ASIANJOURNALOFMANAGEMENTRESEARCH

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Astudyonmeasuringthefinancialsoundnessofselectfirmswithspecial referencetoIndiansteelindustryAn empiricalview withZscore

M.S.Ramaratnam,R.Jayaraman AssistantProfessor(SeniorGrade),FacultyofManagementStudies,SCSVMVUniversity, Enathur,Kanchipuram,TamilNadu hellomsraman@gmail.com

ABSTRACT Measuring financial soundness of a firm has become an imperative and imminent need in the context of emerging hyper competition at almost every sector of the business. Financial soundness of a firm is reflected through various financial parameters which are closely associated with each other. A general belief is that a firms operating performance depends on certainkeyfinancialfactorsviz.,turnover,profit,assetutilizationetcandthevariableswhichare foundinprofitandlossaccountandbalancesheetofafirmhaveadirectorindirectrelationwith each other. By establishing a close relationship between the variables, a firm can analyze its financialperformance intermsof liquidity,profitability,viabilityandsustainability.Inorderto measuretheperformance,ratios,theindicators,arenormallyusedtoidentifythefinancialhealth of the firm. As far as ratios are concerned, there are more than 40 differenttypes of ratios are available to analyze and predict the financial soundness of a firm. Since single ratio does not conveymuchofthesense,Altmancombinedanumberofaccountingratiostoformanindexof profitability,whichisregardedasaneffectiveindicationofcorporateperformanceinpredicting financialsoundnessofafirm.Bykeepingthisinview,thispaperhasmadeanattempttoanalyze andpredictthefinancialhealthbywayofapplyingAltmansZScoreintheselectcompanies ofIndiansteelindustry. Keywords:AltmansZ Score, liquidity,profitability,viabilityandsustainability 1.Introduction Indiansteelindustryiswitnessedasoneofthemostcrucialsectorsofoureconomicgrowthand theindustryoccupiesasignificantproportionintermsofindustrialoutputofourcountry.Inthe lightofLPG,thesteelindustryturnedintocompetitiveinnatureastheprivatesectorstooarein thefray butatthesametimeIndia,beinga largestmarketwithpotential having morethanone billionpeople, the industry has opportunity to enlarge its market share by adopting a series of readjustingandrestructuringmeasuresincludingupgradationoftechnology.Inordertomanage stiffcompetition,stepstobetakentoreducethecostofproduction.Asofnowthesteelindustry is going through a tough time globally. Over capacity and demand slowdown has resulted in lowering the prices and this coupled with the poor demand outlook for the domestic market. Further antidumping duties imposed by US and many European countries, the exports are

