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E0005 Financial Analysis of Balance Sheet - Reliance Industries
E0005 Financial Analysis of Balance Sheet - Reliance Industries
Submitted by
(Student Name)
HT NO: 21WJ1E****
ASSISTANT PROFESSOR
(Autonomous)
PAGE
CHAPTER CONTENTS
NO.
INTRODUCTION
Objectives of the study
Research Methodology
CHAPTER -
COMPANY PROFILE
III
CHAPTER -
THEORETICAL FRAMEWORK
IV
DATA ANALYSIS &
CHAPTER - V
INTERPRETATION
Findings
CHAPTER -
Suggestion
VI
Conclusion
Annexure / Questionnaire
INDEX
ABSTRACT
CHAPTER-I
INTRODUCTION
FINANCIAL STATEMENTS:
Accounting process involved recording, classifying and summarizing various business
transactions. The aim of maintaining various records is to determine profitability of the
enterprise from operation of the business and also to find out is financial position. Financial
statements are reports, presented periodically and reflect the financial results of operations of an
enterprise in a particular accounting period more frequently a year. The financial statement is an
organized collection of data according to logical and consistent accounting procedures. Its
purpose is to convey the financial results of a business firm.
DEFINITION
According to John N. Myer “The financial statements provide a summary of the accounts of a
business enterprise, the balance sheet reflecting the assets, liabilities, and capital as on a certain
date and the income statement showing the results of operations during a certain period”.
The term financial statement generally refers to following basic statements:
2. Balance Sheet:
It is a statement of financial position of a business at a specified moment of time. It
represents all assets owned by the business at a particular moment of time and the claims of
the owners and outsiders against those assets at that time. The important distinction between
an income statement and balance sheet is that an income statement is prepared for a period
while balance sheet is prepared on a particular date.
1. Recorded Facts:
The term “Recorded facts refer to the data taken out from the accounting records ”.
The records are maintained on the basis of actual cost data. The figures of various accounts
such as cash in hand, cash at bank, bill receivables, etc are taken as perfect figure recorded in
the accounting books. The recorded facts are not based on replacement cost. the financial
statements do not show current financial condition of concern.
2. Accounting Conversions:
Certain accounting converters are followed while preparing financial
statements. The conversion of valuing inventory at cost or market price, whichever is lower,
is followed. The valuing of assets is done at cost less depreciation principle for balance sheet
purposes, so that the statements are comparable, simple and realistic.
3. Postulates:
The accountants make certain assumption while making accounting records. One of
these assumptions is that the enterprise is treated as a going concern. The other assumption to
this postulate is that the concern is to be liquidated. So the assets are shown ongoing concern
basis. Another important assumption is to assume that the value of money will remain same
in different periods.
4. Personal Judgments:
Even though certain standard accounting conversions are followed in preparing
financial statement but still personal judgment of the accountant plays an important part.
2. Attractive:
The financial statements should be prepared in such a way that important information
is underlined so that it attracts the eye of the reader.
3. Comparability:
The results of financial analysis should be comparable. The financial statements should
be presented in such a way that they can be compared to the previous year’s statements.
4. Brief:
If possible, the financial statements must be prepared in brief. The reader will be able
to form an idea about the figures.
1. Management:
The financial statements are useful for assessing the efficiency of different cost centers.
The management is able to decide the course of action to be adopted in future.
2. Creditors:
The trade creditors are to be paid in a short period. The CRS will be interested in
current solvency of the concerns. The calculations of current ratio and liquid ratio will
enable the creditors to assess the current financial position of the concerns in relation to their
debts.
3. Investors:
The investors include both short-term and long term investors. They are interested in
the security of the principal amounts of loan and regular payments by the concern. The
investors will not only analyze the parent financial position but will also study the future
prospectus and expansion plans of the concern.
4. Government:
The financial statements are used to assess tax liability of business enterprises. The
Government studies economic situation of the country from these statements. These
statements enable the government to find out whether business is following various rules and
regulations or not.
5. Trade Associations:
These associations provide service and protection to the members. They may analyze
the financial statements for the purpose of providing facilities to these members. They may
develop standard ratios and design uniform system of accounts.
6. Stock Exchange:
The stock exchange deals in purchase and sale of securities of different companies.
The financial statements enable the stock broker to judge the financial position of different
concerns. The fixation of prices for securities etc. is also based on the statements
OBJECTIVES OF THE STUDY
The objective of the study is to evaluate the financial performance of Reliance industries
limited . In order to achieve the above objective and to make the study purposeful, the following
additional objectives are fixed.
To study the funds flow position of the company from financial reports and to analyze
performance of Reliance industries limited.
To analyze and evaluate the efficiency of sources and application of funds in the steel
industry.
For comparing the actual position with standards to ensure that the management takes
appropriate steps, if there is any deviation.
To know the operating efficiency of the organization.
To know the working capital position of the organization.
RESEARCH METHODOLOGY
1. Primary data
2. Secondary data
1. Primary data:
It is the information collected directly without any reference. The data required for
accomplishment of this project has been collected mainly by conducting interviews, with
concerned officers and staff either individually (or) collectively and some of the information
had been verified (or) supplemented by personal observation method.
2. Secondary data:
The secondary data is the data, which is already available. The secondary data has been
obtained from annual reports, internal records, in-house magazines, journals, Books and
websites.
DATA SOURCES
LIMITATIONS OF THE STUDY
The Major limitation is the short time span available for the study.
Reliability on usage of secondary data is another limitation.
The complexity and confidentially of various operations was also limitations to the study.
Availability of time of employees is a major constraint.
The study is carried basing on the information and documents provided by the organization
and based on the Interaction with various employees of respective departments.
Data is available up to the financial year 2018-19 only and the data for the year 2022-23 is
not provided by the Company due to non-placement of the same in the Parliament of India.
CHAPTER-II
REVIEW OF LITRETURE
CHAPTER-III
INDUSTRY PROFILE
COMPANY PROFILE
INDUSTRY PROFILE
INTRODUCTION
The Government of India has decided to set up an integrated steel plant at
Visakhapatnam to meet the growing domestic demand for steel. Prime Minister
Mrs. Indira Gandhi laid down the foundation stone on 20th January 1971.
The Government of India and VSP signed an agreement on 12 th June 1979
for the co-operation in setting up 3.4 MT integrated steel plant. The project was
estimated to cost to Rs. 8,394.28 Crores based on prices as on 4 th Quarter of 1981.
However, on completion of the construction & commissioning of the whole plant
in 1992, the cost escalated to Rs. 8,500 Crores based on prices as on 2 nd Quarter of
1994. The plant was dedicated to the nation on 1 st August 1992 by the then Prime
Minister, Mr. P. V. Narasimha Rao.
The man power in the VSP has been limited to 17,500 employees. The plant
has the capacity of producing 3.0 MT of liquid steel & 2.656 MT of saleable steel.
It has set up two major Blast Furnaces, the Godavari, & the Krishna, which are the
envy of any modern steel making complex.
PROFILE
Steel comprises one of the most important inputs in all sectors of economy.
