 15,461.15 11,448.60 9,352.78 10,621.38
PBDIT 10,146.67 9,779.51 8,830.95 6,136.80 7,275.87
EBDITA RATIO 40.68% 40.17% 44.93% 40.55% 41.67%

EBDITA interpretation
This ratio shows about the company’s operating expenses. The above ratios
show that the company’s operating expenses has increased around 0.5 % from
the last year. In last five year company’s operating expenses were fluctuating
and it ranged between 40% to 45%.

TURNOVER RATIOS:
Turnover Ratio is used in how quickly certain current assets are
converted into cash. It can also be said as a measurement of
effectiveness with which a firm uses its available resources. It
23
measures how effectively the firm employs its resources. It involve
comparison between the level of sales and investment in various
accounts- inventories, debtors, fixed assets, etc., activity ratios are
used to measure the speed with which various accounts are
converted into sales or cash. The following activity ratios are
calculated for analysis:-

 Inventory Turnover Ratio

 Fixed Assets Turnover Ratio
 Working Capital Turnover Ratio
 Total Assets Turnover Ratio
 Net Worth Turnover Ratio
 Debtors Turnover Ratio

1. TOTAL ASSETS TURNOVER RATIO

The amount invested in business is invested in all assets jointly and
sales are affected through them to earn profits. So, in order to find out
relation between total assets to COGS it is used. This ratio is
important to know the overall efficiency of the business. The higher
24
the ratio, it shows that with less amount of investment the total assets
the business has a capacity to sell more and as such its probability is
also known.

Working Note- 8
Assets turnover ratio Net sales
Assets turnover Ratio = ____________________
Avg total assets

March, 2010 March, 2009 March, 2008 March, 2007 March, 2006

Net Sales 24,940.65 24,348.32 19,654.41 17452.66 15132.09

Avg total assets 61487.275 52,908.64 36,336.51 20,107.33 13,380.23
Assets turnover ratio % 40.56 46.01 54.08 86.79 113

2. FIXED ASSET TURNOVER RATIO

Working Note- 8
Fixed Assets turnover ratio Net sales
Fixed Assets turnover Ratio = ____________________
Avg total Fixed assets

March, 2010 March, 2009 March, 2008 March, 2007 March, 2006

Net Sales 24,940.65 24,348.32 19,654.41 17452.66 15132.09

Avg fixed assets 15244.125 13,552.89 11,832.06 10,452.805 9488.645
Assets turnover ratio % 163.6 179.06 166.1 166.9 159.4

25
VALUATION RATIOS

The valuation ratios related the firm’s stock price to its earnings and
book value per share. These ratios give management an indication of
what investors think of the company’ past performance and future
prospectus. If firm’s profitability, solvency and turnover ratios are
good, then the valuation ratios will be high and its share price is
also expected to be high. This ratio is also known as Market Test
Ratio. Valuation Ratios are as follows:-

 Dividend Yield Ratio

 Dividend Payout Ratio
 Price Earnings Ratio
 Return on asset Ratio

26
1. PRICE EARNINGS RATIO

It is the most common measure of how expensive a stock is. The Price
Earnings ratio is equal to a stocks market dividend divided by its after tax
earnings over a 12 months period, usually the trailing period but
occasionally the current or forward period. The value is the same whether
the calculation is done for the whole company or on per share basis. The
higher the Price Earnings ratio, the more the market is willing to pay for
each dollar of annual earnings. Companies that are not currently profitable
do not have a Price Earnings ratio at all. The market price per
share for each rupee of currently has reported Earning per Share.  In  other 
words, the  Price Earnings ratio  measures  investors’  expectations  and 
the  market  appraisal  performance  of  a  firm.

Working Note- 9

Price/equity ratio
Market price of share
P\E Ratio = ____________________
EPS

March, March, March,

2010 March, 2009 2008 March, 2007 2006
Market price of share 618.10 206.26 693.38 449.77 536.51
Earnings Per share(Rs) 56.37 69.70 63.85 76.29 63.36
P/E ratio 10.965 2.95 10.86 5.89 8.46

27
2. RETURN ON ASSET RATIO:
Working Note- 8
Return on Asset ratio PAT
EBDITA Ratio = ____________________
Average total asset