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severelyaffectedanditleadstoworsenthedomesticdemandsupplyimbalances.Thesefactors have made rigorous impact on financial performance of the sector and thereby the companies have witnessed a downward trend in terms of their financial performance. Further power consumption of the industry is at larger side i.e. 60% of direct cost is attributed to power consumption,thecompaniesarestrugglingtorecoverthecostandnormallygestationperiodis alsohigh,forthesector,thecompaniesoperatinginthesectorhavetowaittoreapthebenefit.A recent study shows that Indian banks and financial institutions have an exposure of about Rs 5000croretothesector,whichalsoaccountsforabout20%oftheirNPAs.Inspiteoftheirfairly strong operation, most of the Indian companies are unable to service their debt, because the obligationofdebtisextremelylargeinrelationtotheirearningcapacity.Thoughthecompanies have taken measures to improve their financial performance by the way of restructuring their financialoperations,theyarenotinapositiontoimprovetheirdebtservicingabilitybyreducing debtlevels.The majorfactorshavebeen identifiedasreasonsforpullingbackofsteelindustry andtheyareasfollows: Longgestationperiod Powersupply Inputcost Lackofeffectivelogisticsand Impactofglobaleconomicslowdown Apartfromtheabovefactors,inadequateinfrastructure,dependenceoncoalandlowR&D investmenthavealsoemergedasundisputablereasonforfurtherweakeningofIndiansteel industry.Thereforeapplicationoffinancialmanagementtechniqueisabsolutelynecessarywhich inturnwouldhelpthesteelcompaniesinincreasingtheirproductivityandprofitability 2.Statementoftheproblem Steel industry represents an integral part of Indian economy. Since the industry faces ups and downs overthe period oftime, the companies in the industry have reported reduction in profit andinsomerarecasesevenloss.Asandwhen theindustryiscaughtinaviciousdowncycle,the firmshaverenderedoperationsunviableandtheyfacethreatstotheirviabilityandsustainability sothatthestudyistakentoestablisharelevancetothepresentdayproblem. 2.1Reviewofliterature Out of the innumerable studies available on the subject some of the most appropriate studies havebeenrevived.Altmanusedmultiplediscriminateanalyses(MDS)inhisefforttofindouta bankruptcypredictionmodel.Heselected33publiclytradedmanufacturingbankruptcompanies between 1946 and 1965 and matched them to 33 firms on a random basis. The result of MDS exercise yielded equations called ZScore that correctly classified 94% of the bankrupt companiesand97%ofthenonbankruptcompaniesayearpriortobankruptcy.Thispercentage droppedwhentryingtopredictbankruptcytwoormoreyearsbeforeitoccurred.Theratiosused in Altman model are working capital over total assets, retained earnings over total assets, earningsbeforeinterestandtaxesovertotalassetsmarket,valueoftheequityoverbookvalueof totalliabilitiesandsalesovertotalassets.

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Altman in this paper discussed two of the primary motivating influences on the recent developments of credit scoring models, the important implication of base, its proposed capital requirementoncreditrequirementoncreditassetsandenormousamountandrateofdefaultsand bankruptciesinUSAin200102.TwoofthemoreprominentcreditscoringtechniquesofZ score and KMVs EDF models are reviewed. Both models are assessed with respect to default probabilityingeneral. Azizemphasized in his articlethataccrualaccountingratioswereshowntopredictbankruptcy accurately for manufacturing industries. Such financial ratios usually lack theoretical justification. Since bankruptcy is cash oriented phenomenon, the useof variable based on cash flows is theoretically appealing. Statistics shows that more than 300 companies go out of business every week. The high rate of bankruptcy is attributed to the combined effect fierce competition inthe marketplaceand heavierdebtburdenscarried bythecompanies.While few firmswereaffectedbythechallenges,alargenumbersoffirmswereaffectedbythecompetition. GuptaattemptedarefinementofBeavers methodwiththeobjectiveofbuildingaforewarning system of corporate sickness. A sample nonparametric test for measuring the relative differentiatingpowerofvariousfinancialratioswasused.Thestudy,among728textileandnon textilegroupofindustries,revealedthatearningsbeforedepreciation,interestandtaxestosales andoperatingcashflowstosaleshadhigherdegreeofsickness.Theanalysisisbasedonlogistic regression,wherethebankrupteventisexplainedbyaccountingandmarketbasedvariables.In accordance with the literature, the liquidity and profitability ratios turned out to be the most importantvariableinforecastingdefaultfollowedbythecompanysizeanditsactivity. Melody Y. King et al in their study attempted to provide an empirically supportrationale for classifying the firms in to two groups, those declaring bankruptcy within two years and those remaining solvent. The apparent rationale for engaging in reverse splits differs between two groups. I.e. weak forms attempting to increase their stock price while solid firms seeking to repositiontheirstocksinthemarket.Thisgeneratedanunderstandingofcorporaterationalefor engaging in reverse splits and relative success of Z score and artificial neural networks in forecastingthetwogroups. Praveenkatariainhisstudyattemptedtopredictcorporatesicknessofthecompanies.Financial information about all the sick companies was collected for five years before sickness. Healthy companieswerematchedwiththesickcompaniesonthebasisofindustrycompositionsize.54 financial ratios and 8 macro economic variables were taken to study their effect along with financial ratios. Two group linear discriminate analyses were applied in two parts. Inthe first part,only financial ratio wastaken in discriminate analysis, while the macroeconomic variable was included along with the financial ratios in the second part. The result showed that macroeconomicvariablehadverylittleimpactondiscriminantfunction. Rekha Pai dealtwiththepredictionof industrial sicknessusing multiplediscriminantanalysis. The data set constitutes 21 financial ratios of 34 Indian sick companies in 200001 and 38 contemporary non sick companies, both selected irrespective of size and industry category 3 years prior to sickness. The multiple discriminant analysis (MDS) showed greater accuracy in predicting industrial sickness up to three years in advance. The model was validated further usingatestmodel,whileexhibitedveryhighpredictiveaccuracyoftheproposedmodel. Ramakrishna inhispaperexaminedtwowellknownfinancialdistress modelnamely multiple discriminateanalysisandlogisticregressionanalysisbyusingasampleof298firms.Thestudy foundthatcashflowandworkingcapitalareimportantpredictivevariables,irrespectiveofwhen comparedtoanyothermodels.Theselectedmodelswerealsofoundtobecapableofpredicting