Steel is the basic input for automobiles; construction; machine building; fabrication
and transportation industries. Keeping this in view the Government of India
constituted Visakhapatnam Steel Plant in 1982 with the collaboration of Russia. Its
process is to produce a range of steel products. It is a subsidiary of Rastriya Ispat
Nigam Limited.
Unlike other integrated Steel Plants in India, Visakhapatnam Steel Plant
(VSP) is one of the most modern steel plants in the country. New Technology,
Large-Scale Computerization and Automation etc, are incorporated in Plant.
To operate the Plant at International levels and attain such labor
productivity, the organizational manpower has been rationalized. Because of high
level of technology existing throughout the plant, the company has a very good
manufacturing capability to meet the needs of various customers.
VSP has come a long way before becoming debt-free company in October
2003 (for the first time since its inception in 1992). VSP is now poised at 4th
position among Indian steel majors (Ranked no. 69 among global steel makers)
after passing through a turbulent phase& crisis that had threatened its very
existence. VSP has wiped out its accumulated losses completely by 2005-06.
By 1950 the total installed capacity for ingot steel production was 1.5
million tons per year. In 1830 James Heath constructed the first manufacturing
plant at port Nova in Madras Presidency. But it was a financial failure.
In 1874 James Erskine founded the Bengal Iron works. It was passed on to
M/s. Hoare Hiller and Co. in 1882 and to M/s. Martinand Co. in 1885. In 1899
Jamshedji Tata initiated the scheme for an integrated steel plant. In 1906 Sakhi in
Bihar was chosen as the site for the “Tata Iron and Steel Company”. The same
place is known as Jamshedpur. In 1918 initially “Indian Iron and Steel Company”
was founded and the “Bengal Iron and Steel Company” was merged with it in
1920. TISCO produced steel in 1939. Between 1940-50 formation of major Iron
and Steel at Bhadravti in Karnataka owing to the pioneering effort of
Shri.Visveswarayya in 1936 it started manufacturing steel and after 1945 adopted
electric reduction of Iron ore. It has also started manufacturing Ferro alloys and
special steel.
After the Independence the Government has taken steps to improve the Steel
Industry from the following Five-Year Plans.
First Five year plan (1951-1956)
No new steel plant came up. The Hindustan Steel Limited was born in the
year 1954 with the decision of setting up 3 plants each with one million
tonnes of steel per year at Rourkela, Bhopal and Durgapur, TISCO started its
expansion program.
Second Five year plan (1956-1961)
A bold decision was taken up to increase the ingot steel output in India to 6
million tonnes per year and the production at Rourkela, Bhilai and Durgapur
steel plant started. Rourkela steel plant was established with the
collaboration of West Germany, Bhilai steel plant with USSR and Durgapur
steel plant with Britain.
Third Five year plan (1961-1966)
During the plan, the 3 steel plants under Hindustan Steel Limited (Rourkela,
Bhilai and Durgapur) Plants were expanded. In January 1964, Bokaro Steel
Plant came into existence.
Fourth Five year plan (1969-1974)
Salem Steel Plant started. Government of India gave permission for setting
up Steel Plant in south at Visakhapatnam. Steel Authority of India Limited
was formed during this period on 24th January 1973.
Fifth Five Year Plan (1974-1979)
The idea of setting up the 5th integrated Steel Plant, the Ore-based plant at
VSP Visakhapatnam took a definite shape. At the end of the fifth five-year
plan, the total installed capacity from 6 integrated plants was 10.6 million
tonnes.
Annual plan (1979-1980)
The erstwhile Soviet Union agreed to help in setting up of the
Visakhapatnam Steel Plant.
Sixth Five year plan (1980-1985)
The construction activities were started at Visakhapatnam Steel Plant with a
big bang and top priority was accorded to start the plant. Schemes for
modernization of Bhilai Steel Plant, Rourkela Steel Plant, Durgapur Steel
Plant and Tata Iron and Steel Company were initiated. Capacity at the end
of sixth five year plan from 6 integrated plants stood 11.5 million tonnes.
Seventh five year plan (1986-1991)
Expansion work at Bhilai and Bokaro Steel Plant was completed. Progress
of Visakhapatnam Steel Plant picked up and the rationalized concept has
been introduced to commission the plant with 3 million ton capacity by
1990.
Eighth Five year plan (1992-1997)
The Visakhapatnam Steel Plant was commissioned in 1992. The plant
started its production and its cost became around Rs.8, 755 cores.
Modernization of other steel plants was also duly envisaged.
Ninth Five year plan (1997-2002)
Visakhapatnam steel plant had foreseen a 7% growth during the entire plan
period.
Tenth Five Year Plan (2002-2007)
Steel industry registers the growth of 9.9 % Visakhapatnam steel plant high
regime targets achieved the best of them.
Eleventh Five Year Plan (2007-2012)
Steel industry is trying to achieve its vision and mission by 2010 or entire
plan during this period.
INDUSTRY CLASSIFICATION:
In 2012, the capacity utilization of steel companies globally was lower than
the previous year mainly due to slowdown in consumption clubbed with continued
growth in new steelmaking facilities, particularly in developing economies.
Capacity utilization remained below 80% and overall likely to be under strain even
during 2014 due to further addition in capacity and remains an area of concern for
the steel sector. The growth in2014 up to august has been 2 % against 1.2% in
2013.Indian economy and Indian steel industry are not insulated from the global
developments and they are going through one of the most challenging phases.
PRODUCTION
The country’s steel output grew to 6.54 MT in September 2013 from 6.24
MT during the same month in 2012.
Steel industry was delicensed and decontrolled in 1991 & 1992 respectively.
Today, India is the 4th largest crude steel producer of steel in the world.
Production for sale of Pig Iron in 2019-2020, was 5.78mt.
India is currently the fourth largest crude steel producer in the world,
according to the Ministry of Steel, Government of India, and it is likely to become
the second largest steel producer by 2016, according to the Ernst and Young
Global Steel: 2010 trends, 2011 outlook report ("E&Y"). Unlike China, where
there is significant excess steelmaking capacity, (Chinese crude steel capacity is
expected to be 840.0 Mt in 2012, which would be 22% in excess of the expected
688.0 Mt of consumption), India remains a net importer of steel, which should
allow for more growth in steelmaking capacity for domestic Indian steel
companies. Indian crude steel production increased by a CAGR of 10.5% from
27.3 Mt in 2001 to 66.8 Mt in 2010, according to the WSA. In 2011, production
increased by 5.7%. Production is expected to further increase by 15.3% in 2012
and by 13.4% in 2013, according to E&Y.
India is about to enter the first year of the Twelfth "Five Year Plan" which
aims at "faster, sustainable and more inclusive growth." Also aforesaid objectives
of the Union Budget 2020-2021 are likely to stimulate consumption of steel in
2020-2021.
Demand in India has been driven by the expanding oil and gas and power
sectors and spending on infrastructural facilities, coupled with growth in the
housing, consumer durables and automobile sectors. Apparent steel consumption in
India is projected to grow by 6.9% in 2012 and 9.4% in 2013 after recording a
growth of 4.3% in 2011, according to the WSA.