March, 2010 March, 2009 March, 2008 March, 2006 March, 2007

Average Total Asset 61,487,275 52,908.64 36,336.51 13,380.23 20,107.33

Net Sales 24940.65 24,348.32 19,654.41 15132.09 17452.66
Add: Other income 1241.08 603.07 586.41 252.58 362.12
Add: Stock -134.97 289.27 38.73 104.91 82.47
adjustment
Total income 26,046.76 25,240..66 20,279.55 15,489.58 17,897.25
Less expenditure
Raw materials 8,356.45 8568.71 6,063.53 4,766.44 5,762.42
Power & fuel cost 1383.44 1222.48 1038.77 897.57 1,027.84
Employee cost 2361.48 2305.81 1589.77 1,351.51 1,454.83
Other manufacturing 2,419.89 2127.48 1654.96 1466.83 1,561.40
expenses
Selling & admin 417.90 400.24 247.77 255.93 244.92
expenses
Misc expenses 1,287.04 1180.08 1029.30 727.12 805.99
Preoperative exp -326.11 -343.65 -175.50 -112.62 -236.02
capitalized
Total expenses 15,900.09 15,461.15 11,448.60 9,352.78 10,621.38
PBDIT 10,146.67 9,779.51 8,830.95 6,136.80 7,275.87
Less interset 1,848.19 1489.50 929.03 168.44 251.25
PBDT 8,298.48 8290.01 7,901.92 5,968.36 7,024.62
Less Depreciation 1,083.18 973.40 834.61 775.10 819.29
PBT 7,215.30 7,316.61 7,067.31 5193.26 6,205.33
Add extra ord items 0.00 0.00 0.00 47.50 57.29
PBT(Post extra ord 0.00 0.00 0.00 5,240.76 6,262.62
item)
Less tax 2,168.50 2,114.87 2,380.28 1,734.38 2,040.47
Pat 5,046.80 5,201.74 4,687.03 3,506.38 4,222.15
Return on asset 8.207% 9.83% 12.898% 26.21% 20.998%

CONCLUSION
The Role of Iron and Steel Industry in India GDP is very important for the
development of the country. In India the visionary Shri Jamshedji Tata set up
the first Iron and Steel manufacturing unit called Tata Iron and Steel
Company, at Jamshedpur in Jharkhand. Iron and steel are among the most
28
important components required for the infrastructure development in the
country.

Role of Iron and Steel Industry in India GDP-Facts

 The Iron and Steel Industry in India is one of the fastest growing
sectors
 The demand drivers for the Indian Iron and Steel industry are increase
in the activities of the automobiles industry, real estates industry,
transportation system, aircraft industry, ship building industry, etc.
 India ranks 5th in the world in terms of production of steel
 The amount of crude steel produced in 2006-07 was 50.71 million
tones.
 The amount of finished steel produced in 2006-07 was 51.9 million
tones.
 The production of finished steel was increased by 16.52%
 The production of finished carbon steel was 24.8 million tonnes in the
year 2006-07
 It is expected that India would become the second biggest producer of
steel within the year 2016 and the production per year would be 137
million tones.
 The exports pertaining to the steel industry was 6.26 % during the
period 2006-07

Role of Iron and Steel Industry in India GDP-Consumption

 The domestic consumption of steel has grown by12.5% in the past

three years
 The domestic steel consumption in the year 2006-07 was 41.14 million
tonnes.
 The average growth rate of the Indian Iron and Steel Industry is
11.36%
 The construction projects all over India are major consumer of steel
 The per capita consumption of steel in India is 35kgs
 As the per capita consumption of steel is lower than other countries, so
the steel industry has huge opportunities in the future

Role of Iron and Steel Industry in India GDP-Growth in Future

 The Arcelor Mittal, which is the largest steelmaker in the world, has
plans of establishing two Greenfield steel projects with capacity of 12
million tonnes annually, in India
 Acerinox SA, one of the important stainless steel manufacturers in
collaboration with Nisshin Steel, Japan is setting up a steel plant in
29
 India
 The Tata Steel ranks 5th in the world steel production and the
company have plans of expanding its capacity by the year 2015
 SAIL, India's biggest producer of steel has plans of increasing the
production to 24.98 million tonnes annually
 Sinosteel Corp, China are planning to invest US$ 4 billion to set up a 5
million tonnes capacity Greenfield steel plant
 The acquisition of the Corus, the Anglo-Dutch steel manufacturer by
the Tata Steel
 The Algoma Steel, Canada was acquired by Essar Global for US$ 1.63
billion

BIBILIOGRAPHY
 For preparing this project, we have referred to information regarding the
TATA STEEL LIMITED that was available easily on Internet, which has
made a major contribution to the project report.

30
 Books like:
 FINANCIAL MANAGEMENT (3RD EDITION)
by M.Y. KHAN & P.K. JAIN
 FINANCIAL MANAGEMENT (7TH EDITION)
By PRASANNA CHANDRA
 FINANCIAL MANAGEMENT
By P.C Tulsian

 We have also referred this book, which have been of great help getting
theoretical information to be added in the project report.

 Moreover we have referred following websites:

 www.tatasteel.com
 www.google.co.in
 www.wikipedia.org

31