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withminimumerrors,oneyearinadvance,whichisvitalforthebankers,restructuringagencies andthe managementtoinitiaterevivalprocess beforethecompany actuallygets intofinancial distress. WayneinhisstudytookthecaseofCLECS,telecomdepartmentintheUScompanies.Thehigh rateof bankruptcywasattributedto combinedeffectof fiercecompetition inthe marketplaces and heavier debt burdens carried by companies. The study revealed that 176 publicly held US Companiesfiledforbankruptcywhichhasfurtherincreasedto279. John R. Grabski haswrittenanarticleonthedynamicZscoreinApril2008.Inhispaper,he suggests that the time tested Altman Z score, Originally designed to predict corporate default represents considerable value when used as a corporate performance metric if measured continuouslyasopposedtoonemomentintime.Indeed,onecouldreasonthatifthemeasurehas meritasapredictorofdefault,thenitonlymakesensetomanagetheunderlyingdriversinorder tooptimizetheongoingviabilityofthefirm. 2.2Objectives Toexaminetheoverallfinancialperformanceofselectedsteelcompanies Topredictthefinancialhealthandviabilityoftheselectedsamplecompanies 2.3 Methodologyofthestudy Thestudyisanalyticalinnature.Itisrelatedwiththeanalysisoffinancialhealthofselectedsteel companiesviz.,JSWSteel,SAIL,SteelexchangeofIndia,TatasteelandVisasteel.Thestudy is mainly based on secondary data. The required accounting information was drawn from PROWESSDataBase. 2.4Hypothesesforthestudy H0:Networkingcapitaltototalassetratioisequalinthesampleunits H0:Retainedearningstototalassetsratioisuniforminthesampleunits H0:EBITtototalassetsisuniforminthesampleunits H0:Equitydebtratioisuniforminthesampleunits H0:Totalassetturnoverratioisuniforminthesampleunits H0:ZScorevalueisuniforminthesampleunits. 2.5Toolsusedfortheanalysis For the purpose of analysis, the authors have used Altmans Z score to predict, analyze and comparethefinancialhealthofsampleunits.Inordertostudythefinancialsoundnessofsample units, different ratios are calculated and the simple statistical techniques such as mean and ANOVAtestareappliedtoanalyzetheconsistency,stabilityandoveralltrends inthedifferent ratiousedinAltmanZScore.