Among end-user sectors, the infrastructure and industrial construction
sectors accounted for around one-third of total steel consumption in India in 2018-
2019, followed by the pipes and tubes industry, which accounted for 10% of total
steel consumption and the automobile sector, which accounted for 12% of total
steel consumption in the same period, according to CRISIL Research.
Furthermore, according to Ernst & Young 2010, an additional US$1 trillion
of investment is expected to be made in the construction and infrastructure sectors
during the 2012-17 period. Most infrastructure projects consume large amounts of
long steel products, and hence there should be a corresponding increase in long
steel demand.
Indian steel producers have a number of competitive advantages, the most
important of which is an abundant supply of iron ore resources and surplus iron ore
production, predominantly in the east of India. India is the world's fourth-largest
iron ore producer, with sufficient iron ore reserves to meet expected demand. Of
particular interest is Orissa State, which contains 25% of India's iron ore reserves
and 20% of India's coal reserves, according to Corporate Catalyst India.
Fig.Demand outlook for steel products in India
Thus, even though iron ore prices have been steadily increasing
towards the end of 2011, domestic Indian steel companies, with their access
to excess iron ore, have not faced similar increases in raw material prices as
those companies outside of India. Another advantage India has is its
unexplored rural market, which has been fairly unexposed to the varied uses
of steel. Steps are being taken by companies to penetrate this market,
including our Company's setting up of its district level dealership and rural
dealership schemes.
COMPANY PROFILE
INTRODUCTION:
LOCATION:
The Plant is located on the coast of Bay of Bengal, 16 kms to the
Southwest of the Visakhapatnam Port.
MAJOR SOURCES OF RAW MATERIALS:
RAW MATERIALS
SUPPLIER OF RAW
SL.NO.
MATERIALS
Squares HP Naphthalene
Flats Benzene
Rounds Toluene
Re-bars Zylene
VISION
To be a continuously growing world-class company, we shall
Harness our growth potential and sustain profitable growth
Deliver high quality and cost competitive products and be the first choice
of customers
Create an inspiring work environment to unleash the creative energy of
people
Achieve excellence in enterprise management
Be a respected corporate citizen, ensure clean and green environment and
develop vibrant communities around us.
MISSION
OBJECTIVES
Expand Plant capacity to 6.3 Mt. by 2014 with the mission to expand
further in subsequent phases as per the corporate plan.
Revamp existing Blast Furnaces to make them energy efficient to
contemporary levels and in the process increase their capacity by 1.0 Mt,
thus total hot metal capacity to 7.5 Mt.
Be amongst top five lowest cost steel producers in the world.
Achieve higher levels of customer satisfaction.
Vibrant work culture in the organization.
Be proactive in conserving environment, maintaining high levels of safety
PRODUCTION PERFORMANCE:
Labor Productivity
Year Hot Metal Liquid Steel Saleable Steel
(Tonnes/man year)
INTERPRETATION:
The Hot metal during the year 2006-2007 is very high and in the year 2021-
2022it is low.
The Liquid steel during the year 2006-2007 is very high and in the year
2021-2022it is low.
The Saleable steel during the year 2007-2008 is high and in the year 2021-
2022it is low.
The Labor productivity is almost decreasing in all years.
COMMERCIAL PERFORMANCE:
INTERPRETATION:
FINANCIAL PERFORMANCE:
Visakhapatnam Steel Plant had to bear the burns of huge project cost right
from its day of inception. This has affected the company’s balance sheet due to
very high interest burden. The company, inspite of making operating profits every
year had to report net loss during all financial years. This on the other hand has
resulted in making Visakhapatnam Steel Plant to take great care in planning the
financial resources.
The Financial Performance of Visakhapatnam Steel Plant for the past five years is
as follows:
INTERPRETATION:
Financial statements are prepared primarily for decision making. They play a
dominate role in setting the frame work of managerial decisions.
Financial analysis is the process of identifying the financial strength and
weakness of the firm by properly establishing between the items of the balance
sheet and profit and loss account. There are various methods or techniques used in
analysis financial statements such as comparative statements, trend analysis,
common size statements, schedule of changes in working capital, funds flow and
cash flow analysis – Cost Volume Profit Analysis and Ratio Analysis.
The term financial statement analysis includes both analysis and interpretation.
1. EXTERNAL ANALYSIS:
This analysis is done by those who are outsiders for the business. These
persons mainly depend up on the published financial statements. Their analysis
serves only a limited purpose.
2. INTERNAL ANALYSIS:
This analysis is done by persons who have access to the books of
account and at other information related to the business. Such analysis can be
done by executives and employees of the organization. The analysis is done
depending up on the objective to be achieved through this analysis.
B] ON THE BASIS OF MODULES USED:
According to this financial analysis can also be of two types:
1. Horizontal analysis
2. Vertical analysis
1. HORIZONTAL ANALYSIS:
In case of this type of analysis, financial statements for a number of years
are reviewed and analyzed. The current year’s figures are compared with the
standard or base year. The analysis statement usually contains figures for two
or more year and the change are shown regarding each item from the base year
usually in the form of percentage. Since this type of analysis is based on the
data from year to year rather than on date, it is also termed as “Dynamic
Analysis”.
2. VERTICAL ANALYSIS:
In case of this type of analysis a study is made of the quantitative
relationship of various items in the financial statement on a particular date.
Since this analysis depends on the data for one period, this is not very
conducive to a proper analysis of the company’s financial position. It is also
called ‘static analysis as it is frequently used for referring to ratio developed on
one date or for one accounting period.
PROCEDURE OF FINANCIAL STATEMENT ANALYSIS:-
1. Selection
2. Classification
3. Interpretation
4. Cost-Volume-Profit analysis
5. Ratio analysis.
6. Fixed assets must be compared with long term loans and capital. If the
increase in fixed assets is more than the increase in long term loans and
capital, it means fixed assets are financed from the working capital which is
not good in the long term.
4. COST-VOLUME-PROFIT ANALYSIS:
Cost – Volume – Profit analysis is an important tool of profit planning. It
studies the relationship between cost, volume of production, sales and profit. It
is not strictly a technique used for analysis of financial statements. However, it
is an important tool for the management for decision making. Since the data is
provided both cost and financial records. It tells the volume of account of
variation in output, selling price and cost, and finally, the quantity to be
produced and sold to reach the target profit level.
5. RATIO ANALYSIS:
Financial analysis depends to a very large extent on the use of ratios
though there are other equally important tools of such analysis. Thus, a direct
examination of the magnitude of two related items is somewhat enlightening
but the comparison is greatly facilitated by expressing the relationship as a
ratio.
Ratio analysis of business enterprises is done to ascertain the capacity of
the firm to meet its future financial obligation or expectations. Present and past
data are used for the purpose and necessary extrapolations are made to provide
an indication of future performance. Alexander Walt, who criticized the bankers
for their lopsided decisions regarding the grant of credit on current ratios alone,
made the presentation of an elaborate system of ratio analysis as early as in the
year 1919.