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Zscoreingredients BasedonMultiplediscriminateanalyses(MDA),thefollowingmodelisdevelopedbyAltman Z=(T1x0.012)+(T2x0.014)+(T3x0.033)+(T4x0.006)+(T5x0.0999) It is the ratio of working capital to total assets ((WC/TA) x 100). It is the T1 measureofthenetliquidassetsofaconcerntothetotalcapitalization. T2 T3 Itistheratioofretainedearningstototalassets.Itindicatestheefficiencyofthe managementinmanufacturing,sales,administrationandotheractivities. It is the ratio of EBIT to total assets (EBIT/TA) X 100. It is a measure of productivity of assets employed in an enterprise. The ultimate existence of an enterpriseisbasedontheearningpower(profitability) It is the ratio of value of equity to book value of debt (VE/BVD) X 100. It is reciprocalofthefamiliardebtequityratio.Thismeasureshowshowmuchassets ofanenterprisecandecline in value beforethe liabilitiesexceedtheassetsand theconcernbecomesinsolvent. It is the ratio of sales to total assets (S/TA). The capital turnover ratio is a standard financial measure for illustrating the sales generating capacity of the assets. coefficient of the ratio (recommendation by Altman) 0.012 0.014 0.033 0.006 0.0999

T4

T5

FinancialRatio Networkingcapitaltototalassets(T1) Retainedearningstototalassets(T2) EBITtototalassets(T3) Marketvalueofequityto totalliabilities(T4) Netsalestototalassets(T5) MeasurementofFinancialHealth

Altman established the following guidelines to be used to classify firms as either financially soundorbankrupt. SCORE Above3.00 2.77 2.99 1.8 2.00 Below1.8 INTERPRETATION Thecompanyisfinanciallysafe Thecompanyisonalerttoexercisethecaution There are chances that the company could go bankruptinthenexttwoyears The companys financial position is embarrassing

Below Z score of 1.8, the unit is considered to be in bankruptcy zone. Its failure is certain andextremelylikelyandwouldoccurprobablywithinaperiodoftwoyears. ASIANJOURNALOFMANAGEMENTRESEARCH 728

 If a unit has a Z score between 1.8 and 3, its financial viability is considered to be healthy.Thefailureinthissituationisuncertaintopredict. Above Zscoreof3,theunit is intoohealthy zone.Itsfinancial health is very viable andnottofall. 3Empiricalanalyses Table1:ShowingtheNetworkingcapitaltototalassetsratioofselectcompaniesfrom2006to 2010

JSW STEEL SAIL 0.04 0.21 2006 0.08 0.37 2007 0.15 0.44 2008 0.23 0.45 2009 0.19 0.41 2010 0.14 0.38 MEAN 0.08 0.10 SD Source:computeddata YEAR Inference

STEEL EXCHANGE TATA VISA STEEL STEEL MEAN OFINDIA 0.62 0.16 0.45 0.22 0.63 0.27 0.22 0.28 0.40 0.63 0.04 0.27 0.37 0.01 0.15 0.09 0.58 0.02 0.13 0.14 0.52 0.15 0.09 0.20 0.13 0.31 0.25 0.17

SD 0.32 0.26 0.32 0.31 0.34 0.26 0.10

Theaboveratioindicatesthelevelofliquidassettothetotalcapitalizationofthecompany.From thetableitisobservedthatinthecompanySAIL,theratiopercentageisinincreasingtrenduntil the year 2009 showing thatthe company has greater ability to meetthe current obligations. In JSW Steel, the ratio percentage is negative indicating the firms inability to meet the current obligations. The company steel exchange of India has shown the highest percentageof 63.1 in the year 2007 and the rest of the years the company could manage the current obligation in a betterwaybyhavingtheratioathigherside. Table2:ShowingtheANOVA (singlefactor) of networkingcapitaltototalassetsratioof selectcompanies Sourceof Variation SS Between Groups 1.240115 WithinGroups 0.416393 Total 1.656508 Source:computeddata

df 4 15 19

MS

Pvalue

Fcrit 3.055568

0.310029 11.16838 0.00021 0.02776

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Inference Since the calculated value (11.16838) is greater than the table value (3.055568) the null hypothesisisrejectedanditisprovedthattheNetworkingcapitaltototalassetratioisnotequal inthesampleunits. Table3:ShowingtheRetainedearningstototalassetsratioofselectcompaniesfrom2006to 2010