RATIO:
Ratio is an expression of the quantitative relationship that exists between the
two numbers. The ratio is defined as “the indicated quotient of two mathematical
expressions” the ratio should be determined between related accounting variables
to be meaningful and effective.
1. Liquidity position
2. Long-term solvency
3. Operational efficiency
4. Overall profitability
5. Inter-firm comparison, and
RATIO ANALYSIS-LIMITATIONS:
Ratio Analysis is a widely used tool of financial analysis. Yet, it suffers
from various limitations. The operational implication of this is that while using
ratios, the conclusions should not be taken on their face value. Some of the
limitations, which characterize ratio analysis, are
i. Difficulty in comparison.
ii. Impact of Inflation, and
iii. Conceptual Diversity
RATIO ANALYSIS-TYPES:
Several ratios, calculated from the accounting data, can be grouped into
various classes according to financial activity or function to be evaluated. As
stated earlier, the parties interested in financial analysis are short-term and long-
term creditors, owners and management. Short-term creditors` main interest is in
the liquidity position or the short-term solvency of the firm. Long-term creditors`,
on the other hand, are more interested in the long-term solvency and profitability
of the firm. Similarly, owners concentrate on the firm’s profitability and financial
condition. Management is interested in evaluating every aspect of the firm’s
performance. They have to protect the interests of all parties and see that the firm
grows profitably. In view of the requirements of the various users of ratios, we
may classify them into the following four important categories:
LIQUIDITY RATIOS
LEVERAGE RATIOS
ACTIVITY RATIOS
PROFITABILITY RATIOS
A)LIQUIDITY RATIOS:
It is extremely essential for a firm to be able to meet its obligations as they
become due. Liquidity ratios measure the firm’s ability to meet current
obligations.
In fact, analysis of liquidity needs the preparation of cash budgets and cash
and Fund Flow statements; but liquidity ratios, by establishing a relationship
between cash and other current assets to current obligations provided a quick
measure of liquidity. A firm should ensure that it does not suffer from lack of
liquidity, and also that it does not have excess liquidity. The failure of a company
to meet its obligations due to lack of sufficient liquidity, will result in a poor
creditworthiness, loss of creditors` confidence, or even in legal tangles resulting in
the closure of the company. A very high degree of liquidity is also bad; idle assets
earn nothing. The firm’s funds will be unnecessarily tied up in current assets.
Therefore, it is necessary to strike a proper balance between high liquidity and lack
of liquidity. The most common ratios, which indicate the extent of liquidity or
lack of it, are:
1. CURRENT RATIO:
The current ratio is calculated by dividing current assets by current
liabilities.
Current assets include cash and those assets, which can be converted into
cash within a year, such as Marketable Securities, Debtors and Inventories.
Prepaid expenses are also including in current assets as they represent the
payments that will not be made by the firm in future. Current Liabilities include
Creditors, Bill payable, Accrued expenses, Short-term bank loan, and Income Tax
Liability and Long-term debt maturing in the current year.
The current ratio is a measure of the firms` short-term solvency. The higher
the current ratio, the larger is the amount of rupees available per Rupee of current
liability, the more is the firms` ability to meet current obligations and the greater is
the safety of funds of short-term creditors.
2. QUICK RATIO:
The Quick ratio is calculated by dividing quick assets by quick liabilities.
Quick assets or Liquid assets mean those assets which are immediately
convertible into cash without much loss. All current assets except prepaid expenses
and inventories are categorized in liquid assets. Quick liabilities means those
liabilities, which are payable within a short period. Normally, Bank overdraft and
Cash credit facility, if they become permanent mode of financing are in quick
liabilities.
As this ratio concentrates on cash, marketable securities and receivables in
relation to current obligation, it provides a more penetrating measure of liquidity
than current ratio.
B) LEVERAGE RATIOS:
The short-term creditors like bankers and suppliers of raw material are more
concerned with the firms` current debt-paying ability. On the other hand, long-term
creditors like debenture holders, financial institutions etc., are more concerned with
the firms` long-term financial strength. In fact, a firm should have strong short-as
well as long-term financial position. To judge the long-term financial position of
the firm, financial leverage, or Capital structure, ratios are calculated. These ratios
indicate mix of funds provided by owners and lenders. As a general rule, there
should be an approximate mix of debt and owner’s equity in financing the firms`
assets.
The manner in which assets are financed has a number of implications.
First, between debt and equity, debt is more risky from the firms` point of view.
The firm has a legal obligation to pay interest on debt holders, irrespective of the
profits made or losses incurred by the firm. If the firm fails to debt holders in time,
they can take legal action against it to get payment and in extreme cases, can force
the firm into liquidation.
Secondly, use of debt is advantageous for shareholders in two ways:
a. They can retain control of the firm with a limited stake and
b. Their earnings will be magnified, when the firm earns a rate of return on the
total capital employed higher than the interest rate on the borrowing funds.
The process of magnifying the shareholders return through the use of debt is
called “financial leverage” or “financial gearing” or “trading on equity”.
Leverage ratios may be calculated from the balance sheet to determine the
proportion of debt in total financing. Many variations of these ratios exist; but all
these ratios indicate the same thing-the extent to which the firm has relied on debt
in financing assets. Leverage ratios are also computed from the profit and loss
items by determining the extent to which operating profits are sufficient to cover
the fixed charges.
The relationship describing the lender contribution for each rupee of the
owner’s contribution is called DEBT-EQUITY RATIO. Debt Equity ratio is
directly computed by the following formula.
2. PROPRIETARY RATIO:
This ratio states relationship between share capital and total assets.
Proprietors equity represents equity share capital, preference share capital and
reserves and surplus. The latter ratio is also called capital employed to total assets.
C) ACTIVITY RATIOS:
Funds creditors and owners are invested in various assets to generate sales
and profits. Better the management of assets, larger the amount of sales. Activity
ratios are employed to evaluate the efficiency with which the firm managers and
utilizes its assets. These ratios are also called Turnover Ratios because they
indicate the speed with which assets are being converted or turned over into sales.
Activity ratios, thus, involve a relationship between sales and assets. A proper
balance between sales and assets generally reflects that assets are managed well.
Several activity ratios can be calculated to judge the effectiveness of asset
utilization.
D) PROFITABILITY RATIOS:
A company should earn profits to Survive and Grow over a long period of
time. Profits are essential, but it would be wrong to assume that every action
initiated by management of a company should be aimed at maximizing profits,
irrespective of social consequences.
Profit is the difference between revenues and expenses over a period of
time (usually a year). Profit is the ultimate “Output” of a company, and it will
have no future if it fails to make sufficient profits. Therefore, the financial
manager should continuously evaluate to the efficiency of the company in term of
profits. The profitability ratios are calculated to measure the operating efficiency
of the company. Besides management of the company, creditors and owners are
also interested in the profitability of the firm. Creditors want to get interest and
repayment of principle regularly. Owners want to get a required rate of return on
their investment. This is possible only when the company earns enough profits.
Generally two major types of profitability ratios are calculated.
a) RETURN ON INVESTMENT:
The term investment refers to Total Assets. The funds employed in Net
assets are known as Capital Employed. Net assets equal net fixed assets plus
current assets minus Current liabilities excluding Bank loans. Alternatively,
Capital employed in equal to Net worth plus total debt.
The conventional approach of calculating return on investment (ROI) is to
divide PAT by Investment. Investment represents pool of funds supplied by
shareholders and lenders, while PAT represents residual income of shareholders;
therefore, it is conceptually unsound to use PAT in the calculation of ROI. Also,
as discussed earlier, PAT is affected by capital structure. It is, therefore more
appropriate to use one of the following measures of ROI for comparing the
operating efficiency of firms.
Where ROTA and RONA respectively Return on Total assets and Return on Net
assets.
b) RETURN ON CAPITAL:
The ROCE is the second type of ROI. The term capital employed refers to
long-term funds supplied by the creditors and owners of the fund. It can be
computed in two ways. First, it is equal to non-current liabilities (long-term
liabilities) plus owner’s equity. Alternatively, it is equivalent to Net Working
Capital plus Fixed Assets. Thus, the Capital Employed provides a basis to test the
profitability related to the sources of long-term funds. A comparison of this ratio
with similar firms, with the industry average and overtime would provide sufficient
insight into how efficiency the long-term funds of owners and creditors are being
used. The higher the ratio, the more efficient is the use of Capital Employed.
In the same way when RINL have deficit balance of cash, again we invite the
tender and select the bank which bank codes less interest rate. In this way RINL
manage the cash very effectively.
b) The funds so deposited at various branches will be pooled and credited to the
Settlement (RTGS) at those RINLs locations once RBI enables and the
d) The Bank shall allow for a temporary overdraft in case of mismatch i.e., if
the payments of the day are more than the receipts, the short fall shall be
day or two.
e) The Overdraft allowed by the Bank and the charges payable for returned
f) The bank will submit MIS report on daily basis to the respective RINL
fortnightly basis and summary report daily and fortnightly to Head Quarters
g) Service charges to be levied by the Bank on the 1st of the following month as
per the agreed rates with a report of it being sent to Head Quarters.
Management efforts over the few years have been to inculcate cash
consciousness through constant emphasis on working capital, mainly inventory and
book debtors. In all these, it is to be kept in mind that VSP is a multi product
undertaking, were management decisions affecting working capital are taken at
managerial level.
RINL sells its product directly to its customers. It has 27 marketing offices
spread through the country. The marketing and the finance department and top
management at the head quarter formalize the price of different products and
different branches jointly. The price list for each product in their region is
circulated to all branch offices.
The sales and billing are done at the individual braches and the record of the
daily transactions is maintained. The cash deposits are done at one of the
respective banks in turn transfer the entire sum to the banks at Visakhapatnam
through telegraphic transfer.
PAYABLES MANAGEMENT:
In RINL all payments are effected through the cast section of fiancé
department in the head quarters. Cast sections monitor the cash position on a daily
bases and prioritize the payments. Cash section prepares cash report every morning
and checks with the banks for cash balance. Based on the balance available in the
banks and priority of payments, cheques are issued to the parties. Payments are
prioritized so as to optimize the cost. Prioritization is done based on the financial
implication of non-payment of the due amount.
CHAPTERT-IV
THEROTICAL FRAME WORK
CHAPTERT-V
DATA ANALYSIS AND
INTERPRETATION
DATA ANALYSIS AND INTERPRETATION
Share Holders
Fund
Reserve &
6130.50 5931.97 5401.90 5057.68 4592.59
surplus
(A) 12477.32 13659.29 13229.22 12885.00 12419.91
Loan Funds
Deferred Tax
229.21 60.98 79.97 97.82 124.49
Liability
Non-current liabilities
Current Liabilities
Assets
Non-current assets
Tangible assets
Intangible assets
Current assets
Fixed Assets
Capital work-in-
9965.24 10596.08 9536.71 7506.90 4652.00
progress
Miscellaneous
Expenditure(D)
Profit & Loss
Account(E)
Total (A+B+C) 24652.52 23050.55 19053.44 18523.21 17733.48
Increase/ Increase/
2017-2018 2018-2019
Decrease Decrease
Particulars Rs. In Crs. Rs. In Crs.
Rs. In Crs. Percentage
ASSETS:
Cash & Bank Balance 6624.17 5415.54 -1208.63 -18.24
Sundry Debtors 191.27 181.18 -10.09 -5.27
Inventories (Stock) 3215.28 2451.52 -763.76 -23.75
Loans & Advances 1569.69 1365.02 -204.67 -13.03
Other Current Assets 258.91 137.4 -121.51 -46.93
Miscellaneous Expenditure
Profit & Loss Account
Investments 0.05 0.25 +0.2 +4.00
Fixed Assets 5874.11 8972.30 +3098.19 +52.74
Total Assets 17733.48 18523.21 +789.73 +4.45
LIABILITIES
Current Liabilities 2560.79 2871.95 +311.16 +12.15
Provisions 1620.53 1435.89 -184.64 -11.39
Secured Loans 907.72 407.28 -500.44 -55.13
Unsecured Loans 100.04 825.27 +725.23 +724.94
Decrease in net sales realization of rs.1417crs over the last year NSR.
Decrease in raw material price of rs.734crs over last year, increase in employee
remuneration& benefits of rs.224crs over last year: increase in production volume
of
Rs.339crs over last year.
Increase in turnover of rs.882crs over the last year sales turn over.
Increase in net sales realization of rs.719crs over the last year NSR.
Decrease of gross margin of rs.190crs over last year.
Increase in raw materials consumption expenditure of rs.1653crs due to increase in
raw material prices. Over last year.
COMPARATIVE BALANCE SHEET OF VSP LTD FOR THE YEARS 2021-2022and
2022-2023
Increase/ Increase/
2021-2022 2022-2023
Particulars Decrease Decrease
Rs. in Crs. Rs. in Crs.