STEEL JSW EXCHANGE TATA VISA STEEL SAIL OFINDIA STEEL STEEL MEAN SD YEAR 0.46 0.50 0.11 0.75 0.39 0.44 0.23 2006 0.52 0.61 0.17 0.56 0.25 0.42 0.20 2007 0.47 0.73 0.29 0.47 0.23 0.44 0.19 2008 0.39 0.67 0.26 0.41 0.15 0.38 0.20 2009 0.43 0.59 0.25 0.58 0.14 0.40 0.20 2010 0.45 0.62 0.22 0.55 0.23 0.41 0.18 MEAN 0.05 0.09 0.07 0.13 0.10 0.09 0.03 SD Source:computeddata Inference Theratio indicatestheabilityofthe firmtoearnprofitandthereby securingretained earnings. Normally a firm has higher retained earnings, the firm will not starve for liquidity crunchand also the firm can reinvest in the appropriate venture at cheaper cost. In this aspect, all the selectedsampleunitshavesufficientamountofretainedearningsrelatedtotheirtotalassets.As far as the JSW steel is concerned, the company maintains on an average of 45% of retained earningstototalassetsthroughoutthestudyperiod.ThecompanySAILmaintainsonanaverage of62%ofretainedearningstototalassetsindicatingthecompanyisingoodpositionintermsof liquidityaspectaswellastheexploitationof nearopportunity forinvestment ifany.Tatasteel hasmaintainedonanaverageof55%ofretainedearningsnexttotheSAIL. Table4:ShowingtheANOVA (singlefactor)of Retainedearningstototalassetsratioofselect companies Sourceof Variation SS df MS F Pvalue Fcrit BetweenGroups 0.679982 4 0.169996 20.34124 8.07E07 2.866081 WithinGroups 0.167144 20 0.008357 Total 0.847126 24 Source:computeddata

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Inference Since the calculated value (20.34124) is greater than the table value (2.866081) the null hypothesisisrejectedanditisprovedthattheretainedearningstototalassetratioisnotuniform inthesampleunits. Table5:ShowingtheReturnontotalassetsofselectcompaniesfrom2006to2010

STEEL JSW EXCHANGE TATA VISA STEEL SAIL STEEL STEEL MEAN SD YEAR OFINDIA 0.08 0.12 0.16 0.18 0.02 0.11 0.07 2006 3.11 0.42 0.22 2.37 0.28 1.28 1.36 2007 3.95 0.56 0.31 2.97 0.31 1.62 1.72 2008 4.10 0.68 0.32 3.30 0.25 1.73 1.83 2009 5.04 0.81 0.33 4.19 0.28 2.13 2.30 2010 3.25 0.52 0.27 2.60 0.23 1.37 1.44 MEAN 1.91 0.26 0.08 1.50 0.12 0.77 0.86 SD Source:computeddata Inference Returnontotalassetsindicatestheabilityofthefirmtoensureearningcapacityagainstitstotal assets. A firms ability to earn is measured by the operating profit with which the firm enjoys overtheperiodandsuchcaseSAIL,steelexchangeofIndiaand visasteelreap52%,27%and 23%onitsinvestmentsrespectively.WhereasJSWsteelandTatasteelshowthattheirreturnon investmentismorethan100%fromtheyear2007onwards. Table6:ShowingtheANOVA (singlefactor)of Returnontotalassetsofselectcompanies Sourceof Variation SS Between Groups 41.5843 WithinGroups 23.92258 Total 65.50688 Source:computeddata Inference Since the calculated value (8.691431) is greater than the table value (2.866081) the null hypothesis is rejected and it is proved that the return on total asset ratio is not uniform in the sampleunits.

df

MS

Pvalue

Fcrit 2.866081

4 10.39607 8.691431 0.00031 20 1.196129 24

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Table7:showingtheequitytodebtratioofselectcompaniesfrom2006to2010