Rs. in Crs. Percentage
ASSETS
Cash & Bank Balance 2068.34 1625.02 +443.32 +21.43
Miscellaneous Expenditure
LIABILITIES
Government policies
Imposition of power restrictions and control measures by government of A.P
Other reasons
a) Increase in iron ore and MCC prices
Decrease in turnover of Rs.909 crs over the last year sales turnover due to
Sluggish market conditions and fall in NSR
Major capitalization of expansion units with gross block value of Rs.1859 crs and
consequential depreciation of Rs.35 crs
Increase in efficiency
COMPARATIVE PROFIT & LOSS A/C OF VSP LTD. FOR THE YEARS
2021-2022and 2022-2023
EXPENDITURE
HIGHLIGHTS:
Growing cash reserves often signal strong company performance
If inventory grows faster than sales, it is almost always a sign of
deteriorating fundamentals
If a company’s collection periodic borrowing longer, it could mean problems
ahead
Much attention is no required on fixed assets, since the portion of fixed
assets is low
Increase I capital work in progress indicates the expansion activities of the
company
Company’s cash resources are indicating the low operating cycle
Assets do not contain any fictitious assets
Redemption of considerable amount of performance share capital indicates
the increased own generated funds and reduction in dividend payments
Proportion of long term borrowings to CWIP indicates the low future
finances costs and very quick repayment of loans on commissioning of all
expansion units
Company is not struggling to increase considerable credit sales, which
indicates the strong hold on the market base
Due to increasing power requirements to cater to expansion units, imports of
costlier power is causing rise in power costs
Acute shortage of boiler coal supplies hindering power generations
COMMON SIZE ANALYSIS
Miscellaneous
Expenditure
Profit & Loss
Account
Investments 614.80 2.85 897.44 3.64
70
60
50
40
30
2013-14
20
2014-15
10
0
e s ) s ts nts s s s l
nc btor tock nce sse s et itie sion an a ns ility lus ita
a e p p
l e s a a tm as bil ovi d lo d lo liab sur a
ba y d es( adv nt es xed lia p r re re x & rec
k r i e v
n d r & rr in fi ent cu cu ta rs sha
&ba sun ento oan cu rr se nse red rve
v l r r e
sh in he cu u fe res
ca ot de
INTERPRETATION:
The fixed assets for the period of 2021-2022is 12397.93 & 2022-2023 is 13777.25
where the percentage is 57.65 & 55.88
The total assets and total liabilities for the period of 2021-2022 is 21504.84 &
2022-2023 is 24652.52 where the percentage is 100
The liabilities for the period 2021-2022 is 4119.26 & 2022-2023 is 6458.12 where
the percentage is 19.15 & 26.15
Table No 5.2.1 COMMON SIZE BALANCE SHEET OF 2020-2021 AND 2019-2020
2020-2021 2020-2021 2019-2020 2019-2020
Particulars Rs. in CRs. PERCENTAGE Rs. In CRs. PERCENTAGE
ASSETS:
Cash & Bank Balance 1998.89 10.49 5415.54 29.23
70
60
50
40
30
2011-12
20
2012-13
10
0
ce s ) s s s s s s l
n tor ock nce set ent set itie ion a ns ans ility lus ita
la p p
eb st a as tm as bil vis lo l o ia b ur ca
ba y d es( adv nt es xed lia pro ured ured x l s&s are
k r ri e v
n d & rr in fi ent c c ta e
&ba sun ento ans cu rr se nse red serv sh
h v l o er u u r e
s in h c fe r
ca ot de
INTERPRETATION:
The fixed assets for the period of2019-2020are 8972.30 & 2020-2021 is 11066.63 it has
been increased to10.77%.
The Total assets for the period of2019-202018523.21 & 2020-2021 is 19053.44 i.e.,
100%.
The current liabilities for the period2019-20202871.95& 2020-2021 are 3279.43 this has
been increased to1.66%.
Table NO 5.2.2 COMMON SIZE BALANCE SHEET OF 2017-2018AND 2018-2019
ASSETS
Sundry Debtors
181.18 0.97 191.27 0.01
Inventories
2451.52 13.23 3215.28 18.13
Loans & Advances 1365.02 7.36 1569.69 8.85
Other Current Assets 137.4 0.741 2587.91 1.46
Miscellaneous
Expenditure
LIABILITIES
60.00%
50.00%
40.00%
30.00%
20.00% 2009-10
2010-11
10.00%
0.00%
ce l
n tor
s
rie
s
ce
s
s
s
et ent
s
s
s
et itie ion
s s
a ns ans ility s
lu pita
la o n s s l o o p
eb nt a a tm a bi ovis ed l ed l l ia
b r
Su e c
a
ba y d ve dv nt ves xed l ia r r r x r
k r A e &
n d In rr In Fi nt P cu cu ta s a
ba Sun ns & cu rre Se nse red erve Sh
& a r
Lo Oth
e Cu U er s
a sh
D
ef Re
C
INTERPRETATION:
The fixed assets for the period of 2017-2018is 5874.11 & 2018-2019 is 8972.30 it has
been increased to 12%
The Total assets for the period of 2017-2018is 17733.48 & 2018-2019 is18523.21 i.e.,
is 100%
The current liabilities for the period 2017-2018is 2560.79 & 2018-2019 is 2871.95 this
has been increased by 1.2%
Miscellaneous
Expenditure
50.00%
40.00%
30.00%
20.00% 2008-09
2009-10
10.00%
0.00%
ce s ) s s s s s l
n tor ock nce s et ent s
s
et itie ion a ns ans ility s
lu pita
la s s l o o p
eb (st a a tm d A abi ovis d L d L Lia
b r
Su e C
a
ba y d e s dv nt ves e i r e e
k r ri A e x L r r x & r
n d & rr In Fi ent
P u u a s a
ba Sun ento ns cu r Sec sec d T rve Sh
& v a r r n e e
sh In Lo Oth
e
Cu U ferr Res
Ca e
D
INTERPRETATION:
The fixed assets for the period of 2016-2017is 3471.87 & 2017-2018is 5874.11 it has
been increased &%
The Total assets for the period of 2016-2017is 15276.51 & 2017-2018is17733.48 there
is an increase of 2456.97
The current liabilities for the period 2016-2017 is 1610.15 & 2017-2018is
2560.79i.e.,14 this has been increased to 4%
CASH FLOW STATEMENT for 2018-2019& 2019-2020.
Rs .in (Crs)
PARTICULARS 2019-2020 2018-2019
A. Cash flow from operating activities:
1. Net profit / (loss) before taxation 1247.65 2026.59
Add / (less) Adjustments for:
2. Depreciation 277.17 240.78
3. Interest finance charges 77.55 87.47
4. Provisions (107.14) (371.37)
5. Unrealized foreign exchange (Gain)/Loss (11.21) 47.85
6 (profit)/loss on sale of fixed assets (1.02) (0.47)
7. Finished goods consumed for capital jobs (94.90) (8087)
8. Interest income (534.71) (787.21)
Operating profit before working capital changes 853.39 1162.77
Adjustments for:
9. (Increase) / (Decrease) in inventories 763.76 (1454.13)
10. (Increase) / (Decrease) in sundry debtors 10.09 (97.86)
11. Decrease in loans & advances 204.67 388.80
12. Increase in Liabilities 281.99 382.23
13. Cash generated from operating activities 2113.90 (716.04)
14. Less: Income tax paid including fringe benefit tax 1622.90 334.23
Net cash from / (used in) operating activities
B. Cash flow to investing activity:
15. Purchase of fixed assets (3276.58) (2038.63)
16. Investments (0.20) 0.00
17. Proceeds from sale of fixed assets 35.28 2.29
18. Interest received 656.22 820.73
Net cash from / (used in) investing activity (2585.28) (1215.61)
C. Cash flow to financing activity:
19. Proceeds from / (Repayment of) secured loans (500.44) 574.94
20. Proceeds from / (Repayment of) unsecured loans 725.23 (7.91)
21. Interest and Finance charges (74.22) (92.13)
22. Dividend paid (339.18) 0.00
23. Dividend tax paid (57.64) 0.00
Net cash from / (used in) Financing activity (246.25) 474.90
Net Increase / (decrease) in cash & cash equivalents (A+B+C) (1208.63) (1074.94)
24. Opening balance of cash & cash equivalents 6624.17 7699.11
25. Closing balance of cash & cash equivalents 5415.54 6624.17
Rs. In crs
PARTICULARS 2020-2021 2019-2020
A. Cash flow from operating activities
1. Net profit / (Loss) before taxation 981.66 1247.65
Add / (Less) Adjustments for: 981.66 1247.65
2. Depreciation 268.61 277.17
3. Interest and Finance charges 164.55 77.55
4. Provisions 62.57 (107.14)
5. Unrealized foreign exchange (Gain) / (Loss) (5.30) (11.21)
6. (Profit) / (Loss) on sale of fixed assets (3.26) (1.02)
7. Finished goods consumed for capital jobs (6.65) (94.90)
8. Interest on income (347.54) (534.71)
Operating profit before working capital changes 1114.64 853.39
Adjustment for:
9. (Increase) / (Decrease) in Inventories (803.19) 763.76
10. (Increase) / (Decrease) in sundry debtors (149.43) 10.09
11. Decrease in Loans & Advances (600.02) 204.67
12. Increase in Liabilities 505.45 281.99
Cash generated from operating activities: 67.45 2113.90
13. Less: Income Tax paid including Fringe benefit Tax 486.26 491
Net cash from / (used in) operating activities (418.81) 1622.90
B. Cash flow to investing activity
14. Purchase of Fixed assets (2455.98) (3276.58)
15. Investments (361.35) (0.20)
16. Proceeds from sale of Fixed assets 3.55 35.28
17. Interest received 408.98 656.22
Net cash from / (used in) investing activity (2404.80) (2585.28)
C. Cash flow to Financing Activity
18. Proceeds from / (Repayment of) Secured Loans (112.43) (500.44)
19. Proceeds from / (Repayment of) Unsecured Loans 16.64 725.23
20. Interest and Finance charges (165.58) (75.22)
21. Dividend paid (285.29) (339.18)
22. Dividends tax paid (47.38) (57.64)
Net cash from / (used in) Financing Activity (593.04) (246.25)
Net increase / (Decrease) in Cash & Cash equivalents (3416.65) (1208.63)
(A+B+C)
Opening balance of Cash & Cash equivalents 5415.54 6624.17
Closing Balance of Cash & Cash equivalents 1998.89 5415.54
2019-2020:
2020-2021:
2021-2022
There is a significant decrease in net working capital, over last 3 years. The
noticeable decrease in net working capital is due to decrease in current assets.
2022-2023
In 2021-2022there was an decrease in inventories, current assets as compared to
the previous year.
Interest received from the investments also placed an important quantum of
inflow.
Net profit decreased as compared to previous year.
Sales to Capital
Employed 2.50 1.50 1.54 2.5 1.7
INTERPRETATION:
I) LIQUIDITY RATIOS:
CURRENT RATIO:
TOTAL
CURRENT 11859.32 9550.66 7625.21 8492.11 9977.75
ASSETS
TOTAL
4181.32 4307.84 4607.49 7221.61 10184.67
LIABILITIES
Current Ratio
3
2.5
Current Ratio
1.5
0.5
0
2010-11 2011-12 2012-13 2013-14
INTERPRETATION:
1. As we can see over the years the current ratio has been in a declining trend. The
reasons and justifications are given below:
The inventory maintained compared to production is almost the same
over the period of observation.
There is a gradual increase in the sundry debtors but in the financial year
14-15 we can see a sharp rise in them due to high credit sales in that year.
Cash at bank has decreased due to redemption of preferential shares.
Other assets are almost the same value.
There is an increase in Loans & Advances due to the Forward Contracts
receivables and increased advances to the suppliers to counter the
variations in the market (both Forex and Raw Material).
Liabilities increased due to increased number of forward contract
payables so as to nullify the effect of Forex fluctuations.
Even though the current ratio is not ideal in this study period, the company’s
liquidity position is good because of high value of cash which is sufficient to
provide for the immediate provisions which are regular in nature.
LIQUID/QUICK RATIO:
LIQUID
4181.32 4307.84 4607.49 7221.61 10184.67
LIABILITIES
0.5
0
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
When compared with the current ratio, we can see that the inventories make
almost 50 % of the current assets which is justified as it is a continuous process
manufacturing plant
Also due to expansion plans there is a huge dip in the cash maintained by the
company which reduces the value of the total current assets
When we compare the Inventory with the Trade Payables, it is evident that the
purchases are being made on cash basis and less on credit basis
If we compare the Trade Payables with the Sundry Debtors, it is evident that there
is more to receive than to pay by the company
Even though the Quick Ratio is less than the ideal value and has a declining trend,
as explained the expansionary activities resulted in such trend but the liquidity position
of the company is good to pay back the immediate liabilities.
1495.23 861.87
Unsecured loans 100.04 845.23 861.87 148.21 347.58
(Others) (Others)
INTERPRETATION:
Even though there is a slight increase in the ratio over the study period the value of the
ratio is very less which signifies the fact that the company is debt free. There are two
factors for the ratio to be small
The company mostly depends on short term borrowings to meet its capital needs
The high value of equity also makes the ratio very low
Interest
Coverage 24.16 17.09 6.96 17.09 6.96
Ratio
Interest coverage Ratio
30
25
20
Interest coverage Ratio
15
10
0
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
As we can see the Interest Coverage Ratio for the company is decreasing on yearly
basis but still it is in the acceptable range. The reasons for the decline are
explained below
The company‘s capital investment has increased due to expansionary plans. The
capital was raised from short term borrowings which increased the interest rates
over the years which resulted in decreased ratio.
The profit of the company has also been reducing due to increase in raw materials
in the market
These two factors resulted in decrease of the numerator as well as the denominator
of the formula resulting in the decrease of the ratio however it is an acceptable
value and shows the company is performing well
PROPRIETARY RATIO:
Share holders’
12419.91 12885.00 13229.22 13659.29 12477.32
funds
Proprietary
70.03% 69.56% 69.43% 63.52% 50.61%
Ratio
Proprietary Ratio
80.00%
70.00%
60.00%
50.00%
Proprietary Ratio
40.00%
30.00%
20.00%
10.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
The Proprietary ratio shows how its proprietors have financed its assets.
The ratio indicates long-term solvency position of the company.
It decreases from 70% in the year 2017-2018to 51% in the year 2022-2023.
The shareholders fund occupied 50% on total assets. It indicates that the
proprietary ratio of VSP is not at good position.
But the decrease in the Propriety Ratio is due to the redemption of
shareholder capital.
The remaining 50% of the capital is being funded through outside sources,
which indicates that the outsider’s hold on the company is increasing in all
the years in consideration.