JSW STEEL SAIL 1.03 3.23 2006 1.27 4.55 2007 0.99 8.33 2008 0.75 4.76 2009 0.83 2.56 2010 0.97 4.69 MEAN 0.20 2.23 SD Source:computeddata YEAR Inference

STEEL VISA EXCHANGE TATA OFINDIA STEEL STEEL MEAN SD 0.88 4.00 1.92 2.21 1.37 0.83 1.47 0.68 1.76 1.59 1.61 0.93 0.51 2.48 3.30 1.89 0.76 0.33 1.70 1.81 1.28 1.47 0.29 1.29 0.84 1.30 1.73 0.75 1.89 1.61 0.46 1.31 0.67 0.98 0.81

Equitytodebtratioindicatestheproportionofownersfundtothelongtermdebt.Theidleratio is 1:1. Where debt is more, the company has an obligation to pay interest to the creditors and thereby the shareholders risk may be increased. As far as the sample units are concerned, the companieshavemoreequitycapitalratherthandebt.Sincetheinvestmentisinhigherside,the companies have to rely on debt, so that the burden of debt will be more. In the initial stage almostallthesampleunitshaveamplepercentageofequitythandebtbutinduecoursetheratio iserodedbywayofadding moredebttoitscapitalstructuretomeettheirrequired investment. AmongthecompaniesSAILisnotmuchdependentondebtsothattheaverageratiosstandsat 47% whereas other companies have relied on debt as a source of their investment, the ratio significantlycomesdownduringthestudyperiod. Table8:ShowingtheANOVA (singlefactor)of equitytodebtratioofselectcompanies Sourceof Variation BetweenGroups

SS 54.6368

df 4

MS F 13.6592 11.03117

Pvalue 0.000225

Fcrit 3.055568

WithinGroups 18.57355 Total 73.21035 Source:computeddata Inference

15 1.238237 19

Since the calculated value (11.03117) is greater than the table value (3.055568) the null hypothesis is rejected and it is proved thatthe equity debt ratio is not uniform in the sample units.

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Table9:ShowingtheTotalassetsturnoverratio ofselectcompaniesfrom 2006to2010

JSW YEAR STEEL SAIL 0.72 2006 0.88 2007 0.75 2008 0.73 2009 0.85 2010 0.79 MEAN 0.07 SD Source:computeddata Inference

1.69 1.61 1.55 1.25 0.84 1.39 0.35

STEEL EXCHANGE TATA VISA STEEL STEEL MEAN SD OFINDIA 7.05 1.24 2.42 2.62 2.55 4.4 0.74 2.01 1.93 1.48 4.2 0.43 1.58 1.70 1.48 2.49 0.43 1.23 1.23 0.79 1.92 0.4 1.25 1.05 0.57 4.01 0.65 1.70 1.71 1.36 2.01 0.36 0.51 0.66 0.77

Totalassetsturnoverratiorevealstheefficiencyofthefirminutilizingitsassetstoconvertinto sales. Since the demand for the steel increases over the period of time, the ratio of this kind shows healthy trend during the study period. From the table it is inferred that SAIL, Steel exchangeofIndiaandVisasteelhaveeffectivelyutilizedtheirassetsinconvertingintosalesand thesamewillberevealedbywayofanalyzingthepercentageofconversiontowardssalesforthe abovecompanies.Thepercentageofconversionstandsat139%,400%and170%withrespectto SAIL,SteelExchangeofIndiaandVisasteel. Table10:ShowingtheANOVA (singlefactor)of Totalassetsturnoverratio ofselect companies Sourceof Variation SS Between Groups 54.6368 WithinGroups 18.57355 Total 73.21035 Source:computeddata Inference Since the calculated value (11.03117) is greater than the table value (3.055568) the null hypothesis is rejected and it is proved that the total assets turnover ratio is not uniform in the sampleunits.

df

MS

Pvalue 0.000225

Fcrit 3.055568

4 13.6592 11.03117 15 1.238237 19

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Table11:ShowingtheZscorepointsofselectcompaniesfrom2006to2010

STEEL JSW EXCHANGE TATA VISA STEEL STEEL YEAR STEEL SAIL OFINDIA MEAN SD 2.18 4.98 9.00 5.10 4.71 5.19 2.44 2006 12.53 7.01 6.62 10.55 3.96 8.13 3.40 2007 14.86 9.93 7.09 12.18 3.26 9.47 4.49 2008 14.98 7.82 5.48 12.36 2.27 8.58 5.13 2009 18.36 6.35 4.83 15.95 2.40 9.58 7.11 2010 12.58 7.22 6.60 11.23 3.32 8.19 3.73 MEAN 6.64 2.79 2.78 6.66 1.76 4.13 2.34 SD Source:computeddata Inference TheZscorevalueofsamplecompaniesduringtheperiodunderreviewhavebeendisplayed in the table 1.11.The selected sample units have registered the score much above the suggested value of financial health over the period of time during our study period. JSW Steel and Tata steelhaveregisteredthescorepointtotheextentof12.58and11.23respectively.WhereasSAIL andSteelexchangeofIndiahavescored7.22and6.60respectively,Visasteelhasregisteredthe scoreof3.32whichisthelowestamongthesampleunits. Table12:ShowingtheANOVA (singlefactor)of Zscorepoints ofselectcompaniesfrom2006 to2010 Sourceof Variation SS Between Groups 278.3363 Within Groups 243.0983 Total 521.4346 Source:computeddata Inference Since the calculated value (5.72477) is greater than the table value (2.866081) the null hypothesisisrejectedanditisprovedthattheZscorepointsarenotuniforminthesampleunits. 4. Majorfindings On an aggregate basis, all the selected sample units are financially healthy during the studyperiod ASIANJOURNALOFMANAGEMENTRESEARCH 734

df

MS 4 69.58408

F 5.72477

Pvalue 0.003074

Fcrit 2.866081

20 12.15491 24

 Shortage of working capital results the companies to go for debt raising which in turn causehighearningforshareanditisfavorableforprofitabilityofthecompany. Sincethedebtpositionislowerthantheequityvalue,ithelpsthecompanytomaintaina reasonableleverageposition. OperatingefficiencyofthefirmisgoodforJSWSteelandTatasteel. The retained earnings ratio of the sample companies is quite satisfactory which strengthenstheviabilityovertheperiodoftime. 4.1Conclusion Financialhealthofafirmisacentrethemeforshareholders.Anydecisionofafirmistakenon thebasisoffinancialsoundnessofafirm.Inthiscontext,AltmansZscoreplaysavitalrolein decidingthefinancial bankruptcyofafirmandtherebya firm can judge itsfinancialposition. Thepresentstudywasconductedtoanalyze,predictandcomparethe financialperformanceof sample firms drawn from Indian Steel industry. The study revealed that all the selected companiesarefinanciallysoundduringthestudyperiod. 5.References 1. Altman, (1968). Financial ratios discriminate analysis and prediction of corporate bankruptcy,Journaloffinance,sep.598. 2. Altman, (2002). Corporate distress prediction models in turbulent economic and base environment,JournalofFinance,5. 3. Abdul Aziz, (1984). Bankruptcy prediction and investigation of cash flow based models, PhD.ThesisatDallas,39. 4. Beaver, W.H., (1966). Financial ratios and predictions of failure: Empirical research in accordingselectedstudies,Journalofaccountingresearch,77111. 5. EidlemanGregous,(1995).ZScoresguidancetofailurepredictionbyCPAJournalonline, Feb.4. 6. Gupta, L.C. (1999). Financial Ratios as forewarning indicators of corporative sickness, Bombay1C1C1,XIX(4)37.

th 7. Gupta, R.L. & Radhasway M., (1995). Financial management analysis, 5 edition, Sultan Chand&Sons,NewDelhi,45.

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