DEBT TO TOTAL FUNDS RATIO:
1495.23 861.87
100.04
Unsecured loans 845.23 861.87 148.21 347.58
(Others) (Others)
16.00%
14.00%
12.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
Inventory 5.62
6.53 times 6.71 times 3.98 times 3.35 times
Turnover Ratio Times
Inventory Turn over ratio
8
5
Inventory Turn over ratio
4
0
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
The Inventory Turnover Ratio during the year 2018-2019 was 5.62
The ratio shows that there is an increase in the year 2018-2019 which meets the
customers demand and further there is a slight decrease in the year 2022-2023
which also satisfies the demands of the customers.
Normally higher the ratio indicates the better stock management.
The decrease in inventory ratio for the year 2022-2023 is mainly due to the fact
that net sales have drop for the year and coupled with a slight increase in
inventory. Although the decrease in net sales although is a worrying factor but this
should not be viewed in isolation because the decrease in sales has occurred
throughout the country across all the major steel plants. Higher ratio also indicates
that the company is able to meet the customers demand properly.
DEBTORS TURNOVER RATIO:
Average trade
191.27 181.18 330.61 378.88 718.40
Debtors
Debtors
48times 54 times 32 times 35 times 17 times
turnover Ratio
Debtors turnover ratio
60
50
40
Debtors turnover ratio
30
20
10
0
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
The Debtors turnover ratio for the year 2022-2023 is 17 times which is a drastic drop
compared to the previous years
This is due to drop in net sales for the year 2022-2023 and a drastic increase in
average trade debtors
This could point to the fact that the company has been trying to improve its sales by
extending the credit sales
It can be concluded that the management isn’t better position in converting Debtors
into cash
AVERAGE COLLECTION PERIOD:
Average trade
191.27 181.18 330.61 378.88 718.40
debtors
DEBTORS TURN
47.72 54.14 31.67 35 times 17 times
OVER RATIO
AVG.COLLECTIO
7.6days 6.7 days 11.52 days 10.4 days 21.5 days
NPERIOD
20
15
Average collection period
10
0
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
The average collection period during the year 2022-2023 is 21.5 days it represents
the number of days for which the firm has to wait before its receivables are
converted into cash.
During the period of study it has been observed that debt collection period varies
from 6 to 21.5 days.
This is due to drop in net sales and a drastic increase in average trade debtors for
the year 2022-2023.
This could point to the fact that the company has been trying to improve its sales
by extending the credit sales.
However, the Average collection period during different periods is quite low. It
indicates the better quality of debtors and the efficiency of the debt collection
department
Net working
7678.00 5242.82 3017.72 1270.5 -206.92
capital
Working
capital 1.35 2.02 3.81 2.02 (58.5283)
turnover Times times Times times
Ratio
0
2010-11 2011-12 2012-13 2013-14 2014-15
-10
-40
-50
-60
-70
INTERPRETATION:
The aim of this ratio is that it indicates the velocity of its utilization of working
capital.
IV) PROFITABILITY RATIOS:
2115.00
Gross profit 850.99 837.80 1301 886
Net sales 9128.38 9809.15 10471.18 13232.61 12110.69
Gross profit
23.17% 8.6% 8.01% 9.83% 7.32%
Ratio
20.00%
10.00%
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
It has been observed that the Gross profit ratio is in decreasing trend from 2018-
2019 to 2020-2021 and it is increasing in 2021-2022then in 2022-2023 there is a
further slight decrease.
Net sales are in increasing trend from 2021-2022whereas the Gross profit ratio is
decreasing from 2020-2021. It is due to increased cost of production i.e., the
increasing cause raw materials coupled with an expansion of production has
further increase of the raw materials cost.
NET PROFIT RATIO:
2019-
Particulars 2018-2019 2020-2021 2021-2022 2022-2023
2020
Net profit
12.82% 7.49% 5.71 % 5.68% 2.91 %
Ratio
12.00%
10.00%
6.00%
4.00%
2.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
Return on
10.75% 6.18% 4.97% 5.49% 2.83%
Investment
Return on investment
12.00%
10.00%
8.00%
Return on investment
6.00%
4.00%
2.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
Equity share
7827.32 7827.32 7827.32 7727.32 6346.82
capital
Return on Equity
25.89% 15.9% 12.5% 16.14% 15.46%
capital
25.00%
20.00%
Return on Equity capital
15.00%
10.00%
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
(Rs. In crores)
EARNING PER
223.92 113.89 85.78 126.18 139.88
SHARE(RS)
200
100
50
0
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
The Earnings per share are in declining trend from 2018-2019 to2019-2020it
increases from 2021-2022to 2022-2023
The least Rate of Return is 11.40%
This is due to the constant payment of dividends
10% to the equity shareholders which paid from PAT
7% payment to preference shareholders from preference shareholder contribution
Since the company is in expansion activity, the future earnings per share will
increase.
(Rs. In crores)
Particulars 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Capital Employed
13552.16 14215.37 14445.95 14283.23 14467.85
(TOTAL ASSETS-C.L)
Return on Capital
9.85% 5.60% 4.55% 8.74% 6.79%
Employed
10.00%
8.00%
Return on capital Employed
6.00%
4.00%
2.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:
This ratio indicates firm’s ability of generating profit per rupee of capital
employed. This ratio is decreasing gradually from 9.85% in 2018-2019 to 6.79%
in 2022-2023. The reason may be that its net profit and Capital Employed are
decreasing. So steps should be taken in this ratio
FINDINGS
CONCLUSIONS
SUGGETIONS
FINDINGS
Liquidity position of the company is excellent.
Steel industry performance is looking like sine curve. It always has up and down
curves. During the period of inflation and recession steel sales also decreased very
high.
The company is getting all its funds i.e. day zero (0) when the rates are
compared; the company is investing surplus funds at 8-8.5% & paying at 3-
5% to get the funds on zero (0). The spread should be maintained during the
time of expansion also.
Unlikely any other steel company VSP is not having its own sources of raw
material i.e. coal mine. These are very basic needs as the company always
depends on its suppliers for its raw materials. Had the company utilized its
2-3% half % of its working capital limit for acquisition of mines purchasing
of mines, etc. It could have been a favorable situation
RINL may finance expansion project by the long term loans as they would
be cheaper instead of using internal generation/Accounting rules.
CONCLUSONS
Other highlights
2022-2023
a) During the year the company redeemed preference share capital amounting
to Rs.1400crs which has led to liquidation of bank deposits/increased
working capital borrowings due to which the interest income has come down
and interest expenditure has gone up.
b) During the year an amount of Rs.1300crs was spent on expansion activities.
c) Depreciation in rupee against dollar impacted reduction in raw material
prices adversely by Rs.425crs as compared to previous year.
d) Power restrictions imposed by Government has led to reduction in
production of saleable steel.
2020-2021
The drop in profit levels with reference to previous year is primarily due to
increase in cost of major raw materials(iron ore 55% and coal 22%),reduction in
interest income from fixed deposits due to utilization of funds in the expansion
projects, other capital schemes and working capital needs of the company.
2019-2020
a) The increase in profit levels with respect to previous year is primarily due to
higher sales realization achieved and higher sales volume in steel and pig
iron.